AI Capex: Broad agreement that AI-driven spending remains early and durable, supporting GDP now via data centers and later via productivity gains; not a bubble yet.
Big Tech Earnings: META, MSFT, and GOOGL posted strong top-line growth with accelerating capex plans, supported largely by robust free cash flow; META’s rising expenses pressured FCF near term.
Semiconductors: Semi and semi-equipment stocks added ~$1T in five days, led by NVDA and peers, reflecting market conviction in AI infrastructure despite future bubble risks if debt-funded.
Debt & Credit: Debt is entering AI build financing (e.g., large data center projects) but big tech cash flows remain ample; credit spreads are tight for good reason, with risks more acute for smaller firms.
Fed Policy: A December cut is “far from a foregone conclusion,” prompting repricing; housing activity lags rate moves, while household debt-to-income remains healthy overall.
Autos & Wealth Effect: F and GM hit 52-week highs as stock market wealth supports demand; GM benefits from higher-margin SUVs while Ford faces execution risk and leans on dividends.
China Exposure: US tech revenue exposure to China is significant (AAPL, TSLA, NVDA), and a trade truce paves the way for a year-end rally; tariffs have modestly lifted goods inflation with gradual pass-through.
Consumer & Payments: AXP’s growth is led by Gen Z and millennials, aligning with a broader wealth effect; AI labor disruption is a 10-year evolution with limited near-term recession risk.
Transcript
call. Come here. >> He's in Mexico this week. >> Oh, that sounds amazing. >> It does, right? >> Yes. >> He's texting me and Josh pictures every day. >> Come on. [snorts] >> It's like the most It's like the most absurd thing. >> Do you do that? Who does that? >> No, I just send people pictures with my kids, but and who don't ask, [laughter] >> but on vacation every day. Can you imagine? >> So, I took a picture of my desk and I'm like, "Dude, >> great. [laughter] Thank you. >> Thank you. >> That's amazing." So, so, so sprinkles makes me do this whole thing >> and then she's like, "Oh, you missed it. The 30% is over." >> I'm like, "Well, I'm hitting I'm smashing the >> I'm smashing the buy button regardless. I don't really care to tell you the truth." >> You can proximity to the mic. >> So, if you go too far away, you're like, "Oh, I got it back." >> She said there's another there's another sale right before Thanksgiving. Of course there is. Oh, here we go. >> Yeah. Black probably the Black. >> All right. What do you think? Is that like too Is it Smurfy? >> Um, no. Oh, I like the color. >> Okay, I [laughter] guess >> that's cute. >> All right, so the chill sweatshirts and sweatpants are the lightest weight, which is what I need when I'm on the airplane, right? >> The scholar is like almost pajama-y. >> Yeah, it looks it looks >> And then the accolade sweatpant and crew neck. >> So, do you know that he thinks this is cute for the audience who can't even see or listen? >> No, we're working on something. >> Side barring. Sorry. >> Ordering clothes. >> Yeah. >> Yeah. 30% off sale at Alo that I missed by a day and I just bought a [ __ ] all this [ __ ] anyway. >> It's called Alo. I thought it was called Alo. >> Yeah. I don't feel like I'm gonna look like that guy though. I don't know. >> I don't know. It's a good question. >> I don't >> It's alo. It means hello. >> And will not own any Alo or >> not Alo. >> I don't own any of them. >> You just said Alo. >> I know. >> But that's doesn't make it right. Two wrongs don't make it right. your job >> if I need my what are those clothes called? [snorts] >> Casual clothes. What are they called? What [clears throat] else? Athleisure. That's the word I was looking for. [laughter] >> Uh, I'm a traditionalist. [applause] >> It's aloe. It means hello >> in what language? >> And it's way better. It's way better than uh way better than Lulu. >> It's not even close. >> Is it better than Vori? Viori. I don't like the >> I said it that bad. >> Vori. Yeah. You don't want >> V. You said v. >> Vori. Okay. >> I don't even know what that is. >> It's Italian. >> You know what? Athleisure. >> Surely you do the idea. Yeah. >> She likes the idea of it. All right, [laughter] John. How we looking, sir? >> Getting close. >> All right. [snorts] >> All right. [applause] So, we have a bunch of charts in here. >> Okay. Yep. >> We're in earnings season. I don't know how deep you want to go on like individual companies, but like we definitely have to we have to get to it. >> Okay. >> All right. >> I can't comment on individual companies. >> You don't have to. You can listen. Are you are you a call listener or or what? Are you a transcript reader? How do you ingest the >> How do you ingest like what you need to know from the uh earnings reports? >> Um I listen to the other smart people at Wolfe because they call the companies, >> right? >> Um >> good idea. >> Yeah. Every chance reader otherwise, >> right? What do um do you ever do you ever like have something in your research where you actually want to double check it with the equities people? >> Oh, all the time. >> Yeah, >> all the time. >> I would I would imagine. Right. >> Cuz they're like they're really good >> and they're in the weeds. >> And they're in the weeds. They know everything. They're talking to the companies. As soon as there's something out in the companies, they're talking to them. >> That's the benefit of being at a shop that's covering the gamut of things is that you have other people to talk to. >> Oh, for example. So this morning or last night actually, Chipotle said, "Oh, young people have no money. They're not buying our stuff anymore." You could go to your analysts and say, "Hey, >> is that really the case?" >> Are the other are their competitors saying the same thing or does their food just suck and nobody wants it anymore? >> Same. Exactly. >> Right. >> Yes. >> So that must that must come that must come in handy. >> Super help help super helpful. >> Right. >> And they cover every single sector in space. >> Right. If you're just doing if you're just doing economics or macro or whatever and you're by yourself, you kind of like are going by other things that you read to try to figure out what's going on. >> Yeah. You're kind of on an island, >> right? >> We've got a great policy analyst, too. So, all the stuff coming out of Washington, I can talk to him about, which is >> which is like more important at different times than anything else. >> 100%. >> Because it could change everything. >> Exactly. >> Okay. >> And like the big banks don't really do the policy thing quite as often. >> Why do you think they want to stay out of that? They don't want to have commentary on that. >> Yeah. So, we're independent. It doesn't really matter. >> Okay. Is your policy guy in DC? >> No, he sits here in New York. >> He's in New York. >> He used to be in DC, but now he's here. >> Oh my god, this weather is so bad. I'm going out later. >> What are you doing? >> I have a small umbrella. I'm I'm going to be down bad. >> Where are you going? >> Uh dinner. >> No, but far. Not close. >> You can buy like an umbrella for $40 somewhere. >> Yeah, that's that's always a good option for you. >> I'll say that. [laughter] You vulture. >> All right. >> I always knew you were a pirate, Duncan. >> Hey, Jeffrey the giraffe. >> We good? >> She doesn't even know what that reference means. >> Yeah, I do. Toys R Us. >> You're old enough to know what Toys R Us is? >> I don't know. I thought >> I thought [applause] [music] [music] today's show is brought to you by our sponsors at Betterment Advisor [music] Solutions. If you happen to be thinking, "There's got to be a better way to grow my RAIA," you're not alone. With Betterment Advisor Solutions, we [music] do the heavy lifting so you can focus on what matters most, your clients. From improved service that makes [music] asset transitions smoother to fast, paper-free onboarding that delights clients on day one, we've built the digital first platform designed [music] to streamline your operations and make life easier. Now, if you're thinking, "Wow, they take the paper [music] out of paperwork." Then you'd be right. Grow your RAIA your way with Betterment Advisor Solutions. Learn more at betterment.com/advisors. [music] Investing involves risk. Performance not guaranteed. Woo. All right. Play my theme music. I'm going to drop a few bars. I'm going to show I'm going to show I'm going to show off my flow to Stephanie. Is that cool? All right. >> Do it. All right, ladies and gentlemen, welcome to the best investing podcast in the world. We're so excited to have uh all of you here with us this week. I got to tell you guys the uh the numbers that we're doing on YouTube, on Spotify, on iTunes. We know we all are all to you and we love you for it and we appreciate it. We have a giraffe in the room. You have to watch You have to watch us on Spotify or YouTube to see what I'm talking about. Um, we're having a we're having a very Gen Z Halloween day here at uh the compound and we have a special guest on the show, ladies and gentlemen. Stephanie Roth is the chief economist at Wolf Research, an equity and macro research firm covering roughly 800 stocks. Prior to joining, Stephanie was a senior economist for global wealth management at JP Morgan Private Bank and she specializes in macro strategy. Stephanie, so great to have you here. Great to have be here. >> You ready to rock? >> Yeah. >> All right. Where's your costume? Did you not get the email? Do you didn't see it? [laughter] >> I'm saving it for tomorrow. >> You would never. I know you would. They would kill you. [laughter] Okay. Um All right. It's tech earnings week and I know you don't cover these companies specifically, but I do feel that you would probably agree from a macroeconomic standpoint, a lot is riding on current trends in tech spending to continue. What's your take on what we're getting from these companies? Because from my perspective, it seems like we're getting confirmation of exactly what we needed to hear. >> Yeah, the spending is strong. It's going to continue to be strong. We get a lot of questions, is this a bubble? Is this going to end anytime soon? And our sense is absolutely no. It's no. Okay. >> It's it's a fairly small share of GDP at this point, even though it's been growing quickly. >> So, our sense is that it's just going to keep going for quite some time. And we don't even know the full effect of AI on this economy. So companies are going to keep spending until we see who the winners and losers are. >> Okay. I I think I think that's where I I land. Like I know that it will at some point maybe not blow up, but it'll slow, just not yet. >> I think everybody agrees that's like consensus. And I think consensus is right that these companies are telling you that they are going to continue to spend. Now maybe there's a quarter or two out there where shareholders say, "Nope, [clears throat] we're not going to let you do that anymore." And we'll find out when it happens. But and also so we're in the whatever inning relatively early in this spend out that doesn't really tell you anything about where the stocks are or what they're going to how they're going to perform because obviously Nvidia at 5 trillion. It's looking forward many many many quarters out in the future. >> Yeah, I think that's right. And the the trend is that this is going to be a gamecher for the economy. Productivity is likely to pick up pretty significantly. And >> do you buy that? >> I do. I don't think it's h impacting productivity today. The the the usage in terms of productive AI is not really playing out yet, but I think it will. >> So, you're you're uh you're an econ person. You're a data person. Where do you think the data is going to where do you think those numbers are going to reveal themselves on the productivity side? >> So, we're seeing it so far productivity and within the tech space has picked up a little bit within professional services, but outside of that, uh there's no clear correlation between chat GPT usage for example and productivity by industry. you are seeing it in those other two sectors. So my expectation is over the next couple of years, this is what we're going to be watching because it's likely to pick up pretty substantially as you see usage picks up. But right now the the levels in terms of say chat GBT usage by industry is fairly low for the bulk of the economy. >> You would expect it to show up in tech first. These are the people selling it. So of course they're using it the most aggressively and finding use cases for it internally that they then it's the same that was the same pattern with the cloud like you have these companies providing cloud services to themselves before they turned them into for-profit businesses they you know AWS they turned it inside out and said okay we're using this who else wants to use it. >> So it makes perfect sense to me. Um let's start with this chart Mike uh unless you have somewhere else again. >> All right. um where you got this one tech earnings week. Uh Meta, Microsoft, and Google revenue. So, it's still it's still very healthy topline across the board. Meta's up 26% year-over-year. Microsoft up 18%. Google up uh 16% to its first 100 uh billion dollar quarter, which is kind of it almost said it felt wrong coming out of my mouth. I was like, "Wait, is that right?" It is right. Um, Microsoft cloud the run rate, the revenue run rate, so it's 49 billion for the quarter is up to a 196 billion run rate. Alex Morris tweeted this and this is this part is hard to believe. They've grown 20% in every quarter for the past decade. It like >> it looks fake. >> It looks fake. How is this happening? >> Yeah. Now the question the question on the call on every call and I think Meta is the one that is like bearing the brunt of this because their expenses are as as great as their topline growth is it is slowing their free cash flow is slowing and their expenses are ramping and today anyway it's one day but investors are like yeah we'll take 10% back of your market cap because it's a bit >> you listen did you listen to the medical call >> I did I listened to all of them today >> so the big takeaway that I had was uh capex is going to accept expenses are going to accelerate significantly next year like not just the number but the rate of growth. >> So here here's the quote. Yeah. So they said so every analyst on every call is asking the exact same question right like the spend the revenue where is it going to show up where does this land and they said it has become clear that this is meta that our compute needs have continued to expand meaningfully including versus our expectations last quarter. We are still working through our capacity plans, but we expect to invest aggressively to meet these needs both by building our own infrastructure and contracting with thirdparty cloud providers. We anticipate this will provide further upward pressure on our capex um capex dollar growth will be notably larger in 26 and 25. And they all said basically the same thing that it's going to be a lot higher. So Meta this year they gave their numbers. It wasundred and uh where is this 70 to 72 billion is their capex for 2025. I'm Yeah, right. Is that right? That was expected. Let me see. Anyway, the number is big. Lots of money >> here. Alphabet 91 to 93 billion. >> My bad. 116 billion. That's where it was. Uh the number I just said was they're expect to come into the year. It's 116 billion. So whatever I What did I just say? 86. It's 116. that's what they're going to do for the year, >> right? Um you and you got that across the board basically. And uh that's so to my earlier question, Stephanie, that's what I kind of felt like the market needed to hear is yes, we're still spending at the same rate and actually we're going to spend more next year. And they got that. And I know we're not seeing the productivity gains yet widespread, but we're definitely seeing like industrial activity, utility use. That's the real economy feeling the effect of the AI build even in advance of whatever productivity boom we may or may not get. It's got to be a really big factor in it's like a ripple effect from all this capex spending. >> Yeah. So our sense is it's it's a roughly about a quarter of the GDP growth is is driven by all of this capex spend so far. Um, of course that may slow down eventually once it's it transitions from companies doing the big capex to companies integrating the AI and then it's a different type of story. So we're transitioning from the the hard investment construction portion of this to then being a sort of productivity boom because >> it's like a handoff. >> Exactly. It's a handoff to companies using the AI and then becoming a lot more productive. Of course, the the challenge for the economy will be a rebalancing in the labor market because there will be a lot of people whose jobs will change as a result, >> right? So, can people upskill fast enough to remain useful? The answer is usually not. And then what do all these people do now that they are considered to be idle capacity, >> right? And right now you're seeing >> But is that like a one-year thing or like a 10-year thing? Because I think it's a 10-year thing. >> Yeah, I think it's a 10-year thing. Okay. The the start of it right now is within young workers who have graduated college recently, specifically looking for jobs in the tech sector. It's the youth unemployment specifically for white collar workers. Those people are having some trouble finding jobs, >> developers, programmers, people that >> How does that get better? >> People that learn to code are now It's the irony. PE if you can do if you could do HVAC or or landscaping, you're probably very busy. If you learn to code, maybe you're very busy, but maybe you can't find a job. >> Yeah, I think that's exactly it. And how does that get better? It's a couple of things. One, they'll be they'll find more use cases for these types of skills eventually andor people will go to school for different things. It was when you were entering school four years ago, the dynamic was a lot different and made a lot more sense to study a lot of these things. Now, students looking to sort of pick their major might look for something slightly different, >> right? What what do your analysts say in terms of the the capex spend? These things depreciate very quickly is my understanding. Like a lot of the spend it is it is not a one-time thing. It's a constant upkeep. And there's estimates that there's going to be $2 trillion in annual spend at some point that can power GDP for a long time if that's the case. >> Yeah. So Jensen put out those forecasts a couple weeks ago saying that it would be 3 to4 trillion by the end of the decade. Of that let's call it 60% in the US. That is a lot of spending. I don't know if we'll necessarily get quite that high, but if you're anywhere close, that's nearly 5% of GDP, which is massive. So, you said right now you think a quarter of economic growth is directly capex or capex plus the ancillary that comes along with it. >> Directly the capex tied to AI. So if economic growth is 2% a year, let's say, you think like you think like 50 a half of 1% of that is coming from this story? >> Yeah, probably a little bit less, but very close. >> Okay. Can is there another example of anything like this that you could think of in like economic history? >> Yeah. So we look back to see one. So we we looked for the for Jensen's forecasts. If you end up with something like that, your cumulative $7.2 2 trillion, >> right, >> of US spend. >> The only thing we could find is the China super cycle. Historically, that was $14 trillion in today's dollars. The dot was about a trillion. So, nothing else compares outside of the China story. >> Okay, so this like this is one of the big ones. >> This is one of the big ones. >> And the market is getting the memo. Daniel chart 11. So over the last five sessions, semi stocks, semiconductors and semi- equipment added a trillion dollars in market cap, which is >> how long? Five days. >> Five days. It's bigger. >> That sounds incorrect, but should not have happened. >> It's bigger than the entire material sector by I don't know hundred billion dollars. I mean in 5 days. Now nobody disputes or doubts. I mean obviously the market is is telling you that this is everything we think it's going to be and more. But some of the numbers are getting really difficult to wrap your arms around. A trillion dollars in five days >> and and most of that it's like in five stocks and it's not even like it's in a 100 stocks. >> Micron and AMD and I'm guessing Broadcom. Yep. Yep. Yep. Nvidia, of course. Um yeah, wild wild times. >> It's wild. But I don't think it will be I don't think we'll be in bubble territory for a while until it becomes one clear who the winners and losers are. two until companies are start to spend in terms of debt. A lot of it's coming from cash flow right now. Once it becomes debt finance, that's where it becomes a lot more risky economy. >> So started >> we're early innings. >> We're in the early innings of actually cash flows won't be spec uh won't be uh enough because if we don't spend now, we're going to get locked out of the game. We need to we need to make the bet. >> Yeah. But that narrative is being blown up blown to smitherreens because it is true that debt is now entered the conversation right what Oracle's doing but Microsoft uh chart 4 like their free cash flow >> Meta also >> their free cash flow alltime high um Google killing it now Meta's free cash flow is rolling over chart 8 chart 8 please so Meta's trailing 12 months this is from Alex Morris yes it is it is rolling and we know like they're they're they're spending a lot more expenses are growing faster than revenue and the the stock's getting hit as a result. But this idea that they're going free cash flow negative or anything even like remotely close, like that's just not true. Not even close. >> But we do have massive debt deals now to cover the infrastructure build. And everyone's in the game, like every major firm on Wall Street, all the private credit and private equity firms, all the market makers, all the asset managers. Um, Michael and I were talking about a deal earlier this week where they're building two different facilities, one in Texas, one in Wisconsin for Oracle. And just like the whole list of names of firms that are getting in on financing this thing. So, let's say it's early innings and it's not quite a full-blown uh debt bubble yet, but if that's directionally like where it seems obvious we're headed, why is that the danger to the economy? Like aside from the obvious that eventually the debt becomes unsustainable, does it have to go go there eventually or >> it could stop short of that? >> It doesn't have to, but that's where it becomes more vulnerable because if you get disappointed and then you have all this debt, then it becomes a a bit more of an issue. If it's funded by cash flow, then it's an issue for those companies, but it doesn't have broader implications. >> Does it have to get there? No. >> Generally speaking, when you have these types of investment trends, it usually does. companies, like you said before, companies spend to keep up and they're there investments are maybe not ones that they necessarily should be doing for their businesses and they might be spending uh sort of in in way in in the wrong direction. It might be some sort of malinvestment because that generally happens. >> They're saying that they're going to over like Zuckerberg keeps saying if we overspend by a few hundred billion so be it. like >> Zuckerberg Zuckerberg said last night on the call um we are spending for the quote optimistic most optimistic case for AI and then he said if we overshoot it meaning between now and whenever super intelligence actually arrives which is their stated goal I don't know what it means but fine he said if we overspend we could just use that compute elsewhere in our core business like it's not going to go to waste and I Like if you're a sellside analyst on the call listening to that, you're probably like, "Oh yeah, make that makes sense." Because it's not like this is a startup company. They have a massive core business that probably does need more compute one way or the other. >> Reals Reels has had a $50 billion revenue run rate, right? >> Like one piece of one product of a broader ecosystem of products. Google said last night that they have 13 different businesses that are doing a billion dollars in revenue. Um, >> Microsoft, LinkedIn keeps growing 10% a quarter, by the way. Do you see that? Every quarter. >> Yeah, I think I'm helping to drive the LinkedIn growth numbers. [laughter] Um, Alphabet Capex is now at a hundred billion dollar run rate. So, like they're all probably going to have to get to 100 billion just as like that'll be the industry standard [snorts] or or more. And to your point, there's still plenty of cash flow to support that. Uh, I don't know. Is that infinite though? Does that just mean keep going? It would be it would be really something if there is no like reckoning at some point whether it's five years from now if if we don't get the complete crazy overspend. Would that be would that be surprising or not necessarily? >> Yeah, I'd be surprised if we didn't get there. But you never know. But these things companies tend to pile in. And I think the issue is more on the smaller companies that tend that get involved in the investments here. it's going to become a bigger problem for them because they're spending in areas that they maybe didn't need to be. >> Okay. >> We haven't really gotten to that point yet. >> Like privately held companies that haven't come public yet. >> Yeah. Like just smaller public companies that are putting money that they don't really have. That's that's why that's why it becomes more of an interesting story when it becomes debt finance because then it's companies maybe can't really back it up with cash flows, >> right? If the ROI doesn't arrive and we all know, we all understand like it might not tomorrow, then what do you do? >> Okay. But also Microsoft's free cash flow >> up 34. >> No, we're fine with Microsoft. >> No, it's up 34%. >> Yeah. Yeah. >> Um, all right. Let's So, let's talk about let's talk Oh, I wanted to shout out uh Dan Ies. Um, Michael, did you know he hit a billion dollars in assets in his uh AI ETF? >> Unbelievable. >> In in five months, would you have predicted that? >> Nope. All due respect. >> I was rooting for it. I don't think I would have predicted it. That's pretty That's pretty crazy. Shout out to uh shout out to Dan. Um it's the AI. >> It's the AI. There it is. >> Uh what did the Fed actually say this week, Stephanie? I sort of get it, but I don't get it. Why did yield? I'll ask you follow-ups. What do you think? What do you think was the point of Powell's statement and the answers to the reporter's questions? I mean the the one statement if you listen to one statement all you needed to hear was a December rate cut is far from a foregone conclusion. That was by far the important thing. >> Is that the one the market disliked the stock market disliked the most? >> Yes. >> Probably lost 30 40 basis points on the S&P immediately. >> Exactly. That's exactly what he said. >> Okay. Why Why are we still begging for rate cuts with stocks at all-time highs? >> Um >> are we crazy? >> I mean the market always loves lower rates. Uh this is this is disappointing versus what was in the price. the market was pricing a nearly 100% chance of a December cut. Pal completely poured cold water on that. We had been calling for the market to be or the Fed to at least uh be less convinced that they're going to do a cut in December. There's the labor market appears to be largely fine. The economy is pretty steady. There's not a great reason to be cutting at this point just given where they are today and where the economy >> I'll give you one reason. >> Well, >> make America great again. >> Real estate. Don't you love America? Oh, wait. Hold on. So, so why why was that statement so consequential only because it forced everybody to change their expectations for December? >> That's exactly right. It was just a a complete repricing of the December cut, which now is less likely to significantly less likely to be the case. Now, it's all else equal. If the economy is exactly today as it is at the for the December meeting, the Fed's not going to cut is effectively what they told you. And then you have to question, well, are they going to even cut beyond that? Are they going to be in some sort of extended pause at 4%? Are they only going to cut maybe two more times as opposed to the market thinking it would be several more times beyond that? >> Okay. The mortgage related stocks that we follow all got crushed all >> fast. Anything housing related fast. So that's you see that it really was in the price that you were getting this December. Okay. And now it's in doubt, but you might still get it anyway. He didn't say we're not cutting. He just said we're data dependent. So maybe we will, maybe we won't. Yes, >> f around and find out. >> Well, we're data dependent, but if there's no data, >> the assumption was given the shutdown, if there's no data, the assumption was the Fed would cut anyway. But now he told you maybe not. Now, if there's no data or if we're kind of still in this data fog, which by the way, the data is going to be really questionable between now and then that you should assume that the Fed will probably not be cutting and there's significant divide among Fed members about what they should do from here. >> Oh, this is so Cali pointed this out. Our chief strategist Cali Cox pointed out she can't think of another time where there were two descents, which itself is rare, but two descents in opposite directions. You had one person saying it should have been a 50 basis point cut. You had another person saying it should have been no cut. Can you think of another example of that or does that strike you as like really emblematic of the confusion right now about what the right course forward for the Fed is? >> Yes and no. I mean, Meer's the only one who you would have we would have known. He knew he was going to descent for a 50 cut and that's political. Uh >> his master wants that and that's >> exactly so no one else who is more independent and credible is looking for a 50 basis cut at this point. >> Why not 100? >> Just go for it. Right. >> When is this term over >> Myin? >> No, I'm sorry. Pal's terms over in May. >> May. >> Okay. All right. >> Or whenever I decide. All right. Wait. So All right. So it's not that strange because you know where that's coming from. >> Right. So the real debate, right? So the real debate was do we not cut or do we go ahead a couple more times is really the debate in the room. Myin is kind of out on his own on that. >> What's the case for not cutting? Just as simple as CPI is 3% and not 2%. >> Yeah. And inflation is potentially heading a little bit higher. On top of that, you have an economy that's doing okay. >> Okay. So not unnecessary cut. >> Yeah. And valuations are high. Why not just wait and see? There's no there's not as much harm in waiting now as it was months ago. >> Well, here's the the doves would tell you um recent college graduate unemployment at 6 and a half% is really significantly higher than 4% and possibly a harbinger for a worsening um labor market. You'll tell us if you agree with that or not um if the data says that that's true. But that's a thing. The other thing is people with debt balances obviously a rate cut helps them and those are the people right now that need the help and maybe that doesn't justify lowering rates across the whole economy just to help borrowers but like the politicians who are getting elected right now including in New York City are the people who are making promises that they'll ease people's debt burden so there's obviously a real issue out there. So that would be like the the dove's case as to why yes, one more cut at the end of the year. Does that move you or not really? >> Maybe let's go to chart 13. >> So not necessarily. I mean the debt picture actually looks pretty good. >> Tell us what we're looking at for the for the listener that's not watching. What are we looking at? >> We're looking at a chart of household debt uh relative to disposable income. So, it's an income r uh a debt ratio chart and you're seeing it steadily move lower which tells you that in fact the consumer is healthier today than it was a year ago and two years before that >> on this measure >> but when people say we look pretty good >> but which consumer >> the broad consumer so there there is a story about the lowest end consumer that is showing cracks and getting >> the K-shaped >> the K-shaped economy and that's true >> can I say one thing not to be insensitive to the lower end consumer but is are they not by definition always under a level of distress I mean, if you're talking about the do bottom 10%, when are they when are they not >> There were six months in 2021 where they did better than everyone because money was put into their bank accounts and that's pretty much it. >> Yeah. I mean, it it's fair there's and we we can't conduct policy aimed at just this lower lower end consumer. We yet, you know, you have to think about the broad picture here. And you're seeing this this low-end consumer which is under stress, but it doesn't appear to be getting that much worse than it's been. I actually don't even think that that should be the purview of monetary policy. Like the the woke Fed era should be way over. I understand I understand why we have to do something. I think that's Congress and maybe the states. I don't feel like we can accomplish that with overnight interest rates. >> Yeah, I think that's right. And we don't really we don't really want to incentivize too much borrowing at the lower end. And by the way, there's going to be a decent amount of stimulus headed for the low-end consumer come tax season. They're going to get some pretty large refund checks for no tax on overtime and no tax on tips. >> Okay. Oh, >> that comes in refunds. >> That this is going to come in refunds for this this cohort. >> So, according to according to what you showed us then, like yes, there is a vocal group of consumers who are under duress right now because of high prices in the economy. Um, but the overall picture does not support just continuous rate cuts from these levels. It is no evidence that that's what's needed. Well, if you listen to the banks on their earnings and not just American Express, but the banks that serve Main Street, Ally, Capital One, Bank of America, they're all saying the same thing that things are pretty good and they're not blowing smoke. They have like reserves and charge offs and like actual data and you're not seeing any stress there. You're just not. I mean, there's pockets obviously everywhere in Auto Subprime for sure. There was a lot of sloppy behavior in 2021 and 2022 that is now coming home to roost. But by and large, based on that, I think to both your points, maybe uh supportive of of no rate cuts. >> Yeah, that's exactly right. It's the picture looks pretty decent outside of subprime auto and a couple of things that you're right is are generally poor and aren't looking that much worse than than where they've where they've been. So, and the the backdrop is one where the economy is actually likely head up from here. We have a lot of tailwinds when you think to 2026. So if you were Powell, you would not be in any rush to do the next one. >> But what about the housing market? Because clearly that is in desperate need of lower rates because there we have seen lower rates and you're not seeing much of a pickup in activity like at all. >> Yeah, I think that's fair. Housing market has been struggling. We might see a bit of a pickup from here. Mortgage rates have come down quite a bit. Um they have done a couple more cuts, you know, recently, so that could help spur activity a bit. >> But I I'm surprised mortgage rates have come down quite a bit and you're not really seeing much activity. Yeah, I think I think it happens with the lag. It tends to be about three months where you where where the lag comes from rates to to the broad economy. So, I actually expect refi applications though. That did happen this this summer. >> Exactly. So, I think we'll I think we'll see it play out. That happens fast. >> But you make a good point. It doesn't happen overnight. Like people don't just, oh, lower mortgage rates, I bought a house. >> Right. And I think one underappreciated part about the housing market earlier this year was not just about mortgage rates and affordability being bad, but also economic uncertainty. If you were sitting here earlier in the year and you were planning on buying a house, yet you thought there was going to be a recession at some point in in H2, >> trade war driven recession. That's what the news would would have told you. >> Exactly. Most people thought there was going to be a recession caused by the administration because of trade war. So at that point, if you expect a recession, you would expect lower prices and lower rates in say 6 months time. So it made sense to just wait. >> Our friend Warren P looks at I think some sort of housing construction. I don't know if it's new units or something like that. >> Construction employment. >> Okay. Is that what it is? And so that has been very sensitive and very closely aligned with the business cycle. When that rolls, we usually get a recession. I don't think you're seeing that right now. Is that because this is just such a bizarre environment of everybody buying houses and then rates and is it just can we not rely on that anymore? >> Yeah, I think the economy is a bit different. It's a little bit less cyclical than it used to be. There's so many other secular drivers, things like AI. And then on top of that, there are some construction related jobs that are tied to this AI story. So there's a bit of a sort of mix shift from that perspective. And then on top of that, the consumer is is not really that interest rate sensitive anymore. If you were not if you're not in the in the housing market looking for a new house, then you're not really that sensitive to the rate of interest rates. So that help that's been one reason why the consumer has been spending so well despite rates being elevated. equity net worth has been perhaps one additional reason. >> I want to double click on that because like this is the hill that I like to die on every week. I'm a wealth effect truther. I think it's the number one most important factor in the economy bar none. It decides employment. It decides whether or not people get wage increases. I think it decides capex spending projects. Nothing will halt AI capex in its tracks faster than a stock price that falls 30% after an earnings disappointment. Nothing. And so as a result, I really think we underpric the ability of the stock market to influence things that happen in the real economy. Um, more Americans than ever are in 401ks. Uh, I understand housing is a bigger asset for the middle class, blah blah blah. I get all that. The people that work for people though, those people, they care about their stock options in the companies they work for. I just I think it's a huge driver. To that point, Sean and I uh on my research team, we write this column for CNBC Pro every week, uh best stocks in the market, and we're always looking for charts that invalidate things that we believed or things other people believed. We love that more than anything. We did a spotlight on Ford and GM today. Ford and GM made 52 week highs this week. >> Yeah. What's the story there? The story there is the wealth effect is what sends people to the dealership to buy a new F-150. Not trade war [ __ ] These companies have handled this tariff war handled this this tariff situation so well. Not because they're in control of the prices of of the supplies they buy, but because the demand never let up. The demand never let up because everyone's stock portfolio is at a record high. So GM is selling. They GM's in a better situation than Ford. They're selling more higher margin SUVs. Ford has a lot more execution risk and it's not as good of a stock. They don't do buybacks. They do dividends. Blah blah blah. But the big picture is both of them are at 52 week highs. If I told you in March, next month, Trump is going to restart the trade war and auto parts and finished automobiles going to be like the epicenter of the trade battle with all these countries. you would not have said, "Oh, I get it. Therefore, buy Ford and GM. They're up. They're up more than Tesla this year." People don't even understand that. >> Um, and so my point is that's the power of the stock market wealth effect. People are not doing that because of the value of their house and they're not doing that because they're getting wage increases because we know they're not. They're doing that because they feel rich. What do you think about that idea? >> I think that's entirely right. So, a fun stat. See, [laughter] can we cut that clip for uh Tik Tok? Okay, same. >> Did I What did I I haven't said anything. I'm >> It doesn't matter. I just want that to land on you that she said that's exactly right, [laughter] >> Nicole. Exactly right. >> You see the insecurity just oozing. >> All right. But I want to I want to hear you say more about how right I am about this. >> So, I'm I'm generally a skeptic of the wealth effect. I I generally think >> Say that one more time. Show's over. >> But but >> send her back. [laughter] >> So, okay. Gen generally >> why say why you are say why you're a skeptic. >> So generally there's academic studies that will tell you it's a couple cents for every dollar of of of equity net worth that will support the economy. >> This time >> it's been a really big increase. So net worth equity net worth has gone up by about $6 trillion this year. >> That's it. That matters >> which which boosts growth of call it 40 basis points if you apply historical estimates. and historical estimates are understating it because this time the equity equity exposure is a lot broader than it typically is. So for example >> because of retirement accounts and >> because stock option compensation and >> and the whole like Robin Hood thing so younger people are involved in in equities which [clears throat] they didn't used to be. So for example >> 35 million new accounts in the last three years. Yeah. You know what's so interesting? AMX, if you look at their earnest call, all of the growth, not all the growth, the biggest growth is coming from Gen Z and millennials. The biggest growth, the biggest spending growth, they're spending more than boomers are, which is kind of wild when you think about like you think AMX is like an old premium stock. No, it's not. It's growth out on the young end. >> And they own crypto and they own tech stocks >> in much higher proportion than the rest of the population. And they have made more money from this boom in stocks in some cases than their parents. >> Yeah. So millennials at so currently roughly age 35 own about 23% of their equity of of their net worth is in equities. Boomers when they were at the same age had only 6% of their net worth in equities. That just tells you the broadening and why it's impacting younger people which it typically isn't the case. >> So in conclusion, sounds like you would agree with me. We're underpricing the wealth effect because we're thinking about a historical paradigm that's no longer in in force. Now it's different world. It's a stock market world. >> Yeah, I think that's right. >> Well, you also made the you started making the point that a lot of the people that are not exposed to interest rates, people that already have a paid off mortgage, well, guess what? Those people are also retired. So, they're also not exposed to the labor market. And so, you could see some really weird activity with a softening labor market and consumer spending not really slowing that much because they're responsible for such a large portion of the spending. It's just a very interesting time that we live in. Yeah, it's it's an odd environment and I think it matters realistically. As long as layoffs don't pick up, people will continue spending. >> So that's it. That's it. That's all that matters. >> I agree with you. I agree with you. So to that to that end, let's do your next chart. Chart 12. This is um concern about the AI labor market disruption. So this gets right to the heart of that question. So what are we looking at in this chart and why is this important? >> Yeah, this is one of my favorite charts of all time. So here we show that about 60% of people who are working today are employed in jobs that didn't exist in 1940. >> It just it just tells you how dynamic the economy is. And even though a lot of jobs will get displaced as a result of AI and there might be disruption in the near term, people will have to go to school for different things, eventually the economy will be in a better place. I >> think we all agree on that. The the thing that is um the troublesome side of it and I'm not a tech doomer by any stretch of the imagination. I think we all agree that the future is very bright. It always is. But in between now and then when you do have this displaced pe uh group of people and growing and voting, you you get some really funky election results and it can impact it impacts policy and it impacts society maybe more than it impacts like the overall aggregate economy. And it definitely the these people having trouble finding jobs. Not only will it not impact the stock market, you could have an environment, in fact, I would say this is probably better odds than not, of record margins with rising unemployment. >> Yeah, it would be an interesting backdrop if it plays out that way and it might to some extent. It would be great for margins, but what tends to happen is as margins get better, companies want to grow and they expand and they do capex and that will spur other types of job opportunities. So yeah, I think that's a risk and we might see various industries displaced at various times. There was the sort of the techreated recession somewhat after the COVID pandemic where tech companies did a lot of >> layoffs. Absolutely. There was >> 22. >> Exactly. So you might see different industries have problems at different times, but this is unlikely to be a recessionary type of layoff cycle. It'll be probably a little bit different than that. >> The media has coined this term low high or low fire. Do you think they they largely have it right? Like companies are not shedding millions of jobs by any means, but they're just not hiring as fast as they used to. And it's almost like on the surface, if you net those two things out, it looks like a stasis. And it's the stasis won't last forever. But could it go on for 5 years? Yeah, totally could. Right. >> Yeah. And it's I think the low fire lowire environment is right. And it's been that way for quite some time so far. And by the way, the labor supply issue kind of supports that because both supply and demand has come down roughly in line. >> Supply has come down because less immigration and um demand has come down because companies are waiting to see how much efficiency they might get out of all this AI stuff they're buying. >> Yeah, that's exactly right. And as long as the bulk of the people remain employed because layoffs don't pick up, their wages are growing at nearly 4% a year and they'll just continue to spend. What would you be watching if you wanted to use the labor market as your way of understanding when we're about to go through a a change? Because we've had people come on here. Michael mentioned uh construction workers being like a really great early signal. Um we've also had people come on and say initial claims if it hits 240,000 uh in any given week, that's the trigger. Like we've we've heard like lots of different theories about like how the labor market might be useful as forward-looking. I understand it's backward-looking, but like what are the what are the things that is it the SOM rule? Is it like what what would you use if if you were trying to get a little bit of an edge on the economic trend? >> I think what we've learned is having any one particular rule could get you into trouble. So some rule was kind of triggered before and it ended up being sort of fine. >> Oh wow. [laughter] um >> credit uh the inverse uh credit thing didn't work out this time either. >> Yeah, exactly. And there was a problem with Texas fraud in terms of claims. So those spiked for no reason. So I think you do genuinely need to look at a a broad array like when clients ask you like how will I know something's changing? What do you tell them? >> So I would say I'm looking at claims. I'm looking at the Warren data to get a sense of and the Warren data comes from the Warren Act. And basically if if larger companies are doing big layoffs, they have to announce it in advance. >> That's all right. That's a rule. >> Yes. >> So you can't have a >> even though the press would pick up on it anyway, that's not enough. The company has to disclose a certain level of layoff. >> Correct. They have to disclose the layoff in advance and that gets that that gets >> they like disclosing it because the stock price goes up as soon as they announce it. >> Are you surprised that claims didn't break out over the summer? because we were talking about it then and I'm pretty sure people said like once this starts to move it generally doesn't slow down or stop moving. Well, it did. >> We were like there was a week or two where we were like uh oh it's claims let's claims it's claims. >> What was the Texas fraud? What was that? >> So that happened a couple weeks ago. Texas claims jumped. >> Uh I quickly looked at the warn data for Texas to see was did any companies big companies do a big layoff. That wasn't the case. So our immediate conclusion which we had published was no this is there's something funky going on. I don't know what. And then we later learned that there was actually some fraud happening within the Texas claims and Texas came out and said that this was an issue. >> Why would somebody do that? Isn't that weird? >> I guess they're it's trying to trying to get uh unemployment fraud. >> Yeah, exactly. Unemployment fraud. >> So somebody did that on a large enough scale that it showed up in the data. >> Yes. >> My my word. Um >> 20,000 I believe. >> What's a Lisa Abramovitz chart? >> So thank you for that great setup, Josh. Um, are you surprised that so this the the way that that um the Fed measures uh inflation, shelter inflation, it's this weird thing, owners equivalent rent, where basically they ask people, well, how much do you think you can rent your house for? And it was a big talking point um at the time like it's such a bizarre way of doing things like how would I don't know how much I could rent my house for. And yet I bring this up to say it looks like it was kind of right. I mean it's it's it's the what do you mean by that? Why does it look like it was right? at the lowest level since 2021 and this is probably a decent representation of where shelter inflation really actually is. What do you think? >> So, one correction on the the way they measure it. So, there's two ways that they go about collecting the data. First, they actually measure how does this particular sample of house houses compare to um rents uh about six months ago. And then >> this is in CPI. >> This is this is in CPI uh as well as PCE which is the Fed's preferred measure. >> Okay. They are not using that question. What do you think you could rent your house for in in the in the actual calculation of rents? They only use that in terms of the weights. How do they weigh it up? >> What do you mean by >> So >> weigh they weigh your house? [laughter] >> How much could you sell your weigh your house for by the pound? >> More like how important is New York houses relative to Chicago? How they like aggregate everything up. >> Okay. Um but they they don't actually ask you how much do you think your you could rent your house and that's used to calculate the inflation. >> What does this represent? What is owner equivalent rent then? >> It represents a measure of actual rent inflation but it's the aggregate um houses out there as opposed to just go to why don't they just go to multif family? Why don't they just go to like the 10 largest multif family um apartment building landlords and get the actual data? What are we [ __ ] around with? That is what they do. >> That is what they do. They do that. It's just not only the big ones. They're going to capture as much as they can to be representative, capture everything, but they are measuring actual the prices of rents compared to where they were 6 months ago. >> I had a guy sitting in your seat on Monday. He owns he's the biggest multif family um landlord in the Pacific Northwest and or Mountain West they call it. So, he's in Salt Lake, he's in Denver, he's in Seattle. And I I I asked him like off off camera um but about that question like what's what's the rent situation? What? He's like it's fine. It's always the same. There's no He's like there's no trend. It's just like apartments open up, people come in and rent them. I He's like I wish there was some signal in there that I could use for my business, but like on a week-to-eek basis there's nothing. on a year-to-year basis. You know, property developers use that like as a signal of where to invest and where to build more, but like week uh month after month CPI, who knows? Like who knows what that really means. >> Yeah. And the data are pretty volatile and most recently there was a big deceleration in this one. I think what we're seeing though is that rent inflation is coming down which we all knew what was happening because the CPR CPI data is very lagged. takes a it's very slowm moving unlike a sort of a a potentially better measure is some of the the the private measures of of rents that are advertised in the market. >> Yeah. >> Because CPI measures average rents for everybody in the >> over what I know it's over a 12 is it a 12-month lag. >> It's been longer. The expectation was it would be a 12-month lag, but that's why people have been talking about OAR's coming down and this they've been having the same conversation for 18 months and it hasn't happened yet in a material way. >> Data is what you're talking about. Yeah, exactly. Zillow has good measure. >> Zillow. Okay. >> These are helpful to gauge what's happening more real time because these are apartments that are being listed as opposed to the average of all apartments out there. >> So, this has been a big source of the cooling of inflation to the extent that it is cooling. But then there's obviously the the cost pressures or maybe even lack thereof that we've seen from tariffs. Are you surprised that we haven't seen more in the way of uh tariff related price increases? So, you've seen it's definitely showed up to some extent. It's been goods price inflation is running about 2% year-over-year. Typically, it runs 0 to minus one. So, you've seen it. It's just hasn't been as large as many expected. And I think there's a couple reasons as to why it's been smaller than anticipated. One has been companies have just been slow to pass it through. They've taken a little bit on margin. Uh exporters have taken it some of the hit too. >> Yeah. And then I think the way people think about the sort of the percentage they were expecting for an item, they're not necessarily calculating it exactly the right way. So when you think about say example a sneaker import, so you might import it, it's a the company pays $50 at import and $100 in the store. Well, your tariff rate is tied to the $50 that you imported. So it gets watered down when you're talking about the end >> by the time it gets sold to the end consumer. >> Exactly. you wouldn't know the difference >> as a percentage of the final price. It's a lot smaller than the tariff rate. >> One of the things we heard was that sneakflation would be the way companies would would pull this off, live with the tariffs, where there might be like a very high price attached to one particular item. But if you're Target, you could spread that high price out across 5,000 items and it almost becomes like unre like you can't see it anymore because it's a penny on 5,000 items rather than $500 on a lawn mower. >> Yeah, I think >> so. They've gotten away with they've gotten away with some of that too. >> Yeah. And companies have been passing it through in items that they know the consumers a lot less sensitive. So they're higher price items. for example, they know the wealthier people might not really care if their sneakers are $10 more expensive, but that's a much bigger deal for their their lower price product. >> Do portfolio managers at what you're sitting at Wolfe. Do portfolio managers want to talk to you about tariffs anymore or not really? >> Not really. They want to talk about AI. >> A year ago though, that's probably what they wanted to talk about ago and companies aren't talking about. >> Isn't that so funny how that happens? >> Totally. These things go in waves. I mean, tariffs have still been important. We're seeing inflation running at about 3%. Inflation should otherwise be in the low twos. So this is having an impact. It's just not it's it's more of an issue for the Fed than it is for the end consumer broadly. >> It's it's like on a low boil. Also, the consumer doesn't really know who to blame anymore. Like the consu like the consumers like don't really want to hold Trump accountable for it, but Biden's been gone for so long that there's no point in like yelling about Biden anymore. Like people don't even know like who to hold accountable for this. They're just getting used to it. >> Yeah. And I mean there still might be some more pass through involved. So that's something to keep an eye on. We'll still see goods prices continue to rise. Our senses when we aggregate it all up. We're about 50% of the way through of the tariff pass through. So there's still more to come, but it's happening slowly. >> Okay. Uh that's a good segue to um you wrote AI bubble. Nope. The real danger is in tight credit spreads. Let me quote you. Okay. Do people do this often to your face? I'm going to quote you to you. >> Uh this is not her. >> This is not me. >> Oh, who wrote [laughter] this? >> Alison Shreger. >> Oh, this Oh, this is Allison's article in Bloomberg. >> Okay. Can you respond to this idea of of uh credit spreads being a potential threat maybe to the market or to the economy or both? >> I mean, I think they're tight for a reason. The economy is doing pretty well. I don't expect this to >> It's not always the greatest time to invest when credit spreads are this tight because people have become complacent in an environment where they're not they're just not putting much much emphasis into pricing risk. That's the the general idea with this, right? >> Yes. >> Yeah. I mean, I I don't know if I would emphasize that too much. I think it's telling you that the economy is fairly healthy and there's there's sort of little signs of stress. So, from that perspective, I would say it's actually an okay environment to invest and it tells you that the economy is fairly healthy and there were a couple of negative credit events that popped up somewhat recently and I view those as idiosyncratic and the backdrop is actually pretty good. So, no, that's not something that I would >> When do idiosyncratic one-offs become a bigger story to you? So, I think we're every 3 days we're hearing about a new one. That's the rate. And they're small. >> Yeah. >> Relative to the size of the credit market, but like how many do we need to hear about before we decide, okay, this is a problem? >> They've been concentrated in two main areas. One is companies that had poor business models and were tied to fraud. That I would discount. Yeah. most days of the week and then tied to the auto sector and sort of frothy activity that happened a couple years ago is now becoming an issue. >> Okay. >> So, so far the the the sort of the broader announcements have been part of those two categories as it starts to as an or if it starts to branch out into something else then it becomes more noticeable. >> I would agree with that. The auto stuff specifically that was activity that that that took place years ago that we knew was crazy town and now it's coming home to roost. this starts showing up in sectors completely unrelated that are more concurrent in nature. It's like stuff that's reflecting stress today. Then it's time to okay reassess and say what the hell is going on. >> Totally agree. >> Let's John, can we do 15? >> This is your past investment boom that you referenced before. Um past investment booms as a percentage of nominal GDP versus the current AI. And for the listener, uh, the AI, I don't know how you're categorizing the AI spend, but like it's 1.3% um, in 2025. The railroad boom went to 5 a.5% of GDP. The dot went to four and a quarter. The housing boom in '05 hit three and a half. So, is the message here like it's it's not it's not a bubble, or is the message here like it will be? we just haven't gotten quite to where where it it would have to be to become a bubble. >> Maybe for investors it doesn't matter either way because it tells you that for the next at least 12 months this is not a bubble and it's not an issue. It could become a bubble could become an issue but I think we're a long way away from that. >> We haven't gotten there yet. >> We haven't gotten there yet. AI spend and we're calculating as above trend spending in areas like data center uh computer equipment. We kind of aggregate it all up. That's where we get to about 1.3% of GDP, kind of roughly 450 to500 billion dollars, which is a substantial part of GDP, but nothing like historical bubbles of the past. >> All right. So, when you get calls, is it a bubble? Your answer is no. >> Maybe someday. >> Yeah, totally. >> Okay. Do people feel better after you tell them that? >> Um, sometimes. >> Sometimes. [laughter] Okay. Uh, people seem to want it to be a bubble. Have you noticed that? >> Yes. >> Okay. In the investment world, what do you think that's about? They missed out. I think it's either missing out, feeling concerned about the valuations, or perhaps wanting to invest but are worried that they're going to be wrong and it's going to prove to be a bubble in two months time. >> That's the worst that's the worst of all worlds is you ignore it for 5 years and then at the very end because your clients are leaving, you're like, "All right, whatever." And you just start throwing money at at it and then it's over. >> Yes. and then you lost twice and you're just you're that's that's the got to be that's got to be the worst thing you could possibly do. I almost feel like you might even be better off just sticking to your guns and letting it blow letting it blow up. I think a lot of the people that are still asking that question are probably in that camp. >> I would >> you that's what I would do%. >> Yeah, I think I would triple down. >> Oh, at 5 trillion I'm think I'm getting interested in Nvidia. >> No, if you were talking [ __ ] about Nvidia now it has my attention >> at like $300 pre-split and and it's run all the way up. split run all the way back. >> Stay quiet. >> Just maybe don't talk about it at all. Do you want to do this China thing? >> It's up to you. Take take it or leave it. >> Take take us through it. >> All right. So, our friend Michael Samblelist wrote a a post recently where he show >> Did you work with symbolist when you were at JP Morgan? >> We worked like side by side. We worked together some. We we talked to him once in a while. >> Okay. He's probably listening. Fan a fan of the show. >> Hey, [laughter] Mike. >> All right. So he has a chart showing uh few Chinese industries depend on exports to us and he's looking at consumer electronics and electrical equipment and basic chemicals and on and down the line and they they a lot of it they produce and they consumed domestically like so he looks at US export revenues to China and it doesn't show up anywhere really to maybe a little bit in consumer electronics I guess that's the that's the iPhone. Um, so chart can Matt looked at the average tech stock and the exposure, I'm sorry, the average sector exposure to China and in tech. So the S&P is 4.2%. Revenue exposure. 2% of S&P sales go to China. >> That's what uh that's what Matt's saying. >> Okay. >> But 10.6% of tech stocks. And then he broke it down by individual company. Tesla, we know how important China is to them, 21% of their revenue. Apple, it's 16% of their revenue. Nvidia 13%. They buy a lot of the [ __ ] our [ __ ] of the most important companies in the world, our most important companies. So all of this negotiating rhetoric, whatever, like they they have leverage on us. >> So there was a chart that we used to run that looked at the our the exports that we send to various countries across the world and then how important their exports are to the US. And China was the only country that showed equal roughly equal leverage to the US. Everybody else showed us had a >> equal versus us. >> Like our balance of trade versus their balance of trade. >> Yeah. So so so exactly that's exactly right. And that tells us that perhaps maybe Trump underestimated the ability for China to sort of weather this as well and and and the fact that we would be caused a lot of pain uh just as much as they would be and they have they play the long game. So they have the ability to to sort of wait a lot longer than we do. >> They don't have the political reality of people not getting elected as a result of trade imbalances whereas politicians here in the US do. >> Exactly. >> Not yet, but allegedly at some point it might matter. >> We'll hear from Apple this afternoon. Um but they're the amount of revenue that they got from China has been a big overhang on the stock. It's it's it's it peaked a couple of quarters ago. Now, I think everyone's expecting the iPhone 7 to have gang buster numbers and they better otherwise the stock's going to give a lot back. So, I hope it I hope that comes true. But yeah, China's a China's a huge huge buyer a lot of our stuff. Do you see that as um do you see this like this meeting with uh she this week as being like terribly consequential for the year- end S&P like whether or not we have like a rally into year end or not or do you think that's not really the bigger story? It paves the way for the rally and we thought the the rally was probably going to happen anyway. It seems like a lot of investors are trying to catch up to a year where maybe they were underperforming at least. >> That's what that's what I think. >> A lot of clients that I speak with kind of communicate that. >> So, I think this just paves the way for we're kicking the can down the road and also sort of a recognition that we can't really heat up the tensions again that perhaps this the appreciation that the they have just as much leverage as we do. >> So, we have a truce a tra we don't have a trade deal. We have a trade truce. That's the last thing I read. Good enough, right? >> Good enough. And fentanyl tariffs came down. So, there is a sort of win from that perspective. >> You wouldn't believe what I'm paying for fentinel these days. It's crazy. [laughter] So, thank God for that. Stephanie, did you have fun on the show today? >> This is great. Thanks for having me. >> All right. We loved having you here. And you're nearby, right in the neighborhood. >> All right. Will you come back? >> I would love to. >> What are you doing tomorrow? [laughter] >> Uh, we always we always Amazon blow out numbers. >> Finally. It's about time. >> Finally. Stocks making up stocks making me look dumb. >> Stocks up 8%. But it might it might be flat uh in 10 minutes. Give it a minute. Hush your mouth. That stock's making me look dumber than any other stock. [laughter] >> Me too. Let's go. >> Um we always end the show by asking people what they are looking forward to. I already jumped the shark. I already told that's not the right term. I already did a spoiler to you, but to the audience. Tonight's a four Charles uh Tonight's a Fort Charles Prime Midnight. You feeling me on that? Yes. >> [applause] >> You know, you're not you're not a big prime rib eater, are you? You don't strike me as. >> Not really. >> I'm going to do unspeakable things with this place tonight. [laughter] >> Holy [ __ ] Duncan's going to Duncan would faint if I if you saw the table. The French dip, >> the cheeseburger, then they first bring out the prime rib. >> I' I've seen your social media. >> The cheeseburger is the salad. Okay. Wait till you see what I do on Instagram to you tonight. You should unfollow me for tonight and then refollow me tomorrow. [laughter] All right. Anyway, what are you looking forward to? What do you got on the horizon? >> Like in life? >> I don't care. Yeah. Professionally, personally, anything you want to reveal, anyone you want to get back at, like what your moment. >> Tomorrow, tomorrow's Halloween. My two kids are going to be a big witch and a little witch and we'll go trick-or-treating. And I can't wait for that. >> Big witch and little witch. [laughter] Okay. How old are they? >> Three and a half and one and a half. >> So cute. >> So cute. So, you're carrying one or both? >> Yeah, both. Definitely both. >> I remember those days. [laughter] You know what the move is? You got to get the wagon. >> Oh, yeah. The wagon the >> problem is they pull each other's hair in the wagon. So, you still have to pull one. Hold one and pull the wagon. >> Are you letting them eat any of the candy or it's just >> Oh, they can eat whatever they want. I don't care. >> Yeah, >> it's Halloween. >> All right. All right. Very cool. What about you? What do you have? You have Halloween coming up? >> I do, but I'm looking forward to Chris coming home so he would stop sending us those pictures. >> Oh, Chris's vacation pictures. They're actually pretty good pictures, though. >> Not bad. >> Chris is in uh Chris is in Cabo. The pics look pretty good. Normally he's the worst vacation photographer you've ever seen. [laughter] You know, he went he once he went to Paris and uh his son was like 12 years old. He's taking pictures of the Mona Lisa, but he puts his son in front of it. So, it's like a picture of his kid close up like right into his eyeballs and then behind him you could vaguely tell that the Mona Lisa is behind and the and he'll text and be like, "Look, the Mona Lisa." [laughter] [applause] Shout out to Chris. Uh, Chris, we we we only tease the ones we love. All right, that's it for the show this week, guys. Thank you so much for listening. We really appreciate it. Huge shout out to John, Duncan, Daniel, Nicole, Rob, Chart Kid, Matt, Sean, everybody on the crew, Keith, Daniel. Who did I leave out? Rob, I'm terrible at this. Do my best. All right, guys. Thanks for listening so much. We appreciate it. And, uh, we'll talk to you soon. We're out. [music] >> [music]
What Did the Fed Actually Say? | TCAF 215
Summary
Transcript
call. Come here. >> He's in Mexico this week. >> Oh, that sounds amazing. >> It does, right? >> Yes. >> He's texting me and Josh pictures every day. >> Come on. [snorts] >> It's like the most It's like the most absurd thing. >> Do you do that? Who does that? >> No, I just send people pictures with my kids, but and who don't ask, [laughter] >> but on vacation every day. Can you imagine? >> So, I took a picture of my desk and I'm like, "Dude, >> great. [laughter] Thank you. >> Thank you. >> That's amazing." So, so, so sprinkles makes me do this whole thing >> and then she's like, "Oh, you missed it. The 30% is over." >> I'm like, "Well, I'm hitting I'm smashing the >> I'm smashing the buy button regardless. I don't really care to tell you the truth." >> You can proximity to the mic. >> So, if you go too far away, you're like, "Oh, I got it back." >> She said there's another there's another sale right before Thanksgiving. Of course there is. Oh, here we go. >> Yeah. Black probably the Black. >> All right. What do you think? Is that like too Is it Smurfy? >> Um, no. Oh, I like the color. >> Okay, I [laughter] guess >> that's cute. >> All right, so the chill sweatshirts and sweatpants are the lightest weight, which is what I need when I'm on the airplane, right? >> The scholar is like almost pajama-y. >> Yeah, it looks it looks >> And then the accolade sweatpant and crew neck. >> So, do you know that he thinks this is cute for the audience who can't even see or listen? >> No, we're working on something. >> Side barring. Sorry. >> Ordering clothes. >> Yeah. >> Yeah. 30% off sale at Alo that I missed by a day and I just bought a [ __ ] all this [ __ ] anyway. >> It's called Alo. I thought it was called Alo. >> Yeah. I don't feel like I'm gonna look like that guy though. I don't know. >> I don't know. It's a good question. >> I don't >> It's alo. It means hello. >> And will not own any Alo or >> not Alo. >> I don't own any of them. >> You just said Alo. >> I know. >> But that's doesn't make it right. Two wrongs don't make it right. your job >> if I need my what are those clothes called? [snorts] >> Casual clothes. What are they called? What [clears throat] else? Athleisure. That's the word I was looking for. [laughter] >> Uh, I'm a traditionalist. [applause] >> It's aloe. It means hello >> in what language? >> And it's way better. It's way better than uh way better than Lulu. >> It's not even close. >> Is it better than Vori? Viori. I don't like the >> I said it that bad. >> Vori. Yeah. You don't want >> V. You said v. >> Vori. Okay. >> I don't even know what that is. >> It's Italian. >> You know what? Athleisure. >> Surely you do the idea. Yeah. >> She likes the idea of it. All right, [laughter] John. How we looking, sir? >> Getting close. >> All right. [snorts] >> All right. [applause] So, we have a bunch of charts in here. >> Okay. Yep. >> We're in earnings season. I don't know how deep you want to go on like individual companies, but like we definitely have to we have to get to it. >> Okay. >> All right. >> I can't comment on individual companies. >> You don't have to. You can listen. Are you are you a call listener or or what? Are you a transcript reader? How do you ingest the >> How do you ingest like what you need to know from the uh earnings reports? >> Um I listen to the other smart people at Wolfe because they call the companies, >> right? >> Um >> good idea. >> Yeah. Every chance reader otherwise, >> right? What do um do you ever do you ever like have something in your research where you actually want to double check it with the equities people? >> Oh, all the time. >> Yeah, >> all the time. >> I would I would imagine. Right. >> Cuz they're like they're really good >> and they're in the weeds. >> And they're in the weeds. They know everything. They're talking to the companies. As soon as there's something out in the companies, they're talking to them. >> That's the benefit of being at a shop that's covering the gamut of things is that you have other people to talk to. >> Oh, for example. So this morning or last night actually, Chipotle said, "Oh, young people have no money. They're not buying our stuff anymore." You could go to your analysts and say, "Hey, >> is that really the case?" >> Are the other are their competitors saying the same thing or does their food just suck and nobody wants it anymore? >> Same. Exactly. >> Right. >> Yes. >> So that must that must come that must come in handy. >> Super help help super helpful. >> Right. >> And they cover every single sector in space. >> Right. If you're just doing if you're just doing economics or macro or whatever and you're by yourself, you kind of like are going by other things that you read to try to figure out what's going on. >> Yeah. You're kind of on an island, >> right? >> We've got a great policy analyst, too. So, all the stuff coming out of Washington, I can talk to him about, which is >> which is like more important at different times than anything else. >> 100%. >> Because it could change everything. >> Exactly. >> Okay. >> And like the big banks don't really do the policy thing quite as often. >> Why do you think they want to stay out of that? They don't want to have commentary on that. >> Yeah. So, we're independent. It doesn't really matter. >> Okay. Is your policy guy in DC? >> No, he sits here in New York. >> He's in New York. >> He used to be in DC, but now he's here. >> Oh my god, this weather is so bad. I'm going out later. >> What are you doing? >> I have a small umbrella. I'm I'm going to be down bad. >> Where are you going? >> Uh dinner. >> No, but far. Not close. >> You can buy like an umbrella for $40 somewhere. >> Yeah, that's that's always a good option for you. >> I'll say that. [laughter] You vulture. >> All right. >> I always knew you were a pirate, Duncan. >> Hey, Jeffrey the giraffe. >> We good? >> She doesn't even know what that reference means. >> Yeah, I do. Toys R Us. >> You're old enough to know what Toys R Us is? >> I don't know. I thought >> I thought [applause] [music] [music] today's show is brought to you by our sponsors at Betterment Advisor [music] Solutions. If you happen to be thinking, "There's got to be a better way to grow my RAIA," you're not alone. With Betterment Advisor Solutions, we [music] do the heavy lifting so you can focus on what matters most, your clients. From improved service that makes [music] asset transitions smoother to fast, paper-free onboarding that delights clients on day one, we've built the digital first platform designed [music] to streamline your operations and make life easier. Now, if you're thinking, "Wow, they take the paper [music] out of paperwork." Then you'd be right. Grow your RAIA your way with Betterment Advisor Solutions. Learn more at betterment.com/advisors. [music] Investing involves risk. Performance not guaranteed. Woo. All right. Play my theme music. I'm going to drop a few bars. I'm going to show I'm going to show I'm going to show off my flow to Stephanie. Is that cool? All right. >> Do it. All right, ladies and gentlemen, welcome to the best investing podcast in the world. We're so excited to have uh all of you here with us this week. I got to tell you guys the uh the numbers that we're doing on YouTube, on Spotify, on iTunes. We know we all are all to you and we love you for it and we appreciate it. We have a giraffe in the room. You have to watch You have to watch us on Spotify or YouTube to see what I'm talking about. Um, we're having a we're having a very Gen Z Halloween day here at uh the compound and we have a special guest on the show, ladies and gentlemen. Stephanie Roth is the chief economist at Wolf Research, an equity and macro research firm covering roughly 800 stocks. Prior to joining, Stephanie was a senior economist for global wealth management at JP Morgan Private Bank and she specializes in macro strategy. Stephanie, so great to have you here. Great to have be here. >> You ready to rock? >> Yeah. >> All right. Where's your costume? Did you not get the email? Do you didn't see it? [laughter] >> I'm saving it for tomorrow. >> You would never. I know you would. They would kill you. [laughter] Okay. Um All right. It's tech earnings week and I know you don't cover these companies specifically, but I do feel that you would probably agree from a macroeconomic standpoint, a lot is riding on current trends in tech spending to continue. What's your take on what we're getting from these companies? Because from my perspective, it seems like we're getting confirmation of exactly what we needed to hear. >> Yeah, the spending is strong. It's going to continue to be strong. We get a lot of questions, is this a bubble? Is this going to end anytime soon? And our sense is absolutely no. It's no. Okay. >> It's it's a fairly small share of GDP at this point, even though it's been growing quickly. >> So, our sense is that it's just going to keep going for quite some time. And we don't even know the full effect of AI on this economy. So companies are going to keep spending until we see who the winners and losers are. >> Okay. I I think I think that's where I I land. Like I know that it will at some point maybe not blow up, but it'll slow, just not yet. >> I think everybody agrees that's like consensus. And I think consensus is right that these companies are telling you that they are going to continue to spend. Now maybe there's a quarter or two out there where shareholders say, "Nope, [clears throat] we're not going to let you do that anymore." And we'll find out when it happens. But and also so we're in the whatever inning relatively early in this spend out that doesn't really tell you anything about where the stocks are or what they're going to how they're going to perform because obviously Nvidia at 5 trillion. It's looking forward many many many quarters out in the future. >> Yeah, I think that's right. And the the trend is that this is going to be a gamecher for the economy. Productivity is likely to pick up pretty significantly. And >> do you buy that? >> I do. I don't think it's h impacting productivity today. The the the usage in terms of productive AI is not really playing out yet, but I think it will. >> So, you're you're uh you're an econ person. You're a data person. Where do you think the data is going to where do you think those numbers are going to reveal themselves on the productivity side? >> So, we're seeing it so far productivity and within the tech space has picked up a little bit within professional services, but outside of that, uh there's no clear correlation between chat GPT usage for example and productivity by industry. you are seeing it in those other two sectors. So my expectation is over the next couple of years, this is what we're going to be watching because it's likely to pick up pretty substantially as you see usage picks up. But right now the the levels in terms of say chat GBT usage by industry is fairly low for the bulk of the economy. >> You would expect it to show up in tech first. These are the people selling it. So of course they're using it the most aggressively and finding use cases for it internally that they then it's the same that was the same pattern with the cloud like you have these companies providing cloud services to themselves before they turned them into for-profit businesses they you know AWS they turned it inside out and said okay we're using this who else wants to use it. >> So it makes perfect sense to me. Um let's start with this chart Mike uh unless you have somewhere else again. >> All right. um where you got this one tech earnings week. Uh Meta, Microsoft, and Google revenue. So, it's still it's still very healthy topline across the board. Meta's up 26% year-over-year. Microsoft up 18%. Google up uh 16% to its first 100 uh billion dollar quarter, which is kind of it almost said it felt wrong coming out of my mouth. I was like, "Wait, is that right?" It is right. Um, Microsoft cloud the run rate, the revenue run rate, so it's 49 billion for the quarter is up to a 196 billion run rate. Alex Morris tweeted this and this is this part is hard to believe. They've grown 20% in every quarter for the past decade. It like >> it looks fake. >> It looks fake. How is this happening? >> Yeah. Now the question the question on the call on every call and I think Meta is the one that is like bearing the brunt of this because their expenses are as as great as their topline growth is it is slowing their free cash flow is slowing and their expenses are ramping and today anyway it's one day but investors are like yeah we'll take 10% back of your market cap because it's a bit >> you listen did you listen to the medical call >> I did I listened to all of them today >> so the big takeaway that I had was uh capex is going to accept expenses are going to accelerate significantly next year like not just the number but the rate of growth. >> So here here's the quote. Yeah. So they said so every analyst on every call is asking the exact same question right like the spend the revenue where is it going to show up where does this land and they said it has become clear that this is meta that our compute needs have continued to expand meaningfully including versus our expectations last quarter. We are still working through our capacity plans, but we expect to invest aggressively to meet these needs both by building our own infrastructure and contracting with thirdparty cloud providers. We anticipate this will provide further upward pressure on our capex um capex dollar growth will be notably larger in 26 and 25. And they all said basically the same thing that it's going to be a lot higher. So Meta this year they gave their numbers. It wasundred and uh where is this 70 to 72 billion is their capex for 2025. I'm Yeah, right. Is that right? That was expected. Let me see. Anyway, the number is big. Lots of money >> here. Alphabet 91 to 93 billion. >> My bad. 116 billion. That's where it was. Uh the number I just said was they're expect to come into the year. It's 116 billion. So whatever I What did I just say? 86. It's 116. that's what they're going to do for the year, >> right? Um you and you got that across the board basically. And uh that's so to my earlier question, Stephanie, that's what I kind of felt like the market needed to hear is yes, we're still spending at the same rate and actually we're going to spend more next year. And they got that. And I know we're not seeing the productivity gains yet widespread, but we're definitely seeing like industrial activity, utility use. That's the real economy feeling the effect of the AI build even in advance of whatever productivity boom we may or may not get. It's got to be a really big factor in it's like a ripple effect from all this capex spending. >> Yeah. So our sense is it's it's a roughly about a quarter of the GDP growth is is driven by all of this capex spend so far. Um, of course that may slow down eventually once it's it transitions from companies doing the big capex to companies integrating the AI and then it's a different type of story. So we're transitioning from the the hard investment construction portion of this to then being a sort of productivity boom because >> it's like a handoff. >> Exactly. It's a handoff to companies using the AI and then becoming a lot more productive. Of course, the the challenge for the economy will be a rebalancing in the labor market because there will be a lot of people whose jobs will change as a result, >> right? So, can people upskill fast enough to remain useful? The answer is usually not. And then what do all these people do now that they are considered to be idle capacity, >> right? And right now you're seeing >> But is that like a one-year thing or like a 10-year thing? Because I think it's a 10-year thing. >> Yeah, I think it's a 10-year thing. Okay. The the start of it right now is within young workers who have graduated college recently, specifically looking for jobs in the tech sector. It's the youth unemployment specifically for white collar workers. Those people are having some trouble finding jobs, >> developers, programmers, people that >> How does that get better? >> People that learn to code are now It's the irony. PE if you can do if you could do HVAC or or landscaping, you're probably very busy. If you learn to code, maybe you're very busy, but maybe you can't find a job. >> Yeah, I think that's exactly it. And how does that get better? It's a couple of things. One, they'll be they'll find more use cases for these types of skills eventually andor people will go to school for different things. It was when you were entering school four years ago, the dynamic was a lot different and made a lot more sense to study a lot of these things. Now, students looking to sort of pick their major might look for something slightly different, >> right? What what do your analysts say in terms of the the capex spend? These things depreciate very quickly is my understanding. Like a lot of the spend it is it is not a one-time thing. It's a constant upkeep. And there's estimates that there's going to be $2 trillion in annual spend at some point that can power GDP for a long time if that's the case. >> Yeah. So Jensen put out those forecasts a couple weeks ago saying that it would be 3 to4 trillion by the end of the decade. Of that let's call it 60% in the US. That is a lot of spending. I don't know if we'll necessarily get quite that high, but if you're anywhere close, that's nearly 5% of GDP, which is massive. So, you said right now you think a quarter of economic growth is directly capex or capex plus the ancillary that comes along with it. >> Directly the capex tied to AI. So if economic growth is 2% a year, let's say, you think like you think like 50 a half of 1% of that is coming from this story? >> Yeah, probably a little bit less, but very close. >> Okay. Can is there another example of anything like this that you could think of in like economic history? >> Yeah. So we look back to see one. So we we looked for the for Jensen's forecasts. If you end up with something like that, your cumulative $7.2 2 trillion, >> right, >> of US spend. >> The only thing we could find is the China super cycle. Historically, that was $14 trillion in today's dollars. The dot was about a trillion. So, nothing else compares outside of the China story. >> Okay, so this like this is one of the big ones. >> This is one of the big ones. >> And the market is getting the memo. Daniel chart 11. So over the last five sessions, semi stocks, semiconductors and semi- equipment added a trillion dollars in market cap, which is >> how long? Five days. >> Five days. It's bigger. >> That sounds incorrect, but should not have happened. >> It's bigger than the entire material sector by I don't know hundred billion dollars. I mean in 5 days. Now nobody disputes or doubts. I mean obviously the market is is telling you that this is everything we think it's going to be and more. But some of the numbers are getting really difficult to wrap your arms around. A trillion dollars in five days >> and and most of that it's like in five stocks and it's not even like it's in a 100 stocks. >> Micron and AMD and I'm guessing Broadcom. Yep. Yep. Yep. Nvidia, of course. Um yeah, wild wild times. >> It's wild. But I don't think it will be I don't think we'll be in bubble territory for a while until it becomes one clear who the winners and losers are. two until companies are start to spend in terms of debt. A lot of it's coming from cash flow right now. Once it becomes debt finance, that's where it becomes a lot more risky economy. >> So started >> we're early innings. >> We're in the early innings of actually cash flows won't be spec uh won't be uh enough because if we don't spend now, we're going to get locked out of the game. We need to we need to make the bet. >> Yeah. But that narrative is being blown up blown to smitherreens because it is true that debt is now entered the conversation right what Oracle's doing but Microsoft uh chart 4 like their free cash flow >> Meta also >> their free cash flow alltime high um Google killing it now Meta's free cash flow is rolling over chart 8 chart 8 please so Meta's trailing 12 months this is from Alex Morris yes it is it is rolling and we know like they're they're they're spending a lot more expenses are growing faster than revenue and the the stock's getting hit as a result. But this idea that they're going free cash flow negative or anything even like remotely close, like that's just not true. Not even close. >> But we do have massive debt deals now to cover the infrastructure build. And everyone's in the game, like every major firm on Wall Street, all the private credit and private equity firms, all the market makers, all the asset managers. Um, Michael and I were talking about a deal earlier this week where they're building two different facilities, one in Texas, one in Wisconsin for Oracle. And just like the whole list of names of firms that are getting in on financing this thing. So, let's say it's early innings and it's not quite a full-blown uh debt bubble yet, but if that's directionally like where it seems obvious we're headed, why is that the danger to the economy? Like aside from the obvious that eventually the debt becomes unsustainable, does it have to go go there eventually or >> it could stop short of that? >> It doesn't have to, but that's where it becomes more vulnerable because if you get disappointed and then you have all this debt, then it becomes a a bit more of an issue. If it's funded by cash flow, then it's an issue for those companies, but it doesn't have broader implications. >> Does it have to get there? No. >> Generally speaking, when you have these types of investment trends, it usually does. companies, like you said before, companies spend to keep up and they're there investments are maybe not ones that they necessarily should be doing for their businesses and they might be spending uh sort of in in way in in the wrong direction. It might be some sort of malinvestment because that generally happens. >> They're saying that they're going to over like Zuckerberg keeps saying if we overspend by a few hundred billion so be it. like >> Zuckerberg Zuckerberg said last night on the call um we are spending for the quote optimistic most optimistic case for AI and then he said if we overshoot it meaning between now and whenever super intelligence actually arrives which is their stated goal I don't know what it means but fine he said if we overspend we could just use that compute elsewhere in our core business like it's not going to go to waste and I Like if you're a sellside analyst on the call listening to that, you're probably like, "Oh yeah, make that makes sense." Because it's not like this is a startup company. They have a massive core business that probably does need more compute one way or the other. >> Reals Reels has had a $50 billion revenue run rate, right? >> Like one piece of one product of a broader ecosystem of products. Google said last night that they have 13 different businesses that are doing a billion dollars in revenue. Um, >> Microsoft, LinkedIn keeps growing 10% a quarter, by the way. Do you see that? Every quarter. >> Yeah, I think I'm helping to drive the LinkedIn growth numbers. [laughter] Um, Alphabet Capex is now at a hundred billion dollar run rate. So, like they're all probably going to have to get to 100 billion just as like that'll be the industry standard [snorts] or or more. And to your point, there's still plenty of cash flow to support that. Uh, I don't know. Is that infinite though? Does that just mean keep going? It would be it would be really something if there is no like reckoning at some point whether it's five years from now if if we don't get the complete crazy overspend. Would that be would that be surprising or not necessarily? >> Yeah, I'd be surprised if we didn't get there. But you never know. But these things companies tend to pile in. And I think the issue is more on the smaller companies that tend that get involved in the investments here. it's going to become a bigger problem for them because they're spending in areas that they maybe didn't need to be. >> Okay. >> We haven't really gotten to that point yet. >> Like privately held companies that haven't come public yet. >> Yeah. Like just smaller public companies that are putting money that they don't really have. That's that's why that's why it becomes more of an interesting story when it becomes debt finance because then it's companies maybe can't really back it up with cash flows, >> right? If the ROI doesn't arrive and we all know, we all understand like it might not tomorrow, then what do you do? >> Okay. But also Microsoft's free cash flow >> up 34. >> No, we're fine with Microsoft. >> No, it's up 34%. >> Yeah. Yeah. >> Um, all right. Let's So, let's talk about let's talk Oh, I wanted to shout out uh Dan Ies. Um, Michael, did you know he hit a billion dollars in assets in his uh AI ETF? >> Unbelievable. >> In in five months, would you have predicted that? >> Nope. All due respect. >> I was rooting for it. I don't think I would have predicted it. That's pretty That's pretty crazy. Shout out to uh shout out to Dan. Um it's the AI. >> It's the AI. There it is. >> Uh what did the Fed actually say this week, Stephanie? I sort of get it, but I don't get it. Why did yield? I'll ask you follow-ups. What do you think? What do you think was the point of Powell's statement and the answers to the reporter's questions? I mean the the one statement if you listen to one statement all you needed to hear was a December rate cut is far from a foregone conclusion. That was by far the important thing. >> Is that the one the market disliked the stock market disliked the most? >> Yes. >> Probably lost 30 40 basis points on the S&P immediately. >> Exactly. That's exactly what he said. >> Okay. Why Why are we still begging for rate cuts with stocks at all-time highs? >> Um >> are we crazy? >> I mean the market always loves lower rates. Uh this is this is disappointing versus what was in the price. the market was pricing a nearly 100% chance of a December cut. Pal completely poured cold water on that. We had been calling for the market to be or the Fed to at least uh be less convinced that they're going to do a cut in December. There's the labor market appears to be largely fine. The economy is pretty steady. There's not a great reason to be cutting at this point just given where they are today and where the economy >> I'll give you one reason. >> Well, >> make America great again. >> Real estate. Don't you love America? Oh, wait. Hold on. So, so why why was that statement so consequential only because it forced everybody to change their expectations for December? >> That's exactly right. It was just a a complete repricing of the December cut, which now is less likely to significantly less likely to be the case. Now, it's all else equal. If the economy is exactly today as it is at the for the December meeting, the Fed's not going to cut is effectively what they told you. And then you have to question, well, are they going to even cut beyond that? Are they going to be in some sort of extended pause at 4%? Are they only going to cut maybe two more times as opposed to the market thinking it would be several more times beyond that? >> Okay. The mortgage related stocks that we follow all got crushed all >> fast. Anything housing related fast. So that's you see that it really was in the price that you were getting this December. Okay. And now it's in doubt, but you might still get it anyway. He didn't say we're not cutting. He just said we're data dependent. So maybe we will, maybe we won't. Yes, >> f around and find out. >> Well, we're data dependent, but if there's no data, >> the assumption was given the shutdown, if there's no data, the assumption was the Fed would cut anyway. But now he told you maybe not. Now, if there's no data or if we're kind of still in this data fog, which by the way, the data is going to be really questionable between now and then that you should assume that the Fed will probably not be cutting and there's significant divide among Fed members about what they should do from here. >> Oh, this is so Cali pointed this out. Our chief strategist Cali Cox pointed out she can't think of another time where there were two descents, which itself is rare, but two descents in opposite directions. You had one person saying it should have been a 50 basis point cut. You had another person saying it should have been no cut. Can you think of another example of that or does that strike you as like really emblematic of the confusion right now about what the right course forward for the Fed is? >> Yes and no. I mean, Meer's the only one who you would have we would have known. He knew he was going to descent for a 50 cut and that's political. Uh >> his master wants that and that's >> exactly so no one else who is more independent and credible is looking for a 50 basis cut at this point. >> Why not 100? >> Just go for it. Right. >> When is this term over >> Myin? >> No, I'm sorry. Pal's terms over in May. >> May. >> Okay. All right. >> Or whenever I decide. All right. Wait. So All right. So it's not that strange because you know where that's coming from. >> Right. So the real debate, right? So the real debate was do we not cut or do we go ahead a couple more times is really the debate in the room. Myin is kind of out on his own on that. >> What's the case for not cutting? Just as simple as CPI is 3% and not 2%. >> Yeah. And inflation is potentially heading a little bit higher. On top of that, you have an economy that's doing okay. >> Okay. So not unnecessary cut. >> Yeah. And valuations are high. Why not just wait and see? There's no there's not as much harm in waiting now as it was months ago. >> Well, here's the the doves would tell you um recent college graduate unemployment at 6 and a half% is really significantly higher than 4% and possibly a harbinger for a worsening um labor market. You'll tell us if you agree with that or not um if the data says that that's true. But that's a thing. The other thing is people with debt balances obviously a rate cut helps them and those are the people right now that need the help and maybe that doesn't justify lowering rates across the whole economy just to help borrowers but like the politicians who are getting elected right now including in New York City are the people who are making promises that they'll ease people's debt burden so there's obviously a real issue out there. So that would be like the the dove's case as to why yes, one more cut at the end of the year. Does that move you or not really? >> Maybe let's go to chart 13. >> So not necessarily. I mean the debt picture actually looks pretty good. >> Tell us what we're looking at for the for the listener that's not watching. What are we looking at? >> We're looking at a chart of household debt uh relative to disposable income. So, it's an income r uh a debt ratio chart and you're seeing it steadily move lower which tells you that in fact the consumer is healthier today than it was a year ago and two years before that >> on this measure >> but when people say we look pretty good >> but which consumer >> the broad consumer so there there is a story about the lowest end consumer that is showing cracks and getting >> the K-shaped >> the K-shaped economy and that's true >> can I say one thing not to be insensitive to the lower end consumer but is are they not by definition always under a level of distress I mean, if you're talking about the do bottom 10%, when are they when are they not >> There were six months in 2021 where they did better than everyone because money was put into their bank accounts and that's pretty much it. >> Yeah. I mean, it it's fair there's and we we can't conduct policy aimed at just this lower lower end consumer. We yet, you know, you have to think about the broad picture here. And you're seeing this this low-end consumer which is under stress, but it doesn't appear to be getting that much worse than it's been. I actually don't even think that that should be the purview of monetary policy. Like the the woke Fed era should be way over. I understand I understand why we have to do something. I think that's Congress and maybe the states. I don't feel like we can accomplish that with overnight interest rates. >> Yeah, I think that's right. And we don't really we don't really want to incentivize too much borrowing at the lower end. And by the way, there's going to be a decent amount of stimulus headed for the low-end consumer come tax season. They're going to get some pretty large refund checks for no tax on overtime and no tax on tips. >> Okay. Oh, >> that comes in refunds. >> That this is going to come in refunds for this this cohort. >> So, according to according to what you showed us then, like yes, there is a vocal group of consumers who are under duress right now because of high prices in the economy. Um, but the overall picture does not support just continuous rate cuts from these levels. It is no evidence that that's what's needed. Well, if you listen to the banks on their earnings and not just American Express, but the banks that serve Main Street, Ally, Capital One, Bank of America, they're all saying the same thing that things are pretty good and they're not blowing smoke. They have like reserves and charge offs and like actual data and you're not seeing any stress there. You're just not. I mean, there's pockets obviously everywhere in Auto Subprime for sure. There was a lot of sloppy behavior in 2021 and 2022 that is now coming home to roost. But by and large, based on that, I think to both your points, maybe uh supportive of of no rate cuts. >> Yeah, that's exactly right. It's the picture looks pretty decent outside of subprime auto and a couple of things that you're right is are generally poor and aren't looking that much worse than than where they've where they've been. So, and the the backdrop is one where the economy is actually likely head up from here. We have a lot of tailwinds when you think to 2026. So if you were Powell, you would not be in any rush to do the next one. >> But what about the housing market? Because clearly that is in desperate need of lower rates because there we have seen lower rates and you're not seeing much of a pickup in activity like at all. >> Yeah, I think that's fair. Housing market has been struggling. We might see a bit of a pickup from here. Mortgage rates have come down quite a bit. Um they have done a couple more cuts, you know, recently, so that could help spur activity a bit. >> But I I'm surprised mortgage rates have come down quite a bit and you're not really seeing much activity. Yeah, I think I think it happens with the lag. It tends to be about three months where you where where the lag comes from rates to to the broad economy. So, I actually expect refi applications though. That did happen this this summer. >> Exactly. So, I think we'll I think we'll see it play out. That happens fast. >> But you make a good point. It doesn't happen overnight. Like people don't just, oh, lower mortgage rates, I bought a house. >> Right. And I think one underappreciated part about the housing market earlier this year was not just about mortgage rates and affordability being bad, but also economic uncertainty. If you were sitting here earlier in the year and you were planning on buying a house, yet you thought there was going to be a recession at some point in in H2, >> trade war driven recession. That's what the news would would have told you. >> Exactly. Most people thought there was going to be a recession caused by the administration because of trade war. So at that point, if you expect a recession, you would expect lower prices and lower rates in say 6 months time. So it made sense to just wait. >> Our friend Warren P looks at I think some sort of housing construction. I don't know if it's new units or something like that. >> Construction employment. >> Okay. Is that what it is? And so that has been very sensitive and very closely aligned with the business cycle. When that rolls, we usually get a recession. I don't think you're seeing that right now. Is that because this is just such a bizarre environment of everybody buying houses and then rates and is it just can we not rely on that anymore? >> Yeah, I think the economy is a bit different. It's a little bit less cyclical than it used to be. There's so many other secular drivers, things like AI. And then on top of that, there are some construction related jobs that are tied to this AI story. So there's a bit of a sort of mix shift from that perspective. And then on top of that, the consumer is is not really that interest rate sensitive anymore. If you were not if you're not in the in the housing market looking for a new house, then you're not really that sensitive to the rate of interest rates. So that help that's been one reason why the consumer has been spending so well despite rates being elevated. equity net worth has been perhaps one additional reason. >> I want to double click on that because like this is the hill that I like to die on every week. I'm a wealth effect truther. I think it's the number one most important factor in the economy bar none. It decides employment. It decides whether or not people get wage increases. I think it decides capex spending projects. Nothing will halt AI capex in its tracks faster than a stock price that falls 30% after an earnings disappointment. Nothing. And so as a result, I really think we underpric the ability of the stock market to influence things that happen in the real economy. Um, more Americans than ever are in 401ks. Uh, I understand housing is a bigger asset for the middle class, blah blah blah. I get all that. The people that work for people though, those people, they care about their stock options in the companies they work for. I just I think it's a huge driver. To that point, Sean and I uh on my research team, we write this column for CNBC Pro every week, uh best stocks in the market, and we're always looking for charts that invalidate things that we believed or things other people believed. We love that more than anything. We did a spotlight on Ford and GM today. Ford and GM made 52 week highs this week. >> Yeah. What's the story there? The story there is the wealth effect is what sends people to the dealership to buy a new F-150. Not trade war [ __ ] These companies have handled this tariff war handled this this tariff situation so well. Not because they're in control of the prices of of the supplies they buy, but because the demand never let up. The demand never let up because everyone's stock portfolio is at a record high. So GM is selling. They GM's in a better situation than Ford. They're selling more higher margin SUVs. Ford has a lot more execution risk and it's not as good of a stock. They don't do buybacks. They do dividends. Blah blah blah. But the big picture is both of them are at 52 week highs. If I told you in March, next month, Trump is going to restart the trade war and auto parts and finished automobiles going to be like the epicenter of the trade battle with all these countries. you would not have said, "Oh, I get it. Therefore, buy Ford and GM. They're up. They're up more than Tesla this year." People don't even understand that. >> Um, and so my point is that's the power of the stock market wealth effect. People are not doing that because of the value of their house and they're not doing that because they're getting wage increases because we know they're not. They're doing that because they feel rich. What do you think about that idea? >> I think that's entirely right. So, a fun stat. See, [laughter] can we cut that clip for uh Tik Tok? Okay, same. >> Did I What did I I haven't said anything. I'm >> It doesn't matter. I just want that to land on you that she said that's exactly right, [laughter] >> Nicole. Exactly right. >> You see the insecurity just oozing. >> All right. But I want to I want to hear you say more about how right I am about this. >> So, I'm I'm generally a skeptic of the wealth effect. I I generally think >> Say that one more time. Show's over. >> But but >> send her back. [laughter] >> So, okay. Gen generally >> why say why you are say why you're a skeptic. >> So generally there's academic studies that will tell you it's a couple cents for every dollar of of of equity net worth that will support the economy. >> This time >> it's been a really big increase. So net worth equity net worth has gone up by about $6 trillion this year. >> That's it. That matters >> which which boosts growth of call it 40 basis points if you apply historical estimates. and historical estimates are understating it because this time the equity equity exposure is a lot broader than it typically is. So for example >> because of retirement accounts and >> because stock option compensation and >> and the whole like Robin Hood thing so younger people are involved in in equities which [clears throat] they didn't used to be. So for example >> 35 million new accounts in the last three years. Yeah. You know what's so interesting? AMX, if you look at their earnest call, all of the growth, not all the growth, the biggest growth is coming from Gen Z and millennials. The biggest growth, the biggest spending growth, they're spending more than boomers are, which is kind of wild when you think about like you think AMX is like an old premium stock. No, it's not. It's growth out on the young end. >> And they own crypto and they own tech stocks >> in much higher proportion than the rest of the population. And they have made more money from this boom in stocks in some cases than their parents. >> Yeah. So millennials at so currently roughly age 35 own about 23% of their equity of of their net worth is in equities. Boomers when they were at the same age had only 6% of their net worth in equities. That just tells you the broadening and why it's impacting younger people which it typically isn't the case. >> So in conclusion, sounds like you would agree with me. We're underpricing the wealth effect because we're thinking about a historical paradigm that's no longer in in force. Now it's different world. It's a stock market world. >> Yeah, I think that's right. >> Well, you also made the you started making the point that a lot of the people that are not exposed to interest rates, people that already have a paid off mortgage, well, guess what? Those people are also retired. So, they're also not exposed to the labor market. And so, you could see some really weird activity with a softening labor market and consumer spending not really slowing that much because they're responsible for such a large portion of the spending. It's just a very interesting time that we live in. Yeah, it's it's an odd environment and I think it matters realistically. As long as layoffs don't pick up, people will continue spending. >> So that's it. That's it. That's all that matters. >> I agree with you. I agree with you. So to that to that end, let's do your next chart. Chart 12. This is um concern about the AI labor market disruption. So this gets right to the heart of that question. So what are we looking at in this chart and why is this important? >> Yeah, this is one of my favorite charts of all time. So here we show that about 60% of people who are working today are employed in jobs that didn't exist in 1940. >> It just it just tells you how dynamic the economy is. And even though a lot of jobs will get displaced as a result of AI and there might be disruption in the near term, people will have to go to school for different things, eventually the economy will be in a better place. I >> think we all agree on that. The the thing that is um the troublesome side of it and I'm not a tech doomer by any stretch of the imagination. I think we all agree that the future is very bright. It always is. But in between now and then when you do have this displaced pe uh group of people and growing and voting, you you get some really funky election results and it can impact it impacts policy and it impacts society maybe more than it impacts like the overall aggregate economy. And it definitely the these people having trouble finding jobs. Not only will it not impact the stock market, you could have an environment, in fact, I would say this is probably better odds than not, of record margins with rising unemployment. >> Yeah, it would be an interesting backdrop if it plays out that way and it might to some extent. It would be great for margins, but what tends to happen is as margins get better, companies want to grow and they expand and they do capex and that will spur other types of job opportunities. So yeah, I think that's a risk and we might see various industries displaced at various times. There was the sort of the techreated recession somewhat after the COVID pandemic where tech companies did a lot of >> layoffs. Absolutely. There was >> 22. >> Exactly. So you might see different industries have problems at different times, but this is unlikely to be a recessionary type of layoff cycle. It'll be probably a little bit different than that. >> The media has coined this term low high or low fire. Do you think they they largely have it right? Like companies are not shedding millions of jobs by any means, but they're just not hiring as fast as they used to. And it's almost like on the surface, if you net those two things out, it looks like a stasis. And it's the stasis won't last forever. But could it go on for 5 years? Yeah, totally could. Right. >> Yeah. And it's I think the low fire lowire environment is right. And it's been that way for quite some time so far. And by the way, the labor supply issue kind of supports that because both supply and demand has come down roughly in line. >> Supply has come down because less immigration and um demand has come down because companies are waiting to see how much efficiency they might get out of all this AI stuff they're buying. >> Yeah, that's exactly right. And as long as the bulk of the people remain employed because layoffs don't pick up, their wages are growing at nearly 4% a year and they'll just continue to spend. What would you be watching if you wanted to use the labor market as your way of understanding when we're about to go through a a change? Because we've had people come on here. Michael mentioned uh construction workers being like a really great early signal. Um we've also had people come on and say initial claims if it hits 240,000 uh in any given week, that's the trigger. Like we've we've heard like lots of different theories about like how the labor market might be useful as forward-looking. I understand it's backward-looking, but like what are the what are the things that is it the SOM rule? Is it like what what would you use if if you were trying to get a little bit of an edge on the economic trend? >> I think what we've learned is having any one particular rule could get you into trouble. So some rule was kind of triggered before and it ended up being sort of fine. >> Oh wow. [laughter] um >> credit uh the inverse uh credit thing didn't work out this time either. >> Yeah, exactly. And there was a problem with Texas fraud in terms of claims. So those spiked for no reason. So I think you do genuinely need to look at a a broad array like when clients ask you like how will I know something's changing? What do you tell them? >> So I would say I'm looking at claims. I'm looking at the Warren data to get a sense of and the Warren data comes from the Warren Act. And basically if if larger companies are doing big layoffs, they have to announce it in advance. >> That's all right. That's a rule. >> Yes. >> So you can't have a >> even though the press would pick up on it anyway, that's not enough. The company has to disclose a certain level of layoff. >> Correct. They have to disclose the layoff in advance and that gets that that gets >> they like disclosing it because the stock price goes up as soon as they announce it. >> Are you surprised that claims didn't break out over the summer? because we were talking about it then and I'm pretty sure people said like once this starts to move it generally doesn't slow down or stop moving. Well, it did. >> We were like there was a week or two where we were like uh oh it's claims let's claims it's claims. >> What was the Texas fraud? What was that? >> So that happened a couple weeks ago. Texas claims jumped. >> Uh I quickly looked at the warn data for Texas to see was did any companies big companies do a big layoff. That wasn't the case. So our immediate conclusion which we had published was no this is there's something funky going on. I don't know what. And then we later learned that there was actually some fraud happening within the Texas claims and Texas came out and said that this was an issue. >> Why would somebody do that? Isn't that weird? >> I guess they're it's trying to trying to get uh unemployment fraud. >> Yeah, exactly. Unemployment fraud. >> So somebody did that on a large enough scale that it showed up in the data. >> Yes. >> My my word. Um >> 20,000 I believe. >> What's a Lisa Abramovitz chart? >> So thank you for that great setup, Josh. Um, are you surprised that so this the the way that that um the Fed measures uh inflation, shelter inflation, it's this weird thing, owners equivalent rent, where basically they ask people, well, how much do you think you can rent your house for? And it was a big talking point um at the time like it's such a bizarre way of doing things like how would I don't know how much I could rent my house for. And yet I bring this up to say it looks like it was kind of right. I mean it's it's it's the what do you mean by that? Why does it look like it was right? at the lowest level since 2021 and this is probably a decent representation of where shelter inflation really actually is. What do you think? >> So, one correction on the the way they measure it. So, there's two ways that they go about collecting the data. First, they actually measure how does this particular sample of house houses compare to um rents uh about six months ago. And then >> this is in CPI. >> This is this is in CPI uh as well as PCE which is the Fed's preferred measure. >> Okay. They are not using that question. What do you think you could rent your house for in in the in the actual calculation of rents? They only use that in terms of the weights. How do they weigh it up? >> What do you mean by >> So >> weigh they weigh your house? [laughter] >> How much could you sell your weigh your house for by the pound? >> More like how important is New York houses relative to Chicago? How they like aggregate everything up. >> Okay. Um but they they don't actually ask you how much do you think your you could rent your house and that's used to calculate the inflation. >> What does this represent? What is owner equivalent rent then? >> It represents a measure of actual rent inflation but it's the aggregate um houses out there as opposed to just go to why don't they just go to multif family? Why don't they just go to like the 10 largest multif family um apartment building landlords and get the actual data? What are we [ __ ] around with? That is what they do. >> That is what they do. They do that. It's just not only the big ones. They're going to capture as much as they can to be representative, capture everything, but they are measuring actual the prices of rents compared to where they were 6 months ago. >> I had a guy sitting in your seat on Monday. He owns he's the biggest multif family um landlord in the Pacific Northwest and or Mountain West they call it. So, he's in Salt Lake, he's in Denver, he's in Seattle. And I I I asked him like off off camera um but about that question like what's what's the rent situation? What? He's like it's fine. It's always the same. There's no He's like there's no trend. It's just like apartments open up, people come in and rent them. I He's like I wish there was some signal in there that I could use for my business, but like on a week-to-eek basis there's nothing. on a year-to-year basis. You know, property developers use that like as a signal of where to invest and where to build more, but like week uh month after month CPI, who knows? Like who knows what that really means. >> Yeah. And the data are pretty volatile and most recently there was a big deceleration in this one. I think what we're seeing though is that rent inflation is coming down which we all knew what was happening because the CPR CPI data is very lagged. takes a it's very slowm moving unlike a sort of a a potentially better measure is some of the the the private measures of of rents that are advertised in the market. >> Yeah. >> Because CPI measures average rents for everybody in the >> over what I know it's over a 12 is it a 12-month lag. >> It's been longer. The expectation was it would be a 12-month lag, but that's why people have been talking about OAR's coming down and this they've been having the same conversation for 18 months and it hasn't happened yet in a material way. >> Data is what you're talking about. Yeah, exactly. Zillow has good measure. >> Zillow. Okay. >> These are helpful to gauge what's happening more real time because these are apartments that are being listed as opposed to the average of all apartments out there. >> So, this has been a big source of the cooling of inflation to the extent that it is cooling. But then there's obviously the the cost pressures or maybe even lack thereof that we've seen from tariffs. Are you surprised that we haven't seen more in the way of uh tariff related price increases? So, you've seen it's definitely showed up to some extent. It's been goods price inflation is running about 2% year-over-year. Typically, it runs 0 to minus one. So, you've seen it. It's just hasn't been as large as many expected. And I think there's a couple reasons as to why it's been smaller than anticipated. One has been companies have just been slow to pass it through. They've taken a little bit on margin. Uh exporters have taken it some of the hit too. >> Yeah. And then I think the way people think about the sort of the percentage they were expecting for an item, they're not necessarily calculating it exactly the right way. So when you think about say example a sneaker import, so you might import it, it's a the company pays $50 at import and $100 in the store. Well, your tariff rate is tied to the $50 that you imported. So it gets watered down when you're talking about the end >> by the time it gets sold to the end consumer. >> Exactly. you wouldn't know the difference >> as a percentage of the final price. It's a lot smaller than the tariff rate. >> One of the things we heard was that sneakflation would be the way companies would would pull this off, live with the tariffs, where there might be like a very high price attached to one particular item. But if you're Target, you could spread that high price out across 5,000 items and it almost becomes like unre like you can't see it anymore because it's a penny on 5,000 items rather than $500 on a lawn mower. >> Yeah, I think >> so. They've gotten away with they've gotten away with some of that too. >> Yeah. And companies have been passing it through in items that they know the consumers a lot less sensitive. So they're higher price items. for example, they know the wealthier people might not really care if their sneakers are $10 more expensive, but that's a much bigger deal for their their lower price product. >> Do portfolio managers at what you're sitting at Wolfe. Do portfolio managers want to talk to you about tariffs anymore or not really? >> Not really. They want to talk about AI. >> A year ago though, that's probably what they wanted to talk about ago and companies aren't talking about. >> Isn't that so funny how that happens? >> Totally. These things go in waves. I mean, tariffs have still been important. We're seeing inflation running at about 3%. Inflation should otherwise be in the low twos. So this is having an impact. It's just not it's it's more of an issue for the Fed than it is for the end consumer broadly. >> It's it's like on a low boil. Also, the consumer doesn't really know who to blame anymore. Like the consu like the consumers like don't really want to hold Trump accountable for it, but Biden's been gone for so long that there's no point in like yelling about Biden anymore. Like people don't even know like who to hold accountable for this. They're just getting used to it. >> Yeah. And I mean there still might be some more pass through involved. So that's something to keep an eye on. We'll still see goods prices continue to rise. Our senses when we aggregate it all up. We're about 50% of the way through of the tariff pass through. So there's still more to come, but it's happening slowly. >> Okay. Uh that's a good segue to um you wrote AI bubble. Nope. The real danger is in tight credit spreads. Let me quote you. Okay. Do people do this often to your face? I'm going to quote you to you. >> Uh this is not her. >> This is not me. >> Oh, who wrote [laughter] this? >> Alison Shreger. >> Oh, this Oh, this is Allison's article in Bloomberg. >> Okay. Can you respond to this idea of of uh credit spreads being a potential threat maybe to the market or to the economy or both? >> I mean, I think they're tight for a reason. The economy is doing pretty well. I don't expect this to >> It's not always the greatest time to invest when credit spreads are this tight because people have become complacent in an environment where they're not they're just not putting much much emphasis into pricing risk. That's the the general idea with this, right? >> Yes. >> Yeah. I mean, I I don't know if I would emphasize that too much. I think it's telling you that the economy is fairly healthy and there's there's sort of little signs of stress. So, from that perspective, I would say it's actually an okay environment to invest and it tells you that the economy is fairly healthy and there were a couple of negative credit events that popped up somewhat recently and I view those as idiosyncratic and the backdrop is actually pretty good. So, no, that's not something that I would >> When do idiosyncratic one-offs become a bigger story to you? So, I think we're every 3 days we're hearing about a new one. That's the rate. And they're small. >> Yeah. >> Relative to the size of the credit market, but like how many do we need to hear about before we decide, okay, this is a problem? >> They've been concentrated in two main areas. One is companies that had poor business models and were tied to fraud. That I would discount. Yeah. most days of the week and then tied to the auto sector and sort of frothy activity that happened a couple years ago is now becoming an issue. >> Okay. >> So, so far the the the sort of the broader announcements have been part of those two categories as it starts to as an or if it starts to branch out into something else then it becomes more noticeable. >> I would agree with that. The auto stuff specifically that was activity that that that took place years ago that we knew was crazy town and now it's coming home to roost. this starts showing up in sectors completely unrelated that are more concurrent in nature. It's like stuff that's reflecting stress today. Then it's time to okay reassess and say what the hell is going on. >> Totally agree. >> Let's John, can we do 15? >> This is your past investment boom that you referenced before. Um past investment booms as a percentage of nominal GDP versus the current AI. And for the listener, uh, the AI, I don't know how you're categorizing the AI spend, but like it's 1.3% um, in 2025. The railroad boom went to 5 a.5% of GDP. The dot went to four and a quarter. The housing boom in '05 hit three and a half. So, is the message here like it's it's not it's not a bubble, or is the message here like it will be? we just haven't gotten quite to where where it it would have to be to become a bubble. >> Maybe for investors it doesn't matter either way because it tells you that for the next at least 12 months this is not a bubble and it's not an issue. It could become a bubble could become an issue but I think we're a long way away from that. >> We haven't gotten there yet. >> We haven't gotten there yet. AI spend and we're calculating as above trend spending in areas like data center uh computer equipment. We kind of aggregate it all up. That's where we get to about 1.3% of GDP, kind of roughly 450 to500 billion dollars, which is a substantial part of GDP, but nothing like historical bubbles of the past. >> All right. So, when you get calls, is it a bubble? Your answer is no. >> Maybe someday. >> Yeah, totally. >> Okay. Do people feel better after you tell them that? >> Um, sometimes. >> Sometimes. [laughter] Okay. Uh, people seem to want it to be a bubble. Have you noticed that? >> Yes. >> Okay. In the investment world, what do you think that's about? They missed out. I think it's either missing out, feeling concerned about the valuations, or perhaps wanting to invest but are worried that they're going to be wrong and it's going to prove to be a bubble in two months time. >> That's the worst that's the worst of all worlds is you ignore it for 5 years and then at the very end because your clients are leaving, you're like, "All right, whatever." And you just start throwing money at at it and then it's over. >> Yes. and then you lost twice and you're just you're that's that's the got to be that's got to be the worst thing you could possibly do. I almost feel like you might even be better off just sticking to your guns and letting it blow letting it blow up. I think a lot of the people that are still asking that question are probably in that camp. >> I would >> you that's what I would do%. >> Yeah, I think I would triple down. >> Oh, at 5 trillion I'm think I'm getting interested in Nvidia. >> No, if you were talking [ __ ] about Nvidia now it has my attention >> at like $300 pre-split and and it's run all the way up. split run all the way back. >> Stay quiet. >> Just maybe don't talk about it at all. Do you want to do this China thing? >> It's up to you. Take take it or leave it. >> Take take us through it. >> All right. So, our friend Michael Samblelist wrote a a post recently where he show >> Did you work with symbolist when you were at JP Morgan? >> We worked like side by side. We worked together some. We we talked to him once in a while. >> Okay. He's probably listening. Fan a fan of the show. >> Hey, [laughter] Mike. >> All right. So he has a chart showing uh few Chinese industries depend on exports to us and he's looking at consumer electronics and electrical equipment and basic chemicals and on and down the line and they they a lot of it they produce and they consumed domestically like so he looks at US export revenues to China and it doesn't show up anywhere really to maybe a little bit in consumer electronics I guess that's the that's the iPhone. Um, so chart can Matt looked at the average tech stock and the exposure, I'm sorry, the average sector exposure to China and in tech. So the S&P is 4.2%. Revenue exposure. 2% of S&P sales go to China. >> That's what uh that's what Matt's saying. >> Okay. >> But 10.6% of tech stocks. And then he broke it down by individual company. Tesla, we know how important China is to them, 21% of their revenue. Apple, it's 16% of their revenue. Nvidia 13%. They buy a lot of the [ __ ] our [ __ ] of the most important companies in the world, our most important companies. So all of this negotiating rhetoric, whatever, like they they have leverage on us. >> So there was a chart that we used to run that looked at the our the exports that we send to various countries across the world and then how important their exports are to the US. And China was the only country that showed equal roughly equal leverage to the US. Everybody else showed us had a >> equal versus us. >> Like our balance of trade versus their balance of trade. >> Yeah. So so so exactly that's exactly right. And that tells us that perhaps maybe Trump underestimated the ability for China to sort of weather this as well and and and the fact that we would be caused a lot of pain uh just as much as they would be and they have they play the long game. So they have the ability to to sort of wait a lot longer than we do. >> They don't have the political reality of people not getting elected as a result of trade imbalances whereas politicians here in the US do. >> Exactly. >> Not yet, but allegedly at some point it might matter. >> We'll hear from Apple this afternoon. Um but they're the amount of revenue that they got from China has been a big overhang on the stock. It's it's it's it peaked a couple of quarters ago. Now, I think everyone's expecting the iPhone 7 to have gang buster numbers and they better otherwise the stock's going to give a lot back. So, I hope it I hope that comes true. But yeah, China's a China's a huge huge buyer a lot of our stuff. Do you see that as um do you see this like this meeting with uh she this week as being like terribly consequential for the year- end S&P like whether or not we have like a rally into year end or not or do you think that's not really the bigger story? It paves the way for the rally and we thought the the rally was probably going to happen anyway. It seems like a lot of investors are trying to catch up to a year where maybe they were underperforming at least. >> That's what that's what I think. >> A lot of clients that I speak with kind of communicate that. >> So, I think this just paves the way for we're kicking the can down the road and also sort of a recognition that we can't really heat up the tensions again that perhaps this the appreciation that the they have just as much leverage as we do. >> So, we have a truce a tra we don't have a trade deal. We have a trade truce. That's the last thing I read. Good enough, right? >> Good enough. And fentanyl tariffs came down. So, there is a sort of win from that perspective. >> You wouldn't believe what I'm paying for fentinel these days. It's crazy. [laughter] So, thank God for that. Stephanie, did you have fun on the show today? >> This is great. Thanks for having me. >> All right. We loved having you here. And you're nearby, right in the neighborhood. >> All right. Will you come back? >> I would love to. >> What are you doing tomorrow? [laughter] >> Uh, we always we always Amazon blow out numbers. >> Finally. It's about time. >> Finally. Stocks making up stocks making me look dumb. >> Stocks up 8%. But it might it might be flat uh in 10 minutes. Give it a minute. Hush your mouth. That stock's making me look dumber than any other stock. [laughter] >> Me too. Let's go. >> Um we always end the show by asking people what they are looking forward to. I already jumped the shark. I already told that's not the right term. I already did a spoiler to you, but to the audience. Tonight's a four Charles uh Tonight's a Fort Charles Prime Midnight. You feeling me on that? Yes. >> [applause] >> You know, you're not you're not a big prime rib eater, are you? You don't strike me as. >> Not really. >> I'm going to do unspeakable things with this place tonight. [laughter] >> Holy [ __ ] Duncan's going to Duncan would faint if I if you saw the table. The French dip, >> the cheeseburger, then they first bring out the prime rib. >> I' I've seen your social media. >> The cheeseburger is the salad. Okay. Wait till you see what I do on Instagram to you tonight. You should unfollow me for tonight and then refollow me tomorrow. [laughter] All right. Anyway, what are you looking forward to? What do you got on the horizon? >> Like in life? >> I don't care. Yeah. Professionally, personally, anything you want to reveal, anyone you want to get back at, like what your moment. >> Tomorrow, tomorrow's Halloween. My two kids are going to be a big witch and a little witch and we'll go trick-or-treating. And I can't wait for that. >> Big witch and little witch. [laughter] Okay. How old are they? >> Three and a half and one and a half. >> So cute. >> So cute. So, you're carrying one or both? >> Yeah, both. Definitely both. >> I remember those days. [laughter] You know what the move is? You got to get the wagon. >> Oh, yeah. The wagon the >> problem is they pull each other's hair in the wagon. So, you still have to pull one. Hold one and pull the wagon. >> Are you letting them eat any of the candy or it's just >> Oh, they can eat whatever they want. I don't care. >> Yeah, >> it's Halloween. >> All right. All right. Very cool. What about you? What do you have? You have Halloween coming up? >> I do, but I'm looking forward to Chris coming home so he would stop sending us those pictures. >> Oh, Chris's vacation pictures. They're actually pretty good pictures, though. >> Not bad. >> Chris is in uh Chris is in Cabo. The pics look pretty good. Normally he's the worst vacation photographer you've ever seen. [laughter] You know, he went he once he went to Paris and uh his son was like 12 years old. He's taking pictures of the Mona Lisa, but he puts his son in front of it. So, it's like a picture of his kid close up like right into his eyeballs and then behind him you could vaguely tell that the Mona Lisa is behind and the and he'll text and be like, "Look, the Mona Lisa." [laughter] [applause] Shout out to Chris. Uh, Chris, we we we only tease the ones we love. All right, that's it for the show this week, guys. Thank you so much for listening. We really appreciate it. Huge shout out to John, Duncan, Daniel, Nicole, Rob, Chart Kid, Matt, Sean, everybody on the crew, Keith, Daniel. Who did I leave out? Rob, I'm terrible at this. Do my best. All right, guys. Thanks for listening so much. We appreciate it. And, uh, we'll talk to you soon. We're out. [music] >> [music]