May 1, 2026 • 38 mins
Stocks are rising even as oil prices surge.
Chuck Zodda and Mike Armstrong break down why markets are shrugging off a sharp move higher in energy prices and what it says about current economic strength.
Also covered:
Chuck Zodda and Mike Armstrong break down why markets are shrugging off a sharp move higher in energy prices and what it says about current economic strength.
Also covered:
- Why strong economic data is offsetting rising oil prices
- How long the US can absorb global energy shortages
- Why oil executives are not increasing production
- What Apple’s outlook says about consumer demand
- The growing risks tied to massive AI spending
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
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(00:20):
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(00:43):
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(01:03):
This is the Financial Exchange with Chuck Zada and Mike Armstrong.
Speaker 2 (01:10):
Honeyho, it's Chuck, Mike and Tucker with you here, and
Happy May first to everyone, the last day of the week,
the first day of the month, full moon. A lot
happening in terms of the calendar and space right now.
Speaker 3 (01:27):
Yeah, I really hadn't added the full moon to the list,
but it's a Friday.
Speaker 4 (01:31):
Why not.
Speaker 2 (01:32):
Do you know that this is actually going to be
a blue moon month? Oh yeah, two full moons in
the month of May. So Happy May to everyone, and
we're gonna kick things off talking about this piece from
the New York Times. Stocks in April on a high
even as oil prices touch new peak. And here's the
deal is, for the month of March, stocks and oil
(01:54):
were negatively correlated, meaning that as oil went up, stocks
went down. For the month of April, stocks and oil
are positively correlated. Specifically for the last two and a
half weeks now. Oil has gone on West Texas Intermediate
from eighty dollars a barrel up to a touch one
ten briefly and a couple days ago, but you know
(02:17):
since has since reversed a little bit. We'll talk about
some of the mechanics on that. If we want to
I don't know if we want to, but it's oil's
gone up twenty five percent in the last couple weeks,
and stocks have shrugged it off, and the S and
P five hundred during that same time has gone from
let's see about yeah, sixty nine hundred up to seventy
(02:40):
two sixty, so three four percent on the smp SO.
Stocks up, Oil up is what we are seeing right now,
and I don't think it's entirely irrational if you're just
looking at the economic data that we've been getting. The
labor market seems to be firming up a little bit.
We continue to see very low initial unemployment claims and
(03:03):
continuing claims are declining. Actually, we are seeing signs that
job openings are starting to come online again, and you've
got all kinds of activity and freight markets. You talk
to anyone in the trucking or railroad industry and they're like,
it's absolutely nuts right now. Manufacturing is cooking in Q one.
(03:24):
It may be a restocking cycle, it may not be,
but you can't deny what's happening. Like things look good
there and so couple that with you know, good earning
so far through the quarter, and ultimately the picture that
you get is one where Yeah, to this point, energy
prices have gone up a lot. We don't really like it,
but you'd be hard pressed to be like, hey, this
(03:45):
is dramatically altered the trajectory of the US economy and
the data to what we've seen to this point.
Speaker 4 (03:51):
I think that's fair. That's the read. So where do
we end April?
Speaker 3 (03:55):
Get up nine percent plus on the s and P
five hundred after obviously dropping for the month of March.
I think you're to date we're up around five on
the SMP and it's been a yeah. Again, it's been
two different markets, right, a energy market that's still SMBO
up ten point four for then the.
Speaker 2 (04:14):
Month of April, Yeah, opened at sixty five fifty six,
closed at seventy two oh nine. And so ultimately, like
where where we sit right now is that the market
is pricing in that what we have seen from the
economic data is going to continue, and and quite honestly,
if it does, the market's pricing and the right thing.
(04:36):
The question is going to be is that what we
actually get?
Speaker 4 (04:41):
And I think it is.
Speaker 2 (04:42):
A very very real question. Because we went through the
math on yesterday's show. We went through a little bit
of it on Wednesdays. I'm not going to do it
every day for the entire summer because that would be
kind of a horrible show. Nothing likes some good radio math.
But the math works out this way. If nothing else
changes in the strait of horror moves, the US oil
(05:04):
system reaches minimum operational capacity sometime between early July and
late September, most likely in the middle of that, and
at that point prices need to rise further, and leading
up to that point, prices need to rise further in
order to destroy demand. And so this is what we
are going to be reckoning with as we head into
(05:27):
the summer, is how long does that potentially last?
Speaker 3 (05:29):
Well, then that's just a lovely transition to talk about
Exonmobile and Chevron and there executives' views on this oil
price shock and how they are responding to it. And
if there is one theme right now that you are
hearing from oil executives, it is we don't think this
is going to prolong. We are not expanding capacity because
(05:51):
six months from now we think that oil prices will
be lower than where.
Speaker 2 (05:54):
They are right now, and even beyond that, not even
the six months. Remember that when you talk about and oil, Well,
you're talking about, Hey, is this going to be profitable
over a ten to fifteen year period. That's that's ultimately
what the math is. And Mike, I have a question
for you on the back end of this crisis, what
(06:18):
is the what do you think countries that can't produce
very much oil are going to be doing in order
to make sure they don't end up back here again.
Speaker 4 (06:29):
Buying a bunch of oil and storing it in giant bins.
They're going to be doing that.
Speaker 2 (06:33):
They are also going to be saying, hey, how can
we diversify our needs away from hydrocarbons that we can't
produce ourselves. So nukes if we can build them, nuclear
everything like all this stuff where it's like, hey, we
don't have to have things shipped through the straight of
hooem moves great, let's figure out how.
Speaker 4 (06:53):
To build that.
Speaker 2 (06:55):
So I think that part of this is also energy
executives looking at the longer term picture in saying yes,
in the short term next one to three years, there
is absolutely going to be massive demand for our product.
On the back end of that, it's a little more
uncertain because countries that can't produce their own oil because
(07:18):
they don't like it just doesn't exist there in the ground.
They're gonna say, okay, no, this is not for us.
And the other thing, the ones that do have those
resources that need to fill that extra demand in the
short term, they're probably gonna spool up some other production
as well. On the margin. You already see this in
terms of how Mexico's talking about oil, Brazil is talking
(07:40):
about it like you see this in these areas, And
so you get to a place where, yes, oil prices
and again, who knows exactly how long this particular situation
in hormones takes to resolve, but either way, oil prices
are going to remain elevated above pre war levels for
probably two to three years absent a recession.
Speaker 3 (08:02):
So getting to specifics here, Exon Mobile mentioned that about
fifteen percent of their worldwide output remains offline right now
due to war related production outages that cost them some
four hundred million dollars. Fortunately, though, the excess price that
they're getting for selling their oil resulted in a gain
of about one point seven billion dollars, so the four
(08:23):
hundred million dollar loss was more than offset by the
higher prices they're selling their product. At You have to
remember companies like Exon Mobile are so heavily integrated that
they have constant levers to make money and lose money
in just about any scenario. They refine product, they sell
it at gas stations, they pump it out of the ground,
they transport it across the globe, and so depending on
(08:45):
the environment, they make and lose money. But yes, any
company like Exon, like Chevron VP are going to benefit
from much higher oil prices, regardless of how much production
generally speaking, will go offline during that period of time.
But yeah, the key message that I think is being
delivered from companies in the US, both big and small,
(09:05):
in the oil production space are we just aren't. Our
investors are not going to give us the room to
go expand production.
Speaker 2 (09:15):
And if you want the reason why, the answer can
be found in the twenty tens if you take a
look back throughout that period. And I'm pulling it up
right now just so that I can speak authoritatively on
the topic. Ah, Yes, it's the summer of twenty fourteen.
Speaker 4 (09:35):
The World Cup is in Brazil, I believe. I think
it was that one.
Speaker 2 (09:41):
The World Cup was somewhere and people were playing soccer
and they were happy to be playing soccer because the
price of oil had been bludging down from one hundred
dollars a barrel down to by the end of twenty fifteen,
twenty six dollars a barrel got that low. Yes, Michael,
allow me to introduce you to West Texas Intermediate. It
(10:02):
is the US crewed benchmark. And at let's see, in
September of twenty fourteen, it opened the month at ninety
five eighty one a barrel by February first, by February
of twenty sixteen, it hit a low of twenty six.
Speaker 4 (10:18):
Oh five a barrel.
Speaker 3 (10:19):
Remember the days then you could move out there in
your RV and make like one hundred thousand dollars in
North Dakota cooking for oil workers.
Speaker 2 (10:26):
Yeah, that was back in like the early twenty tens.
It was one of the few good jobs that you
could find then because the rest of the economy kind
of sucked. So the reason that I point out this
year is because what happened then is the US was
going through this shale boom back in the early twenty tens,
and Russia and Opek got kind of upset that the
(10:46):
US was able to make so much money basically and said, hey,
screw you, guys, We're just going to turn on the taps.
And so what you ended up with was just this
flood of oil coming onto the market that literally cut
the price by three quarters. And talk to anyone that
worked in the energy industry then and they will tell
you it absolutely shredded companies. The amount of money that
(11:08):
was lost, not just then but in the five years
after with companies just trying to dig out from this
was just ridiculous. So energy companies in their boards basically
at this point are like, no, we're not going to
be doing that again, because they went willy nilly back
in the twenty tens and it burned them. And so
capital discipline is the name of the game for those
(11:30):
guys now, and they don't want to go through that
because quite honestly, a lot of the people working at
these energy companies now worked at once in the twenty
tens that went bankrupt because of overproduction.
Speaker 4 (11:39):
Yep.
Speaker 3 (11:40):
So the lesson they've learned is take the higher prices,
but don't overproduce.
Speaker 2 (11:44):
Quick break here, We've got Apple earnings next.
Speaker 1 (11:48):
Remember you can watch the show live every day on
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(12:09):
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Speaker 5 (12:18):
Get your questions into the Money Matters mail bag, which
is next hour at about eleven thirty five. In order
to get your question into Chuck in Mike, just email
us to TFE Show at gmail dot com once again
TFE Show at gmail dot com, or you can leave
(12:39):
us a voicemail at three three nine three nine nine
four three three three.
Speaker 2 (12:47):
The voicemails are fun because normally you guys have to
listen to us for a couple hours a day, and
instead you can force us to listen to you.
Speaker 4 (12:56):
Spice it up, you know.
Speaker 2 (12:58):
It's uh, it's payback, it's you could say all the
things you've always wanted to say.
Speaker 1 (13:03):
Tuk.
Speaker 2 (13:03):
I might have to bleep a few of them out
if you know, you really say what you think about us,
But hey, it's you know.
Speaker 4 (13:09):
Sit in the chair.
Speaker 2 (13:10):
You gotta deal with that.
Speaker 4 (13:11):
No different than going home at night.
Speaker 2 (13:13):
No, it's all good what happens at your house. Let's
talk about this piece from Bloomberg. Apple forecast tops estimates
even as max shortage's linger. So we got a couple
interesting things here. The first is that Apple is their guidance,
as they said, is insane for the upcoming quarter. They
(13:36):
guided to fourteen to seventeen percent year over year growth
for Q two. Their expectations from analysts was nine point
one percent, So Apple's saying yes, like sales are going
to go way up. The interesting piece, though, and what
I'm wondering about this is Tim Cook again, like Tim
Cook's on his way out. Sure he still ended up
(13:58):
answering some question in this call that John turnas. I
don't know if he didn't want to or how they
divided this up, but I found the ones interesting that
he talked about specifically because he talked about the memory
shortage and said, guys, like, this memory chip problem is
not going away anytime soon. He's like, this isn't gonna
be like a couple quarters. This is a problem for
the foreseeable future. And what I got to tell you,
(14:22):
that's sorry, we gotta be clear.
Speaker 3 (14:23):
I know I've talked about this, but ye, why there's
a memory shortage is because of the AI demand.
Speaker 2 (14:28):
Yes, the artificial intelligence chips that power these data centers
use enormous quantities of memory, and because of all the
money flowing in there, the AI data centers are willing
to pay ridiculous prices like four times as much as
a few months ago for these chips. It's gotten to
the point where Costco has taken memory chips out of
(14:51):
their display computers because they don't want people coming into
the store and stealing them. Like that's how crazy it
is right now. And Tim Cook said, look, this is
gonna be a problem for a wh while. I'm really
wondering what happens on Apple's pricing for upcoming products, because again,
their margins are still really good right now. But this
(15:11):
is eventually going to become problematic if if it stays
in this way, because remember when Apple goes and negotiates,
they are the out eight hundred pound gorilla in the room.
They come in and they say, okay for iPhone, what's
the current one that says it's seventeen or twenty six,
seventeen iPhone seventeen. Hey, here is the quantities that we
(15:33):
need in the pricing and here's the contract. If you
want to deal with us, these are the terms, and
that's just what they get. That contract was signed before
this memory thing became a problem.
Speaker 3 (15:42):
Right, so that profit margins are reflecting prices that they
paid for memory.
Speaker 5 (15:46):
Right.
Speaker 2 (15:46):
The iPhone contract, the iPhones that you have right now
in your hands, Like if you're going to the Apple
store and buying one today, it was made like in
Q four of last year and finally got shipped over
and then you know, so on and so forth. The
question is going to be what happens to pricing as
you get into the next generation this fall, And I
think that's interesting. But yeah, Apple with again a nice
(16:11):
big quarter. You can't call it a nice little quarter.
When you did one hundred and eleven billion dollars in sales.
That's more than a billion dollars a day of apple
stuff that's being sold. It's a whole lot of fruit.
And so I mean to be a company doing four
hundred plus billion dollars in revenue and you're still growing
your revenue with double digits, pretty.
Speaker 3 (16:31):
Wild, Yeah, it is. That's insane notable. You know, Tim Cook,
this was previously known, but September of this year he's
he's out.
Speaker 4 (16:40):
How long has Tim Cooke been seen?
Speaker 3 (16:42):
I mean fifteen, fifteen years and years? Yeah, that's Tim
cooked quite some time. The other piece, the services revenue
portion of this.
Speaker 4 (16:52):
I know they're not realizing a ton right now, but.
Speaker 3 (16:56):
A lot of I'm trying to think of where Apple's
playing in the AI space, because largely they're not right now.
They're licensing some technology from Google in order to make
their assistant a little bit smarter.
Speaker 4 (17:08):
But if we see it show up somewhere in the
short time, you might.
Speaker 3 (17:11):
See services revenue boost with you know, people subscribing to
these AI models on their mobile devices. I don't think
that's gonna be a huge boost, but I continue to
wonder how long Apple waits before diving in more to AI.
Speaker 2 (17:28):
I don't think they're going to just at all. No,
I guess here's you know, we always say that Apple
tends to wait like Apple's never the first mover.
Speaker 4 (17:40):
No, they're not.
Speaker 2 (17:41):
They like to go into markets that other people have
already explored, and then they say, okay, this is for us.
I don't know that artificial intelligence.
Speaker 4 (17:49):
Is one where you can really do that.
Speaker 2 (17:52):
You know, it's kind of like there's a reason why
Apple didn't get into search just as an example. Yeah,
part of it is they didn't need to because they
already had all the data that they need there. I think,
quite honestly, they're looking at They're like, you guys can
spend all of the money on this if you want,
and if we want something, we can license it from you.
If you want to be the exclusive provider of AI
on Apple, great, you can pay us to do so,
(18:14):
just like Google pays us to be the you know,
default search engine, and they're happy to take you know,
whatever side they want there. Because I don't think you
can catch up, quite honestly, if you really believe that
the AI the AI race is being run in terms of, hey,
you got to build these data centers and models to
then you know, have the inference capacity and this, I
(18:35):
quite honestly think that if you're trying to start that now,
I think there's just too far to go to catch up.
Speaker 3 (18:43):
It's just amazing to me to see a major tech
company avoiding AI and being a beneficiary in the style
and receiving benefits in the stock market today.
Speaker 4 (18:54):
Right AI has been sucking.
Speaker 3 (18:56):
Up every molecule of oxygen in the room for the
last three years, and yet Apple still manages to surprise
to the upside while you know, zagging when everybody else
is digging.
Speaker 2 (19:08):
They're the Toyota of techy again. Five years ago, everyone
in their grandmother was like, hey, we got to build
the electric vehicles. Everyone's gonna want the evs, and Toyo
was like that pass and it turned out to be right.
Even though the new Highlander is going to be electric
only who dow quick break when we come back, We've
(19:31):
got Wall Street Watch.
Speaker 1 (19:41):
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 till now for Wall
Street Watch, treking the stocks, potato and the headlines driving
markets so far today right here on the Financial extra
Change Radio Network.
Speaker 5 (20:01):
The traders are turning the calendar to May, with markets
adding to their rally in April, and both the SMP
five hundred and NASDAK notched their largest month of gain
since twenty twenty, driven by strong earnings and optimism around tech.
Right now, the Dow is up by half a percent,
SMP five hundred up seven tenths of a percent, NASDAK
(20:22):
up nine tenths of one percent, or two hundred and
seventeen points. RUSS two thousand is up about a quarter
percent ten year, Treasure reeled down three business points at
four point three five eight percent, in Oil retreating four
percent today trading at one hundred dollars a barrel. Apple
gaining five percent after the tech giant reported its iPhone
(20:42):
revenue climbed twenty one point seven percent to nearly fifty
seven billion dollars in the previous quarter. Meanwhile, Sandis shares
are up two percent after the data storage company be
earnings expectations and offered stronger than expected guidance. Western Digital
also impressed with its quarterly profit fits, yet the stock
is down over one percent. Elsewhere, Alassian stock is rallying
(21:05):
twenty one percent after the software company reported strong cloud
growth and data center revenue. Video game company Roadblocks cut
its full year guidance has efforts to boost its safety
features weight on its latest results, that stock tanking fifteen percent.
Reddit reported double digit sales growth in AD revenue and
boosted sales and profit sending shares up by eleven percent,
(21:28):
and Chlorox down by nine percent after the consumer products
company cut its full year earnings guidance reflecting increased costs
from the acquisition of per Purel maker Gojo. I'm Tucker Silva,
and that is Wall Street Watch.
Speaker 2 (21:46):
Let's see, we want to talk some AI stuff for
a little bit. Not a day goes by that we
don't talk about it.
Speaker 3 (21:53):
Yeah, this was easily the biggest week we'll get this
quarter for earnings from those companies that are driving the spending.
So I think it deserves a wee bit more attention,
don't you, Chuck, Yes, I do so. Amazon, Microsoft, Meta,
and Alphabet all reported earnings two days ago, yes, Wednesday
(22:14):
of this week. That market capitalization combined I believe exceeds
eleven trillion dollars, and now they're spending on CAPEX four
calendar year twenty twenty six now exceeds seven hundred billion dollars.
I think it's closing in on seeven to ten okay
seven ten. For the year started this year at six
hundred billion.
Speaker 2 (22:33):
The projections next year like eight hundred and thirty in
the year after like one d one point one trillion,
So it's again we're realistically talking pretty close to three
trillion in CAPEX twenty six through twenty eight.
Speaker 3 (22:45):
So good news and bad news. Good news is we're
very clearly feeling it when it comes to things like
measurements of GDP. Without this spending, the economy, you know, granted,
it's impossible to pull that spending out and guess what
the economy would be doing. So it is a major
contributor to GDP growth in the first quarter, and I
expect that it will remain so for the next several
(23:07):
Other good news that I take not every company is
being treated equally, right. It's not just hey, because you're
spending the money, we are going to reward your shares
Alphabet Amazon generally speaking rewarded this year, sorry this quarter,
Microsoft's Meta not so much. And so I do like
to see that investors are at least differentiating between good
(23:32):
plans and uncertain plans when it comes to this AI spend.
But I'll tell you, and I know you voiced this
early this week, Chuck, is the questions of a year
ago about how this is going to be monetized over
what time period, and whether or not these companies can
(23:53):
actually make a profit on it the way they were
on search and advertising and the other businesses that they
have remains a very open question and very difficult to
make the math work.
Speaker 2 (24:05):
Yeah, it's one where the only way that I can
figure it out is the cost for using AI has
to go up quite a bit, which in turn might
reduce the demand for AI, which means the cost has
to go up more than in order to cover this.
And so I think where I land on this is
(24:26):
it might be that until you see big improvements in
the efficiency of AI, where it may end up being
like three or four years from now, is yes, it
can do amazing things, but it's not really huge cost
savings over employees.
Speaker 4 (24:40):
Necessarily the humans are cheaper than the robots.
Speaker 2 (24:43):
It might be that we are until the AI figures
out a way to cheapen itself, which I'm sure it's
working on as it tries to eliminate us from you know,
running the place.
Speaker 3 (24:56):
The question for the industry as a whole is which
company is going to be the first one to.
Speaker 4 (25:03):
Blink under financial pressure?
Speaker 3 (25:06):
I think, right, if we're looking for a potential turn
in this story, which may not come, but you know
already investors are questioning Metow a little bit to say,
you know, how exactly are you going to be making
money on one hundred and eighty billion dollars of capital expenditure,
and does that pressure mount to the point where one
of these companies needs to pivot away and say, yeah,
(25:27):
you know what, we sank this money. We were planning
on spending quite a bit next year. But like we've
done with the metaverse or other types of projects that
just didn't work out the way we planned, we're going
to reshuffle the deck, go back to the drawing board,
and go back to what has made us this company
in the first place, which is delivering products to your home,
or selling cloud capacity, or delivering advertisements to a whole
(25:49):
bunch of people at seventy percent profit margins.
Speaker 4 (25:52):
The question that's.
Speaker 2 (25:53):
Going to matter for the broader economy then is well,
that's fine, but tell me about the debt, because it's
one thing to say, okay, like we're gonna pivot away
if you're meta in the metaverse. Just as an example,
Meta didn't take out any debt to get all metaversical
on us. Mark was just like, hey, I want to
(26:15):
wear headsets. I think they make me look good. Let's
spend forty billion dollars in order to make me look
good in a headset with no legs. Thank you, Yes,
and that was fine, Like investors eventually tolerated it because
the company was making money and it wasn't affecting the
bottom line, and that's that's all well and good. But
now you've got dudes like Oracle coming in being like, hey,
(26:38):
what do you mean cash flow? What does that mean exactly?
Because yes, they have to raise a ton of debt
in order to cover these costs. And the problem is
if that debt gets to a certain size and they
just abandon this, the math doesn't really math for some
of these companies, Like it becomes proba just in terms
(27:00):
of servicing the debt if you go out a few
years at these these build rates. And the other piece
then is okay, if some of these companies can't service
the debt, then how much of it is out there?
And what are the broader impacts if some of these
companies have to default on it to the US economy.
Speaker 3 (27:18):
I know that the scale of this spend at this
point fores surpasses the spend on things like the Internet
build out or railroads or radio dollar wise, not GDP wise.
But let's talk about the historical context. And I recognize
many many people are going to tell me that AI
is different than railroads or different than the internet.
Speaker 4 (27:41):
So it's not.
Speaker 3 (27:41):
But well, many people are going to tell me that though,
no they're wrong. But can we talk about the historical
context of I mean, we still have railroads today. Yes,
I don't think we can look at that as a failure.
We still have the internet. That's how our show is
on radio.
Speaker 2 (27:55):
If you haven't paid attention to like not paid attention,
if you've never read about the bubble that happened in
radio in the early twentieth century.
Speaker 3 (28:02):
Well I'm sure that plenty people haven't. So let's explain
how that went, because it's not completely different than what
we are experiencing right now.
Speaker 1 (28:09):
No.
Speaker 2 (28:09):
What happens is there's an exciting new technology that everyone
sees the potential in, and so a ton of capital
rushes in. Some of it gets deployed correctly, a lot
of it gets deployed incorrectly and can't be profitable because
there's just too much money chasing too few returns. What
ends up happening in every one of these major cases
is you have a technology that does end up transforming
(28:32):
the world for decades or centuries afterwards, but a ton
of money ends up being lost in the process because
there's this rush to invest when in the short term
for actually being able to fill the demand, it's just
not there. There's just not enough demand to meet the supply,
and so you end up with this malinvestment bubble that
(28:54):
eventually pops. And so the two things that I think
are going to remain true in my opinion. Look, at
some point in the future, they're going to be an
awful lot of people hurt by the AI bubble. It
might still have like years to run, it might have
a decade to run. Like I'm not saying this is tomorrow,
but ultimately we're going to be using a lot more
(29:16):
AI at the end of said bubble than we were
at the beginning or even right now. So those two
things are true, I think, and they can be.
Speaker 4 (29:26):
And there will be winners. There'll be a lot of
wood losers too. Losers. Let's take a quick break.
Speaker 2 (29:32):
When we come back, let's talk a little bit about
the national debt crossing an important milestone.
Speaker 1 (29:40):
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Speaker 5 (30:12):
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Speaker 2 (30:50):
So we crossed a milestone on March thirty first, where
the publicly held death of the United States of America
crossed one hundred percent of GDP. Now, the total debt
outstanding UH is higher than that, but a bunch of
it's held by the FED and other central banks and
(31:11):
things like that, which means it's not publicly held because
the central the Fed is fundamentally a different buyer of
debt than you or I.
Speaker 3 (31:21):
Uh.
Speaker 2 (31:21):
But basically what we have here is we are continuing
to run up that debt to GDP ratio because we're
running six to seven percent deficits right now with about
five percent nominal growth, which means this is going up
about one to two percent a year. And so that's
kind of where we are.
Speaker 3 (31:41):
Yeah, it's okay because I see a lot of fundamental
seriousness in Washington about dealing with our nation's debt issues.
Speaker 2 (31:48):
You remember Doze last year.
Speaker 4 (31:51):
We haven't talked about that in a while, like a
week and a half.
Speaker 2 (31:53):
Yeah, it's uh again, it just was something that fundamentally
didn't do anything anything is it relates to dealing with
the deficit.
Speaker 4 (32:02):
It did?
Speaker 2 (32:03):
You know, a bunch of people left like the federal government.
But as we outlined, employment is not the main expense
of the federal government, and so if you're not willing
to deal with the actual stuff that is, or raise revenue,
you're not gonna get to a point where you're actually
dealing with the deficit. So that's kind of where we are.
Speaker 3 (32:22):
Yeah, and you know, again we talked about the deficit,
and this isn't directly tied. But obviously we have Social
Security and Medicare programs that the debt to GDP. Right,
there's no magic number here where this becomes an explosion.
Japan's like, yeah, so there is no magic number, but
when it comes to Social Security and Medicare there is.
(32:43):
In fact, there is a magic date at which we
estimate the trust fund will be empty and beneficiaries will
receive a twenty some odd percent cut to benefits on
Social Security or Medicare. I don't think anybody really has
an answer as to what happens in that case. I
guess programs get cut and benefits get cut substantially. So
you're too fundamentally different issues. And yet, even with those
(33:05):
ones where there is a deadline coming, the only Social
Security proposals that have gone anywhere over the last few
years to raise benefits, which are raise benefits for recipients.
There's another one floating around there right now to add
an additional benefit for caretakers caregivers. Rather so, anybody that
you know, for instance, cares for a child or an
(33:26):
adult would get credit years for doing so on Social Security.
And therefore wait, hold on, hold on, hold on, yeah, yeah, holding.
Speaker 2 (33:36):
I want to make sure I'm understanding this. Yeah, and
this is not to disparage anyone that is raising children.
Speaker 4 (33:43):
In place of.
Speaker 2 (33:46):
Like working a job outside the house. But you're telling
me there's a proposal in place that will give people
credit for Social Security for doing that despite not paying
into the Social Security taxes.
Speaker 3 (34:00):
The Social Security Caregiver Credit Act of twenty twenty three
proposes giving providing up to five years of Social Security
earnings credits to unpaid caregivers, protecting their retirement benefits. It
covers those caring for dependents under twelve or with chronic
illnesses for at least eighty hours a month, aimed at
offsetting gaps in employment.
Speaker 2 (34:21):
Okay, I'd say this in the nicest way possible, but
that's completely insane. It's not that that isn't work. That's
not what I'm saying. Sure, what I'm saying is that
it is fiscally insane because you are creating more liabilities
without the like matching asset.
Speaker 3 (34:39):
Chuck, I mean, you could say the exact same thing
about the GPO, and I know.
Speaker 2 (34:43):
But here's the thing, Like, I'm starting to get a
little bit upset about this, Okay, Cuz again, my favorite
scene in one of my favorite show's succession is where
the dad's talking to all of his kids and he
just goes, you are not serious people, becau, They're just
they're putting out just like crap. And where we are
right now when it comes to any of this is
(35:05):
there is no one who is a serious person about
the deficit who's actually in a position to do.
Speaker 1 (35:11):
Anything about it.
Speaker 2 (35:12):
Yeah, we've all Does anyone listening know that? Again, like,
there are two different ways that you can deal with this.
You can balance this one of two ways. You can
cut entitlements or you can raise taxes.
Speaker 4 (35:29):
That's it.
Speaker 2 (35:31):
Do you know what the only things are that we
do right now? We raise entitlements and cut taxes. It's
the exact opposite. It's the exact opposite. Yes, I'm just
we are fundamentally unseerious people because we want all of
the ponies and unicorns and we don't want any of
(35:51):
the poop from them. We want poopless unicorns, and you
can't have a unicorn that doesn't poop.
Speaker 4 (36:01):
It's just this is ridiculous at this point, it is
rather silly.
Speaker 2 (36:05):
So I don't know what I'm gonna do. Like again,
there's nothing you can do as like a private citizen,
Yes there is, what what what can I do?
Speaker 4 (36:12):
What? What what can I do?
Speaker 3 (36:13):
Michael tell me again, vote people out of office. That
pretty much everybody and the thing I recognize. But like Mike,
here's the problem. Every single person that runs for office
now runs on being an outsider because we don't like
the insiders. And then they get there, they get there
(36:35):
and they don't do anything. They just become the insiders.
And so it's like, maybe I want someone who runs
on being an insider. Actually, like I I'm just I'm
out of options at this point. I don't know what
to do because no one wants to deal with this
because we just want all the fun and none of
the pain. And eventually the pain is gonna come from
(36:55):
an involuntary choice that like we're forced into but like
we were just not serious people. And the wild thing
is you could point to a time you go back
to the eighties and nineties, Reagan raise taxes as a republican,
cutting in the nineties, cut entitlement programs as a democrat. Yeah,
(37:18):
Bush raise taxes as a republican, Like you can go
back in time to the eighties and nineties and be like, oh,
these are people that had to buck their party's orthodoxy
because it was like the right thing to do for
the country. And then you get to like two thousand, everyone's.
Speaker 2 (37:33):
Like new millennium, new math, man, Like, what are we
doing here? Yeah, one plus one equals five. I'm sorry, man, Like,
it's just we're not serious people, and until we want
to actually do something about.
Speaker 3 (37:54):
It, this is a non part isn't issue, folks, No,
it consistently go look at go look at debt increases
over Republicans Democrats. For the last twenty six years, it
has been just poppycock.
Speaker 2 (38:09):
Let's take a quick break, and when we come back
hour two, I'm gonna try to cool off a little
bit in the interim
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(00:43):
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(01:03):
This is the Financial Exchange with Chuck Zada and Mike Armstrong.
Speaker 2 (01:10):
Honeyho, it's Chuck, Mike and Tucker with you here, and
Happy May first to everyone, the last day of the week,
the first day of the month, full moon. A lot
happening in terms of the calendar and space right now.
Speaker 3 (01:27):
Yeah, I really hadn't added the full moon to the list,
but it's a Friday.
Speaker 4 (01:31):
Why not.
Speaker 2 (01:32):
Do you know that this is actually going to be
a blue moon month? Oh yeah, two full moons in
the month of May. So Happy May to everyone, and
we're gonna kick things off talking about this piece from
the New York Times. Stocks in April on a high
even as oil prices touch new peak. And here's the
deal is, for the month of March, stocks and oil
(01:54):
were negatively correlated, meaning that as oil went up, stocks
went down. For the month of April, stocks and oil
are positively correlated. Specifically for the last two and a
half weeks now. Oil has gone on West Texas Intermediate
from eighty dollars a barrel up to a touch one
ten briefly and a couple days ago, but you know
(02:17):
since has since reversed a little bit. We'll talk about
some of the mechanics on that. If we want to
I don't know if we want to, but it's oil's
gone up twenty five percent in the last couple weeks,
and stocks have shrugged it off, and the S and
P five hundred during that same time has gone from
let's see about yeah, sixty nine hundred up to seventy
(02:40):
two sixty, so three four percent on the smp SO.
Stocks up, Oil up is what we are seeing right now,
and I don't think it's entirely irrational if you're just
looking at the economic data that we've been getting. The
labor market seems to be firming up a little bit.
We continue to see very low initial unemployment claims and
(03:03):
continuing claims are declining. Actually, we are seeing signs that
job openings are starting to come online again, and you've
got all kinds of activity and freight markets. You talk
to anyone in the trucking or railroad industry and they're like,
it's absolutely nuts right now. Manufacturing is cooking in Q one.
(03:24):
It may be a restocking cycle, it may not be,
but you can't deny what's happening. Like things look good
there and so couple that with you know, good earning
so far through the quarter, and ultimately the picture that
you get is one where Yeah, to this point, energy
prices have gone up a lot. We don't really like it,
but you'd be hard pressed to be like, hey, this
(03:45):
is dramatically altered the trajectory of the US economy and
the data to what we've seen to this point.
Speaker 4 (03:51):
I think that's fair. That's the read. So where do
we end April?
Speaker 3 (03:55):
Get up nine percent plus on the s and P
five hundred after obviously dropping for the month of March.
I think you're to date we're up around five on
the SMP and it's been a yeah. Again, it's been
two different markets, right, a energy market that's still SMBO
up ten point four for then the.
Speaker 2 (04:14):
Month of April, Yeah, opened at sixty five fifty six,
closed at seventy two oh nine. And so ultimately, like
where where we sit right now is that the market
is pricing in that what we have seen from the
economic data is going to continue, and and quite honestly,
if it does, the market's pricing and the right thing.
(04:36):
The question is going to be is that what we
actually get?
Speaker 4 (04:41):
And I think it is.
Speaker 2 (04:42):
A very very real question. Because we went through the
math on yesterday's show. We went through a little bit
of it on Wednesdays. I'm not going to do it
every day for the entire summer because that would be
kind of a horrible show. Nothing likes some good radio math.
But the math works out this way. If nothing else
changes in the strait of horror moves, the US oil
(05:04):
system reaches minimum operational capacity sometime between early July and
late September, most likely in the middle of that, and
at that point prices need to rise further, and leading
up to that point, prices need to rise further in
order to destroy demand. And so this is what we
are going to be reckoning with as we head into
(05:27):
the summer, is how long does that potentially last?
Speaker 3 (05:29):
Well, then that's just a lovely transition to talk about
Exonmobile and Chevron and there executives' views on this oil
price shock and how they are responding to it. And
if there is one theme right now that you are
hearing from oil executives, it is we don't think this
is going to prolong. We are not expanding capacity because
(05:51):
six months from now we think that oil prices will
be lower than where.
Speaker 2 (05:54):
They are right now, and even beyond that, not even
the six months. Remember that when you talk about and oil, Well,
you're talking about, Hey, is this going to be profitable
over a ten to fifteen year period. That's that's ultimately
what the math is. And Mike, I have a question
for you on the back end of this crisis, what
(06:18):
is the what do you think countries that can't produce
very much oil are going to be doing in order
to make sure they don't end up back here again.
Speaker 4 (06:29):
Buying a bunch of oil and storing it in giant bins.
They're going to be doing that.
Speaker 2 (06:33):
They are also going to be saying, hey, how can
we diversify our needs away from hydrocarbons that we can't
produce ourselves. So nukes if we can build them, nuclear
everything like all this stuff where it's like, hey, we
don't have to have things shipped through the straight of
hooem moves great, let's figure out how.
Speaker 4 (06:53):
To build that.
Speaker 2 (06:55):
So I think that part of this is also energy
executives looking at the longer term picture in saying yes,
in the short term next one to three years, there
is absolutely going to be massive demand for our product.
On the back end of that, it's a little more
uncertain because countries that can't produce their own oil because
(07:18):
they don't like it just doesn't exist there in the ground.
They're gonna say, okay, no, this is not for us.
And the other thing, the ones that do have those
resources that need to fill that extra demand in the
short term, they're probably gonna spool up some other production
as well. On the margin. You already see this in
terms of how Mexico's talking about oil, Brazil is talking
(07:40):
about it like you see this in these areas, And
so you get to a place where, yes, oil prices
and again, who knows exactly how long this particular situation
in hormones takes to resolve, but either way, oil prices
are going to remain elevated above pre war levels for
probably two to three years absent a recession.
Speaker 3 (08:02):
So getting to specifics here, Exon Mobile mentioned that about
fifteen percent of their worldwide output remains offline right now
due to war related production outages that cost them some
four hundred million dollars. Fortunately, though, the excess price that
they're getting for selling their oil resulted in a gain
of about one point seven billion dollars, so the four
(08:23):
hundred million dollar loss was more than offset by the
higher prices they're selling their product. At You have to
remember companies like Exon Mobile are so heavily integrated that
they have constant levers to make money and lose money
in just about any scenario. They refine product, they sell
it at gas stations, they pump it out of the ground,
they transport it across the globe, and so depending on
(08:45):
the environment, they make and lose money. But yes, any
company like Exon, like Chevron VP are going to benefit
from much higher oil prices, regardless of how much production
generally speaking, will go offline during that period of time.
But yeah, the key message that I think is being
delivered from companies in the US, both big and small,
(09:05):
in the oil production space are we just aren't. Our
investors are not going to give us the room to
go expand production.
Speaker 2 (09:15):
And if you want the reason why, the answer can
be found in the twenty tens if you take a
look back throughout that period. And I'm pulling it up
right now just so that I can speak authoritatively on
the topic. Ah, Yes, it's the summer of twenty fourteen.
Speaker 4 (09:35):
The World Cup is in Brazil, I believe. I think
it was that one.
Speaker 2 (09:41):
The World Cup was somewhere and people were playing soccer
and they were happy to be playing soccer because the
price of oil had been bludging down from one hundred
dollars a barrel down to by the end of twenty fifteen,
twenty six dollars a barrel got that low. Yes, Michael,
allow me to introduce you to West Texas Intermediate. It
(10:02):
is the US crewed benchmark. And at let's see, in
September of twenty fourteen, it opened the month at ninety
five eighty one a barrel by February first, by February
of twenty sixteen, it hit a low of twenty six.
Speaker 4 (10:18):
Oh five a barrel.
Speaker 3 (10:19):
Remember the days then you could move out there in
your RV and make like one hundred thousand dollars in
North Dakota cooking for oil workers.
Speaker 2 (10:26):
Yeah, that was back in like the early twenty tens.
It was one of the few good jobs that you
could find then because the rest of the economy kind
of sucked. So the reason that I point out this
year is because what happened then is the US was
going through this shale boom back in the early twenty tens,
and Russia and Opek got kind of upset that the
(10:46):
US was able to make so much money basically and said, hey,
screw you, guys, We're just going to turn on the taps.
And so what you ended up with was just this
flood of oil coming onto the market that literally cut
the price by three quarters. And talk to anyone that
worked in the energy industry then and they will tell
you it absolutely shredded companies. The amount of money that
(11:08):
was lost, not just then but in the five years
after with companies just trying to dig out from this
was just ridiculous. So energy companies in their boards basically
at this point are like, no, we're not going to
be doing that again, because they went willy nilly back
in the twenty tens and it burned them. And so
capital discipline is the name of the game for those
(11:30):
guys now, and they don't want to go through that
because quite honestly, a lot of the people working at
these energy companies now worked at once in the twenty
tens that went bankrupt because of overproduction.
Speaker 4 (11:39):
Yep.
Speaker 3 (11:40):
So the lesson they've learned is take the higher prices,
but don't overproduce.
Speaker 2 (11:44):
Quick break here, We've got Apple earnings next.
Speaker 1 (11:48):
Remember you can watch the show live every day on
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(12:09):
live on x face. He's the Financial Exchange.
Speaker 5 (12:18):
Get your questions into the Money Matters mail bag, which
is next hour at about eleven thirty five. In order
to get your question into Chuck in Mike, just email
us to TFE Show at gmail dot com once again
TFE Show at gmail dot com, or you can leave
(12:39):
us a voicemail at three three nine three nine nine
four three three three.
Speaker 2 (12:47):
The voicemails are fun because normally you guys have to
listen to us for a couple hours a day, and
instead you can force us to listen to you.
Speaker 4 (12:56):
Spice it up, you know.
Speaker 2 (12:58):
It's uh, it's payback, it's you could say all the
things you've always wanted to say.
Speaker 1 (13:03):
Tuk.
Speaker 2 (13:03):
I might have to bleep a few of them out
if you know, you really say what you think about us,
But hey, it's you know.
Speaker 4 (13:09):
Sit in the chair.
Speaker 2 (13:10):
You gotta deal with that.
Speaker 4 (13:11):
No different than going home at night.
Speaker 2 (13:13):
No, it's all good what happens at your house. Let's
talk about this piece from Bloomberg. Apple forecast tops estimates
even as max shortage's linger. So we got a couple
interesting things here. The first is that Apple is their guidance,
as they said, is insane for the upcoming quarter. They
(13:36):
guided to fourteen to seventeen percent year over year growth
for Q two. Their expectations from analysts was nine point
one percent, So Apple's saying yes, like sales are going
to go way up. The interesting piece, though, and what
I'm wondering about this is Tim Cook again, like Tim
Cook's on his way out. Sure he still ended up
(13:58):
answering some question in this call that John turnas. I
don't know if he didn't want to or how they
divided this up, but I found the ones interesting that
he talked about specifically because he talked about the memory
shortage and said, guys, like, this memory chip problem is
not going away anytime soon. He's like, this isn't gonna
be like a couple quarters. This is a problem for
the foreseeable future. And what I got to tell you,
(14:22):
that's sorry, we gotta be clear.
Speaker 3 (14:23):
I know I've talked about this, but ye, why there's
a memory shortage is because of the AI demand.
Speaker 2 (14:28):
Yes, the artificial intelligence chips that power these data centers
use enormous quantities of memory, and because of all the
money flowing in there, the AI data centers are willing
to pay ridiculous prices like four times as much as
a few months ago for these chips. It's gotten to
the point where Costco has taken memory chips out of
(14:51):
their display computers because they don't want people coming into
the store and stealing them. Like that's how crazy it
is right now. And Tim Cook said, look, this is
gonna be a problem for a wh while. I'm really
wondering what happens on Apple's pricing for upcoming products, because again,
their margins are still really good right now. But this
(15:11):
is eventually going to become problematic if if it stays
in this way, because remember when Apple goes and negotiates,
they are the out eight hundred pound gorilla in the room.
They come in and they say, okay for iPhone, what's
the current one that says it's seventeen or twenty six,
seventeen iPhone seventeen. Hey, here is the quantities that we
(15:33):
need in the pricing and here's the contract. If you
want to deal with us, these are the terms, and
that's just what they get. That contract was signed before
this memory thing became a problem.
Speaker 3 (15:42):
Right, so that profit margins are reflecting prices that they
paid for memory.
Speaker 5 (15:46):
Right.
Speaker 2 (15:46):
The iPhone contract, the iPhones that you have right now
in your hands, Like if you're going to the Apple
store and buying one today, it was made like in
Q four of last year and finally got shipped over
and then you know, so on and so forth. The
question is going to be what happens to pricing as
you get into the next generation this fall, And I
think that's interesting. But yeah, Apple with again a nice
(16:11):
big quarter. You can't call it a nice little quarter.
When you did one hundred and eleven billion dollars in sales.
That's more than a billion dollars a day of apple
stuff that's being sold. It's a whole lot of fruit.
And so I mean to be a company doing four
hundred plus billion dollars in revenue and you're still growing
your revenue with double digits, pretty.
Speaker 3 (16:31):
Wild, Yeah, it is. That's insane notable. You know, Tim Cook,
this was previously known, but September of this year he's
he's out.
Speaker 4 (16:40):
How long has Tim Cooke been seen?
Speaker 3 (16:42):
I mean fifteen, fifteen years and years? Yeah, that's Tim
cooked quite some time. The other piece, the services revenue
portion of this.
Speaker 4 (16:52):
I know they're not realizing a ton right now, but.
Speaker 3 (16:56):
A lot of I'm trying to think of where Apple's
playing in the AI space, because largely they're not right now.
They're licensing some technology from Google in order to make
their assistant a little bit smarter.
Speaker 4 (17:08):
But if we see it show up somewhere in the
short time, you might.
Speaker 3 (17:11):
See services revenue boost with you know, people subscribing to
these AI models on their mobile devices. I don't think
that's gonna be a huge boost, but I continue to
wonder how long Apple waits before diving in more to AI.
Speaker 2 (17:28):
I don't think they're going to just at all. No,
I guess here's you know, we always say that Apple
tends to wait like Apple's never the first mover.
Speaker 4 (17:40):
No, they're not.
Speaker 2 (17:41):
They like to go into markets that other people have
already explored, and then they say, okay, this is for us.
I don't know that artificial intelligence.
Speaker 4 (17:49):
Is one where you can really do that.
Speaker 2 (17:52):
You know, it's kind of like there's a reason why
Apple didn't get into search just as an example. Yeah,
part of it is they didn't need to because they
already had all the data that they need there. I think,
quite honestly, they're looking at They're like, you guys can
spend all of the money on this if you want,
and if we want something, we can license it from you.
If you want to be the exclusive provider of AI
on Apple, great, you can pay us to do so,
(18:14):
just like Google pays us to be the you know,
default search engine, and they're happy to take you know,
whatever side they want there. Because I don't think you
can catch up, quite honestly, if you really believe that
the AI the AI race is being run in terms of, hey,
you got to build these data centers and models to
then you know, have the inference capacity and this, I
(18:35):
quite honestly think that if you're trying to start that now,
I think there's just too far to go to catch up.
Speaker 3 (18:43):
It's just amazing to me to see a major tech
company avoiding AI and being a beneficiary in the style
and receiving benefits in the stock market today.
Speaker 4 (18:54):
Right AI has been sucking.
Speaker 3 (18:56):
Up every molecule of oxygen in the room for the
last three years, and yet Apple still manages to surprise
to the upside while you know, zagging when everybody else
is digging.
Speaker 2 (19:08):
They're the Toyota of techy again. Five years ago, everyone
in their grandmother was like, hey, we got to build
the electric vehicles. Everyone's gonna want the evs, and Toyo
was like that pass and it turned out to be right.
Even though the new Highlander is going to be electric
only who dow quick break when we come back, We've
(19:31):
got Wall Street Watch.
Speaker 1 (19:41):
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 till now for Wall
Street Watch, treking the stocks, potato and the headlines driving
markets so far today right here on the Financial extra
Change Radio Network.
Speaker 5 (20:01):
The traders are turning the calendar to May, with markets
adding to their rally in April, and both the SMP
five hundred and NASDAK notched their largest month of gain
since twenty twenty, driven by strong earnings and optimism around tech.
Right now, the Dow is up by half a percent,
SMP five hundred up seven tenths of a percent, NASDAK
(20:22):
up nine tenths of one percent, or two hundred and
seventeen points. RUSS two thousand is up about a quarter
percent ten year, Treasure reeled down three business points at
four point three five eight percent, in Oil retreating four
percent today trading at one hundred dollars a barrel. Apple
gaining five percent after the tech giant reported its iPhone
(20:42):
revenue climbed twenty one point seven percent to nearly fifty
seven billion dollars in the previous quarter. Meanwhile, Sandis shares
are up two percent after the data storage company be
earnings expectations and offered stronger than expected guidance. Western Digital
also impressed with its quarterly profit fits, yet the stock
is down over one percent. Elsewhere, Alassian stock is rallying
(21:05):
twenty one percent after the software company reported strong cloud
growth and data center revenue. Video game company Roadblocks cut
its full year guidance has efforts to boost its safety
features weight on its latest results, that stock tanking fifteen percent.
Reddit reported double digit sales growth in AD revenue and
boosted sales and profit sending shares up by eleven percent,
(21:28):
and Chlorox down by nine percent after the consumer products
company cut its full year earnings guidance reflecting increased costs
from the acquisition of per Purel maker Gojo. I'm Tucker Silva,
and that is Wall Street Watch.
Speaker 2 (21:46):
Let's see, we want to talk some AI stuff for
a little bit. Not a day goes by that we
don't talk about it.
Speaker 3 (21:53):
Yeah, this was easily the biggest week we'll get this
quarter for earnings from those companies that are driving the spending.
So I think it deserves a wee bit more attention,
don't you, Chuck, Yes, I do so. Amazon, Microsoft, Meta,
and Alphabet all reported earnings two days ago, yes, Wednesday
(22:14):
of this week. That market capitalization combined I believe exceeds
eleven trillion dollars, and now they're spending on CAPEX four
calendar year twenty twenty six now exceeds seven hundred billion dollars.
I think it's closing in on seeven to ten okay
seven ten. For the year started this year at six
hundred billion.
Speaker 2 (22:33):
The projections next year like eight hundred and thirty in
the year after like one d one point one trillion,
So it's again we're realistically talking pretty close to three
trillion in CAPEX twenty six through twenty eight.
Speaker 3 (22:45):
So good news and bad news. Good news is we're
very clearly feeling it when it comes to things like
measurements of GDP. Without this spending, the economy, you know, granted,
it's impossible to pull that spending out and guess what
the economy would be doing. So it is a major
contributor to GDP growth in the first quarter, and I
expect that it will remain so for the next several
(23:07):
Other good news that I take not every company is
being treated equally, right. It's not just hey, because you're
spending the money, we are going to reward your shares
Alphabet Amazon generally speaking rewarded this year, sorry this quarter,
Microsoft's Meta not so much. And so I do like
to see that investors are at least differentiating between good
(23:32):
plans and uncertain plans when it comes to this AI spend.
But I'll tell you, and I know you voiced this
early this week, Chuck, is the questions of a year
ago about how this is going to be monetized over
what time period, and whether or not these companies can
(23:53):
actually make a profit on it the way they were
on search and advertising and the other businesses that they
have remains a very open question and very difficult to
make the math work.
Speaker 2 (24:05):
Yeah, it's one where the only way that I can
figure it out is the cost for using AI has
to go up quite a bit, which in turn might
reduce the demand for AI, which means the cost has
to go up more than in order to cover this.
And so I think where I land on this is
(24:26):
it might be that until you see big improvements in
the efficiency of AI, where it may end up being
like three or four years from now, is yes, it
can do amazing things, but it's not really huge cost
savings over employees.
Speaker 4 (24:40):
Necessarily the humans are cheaper than the robots.
Speaker 2 (24:43):
It might be that we are until the AI figures
out a way to cheapen itself, which I'm sure it's
working on as it tries to eliminate us from you know,
running the place.
Speaker 3 (24:56):
The question for the industry as a whole is which
company is going to be the first one to.
Speaker 4 (25:03):
Blink under financial pressure?
Speaker 3 (25:06):
I think, right, if we're looking for a potential turn
in this story, which may not come, but you know
already investors are questioning Metow a little bit to say,
you know, how exactly are you going to be making
money on one hundred and eighty billion dollars of capital expenditure,
and does that pressure mount to the point where one
of these companies needs to pivot away and say, yeah,
(25:27):
you know what, we sank this money. We were planning
on spending quite a bit next year. But like we've
done with the metaverse or other types of projects that
just didn't work out the way we planned, we're going
to reshuffle the deck, go back to the drawing board,
and go back to what has made us this company
in the first place, which is delivering products to your home,
or selling cloud capacity, or delivering advertisements to a whole
(25:49):
bunch of people at seventy percent profit margins.
Speaker 4 (25:52):
The question that's.
Speaker 2 (25:53):
Going to matter for the broader economy then is well,
that's fine, but tell me about the debt, because it's
one thing to say, okay, like we're gonna pivot away
if you're meta in the metaverse. Just as an example,
Meta didn't take out any debt to get all metaversical
on us. Mark was just like, hey, I want to
(26:15):
wear headsets. I think they make me look good. Let's
spend forty billion dollars in order to make me look
good in a headset with no legs. Thank you, Yes,
and that was fine, Like investors eventually tolerated it because
the company was making money and it wasn't affecting the
bottom line, and that's that's all well and good. But
now you've got dudes like Oracle coming in being like, hey,
(26:38):
what do you mean cash flow? What does that mean exactly?
Because yes, they have to raise a ton of debt
in order to cover these costs. And the problem is
if that debt gets to a certain size and they
just abandon this, the math doesn't really math for some
of these companies, Like it becomes proba just in terms
(27:00):
of servicing the debt if you go out a few
years at these these build rates. And the other piece
then is okay, if some of these companies can't service
the debt, then how much of it is out there?
And what are the broader impacts if some of these
companies have to default on it to the US economy.
Speaker 3 (27:18):
I know that the scale of this spend at this
point fores surpasses the spend on things like the Internet
build out or railroads or radio dollar wise, not GDP wise.
But let's talk about the historical context. And I recognize
many many people are going to tell me that AI
is different than railroads or different than the internet.
Speaker 4 (27:41):
So it's not.
Speaker 3 (27:41):
But well, many people are going to tell me that though,
no they're wrong. But can we talk about the historical
context of I mean, we still have railroads today. Yes,
I don't think we can look at that as a failure.
We still have the internet. That's how our show is
on radio.
Speaker 2 (27:55):
If you haven't paid attention to like not paid attention,
if you've never read about the bubble that happened in
radio in the early twentieth century.
Speaker 3 (28:02):
Well I'm sure that plenty people haven't. So let's explain
how that went, because it's not completely different than what
we are experiencing right now.
Speaker 1 (28:09):
No.
Speaker 2 (28:09):
What happens is there's an exciting new technology that everyone
sees the potential in, and so a ton of capital
rushes in. Some of it gets deployed correctly, a lot
of it gets deployed incorrectly and can't be profitable because
there's just too much money chasing too few returns. What
ends up happening in every one of these major cases
is you have a technology that does end up transforming
(28:32):
the world for decades or centuries afterwards, but a ton
of money ends up being lost in the process because
there's this rush to invest when in the short term
for actually being able to fill the demand, it's just
not there. There's just not enough demand to meet the supply,
and so you end up with this malinvestment bubble that
(28:54):
eventually pops. And so the two things that I think
are going to remain true in my opinion. Look, at
some point in the future, they're going to be an
awful lot of people hurt by the AI bubble. It
might still have like years to run, it might have
a decade to run. Like I'm not saying this is tomorrow,
but ultimately we're going to be using a lot more
(29:16):
AI at the end of said bubble than we were
at the beginning or even right now. So those two
things are true, I think, and they can be.
Speaker 4 (29:26):
And there will be winners. There'll be a lot of
wood losers too. Losers. Let's take a quick break.
Speaker 2 (29:32):
When we come back, let's talk a little bit about
the national debt crossing an important milestone.
Speaker 1 (29:40):
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(30:02):
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Speaker 5 (30:12):
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Speaker 2 (30:50):
So we crossed a milestone on March thirty first, where
the publicly held death of the United States of America
crossed one hundred percent of GDP. Now, the total debt
outstanding UH is higher than that, but a bunch of
it's held by the FED and other central banks and
(31:11):
things like that, which means it's not publicly held because
the central the Fed is fundamentally a different buyer of
debt than you or I.
Speaker 3 (31:21):
Uh.
Speaker 2 (31:21):
But basically what we have here is we are continuing
to run up that debt to GDP ratio because we're
running six to seven percent deficits right now with about
five percent nominal growth, which means this is going up
about one to two percent a year. And so that's
kind of where we are.
Speaker 3 (31:41):
Yeah, it's okay because I see a lot of fundamental
seriousness in Washington about dealing with our nation's debt issues.
Speaker 2 (31:48):
You remember Doze last year.
Speaker 4 (31:51):
We haven't talked about that in a while, like a
week and a half.
Speaker 2 (31:53):
Yeah, it's uh again, it just was something that fundamentally
didn't do anything anything is it relates to dealing with
the deficit.
Speaker 4 (32:02):
It did?
Speaker 2 (32:03):
You know, a bunch of people left like the federal government.
But as we outlined, employment is not the main expense
of the federal government, and so if you're not willing
to deal with the actual stuff that is, or raise revenue,
you're not gonna get to a point where you're actually
dealing with the deficit. So that's kind of where we are.
Speaker 3 (32:22):
Yeah, and you know, again we talked about the deficit,
and this isn't directly tied. But obviously we have Social
Security and Medicare programs that the debt to GDP. Right,
there's no magic number here where this becomes an explosion.
Japan's like, yeah, so there is no magic number, but
when it comes to Social Security and Medicare there is.
(32:43):
In fact, there is a magic date at which we
estimate the trust fund will be empty and beneficiaries will
receive a twenty some odd percent cut to benefits on
Social Security or Medicare. I don't think anybody really has
an answer as to what happens in that case. I
guess programs get cut and benefits get cut substantially. So
you're too fundamentally different issues. And yet, even with those
(33:05):
ones where there is a deadline coming, the only Social
Security proposals that have gone anywhere over the last few
years to raise benefits, which are raise benefits for recipients.
There's another one floating around there right now to add
an additional benefit for caretakers caregivers. Rather so, anybody that
you know, for instance, cares for a child or an
(33:26):
adult would get credit years for doing so on Social Security.
And therefore wait, hold on, hold on, hold on, yeah, yeah, holding.
Speaker 2 (33:36):
I want to make sure I'm understanding this. Yeah, and
this is not to disparage anyone that is raising children.
Speaker 4 (33:43):
In place of.
Speaker 2 (33:46):
Like working a job outside the house. But you're telling
me there's a proposal in place that will give people
credit for Social Security for doing that despite not paying
into the Social Security taxes.
Speaker 3 (34:00):
The Social Security Caregiver Credit Act of twenty twenty three
proposes giving providing up to five years of Social Security
earnings credits to unpaid caregivers, protecting their retirement benefits. It
covers those caring for dependents under twelve or with chronic
illnesses for at least eighty hours a month, aimed at
offsetting gaps in employment.
Speaker 2 (34:21):
Okay, I'd say this in the nicest way possible, but
that's completely insane. It's not that that isn't work. That's
not what I'm saying. Sure, what I'm saying is that
it is fiscally insane because you are creating more liabilities
without the like matching asset.
Speaker 3 (34:39):
Chuck, I mean, you could say the exact same thing
about the GPO, and I know.
Speaker 2 (34:43):
But here's the thing, Like, I'm starting to get a
little bit upset about this, Okay, Cuz again, my favorite
scene in one of my favorite show's succession is where
the dad's talking to all of his kids and he
just goes, you are not serious people, becau, They're just
they're putting out just like crap. And where we are
right now when it comes to any of this is
(35:05):
there is no one who is a serious person about
the deficit who's actually in a position to do.
Speaker 1 (35:11):
Anything about it.
Speaker 2 (35:12):
Yeah, we've all Does anyone listening know that? Again, like,
there are two different ways that you can deal with this.
You can balance this one of two ways. You can
cut entitlements or you can raise taxes.
Speaker 4 (35:29):
That's it.
Speaker 2 (35:31):
Do you know what the only things are that we
do right now? We raise entitlements and cut taxes. It's
the exact opposite. It's the exact opposite. Yes, I'm just
we are fundamentally unseerious people because we want all of
the ponies and unicorns and we don't want any of
(35:51):
the poop from them. We want poopless unicorns, and you
can't have a unicorn that doesn't poop.
Speaker 4 (36:01):
It's just this is ridiculous at this point, it is
rather silly.
Speaker 2 (36:05):
So I don't know what I'm gonna do. Like again,
there's nothing you can do as like a private citizen,
Yes there is, what what what can I do?
Speaker 4 (36:12):
What? What what can I do?
Speaker 3 (36:13):
Michael tell me again, vote people out of office. That
pretty much everybody and the thing I recognize. But like Mike,
here's the problem. Every single person that runs for office
now runs on being an outsider because we don't like
the insiders. And then they get there, they get there
(36:35):
and they don't do anything. They just become the insiders.
And so it's like, maybe I want someone who runs
on being an insider. Actually, like I I'm just I'm
out of options at this point. I don't know what
to do because no one wants to deal with this
because we just want all the fun and none of
the pain. And eventually the pain is gonna come from
(36:55):
an involuntary choice that like we're forced into but like
we were just not serious people. And the wild thing
is you could point to a time you go back
to the eighties and nineties, Reagan raise taxes as a republican,
cutting in the nineties, cut entitlement programs as a democrat. Yeah,
(37:18):
Bush raise taxes as a republican, Like you can go
back in time to the eighties and nineties and be like, oh,
these are people that had to buck their party's orthodoxy
because it was like the right thing to do for
the country. And then you get to like two thousand, everyone's.
Speaker 2 (37:33):
Like new millennium, new math, man, Like, what are we
doing here? Yeah, one plus one equals five. I'm sorry, man, Like,
it's just we're not serious people, and until we want
to actually do something about.
Speaker 3 (37:54):
It, this is a non part isn't issue, folks, No,
it consistently go look at go look at debt increases
over Republicans Democrats. For the last twenty six years, it
has been just poppycock.
Speaker 2 (38:09):
Let's take a quick break, and when we come back
hour two, I'm gonna try to cool off a little
bit in the interim
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