October 2, 2025 • 38 mins
Chuck Zodda and Mike Armstrong discuss the different causes of the labor market flattening out. Is Baby Boomer spending the only thing keeping up the economy? What happens to the economy if asset prices are the consumer driver? OpenAI is will be either a trillion dollar company or nothing. Student loan debt is strangling Gen X.
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Episode Transcript
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Speaker 1 (00:00):
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(00:42):
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a donation today. This is the Financial Exchange with Chuck
(01:05):
Zada and Mike Armstrong.
Speaker 2 (01:09):
Chuck, Mike and Soccer with you. And our top story
today is the US jobs market and what exactly are
we seeing there? Well, we talked yesterday. Look, we're not
going to get a jobs report tomorrow, that much.
Speaker 3 (01:24):
We know.
Speaker 2 (01:25):
Hopefully we're able to get one in early November, but
you never know how long the federal government's going to
be shut down for the last one that we saw
in twenty eighteen was thirty five days, which if we
end up going that route, means we're not going to
be getting an October jobs report either.
Speaker 4 (01:41):
And was that twenty twelve the longest in history at
sixty some odd days.
Speaker 3 (01:45):
I don't remember if it's the longest in history or
longest in modern history, but certainly the longest I.
Speaker 2 (01:49):
Recall, I don't think we've reached that long.
Speaker 4 (01:51):
We didn't in twenty twelve.
Speaker 2 (01:52):
No, I could be wrong. The data I was looking
at yesterday, we didn't have one in twenty twelve. We
had a twenty third teen one that was sixteen days,
and a ninety five one that was twenty one days.
There's the only other ones aside from seventy eight to
seventeen days that was that long, but the thirty four
day one at the end of twenty eighteen and early
twenty nineteen is the longest that I see on record.
(02:15):
I'm happy to be corrected if that's wrong, but this
is what I've seen to this point. So there's the
possibility that we might go two months without a jobs report,
in which case we have to start to rely more
heavily on other sources, private sources that are not government based,
(02:36):
and what we've been seeing from those in the last
couple of weeks has not been encouraging. Whether you look
at the ADP numbers yesterday, where we saw a negative
print not only you know for yesterday, but a downward
revision up from ADP on the prior month as well,
which now is slightly negative at a two thousand job
(03:00):
loss for the prior month. This compares to you know,
thirty two thousand jobs lost according to ADP data for September.
You also take a look at data that we get
from Paychecks. They have their small business Jobs index that
they run that showed a decline of point three one
percent for the month of September as well. You take
(03:22):
a look at the data from INDEED on job postings,
and that has shown a decline across the month of September.
Speaker 3 (03:29):
As well as the last kind of government data point
that we got on jobs, which was the Job Openings Report,
which also showed a decline in both hirings and hiring.
Speaker 2 (03:38):
And hirings and quits. So the data that we have
that is you know, again, I always you'll hear us
say this on our show quite often. Hey, don't pay
it too much attention to any one data point because
it doesn't matter a ton and it could be skewed
by you know, the way the survey has done this
and that when you have three, four or five data
points that are all pointing in the same direction, it
(04:01):
allows you to build confidence. It's kind of like if
you're if you're walking in a pitch black cave and
you're running your hand along the wall and it goes
from you know, really rough to smooth. You might be like, oh, like,
am I inside a room now instead of just a cave?
And then you take a step and the bottom falls
(04:24):
out and you're like, no, I'm not in a room,
Like something just like dropped off. Like it's a different
kind of rocker. But if you feel that smoothness, and
then you start to hear, you know, the coick of
your heels on you know, a floor. You say, okay,
like I'm in a room now, because your brain gathers
more information. It's the same thing when we're looking at
the economy. We're kind of in a dark room, like
looking around and not looking but feeling around. And you
(04:47):
feel one thing and you're like, okay, like maybe that
means something. But when you start to get like three
or four things adding up, you say, yeah, there might
be something here. So the data in the aggregate is
pointing towards a weaker labor market. There are a couple
of questions about this that are unique to where we
are right now. The first being that there is a
(05:10):
decent chance that labor supply is either flat or declining
because of the combination of baby boomers retiring faster than
gen zers can replace them, and immigration potentially becoming flat
or net negative this year, and a number of people
who are not in the country legally that we're working
(05:31):
in the country that may not be working anymore because
they're either no longer in the United States or they're
afraid to go to work for fear of being deported.
Speaker 3 (05:40):
Yeah, all of those things, I guess counteract the trend
line that we are seeing on the job hiring rate.
But even with that effect, right, that that side will
affect the unemployment rate. It will help us define the
tightness of the labor market. But what seems to be
(06:01):
rather clear from the data is that regardless of how
tight the unemployment situation is, we're not seeing growth in
the number of people working, correct, And that indicates regardless
of the tightness of the labor market, regardless of how
many people are looking for work compared to a few
years ago, it means that growth has slowed.
Speaker 2 (06:21):
Labor market growth. Yes, And this is where we get
to the thirty four trillion dollar question, which is does
this matter to the US economy? And historically the answer
has been yes, because the vast majority of money spent
in the US has been earned through labor. If the
(06:45):
number of people working is not growing and the number
of dollars being paid to those people is not growing,
the US economy historically has not grown. It's basically how
it works. The question about it be different this time,
and I know that we always hate like when that
comes up, but I think this is one worth exploring
(07:05):
because I'm just asking can it be different? Not?
Speaker 4 (07:08):
Yes, it's different.
Speaker 2 (07:11):
The really interesting thing right now is twofold. So I
guess it's two really interesting things. The first one, do
we exist in a world right now where so many
people in the United States are so lowly paid that
their income is such a small share of overall income
(07:31):
that even though they're really struggling right now, it doesn't
register as a meaningful shift in the trajectory of the economy.
Speaker 3 (07:39):
We've covered plenty of metrics to prove this out, that
half of the spending is coming from the top ten
percent of income earners, that the bottom half of American
income owners are accounting for a I don't remember the
fraction there, but a very small portion of total spending,
And so, okay, I could potentially buy that argument.
Speaker 2 (07:59):
Potentially, but ultimately the shift that we've seen, I don't
know that it's big enough to explain that right of itself, because.
Speaker 3 (08:07):
This has been the case to a lesser degree four
decades now. Right the ten percent accounting for half of
the spending, maybe they were accounting for forty two percent
of spending three decades ago or three decades ago. But
it wasn't like they were accounting for ten percent of
spending no decades ago.
Speaker 2 (08:23):
So like, does the shift from hey, they've gone from
accounting for like forty seven to fifty two percent of
the spending? Does that matter?
Speaker 4 (08:31):
It matters?
Speaker 2 (08:32):
Does it matter enough to overcome a slow down in
the overall economy of this magnitude? I don't think so.
I think it can explain some of it, but not
all of it. The other piece, and this is this
is the This is personally like my white whale that
I believe in. But I'm waiting to see if this
(08:56):
is like actually the whale or if it's just you know,
the mirage lag out there in the is this title
wave of baby boomer retirements and the fact that we
are getting older as a society as a whole, and
baby boomers don't care. Aside from you, there are baby
(09:16):
boomers that are working, but the vast majority are heading
towards retirement or already in retirement.
Speaker 4 (09:20):
Yea, what do we have the youngest baby boomer at
sixty two now?
Speaker 2 (09:23):
Yes, and so the vast like you look at the
median age of boomers and it's sixty nine seventy years old.
So you're getting to the point where more are retired
or retiring this year than there are you know, left
to retire, and so you've got this title wave of
boomer retirements and when that happens. If you are a
baby boomer that's retired, there are generally two things that
(09:47):
dictate your spending. Your Social Security benefit pension benefit as well,
but there's just not many of those left even for
boomers at this point, and the size of your portfolio.
So the question is, look, social Security benefits aren't changing.
Even with the government shutdown, nothing happens to them. So
(10:08):
you say, great, I'm spending that money, doesn't matter what
the job market's doing, and there's more people collecting now
than ever before. Portfolio size, last I checked, Michael, the
S and P five hundred was at an all time
high yesterday, which means baby boomer anonymous, you know, opens
up their portfolio and says, oh, look, I got more
(10:29):
money at the start of October. We're gonna be buying
some Christmas gifts this year. That's I don't know why,
that's what the average baby boomer sounds like, but that's accurate. Yeah,
And so the question that I think.
Speaker 4 (10:41):
Happy Gilmore oh happy, got a new portfolio.
Speaker 2 (10:46):
So you look at this, Adam Sandlers technically gen x
Y late early late or early gen X yeah, not
quite late, not quite late boomer. So you look at
this and I wonder, have we reached a point where
more of the consumer spending is now being driven by
(11:08):
social security and asset based spending as opposed to income
based spending, where those wiggles in the labor market don't
matter as much. And the problem is we're not going
to know for like two or three years. Yeah, it's
possible we've crossed that event horizon and are now just
in a different world where things matter differently. The other thing,
(11:32):
just if you want to know where this is going,
like fifteen years from now, if you want to get
like really morbid, but also kind of like really, hey,
this could be kind of trippy. Remember that with the
changes to the required minimum distribution laws and changes to
inherited IRA laws, non spouse beneficiaries of iras now after
withdraw money in a ten year period from iras, when
(11:55):
baby boomers move on to that next phase, which unfortunately
is passing away. The thing I wonder about for the
stock market, does that accelerated schedule of forced withdrawals and
sales impact the market in a negative way, the opposite
of how four to one case savings has provided consistently
(12:15):
positive flows to Marcus.
Speaker 3 (12:17):
Let's continue to talk about this when we come back,
because if spending is now tied dramatically to the stock market,
then it raises a whole number of questions of the
value of the stock market. What Congression, congressional lawmakers, and
the Fed can practically do in the event of a
stock market downturn.
Speaker 2 (12:37):
There's some juice stuff here.
Speaker 4 (12:38):
You know precisely what is too big to fail? I
guess is the question when when you have something.
Speaker 2 (12:43):
Well, it's the question is like, is Mike Armstrong too
big to fail? Is that a weight joke?
Speaker 4 (12:50):
Yes?
Speaker 2 (12:52):
And a hype joke. More of this when we come back.
Speaker 1 (12:57):
Text US six one, seven, three, six, two eighty five
with your comments and questions about today's show, and let
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This is the Financial Exchange Radio Network, breaking business and
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Financial Exchange Radio Network.
Speaker 2 (13:31):
Towards the NDA last segment, I raised the question about
the United States consumer spending starting like, is it going
is it starting to be driven more by asset prices
as opposed to incomes because of demographics and things along
those lines.
Speaker 1 (13:49):
I e.
Speaker 3 (13:50):
The value of your home, crypto portfolio, and stock portfolio
as opposed to your income coming in from your job.
Speaker 2 (13:56):
Yes, And Mike said that he wanted to talk more
about that, so I'm going to let him talk more.
Speaker 4 (14:02):
Yeah.
Speaker 3 (14:02):
So look, if that is the case, I think most
stock market investors would generally agree that the stock market
doesn't always go up. I suppose that that's an easy
consideration to come to or conclusion to come to. And
so if spending, which drives two thirds three cores how
(14:23):
much of our economy is driven by consumer spending, two
thirds of our economy being driven by consumer spending, is
now all primarily tied to asset prices, and asset prices
presumably fall off a cliff at some point. Doesn't need
to be a two thousand and eight type situation, But
(14:43):
assume we go through a prolonged period of time where
asset prices between stocks, real estate, and the primary asks
that people invest in go through a period of time
where they are down by twenty to forty percent and
don't recover immediately, What do then happen to consumer spending?
And how does Congress react to something like that to
(15:05):
prevent a long drawn out recession where asset prices drive
the direction of the economy rather than the other way.
Speaker 2 (15:12):
Around, or not even that, What if prices don't go up?
What if they're just flat? What does that mean?
Speaker 1 (15:20):
You know?
Speaker 2 (15:20):
I mean think about housing, just as an example, we've
talked about how unaffordable housing is for people. Despite that,
I don't think there's any world in which I envision,
you know, a twenty percent correction in home prices from
where we are, just because the problem is not home owners,
it's the incomes of everyone else who just have not
(15:41):
caught up to where home prices are. You know, Like
we don't have a bunch of people that are, you know,
struggling to pay their mortgages right now, because we see
the delinquency data and it looks nothing like two thousand
and six, two thousand and seven. But what if the
way that home price is correct isn't by going down
fifteen twenty percent. What if they're just flat for like
(16:02):
five or six years?
Speaker 4 (16:03):
Right?
Speaker 2 (16:05):
What does that mean?
Speaker 4 (16:06):
Yeah?
Speaker 2 (16:06):
You know, like, how does that influence things stock prices,
What if they don't fall, you know, twenty thirty forty percent,
But what if they just don't go anywhere for a
few years. You know what. Obviously they chop around because
like they're never just flat, But what if it's up ten,
(16:27):
down ten, and then you know, up three? You know, like,
what what does one do with this in terms of
how it impacts spending? And the answer, quite honestly is
we don't know, because we've never been in this environment before.
What we do know is the levers that are typically
pulled in order to stabilize the US economy in the
(16:50):
event of a downturn are typically geared towards generating demand
through economic activity that leads to hiring. If you you
either don't have the people too higher, then all that
does is drive up wages for the labor that's already.
Speaker 4 (17:06):
There, which makes inflation.
Speaker 2 (17:07):
It just creates inflation because it's more expensive. Or Okay, great,
you created this economic activity, but it still doesn't matter
because it's not enough to offset the drag from asset
based spending.
Speaker 3 (17:22):
It if you buy the argument that we're talking about
here right that consumer spending is now being driven more
and more by asset prices rather than incomes. That it
creates a really interesting, I guess backstop for equity markets
through government, which I don't like the idea of. But right,
(17:43):
if you buy this argument, and you do believe that
a key role of the Fed as well as Congress
is to support economic activity and growth, and that they
would react in the similar way that they have to
other previous recessions, then they won't be trying to juice hiring.
They will be trying to juice asset prices, which again
(18:04):
they have done previously. But this takes it to kind
of a different territory and leads to all sorts questions
like should valuations be permanently higher on equities based on
this you know, presumed backstop that the federal government will
have to put into place for asset prices. I hate
the idea of it. It goes right in the face
(18:25):
of free markets. But it might exist now in a
different way.
Speaker 2 (18:28):
So in terms of where we are with all this,
I think we may be at a couple of different
turning points, but it's impossible to know for sure right now,
just because anything can look one way for a short
period of time. Case in point. Let's go back to
twenty twenty one. Mike, Do you remember when everyone in
(18:49):
their grandmother was going to be driving EV's by the
end of the deck? Do Now you've got Jim Farley's
CEO four being like, yeah, it might be like five
to seven percent of people that are buying evs. Oh,
that's kind of a big difference from everybody. Likewise, do
you remember the summer of twenty twenty when everyone was
writing about, you know, the death of cities and no
one would ever live in cities again. Gotta tell you,
(19:12):
I just spent last week in New York City.
Speaker 4 (19:14):
Pretty busy.
Speaker 2 (19:15):
Place is poppin'.
Speaker 4 (19:16):
Yeah, place is popping.
Speaker 2 (19:19):
Okay, So I think that when we look at this, yeah,
there's some things going on right now. I'm not ready
to be, you know, planting my flag saying this is
definitely happening. But my intenta are up and I'm looking for,
you know, some some ground there if it becomes a thing.
Let's take a quick break. When we return, it's Wall Street.
Speaker 1 (19:37):
Watch 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 5 (20:00):
Markets are mixed and remain mostly quiet on day two
of the government shutdown, as investors are left wondering about
the state of the labor market, with the shutdown pausing
economic data releases, including the September jobs report that was
slated to be published tomorrow morning. Right now, the Dow
is down by two tenths of one percent or eighty
seven points lower, SMP five hundred dipping by three points,
(20:23):
NASDAC up about a quarter percent or fifty nine points higher.
Russell two thousand is down about a tenth of a percent.
Ten year treasury yield is not showing up again. CNBC,
thanks for that. Crude oil doubt what maybe they're gone, Yeah,
probably it's gone. It's just evaporated.
Speaker 2 (20:41):
Probably did.
Speaker 5 (20:42):
Crude oil is down three quarters of a percent at
sixty one dollars in thirty one cents a barrel. Following
meta reports from earlier this week, Warren Buffett's Berkshire Hathaway
officially announced have reached a deal to buy Occidental Petroleum's
petrochemical unit, Oxycom for nine point seven billion dollar in cash.
This marks Berkshire's largest deal since twenty twenty two, when
(21:04):
it paid eleven point six billion dollars for insurer Alleghany.
Berkshire stock is dipping, while Oxy shares are down by
five percent. Meanwhile, Tesla reported third quarter deliveries just north
of four hundred and ninety seven thousand vehicles, above street
expectations and seven percent higher over the year prior. Deliveries
(21:25):
in the period got a boost as some customers rushed
to buy cars ahead of the expiration of a key
federal tax credit. Tesla down by over one percent at
the moment. Elsewhere, fair Isaac shares are surging twenty three
percent after the credit analytics company unveil the system that
allows mortgage lenders to direct access to Fikos scores, allowing
(21:48):
resellers to bypass credit bureaus. TransUnion sinking eleven percent, while
Equifact shares are down over seven percent on that news
and after yesterday's near nine percent leap. Shares in Western
Digital retreating modestly today down about one percent. Nick reported,
citing CEO Irving Tan, that the data storage company will
(22:10):
invest one billion dollars in Japan over the.
Speaker 2 (22:12):
Next half decade.
Speaker 5 (22:14):
I'm Tucker Silva and that is Wall Street Watch.
Speaker 2 (22:18):
We got to talk a little bit about open Ai.
They are raising six point six billion dollars through a
stock sale. It's valuing the company at five hundred billion dollars.
And here's basically where.
Speaker 4 (22:32):
Like half a trillion better fine.
Speaker 2 (22:34):
Here's basically I think where you have to land with
open Ai at this point, it's either going to be
a company that is worth trillions of dollars or it's
not going to be worth anything. I don't think there's
a because all that they do is AI, and it's
either going to become overly commoditized and they have no
(22:54):
special edge there, especially since their distribution partners are kind
of like, hey, we're trying to move away from you
wink wink Microsoft. You know, like so there's something there,
or they're going to come up with you know, this
tremendous you know uh, you know agi you know thing
(23:15):
that becomes you know, digitally smart intelligence. Yeah, that becomes
you know, smarter than all humans and wipes us out
while becoming you know, the only company on the planet.
I don't think there's much middle ground with them, and
I don't say that about the other AI companies because
the other the other AI companies do things other than AI. Sure,
Microsoft does, Meta does Amazon does?
Speaker 4 (23:39):
Still? I mean does they existed prior still.
Speaker 2 (23:43):
Be a market for all that? And here here's like
just if you want to know the numbers on this,
and this is from the information that published this. In
the first half of this year, openey I spent more
money on marketing and equity options for its employees than
it made in revenue. This is before you even get
(24:05):
to the cost of actually AI ing.
Speaker 3 (24:07):
Yeah, all of that concerns me. How different is that
from giant companies today in their startup face? Right? If
I think about giant tech companies who dominated in the
early two thousands, such as Facebook, such as Uber, such
(24:28):
as Google, those are the ones that are still here. Yep, Yeah,
dozens who are not agreed. And I'm not going to
try and get into the business of who's going to
be the winner here. But look, I mean open ai
has done some pretty impressive first mover type things, right,
how many how many active users do they have on
their platform? And how quickly did they get there? I
(24:50):
know it is a heck of a lot faster than
any other tech platform.
Speaker 2 (24:53):
In history, but there's still not generating any money, any profit.
And their revenue growth is fine, but like now, the
revenue is basically like doubling year over year, which is nice.
Speaker 3 (25:06):
Yeah, but it's really tough to know what sort of
competitive advantage they have. How much better are you at
this than some new Chinese texts to startup that create
a deep sea? How much better are you at this
than Google? How much better are you at this than
Microsoft and other companies who are trying to develop these
(25:27):
tools that you can also run your platform on.
Speaker 2 (25:31):
And by the way, like no one, no one wants
to pay open Ai for any of this.
Speaker 5 (25:38):
Now.
Speaker 2 (25:39):
And this is before we even get to like some
of the ethical stuff, which I'm gonna get to in
a minute. But Tucker, can you get the old time
machine fired up for me? We gotta go way back now.
We're doing about twenty five years if you can now. Yeah,
it's two thousand and one, and there's a company by
the name of Global Crossing Limited that you might be
(25:59):
famili Okay, uh, just two years prior to that, they
were valued at forty seven billion dollars. Yeah, they were hot.
Global Crossing Telecommunications, Golly, g willakers forty seven billion dollars
in value. How could anything ever happen to them? Well,
it turns out that on October third, twenty eleven, they
were acquired by Level three Communications for three billion dollars,
(26:22):
including the assumption of one point one billion dollars in debt.
Global Crossing, if you're not familiar with them, they're one
of the companies that laid all of the fiber optics
that we are still using today. The reason you are
listening to our show today is probably because some guy
from Global Crossing was laying fiber twenty seven years ago
and allows for you know, satellite transmissions to be you know,
(26:43):
then you know, carried through different networks and finally come
out radio towers like this. This is the reason why
the Internet exists today is because of Global Crossing. But
they don't exist. They went almost belly up but got
bailed out by a company that probably wanted some IP
for about five percent of their peak valuation.
Speaker 4 (27:03):
Yep.
Speaker 2 (27:04):
And I'm not saying that open AI is going to
be that. I'm just saying I don't know if they're
going to be that or if they're going to be Google,
because there is no middle ground for a company that's
built just on one product like this, and specifically that's
also focused on the actual build out of stuff like Stargate,
which is a huge amount of CAPEX that, by the way,
(27:26):
we might still be using twenty five years from now.
But maybe it's not open Aiy's you know, ownership anymore.
Speaker 3 (27:32):
Yeah, and there are other companies that fall into this
similar category. I have to say, I think the comparison
that you just made there is not so much different
from the comparison that I've heard people make about in video.
They are creating a lot of the physical infrastructure to
run our.
Speaker 4 (27:50):
Newest technology on.
Speaker 3 (27:52):
And while they do have another business, I don't think that,
you know, manufacturing video game chips is going to be
quite as profitable as what they're doing today. And so
I don't know, and I don't think anyone has a
firm idea, but I do think that if ai doesn't
work out quite the way that people are predicting, Google's
gonna be okay, Microsoft's gonna be just fine.
Speaker 2 (28:13):
And even in video, I think the middle case is Okay,
they become Cisco and they're fine, Like they're still there
and they just you know, go along and start paying
a dividend ten years from now, and that's what they
become because their chips might there might not be this
huge explosion of growth that's needed for them, but they
clearly make a very good product that's gonna find its
(28:34):
home somewhere. And maybe it's just the margins come down.
There's more competition because oh, by the way, did you
see earlier this week Microsoft says, yeah, we want to
build our own chips in house. We don't want to
be paying premium prices forever. And so like that's what
happens with hardware manufacturers, you know, competition comes in and
margins go down, and that's the deal. Open Ai.
Speaker 3 (28:56):
Open ai is not that they're not that and and
this is just ession of how good are you at
continuing to innovate and then finally finding a way to
monetize your product.
Speaker 2 (29:05):
And this is before you even get to, you know,
the stuff that they're now enabling and allowing you to do,
such as, hey, they just released the newest version of
their Sora video generator, and within minutes someone had made
Sam Altman, CEO of open Ai, you know, wearing full
(29:27):
you know, European World War two Army regalia and hey, like,
we're totally not prepared for being able to distinguish real
from not and this is a huge problem.
Speaker 4 (29:39):
Yeah, we aren't. We are not.
Speaker 3 (29:44):
And I will just say that open ai is not
even close to the only company that bear some burden.
Speaker 4 (29:49):
Four.
Speaker 2 (29:49):
Now we've talked about better and all this stuff, and
other startups that are you know, are building their own
models for the express design of you know, creating scams
and and all sorts of things.
Speaker 3 (30:02):
It's not to say open ai shouldn't do better. It
is merely to say that they are on a long
laundry list of companies who have some pretty bad ethical
stuff when it comes to AI.
Speaker 2 (30:11):
Yes, let's take a quick break, and when we return,
where do I want to get to? I want to
talk about student loan debts strangling gen X because Tucker
put this in our stack for two days in a row,
which means he wants us to cover it, so I
want to make sure we cover it. Oh wait, right after.
Speaker 1 (30:28):
This, miss any of the show. Catch up at your
convenience by visiting Financial Exchange show dot com and clicking
the on demand icon, where you'll find all of our
interviews and full shows. This is your home for the
latest business and financial news in New England and around
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(30:49):
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Speaker 5 (31:07):
This segment of The Financial Exchange is brought to you
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Speaker 2 (31:40):
It's been a little while since we talked about student loans,
which means that we need to talk about student loans
because student loans peace In the Wall Street Journal, student
loan debt is strangling jen X and it uses a
nifty little chart to show that people age fifty to
sixty one years old have the highest level of student
loan debt per borrower out of any age group, which
(32:03):
is true. But and here's the butt on this. If
you look at the breakdown of student loan borrowers by
age group, that age fifty to sixty one demographic has
six point two million borrowers in it, compared to the
(32:23):
twenty five to thirty four and thirty four to forty
nine demos having more than double that. And so the
point that I will make is that when you look
at this on a percentage basis, there are fewer people
in gen X that have student loans outstanding than other
demos that are younger than them. And as such, I
(32:46):
can't really look at this and say that it's a
meaningful factor for most of Gen X simply because the
vast majority of Gen X does not have student loan debt.
The ones that do have more outstanding. And clear there
are problems with the student loan system that have led
to this point, but overall, it's not like most people
(33:06):
in gen X have student loans right now.
Speaker 3 (33:08):
Yeah, My question is how many baby boomers had student
loan debt when they reached retirement, because my sense would
be that this is kind of the first generation to
have a significant portion of their generation in this situation,
and it's only going to get worse from here. So
I am curious to see how that develops, how it
(33:29):
affects retirement for this group, because remember gen Xer's oldest
Gen Xers turned sixty years old this year. They are
staring down retirement very shortly. And I suspect that their
student loan debt situation is worse than the baby boomer
generation before them, but I'm not certain it is.
Speaker 2 (33:49):
There are two point eight million borrowers age sixty two
and older. Okay, I don't know how many of those
are just parents on parent plus loans. Yeah that and
even with you know, Gen x I don't know how
how many are parent plus loans for their current, you know,
twenty five year old children. So it's hard to sort
through some of that data on there because it doesn't
(34:11):
get broken out in that fashion. But I think it's
clear that the way student debt is set up right now, Hey,
if you take out a bunch of money for you know,
under the idea of, hey, these jobs are going to
pay for that loan and they don't, you do end
up getting stuck with it for the rest of your life.
Is that fair? No, it's not. But it's also the
(34:36):
only way that you can underwrite the current system because
there's no way if you had a way to discharge
that debt, the interest rates would be significantly higher because
it's not collateralized with anything, which all gets to the
point of the whole student loan system is completely broken
and we're doing everyone at disservice by doing this, But
there's no will to fix it because the colleges get
(34:58):
paid well, the vast majority of borrowers do end up
making their payments, and the ones who can't end up
getting screwed by it because you can never discharge the debt.
Speaker 3 (35:06):
Yeah, and I think as we look forward here, I
don't really see a path for this ever getting paid off.
I suspect more and more people are going to die
with this debt because on the you know, you can
have your wages garnished. But the Trumpet, even the Trump
administration who put back into place the collections on student
(35:27):
loan debt, has made the decision that they're not going
to go after Social Security payments, at least for now.
When it comes to outstanding student loans and so.
Speaker 2 (35:35):
Tends to play badly.
Speaker 3 (35:36):
Yeah, I can see why, but it also points out
that like, okay, this is just never going.
Speaker 2 (35:40):
To okay, So we're just gonna let a whole bunch
of people sit there with debt that they can never
pay off. What are we actually doing here?
Speaker 3 (35:48):
Yeah, it'll it'll never be repaid, folks. We are closing
in on the two live events from the Financial Exchange
and the Armstrong Advisory Group. Obviously a lot going on,
including a government shut down right now, creating a bit
of a fog of war when it comes to this
moment in time that was already a bit unclear as
to what was happening with the labor market. We were
(36:09):
supposed to get a job's report this morning, supposed to
get another one tomorrow, both of which being suspended at
the moment. Join us for a live broadcast of the
Financial Exchange. The first one is going to be on
October ninth. Second, we'll be doing another on October sixteenth.
The first one is at the Margaritaville Resort on Cape
Cod second one at the Showcase super Lucks in Chestnut
Hill on October sixteenth, we're going to be doing a
(36:31):
live broadcast of the show. You can sit in and
watch how it's made. You can join us afterwards for
luncheon that a brief chat with the Armstrong Advisory Group
about the state of the market, about the state of
retirement in America today, and where we think things may
be going, and what it means for you to register. Again,
space is limited. We are selling out here October ninth
October sixteenth. Please make sure you register ahead of time
(36:51):
by calling eight hundred three nine three four zero zero one.
If you forgot the dates I just mentioned, just go
to Armstrong Advisory dot com. But that number again, eight
hundred three nine three four zero zero one.
Speaker 1 (37:03):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal, or tax advice. Consult
your own financial, tax into state planning advisors before making
any investment decisions. Armstrong may contact you to offer investment
advisory services.
Speaker 2 (37:18):
We are about to head into the winter heating season,
and for those of you listening to us in the Northeast,
the good news is that after a big jump last year,
it appears that throughout most of New England, home heating
rates are not going to be moving a ton if
you are heating with natural gas, obviously, if you're a
(37:40):
heating oil household, those are going to vary based on
when you have to fill up, how much you fill up,
are you prepaying or not. There's a whole series of
calculations you can do with your slide rules and everything
just to make sure you get it right. But for
net gas, it appears things are going to be roughly
in line with last year, which was still a big
jump from the prior year. If you heat with electric heat,
(38:01):
either you know heat pumps or more conventional electric heat,
good luck. Those are going to unfortunately be fairly high
because the price of electricity continues to move up. Quick
break here. Hour two coming up in a little 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
or anyone else. Investments can lose money. This program does
not offer any specific financial or investment advice. Please consult
your own financial, tax, and estate planning advisors before making
(00:20):
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this program do not endorse each other or their services.
Armstrong and Money Matters Radio do not compensate each other
for referrals and are not affiliated. This is the Financial
Exchange with Chuck Zada and Mike Armstrong, your exclusive look
at business and financial news affecting your day, your city,
(00:42):
your world. Stay informed and up to date about economic
and market trends plus breaking business news every day. The
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heroes by visiting DAV five k J Boston and making
a donation today. This is the Financial Exchange with Chuck
(01:05):
Zada and Mike Armstrong.
Speaker 2 (01:09):
Chuck, Mike and Soccer with you. And our top story
today is the US jobs market and what exactly are
we seeing there? Well, we talked yesterday. Look, we're not
going to get a jobs report tomorrow, that much.
Speaker 3 (01:24):
We know.
Speaker 2 (01:25):
Hopefully we're able to get one in early November, but
you never know how long the federal government's going to
be shut down for the last one that we saw
in twenty eighteen was thirty five days, which if we
end up going that route, means we're not going to
be getting an October jobs report either.
Speaker 4 (01:41):
And was that twenty twelve the longest in history at
sixty some odd days.
Speaker 3 (01:45):
I don't remember if it's the longest in history or
longest in modern history, but certainly the longest I.
Speaker 2 (01:49):
Recall, I don't think we've reached that long.
Speaker 4 (01:51):
We didn't in twenty twelve.
Speaker 2 (01:52):
No, I could be wrong. The data I was looking
at yesterday, we didn't have one in twenty twelve. We
had a twenty third teen one that was sixteen days,
and a ninety five one that was twenty one days.
There's the only other ones aside from seventy eight to
seventeen days that was that long, but the thirty four
day one at the end of twenty eighteen and early
twenty nineteen is the longest that I see on record.
(02:15):
I'm happy to be corrected if that's wrong, but this
is what I've seen to this point. So there's the
possibility that we might go two months without a jobs report,
in which case we have to start to rely more
heavily on other sources, private sources that are not government based,
(02:36):
and what we've been seeing from those in the last
couple of weeks has not been encouraging. Whether you look
at the ADP numbers yesterday, where we saw a negative
print not only you know for yesterday, but a downward
revision up from ADP on the prior month as well,
which now is slightly negative at a two thousand job
(03:00):
loss for the prior month. This compares to you know,
thirty two thousand jobs lost according to ADP data for September.
You also take a look at data that we get
from Paychecks. They have their small business Jobs index that
they run that showed a decline of point three one
percent for the month of September as well. You take
(03:22):
a look at the data from INDEED on job postings,
and that has shown a decline across the month of September.
Speaker 3 (03:29):
As well as the last kind of government data point
that we got on jobs, which was the Job Openings Report,
which also showed a decline in both hirings and hiring.
Speaker 2 (03:38):
And hirings and quits. So the data that we have
that is you know, again, I always you'll hear us
say this on our show quite often. Hey, don't pay
it too much attention to any one data point because
it doesn't matter a ton and it could be skewed
by you know, the way the survey has done this
and that when you have three, four or five data
points that are all pointing in the same direction, it
(04:01):
allows you to build confidence. It's kind of like if
you're if you're walking in a pitch black cave and
you're running your hand along the wall and it goes
from you know, really rough to smooth. You might be like, oh, like,
am I inside a room now instead of just a cave?
And then you take a step and the bottom falls
(04:24):
out and you're like, no, I'm not in a room,
Like something just like dropped off. Like it's a different
kind of rocker. But if you feel that smoothness, and
then you start to hear, you know, the coick of
your heels on you know, a floor. You say, okay,
like I'm in a room now, because your brain gathers
more information. It's the same thing when we're looking at
the economy. We're kind of in a dark room, like
looking around and not looking but feeling around. And you
(04:47):
feel one thing and you're like, okay, like maybe that
means something. But when you start to get like three
or four things adding up, you say, yeah, there might
be something here. So the data in the aggregate is
pointing towards a weaker labor market. There are a couple
of questions about this that are unique to where we
are right now. The first being that there is a
(05:10):
decent chance that labor supply is either flat or declining
because of the combination of baby boomers retiring faster than
gen zers can replace them, and immigration potentially becoming flat
or net negative this year, and a number of people
who are not in the country legally that we're working
(05:31):
in the country that may not be working anymore because
they're either no longer in the United States or they're
afraid to go to work for fear of being deported.
Speaker 3 (05:40):
Yeah, all of those things, I guess counteract the trend
line that we are seeing on the job hiring rate.
But even with that effect, right, that that side will
affect the unemployment rate. It will help us define the
tightness of the labor market. But what seems to be
(06:01):
rather clear from the data is that regardless of how
tight the unemployment situation is, we're not seeing growth in
the number of people working, correct, And that indicates regardless
of the tightness of the labor market, regardless of how
many people are looking for work compared to a few
years ago, it means that growth has slowed.
Speaker 2 (06:21):
Labor market growth. Yes, And this is where we get
to the thirty four trillion dollar question, which is does
this matter to the US economy? And historically the answer
has been yes, because the vast majority of money spent
in the US has been earned through labor. If the
(06:45):
number of people working is not growing and the number
of dollars being paid to those people is not growing,
the US economy historically has not grown. It's basically how
it works. The question about it be different this time,
and I know that we always hate like when that
comes up, but I think this is one worth exploring
(07:05):
because I'm just asking can it be different? Not?
Speaker 4 (07:08):
Yes, it's different.
Speaker 2 (07:11):
The really interesting thing right now is twofold. So I
guess it's two really interesting things. The first one, do
we exist in a world right now where so many
people in the United States are so lowly paid that
their income is such a small share of overall income
(07:31):
that even though they're really struggling right now, it doesn't
register as a meaningful shift in the trajectory of the economy.
Speaker 3 (07:39):
We've covered plenty of metrics to prove this out, that
half of the spending is coming from the top ten
percent of income earners, that the bottom half of American
income owners are accounting for a I don't remember the
fraction there, but a very small portion of total spending,
And so, okay, I could potentially buy that argument.
Speaker 2 (07:59):
Potentially, but ultimately the shift that we've seen, I don't
know that it's big enough to explain that right of itself, because.
Speaker 3 (08:07):
This has been the case to a lesser degree four
decades now. Right the ten percent accounting for half of
the spending, maybe they were accounting for forty two percent
of spending three decades ago or three decades ago. But
it wasn't like they were accounting for ten percent of
spending no decades ago.
Speaker 2 (08:23):
So like, does the shift from hey, they've gone from
accounting for like forty seven to fifty two percent of
the spending? Does that matter?
Speaker 4 (08:31):
It matters?
Speaker 2 (08:32):
Does it matter enough to overcome a slow down in
the overall economy of this magnitude? I don't think so.
I think it can explain some of it, but not
all of it. The other piece, and this is this
is the This is personally like my white whale that
I believe in. But I'm waiting to see if this
(08:56):
is like actually the whale or if it's just you know,
the mirage lag out there in the is this title
wave of baby boomer retirements and the fact that we
are getting older as a society as a whole, and
baby boomers don't care. Aside from you, there are baby
(09:16):
boomers that are working, but the vast majority are heading
towards retirement or already in retirement.
Speaker 4 (09:20):
Yea, what do we have the youngest baby boomer at
sixty two now?
Speaker 2 (09:23):
Yes, and so the vast like you look at the
median age of boomers and it's sixty nine seventy years old.
So you're getting to the point where more are retired
or retiring this year than there are you know, left
to retire, and so you've got this title wave of
boomer retirements and when that happens. If you are a
baby boomer that's retired, there are generally two things that
(09:47):
dictate your spending. Your Social Security benefit pension benefit as well,
but there's just not many of those left even for
boomers at this point, and the size of your portfolio.
So the question is, look, social Security benefits aren't changing.
Even with the government shutdown, nothing happens to them. So
(10:08):
you say, great, I'm spending that money, doesn't matter what
the job market's doing, and there's more people collecting now
than ever before. Portfolio size, last I checked, Michael, the
S and P five hundred was at an all time
high yesterday, which means baby boomer anonymous, you know, opens
up their portfolio and says, oh, look, I got more
(10:29):
money at the start of October. We're gonna be buying
some Christmas gifts this year. That's I don't know why,
that's what the average baby boomer sounds like, but that's accurate. Yeah,
And so the question that I think.
Speaker 4 (10:41):
Happy Gilmore oh happy, got a new portfolio.
Speaker 2 (10:46):
So you look at this, Adam Sandlers technically gen x
Y late early late or early gen X yeah, not
quite late, not quite late boomer. So you look at
this and I wonder, have we reached a point where
more of the consumer spending is now being driven by
(11:08):
social security and asset based spending as opposed to income
based spending, where those wiggles in the labor market don't
matter as much. And the problem is we're not going
to know for like two or three years. Yeah, it's
possible we've crossed that event horizon and are now just
in a different world where things matter differently. The other thing,
(11:32):
just if you want to know where this is going,
like fifteen years from now, if you want to get
like really morbid, but also kind of like really, hey,
this could be kind of trippy. Remember that with the
changes to the required minimum distribution laws and changes to
inherited IRA laws, non spouse beneficiaries of iras now after
withdraw money in a ten year period from iras, when
(11:55):
baby boomers move on to that next phase, which unfortunately
is passing away. The thing I wonder about for the
stock market, does that accelerated schedule of forced withdrawals and
sales impact the market in a negative way, the opposite
of how four to one case savings has provided consistently
(12:15):
positive flows to Marcus.
Speaker 3 (12:17):
Let's continue to talk about this when we come back,
because if spending is now tied dramatically to the stock market,
then it raises a whole number of questions of the
value of the stock market. What Congression, congressional lawmakers, and
the Fed can practically do in the event of a
stock market downturn.
Speaker 2 (12:37):
There's some juice stuff here.
Speaker 4 (12:38):
You know precisely what is too big to fail? I
guess is the question when when you have something.
Speaker 2 (12:43):
Well, it's the question is like, is Mike Armstrong too
big to fail? Is that a weight joke?
Speaker 4 (12:50):
Yes?
Speaker 2 (12:52):
And a hype joke. More of this when we come back.
Speaker 1 (12:57):
Text US six one, seven, three, six, two eighty five
with your comments and questions about today's show, and let
us know what you think about the stories we are covering.
This is the Financial Exchange Radio Network, breaking business and
financial news first throughout the day only here on the
Financial Exchange Radio Network.
Speaker 2 (13:31):
Towards the NDA last segment, I raised the question about
the United States consumer spending starting like, is it going
is it starting to be driven more by asset prices
as opposed to incomes because of demographics and things along
those lines.
Speaker 1 (13:49):
I e.
Speaker 3 (13:50):
The value of your home, crypto portfolio, and stock portfolio
as opposed to your income coming in from your job.
Speaker 2 (13:56):
Yes, And Mike said that he wanted to talk more
about that, so I'm going to let him talk more.
Speaker 4 (14:02):
Yeah.
Speaker 3 (14:02):
So look, if that is the case, I think most
stock market investors would generally agree that the stock market
doesn't always go up. I suppose that that's an easy
consideration to come to or conclusion to come to. And
so if spending, which drives two thirds three cores how
(14:23):
much of our economy is driven by consumer spending, two
thirds of our economy being driven by consumer spending, is
now all primarily tied to asset prices, and asset prices
presumably fall off a cliff at some point. Doesn't need
to be a two thousand and eight type situation, But
(14:43):
assume we go through a prolonged period of time where
asset prices between stocks, real estate, and the primary asks
that people invest in go through a period of time
where they are down by twenty to forty percent and
don't recover immediately, What do then happen to consumer spending?
And how does Congress react to something like that to
(15:05):
prevent a long drawn out recession where asset prices drive
the direction of the economy rather than the other way.
Speaker 2 (15:12):
Around, or not even that, What if prices don't go up?
What if they're just flat? What does that mean?
Speaker 1 (15:20):
You know?
Speaker 2 (15:20):
I mean think about housing, just as an example, we've
talked about how unaffordable housing is for people. Despite that,
I don't think there's any world in which I envision,
you know, a twenty percent correction in home prices from
where we are, just because the problem is not home owners,
it's the incomes of everyone else who just have not
(15:41):
caught up to where home prices are. You know, Like
we don't have a bunch of people that are, you know,
struggling to pay their mortgages right now, because we see
the delinquency data and it looks nothing like two thousand
and six, two thousand and seven. But what if the
way that home price is correct isn't by going down
fifteen twenty percent. What if they're just flat for like
(16:02):
five or six years?
Speaker 4 (16:03):
Right?
Speaker 2 (16:05):
What does that mean?
Speaker 4 (16:06):
Yeah?
Speaker 2 (16:06):
You know, like, how does that influence things stock prices,
What if they don't fall, you know, twenty thirty forty percent,
But what if they just don't go anywhere for a
few years. You know what. Obviously they chop around because
like they're never just flat, But what if it's up ten,
(16:27):
down ten, and then you know, up three? You know, like,
what what does one do with this in terms of
how it impacts spending? And the answer, quite honestly is
we don't know, because we've never been in this environment before.
What we do know is the levers that are typically
pulled in order to stabilize the US economy in the
(16:50):
event of a downturn are typically geared towards generating demand
through economic activity that leads to hiring. If you you
either don't have the people too higher, then all that
does is drive up wages for the labor that's already.
Speaker 4 (17:06):
There, which makes inflation.
Speaker 2 (17:07):
It just creates inflation because it's more expensive. Or Okay, great,
you created this economic activity, but it still doesn't matter
because it's not enough to offset the drag from asset
based spending.
Speaker 3 (17:22):
It if you buy the argument that we're talking about
here right that consumer spending is now being driven more
and more by asset prices rather than incomes. That it
creates a really interesting, I guess backstop for equity markets
through government, which I don't like the idea of. But right,
(17:43):
if you buy this argument, and you do believe that
a key role of the Fed as well as Congress
is to support economic activity and growth, and that they
would react in the similar way that they have to
other previous recessions, then they won't be trying to juice hiring.
They will be trying to juice asset prices, which again
(18:04):
they have done previously. But this takes it to kind
of a different territory and leads to all sorts questions
like should valuations be permanently higher on equities based on
this you know, presumed backstop that the federal government will
have to put into place for asset prices. I hate
the idea of it. It goes right in the face
(18:25):
of free markets. But it might exist now in a
different way.
Speaker 2 (18:28):
So in terms of where we are with all this,
I think we may be at a couple of different
turning points, but it's impossible to know for sure right now,
just because anything can look one way for a short
period of time. Case in point. Let's go back to
twenty twenty one. Mike, Do you remember when everyone in
(18:49):
their grandmother was going to be driving EV's by the
end of the deck? Do Now you've got Jim Farley's
CEO four being like, yeah, it might be like five
to seven percent of people that are buying evs. Oh,
that's kind of a big difference from everybody. Likewise, do
you remember the summer of twenty twenty when everyone was
writing about, you know, the death of cities and no
one would ever live in cities again. Gotta tell you,
(19:12):
I just spent last week in New York City.
Speaker 4 (19:14):
Pretty busy.
Speaker 2 (19:15):
Place is poppin'.
Speaker 4 (19:16):
Yeah, place is popping.
Speaker 2 (19:19):
Okay, So I think that when we look at this, yeah,
there's some things going on right now. I'm not ready
to be, you know, planting my flag saying this is
definitely happening. But my intenta are up and I'm looking for,
you know, some some ground there if it becomes a thing.
Let's take a quick break. When we return, it's Wall Street.
Speaker 1 (19:37):
Watch 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 5 (20:00):
Markets are mixed and remain mostly quiet on day two
of the government shutdown, as investors are left wondering about
the state of the labor market, with the shutdown pausing
economic data releases, including the September jobs report that was
slated to be published tomorrow morning. Right now, the Dow
is down by two tenths of one percent or eighty
seven points lower, SMP five hundred dipping by three points,
(20:23):
NASDAC up about a quarter percent or fifty nine points higher.
Russell two thousand is down about a tenth of a percent.
Ten year treasury yield is not showing up again. CNBC,
thanks for that. Crude oil doubt what maybe they're gone, Yeah,
probably it's gone. It's just evaporated.
Speaker 2 (20:41):
Probably did.
Speaker 5 (20:42):
Crude oil is down three quarters of a percent at
sixty one dollars in thirty one cents a barrel. Following
meta reports from earlier this week, Warren Buffett's Berkshire Hathaway
officially announced have reached a deal to buy Occidental Petroleum's
petrochemical unit, Oxycom for nine point seven billion dollar in cash.
This marks Berkshire's largest deal since twenty twenty two, when
(21:04):
it paid eleven point six billion dollars for insurer Alleghany.
Berkshire stock is dipping, while Oxy shares are down by
five percent. Meanwhile, Tesla reported third quarter deliveries just north
of four hundred and ninety seven thousand vehicles, above street
expectations and seven percent higher over the year prior. Deliveries
(21:25):
in the period got a boost as some customers rushed
to buy cars ahead of the expiration of a key
federal tax credit. Tesla down by over one percent at
the moment. Elsewhere, fair Isaac shares are surging twenty three
percent after the credit analytics company unveil the system that
allows mortgage lenders to direct access to Fikos scores, allowing
(21:48):
resellers to bypass credit bureaus. TransUnion sinking eleven percent, while
Equifact shares are down over seven percent on that news
and after yesterday's near nine percent leap. Shares in Western
Digital retreating modestly today down about one percent. Nick reported,
citing CEO Irving Tan, that the data storage company will
(22:10):
invest one billion dollars in Japan over the.
Speaker 2 (22:12):
Next half decade.
Speaker 5 (22:14):
I'm Tucker Silva and that is Wall Street Watch.
Speaker 2 (22:18):
We got to talk a little bit about open Ai.
They are raising six point six billion dollars through a
stock sale. It's valuing the company at five hundred billion dollars.
And here's basically where.
Speaker 4 (22:32):
Like half a trillion better fine.
Speaker 2 (22:34):
Here's basically I think where you have to land with
open Ai at this point, it's either going to be
a company that is worth trillions of dollars or it's
not going to be worth anything. I don't think there's
a because all that they do is AI, and it's
either going to become overly commoditized and they have no
(22:54):
special edge there, especially since their distribution partners are kind
of like, hey, we're trying to move away from you
wink wink Microsoft. You know, like so there's something there,
or they're going to come up with you know, this
tremendous you know uh, you know agi you know thing
(23:15):
that becomes you know, digitally smart intelligence. Yeah, that becomes
you know, smarter than all humans and wipes us out
while becoming you know, the only company on the planet.
I don't think there's much middle ground with them, and
I don't say that about the other AI companies because
the other the other AI companies do things other than AI. Sure,
Microsoft does, Meta does Amazon does?
Speaker 4 (23:39):
Still? I mean does they existed prior still.
Speaker 2 (23:43):
Be a market for all that? And here here's like
just if you want to know the numbers on this,
and this is from the information that published this. In
the first half of this year, openey I spent more
money on marketing and equity options for its employees than
it made in revenue. This is before you even get
(24:05):
to the cost of actually AI ing.
Speaker 3 (24:07):
Yeah, all of that concerns me. How different is that
from giant companies today in their startup face? Right? If
I think about giant tech companies who dominated in the
early two thousands, such as Facebook, such as Uber, such
(24:28):
as Google, those are the ones that are still here. Yep, Yeah,
dozens who are not agreed. And I'm not going to
try and get into the business of who's going to
be the winner here. But look, I mean open ai
has done some pretty impressive first mover type things, right,
how many how many active users do they have on
their platform? And how quickly did they get there? I
(24:50):
know it is a heck of a lot faster than
any other tech platform.
Speaker 2 (24:53):
In history, but there's still not generating any money, any profit.
And their revenue growth is fine, but like now, the
revenue is basically like doubling year over year, which is nice.
Speaker 3 (25:06):
Yeah, but it's really tough to know what sort of
competitive advantage they have. How much better are you at
this than some new Chinese texts to startup that create
a deep sea? How much better are you at this
than Google? How much better are you at this than
Microsoft and other companies who are trying to develop these
(25:27):
tools that you can also run your platform on.
Speaker 2 (25:31):
And by the way, like no one, no one wants
to pay open Ai for any of this.
Speaker 5 (25:38):
Now.
Speaker 2 (25:39):
And this is before we even get to like some
of the ethical stuff, which I'm gonna get to in
a minute. But Tucker, can you get the old time
machine fired up for me? We gotta go way back now.
We're doing about twenty five years if you can now. Yeah,
it's two thousand and one, and there's a company by
the name of Global Crossing Limited that you might be
(25:59):
famili Okay, uh, just two years prior to that, they
were valued at forty seven billion dollars. Yeah, they were hot.
Global Crossing Telecommunications, Golly, g willakers forty seven billion dollars
in value. How could anything ever happen to them? Well,
it turns out that on October third, twenty eleven, they
were acquired by Level three Communications for three billion dollars,
(26:22):
including the assumption of one point one billion dollars in debt.
Global Crossing, if you're not familiar with them, they're one
of the companies that laid all of the fiber optics
that we are still using today. The reason you are
listening to our show today is probably because some guy
from Global Crossing was laying fiber twenty seven years ago
and allows for you know, satellite transmissions to be you know,
(26:43):
then you know, carried through different networks and finally come
out radio towers like this. This is the reason why
the Internet exists today is because of Global Crossing. But
they don't exist. They went almost belly up but got
bailed out by a company that probably wanted some IP
for about five percent of their peak valuation.
Speaker 4 (27:03):
Yep.
Speaker 2 (27:04):
And I'm not saying that open AI is going to
be that. I'm just saying I don't know if they're
going to be that or if they're going to be Google,
because there is no middle ground for a company that's
built just on one product like this, and specifically that's
also focused on the actual build out of stuff like Stargate,
which is a huge amount of CAPEX that, by the way,
(27:26):
we might still be using twenty five years from now.
But maybe it's not open Aiy's you know, ownership anymore.
Speaker 3 (27:32):
Yeah, and there are other companies that fall into this
similar category. I have to say, I think the comparison
that you just made there is not so much different
from the comparison that I've heard people make about in video.
They are creating a lot of the physical infrastructure to
run our.
Speaker 4 (27:50):
Newest technology on.
Speaker 3 (27:52):
And while they do have another business, I don't think that,
you know, manufacturing video game chips is going to be
quite as profitable as what they're doing today. And so
I don't know, and I don't think anyone has a
firm idea, but I do think that if ai doesn't
work out quite the way that people are predicting, Google's
gonna be okay, Microsoft's gonna be just fine.
Speaker 2 (28:13):
And even in video, I think the middle case is Okay,
they become Cisco and they're fine, Like they're still there
and they just you know, go along and start paying
a dividend ten years from now, and that's what they
become because their chips might there might not be this
huge explosion of growth that's needed for them, but they
clearly make a very good product that's gonna find its
(28:34):
home somewhere. And maybe it's just the margins come down.
There's more competition because oh, by the way, did you
see earlier this week Microsoft says, yeah, we want to
build our own chips in house. We don't want to
be paying premium prices forever. And so like that's what
happens with hardware manufacturers, you know, competition comes in and
margins go down, and that's the deal. Open Ai.
Speaker 3 (28:56):
Open ai is not that they're not that and and
this is just ession of how good are you at
continuing to innovate and then finally finding a way to
monetize your product.
Speaker 2 (29:05):
And this is before you even get to, you know,
the stuff that they're now enabling and allowing you to do,
such as, hey, they just released the newest version of
their Sora video generator, and within minutes someone had made
Sam Altman, CEO of open Ai, you know, wearing full
(29:27):
you know, European World War two Army regalia and hey, like,
we're totally not prepared for being able to distinguish real
from not and this is a huge problem.
Speaker 4 (29:39):
Yeah, we aren't. We are not.
Speaker 3 (29:44):
And I will just say that open ai is not
even close to the only company that bear some burden.
Speaker 4 (29:49):
Four.
Speaker 2 (29:49):
Now we've talked about better and all this stuff, and
other startups that are you know, are building their own
models for the express design of you know, creating scams
and and all sorts of things.
Speaker 3 (30:02):
It's not to say open ai shouldn't do better. It
is merely to say that they are on a long
laundry list of companies who have some pretty bad ethical
stuff when it comes to AI.
Speaker 2 (30:11):
Yes, let's take a quick break, and when we return,
where do I want to get to? I want to
talk about student loan debts strangling gen X because Tucker
put this in our stack for two days in a row,
which means he wants us to cover it, so I
want to make sure we cover it. Oh wait, right after.
Speaker 1 (30:28):
This, miss any of the show. Catch up at your
convenience by visiting Financial Exchange show dot com and clicking
the on demand icon, where you'll find all of our
interviews and full shows. This is your home for the
latest business and financial news in New England and around
the country. This is the Financial Exchange Radio Network. The
(30:49):
Financial Exchange streams live on YouTube. Like our page and
stay up to date on breaking business news all morning long.
This is the Financial Exchange Radio Network.
Speaker 5 (31:07):
This segment of The Financial Exchange is brought to you
by the US Virgin Islands Department of Tourism. Looking for
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(31:28):
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Speaker 2 (31:40):
It's been a little while since we talked about student loans,
which means that we need to talk about student loans
because student loans peace In the Wall Street Journal, student
loan debt is strangling jen X and it uses a
nifty little chart to show that people age fifty to
sixty one years old have the highest level of student
loan debt per borrower out of any age group, which
(32:03):
is true. But and here's the butt on this. If
you look at the breakdown of student loan borrowers by
age group, that age fifty to sixty one demographic has
six point two million borrowers in it, compared to the
(32:23):
twenty five to thirty four and thirty four to forty
nine demos having more than double that. And so the
point that I will make is that when you look
at this on a percentage basis, there are fewer people
in gen X that have student loans outstanding than other
demos that are younger than them. And as such, I
(32:46):
can't really look at this and say that it's a
meaningful factor for most of Gen X simply because the
vast majority of Gen X does not have student loan debt.
The ones that do have more outstanding. And clear there
are problems with the student loan system that have led
to this point, but overall, it's not like most people
(33:06):
in gen X have student loans right now.
Speaker 3 (33:08):
Yeah, My question is how many baby boomers had student
loan debt when they reached retirement, because my sense would
be that this is kind of the first generation to
have a significant portion of their generation in this situation,
and it's only going to get worse from here. So
I am curious to see how that develops, how it
(33:29):
affects retirement for this group, because remember gen Xer's oldest
Gen Xers turned sixty years old this year. They are
staring down retirement very shortly. And I suspect that their
student loan debt situation is worse than the baby boomer
generation before them, but I'm not certain it is.
Speaker 2 (33:49):
There are two point eight million borrowers age sixty two
and older. Okay, I don't know how many of those
are just parents on parent plus loans. Yeah that and
even with you know, Gen x I don't know how
how many are parent plus loans for their current, you know,
twenty five year old children. So it's hard to sort
through some of that data on there because it doesn't
(34:11):
get broken out in that fashion. But I think it's
clear that the way student debt is set up right now, Hey,
if you take out a bunch of money for you know,
under the idea of, hey, these jobs are going to
pay for that loan and they don't, you do end
up getting stuck with it for the rest of your life.
Is that fair? No, it's not. But it's also the
(34:36):
only way that you can underwrite the current system because
there's no way if you had a way to discharge
that debt, the interest rates would be significantly higher because
it's not collateralized with anything, which all gets to the
point of the whole student loan system is completely broken
and we're doing everyone at disservice by doing this, But
there's no will to fix it because the colleges get
(34:58):
paid well, the vast majority of borrowers do end up
making their payments, and the ones who can't end up
getting screwed by it because you can never discharge the debt.
Speaker 3 (35:06):
Yeah, and I think as we look forward here, I
don't really see a path for this ever getting paid off.
I suspect more and more people are going to die
with this debt because on the you know, you can
have your wages garnished. But the Trumpet, even the Trump
administration who put back into place the collections on student
(35:27):
loan debt, has made the decision that they're not going
to go after Social Security payments, at least for now.
When it comes to outstanding student loans and so.
Speaker 2 (35:35):
Tends to play badly.
Speaker 3 (35:36):
Yeah, I can see why, but it also points out
that like, okay, this is just never going.
Speaker 2 (35:40):
To okay, So we're just gonna let a whole bunch
of people sit there with debt that they can never
pay off. What are we actually doing here?
Speaker 3 (35:48):
Yeah, it'll it'll never be repaid, folks. We are closing
in on the two live events from the Financial Exchange
and the Armstrong Advisory Group. Obviously a lot going on,
including a government shut down right now, creating a bit
of a fog of war when it comes to this
moment in time that was already a bit unclear as
to what was happening with the labor market. We were
(36:09):
supposed to get a job's report this morning, supposed to
get another one tomorrow, both of which being suspended at
the moment. Join us for a live broadcast of the
Financial Exchange. The first one is going to be on
October ninth. Second, we'll be doing another on October sixteenth.
The first one is at the Margaritaville Resort on Cape
Cod second one at the Showcase super Lucks in Chestnut
Hill on October sixteenth, we're going to be doing a
(36:31):
live broadcast of the show. You can sit in and
watch how it's made. You can join us afterwards for
luncheon that a brief chat with the Armstrong Advisory Group
about the state of the market, about the state of
retirement in America today, and where we think things may
be going, and what it means for you to register. Again,
space is limited. We are selling out here October ninth
October sixteenth. Please make sure you register ahead of time
(36:51):
by calling eight hundred three nine three four zero zero one.
If you forgot the dates I just mentioned, just go
to Armstrong Advisory dot com. But that number again, eight
hundred three nine three four zero zero one.
Speaker 1 (37:03):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal, or tax advice. Consult
your own financial, tax into state planning advisors before making
any investment decisions. Armstrong may contact you to offer investment
advisory services.
Speaker 2 (37:18):
We are about to head into the winter heating season,
and for those of you listening to us in the Northeast,
the good news is that after a big jump last year,
it appears that throughout most of New England, home heating
rates are not going to be moving a ton if
you are heating with natural gas, obviously, if you're a
(37:40):
heating oil household, those are going to vary based on
when you have to fill up, how much you fill up,
are you prepaying or not. There's a whole series of
calculations you can do with your slide rules and everything
just to make sure you get it right. But for
net gas, it appears things are going to be roughly
in line with last year, which was still a big
jump from the prior year. If you heat with electric heat,
(38:01):
either you know heat pumps or more conventional electric heat,
good luck. Those are going to unfortunately be fairly high
because the price of electricity continues to move up. Quick
break here. Hour two coming up in a little bit.
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