October 29, 2025 • 38 mins
Chuck Zodda and Marc Fandetti discuss home prices posting weakest gain in over two years. Five AI signals we should all watch this week. Big layoffs look scary. Why the job market is still holding up. Credit cockroaches are being held at bay - for now. Oracle bond risk jumps on concerns over AI spending spree.
Mark as Played
Transcript
Episode Transcript
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Speaker 1 (00:00):
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(00:42):
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(01:06):
and Mark Fandetti.
Speaker 2 (01:10):
Chuck Mark Tucker with you here and as we kick
things off in video, has crossed the five trillion dollar
market cap, Yes you heard that correctly, becoming the first
company to have a five trillion dollar market cap in history.
And look, whether you think this is you know, the future,
(01:33):
whether you think this is crazy, you gotta admit it's
pretty impressive to get to that point. I mean, there's
plenty of companies out there. This is the only one
that's done it, and doing it in emphatic fashion as well.
After being up about five percent yesterday, up another three
and a half today, was actually up about four and
a half at one point, and has pulled back a touch,
but again at five point seven trillion dollars right now,
(01:58):
and uh again, it just continues to defy any of
the haters, you know when when you look at that's
the technical term that we use there taking a broader
look at markets. Despite that, the S and P five
hundred only up a quarter percent. Uh so in Nvidia
today is quite literally carrying the whole market. If you
(02:20):
stripped it out, the SMP would basically be flat today.
Dow Jones is up half a percent nasdak Can posite
up point six percent right now, so all three major
US indices are in the green, though the Russell two
thousand has taken a turn into very mild red territory
at the moment. Tenure US Treasury up six tenths of
(02:42):
a basis point to three point nine to eight nine percent.
We've just been fluttering between like three nine seven and
four h three for the last few days. Not much
movement on that front. Dollar Index is up point one
two percent today to ninety eight fifty seven, and we've
we've got gold today rallying a little bit up thirty
(03:03):
nine to thirty and ounce to fourenty twenty two and
forty cents. And then when we take a look at oil,
West Texts Intermediate is currently up seventy three cents a
barrel to sixty dollars and eighty eight cents triple a
national average for gas prices, continuing to slide a little
bit as Midwest prices come back in line after a
(03:25):
refinery restarted there in the last couple of days. So
we're down another six tenths of a cent to three
zho three and eight tenths on the national average for
gas prices, mark couple different home a couple of different
housing pieces to touch on. One here from this is
(03:45):
what is this Bloomberg home prices we post weakest gain
in more than two years, up just one and a
half percent year over year, and another one from market
Watch homebuilders are struggling and it's not just because new
houses aren't affordable. This all kind of fits into this
idea that Connor Son's been pushing for the last couple
of weeks that I'm kind of on board with, which is, look,
(04:07):
in order to buy a home, you need two things.
You need the ability to buy the home. That's the
affordability piece. The second one is you have to have
the belief that it's a good time to buy a home.
And that's the part that he's been arguing is is
now missing in large parts of the country because, as
an example, if you are in you know, different pockets
of Florida that Fort Myers Cape Coral area as an example,
(04:30):
where home prices have now fallen more than ten percent
from the peak a you're probably not wanting to list
your place because you're like, I'm not gonna get top
dollar for it, and I want to see how things
go b You're probably sitting there saying, well, prices are falling.
I'm gonna wait until I try to buy there, because
I see prices that keep coming down. And so his argument,
and the one that this kind of gets at, is,
(04:52):
look if affordability is still a problem in parts of
the country, but in others it's improved. But you're now
seeing you know, the rise of Hey, prices are falling,
so I don't want to buy it. Or I'm concerned about,
you know, potential layoffs in my industry, so I don't
want to buy. Yeah, you've got you know, problems that
are really you know, continuing to see us just kind
(05:13):
of floating around four million existing home sales on an
annualized basis with no real traction to move up, even
though interest rates have come down about three quarters of
a percent in the last couple months.
Speaker 3 (05:26):
Hmmm, Yeah, that idea is kind of squishy. I don't
know how to measure some of the figure centers.
Speaker 2 (05:32):
I don't think you can measure it.
Speaker 3 (05:33):
Yeah, he's just like he's a commentator. I'm sorry, I
don't mean to diminish it, but he doesn't actually do research,
or maybe he looks at spreadsheets or something. But he doesn't,
you know, publish peer reviewed stuff. So he throws out
some stuff and maybe people remember in a week. Maybe
they don't sound like I'm diminishing it, which I guess
I am. I think you are because I think it's important. Well,
when you do research, you got to put it out there.
You gotta show me your data go. You gotta specify
a model, you got to test it. You got to
(05:54):
explain why you think it's the right specification. You've got
to subject it to awful things that your peers will
say about this, stupid mistakes that you've made. It's a grueling,
difficult process, tough on one's ego, but it's how you
advance our understanding of things. These ideas are to me,
things you talk about with your family over at Thanksgiving dinner.
It's tough to measure by. As far as I can tell,
(06:16):
he hasn't tested them, so I don't know what to
make of them. Is it a plausible story, Yeah, it's plausible.
You and I could probably come up with several equally
plausible stories, So forgive me. I just don't know what
to make of this squishy soft Maybe it's this, Maybe
it's that, type stuff. Okay, prices, price growth is slow.
That was inevitable. There's this divergence in year over year inventories.
(06:38):
We learned last week from NAR. Some markets remain hot
and tight on the coast southern California, some pockets of
the East coast. Other markets Jacksonville, the Southwest appear to
be sagging. That's maybe more typical normal, if you will,
prior to the nationalization of the housing market that we
(07:00):
saw on the in the two thousands. To me, it
seems healthier for what it's worth. So that's squishy.
Speaker 2 (07:06):
I can't test that well.
Speaker 1 (07:07):
It is.
Speaker 2 (07:08):
Quite honestly, I think that a lot of there's a
lot around housing that is squishy because I like it's
it's something that There's two different things that I think
make it tough to make housing non squishy is each
piece of real estate is unique. It's not you know, commoditized, right,
(07:31):
it's you know, it's you're you're looking at again, there's
a reason why, Like if you talk to real estate
investors or even just you know people own homes about Hey,
why'd you buy this house? It's like, oh, I liked
it because of X, Y and Z like it. It
does have kind of that squish factor to it. It's
you know, it's it's kind of this personal thing we have.
Speaker 3 (07:49):
Some jobs are the same way, and there is search
in matching models and economics that overcome that. Maybe that's
not doable in housing. I don't know, not my area.
I probably probably sound stupid what I.
Speaker 2 (07:58):
Just said to a housing You can still like segmented
in everything and we can learn things on that front.
But the the other piece I think when we when
we look at this is just trying to figure out look.
Prices in parts of the country have come down over
the last year, affordability has improved, mortgage rates have come
(08:20):
down over the last year, and yet we're still not
seeing more activity. So it's kind of the question that's
that's being asked out there, is you got more inventory,
prices are down and mortgage rates are down and they're
still not moving. What is it in wage system that
(08:40):
that that's the problem?
Speaker 3 (08:42):
Wege growth slower in those markets? Do we know?
Speaker 2 (08:43):
Could be?
Speaker 3 (08:44):
But is anybody you know testing right?
Speaker 2 (08:46):
Could could be? And part of it, like we in
specific markets like that, like you don't get that data
in anywhere close to real time. You know you're going
to be getting data a year or two after the fact. Yea,
And so it's some thing where in the absence of
that data, just because it's not produced in a timely fashion,
and quite honestly, I don't think it's worth the cost
(09:08):
to produce that data in a timely fashion. We're left saying, Okay,
could it be this, could it be that? And we
don't know, But there is something that's happening there.
Speaker 3 (09:18):
There's a divergence that cries out for an explanation. What
is going on in Phoenix that inventories are up thirty
excuse me, a year over year thirty percent? Is that right? Yeah? Yeah,
So there's this big divergence. Some markets look healthy all
against a Maryland, parts of the East Coast they appear healthy.
Others Southwest markets that have in the past been boombustish,
(09:41):
they don't. They look more wobbly. Is it wages? Is
it something else? I don't know? Is it well anyway,
I obviously don't know.
Speaker 2 (09:51):
Let's take a quick break. When we return, we'll talk
a little bit about the artificial intelligence industry and some
key market signals coming up this week. We've also got
trivia right after this.
Speaker 1 (10:04):
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Speaker 2 (10:40):
All right.
Speaker 4 (10:40):
Time for trivia here on the Financial Exchange. And in
nineteen seventy eight, the First Halloween Movie terrified audiences across
the country. The success of the First Halloween Movie spawned
a franchise that is currently thirteen movies deep.
Speaker 2 (10:58):
So our trivia question.
Speaker 4 (10:59):
Today, how many Halloween movies is Jamie Lee Curtison? Once again?
How many Halloween movies is Jamie Lee Curtis in be
the sixth person today to text us at six one
seven three six two, thirteen eighty five with the correct answer,
and you want a Financial Exchange Show t shirt? Once again,
the six correct response to textas to the number six
(11:20):
one seven three six two thirteen eighty five will win
that T shirt. See complete contest rules at Financial Exchange
Show dot com.
Speaker 2 (11:28):
Piece in Bloomberg Opinion titled watch these five AI signals
closely this week in terms of you know, look, you
got a bunch of corporate earnings specifically in that space.
What are we seeing from them? Number one? Amazon Web Services?
Are we seeing improvement there in their battle against Microsoft
(11:51):
Azure and Google Cloud? That's going to be something to watch.
Number two? How much is the demand crunch pushing up capex?
So what are we seeing in terms of Hey, as
companies battle for these chips and not just the chips,
but all the other stuff that goes into building data centers.
You know, think about cabling and cooling and all that stuff. Hey,
(12:15):
is that pushing up the cost? And are we seeing
you know, movement on that front? Another one for Apple.
Apple has not been on the forefront of AI development
to this point. I know they have their Apple Intelligence
platform that has largely been panned. But are we seeing
(12:35):
any you know, shift in spending in Apple's earnings as
far as you know, consumer trends away from iPhone because
of concerns about you know, lack of AI there to
this point, we haven't seen that, but is it something
that happens? Another one with Meta, Will Meta's advertising gains
be enough of a distraction? The answer typically has been yes,
(12:55):
because they they don't print money, They don't have the
physic go money printer mark, but they are as close
as you can get to printing money, you know, without
having one of those things. And another one, Reddit, who
also reports earnings this week. They are kind of in
a battle of some of these AI companies that they're
(13:16):
accusing of scraping their data illegally. And so what are
we seeing with Reddit who has now struck deals with
Google and open Ai? Are there more deals? How do
they end up monetizing that? How much money is there
for them? Just some interesting things to consider as we
get these AI earnings this week.
Speaker 3 (13:36):
Yeah, for sure, term investors, traders, whatever you want to
call them, these things are of interest longer term though.
The big question hanging over the market now and that
we'll be hanging over the market for a while, is
is AI paying off? Is it increasing output per hour productivity?
What we do with the tools that we A'm being
(13:58):
a little fast and lost with term here, but more
or less, what we do what a worker, any one
of us does in an hour, measured in terms of
whatever output. It is that we produce no evidence for
that yet not surprising. You could argue that it's early,
though some would say given the scale of the investments
and the fact that they've been underway for several years
(14:20):
and we as far as we know, there's no measurable benefit,
though there's controversy around that as well. I guess what
I'm trying to say is the proofs in the pudding,
and the pudding is still cooking.
Speaker 2 (14:34):
Does one cook put? How do you make it?
Speaker 3 (14:36):
Don't you boil it?
Speaker 2 (14:37):
I have no, I'm not a pudding. It is believe heat.
Speaker 3 (14:41):
Heat is the reaction that you need. Yeah, yeah, cause
the reaction.
Speaker 2 (14:44):
I just I don't understand pudding.
Speaker 3 (14:47):
No, we're not.
Speaker 2 (14:48):
I find it quite honestly. I want to talk about
this piece from Barons because this is a it's not
a fun one, but it's a really interesting one to
look through big wayoffs look scary, why the job market
is still holding up?
Speaker 3 (15:04):
Mark?
Speaker 2 (15:04):
What does this piece talk about and what are some
of the key points in it?
Speaker 3 (15:08):
Well, to me, the point I was gonna make is
that the eye bopping numbers. Amazon lays off fifty thirty
thousand people, and there are examples, you could say just
about every day. They're a drop in the bucket when
it comes to the size of the labor force, about
one hundred and seventy million people. When it comes to
the number of people that quit their jobs every month,
(15:28):
we talk about the Jolts survey. We haven't gotten that lately,
but it's normally a monthly survey, and the most recent
report three million people quit left their jobs voluntarily in August.
Companies hired five million people in that same month. Churn
in the labor market turnover, however you want to characterize it,
is enormous. And these layoff announcements though they and I
(15:52):
certainly got to minimize them for people or families who
are affected by them, but they're normal and really a
drop in the bucket. The key, obviously is economic growth
that will keep unemployment down overall. That's the measure you
want to look at, not getting Oh, of course, if
you're interested in the fortunes of a particular company or industry,
(16:12):
these might be eye catching, but in the scheme of
things they don't matter much.
Speaker 2 (16:17):
And Ernie Tedesky, who we've had on the show previously,
mentioned something on this today where in kind of a
related topic, you know, there's the idea of, hey, is
the lack of hiring and is what we're seeing in
the labor market now related to AI And he makes
(16:38):
the point, No, he doesn't think it is. And the
reason why is that there was such an over hiring
that took place in the back half of twenty twenty
really through the first half of twenty two that if
you look at the trends in terms of the slowdown
and hiring. Chat GPT was first rolled out in late
(17:00):
twenty twenty two, very late, it was likeate December of
twenty two. The slowdown in hiring started in mid twenty
twenty one, a year and a half before chat GPT
was rolled out, and it's basically continued since then at
you know, kind of the same pace that slowdown. It's
been the same slope that we've seen on that line.
(17:20):
So he makes the point, Look, there's no inflection point
where chat GPT was released and you suddenly saw hiring
fall off a cliff or even you know more recently,
you know, was there any shift. It's like kind of like, no,
it's it's basically been this this trend that we're seeing there,
and I've also seen kind of, in a related note,
people talking about Look, if you think about this in
(17:42):
terms of think about the labor market in terms of
the housing market, which I know is weird, but housing
we talked about last segment. Hey, you're not seeing people
buying these prices even though you know, things are cheaper
than they were a year ago, just because we're still
not back to you know, twenty nineteen twenty eighteen levels
(18:03):
of affordability relative to income. And think about companies and
think about them in terms of purchasing labor. The labor
that companies purchased back in twenty twenty one and twenty
twenty two was really freaking expensive because it was an
insanely competitive market. And so if you think about it
(18:24):
from this perspective, companies can let go that surplus twenty
one and twenty two labor right now that was priced
really highly, and they either a could say, look, we
don't need any additional labor right now, but even if
we do, we can get additional labor more cheaply now
on a you know, in terms of you know, kind
of real terms, because hey, it's not as competitive as
(18:47):
a job market right now. We can find better candidates
for less cost today, and so some of what these
companies might be doing, in particular, like Amazon, who went
on a hiring spree during that time, I wonder how
much of the layoff is concentrated in that vistage of
people hired in twenty one and twenty two where they've
got these crazy pay packages and Amazon's like, no, we
(19:08):
can get rid of them. Let that position just sit
for a year, then hire someone cheaper a year from now.
Speaker 3 (19:12):
Researchers will spend a lot of time trying to identify
the specific reason for those these layoffs. They're interesting implications
what the Fed's doing. Maybe we can talk about on
the other Side's.
Speaker 2 (19:23):
Take a quick break. When we come back. We got
Wall Street Watch, We've got trivia answer, and we're talking
credit cockroaches when we return.
Speaker 1 (19:38):
Bringing the latest financial news straight to your radio. Every day,
it's the Financial Exchange on the Financial Exchange Radio Network.
Time now for Wall Street Watch. A complete look at
what's moving markets so far today right here on the
Financial Exchange Radio Network.
Speaker 4 (19:56):
FED meeting days upon us and markets are extending GA
from their fresh record highs FED Chairman Jerome Powell will
hold a press conference at two thirty this afternoon after
the expected quarter point rate cut, however, and Nvidia is
the big story on the day, where the chip and
ai giant has officially crossed five trillion dollars in market cap,
(20:17):
the first company to do so if Video shares are
up four percent right now for markets, Dow is up
about a half a percent, or two hundred and nineteen points,
SMP five hundreds up two tents one percent or fourteen points,
NASDAC up just over half a percent or one hundred
and twenty five points, or Russell two thousand now actually
(20:38):
up by six tenths of one percent. Ten year treasure
yield is up one basis point at three point nine
to nine three percent, and crude oil is up just
over one percent higher, trading just below sixty one dollars
a barrel. Boeing posted mixed quarterly results. While it's revenue
(20:58):
beat estimates, the aerospace company logged a steeper loss than anticipated.
Boeing also said it at increased seven thirty seven production
to thirty eight airplanes a month. Boeing shares down by
over four percent. Meanwhile, shares and Caterpillars surging thirteen percent
after the maker of construction machinery beat third quarter forecasts. Elsewhere,
(21:20):
Five Serve shares are tanking forty two percent after the
financial services tech company reported a significant third quarter earnings
and revenue miss Mandale's cut his twenty twenty five guidance,
where the snack maker cited high cocoa prices and transportation costs,
and also noted Americans were buying fewer snacks. That stock
is retreating about three percent. According to CNBC, General Motors
(21:45):
laid off roughly seventeen hundred workers across its manufacturing sites
in Michigan and Ohio, citing a slowdown in the electric
vehicle market. GM stock is flat, and after today's closing bell,
the kickoff to big tech earnings begins, where Alphabet, Meta,
and Microsoft will all report their quarterly results. I'm Tucker
(22:07):
Silva and that is Wall Street Watch. And in the
previous segment, we asked the trivia question how many Halloween
movies is Jamie Lee Curtis in? That would be seven.
Nancy from Newberry, New Hampshire is our winner today, taking
home a Financial Exchange Show T shirt congrat congrats to Nancy,
and we played trivia every day here in the Financial Exchange.
See complete contest rules at Financial Exchange Show dot com.
Speaker 2 (22:30):
Mark, do you have any credit cockroaches at home?
Speaker 3 (22:33):
I don't think I have. I don't think I've ever
seen a cockroach.
Speaker 2 (22:36):
I haven't, Tucker you.
Speaker 3 (22:38):
I think hotels, lots. Not like size of your thumbs.
Speaker 4 (22:41):
I've seen like a smaller one, but like not like
the ones you've seen, like men in black or something
like the giant guys.
Speaker 3 (22:48):
What's the biggest one you've ever seen?
Speaker 2 (22:50):
I've ever seen one.
Speaker 3 (22:51):
Okay, size of your thumb, I've never saw tell in
New York City. Once trapped it under a glass, left
it for housekeeping. I'm sorry, how big was it? Size
of you? I'm including the antenna and all of the paraphernalia. Yeah,
and I think he was packing something too. May have
been a may have been a glock, I'm not sure.
So he was pretty well equipped. Yeah, he was pretty
well equipped. But I trapped him under a glass, and
(23:12):
I felt proud that I was able to do it.
They are the size of that thing. I'm sort of
a suburban slash rural a this country boy, so it
was horrifying anyway, you know what people have experienced.
Speaker 2 (23:23):
Honestly, it wouldn't be that impressive to me, like having
experienced the rats of Somerville back when I was living there.
Speaker 3 (23:30):
Never I've never experienced.
Speaker 2 (23:31):
You'd you'd be walking home at like, you know, eight
thirty nine at night, it's dark out, and you come
to you know, your your door, and you're like, oh,
like there's a dog on the porch and you're like,
wait a minute, fine dog, that's like a foot long
rat that's just hanging out on the porch waiting for you,
waiting for you to get home. In any case, Credit
cock roaches. So Jamie Diamond kind of brought this into
(23:52):
the mainstream a couple of weeks ago when he said, look,
you know, in reference to some of these uh privately
held you know, loone that we're blowing up. Hey, usually
when you see you know, one cockits, there's usually others
that are out there. And I think that when we
look at the the story on this, I think, once again,
(24:14):
this this is one that just because Credit has now
performed okay for the last couple of weeks, doesn't mean
all clear. And I'm not saying like I don't know
where this is going to go. Anyone who can conclusively
tell you right now that they know exactly how this
is going to play out is lying to you, because
if they do know, they're not telling because they work
(24:35):
for you know, Apollo or Blackstone or whoever. They're trying
to clean up their books and figure out, like are
we exploring, what are we doing?
Speaker 3 (24:43):
What's going to blow up next? That they can buy insurance?
Speaker 2 (24:45):
Yes, the people who do know aren't talking, and the
people who don't know, why would they like?
Speaker 3 (24:50):
These are very sophisticated investors.
Speaker 2 (24:52):
Correct, So I think that when you look at this,
I do think this is going to be binary. It's
either going to be something where six month from now
we look back at this and say, hey, this was
kind of like Silicon Valley Bank where you had a
few blow ups. Maybe there were a couple, you know,
companies that had to be acquired in order to manage this,
(25:12):
but ultimately it led to nothing. It wasn't a systemic issue.
Speaker 3 (25:15):
Late cycle reaching for yield is a hallmark of the
credit cycle to be a little redundant there. So All
Diamond's not psychic. He's not saying he knows he just
knows things are frothy. When things get frothy, analysts get sloppy.
They bring increasingly dodgy deals to their managers and they
stretch the case a little bit, and the managers say, well,
(25:37):
I think we've got clients who would buy this. Let's
work on syndicating it or selling it directly. It's inherent
to late cycle dynamics. You might call it the interaction
between people that need money and people that lend money.
The ladder get the ladder are emboldened by frothy financial conditions,
(25:59):
the lenders get sloppier. Diamond seeing this over again over again, right.
Speaker 2 (26:04):
So one possibility is, hey, you've got a few of
these that pop up. You know, we already went through
first brands, we went through Tricolor. There's been a couple
more now that are you know, in the process. But
ultimately it doesn't become a systemic issue just because it's
not big enough and widespread enough for that to be
a problem. And if that's the case, we'll know in
the next six to nine months. The other path that
(26:27):
this can follow is, hey, these are the canaries and
the coal mine. You know, these are the subprime funds
that blew up in April of seven that eventually led
to the entire financial crisis in fall of eight. I
have no idea which path we are going to take.
The private credit market is substantial now. I mean we're
(26:50):
talking the estimates that I've seen alre anywhere from like
two to five trillion dollars in assets here. To put
this in perspective of the US mortgage market today is
about twelve trillion dollars. So it's anywhere from like fifteen
to forty percent the size, and no one really knows,
partly because the private markets, like there is no public
(27:12):
accounting of how much is out there. Like you can't
look at this like you do with the bond market
and be like, here are all the bonds traded publicly,
here's how much is outstanding. We know how much debt
is there, Here's how big the US stock market is.
Because you can run the numbers, you don't know how
big this is, and you don't know how widespread problems are.
And it's just gonna take some time for this to
(27:32):
play out. So I think it's something that's worth monitoring absolutely,
because this stuff can go bad quickly. You know, it
can happen rather fast in this area. But it's also
something where hey, you might be sitting here six to
nine months now and you're like, oh, yeah, I remember
(27:53):
those concerns about private credit. Wasn't that quaint? I don't
know where we're going yet, But something continues to say
think out there. And the other thing that you're seeing
in a lot of these it's an awful lot of
fraud that's showing up in these companies that are going
belly up, and that is not reassuring to me in
any way, shape or form.
Speaker 3 (28:12):
Well, somebody missed it. An analyst missed it, their manager,
meaning they saw what they wanted to see. Yes, and
no analyst sees the full picture. And by that I
mean companies show you when you're doing due diligence on
a loan, they show you what they want you to see.
You can go on site, which you should. Indeed, better
managers do go on site, kick the tires, talk to management,
(28:33):
talk to look at their track record, but you never
really see the full picture. But to me, it always
comes down to taking two to tango, the analyst to
the manager, the investment manager who buys, who lends the money. Effectively,
they want to be fooled. They kind of want to
believe that these high returns with a triple A rating
or possible, and of course the guy on the other side,
(28:54):
maybe they want to believe that their collateral is worth
a lot more than they represent. Now, the double counting
of collateral is a different store. Unless you don't know
how to use a spreadsheet, that's pretty clearly fraudwadll you
shouldn'tay clearly.
Speaker 2 (29:04):
Probably, yeah, probably. Let's take a quick break here. When
we return, we'll do a little bit of stack rough.
Speaker 1 (29:13):
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Speaker 2 (30:20):
Mark what you got for stack roulette?
Speaker 3 (30:22):
Did you know that Oracles loaded up on or issued
about sixty billion dollars in debt in just the last
couple of months. That makes yes. I think the sex
you and Mike or you and Paul have talked about this.
A corollary to that, or a related story is that
bigs of the big sophisticated investors that we were talking
about in the last segment, who are able to buy
(30:43):
insurance or protection or just make a bet on somebody defaulting,
they are now piling into so called credit default swaps,
which is a way to either buy insurance or to
speculate that somebody will not be able to repay their loan.
The CDs is we don't see them. They're not publicly traded.
But interest in Oracle cds's is increasing, i'll to say
(31:05):
rapidly according to Bloomberg, though they don't quantify it because
it's tough to get a handle on it for reasons
that you mentioned in the previous segment. These vehicles like
private credit though this Oracle issues their bonds publicly, but
the insurance against them is private. Interest is picking up.
So this is another to me symptom of late stage
froth of financial conditions that are too easy. Amazing that
(31:27):
the FED is loosening in the face of these obvious
signs of speculative froth. But here we have yet yet
another one. I hope they know more about the labor market,
the FED, I mean, than we do.
Speaker 2 (31:41):
And quite honestly, when it comes to these companies that
are building data centers, the entire question is going to
be when the depreciation starts to really hit, can you
find the revenue in order to actually cover it on
your statement? Like it are you going to have basically
(32:03):
like the gross revenue that can end up getting you
to you know, the net income that's needed to cover it.
That's that's where the meat is because ultimately, like I
keep having to come back to this, the amount of
construction that's taken place to this point is a drop
in the bucket compared to what's projected for the next
five years. And when you start having five hundred billion
(32:26):
dollars in data center construction coming through that you need
to depreciate over probably like an eight to twelve year period,
maybe a little shorter than that, depending on you know,
how much of the spend goes into chips that you
know basically have a useful life of only a few years.
You will agat and you say, okay, how are these
companies going to figure out how to deal with you know,
(32:49):
sixty billion dollars of depreciating hitting from next year's vintage,
another sixty from the year after, and pretty soon you
got like one hundred and eighty two hundred billion dollars
of depreciate, a depreciation that's hitting your income statement, and
you're like, okay, like, we got to figure out some
way to deal with this. Are you gonna have the
five hundred billion dollars in sequential revenue in order to cover.
Speaker 3 (33:12):
That and make the investments that are required to keep
these right?
Speaker 2 (33:14):
Like I don't know. Yeah, I'd like that is a
you basically have to get to. I think you know,
I think you have Okay, Quite honestly, I suspect that
unless we're actually talking about replacing twenty to forty percent
of the workforce with AI for either you know, LMS
(33:35):
for white collar jobs and robots for blue collar jobs,
unless that is feasible by twenty thirty, it doesn't pay
for itself.
Speaker 3 (33:46):
Where's the investment gonna come from? We we already don't
save enough. We talked about this in the first hour.
That has trade deficit implications because it's the flip side
of foreign investment coming in. Where's the If it's gonna
come from abroad, the trade deficit blows out.
Speaker 2 (33:58):
And the other piece is okay, if if you start
seeing companies increasingly relying on AI and robots as their
workforce and trimming their workforce further, our economy is seventy
percent consumer spending. How does that work if you have
a smaller and smaller pool of people actually working. What
needs to change in order for that to you know,
remain functional. I like, there's a lot of potential problems
(34:22):
as you get out there. We're not really the market's
not worried about those right now. That's fine. Doesn't have
to worry about.
Speaker 3 (34:29):
What's worse, what's scarier prospect in your mind, AI doesn't
fulfill its promise, or it does does.
Speaker 2 (34:36):
If it doesn't, we've gone through boombus cycles before. This
one would be large. But there's a path to figuring
out how to deal with that. Like here, here's the
interesting thought experiment. You've got one hundred and sixty million
people working in the US right now at this very
point in time. Maybe not right now because some of
them are you know, night shift, but you got one
hundred and sixty million people that are working in the
(34:58):
United States today. If five years from now you only
have one hundred and thirty million jobs because AI has
taken thirty million of them. Well, that thirty million people,
let's say that they you know, they work, and they
have got you know, kind of just median income in general.
Let's say let's call it like seventy thousand a year
(35:19):
times thirty million people. Uh, that is two point one
trillion dollars in income that is no longer being earned. Well,
if that's not being earned, then how much money do
the companies that laid them off, have to spend on AI.
And if they're further cutting spending, then how much more
has to happen in terms of cuts? And do you
get to this spiral where eventually you just say okay,
(35:43):
like this is the thing now where people like aren't
working in most of these places. Like if AI can
actually do all of the stuff that its proponents say
it can, how do you make the economics of society work?
Because we are not set up for this in any way.
Speaker 3 (35:59):
Some people are screaming at the radio saying what about electricity,
what about steam? What about the IT revolution?
Speaker 1 (36:04):
No?
Speaker 3 (36:04):
I know, I oh yeah, But it could work out
that AI favors capital over labor and that these that
people don't shift seamlessly between sectors. It could. I don't
think the odds are on that.
Speaker 2 (36:15):
But here's the other scenario that I think we have
to be aware of as a possibility. What if we
get both? What if you get and this, by the way,
is what happened with you will get all these major inventions,
whether it's the railroad, electricity, radio flight, what if you
get Hey, this transforms how business is done. But we
(36:38):
also spent way too much building this out like the
example that I love to give, it's likely like railroads
and radio are right there, where, Hey, we spent so
much money in the eighteen hundreds building railroads, and think
of all the railroads that went bust in the eighteen
hundreds because there still wasn't the demand to fill all
those but they still transform society.
Speaker 3 (36:56):
It was a depression every three years.
Speaker 2 (36:58):
Radio is the same thing. You had this explosion of
commerce that could take place because of radio that previously
couldn't happen, and yet you still saw the radio sector
decimated in the nineteen twenties and thirties because of overinvestment
in it. What if you get the same thing with AI,
where yeah, it's this transformational product, but we still put
(37:20):
way too much money into you know, building the back
end of it, and it turns out that you know,
that ends up being a loss as well. Like it
could be both, because most great technological changes are they
change the world, but we also think that they're going
to do so much. You know that we spend so
much money, We put so much money into them an
investment and it just can't work out. So it could
(37:43):
be both. You could have AI change the world and
do all these crazy things and we could still be
investing way too much into it.
Speaker 3 (37:51):
Well, yeah, most of us have experienced that within our
lifetimes with the sure Internet.
Speaker 2 (37:54):
Sure, So with that in mind, let's take a break
for the rest of the day. Tomorrow, we got all
the earnings from this afternoon to recap Microsoft Meta and Alphabet.
We've got a FED meeting we're gonna be recapping, and
we're previewing tomorrow's big earnings of Apple and Amazon. Pack
show tomorrow. Make sure you tune in
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(01:06):
and Mark Fandetti.
Speaker 2 (01:10):
Chuck Mark Tucker with you here and as we kick
things off in video, has crossed the five trillion dollar
market cap, Yes you heard that correctly, becoming the first
company to have a five trillion dollar market cap in history.
And look, whether you think this is you know, the future,
(01:33):
whether you think this is crazy, you gotta admit it's
pretty impressive to get to that point. I mean, there's
plenty of companies out there. This is the only one
that's done it, and doing it in emphatic fashion as well.
After being up about five percent yesterday, up another three
and a half today, was actually up about four and
a half at one point, and has pulled back a touch,
but again at five point seven trillion dollars right now,
(01:58):
and uh again, it just continues to defy any of
the haters, you know when when you look at that's
the technical term that we use there taking a broader
look at markets. Despite that, the S and P five
hundred only up a quarter percent. Uh so in Nvidia
today is quite literally carrying the whole market. If you
(02:20):
stripped it out, the SMP would basically be flat today.
Dow Jones is up half a percent nasdak Can posite
up point six percent right now, so all three major
US indices are in the green, though the Russell two
thousand has taken a turn into very mild red territory
at the moment. Tenure US Treasury up six tenths of
(02:42):
a basis point to three point nine to eight nine percent.
We've just been fluttering between like three nine seven and
four h three for the last few days. Not much
movement on that front. Dollar Index is up point one
two percent today to ninety eight fifty seven, and we've
we've got gold today rallying a little bit up thirty
(03:03):
nine to thirty and ounce to fourenty twenty two and
forty cents. And then when we take a look at oil,
West Texts Intermediate is currently up seventy three cents a
barrel to sixty dollars and eighty eight cents triple a
national average for gas prices, continuing to slide a little
bit as Midwest prices come back in line after a
(03:25):
refinery restarted there in the last couple of days. So
we're down another six tenths of a cent to three
zho three and eight tenths on the national average for
gas prices, mark couple different home a couple of different
housing pieces to touch on. One here from this is
(03:45):
what is this Bloomberg home prices we post weakest gain
in more than two years, up just one and a
half percent year over year, and another one from market
Watch homebuilders are struggling and it's not just because new
houses aren't affordable. This all kind of fits into this
idea that Connor Son's been pushing for the last couple
of weeks that I'm kind of on board with, which is, look,
(04:07):
in order to buy a home, you need two things.
You need the ability to buy the home. That's the
affordability piece. The second one is you have to have
the belief that it's a good time to buy a home.
And that's the part that he's been arguing is is
now missing in large parts of the country because, as
an example, if you are in you know, different pockets
of Florida that Fort Myers Cape Coral area as an example,
(04:30):
where home prices have now fallen more than ten percent
from the peak a you're probably not wanting to list
your place because you're like, I'm not gonna get top
dollar for it, and I want to see how things
go b You're probably sitting there saying, well, prices are falling.
I'm gonna wait until I try to buy there, because
I see prices that keep coming down. And so his argument,
and the one that this kind of gets at, is,
(04:52):
look if affordability is still a problem in parts of
the country, but in others it's improved. But you're now
seeing you know, the rise of Hey, prices are falling,
so I don't want to buy it. Or I'm concerned about,
you know, potential layoffs in my industry, so I don't
want to buy. Yeah, you've got you know, problems that
are really you know, continuing to see us just kind
(05:13):
of floating around four million existing home sales on an
annualized basis with no real traction to move up, even
though interest rates have come down about three quarters of
a percent in the last couple months.
Speaker 3 (05:26):
Hmmm, Yeah, that idea is kind of squishy. I don't
know how to measure some of the figure centers.
Speaker 2 (05:32):
I don't think you can measure it.
Speaker 3 (05:33):
Yeah, he's just like he's a commentator. I'm sorry, I
don't mean to diminish it, but he doesn't actually do research,
or maybe he looks at spreadsheets or something. But he doesn't,
you know, publish peer reviewed stuff. So he throws out
some stuff and maybe people remember in a week. Maybe
they don't sound like I'm diminishing it, which I guess
I am. I think you are because I think it's important. Well,
when you do research, you got to put it out there.
You gotta show me your data go. You gotta specify
a model, you got to test it. You got to
(05:54):
explain why you think it's the right specification. You've got
to subject it to awful things that your peers will
say about this, stupid mistakes that you've made. It's a grueling,
difficult process, tough on one's ego, but it's how you
advance our understanding of things. These ideas are to me,
things you talk about with your family over at Thanksgiving dinner.
It's tough to measure by. As far as I can tell,
(06:16):
he hasn't tested them, so I don't know what to
make of them. Is it a plausible story, Yeah, it's plausible.
You and I could probably come up with several equally
plausible stories, So forgive me. I just don't know what
to make of this squishy soft Maybe it's this, Maybe
it's that, type stuff. Okay, prices, price growth is slow.
That was inevitable. There's this divergence in year over year inventories.
(06:38):
We learned last week from NAR. Some markets remain hot
and tight on the coast southern California, some pockets of
the East coast. Other markets Jacksonville, the Southwest appear to
be sagging. That's maybe more typical normal, if you will,
prior to the nationalization of the housing market that we
(07:00):
saw on the in the two thousands. To me, it
seems healthier for what it's worth. So that's squishy.
Speaker 2 (07:06):
I can't test that well.
Speaker 1 (07:07):
It is.
Speaker 2 (07:08):
Quite honestly, I think that a lot of there's a
lot around housing that is squishy because I like it's
it's something that There's two different things that I think
make it tough to make housing non squishy is each
piece of real estate is unique. It's not you know, commoditized, right,
(07:31):
it's you know, it's you're you're looking at again, there's
a reason why, Like if you talk to real estate
investors or even just you know people own homes about Hey,
why'd you buy this house? It's like, oh, I liked
it because of X, Y and Z like it. It
does have kind of that squish factor to it. It's
you know, it's it's kind of this personal thing we have.
Speaker 3 (07:49):
Some jobs are the same way, and there is search
in matching models and economics that overcome that. Maybe that's
not doable in housing. I don't know, not my area.
I probably probably sound stupid what I.
Speaker 2 (07:58):
Just said to a housing You can still like segmented
in everything and we can learn things on that front.
But the the other piece I think when we when
we look at this is just trying to figure out look.
Prices in parts of the country have come down over
the last year, affordability has improved, mortgage rates have come
(08:20):
down over the last year, and yet we're still not
seeing more activity. So it's kind of the question that's
that's being asked out there, is you got more inventory,
prices are down and mortgage rates are down and they're
still not moving. What is it in wage system that
(08:40):
that that's the problem?
Speaker 3 (08:42):
Wege growth slower in those markets? Do we know?
Speaker 2 (08:43):
Could be?
Speaker 3 (08:44):
But is anybody you know testing right?
Speaker 2 (08:46):
Could could be? And part of it, like we in
specific markets like that, like you don't get that data
in anywhere close to real time. You know you're going
to be getting data a year or two after the fact. Yea,
And so it's some thing where in the absence of
that data, just because it's not produced in a timely fashion,
and quite honestly, I don't think it's worth the cost
(09:08):
to produce that data in a timely fashion. We're left saying, Okay,
could it be this, could it be that? And we
don't know, But there is something that's happening there.
Speaker 3 (09:18):
There's a divergence that cries out for an explanation. What
is going on in Phoenix that inventories are up thirty
excuse me, a year over year thirty percent? Is that right? Yeah? Yeah,
So there's this big divergence. Some markets look healthy all
against a Maryland, parts of the East Coast they appear healthy.
Others Southwest markets that have in the past been boombustish,
(09:41):
they don't. They look more wobbly. Is it wages? Is
it something else? I don't know? Is it well anyway,
I obviously don't know.
Speaker 2 (09:51):
Let's take a quick break. When we return, we'll talk
a little bit about the artificial intelligence industry and some
key market signals coming up this week. We've also got
trivia right after this.
Speaker 1 (10:04):
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Speaker 2 (10:40):
All right.
Speaker 4 (10:40):
Time for trivia here on the Financial Exchange. And in
nineteen seventy eight, the First Halloween Movie terrified audiences across
the country. The success of the First Halloween Movie spawned
a franchise that is currently thirteen movies deep.
Speaker 2 (10:58):
So our trivia question.
Speaker 4 (10:59):
Today, how many Halloween movies is Jamie Lee Curtison? Once again?
How many Halloween movies is Jamie Lee Curtis in be
the sixth person today to text us at six one
seven three six two, thirteen eighty five with the correct answer,
and you want a Financial Exchange Show t shirt? Once again,
the six correct response to textas to the number six
(11:20):
one seven three six two thirteen eighty five will win
that T shirt. See complete contest rules at Financial Exchange
Show dot com.
Speaker 2 (11:28):
Piece in Bloomberg Opinion titled watch these five AI signals
closely this week in terms of you know, look, you
got a bunch of corporate earnings specifically in that space.
What are we seeing from them? Number one? Amazon Web Services?
Are we seeing improvement there in their battle against Microsoft
(11:51):
Azure and Google Cloud? That's going to be something to watch.
Number two? How much is the demand crunch pushing up capex?
So what are we seeing in terms of Hey, as
companies battle for these chips and not just the chips,
but all the other stuff that goes into building data centers.
You know, think about cabling and cooling and all that stuff. Hey,
(12:15):
is that pushing up the cost? And are we seeing
you know, movement on that front? Another one for Apple.
Apple has not been on the forefront of AI development
to this point. I know they have their Apple Intelligence
platform that has largely been panned. But are we seeing
(12:35):
any you know, shift in spending in Apple's earnings as
far as you know, consumer trends away from iPhone because
of concerns about you know, lack of AI there to
this point, we haven't seen that, but is it something
that happens? Another one with Meta, Will Meta's advertising gains
be enough of a distraction? The answer typically has been yes,
(12:55):
because they they don't print money, They don't have the
physic go money printer mark, but they are as close
as you can get to printing money, you know, without
having one of those things. And another one, Reddit, who
also reports earnings this week. They are kind of in
a battle of some of these AI companies that they're
(13:16):
accusing of scraping their data illegally. And so what are
we seeing with Reddit who has now struck deals with
Google and open Ai? Are there more deals? How do
they end up monetizing that? How much money is there
for them? Just some interesting things to consider as we
get these AI earnings this week.
Speaker 3 (13:36):
Yeah, for sure, term investors, traders, whatever you want to
call them, these things are of interest longer term though.
The big question hanging over the market now and that
we'll be hanging over the market for a while, is
is AI paying off? Is it increasing output per hour productivity?
What we do with the tools that we A'm being
(13:58):
a little fast and lost with term here, but more
or less, what we do what a worker, any one
of us does in an hour, measured in terms of
whatever output. It is that we produce no evidence for
that yet not surprising. You could argue that it's early,
though some would say given the scale of the investments
and the fact that they've been underway for several years
(14:20):
and we as far as we know, there's no measurable benefit,
though there's controversy around that as well. I guess what
I'm trying to say is the proofs in the pudding,
and the pudding is still cooking.
Speaker 2 (14:34):
Does one cook put? How do you make it?
Speaker 3 (14:36):
Don't you boil it?
Speaker 2 (14:37):
I have no, I'm not a pudding. It is believe heat.
Speaker 3 (14:41):
Heat is the reaction that you need. Yeah, yeah, cause
the reaction.
Speaker 2 (14:44):
I just I don't understand pudding.
Speaker 3 (14:47):
No, we're not.
Speaker 2 (14:48):
I find it quite honestly. I want to talk about
this piece from Barons because this is a it's not
a fun one, but it's a really interesting one to
look through big wayoffs look scary, why the job market
is still holding up?
Speaker 3 (15:04):
Mark?
Speaker 2 (15:04):
What does this piece talk about and what are some
of the key points in it?
Speaker 3 (15:08):
Well, to me, the point I was gonna make is
that the eye bopping numbers. Amazon lays off fifty thirty
thousand people, and there are examples, you could say just
about every day. They're a drop in the bucket when
it comes to the size of the labor force, about
one hundred and seventy million people. When it comes to
the number of people that quit their jobs every month,
(15:28):
we talk about the Jolts survey. We haven't gotten that lately,
but it's normally a monthly survey, and the most recent
report three million people quit left their jobs voluntarily in August.
Companies hired five million people in that same month. Churn
in the labor market turnover, however you want to characterize it,
is enormous. And these layoff announcements though they and I
(15:52):
certainly got to minimize them for people or families who
are affected by them, but they're normal and really a
drop in the bucket. The key, obviously is economic growth
that will keep unemployment down overall. That's the measure you
want to look at, not getting Oh, of course, if
you're interested in the fortunes of a particular company or industry,
(16:12):
these might be eye catching, but in the scheme of
things they don't matter much.
Speaker 2 (16:17):
And Ernie Tedesky, who we've had on the show previously,
mentioned something on this today where in kind of a
related topic, you know, there's the idea of, hey, is
the lack of hiring and is what we're seeing in
the labor market now related to AI And he makes
(16:38):
the point, No, he doesn't think it is. And the
reason why is that there was such an over hiring
that took place in the back half of twenty twenty
really through the first half of twenty two that if
you look at the trends in terms of the slowdown
and hiring. Chat GPT was first rolled out in late
(17:00):
twenty twenty two, very late, it was likeate December of
twenty two. The slowdown in hiring started in mid twenty
twenty one, a year and a half before chat GPT
was rolled out, and it's basically continued since then at
you know, kind of the same pace that slowdown. It's
been the same slope that we've seen on that line.
(17:20):
So he makes the point, Look, there's no inflection point
where chat GPT was released and you suddenly saw hiring
fall off a cliff or even you know more recently,
you know, was there any shift. It's like kind of like, no,
it's it's basically been this this trend that we're seeing there,
and I've also seen kind of, in a related note,
people talking about Look, if you think about this in
(17:42):
terms of think about the labor market in terms of
the housing market, which I know is weird, but housing
we talked about last segment. Hey, you're not seeing people
buying these prices even though you know, things are cheaper
than they were a year ago, just because we're still
not back to you know, twenty nineteen twenty eighteen levels
(18:03):
of affordability relative to income. And think about companies and
think about them in terms of purchasing labor. The labor
that companies purchased back in twenty twenty one and twenty
twenty two was really freaking expensive because it was an
insanely competitive market. And so if you think about it
(18:24):
from this perspective, companies can let go that surplus twenty
one and twenty two labor right now that was priced
really highly, and they either a could say, look, we
don't need any additional labor right now, but even if
we do, we can get additional labor more cheaply now
on a you know, in terms of you know, kind
of real terms, because hey, it's not as competitive as
(18:47):
a job market right now. We can find better candidates
for less cost today, and so some of what these
companies might be doing, in particular, like Amazon, who went
on a hiring spree during that time, I wonder how
much of the layoff is concentrated in that vistage of
people hired in twenty one and twenty two where they've
got these crazy pay packages and Amazon's like, no, we
(19:08):
can get rid of them. Let that position just sit
for a year, then hire someone cheaper a year from now.
Speaker 3 (19:12):
Researchers will spend a lot of time trying to identify
the specific reason for those these layoffs. They're interesting implications
what the Fed's doing. Maybe we can talk about on
the other Side's.
Speaker 2 (19:23):
Take a quick break. When we come back. We got
Wall Street Watch, We've got trivia answer, and we're talking
credit cockroaches when we return.
Speaker 1 (19:38):
Bringing the latest financial news straight to your radio. Every day,
it's the Financial Exchange on the Financial Exchange Radio Network.
Time now for Wall Street Watch. A complete look at
what's moving markets so far today right here on the
Financial Exchange Radio Network.
Speaker 4 (19:56):
FED meeting days upon us and markets are extending GA
from their fresh record highs FED Chairman Jerome Powell will
hold a press conference at two thirty this afternoon after
the expected quarter point rate cut, however, and Nvidia is
the big story on the day, where the chip and
ai giant has officially crossed five trillion dollars in market cap,
(20:17):
the first company to do so if Video shares are
up four percent right now for markets, Dow is up
about a half a percent, or two hundred and nineteen points,
SMP five hundreds up two tents one percent or fourteen points,
NASDAC up just over half a percent or one hundred
and twenty five points, or Russell two thousand now actually
(20:38):
up by six tenths of one percent. Ten year treasure
yield is up one basis point at three point nine
to nine three percent, and crude oil is up just
over one percent higher, trading just below sixty one dollars
a barrel. Boeing posted mixed quarterly results. While it's revenue
(20:58):
beat estimates, the aerospace company logged a steeper loss than anticipated.
Boeing also said it at increased seven thirty seven production
to thirty eight airplanes a month. Boeing shares down by
over four percent. Meanwhile, shares and Caterpillars surging thirteen percent
after the maker of construction machinery beat third quarter forecasts. Elsewhere,
(21:20):
Five Serve shares are tanking forty two percent after the
financial services tech company reported a significant third quarter earnings
and revenue miss Mandale's cut his twenty twenty five guidance,
where the snack maker cited high cocoa prices and transportation costs,
and also noted Americans were buying fewer snacks. That stock
is retreating about three percent. According to CNBC, General Motors
(21:45):
laid off roughly seventeen hundred workers across its manufacturing sites
in Michigan and Ohio, citing a slowdown in the electric
vehicle market. GM stock is flat, and after today's closing bell,
the kickoff to big tech earnings begins, where Alphabet, Meta,
and Microsoft will all report their quarterly results. I'm Tucker
(22:07):
Silva and that is Wall Street Watch. And in the
previous segment, we asked the trivia question how many Halloween
movies is Jamie Lee Curtis in? That would be seven.
Nancy from Newberry, New Hampshire is our winner today, taking
home a Financial Exchange Show T shirt congrat congrats to Nancy,
and we played trivia every day here in the Financial Exchange.
See complete contest rules at Financial Exchange Show dot com.
Speaker 2 (22:30):
Mark, do you have any credit cockroaches at home?
Speaker 3 (22:33):
I don't think I have. I don't think I've ever
seen a cockroach.
Speaker 2 (22:36):
I haven't, Tucker you.
Speaker 3 (22:38):
I think hotels, lots. Not like size of your thumbs.
Speaker 4 (22:41):
I've seen like a smaller one, but like not like
the ones you've seen, like men in black or something
like the giant guys.
Speaker 3 (22:48):
What's the biggest one you've ever seen?
Speaker 2 (22:50):
I've ever seen one.
Speaker 3 (22:51):
Okay, size of your thumb, I've never saw tell in
New York City. Once trapped it under a glass, left
it for housekeeping. I'm sorry, how big was it? Size
of you? I'm including the antenna and all of the paraphernalia. Yeah,
and I think he was packing something too. May have
been a may have been a glock, I'm not sure.
So he was pretty well equipped. Yeah, he was pretty
well equipped. But I trapped him under a glass, and
(23:12):
I felt proud that I was able to do it.
They are the size of that thing. I'm sort of
a suburban slash rural a this country boy, so it
was horrifying anyway, you know what people have experienced.
Speaker 2 (23:23):
Honestly, it wouldn't be that impressive to me, like having
experienced the rats of Somerville back when I was living there.
Speaker 3 (23:30):
Never I've never experienced.
Speaker 2 (23:31):
You'd you'd be walking home at like, you know, eight
thirty nine at night, it's dark out, and you come
to you know, your your door, and you're like, oh,
like there's a dog on the porch and you're like,
wait a minute, fine dog, that's like a foot long
rat that's just hanging out on the porch waiting for you,
waiting for you to get home. In any case, Credit
cock roaches. So Jamie Diamond kind of brought this into
(23:52):
the mainstream a couple of weeks ago when he said, look,
you know, in reference to some of these uh privately
held you know, loone that we're blowing up. Hey, usually
when you see you know, one cockits, there's usually others
that are out there. And I think that when we
look at the the story on this, I think, once again,
(24:14):
this this is one that just because Credit has now
performed okay for the last couple of weeks, doesn't mean
all clear. And I'm not saying like I don't know
where this is going to go. Anyone who can conclusively
tell you right now that they know exactly how this
is going to play out is lying to you, because
if they do know, they're not telling because they work
(24:35):
for you know, Apollo or Blackstone or whoever. They're trying
to clean up their books and figure out, like are
we exploring, what are we doing?
Speaker 3 (24:43):
What's going to blow up next? That they can buy insurance?
Speaker 2 (24:45):
Yes, the people who do know aren't talking, and the
people who don't know, why would they like?
Speaker 3 (24:50):
These are very sophisticated investors.
Speaker 2 (24:52):
Correct, So I think that when you look at this,
I do think this is going to be binary. It's
either going to be something where six month from now
we look back at this and say, hey, this was
kind of like Silicon Valley Bank where you had a
few blow ups. Maybe there were a couple, you know,
companies that had to be acquired in order to manage this,
(25:12):
but ultimately it led to nothing. It wasn't a systemic issue.
Speaker 3 (25:15):
Late cycle reaching for yield is a hallmark of the
credit cycle to be a little redundant there. So All
Diamond's not psychic. He's not saying he knows he just
knows things are frothy. When things get frothy, analysts get sloppy.
They bring increasingly dodgy deals to their managers and they
stretch the case a little bit, and the managers say, well,
(25:37):
I think we've got clients who would buy this. Let's
work on syndicating it or selling it directly. It's inherent
to late cycle dynamics. You might call it the interaction
between people that need money and people that lend money.
The ladder get the ladder are emboldened by frothy financial conditions,
(25:59):
the lenders get sloppier. Diamond seeing this over again over again, right.
Speaker 2 (26:04):
So one possibility is, hey, you've got a few of
these that pop up. You know, we already went through
first brands, we went through Tricolor. There's been a couple
more now that are you know, in the process. But
ultimately it doesn't become a systemic issue just because it's
not big enough and widespread enough for that to be
a problem. And if that's the case, we'll know in
the next six to nine months. The other path that
(26:27):
this can follow is, hey, these are the canaries and
the coal mine. You know, these are the subprime funds
that blew up in April of seven that eventually led
to the entire financial crisis in fall of eight. I
have no idea which path we are going to take.
The private credit market is substantial now. I mean we're
(26:50):
talking the estimates that I've seen alre anywhere from like
two to five trillion dollars in assets here. To put
this in perspective of the US mortgage market today is
about twelve trillion dollars. So it's anywhere from like fifteen
to forty percent the size, and no one really knows,
partly because the private markets, like there is no public
(27:12):
accounting of how much is out there. Like you can't
look at this like you do with the bond market
and be like, here are all the bonds traded publicly,
here's how much is outstanding. We know how much debt
is there, Here's how big the US stock market is.
Because you can run the numbers, you don't know how
big this is, and you don't know how widespread problems are.
And it's just gonna take some time for this to
(27:32):
play out. So I think it's something that's worth monitoring absolutely,
because this stuff can go bad quickly. You know, it
can happen rather fast in this area. But it's also
something where hey, you might be sitting here six to
nine months now and you're like, oh, yeah, I remember
(27:53):
those concerns about private credit. Wasn't that quaint? I don't
know where we're going yet, But something continues to say
think out there. And the other thing that you're seeing
in a lot of these it's an awful lot of
fraud that's showing up in these companies that are going
belly up, and that is not reassuring to me in
any way, shape or form.
Speaker 3 (28:12):
Well, somebody missed it. An analyst missed it, their manager,
meaning they saw what they wanted to see. Yes, and
no analyst sees the full picture. And by that I
mean companies show you when you're doing due diligence on
a loan, they show you what they want you to see.
You can go on site, which you should. Indeed, better
managers do go on site, kick the tires, talk to management,
(28:33):
talk to look at their track record, but you never
really see the full picture. But to me, it always
comes down to taking two to tango, the analyst to
the manager, the investment manager who buys, who lends the money. Effectively,
they want to be fooled. They kind of want to
believe that these high returns with a triple A rating
or possible, and of course the guy on the other side,
(28:54):
maybe they want to believe that their collateral is worth
a lot more than they represent. Now, the double counting
of collateral is a different store. Unless you don't know
how to use a spreadsheet, that's pretty clearly fraudwadll you
shouldn'tay clearly.
Speaker 2 (29:04):
Probably, yeah, probably. Let's take a quick break here. When
we return, we'll do a little bit of stack rough.
Speaker 1 (29:13):
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(29:38):
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Speaker 4 (29:49):
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Speaker 2 (30:20):
Mark what you got for stack roulette?
Speaker 3 (30:22):
Did you know that Oracles loaded up on or issued
about sixty billion dollars in debt in just the last
couple of months. That makes yes. I think the sex
you and Mike or you and Paul have talked about this.
A corollary to that, or a related story is that
bigs of the big sophisticated investors that we were talking
about in the last segment, who are able to buy
(30:43):
insurance or protection or just make a bet on somebody defaulting,
they are now piling into so called credit default swaps,
which is a way to either buy insurance or to
speculate that somebody will not be able to repay their loan.
The CDs is we don't see them. They're not publicly traded.
But interest in Oracle cds's is increasing, i'll to say
(31:05):
rapidly according to Bloomberg, though they don't quantify it because
it's tough to get a handle on it for reasons
that you mentioned in the previous segment. These vehicles like
private credit though this Oracle issues their bonds publicly, but
the insurance against them is private. Interest is picking up.
So this is another to me symptom of late stage
froth of financial conditions that are too easy. Amazing that
(31:27):
the FED is loosening in the face of these obvious
signs of speculative froth. But here we have yet yet
another one. I hope they know more about the labor market,
the FED, I mean, than we do.
Speaker 2 (31:41):
And quite honestly, when it comes to these companies that
are building data centers, the entire question is going to
be when the depreciation starts to really hit, can you
find the revenue in order to actually cover it on
your statement? Like it are you going to have basically
(32:03):
like the gross revenue that can end up getting you
to you know, the net income that's needed to cover it.
That's that's where the meat is because ultimately, like I
keep having to come back to this, the amount of
construction that's taken place to this point is a drop
in the bucket compared to what's projected for the next
five years. And when you start having five hundred billion
(32:26):
dollars in data center construction coming through that you need
to depreciate over probably like an eight to twelve year period,
maybe a little shorter than that, depending on you know,
how much of the spend goes into chips that you
know basically have a useful life of only a few years.
You will agat and you say, okay, how are these
companies going to figure out how to deal with you know,
(32:49):
sixty billion dollars of depreciating hitting from next year's vintage,
another sixty from the year after, and pretty soon you
got like one hundred and eighty two hundred billion dollars
of depreciate, a depreciation that's hitting your income statement, and
you're like, okay, like, we got to figure out some
way to deal with this. Are you gonna have the
five hundred billion dollars in sequential revenue in order to cover.
Speaker 3 (33:12):
That and make the investments that are required to keep
these right?
Speaker 2 (33:14):
Like I don't know. Yeah, I'd like that is a
you basically have to get to. I think you know,
I think you have Okay, Quite honestly, I suspect that
unless we're actually talking about replacing twenty to forty percent
of the workforce with AI for either you know, LMS
(33:35):
for white collar jobs and robots for blue collar jobs,
unless that is feasible by twenty thirty, it doesn't pay
for itself.
Speaker 3 (33:46):
Where's the investment gonna come from? We we already don't
save enough. We talked about this in the first hour.
That has trade deficit implications because it's the flip side
of foreign investment coming in. Where's the If it's gonna
come from abroad, the trade deficit blows out.
Speaker 2 (33:58):
And the other piece is okay, if if you start
seeing companies increasingly relying on AI and robots as their
workforce and trimming their workforce further, our economy is seventy
percent consumer spending. How does that work if you have
a smaller and smaller pool of people actually working. What
needs to change in order for that to you know,
remain functional. I like, there's a lot of potential problems
(34:22):
as you get out there. We're not really the market's
not worried about those right now. That's fine. Doesn't have
to worry about.
Speaker 3 (34:29):
What's worse, what's scarier prospect in your mind, AI doesn't
fulfill its promise, or it does does.
Speaker 2 (34:36):
If it doesn't, we've gone through boombus cycles before. This
one would be large. But there's a path to figuring
out how to deal with that. Like here, here's the
interesting thought experiment. You've got one hundred and sixty million
people working in the US right now at this very
point in time. Maybe not right now because some of
them are you know, night shift, but you got one
hundred and sixty million people that are working in the
(34:58):
United States today. If five years from now you only
have one hundred and thirty million jobs because AI has
taken thirty million of them. Well, that thirty million people,
let's say that they you know, they work, and they
have got you know, kind of just median income in general.
Let's say let's call it like seventy thousand a year
(35:19):
times thirty million people. Uh, that is two point one
trillion dollars in income that is no longer being earned. Well,
if that's not being earned, then how much money do
the companies that laid them off, have to spend on AI.
And if they're further cutting spending, then how much more
has to happen in terms of cuts? And do you
get to this spiral where eventually you just say okay,
(35:43):
like this is the thing now where people like aren't
working in most of these places. Like if AI can
actually do all of the stuff that its proponents say
it can, how do you make the economics of society work?
Because we are not set up for this in any way.
Speaker 3 (35:59):
Some people are screaming at the radio saying what about electricity,
what about steam? What about the IT revolution?
Speaker 1 (36:04):
No?
Speaker 3 (36:04):
I know, I oh yeah, But it could work out
that AI favors capital over labor and that these that
people don't shift seamlessly between sectors. It could. I don't
think the odds are on that.
Speaker 2 (36:15):
But here's the other scenario that I think we have
to be aware of as a possibility. What if we
get both? What if you get and this, by the way,
is what happened with you will get all these major inventions,
whether it's the railroad, electricity, radio flight, what if you
get Hey, this transforms how business is done. But we
(36:38):
also spent way too much building this out like the
example that I love to give, it's likely like railroads
and radio are right there, where, Hey, we spent so
much money in the eighteen hundreds building railroads, and think
of all the railroads that went bust in the eighteen
hundreds because there still wasn't the demand to fill all
those but they still transform society.
Speaker 3 (36:56):
It was a depression every three years.
Speaker 2 (36:58):
Radio is the same thing. You had this explosion of
commerce that could take place because of radio that previously
couldn't happen, and yet you still saw the radio sector
decimated in the nineteen twenties and thirties because of overinvestment
in it. What if you get the same thing with AI,
where yeah, it's this transformational product, but we still put
(37:20):
way too much money into you know, building the back
end of it, and it turns out that you know,
that ends up being a loss as well. Like it
could be both, because most great technological changes are they
change the world, but we also think that they're going
to do so much. You know that we spend so
much money, We put so much money into them an
investment and it just can't work out. So it could
(37:43):
be both. You could have AI change the world and
do all these crazy things and we could still be
investing way too much into it.
Speaker 3 (37:51):
Well, yeah, most of us have experienced that within our
lifetimes with the sure Internet.
Speaker 2 (37:54):
Sure, So with that in mind, let's take a break
for the rest of the day. Tomorrow, we got all
the earnings from this afternoon to recap Microsoft Meta and Alphabet.
We've got a FED meeting we're gonna be recapping, and
we're previewing tomorrow's big earnings of Apple and Amazon. Pack
show tomorrow. Make sure you tune in
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