December 18, 2025 • 39 mins
Chuck Zodda and Mike Armstrong discuss CPI's pullback and the surprisingly strong slowdown in housing inflation that drove it. Micron jumps on rosy outlook as AI boom spurs memory chip demand. Oracle and Blue Owl split over data center rattles markets banking on AI boom. Wall Street gets a taste of blockbuster stock market debuts ahead. Heating costs to rise nearly 10% this winter. Instacart gets whacked with a report that the FTC is probing the company over AI pricing tool.
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Episode Transcript
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Speaker 1 (00:00):
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(01:05):
Zada and Mike Armstrong.
Speaker 2 (01:10):
All right, is Chuck, Mike and Tucker with you here
on the Financial Exchange. We are, you know, getting economic
data coming out from the US government again as we
get into December. Earlier this week, we had a delayed
release on the jobs report on Tuesday, so we had
(01:32):
a job's Tuesday, which was kind of fun. Don't think
I ever want to do it again, but it was was,
you know, nice for a change, I guess. And today
we get a CPI Thursday, which is not overly unusual.
They're usually on Wednesdays or Thursdays, I believe, maybe even
Tuesdays occasionally, so nothing too crazy there about a week delayed,
but again nothing nothing bad. And I think when we
(01:53):
look at it the Tuesday release of the jobs data,
we said, guys, the data you're just really isn't particularly
good obvious caveat. Hey, there are some sampling issues related
to when the shutdown happened and when data was being collected,
so don't read too much into it.
Speaker 3 (02:11):
Where'd you grade that thing?
Speaker 1 (02:12):
Like?
Speaker 4 (02:12):
I see the job report? Yeah, I don't think I
gave it a grade, but I was see it best
for me?
Speaker 2 (02:19):
I yeah, I mean C minus dplus. Anytime that the
unemployment rate goes upero point two percent in a month,
that's not.
Speaker 3 (02:25):
Great technically over two months, but yeah.
Speaker 2 (02:28):
Yeah, either way, it's it's it's not great, So it
wasn't particularly good. This kind of the mirror image of
that in that same cavets apply. Hey, data collection YadA, YadA,
like all that, but coming in with a much better
CPI report than anticipated. Now, we don't have month over
month data because there is no October CPI, so we
(02:51):
can't look at the month over month data, but when
we look at the year over year data that's present
in it, it does show up and say, yeah, the
CPI for the last twelve months decreased from three percent
down to two point seven and core went you know,
kind of in the same direction down to two point
six percent. So I think overall it points towards some
(03:14):
improvements on that side of things and is an encouraging report.
With the caveat data collection was disrupted and we don't know,
you know, exactly what the next couple months are going
to bring as those disruptions ease.
Speaker 3 (03:28):
Yeah, it's really missing quite a bit.
Speaker 1 (03:30):
You know.
Speaker 4 (03:30):
We can typically dive in here and we when these
reports come out. You hear us talk about it frequently, like, yeah,
I know the headline number is gonna be quoted as
two point seven percent, but that's not the most relevant thing.
The most relevant thing is how has it done lately?
And I guess there you can cobble together something because
what we do know from this report is that core CPI,
(03:51):
so stripping out food, stripping out energy, it rose two
tenths of a percent compared to the September reading. Again,
we can get that much at least that hey, that
the pace of increase over a two month time here
horizon September to November was pretty muted, and were that
to continue, that would be fantastic news. But yeah, you
(04:15):
look at this as someone that looks at this report
every month, you just kind of glare at it and
you're like.
Speaker 3 (04:20):
What do I what do I do with this?
Speaker 5 (04:23):
Yeah?
Speaker 2 (04:23):
So good news, but again, like we can't really dig
through and be like, hey, like here's what we're seeing
on this. It's more just kind of all right, I
guess this is, you know, kind of what it is here.
So it's it's good news that we saw some improvement
in the rate of inflation. It still is a little
bit higher than you'd like to see. But quite honestly,
(04:45):
if we cocked in a two seven on inflation next year,
I would not have any issues with that, just because
we've talked about, hey, if you're if you're ending up
you know, anywhere in the twos that's generally historically where
we've been the last forty years. I think if you
you've got twelve more inflation reports that look just like this,
you'd say, great, don't have to worry about that right now,
(05:06):
it's not a problem.
Speaker 3 (05:07):
Yeah.
Speaker 4 (05:07):
What markets are reading right here is that with an
inflation rate of two point seven percent, the Fed does
not care about inflation. They're going to care about that
ugly jobs report that we just discussed, and that that,
to me is the whole implication of markets today is
inflation at two point seven percent, even though it's ablah
above the two percent target, will not be of concern
to j.
Speaker 3 (05:27):
Powell and the gang.
Speaker 2 (05:29):
So I think this does set up the first half
of the year nicely with these two reports in that
to me, and this has been the way things have
been evolving over the last few months. The question in
the first half of twenty twenty six is not does
inflation you know, continue to trend up? Rather, it's does
(05:50):
unemployment continue to trend down? And do we hit those
points that historically we've hit where it goes from a
linear move down, you know, zero point one percent of
month or point one percent every two months on unemployment
moving up to hey, it starts to accelerate. And then
you see a month where unemployment goes up by point
three percent, then by point five, then by point five again,
(06:12):
and finally next thing, you know, after you know, six
to eight months, unemployment has risen three percent and starts
to peak.
Speaker 5 (06:19):
Yeap.
Speaker 3 (06:20):
You know.
Speaker 4 (06:20):
A few caveats that I can think of here. One,
we continue to get a lot of help from energy markets.
I know that doesn't play into the core numbers here,
but frankly, oil slips into every other price measure that
we use, and so we've been dramatically helped by energy prices.
Should they turn the year over year situation though no,
you know every year it's flat, But that's still helpful. Right,
(06:43):
If we're targeting two percent inflation and energy prices aren't
moving upwards, that certainly helps along the way. The other
piece that just comes to mind that I don't think
will have a dramatic impact on inflation, but certainly might
be stimulative. Is all the tax changes, and specifically seniors
in my mind, are going to have a pretty big
tax benefit from this. They are also accounting for a
(07:05):
larger portion of spending than they have historically. And so
do you have some you know, spill overcome March in
April when those tax return tax refund checks come in,
plus the lower withholdings kick in for some employees, but
go maybe, yeah, I think I don't think that shows
up till April May June timeframe.
Speaker 3 (07:23):
So I think you're right about the first half. And
sorry for interrupting you.
Speaker 5 (07:26):
No, it's it's so.
Speaker 2 (07:28):
I think this is the the battle lines are drawn
now in terms of the things to worry about in
the first half of next year. Does unemployment worsen, do
we start seeing more pushback on AI financing and maybe
a slowdown in capex? You know that happens yesterday is
(07:49):
just as an example, we had the report that Blue
Owl was pulling out of a ten billion dollar financing
deal for an Oracle data center in Michigan.
Speaker 5 (07:58):
So do we see things like that popping up?
Speaker 2 (08:01):
And what do we see from housing in terms of employment,
and those questions can all be positively answered. Remember, the
thing that we talk about with the stock market typically
is it climbs a wall of worry. What that means
is that there are always worries that you have to
look at in markets. There's always something out there. It's
never a perfect situation. When's the last time that you
(08:23):
ever just sat back and said there's nothing to worry about.
You were three years old and you just didn't know
the broader world existed other than that. You know, it's like,
you know, there's always something to worry about out there,
especially you know economically, there's always something that can potentially
go wrong.
Speaker 5 (08:41):
It doesn't mean that it will.
Speaker 2 (08:43):
But these worries and risks evolve, and you have to
pay attention to them in order to make sure that
you're not getting caught, you know, blindsided by them, and
that you understand what's actually going on so that you
can prepare for the potential evolution of those worries.
Speaker 4 (09:00):
Interestingly, to meet Chuck, no sizeable move in the likelihood
of a rate cut at that January meeting after this report,
again still early, but the likelihood now of a FED
rate cut in January sitting at twenty six point six
percent according to the CME Group FED Funds futures. Yesterday
it was twenty four point four percent, So yeah, a
little bit more likelihood, but no sizeable shift on this
(09:23):
better pretty substantially better than anticipated inflation report.
Speaker 2 (09:27):
Anything else that we want to talk about here. I
think again, if if you're grading the the jobs report,
you know, C minus D plus again with these are
all with the caveats of like the data is, you know,
potentially skewed on both of these because of the shutdown.
I think you probably look at this and granted like
it doesn't have all of the underlying supplemental data that
(09:47):
you like, you probably have to grade this B plus
A minus. That's ray I was too. Yeah, you know,
a really good report and good to see. We also
got jobless claims this morning, nothing of note there, So
despite concer arns about the labor market, the weekly jobless
claims report remains really calm, no major surprises there, and
(10:08):
I think you continue to be in good shape on
that side, even though a lot of other labor market
indicators kind of flashing yellow at this point.
Speaker 5 (10:16):
To take a quick break when.
Speaker 2 (10:18):
We return after hours, yesterday, Micron reported earnings. We'll talk
to you about what they said and what it means
for the tech industry and AI industry specifically.
Speaker 5 (10:28):
Right after this miss any of the show.
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Speaker 2 (12:14):
All right, So, yesterday after hours, we received earnings from
Micron Technology. Micron in case anyone wondering is you know,
anyone listening is wondering, you know what do they do
in the tech space. They are not a processor maker.
They are a maker of memory chips predominantly and other
storage devices solid state drives, hard drives like you name it.
(12:38):
Micron makes stuff that stores stuff. I think is the
best way to to indicate what they do. Now, just
to give you an idea of how good Micron's earnings were, Mike,
it's kind of mind blowing to me that they reported this,
because it's just it's it, it's wild. So analyst estimates
(13:03):
for not even their earnings, but let's do their their
guidance for the next quarter, because this is really where
the meat is. Analyst estimates for their next quarter revenue
were twelve point zero six to seventeen point three eight
billion dollars. The guidance that Micron gave was eighteen point
three to nineteen point one billion dollars. Both the low
(13:26):
and high end of their guidance was above analyst's high
end guidance their high end expectations, which to me a
couple things. The first is memory prices has been going
nuts in the last six months, in particular as there's
just an incredible demand for memory in AI data center buildouts, which.
Speaker 4 (13:46):
By the way, we also need for consumer products. This
is not you do just just an AI product you do.
Speaker 2 (13:53):
So part of me looks at this and is like,
did a bunch of analysts just like miss the boat
on where memory pricing has been going, because it sure
seems like they did. The other piece is, you know,
in terms of what this tells us about data center demand,
it's it's you know, you have to get the read
through based on pricing, because again, if pricing goes up
(14:15):
meaningfully in a short period of time, which it has,
then it doesn't necessarily mean you're selling more product. It
just means it's costing your buyers more to buy that product,
which seems to be a combination of what's happening here. Yes,
there is more demand which is driving this, but you
can only build these data centers so quickly otherwise we
would see this being reflected in the other pieces and
(14:37):
of demand as well, in video chips and things like that.
Like you didn't have Nvidia, you know, missed by fifty
percent to the upside they beat by you know, a
several percentage points because you haven't seen the same cost
push on that side of things. So ultimately, I think
what this does do AI related companies have kind of
been struggling in the last week or two and at
(15:02):
least right now, this is you know, helping them to
find their footing a little bit. With the semiconductor index
up about two and a half percent today, You'll get
you know some you know big stocks that are up today,
Core Weaves up four percent, AMD's up three percent, let's
see Oracles up two percent, and videos up one seven.
(15:23):
So you've got a little bit of a spill over here,
kind of tempering what had been a sector that was
on edge over the last week or so, week or
two and so I think that's what you're seeing here
is just a little bit of relief in terms of Okay,
the earnings came out pretty well on this company, and
even though good earnings from other companies didn't really help
the sector in the last couple of weeks, this one
(15:45):
providing a little reassurance after those companies have been sliding recently.
Speaker 4 (15:49):
Yeah, enough of a surprise to move marks. A few things.
I'll just mention about this. I mean, you're of a
year revenue growth of growth is something like sixty percent
on this.
Speaker 5 (15:58):
This is truly.
Speaker 4 (16:01):
Mind blowing pace of growth like we have seen from
other companies in this space.
Speaker 5 (16:07):
One.
Speaker 4 (16:07):
I mean, let's be honest, like many of these companies,
Micron Technology not exactly a household name, but they are
now eclipsing companies like Morgan Stanley Goldman, Sachs, IBM, Caterpillar,
American Express, Philip Morris in terms of market capitalization.
Speaker 3 (16:23):
So this is a very.
Speaker 4 (16:24):
Big company now that has grown by nearly two hundred percent.
Speaker 3 (16:28):
Over the course of this year.
Speaker 4 (16:30):
The other point that I will make about this, which
is the same one we've made about AMD, We've made
it about Broadcom and Nvidia, these are not companies whose
earnings will lead in terms of telling you what's going
on with the AI story, right correct, you if you're
looking to try and figure out, hey, is this actually
(16:51):
going to be a monetizable product, and will companies slow
down in terms of their data center builds, Well, that
happens last and therefore, you know, Microns technology, Microns earnings
and videos earnings, you know, these would be I think
the last things to turn over when it comes to
demand for AI products, data centers.
Speaker 3 (17:14):
It's at talent, et cetera. So it's not that it's unimportant.
Speaker 4 (17:17):
It's clearly lifting markets today pretty substantially, but it is
also not any sort of leading indicator in my view
about where this industry goes.
Speaker 2 (17:27):
Right, It's okay at a certain point, and the thing
that we've been continuing to talk about if you are
one of the companies investing these tens and now hundreds
of billions of dollars into artificial intelligence data centers, at
some point you're going to have to figure out how
to actually make money off them, because.
Speaker 3 (17:46):
Matters that is their goal with business.
Speaker 5 (17:50):
Yes, you know, it's generally.
Speaker 2 (17:52):
My understanding is if in the long run you take
in less money than you spend, at some point you
either have to stop spending that money or you will
no longer be in business.
Speaker 3 (18:03):
Yeah.
Speaker 4 (18:04):
The follow on piece of this from the Wall Street
Journal talking about what we alluded to, which is the
other thing this means is that prices for memory are
going up, meaning your cell phone, your computer, even things
like maybe your cloud storage for your business might all
be increasing in price. And it's just a I think
(18:25):
a good reminder that with this AI development, consumers need
to understand that we are now heavily competing for electricity, chips,
memory storage, even putable water with these giant tech companies
and municipalities are really unsure as to how to handle
it all. It is a complicated thing, and I'm not
(18:47):
We're not dealing with situations where towns water is drying up,
but realistically, like, all of these things are public resources
that are now in demand in a way that they
were not just two years ago.
Speaker 2 (19:00):
So that's again kind of the rundown here is Again
I don't think anyone was expecting weakness here, but I
think that the strength in pricing power is kind of
mind blowing on this. But as Mike indicated, look, memory
prices have gone up generally, call it sixty to eighty
percent in the last six months or so, and that
(19:25):
is going to filter into other areas as we go.
It also affected by the way Micron's business they shut
down are they're in the process right now shutting down
their consumer facing business because they pretty much said it's
not important, we can't really provide this and continue to
be able to provide on the data center side the
(19:45):
way that we want to, and so at like, if
enough companies do that, then you get into a problem
of availability, not pricing. Let's take a quick break. When
we return, it's Wall Street Watch.
Speaker 1 (20:10):
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Speaker 7 (20:34):
OH Marcus today are bouncing back as Wall Street reacts
to the November Consumer Price Index released this morning, which
rose at a two point seven percent annualized rate last month,
cooler than forecasts of three point one percent. Right now,
the Dow is up seven tents of one percent, or
(20:55):
three hundred and twenty eight points. SMP five hundred is
up one point two per center eighty points, Nasdaq surging
one point seven percent higher at three hundred and ninety
five points higher, Rusted two thousands up over nine tenths
of one percent, ten Your Treasure reeled down three basis
points at four point one one six percent, and crude
oil up nearly nine tenths of a percent higher, trading
(21:18):
a fifty six dollars and forty one cents a barrel.
Micron impressed with its quarterly results, where the chip maker
issued an impressive revenue forecast and raised its outlook for
demand four key products. Micron shares are rallying nearly twelve percent. Meanwhile,
Trump Media and Technology agreed to merge with fusion power
company TAE Technologies in an all stock deal worth over
(21:40):
six billion dollars shares. Intrump Media is jumping thirty four
percent on that news. Elsewhere, the Wall Street Journal reported
that activist investor Elliott Investment Management has built a stake
of over one billion dollars in Lulu Lemon. Furthermore, Elliott
is bringing a potential CEO candidate to the struggling tailor.
Lulu shares are climbing nearly six percent higher. Carmac shares
(22:04):
a flat after the used car dealer said it plans
to lower margins in the fourth quarter and increase marketing
spend year over year. All of Garden parent Darden restaurants
posted stronger than expected quarterly results and raised its annual
sales guidance. Darting stock is up over two percent. At Chipotle,
adding a twist to their menu, the fast casual giant
will roll out its first ever high protein menu later
(22:27):
this month, featuring grabbing go protein cups with a four
round portion of either a dobo chicken or steak. Chipotle
stock is up over one percent. I'm Tucker Silvan. That
is walste Watch and remember you can watch the show
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(22:47):
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Speaker 5 (22:59):
Mike, anything else do we want to talk about with Micron?
Speaker 3 (23:02):
No, let's move along.
Speaker 5 (23:03):
Do we want to talk more on Oracle Blue Owl?
Speaker 4 (23:06):
Well, I didn't get to do the program yesterday, so
I don't know how to start to hear that went here.
But I felt a little bit like, you know, it's
the same meme we bring up every time, the Charlie
Day conspiracy theory meme, where he's connecting all the lines
together on the board, he's got papers everywhere, he's not
making any sense. I felt a bit like that because
(23:26):
I was, you know, this story connects the dots between
concerns and private credit to AI data center build out,
ultimately even to the paramount bid for.
Speaker 3 (23:40):
Warner Brothers.
Speaker 4 (23:41):
And I again kind of felt like a crazy person
saying that this morning. But aren't these things a little
bit coming into focus and interconnected at this moment? Given
the news yesterday from Blueel.
Speaker 5 (23:53):
I would say, so, I mean it's it.
Speaker 2 (23:55):
Look, here's the risks heading into twenty twenty six. There
are three private credit could blow up, Housing could continue
to slow, data center expansion could slow. Those are the
three ones that are out there. This story kind of
encapsulates two of them, the private credit and the.
Speaker 5 (24:17):
Data center one.
Speaker 2 (24:19):
The fact that you know, Larry Elson's son also happens
to be trying to buy Warner Brothers Discovery.
Speaker 4 (24:26):
Relying on funds from the Ellison family trust, which is
probably heavily invested in Oracle st.
Speaker 2 (24:31):
Yeah, it's it's kind of ancillary, Like, I don't think
that there's any risk that if that deal doesn't go through,
or even if it does go through, that it affects
the economy next year. So like that's just it's just
kind of Yes, it's it's kind of like an ancillary
thing where you're like, oh, and this could matter for
this reason. But I do think that the piece that
you're gonna to get to on this is, look, if
(24:52):
these things are not profitable right now, which by all
accounts they're not right like, yeah, or the goal we
see is free cash flow negative at the moment, Open AI,
from what we can gather from reporting because they're not
publicly traded, is losing money and burning through cash right now.
And one would then assume that your other companies that
are publicly traded they can afford your Metas, your Googles,
(25:17):
and your Microsofts of the world, they can afford these
buildouts because they have other businesses that are cash cows
that are covering those costs.
Speaker 3 (25:24):
At the moment, they can't.
Speaker 4 (25:25):
But the messaging that you're getting from the tech firms
is we don't want to deploy our capital on something
as boring as a data center. These are facilities that
may be profitable, but to the tune of single maybe
low double digits, and why would we want to deploy
our capital there when we make fifty percent margins on
this side of our business. So even even the data
(25:45):
centers that Google, Meta, Amazon are part of the development
on and leasing space from, they're basically saying like, now,
we'd rather just, you know, deploy borrowed money here rather
than deploying our own capital and missing out on what
we think are the big to be the bigger returns.
Speaker 5 (26:01):
Later on all of this.
Speaker 3 (26:03):
And so.
Speaker 4 (26:05):
Can Meta and Google an Amazon afford to continue to
build that data centers? Absolutely, But if the private credit
market is not willing to lend the money to it,
or they're only willing to lend to certain customers of it.
All else equal, I think it just raises the cost
of building these things.
Speaker 5 (26:23):
It's probably true.
Speaker 2 (26:24):
So again this is something where you put it on
your BINGO card for next year. Hey, this is something
that we need to monitor and pay attention to, because
clearly there's some angst in the private credit space, at
least from one lender as to.
Speaker 5 (26:43):
I think with Blue Awl.
Speaker 2 (26:44):
Quite honestly, it might just be, Guys, we've lent a
lot of money to data center buildouts already. Maybe we're
just up to our gills in it and just need
to not do anymore because we've already lent a lot.
Speaker 3 (26:55):
We don't like the space. Well, is it that?
Speaker 4 (26:58):
Or is it also all of our buyers at private
credit have put the pause button in.
Speaker 3 (27:03):
That could be the case too, right, like, and there's
just not more money coming to lend.
Speaker 2 (27:08):
It also could be because again this is what we're seeing,
like specifically with Blue Owl, guys, we trust Meta to
pay us back better than Oracle sure, And I understand
why you would, Like you just look at their balance sheets,
their income statements, and you say, yeah, there's a there's
a Meta is a far stronger company financially than Oracle is,
(27:31):
and I get that. Like that that makes sense too,
So agree.
Speaker 3 (27:33):
If it's an Oracle problem only, then it's not really
a story, which it might be.
Speaker 5 (27:38):
It could be.
Speaker 4 (27:38):
Yeah, it could just be an Oracle story. If it's
a larger private credit story, it's problematic.
Speaker 5 (27:46):
I agree. I agree. Uh.
Speaker 2 (27:48):
This then dovetails into another story from the Wall Street Journal. Again,
it's just like the dots are just connecting. Wall Street
gets a taste of blockbuster stock market debuts ahead, and
this is something I touched on. I think yesterday I
might not have. Maybe I just thought this and didn't
say anything. It's increasingly hard for me to tell like
what I've said on air and what like, I've just
(28:10):
been thinking about in my head and haven't expressed as
a thought.
Speaker 5 (28:12):
So if I'm repeating myself.
Speaker 2 (28:14):
Sorry, But there are a lot of liquidity needs next
to year, Michael, talk to me. Okay, So you've got
this whole private credit thing which is continuing to demand liquidity. Ye,
you've got data centers that are demanding liquidity, IPOs demand liquidity. Indeed,
there's a pretty good chance that next year's tax season
(28:35):
is going to demand liquidity because there's probably a boatload
of capital gains this year. There's just a lot of
cash that is needed in the form of actual liquid
cash at certain times, and part of me looks at
it and goes, how does all of that cash get
where it needs to go next year? I mean, if
you're talking about an open AIIPO and a SpaceX ipo,
(28:58):
and at the same time you've got to get you know,
hundreds of billions of dollars into data center build outs
and private credits still trying to build, you know, portfolios
of subprime auto lenders because someone still wants those in
their portfolio. Like, at some point you look at this
and you go, where's the actual cash going to come from?
Speaker 5 (29:19):
Because flows are what matter.
Speaker 3 (29:22):
Yeah, I don't have a look.
Speaker 4 (29:24):
It's not to say there isn't plenty of cash in
the system, right, like plain and simple. If you go
look at money market balances and other ways of measuring
you know, different levels of cash, there's still plenty out
there slashing around.
Speaker 3 (29:37):
But you're right, there's going to be a lot of
demands for it come twenty twenty six.
Speaker 2 (29:41):
And this this piece kind of gets at that too.
I'm just gonna quote here from the Wall Street Journal.
Some bankers and fund managers worry the stock market might
struggle to handle the barrage of expected new issuance next year.
If SpaceX were to go public, some bankers estimate it
could sell well over the nearly thirty billions sold by
the largest IPO on record, Saudi Aramco. Overall, this year,
(30:01):
US listed companies have raised forty six billion dollars. When
companies raise money, it's not like it just appears in
their account. Investors have to say, I am going to
take either cash on the sidelines, of which there's much
less now than earlier this year, or I'm going to
sell something else in order to buy this new thing.
(30:21):
That money has to come from somewhere, and so that like,
that's what this is getting at is. Look, if you're
gonna have IPOs that are demanding, you know, one hundred
billion dollars in cash next year, at the same time,
the data center buildouts now need three hundred billion, and
private credit continues to vacuum up a couple hundred billion
(30:43):
a year. That's a lot of liquidity that you need.
I do not have one billion dollars Michael let alone
several hundred billion to be able to finance this. Yeah,
So I think that's the interesting piece as I think
through this, which is, hey, where does the money come from?
And how does that influence markets and other things around it?
Because flows are what matter. Let's take a quick break.
(31:06):
When we come back, we're talking winter heating costs.
Speaker 1 (31:08):
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Speaker 2 (32:07):
Piece in New York Times, heating costs expected to rise
nine point two percent this winter and combination of things.
Number one, despite the fact that us here in New England,
very few of us heat our homes with electricity, Mike,
it's it's wild that you go to most of the
rest of the country and that's how they do it.
(32:29):
And so if electricity costs are up, heating costs will
be up because if you're heating with those little electrons
flowing through your house, they're more expensive to buy these days.
Speaker 4 (32:38):
Yeah, we are competing for electricity all over where. Net
gas prices compared to this time last year, so this has.
Speaker 2 (32:45):
Been wild actually watching that gas over the last couple weeks,
a couple months, So in early October, actually late September,
net gas prices were running really really low, like you
were at like two six sixty per million BTUs, which
is basically where you were heading into last year. You
(33:06):
then saw net gas prices more than double in the
next three months, peaking at five fifty per million BTUs
on December fifth, and then since then they've fallen about
thirty percent. It's a lot, and are seeing like five
percent swings each day right now, So there's a ton
of volatility in that gas prices. But remember nott gas
(33:27):
prices that are in place right now, they're not going
to affect your rates for this winter because your utility
already applied for their winter rates and had them approved,
you know, a couple months ago.
Speaker 4 (33:39):
So the estimate is that household are going to spend
about one thousand dollars this winter to heat their home.
That's up nine percent from a year earlier. At the
same time, federal programming to states that assist with low
income residents and their heat and their heat bills that
is being cut this year, and so we'll see how
states adapt to that. But yeah, again, a lot of
(34:01):
these stories that we are covering come back to that
affordability discussion. And while I don't think it's directly affecting
things in markets.
Speaker 3 (34:11):
Or the economy, it seems like it is going to be.
Speaker 4 (34:14):
The only word that matters come twenty twenty six midterm elections.
Speaker 2 (34:18):
It might, but I'm also getting to the point now
where I think that we are at peak affordability concerns.
And I mean this in two different ways, and that
if you look at the path forward for the economy, Mike,
when we talk about affordability, generally, in my mind, we're
(34:39):
talking about like three or four things. Shelter, groceries, transportation.
I think those are the big ones, and utilities I'll
put in there as well. Yes, you're including gas prices
and transportation. Yeah, yeah, Like those are the things. Gas prices,
you know, bus tickets, car prices, like all that stuff.
(35:01):
Where I'm going with this is it seems likely to
me that one way or another you are going to
see improved affordability in several of those areas in the
next two to three years. Housing prices are falling that
makes it more affordable, transportation gas prices have largely been flat,
(35:25):
and the car price thing is a problem. This is
one area where I don't have a great sense of
how this resolves. I just I really don't know. On
the grocery side of things, I think there are things
that are present right now that are going to cycle
out and you know, not be a problem down the
(35:46):
road in several years. The beef thing that we've been
talking about with you know, the smallest herds, beef herds, like, okay,
when you know you have small beef herds and prices
go up, ranchers say, okay, we're going to you know,
allow four more cows in the next year, and so
prices eventually come down. Like these are things that will
cycle through the other place that I will go with this,
(36:06):
and this is the potential bad outcome that still leads
to affordability not being the best concern. Biggest concern is
if we end up with the jobs market taking a
turn for the worst next year, affordability.
Speaker 5 (36:18):
Will not be the problem. It will be do I
have a job?
Speaker 3 (36:21):
Yeah, And so gets that affordability.
Speaker 4 (36:22):
If you don't have income, you can't afford the things
that you need to live your life.
Speaker 2 (36:27):
It's not an affordability thing though, like it's if you
don't have like it's it's a job problem becomes the
bigger one. So that's another path out that's not as good.
But I'm just at a point now where I think that,
like any problem that's out there, once it's been identified
as the main problem, then we start to figure out
(36:48):
solutions to it. The problem with affordability, it's not one
that you can typically solve from the top down.
Speaker 4 (36:55):
No, it is almost never. It does lead me into
the conversation that we have with folks all the time, Chuck,
which is I continue to feel that, in spite of
all the concerns I have about the markets where this
AI potential bubble could go and the concerns that people
have there, the underappreciated risk to most retirees that I
(37:15):
see continues to be inflation. I know we just got
a better than anticipated inflation report this morning, but you
need to be asking yourself when it comes to stories
like this where home heating costs expected to rise nine
percent next year? Can I afford that my financial plan
call the Armstrong Advisory Group to ask those questions and
test yours out eight hundred three nine three for zero
(37:36):
zero one.
Speaker 1 (37:37):
The proceeding was paid for by Armstrong Advisory Group, a
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Armstrong guide a specific financial, legal, or tax advice. Consult
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Speaker 2 (37:53):
Instacart shares dropping on report that the FTC is probing
company over AI pricing tool. Last week we covered the
story from Forget where it was was it in? Was
the Washington Post that had it originally. I don't know
who knows, but that instacart. It was a bunch of
users in DC tried to buy the same products from
the same stores using pickup only, so not delivery, and
(38:15):
got a wide variety of prices, which really, like was
was grinding my gears because it's like you're trying to
make more profit, not through improving your product or service
or you know, finding cheaper ways to do it. You're
trying to make more money just through like ripping someone
off who lives in a different.
Speaker 3 (38:34):
Zip code willing to pay.
Speaker 2 (38:36):
So the FTC is apparently looking into this, and so
instacart is down. Was down about seven percent on this news.
Just take a quick break when we return. Hour two
is coming up
Speaker 5 (39:01):
Four
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
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the hosts. Do not reflect the opinions of Armstrong Advisory
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(01:05):
Zada and Mike Armstrong.
Speaker 2 (01:10):
All right, is Chuck, Mike and Tucker with you here
on the Financial Exchange. We are, you know, getting economic
data coming out from the US government again as we
get into December. Earlier this week, we had a delayed
release on the jobs report on Tuesday, so we had
(01:32):
a job's Tuesday, which was kind of fun. Don't think
I ever want to do it again, but it was was,
you know, nice for a change, I guess. And today
we get a CPI Thursday, which is not overly unusual.
They're usually on Wednesdays or Thursdays, I believe, maybe even
Tuesdays occasionally, so nothing too crazy there about a week delayed,
but again nothing nothing bad. And I think when we
(01:53):
look at it the Tuesday release of the jobs data,
we said, guys, the data you're just really isn't particularly
good obvious caveat. Hey, there are some sampling issues related
to when the shutdown happened and when data was being collected,
so don't read too much into it.
Speaker 3 (02:11):
Where'd you grade that thing?
Speaker 1 (02:12):
Like?
Speaker 4 (02:12):
I see the job report? Yeah, I don't think I
gave it a grade, but I was see it best
for me?
Speaker 2 (02:19):
I yeah, I mean C minus dplus. Anytime that the
unemployment rate goes upero point two percent in a month,
that's not.
Speaker 3 (02:25):
Great technically over two months, but yeah.
Speaker 2 (02:28):
Yeah, either way, it's it's it's not great, So it
wasn't particularly good. This kind of the mirror image of
that in that same cavets apply. Hey, data collection YadA, YadA,
like all that, but coming in with a much better
CPI report than anticipated. Now, we don't have month over
month data because there is no October CPI, so we
(02:51):
can't look at the month over month data, but when
we look at the year over year data that's present
in it, it does show up and say, yeah, the
CPI for the last twelve months decreased from three percent
down to two point seven and core went you know,
kind of in the same direction down to two point
six percent. So I think overall it points towards some
(03:14):
improvements on that side of things and is an encouraging report.
With the caveat data collection was disrupted and we don't know,
you know, exactly what the next couple months are going
to bring as those disruptions ease.
Speaker 3 (03:28):
Yeah, it's really missing quite a bit.
Speaker 1 (03:30):
You know.
Speaker 4 (03:30):
We can typically dive in here and we when these
reports come out. You hear us talk about it frequently, like, yeah,
I know the headline number is gonna be quoted as
two point seven percent, but that's not the most relevant thing.
The most relevant thing is how has it done lately?
And I guess there you can cobble together something because
what we do know from this report is that core CPI,
(03:51):
so stripping out food, stripping out energy, it rose two
tenths of a percent compared to the September reading. Again,
we can get that much at least that hey, that
the pace of increase over a two month time here
horizon September to November was pretty muted, and were that
to continue, that would be fantastic news. But yeah, you
(04:15):
look at this as someone that looks at this report
every month, you just kind of glare at it and
you're like.
Speaker 3 (04:20):
What do I what do I do with this?
Speaker 5 (04:23):
Yeah?
Speaker 2 (04:23):
So good news, but again, like we can't really dig
through and be like, hey, like here's what we're seeing
on this. It's more just kind of all right, I
guess this is, you know, kind of what it is here.
So it's it's good news that we saw some improvement
in the rate of inflation. It still is a little
bit higher than you'd like to see. But quite honestly,
(04:45):
if we cocked in a two seven on inflation next year,
I would not have any issues with that, just because
we've talked about, hey, if you're if you're ending up
you know, anywhere in the twos that's generally historically where
we've been the last forty years. I think if you
you've got twelve more inflation reports that look just like this,
you'd say, great, don't have to worry about that right now,
(05:06):
it's not a problem.
Speaker 3 (05:07):
Yeah.
Speaker 4 (05:07):
What markets are reading right here is that with an
inflation rate of two point seven percent, the Fed does
not care about inflation. They're going to care about that
ugly jobs report that we just discussed, and that that,
to me is the whole implication of markets today is
inflation at two point seven percent, even though it's ablah
above the two percent target, will not be of concern
to j.
Speaker 3 (05:27):
Powell and the gang.
Speaker 2 (05:29):
So I think this does set up the first half
of the year nicely with these two reports in that
to me, and this has been the way things have
been evolving over the last few months. The question in
the first half of twenty twenty six is not does
inflation you know, continue to trend up? Rather, it's does
(05:50):
unemployment continue to trend down? And do we hit those
points that historically we've hit where it goes from a
linear move down, you know, zero point one percent of
month or point one percent every two months on unemployment
moving up to hey, it starts to accelerate. And then
you see a month where unemployment goes up by point
three percent, then by point five, then by point five again,
(06:12):
and finally next thing, you know, after you know, six
to eight months, unemployment has risen three percent and starts
to peak.
Speaker 5 (06:19):
Yeap.
Speaker 3 (06:20):
You know.
Speaker 4 (06:20):
A few caveats that I can think of here. One,
we continue to get a lot of help from energy markets.
I know that doesn't play into the core numbers here,
but frankly, oil slips into every other price measure that
we use, and so we've been dramatically helped by energy prices.
Should they turn the year over year situation though no,
you know every year it's flat, But that's still helpful. Right,
(06:43):
If we're targeting two percent inflation and energy prices aren't
moving upwards, that certainly helps along the way. The other
piece that just comes to mind that I don't think
will have a dramatic impact on inflation, but certainly might
be stimulative. Is all the tax changes, and specifically seniors
in my mind, are going to have a pretty big
tax benefit from this. They are also accounting for a
(07:05):
larger portion of spending than they have historically. And so
do you have some you know, spill overcome March in
April when those tax return tax refund checks come in,
plus the lower withholdings kick in for some employees, but
go maybe, yeah, I think I don't think that shows
up till April May June timeframe.
Speaker 3 (07:23):
So I think you're right about the first half. And
sorry for interrupting you.
Speaker 5 (07:26):
No, it's it's so.
Speaker 2 (07:28):
I think this is the the battle lines are drawn
now in terms of the things to worry about in
the first half of next year. Does unemployment worsen, do
we start seeing more pushback on AI financing and maybe
a slowdown in capex? You know that happens yesterday is
(07:49):
just as an example, we had the report that Blue
Owl was pulling out of a ten billion dollar financing
deal for an Oracle data center in Michigan.
Speaker 5 (07:58):
So do we see things like that popping up?
Speaker 2 (08:01):
And what do we see from housing in terms of employment,
and those questions can all be positively answered. Remember, the
thing that we talk about with the stock market typically
is it climbs a wall of worry. What that means
is that there are always worries that you have to
look at in markets. There's always something out there. It's
never a perfect situation. When's the last time that you
(08:23):
ever just sat back and said there's nothing to worry about.
You were three years old and you just didn't know
the broader world existed other than that. You know, it's like,
you know, there's always something to worry about out there,
especially you know economically, there's always something that can potentially
go wrong.
Speaker 5 (08:41):
It doesn't mean that it will.
Speaker 2 (08:43):
But these worries and risks evolve, and you have to
pay attention to them in order to make sure that
you're not getting caught, you know, blindsided by them, and
that you understand what's actually going on so that you
can prepare for the potential evolution of those worries.
Speaker 4 (09:00):
Interestingly, to meet Chuck, no sizeable move in the likelihood
of a rate cut at that January meeting after this report,
again still early, but the likelihood now of a FED
rate cut in January sitting at twenty six point six
percent according to the CME Group FED Funds futures. Yesterday
it was twenty four point four percent, So yeah, a
little bit more likelihood, but no sizeable shift on this
(09:23):
better pretty substantially better than anticipated inflation report.
Speaker 2 (09:27):
Anything else that we want to talk about here. I
think again, if if you're grading the the jobs report,
you know, C minus D plus again with these are
all with the caveats of like the data is, you know,
potentially skewed on both of these because of the shutdown.
I think you probably look at this and granted like
it doesn't have all of the underlying supplemental data that
(09:47):
you like, you probably have to grade this B plus
A minus. That's ray I was too. Yeah, you know,
a really good report and good to see. We also
got jobless claims this morning, nothing of note there, So
despite concer arns about the labor market, the weekly jobless
claims report remains really calm, no major surprises there, and
(10:08):
I think you continue to be in good shape on
that side, even though a lot of other labor market
indicators kind of flashing yellow at this point.
Speaker 5 (10:16):
To take a quick break when.
Speaker 2 (10:18):
We return after hours, yesterday, Micron reported earnings. We'll talk
to you about what they said and what it means
for the tech industry and AI industry specifically.
Speaker 5 (10:28):
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Speaker 2 (12:14):
All right, So, yesterday after hours, we received earnings from
Micron Technology. Micron in case anyone wondering is you know,
anyone listening is wondering, you know what do they do
in the tech space. They are not a processor maker.
They are a maker of memory chips predominantly and other
storage devices solid state drives, hard drives like you name it.
(12:38):
Micron makes stuff that stores stuff. I think is the
best way to to indicate what they do. Now, just
to give you an idea of how good Micron's earnings were, Mike,
it's kind of mind blowing to me that they reported this,
because it's just it's it, it's wild. So analyst estimates
(13:03):
for not even their earnings, but let's do their their
guidance for the next quarter, because this is really where
the meat is. Analyst estimates for their next quarter revenue
were twelve point zero six to seventeen point three eight
billion dollars. The guidance that Micron gave was eighteen point
three to nineteen point one billion dollars. Both the low
(13:26):
and high end of their guidance was above analyst's high
end guidance their high end expectations, which to me a
couple things. The first is memory prices has been going
nuts in the last six months, in particular as there's
just an incredible demand for memory in AI data center buildouts, which.
Speaker 4 (13:46):
By the way, we also need for consumer products. This
is not you do just just an AI product you do.
Speaker 2 (13:53):
So part of me looks at this and is like,
did a bunch of analysts just like miss the boat
on where memory pricing has been going, because it sure
seems like they did. The other piece is, you know,
in terms of what this tells us about data center demand,
it's it's you know, you have to get the read
through based on pricing, because again, if pricing goes up
(14:15):
meaningfully in a short period of time, which it has,
then it doesn't necessarily mean you're selling more product. It
just means it's costing your buyers more to buy that product,
which seems to be a combination of what's happening here. Yes,
there is more demand which is driving this, but you
can only build these data centers so quickly otherwise we
would see this being reflected in the other pieces and
(14:37):
of demand as well, in video chips and things like that.
Like you didn't have Nvidia, you know, missed by fifty
percent to the upside they beat by you know, a
several percentage points because you haven't seen the same cost
push on that side of things. So ultimately, I think
what this does do AI related companies have kind of
been struggling in the last week or two and at
(15:02):
least right now, this is you know, helping them to
find their footing a little bit. With the semiconductor index
up about two and a half percent today, You'll get
you know some you know big stocks that are up today,
Core Weaves up four percent, AMD's up three percent, let's
see Oracles up two percent, and videos up one seven.
(15:23):
So you've got a little bit of a spill over here,
kind of tempering what had been a sector that was
on edge over the last week or so, week or
two and so I think that's what you're seeing here
is just a little bit of relief in terms of Okay,
the earnings came out pretty well on this company, and
even though good earnings from other companies didn't really help
the sector in the last couple of weeks, this one
(15:45):
providing a little reassurance after those companies have been sliding recently.
Speaker 4 (15:49):
Yeah, enough of a surprise to move marks. A few things.
I'll just mention about this. I mean, you're of a
year revenue growth of growth is something like sixty percent
on this.
Speaker 5 (15:58):
This is truly.
Speaker 4 (16:01):
Mind blowing pace of growth like we have seen from
other companies in this space.
Speaker 5 (16:07):
One.
Speaker 4 (16:07):
I mean, let's be honest, like many of these companies,
Micron Technology not exactly a household name, but they are
now eclipsing companies like Morgan Stanley Goldman, Sachs, IBM, Caterpillar,
American Express, Philip Morris in terms of market capitalization.
Speaker 3 (16:23):
So this is a very.
Speaker 4 (16:24):
Big company now that has grown by nearly two hundred percent.
Speaker 3 (16:28):
Over the course of this year.
Speaker 4 (16:30):
The other point that I will make about this, which
is the same one we've made about AMD, We've made
it about Broadcom and Nvidia, these are not companies whose
earnings will lead in terms of telling you what's going
on with the AI story, right correct, you if you're
looking to try and figure out, hey, is this actually
(16:51):
going to be a monetizable product, and will companies slow
down in terms of their data center builds, Well, that
happens last and therefore, you know, Microns technology, Microns earnings
and videos earnings, you know, these would be I think
the last things to turn over when it comes to
demand for AI products, data centers.
Speaker 3 (17:14):
It's at talent, et cetera. So it's not that it's unimportant.
Speaker 4 (17:17):
It's clearly lifting markets today pretty substantially, but it is
also not any sort of leading indicator in my view
about where this industry goes.
Speaker 2 (17:27):
Right, It's okay at a certain point, and the thing
that we've been continuing to talk about if you are
one of the companies investing these tens and now hundreds
of billions of dollars into artificial intelligence data centers, at
some point you're going to have to figure out how
to actually make money off them, because.
Speaker 3 (17:46):
Matters that is their goal with business.
Speaker 5 (17:50):
Yes, you know, it's generally.
Speaker 2 (17:52):
My understanding is if in the long run you take
in less money than you spend, at some point you
either have to stop spending that money or you will
no longer be in business.
Speaker 3 (18:03):
Yeah.
Speaker 4 (18:04):
The follow on piece of this from the Wall Street
Journal talking about what we alluded to, which is the
other thing this means is that prices for memory are
going up, meaning your cell phone, your computer, even things
like maybe your cloud storage for your business might all
be increasing in price. And it's just a I think
(18:25):
a good reminder that with this AI development, consumers need
to understand that we are now heavily competing for electricity, chips,
memory storage, even putable water with these giant tech companies
and municipalities are really unsure as to how to handle
it all. It is a complicated thing, and I'm not
(18:47):
We're not dealing with situations where towns water is drying up,
but realistically, like, all of these things are public resources
that are now in demand in a way that they
were not just two years ago.
Speaker 2 (19:00):
So that's again kind of the rundown here is Again
I don't think anyone was expecting weakness here, but I
think that the strength in pricing power is kind of
mind blowing on this. But as Mike indicated, look, memory
prices have gone up generally, call it sixty to eighty
percent in the last six months or so, and that
(19:25):
is going to filter into other areas as we go.
It also affected by the way Micron's business they shut
down are they're in the process right now shutting down
their consumer facing business because they pretty much said it's
not important, we can't really provide this and continue to
be able to provide on the data center side the
(19:45):
way that we want to, and so at like, if
enough companies do that, then you get into a problem
of availability, not pricing. Let's take a quick break. When
we return, it's Wall Street Watch.
Speaker 1 (20:10):
Like us on Facebook and follow us on Twitter. Act
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 7 (20:34):
OH Marcus today are bouncing back as Wall Street reacts
to the November Consumer Price Index released this morning, which
rose at a two point seven percent annualized rate last month,
cooler than forecasts of three point one percent. Right now,
the Dow is up seven tents of one percent, or
(20:55):
three hundred and twenty eight points. SMP five hundred is
up one point two per center eighty points, Nasdaq surging
one point seven percent higher at three hundred and ninety
five points higher, Rusted two thousands up over nine tenths
of one percent, ten Your Treasure reeled down three basis
points at four point one one six percent, and crude
oil up nearly nine tenths of a percent higher, trading
(21:18):
a fifty six dollars and forty one cents a barrel.
Micron impressed with its quarterly results, where the chip maker
issued an impressive revenue forecast and raised its outlook for
demand four key products. Micron shares are rallying nearly twelve percent. Meanwhile,
Trump Media and Technology agreed to merge with fusion power
company TAE Technologies in an all stock deal worth over
(21:40):
six billion dollars shares. Intrump Media is jumping thirty four
percent on that news. Elsewhere, the Wall Street Journal reported
that activist investor Elliott Investment Management has built a stake
of over one billion dollars in Lulu Lemon. Furthermore, Elliott
is bringing a potential CEO candidate to the struggling tailor.
Lulu shares are climbing nearly six percent higher. Carmac shares
(22:04):
a flat after the used car dealer said it plans
to lower margins in the fourth quarter and increase marketing
spend year over year. All of Garden parent Darden restaurants
posted stronger than expected quarterly results and raised its annual
sales guidance. Darting stock is up over two percent. At Chipotle,
adding a twist to their menu, the fast casual giant
will roll out its first ever high protein menu later
(22:27):
this month, featuring grabbing go protein cups with a four
round portion of either a dobo chicken or steak. Chipotle
stock is up over one percent. I'm Tucker Silvan. That
is walste Watch and remember you can watch the show
live every day on our YouTube page. We'll at breaking
business news and all of our content is also archived
(22:47):
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Speaker 5 (22:59):
Mike, anything else do we want to talk about with Micron?
Speaker 3 (23:02):
No, let's move along.
Speaker 5 (23:03):
Do we want to talk more on Oracle Blue Owl?
Speaker 4 (23:06):
Well, I didn't get to do the program yesterday, so
I don't know how to start to hear that went here.
But I felt a little bit like, you know, it's
the same meme we bring up every time, the Charlie
Day conspiracy theory meme, where he's connecting all the lines
together on the board, he's got papers everywhere, he's not
making any sense. I felt a bit like that because
(23:26):
I was, you know, this story connects the dots between
concerns and private credit to AI data center build out,
ultimately even to the paramount bid for.
Speaker 3 (23:40):
Warner Brothers.
Speaker 4 (23:41):
And I again kind of felt like a crazy person
saying that this morning. But aren't these things a little
bit coming into focus and interconnected at this moment? Given
the news yesterday from Blueel.
Speaker 5 (23:53):
I would say, so, I mean it's it.
Speaker 2 (23:55):
Look, here's the risks heading into twenty twenty six. There
are three private credit could blow up, Housing could continue
to slow, data center expansion could slow. Those are the
three ones that are out there. This story kind of
encapsulates two of them, the private credit and the.
Speaker 5 (24:17):
Data center one.
Speaker 2 (24:19):
The fact that you know, Larry Elson's son also happens
to be trying to buy Warner Brothers Discovery.
Speaker 4 (24:26):
Relying on funds from the Ellison family trust, which is
probably heavily invested in Oracle st.
Speaker 2 (24:31):
Yeah, it's it's kind of ancillary, Like, I don't think
that there's any risk that if that deal doesn't go through,
or even if it does go through, that it affects
the economy next year. So like that's just it's just
kind of Yes, it's it's kind of like an ancillary
thing where you're like, oh, and this could matter for
this reason. But I do think that the piece that
you're gonna to get to on this is, look, if
(24:52):
these things are not profitable right now, which by all
accounts they're not right like, yeah, or the goal we
see is free cash flow negative at the moment, Open AI,
from what we can gather from reporting because they're not
publicly traded, is losing money and burning through cash right now.
And one would then assume that your other companies that
are publicly traded they can afford your Metas, your Googles,
(25:17):
and your Microsofts of the world, they can afford these
buildouts because they have other businesses that are cash cows
that are covering those costs.
Speaker 3 (25:24):
At the moment, they can't.
Speaker 4 (25:25):
But the messaging that you're getting from the tech firms
is we don't want to deploy our capital on something
as boring as a data center. These are facilities that
may be profitable, but to the tune of single maybe
low double digits, and why would we want to deploy
our capital there when we make fifty percent margins on
this side of our business. So even even the data
(25:45):
centers that Google, Meta, Amazon are part of the development
on and leasing space from, they're basically saying like, now,
we'd rather just, you know, deploy borrowed money here rather
than deploying our own capital and missing out on what
we think are the big to be the bigger returns.
Speaker 5 (26:01):
Later on all of this.
Speaker 3 (26:03):
And so.
Speaker 4 (26:05):
Can Meta and Google an Amazon afford to continue to
build that data centers? Absolutely, But if the private credit
market is not willing to lend the money to it,
or they're only willing to lend to certain customers of it.
All else equal, I think it just raises the cost
of building these things.
Speaker 5 (26:23):
It's probably true.
Speaker 2 (26:24):
So again this is something where you put it on
your BINGO card for next year. Hey, this is something
that we need to monitor and pay attention to, because
clearly there's some angst in the private credit space, at
least from one lender as to.
Speaker 5 (26:43):
I think with Blue Awl.
Speaker 2 (26:44):
Quite honestly, it might just be, Guys, we've lent a
lot of money to data center buildouts already. Maybe we're
just up to our gills in it and just need
to not do anymore because we've already lent a lot.
Speaker 3 (26:55):
We don't like the space. Well, is it that?
Speaker 4 (26:58):
Or is it also all of our buyers at private
credit have put the pause button in.
Speaker 3 (27:03):
That could be the case too, right, like, and there's
just not more money coming to lend.
Speaker 2 (27:08):
It also could be because again this is what we're seeing,
like specifically with Blue Owl, guys, we trust Meta to
pay us back better than Oracle sure, And I understand
why you would, Like you just look at their balance sheets,
their income statements, and you say, yeah, there's a there's
a Meta is a far stronger company financially than Oracle is,
(27:31):
and I get that. Like that that makes sense too,
So agree.
Speaker 3 (27:33):
If it's an Oracle problem only, then it's not really
a story, which it might be.
Speaker 5 (27:38):
It could be.
Speaker 4 (27:38):
Yeah, it could just be an Oracle story. If it's
a larger private credit story, it's problematic.
Speaker 5 (27:46):
I agree. I agree. Uh.
Speaker 2 (27:48):
This then dovetails into another story from the Wall Street Journal. Again,
it's just like the dots are just connecting. Wall Street
gets a taste of blockbuster stock market debuts ahead, and
this is something I touched on. I think yesterday I
might not have. Maybe I just thought this and didn't
say anything. It's increasingly hard for me to tell like
what I've said on air and what like, I've just
(28:10):
been thinking about in my head and haven't expressed as
a thought.
Speaker 5 (28:12):
So if I'm repeating myself.
Speaker 2 (28:14):
Sorry, But there are a lot of liquidity needs next
to year, Michael, talk to me. Okay, So you've got
this whole private credit thing which is continuing to demand liquidity. Ye,
you've got data centers that are demanding liquidity, IPOs demand liquidity. Indeed,
there's a pretty good chance that next year's tax season
(28:35):
is going to demand liquidity because there's probably a boatload
of capital gains this year. There's just a lot of
cash that is needed in the form of actual liquid
cash at certain times, and part of me looks at
it and goes, how does all of that cash get
where it needs to go next year? I mean, if
you're talking about an open AIIPO and a SpaceX ipo,
(28:58):
and at the same time you've got to get you know,
hundreds of billions of dollars into data center build outs
and private credits still trying to build, you know, portfolios
of subprime auto lenders because someone still wants those in
their portfolio. Like, at some point you look at this
and you go, where's the actual cash going to come from?
Speaker 5 (29:19):
Because flows are what matter.
Speaker 3 (29:22):
Yeah, I don't have a look.
Speaker 4 (29:24):
It's not to say there isn't plenty of cash in
the system, right, like plain and simple. If you go
look at money market balances and other ways of measuring
you know, different levels of cash, there's still plenty out
there slashing around.
Speaker 3 (29:37):
But you're right, there's going to be a lot of
demands for it come twenty twenty six.
Speaker 2 (29:41):
And this this piece kind of gets at that too.
I'm just gonna quote here from the Wall Street Journal.
Some bankers and fund managers worry the stock market might
struggle to handle the barrage of expected new issuance next year.
If SpaceX were to go public, some bankers estimate it
could sell well over the nearly thirty billions sold by
the largest IPO on record, Saudi Aramco. Overall, this year,
(30:01):
US listed companies have raised forty six billion dollars. When
companies raise money, it's not like it just appears in
their account. Investors have to say, I am going to
take either cash on the sidelines, of which there's much
less now than earlier this year, or I'm going to
sell something else in order to buy this new thing.
(30:21):
That money has to come from somewhere, and so that like,
that's what this is getting at is. Look, if you're
gonna have IPOs that are demanding, you know, one hundred
billion dollars in cash next year, at the same time,
the data center buildouts now need three hundred billion, and
private credit continues to vacuum up a couple hundred billion
(30:43):
a year. That's a lot of liquidity that you need.
I do not have one billion dollars Michael let alone
several hundred billion to be able to finance this. Yeah,
So I think that's the interesting piece as I think
through this, which is, hey, where does the money come from?
And how does that influence markets and other things around it?
Because flows are what matter. Let's take a quick break.
(31:06):
When we come back, we're talking winter heating costs.
Speaker 1 (31:08):
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Speaker 2 (32:07):
Piece in New York Times, heating costs expected to rise
nine point two percent this winter and combination of things.
Number one, despite the fact that us here in New England,
very few of us heat our homes with electricity, Mike,
it's it's wild that you go to most of the
rest of the country and that's how they do it.
(32:29):
And so if electricity costs are up, heating costs will
be up because if you're heating with those little electrons
flowing through your house, they're more expensive to buy these days.
Speaker 4 (32:38):
Yeah, we are competing for electricity all over where. Net
gas prices compared to this time last year, so this has.
Speaker 2 (32:45):
Been wild actually watching that gas over the last couple weeks,
a couple months, So in early October, actually late September,
net gas prices were running really really low, like you
were at like two six sixty per million BTUs, which
is basically where you were heading into last year. You
(33:06):
then saw net gas prices more than double in the
next three months, peaking at five fifty per million BTUs
on December fifth, and then since then they've fallen about
thirty percent. It's a lot, and are seeing like five
percent swings each day right now, So there's a ton
of volatility in that gas prices. But remember nott gas
(33:27):
prices that are in place right now, they're not going
to affect your rates for this winter because your utility
already applied for their winter rates and had them approved,
you know, a couple months ago.
Speaker 4 (33:39):
So the estimate is that household are going to spend
about one thousand dollars this winter to heat their home.
That's up nine percent from a year earlier. At the
same time, federal programming to states that assist with low
income residents and their heat and their heat bills that
is being cut this year, and so we'll see how
states adapt to that. But yeah, again, a lot of
(34:01):
these stories that we are covering come back to that
affordability discussion. And while I don't think it's directly affecting
things in markets.
Speaker 3 (34:11):
Or the economy, it seems like it is going to be.
Speaker 4 (34:14):
The only word that matters come twenty twenty six midterm elections.
Speaker 2 (34:18):
It might, but I'm also getting to the point now
where I think that we are at peak affordability concerns.
And I mean this in two different ways, and that
if you look at the path forward for the economy, Mike,
when we talk about affordability, generally, in my mind, we're
(34:39):
talking about like three or four things. Shelter, groceries, transportation.
I think those are the big ones, and utilities I'll
put in there as well. Yes, you're including gas prices
and transportation. Yeah, yeah, Like those are the things. Gas prices,
you know, bus tickets, car prices, like all that stuff.
(35:01):
Where I'm going with this is it seems likely to
me that one way or another you are going to
see improved affordability in several of those areas in the
next two to three years. Housing prices are falling that
makes it more affordable, transportation gas prices have largely been flat,
(35:25):
and the car price thing is a problem. This is
one area where I don't have a great sense of
how this resolves. I just I really don't know. On
the grocery side of things, I think there are things
that are present right now that are going to cycle
out and you know, not be a problem down the
(35:46):
road in several years. The beef thing that we've been
talking about with you know, the smallest herds, beef herds, like, okay,
when you know you have small beef herds and prices
go up, ranchers say, okay, we're going to you know,
allow four more cows in the next year, and so
prices eventually come down. Like these are things that will
cycle through the other place that I will go with this,
(36:06):
and this is the potential bad outcome that still leads
to affordability not being the best concern. Biggest concern is
if we end up with the jobs market taking a
turn for the worst next year, affordability.
Speaker 5 (36:18):
Will not be the problem. It will be do I
have a job?
Speaker 3 (36:21):
Yeah, And so gets that affordability.
Speaker 4 (36:22):
If you don't have income, you can't afford the things
that you need to live your life.
Speaker 2 (36:27):
It's not an affordability thing though, like it's if you
don't have like it's it's a job problem becomes the
bigger one. So that's another path out that's not as good.
But I'm just at a point now where I think that,
like any problem that's out there, once it's been identified
as the main problem, then we start to figure out
(36:48):
solutions to it. The problem with affordability, it's not one
that you can typically solve from the top down.
Speaker 4 (36:55):
No, it is almost never. It does lead me into
the conversation that we have with folks all the time, Chuck,
which is I continue to feel that, in spite of
all the concerns I have about the markets where this
AI potential bubble could go and the concerns that people
have there, the underappreciated risk to most retirees that I
(37:15):
see continues to be inflation. I know we just got
a better than anticipated inflation report this morning, but you
need to be asking yourself when it comes to stories
like this where home heating costs expected to rise nine
percent next year? Can I afford that my financial plan
call the Armstrong Advisory Group to ask those questions and
test yours out eight hundred three nine three for zero
(37:36):
zero one.
Speaker 1 (37:37):
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 and to state planning advisors before
making any investment decisions. Armstrong may contact you to offer
investment advisory services.
Speaker 2 (37:53):
Instacart shares dropping on report that the FTC is probing
company over AI pricing tool. Last week we covered the
story from Forget where it was was it in? Was
the Washington Post that had it originally. I don't know
who knows, but that instacart. It was a bunch of
users in DC tried to buy the same products from
the same stores using pickup only, so not delivery, and
(38:15):
got a wide variety of prices, which really, like was
was grinding my gears because it's like you're trying to
make more profit, not through improving your product or service
or you know, finding cheaper ways to do it. You're
trying to make more money just through like ripping someone
off who lives in a different.
Speaker 3 (38:34):
Zip code willing to pay.
Speaker 2 (38:36):
So the FTC is apparently looking into this, and so
instacart is down. Was down about seven percent on this news.
Just take a quick break when we return. Hour two
is coming up
Speaker 5 (39:01):
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