Market Pressure Points: High Rates, Housing Challenges & AI Revolution | Wealthion Weekly Recap

Andrew Brill  0:00  
Hello, and welcome to Wealthion's weekly market recap. I'm your host Andrew brill. It was a quiet week news wise with respect to the markets. But the market had a steady climb upwards, we'll take a look back at what all of our guests had to say this week coming up right now. But first, please like, subscribe and hit the notification button so you know when we post new videos. Before we get started, just a reminder that our next online conference is happening June 1. You don't want to miss this in conjunction with salt, which is a 10 year old conference started by skybridge capital will have some of the top names and thinkers in economics and equities to help us all keep and grow our money for information and discounted tickets to the conference head over to Wealthion.com.

This week, Peter Boockvar four of bleakly financial, and the book report talked with us about the economic pressure points with high rates, housing challenges, business loans and economic shifts in the US, and also gave us investment trends and projections he's seen. 

So Peter, we have a stubborn inflation number, the Fed, obviously leaving rates for longer What's your take on the economy as we sit right now? 

Peter Boockvar  1:20  
I think that the economy is remarkably mixed and uneven. And I say that even with individual industries. Take housing, for example, we have the pace of existing home sales, near 30 year lows, but new builds that are doing fine filling up this this supply vacuum. With consumer spending, we have lower to middle income consumers that are skimping on Starbucks coffees and McDonald's cheeseburgers, but we have the high end that is still spending and traveling and, and going on cruises and so on. You have manufacturing that's still in contraction, even though it's trying to find signs of a bottom but we have all this government spending and government enticements to build manufacturing facilities and Chip plants and so on global trade that is somewhat mixed with with soft economies overseas, in Europe, but then you have strength in India, weakness in China. So a tremendous amount of cross currents. So you can't really paint the US economy with one brush. There's sort of this this sort of two lane, economic highway that that I'm seeing.

Andrew Brill  2:33  
So we talked about, there's so much talk about recessions, soft landing, what you're trying to explain to me is that there's different parts of the economy that could be in recession now, but certain parts that are kind of doing okay. 

Peter Boockvar  2:47  
Yeah, that's what it seems, you know, the person, you know, as I said earlier, that's not going to Starbucks as much. You know, they're sort of in their own personal recession having to deal with a cumulative rise of 20%. And their cost of living, hopefully, least offset as much as possible with with wage growth, but it still stings. And I think consumers are, are really prioritizing on more needs than wants. But you know, as I said, higher income consumers are benefiting from a return on their savings of 5%. If they're in treasuries and a wealth situation that is, is on firmer footing, then a lowering income consumer that is renting and doesn't own a home relative to somebody else that may own a home and has a lock in 30 year mortgage three and a half percent.

Andrew Brill  3:41  
Is that a switch from what you've seen in the not so distant past is that people were the discretionary spending was really, really high. Now we see which, for which what you're explaining is that the discretionary spending is kind of in certain income groups is waning and in certain income groups is just continuing to grow.

Peter Boockvar  4:02  
Well, you know, COVID, certainly, definitely, you know, polluted and pulled forward a lot of of spending on discretionary stuff, particularly on goods we know, that was where the consumer spending strength was in late 2020 2021. And then that flipped after everyone already bought their laptops and bought their redid their kitchens and, and redid their deck and spent on stuff. Then they shifted to spending on going out for dinner and traveling and more experiential type stuff, that that trend seems to still be in place where experiential type consumer spending is doing better than than hard, good stuff. Particularly if it's an expensive hard good stuff like a car where you have to borrow money and the cost of money to buy that car is obviously much higher than it was pre 2022.

Andrew Brill  4:58  
Especially for the gun Do you see the higher for longer? Is it working? Peter, it's, it seems to be stuck in that, you know, just under three, just over three range. Do you see it starting to get down to where the Fed wants it?

Peter Boockvar  5:13  
Well, strangely, it's, it's working in some areas, but it's also, counterintuitively, intuitively, facilitating inflation on the other. On the higher end, because you're getting a lot of interest income, you're spending a lot keeping prices elevated cruise lines, for example, to say them again, they have a lot of pricing power right now, because of those boomers that are spending. So higher interest rates are actually inflationary. If you're trying to buy tickets for a cruise, or a sporting event, for example, or a concert. Look at look at the housing industry, home prices continue to go up in the face of higher interest rates. So in that case, because of the distortive nature of the Feds policy of going back 20 years with what they've done to the housing market, it's it's completely failed in reducing the inflation of home prices. On the flip side, cheap money drove an enormous amount of multifamily construction. So their attempt to create inflation actually sowed the seeds for eventual rental deflation. But now we're sowing the seeds for an eventual uptick in rental inflation and 2025 2026 due to the dearth of of new construction after the current projects are done, so it's hard to answer that question in one way, because there's so many nuances and how rate cuts rate increases flow through the economy. But I guess the simplified if you need to borrow money to to build a business if you need to borrow money to buy a house or a car? Well, yeah, it's working if you're in commercial real estate, higher interest rates are certainly working, because we've seen certainly a collapse in the values of a lot of office buildings. And we're seeing stress in other areas of commercial real estate. So it's working in some areas, and it's creating more inflation and others.

Andrew Brill  7:12  
And it since you mentioned commercial real estate, I'll ask you the question. I know there's a lot of commercial loans that are coming due this year, those loans are going to have to be refinanced at a very much higher rate, probably double than what some of these people were paying, and the property more than double, it'll be potentially triple. And the property value is because of the higher rates have come down. How is this going to affect the economy and the market?

Peter Boockvar  7:41  
Yeah, that's, I mean, just imagine every day some of these loans coming due. And, you know, a lot of loans that came through in 2023, were pushed to 2024. So interestingly, going into this year, there was the assumption that there was about six to $700 billion of commercial real estate debt that would mature this year. Well, turns out that numbers closer to a trillion, because a lot of 2023 maturities will push to 2024. So that industry needs a lot more equity. Think that's the bottom line. Either that or there's going to be a lot of wipe out of existing equity that will transfer to the lenders via foreclosure and handing back the keys. So there's going to continue to be a bunch of pain. For those operators that have debt coming due. If you're owed a multifamily building that's 98%. Leased and your maturity is not to 2027 2028 or where you're all equity, then you're fine. If you're an industrial warehousing, maybe your your rent growth is slowing also multifamily. But if you have a good balance sheet, you're okay. It's really going to affect the piece of that $20 trillion market of commercial real estate, where your balance sheet is all sides, which obviously definitely ensnares a lot of people. And we have to see how that sort of ripples into other parts of the economy, also higher for longer when you think about its impact. We talked about how it impacts existing businesses, existing real estate owners. But we also have to think about what higher interest rates mean for future economic activity. What business doesn't get started, because VC money is not coming their way? What house is not being bought, and instead is rented? Because the cost, you know, because interest rates are high on top of higher home prices for a millennial or Gen Z or who wants to buy what what business is not expanding because they don't feel like taking a 10% loan from the bank. It's what activity does not take place because of higher interest rates in a very credit dependent economy. 

Andrew Brill  9:51  
And that will take a little bit of time to figure out right if you know what isn't being done.

Peter Boockvar  9:57  
Right. That's why this is not sort of An easy quick, you have the digestion of higher rates and then you move on. You know, this is something that plays out over many years because of the amount of debt that was priced pre 2022, that over the coming years will get repriced much higher. And if rates stay higher for a while, there's obviously sort of this pernicious death by 1000 cuts impact that I've been thinking is going to happen for a while now. And it sort of seems to me to be playing out in that fashion.

Andrew Brill  10:31  
So the amount of debt that people take on our government has taken on a ton of debt. And to finance that debt, we're selling bonds like it's going out of style. Peter, how is this affecting our economy, because now the government's borrowing money, they're paying more to borrow that money? Our debt continues to rise? It the bubble is gonna burst at some point, don't you think?

Peter Boockvar  10:56  
Well, it's for 40 years, we've been talking about EU wide US budget deficits, you know, outside of a couple of years. And it never mattered, but to your question is, does it now matter? And I do think it does matter. I mean, in the 30 years, I've been doing this, I've never paid attention to the Treasury's quarterly refunding announcement, or overlap. You've never really paid attention to Treasury oxygen auctions until the last couple of years. So now that we're talking about this and paying attention to it, it really is important. And when you have an expanding economy, with an unemployment rate, below 4%, and a budget deficit relative to GDP at 6%. That's highly stimulative. So there's basically $2 trillion more being spent relative to the income the government is collecting, that's flowing through all parts of the economy. So here you have the Fed, tightening, but fiscal policy continuing to ease. And question is, can the US Treasury continue to finance all this, and I do think it's getting more tougher around the edges. Now, the Fed has relieved some of that via trimming their cutie from 60 billion a month in treasuries down to 25. So Janet Yellen got some relief and not a coincidence that it's shortly before the election. But foreigners have also been a large contributor to financing the US debt, and their percentage ownership of marketable securities. While they're still buying on an absolute basis, that percentage continues to draw. So more and more supply wondering where the buyers come could sort of flow in and give reason why at least the long end of the yield curve rates, you're gonna stay high for a while as well, in addition to what the Fed does with the short end.

Andrew Brill  12:47  
Do we expect to see prices come down a little bit now that the wages aren't coming down, but they've, they're stabilizing? Somewhat, do we expect the prices to come down a little bit at some point.

Peter Boockvar  12:59  
No, prices will never come down, maybe they'll just go up less. Unfortunately, for those that have suffered through a very sharp rise in their cost of living, when it comes to wages, wages just for perspective, in the 20 years leading into COVID, average hourly earnings were averaged about two and a half percent year of year. So now they've moderated but they're still running at about four. So that's off the boil of north of five, but still running well above where it was pre COVID. Now, for the wage earner. That's a good thing because of higher inflation. But it definitely from the feds perspective, certainly makes their job more difficult. And California, as I said, their minimum wage increase, as certainly doesn't make the Feds job easier, either. If all that wage increase gets passed through to higher prices, which it seems to have been, there's only so much productivity a restaurant can instill in its business.

Andrew Brill  13:56  
How do we make money in today's economy and with everything is going in the market?

Peter Boockvar  14:01  
So we remain on you know, I mentioned precious metals, but we're long and bullish on on a bunch of different parts of the commodity landscape, Energy, Agriculture, particularly fertilizer stocks, also bullish on some of the industrial metals like copper, and some of the stocks and that industry. I still think that there's been just a dramatic pace of underinvestment in commodities over the past decade as everyone shifted to spending on technology and other things. You know, if you're a VC investing in that new copper mine was not that sexy. Other things was was more attractive. So I do think that prices on the commodity space are going to be high for a while and will go higher. And I still think that there are a lot of areas of of commodity stocks that are cheap, particularly agriculture. That's one of our newer positions over the last couple of months is buying some of the fertilizer stocks and that I think that have up Much of upside. And also we also invest very internationally. And I still find markets in Asia very attractive particularly in Hong Kong, which has been a dramatic underperformer up until recently, where one of my contrarian calls going into this year was the Hang Seng was going to outperform the s&p and after a pretty brutal start that call with the Hang Seng down 10%. In January, it's finally done a lot of catch up. So I think there are opportunities in Asia to play the growing middle class there.

Andrew Brill  15:30  
So if that's how to make money, how do we protect ourselves from the volatility, some of the volatility that we've seen someone who's maybe on a little bit more of a fixed income?

Peter Boockvar  15:42  
Well, you can never really protect yourself completely. If you want to be invested in the markets, the only way you're fully protected as if you're in a treasury money market. But I think people just have to learn to live with volatility. And I think extending out when one's time horizon is, is the best way to deal with short term volatility. Because if you know you have that long term time horizon, you can deal with a lot of the short term noise. 

Andrew Brill  16:06  
Dylan Smith of Rosenberg Research spoke to us about earnings trends this week, and what he's seeing in terms of the economic slowdown, he also touched on what lies ahead for consumers and businesses, the rising debt and the impact this year's election could have on the economy. 

So we're getting we're towards the tail end of earnings season. There's a bunch of companies, the big ones that have come out with they have piles of cash, and they're either giving dividends or they're going to spend on AI, but there's a bunch of companies that are not doing as well, do you see the economy slowing at all?

Dylan Smith  16:45  
Well, I think what you're seeing in this earnings season, you know, somewhat a continuation of the trend around tech and AI, which I think was always going to be the case, we've seen a mix of, of signaling on that, which I think is starting to reflect the realities of the situation, which is not sudden firms are doing extremely well, and reporting, you know, actual revenues coming through AI, you know, that's more on the sort of hardware side of the industry with anybody on the likes of of those types of companies actually benefiting from it. You've also got places like measure saying, look, it's going to take longer for this to actually show up in the income statement than you might like, or at least in the top line of the income statement than you might like. But you know, we're putting a lot of money into it. And we just see a lot out of it. And investors, by and large, liking those types of stories. So we haven't seen the kind of come to Jesus moment yet. Where the real winners and losers will be kind of long term. I think that's a very open question. But what we're seeing from the kind of old economy, side of the type of book is really a fairly traditional trading down, consumers have a similar weight beginning there, as you know, places like McDonald's signaling. Listen, we're about to enter a national price war, we're going to adjust menu items, we're seeing people price discriminating, even on our own menu towards cheaper items. We've got, you know, some of the retailers doing quite well, although the more sort of high end, total consumer linked retailers like Amazon showing, you know, slightly softer results on the retail side of the business. And then, of course, the Starbucks debacle, which, you know, China aside, it is showing a slowdown, generally global demand. I mean, there's all sorts of issues in that business, which you know, we're not ready position to comment on. But what you are seeing, I think, is people moving down from the very fancy Starbucks monta down to just a black coffee and get on with it day. Right. I think there is some some trading down happening. And what that means for the consumer is ready, you know, okay, we know where the kind of bottom end of the market is the people who kind of spend that whole paycheck, the sign of the economy that has contributed to the savings rate already collapsing and high credit card spending. Like that's all a consistent story. I think the outlook on consumption is really going to depend on okay, what's the upper echelon of the of the income spectrum doing this, because those are the people who have seen enormous gains from from the house price and their ability to withdraw equity that are missing a massive wealth effect from from recent stock price moves. And so even though, you know, I think most of the economy is out of the kind of pandemic era excess savings that's been spent down, that's been an additional tailwind for kind of the upper end of the income distribution from from all the markets. So interesting to kind of see where like, what we can tell about the consumer follows different forces at play.

Andrew Brill  19:34  
So one question I have about that, since the lower end of the income distribution is I'd say they're readjusting, so to speak, whereas, you know, the higher end of the income distribution doesn't have to worry about that as much, but still, and we're still paying very high prices for food and essential items. When do we get relief from this stuff?

Dylan Smith  20:01  
Well, if you're asking me when we're gonna get outright deflation. It's not gonna happen, right? We know that firms are very, very unwilling to, to match reduced prices to consumers. What we are seeing is that, you know, relative prices are kind of readjusting. So there's a few moving parts at play. One is we had this massive initial spike in goods, prices, inflation, right. And that was because of how demand had shifted off services onto goods. After COVID, we then saw it kind of bleed into more of the services side of the economy as things readjusted, and that was sort of where the shortage as well, relative to demand. And we put out a piece a few months ago, which basically showed, you know, these two things are much equalized back to the pre COVID mole. So not ready to run some prices story, but I think when you hear in the media about, you know, things are expensive, you know, consumers online, the average sort of grocery bag at you know, has almost doubled from from pre COVID level. So although inflation is running low right now, I think the the sort of challenge that policymakers and economists face is to explain that, you know, this readjustment is not going to happen back down again, this is a fundamental kind of change in sticker prices. And the big question, I think, is how do incomes readjust to that. So we've seen, in many sectors, there has been real income catch up and real income adjustment, but not in all sectors. And I think that's what's part of the story behind things like how many part time jobs are currently being taken people who, you know, can't adjust from one job to the other without driving an Uber in between, you know, just to make ends meet. So I think I think that's a that's a big part of the story. And why demand is a little damping on on that side of the economy is the sort of budget shock is still kind of happening. And this is, interestingly happening at the same time that you have still, you know, package holidays demand very high. So there's still an element of, you know, while risk of anger about grocery prices, we're still gonna go to Disneyland. Because we can do it three. So it's very interesting kind of crosscurrents happening that, but I think the broader pattern, which was seeing back to the earnings release question is that I think that force is fading in reality is setting in.

Andrew Brill  22:22  
In the latest wage report is that wages are up, but they're not up as much as they had been, like the wage growth is slowing. So if prices don't come down, and wage growth is slowing, at some point, there's going to be I wouldn't call it a price war, but perhaps prices could start to come down if people can't afford what, what staples they need.

Dylan Smith  22:47  
Right? So we're seeing inflation, I mean, depending on the measure, there's lots out there, but running somewhere in the order of sort of 4%. And you have inflation running just over 3%. So we're still seeing a little bit of real income catch on happening, but it's, it's at a much slower pace. That's than it has been for a while as wages moderate down. But you're absolutely right on, on sort of business's ability to pass through cost at the moment we're seeing in the Beige Book, and in all sorts of regional fat data and reports, everything is pointing to margin compression, at least for the sort of small and medium sized firms and the economy, larger firms, it kind of depends where they're playing, but firms have lost the pricing power that they've enjoyed for for two, two and a half years. And yes, there are definitely sections of the economy where that will mean that prices do actively come down. You know, on average, we're not looking for a base case of deflation. But getting to 2% against that background is not going to be that difficult.

Andrew Brill  23:48  
So with so getting down to the 2%, but we could hurt a little bit and struggle until we get there because prices aren't going to really come down. And unemployment is sort of creeping in the the upward direction. So there's going to be people out of work that can't actually pay for what they need. So I would assume and it correct me if I'm wrong. At some point, things have to level off.

Dylan Smith  24:17  
I think it's right. And I think that's why Powell has explicitly said he doesn't have to see 2% to cut. Right. I think, you know, and that's why he flagged the labor market, as you know, one of the potential scenarios that actually could lead them to kind of inflation aside. I think that's right. 

Andrew Brill  24:33  
When you tell people that we need to pay down the debt, and we're going to tax you a little bit more. Yeah, that's not going to be an easy way to win an election, I would assume.

Dylan Smith  24:42  
Yeah, we're gonna change Social Security. No one can say that. So this is off the table until the election for show. And after that we'll have to see now, based on current record, you know, the Biden administration has been a very free spending administration past probably related to kind of COVID recovery and so on. But also, following the kind of COVID spending was a very large infrastructure investment program. You can argue and debate about the long term kind of ramifications of that whether it's going to be efficient public spending, whether it'll be big economic return. But until, you know, the evidence that shows up, all we know is that that has sustained very high deficit spending. And then the kind of wave after that has been just that current spending has been a lot higher than anyone expected, we saw the view assume a relatively small multiplier, you still find that last year. Direct and indirect effects of public spending accounted for like two thirds of GDP growth? Right. So it's been an enormous additional extra stimulus that almost you know, everyone was predicting a recession, it was almost like they did a pre emptive, Keynesian policy, right, by just massively stimulating or keeping stimulus going. So the point I'm trying to make here is that, you know, if the if the if Biden kind of remains in power, and it's a Biden administration, while he doesn't have a track record of fiscal prudence now, that's not to say he can't change his mind, but he's certainly not campaigning on changing his mind. And in focus groups and polls, this is, you know, public debt is not coming up as a as a key issue, there is no part of the electorate or no sizable part of their electorate that you're going to win over with us. That's not 1991. And meanwhile, you know, we know that Donald Trump kind of appear to assess his efficacy by the state of the s&p 500. And the easiest way to keep that up is to kind of, you know, just not tax cuts, probably, and which we know, you know, last acts of the Republican Congress are quite keen for it. And but, you know, as we saw last time, probably not too willing to offset offset that on the spending side. So you actually get additional fiscal stimulus probably. And that's an area too, so it's very hard to see a path to a real big reimagining upwards without something going a bit wrong first and bond markets basically throwing attachment, forcing them into it.

Andrew Brill  27:10  
Next week on the trading floor, Jon Najarian shared with us his thoughts on the Fed keeping rates unchanged, and gave us three new stocks to look out for one he's recommending one he's not, and the unusual options activities for the week. 

All right, so it's time now to get to next week. We do call it next week on the trading floor for a reason. And we're gonna pick a winner for next week. And with that, you're gonna mess with my cup of coffee. And I'm okay with that.

Jon Najarian  27:42  
Yeah, and we both wish that cup of coffee wasn't so expensive. And I think the start, Starbucks CEO is going to be loath to go back on with Jim Cramer on his mad money show because Jimmy tore into him. This isn't Howard Schultz, of course, this is the guy that came in two basically, that Howard handed the baton off to, on his second time leaving the company. And he gave it to this guy and Jim was just all over him. So I always thought that it would be good Andrew to sell an addictive substance like caffeine, like nicotine, if we're talking about cigarettes. And because people keep coming back for it, they can't quit it, you and I probably can't quit it. But we can move to a different delivery mechanism for for that. So we could go to Tim Hortons, we can go to Dunkin Donuts, we go to McDonald's, you can go to so many places where you're paying less than half of what they charge you at Starbucks. So it hit a new 52 week low around 72 bucks. For that reason. I think it's a buy. Because I still believe in Starbucks, and how much people love the customized drinks that they make. Because of course, if you're talking about Dunkin or any of those others, you're really just talking about black coffee, you know, Dark Roast usually, and you're not getting all the specialty stuff with it. I think at 72 bucks a share, it probably represents a nice bounce area at that 52 week low. And by the way, that's right around the 50 day moving average. So again, I like Starbucks going into this next couple of weeks.

Andrew Brill  29:31  
Not only that they're moving into a new market much, much bigger than they had they're getting to China now. And China from what I was reading has a ton of coffee shops, coffee distributors, that sort of thing. So they're now getting into China and they expect to expand rapidly into China what like they did here in the United States. So we'll see if they can expand and grab some of the market share over in China.

Jon Najarian  29:54  
True, yep. And I think they can. So I think SBUX is a buy at around the $72 level like I say a new 52 week high this week, a 52 week low. I misspoke this week.

Andrew Brill  30:09  
All right, Jon, you've got me all caffeinated with Starbucks coffee. Now let's head on over to our loser of the week. And we talked about the airline industry last week. And for the loser of the week, we're going to head into the airline industry once again.

Jon Najarian  30:25  
This one is spirit Aerosystems, spr, and Spirit makes like those doors that fell off the Boeing aircraft. They make those doors. Unfortunately, they were an improperly drilled, apparently, and spirit has suffered for that. SPR. I think it's a good company. But when you have a whistle bolt blower like this guy, Josh wood Dean, Boeing already had its own whistleblower against some of the procedures to check out the aircraft and so forth at Boeing. In this case, Joshua Dean was over at Spirit Aerosystems and Boeing, because Spirit was supplying these, and he became a whistleblower, and then suddenly, just like the whistleblower at Boeing, he died suddenly. And, you know, we're not saying that Boeing or Spirit did anything untoward. They said that he died of a bacterial infection. But my gosh, if you're looking for some downside, I think SPR, there's somebody bought 20,000 put options in there. So that's a pretty big bet, that by the third week in May, we're just finishing the first week in May, by the third week in May, the stock trades lower and they're right at the money right at 33 bucks a share. So a put option is of course, the right to sell folks. And for somebody to buy 2 million shares equivalent to sell in spirit Aerosystems tells me everything I need to know. I'm short spirit Aerosystems.

Andrew Brill  32:04  
So let's go to your options. This is your bread and butter. This is what you really look at and the unusual options activity. So where are you seeing some unusual option activity this week?

Jon Najarian  32:15  
Well, when I talk about AI with you, Andrew, or with Steve Feldman, or whomever over and Wealthion when I talk about AI, we're of course talking about artificial intelligence, and which are the stocks that benefit which are the picks and shovels. So just like Levi's was one of the biggest winners in the picks and shovels and pants necessary for the 1849 gold rush in California. This one Palantir is necessary, I think, for artificial intelligence, because these guys strong fundamentals, they basically use all that data that you get the debt, the data that artificial intelligence needs to process. This is one of the players that does that. So we can go to micron tech for memory, we could go to an NVIDIA for memory and chips and GPUs, we could go to super micro computers as CMI for the rack systems that are necessary, we can go to so many different places for AI. But in terms of analyzing it, and putting out taking that data and turning it into tradable, or investable ideas, I think Palantir is right up at the top of that food chain. So I'd say 20% off their recent highs, mostly on light volume to the downside, they're buying 10,500 of the made 35 calls. So what does that mean? A 35 Call gives you the right to take stock at 35 bucks a share no matter how high it goes. So a call option gives you the right but not the obligation to take stock at a certain level for a certain timeframe. So I've already told you the timeframe May and the so the third week in May, in fact, and the price level 35. Well, the stock was 22 bucks a share when they were buying that. That's too far out of the money for me, folks. So what I do is I pick something closer to where the stock is trading right now. So if you're a stock trader, of course you just buy the stock. If you're an options trader like me, you buy an option at that 22 strike, or at the 23 strike or maybe even the 20 fives 35 is too high. For me. I'm not really thinking that the stock could jump by $13 in the next two weeks, but I do think it could jump and I will reflect that belief by buying an at the money call. And I think that's going to be a smarter way to play the upside of Palantir.

Andrew Brill  34:58  
And I think it last quarter they had when they came out with earnings, they talked about getting a government contract to supply AI for some military stuff. So they should be on the up and up right now trading just above 23 bucks. So whoever was buying those calls, they're in the money already. So unless you know if they're going to buy at 35, you know, that stock is definitely moving in the right direction. It's actually a stock that I've watched after the earnings came out last quarter, and they, you know, the stock popped, and then it started to drop down a little bit. I I'm hoping you're absolutely correct that that that one's going to start going up. 

And with AI being all the talk again, this earning season Wealthion welcomed AI expert, Sol Rashidi, who explained how AI could shape the future of financial advising, resource exploration, exploration. And the concept of balancing productivity with employment.

James Connor  35:56  
If you look out five years from now, or 10 years from now, would a traditional financial adviser of stockbrokers they used to be called Do you think that job just disappears? Because a big part of their job right now it's just gathering assets, right? And then I think they take an individual's information, they throw it into a computer, and they say, Okay, this is where we're going to allocate resources. Do you think that's gone, like in five or 10 years from now, and we have these like robo advisors doing everything?

Sol Rashidi  36:28  
I think that's the path that we're going, the role will definitely evolve. Because at some point in time, the customer is going to say, Why am I paying you a percentage point, when you're giving me the same answers as Chat GBT, or Gemini, or perplexity? Or because I was Siri, seven certified for 17 years, I traded options. But I started out as a financial advisor, before I became a broker. And as a financial advisor, things you don't get really creative, you know, if fundamentally, they're 16 above, they're close to retirement, they're low risk exposure, it's all about passive income coming in, you're gonna invest in bonds, but you're not doing these like high risk growth based investments, you're just not. That's meant for a younger students constituency group, and then based on their income level, and what they can save, that's where you play with numbers. We this was in the early 2000s, when I was doing this, you fast forward, that formula has not changed how you treat a 21 year old that's in their growth period, and part of their wealth accumulation phase, versus how you treat someone who's over 65. And let's say assume they don't have a family office. So they're not making the investments. At this point in time, it's just to be able to retire comfortably. The formula has not changed, it hasn't been too creative. So why do I need to pay a percentage point to someone to tell me what I need to do when all I have to do is type the question and it's going to tell me what to do. In addition to that, whether you're investing in American funds, or fidelity, it doesn't matter which funding group, they're all looking at Embedded AI, because they want the business to come directly to them, which now means if you're going to invest with a fund, they're building these capabilities on the website, where you tell them a little about yourself, and they're going to ask you anywhere from six to 10 questions, and then they're gonna suggest what the right investment mixes for you. So I would say at some point in time, we're going to wake up and ask the question of why do I need to pay you to do these when I have these capabilities available to me.

James Connor  38:30  
And they're performing better?

Sol Rashidi  38:34  
That's a bit of a provocative area to step into. I'm sure people can debate that. But to be honest with you, yes, I have seen that. It's almost like watch, used to have to pay for email. And then now everyone has email. And it's for free. It's a democratized service. So I think that the way AI is going to disrupt things, is not replace jobs, but it's going to force the evolution of certain jobs. And things that we used to pay for are now going to be available for free at our convenience when we need it when we want it.

James Connor  39:12  
Interesting, so I do a lot of work with resource companies oil and gas, base metals, precious metals, etc. And this can be a very laborious process looking for oil looking for minerals. And it's also very costly and especially when it comes to oil, like if you have an offshore oil rig, depending on many variables, how deep the will is, etc. It can be very expensive, like an offshore rig can cost you anywhere from $250,000 a day up to a half a million dollars a day. Mining is a lot cheaper, but nonetheless, it's still a very laborious process with Moog mining, you're flying around in a helicopter you're trying to identify certain minerals you know, on the ground and then you pick up these targets and then you start drilling. Well but it's not really efficient. How do you think AI will be utilized when it comes to resources in the exploration of resources?

Sol Rashidi  40:09  
This is gonna sound so odd. But I love this space and that vertical and industry for two reasons because there's an AI hat that I have. And then there's a data hat that I have. On the AI hat, like there are just five glaring use cases that a lot of the mining companies or mineral extraction companies are starting to play around with, and some have actually been deployed. The easiest one is around predictive maintenance on the equipment, right. So predicting failures before they actually occur in order to reduce and minimize the downtime, which if equipment is downtime, it impacts top line revenues, right, that's just the life of it. But also being able to measure shelf life, and being able to predict when repairs need to be made in order to avoid productivity loss. Then another application that I recently read an AI research and I thought this was amazing. It's not in production yet, but they're actually exploring it is around or grade prediction. So predicting the grade of an ore that's being extracted by analyzing the geological data from different drill samples. This is giving companies the ability to increase the accuracy of their grade predictions, and they're seeing a yield of anywhere from 10 to about 18%. Now, this hasn't been deployed at scale yet, but with the proof of concepts that are out there, they're starting to see an average of about a 15%. uptick in inaccuracy. I think another area is really around environmental monitoring and compliance. So being able to see see potential compliance issues in real time, and making sure that you reduce environmental incidences with it could be employees or regulatory standards that have been set forth. There's applications that already live in scale and prediction around autonomous drilling. So autonomous drilling rigs, and just like Tesla is investing in autonomous vehicle, having autonomous trucks equipped with AI operations so that they could reduce the labor load, and increase the safety of these drills and vehicles. But more importantly, also reduce fuel consumption, which is interesting, I wasn't aware that fuel consumption is one of the primary costs for ore extractions, which I thought was interesting. And then the last one is really around resource exploration. So leveraging AI algorithms and models to analyze geological data, to be able to identify new mining sites. And they're able to do this by taking a scan of the geological terrain and understanding the composition, just based on a variety of different infrared technology. So this space, in particular, there's a lot of exploration, I would say most of it is exploration, very few things are in production and at scale. But it's definitely, definitely see a lot of momentum that's on the AI side. And then on the data side, there is a fundamental challenge that companies that operate on edge have that I don't think people are exploring. And this is something that, you know, there's a company that I'm partnering with our motto.ai. And what's interesting about them is telco logistics, oil and gas mining, these massive corporations and companies and enterprises that are the backbone, quite frankly, of our economy. They don't operate necessarily in centralized cities, where Wi Fi and connectivity is just readily available. They're operating in remote areas, because they're doing, you know, mineral extraction and these mines. And so they fundamentally have two challenges. One is connectivity. So even if you were to leverage AI, or even if you were to deploy sensors across a variety of equipments to be able to do prediction, monitoring, connectivity is a challenge. So how do you partner up with the starlings of the world to be able to enable Wi Fi connectivity? So even if the data is coming in? How do you process it? And how do you understand if an equipment about to fail or not. And then the second is around data processing. Because even if you have connectivity, it's not like you have a server sitting out in the middle of the desert, or in the middle of the mines. Everything is being leveraged through cloud, but you cannot transmit that amount of data over the cloud without these heavy heavy workload costs. So unless you're willing to spend several millions, right, in a week, just being able to do data transfer, it's nearly impossible to extract the insights from the sensors and these AI applications out on edge. So the technology and the solution that we're working on is how do you process information on edge and then bifurcate the essential data from the non essential data and then send only what's relevant the essential data through the cloud based workloads? I'm into corporator into enterprise. And so people aren't thinking about the stuff but it's not just let's deploy AI, it's you've got to think about, well, I need connectivity, I need to process the information, how am I going to actually transition the information so it could be analyzed. And so these are all the things that we're working on behind the scenes to be able to make these AI applications scale.

Andrew Brill  45:20  
Finally on SpeakUp, Staci Ward, the CEO of the algorand Foundation spoke about blockchains impact on transaction costs and security. She also compared different cryptocurrencies gave insight into algorithms, unique propositions, and also shared way she thinks crypto is going.

Staci Warden  45:42  
The idea that you could understand the origin of transactions and understand the destination of transactions, all of these things are, you know, are enabled by a blockchain. And you know, the one sentence on it for me is it I think it's crazy that you can send from Nigeria, if you're in Nigeria, you can send somebody in Malaysia, a movie over WhatsApp, and that movie will get there in one minute. But if you try to send them $10, it's gonna get there, maybe 10 days later, a bunch of different intermediaries along the way will have taken you know, up just five or 6% off the top. Why can't you send money immediately from one person to the other, the way that you do that is if all parties are participating on one ledger of transactions, and everybody can see what's going on. So for me, this idea of shared knowledge, one ledger that that blockchain delivers, is really just an absolute game changer. And I want to be a part of rolling that out globally.

Anthony Scaramucci  46:43  
Okay, so I'm gonna throw some things at you, I want you to react,  some day on my phone, this smartphone that's distracting everybody, I'm going to have my money right there on my phone, and I'm going to be able to not use a credit card, I'm going to be able to go right to you peer to peer, and I'm going to be able to buy a coffee, shop in a supermarket, I'm going to be able to do things that we're typically doing now that have frictional costs to them, right? Go to the supermarket, and I pay with my credit card, there's a 3% charge to the credit card companies it sort of an amazing thing. The credit card company has a 3% partnership with every vendor in America. And there's trillions of dollars that go through the world of finance. I tabulated this the other night, I was in a debate, where some people don't like blockchain, other people do like the blockchain by pointed out to people there are $4 trillion of costs associated with verifying transactions in our society $4 trillion. So what it said, If I heard you correctly, is we now have the technology to bypass those costs the same way, we now can make a long distance phone call or the internet, which is virtually costless. When when we were growing up as kids, maybe it costs us three $4 a minute to make that call. We can do all of this now, seamlessly, we can be protected by the verification mechanisms of the blockchain. What am I missing?

Staci Warden  48:27  
Yeah, I mean, I remember being, you know, on the Euro rail, like a student backpacking in Europe, and always hoping that my mother would answer when I called collect instead of my father, because the cost was so high, he'd be like, Okay honey, I hope you're doing well. Let's hang out with my mother would keep talking to me, you know, but I think you can get super duper futuristic on this, for example, why are we talking about assets and money as different things at all? If everything is digital, and you have, say, an averaging money market fund, you could have the tiniest, tiniest sliver of that fund tokenized say, for example, on the algorithm blockchain, you could pay for a cup of coffee with the tiniest little piece of that fund, right. And you could do that directly without intermediaries. And this idea that your money is always earning income, always earning income, that your bond coupon could be earning money for every hour that you hold it not have to do this complicated bond math from coupon to coupon payment, right? It becomes very, very continuous as opposed to a very discrete financial system. You know, we there's a, a rental income, a protocol built on our ground called lofty and you can buy tiny pieces of rental property for $50 investment. That's already cool enough because that's a kind of investment that normal households don't have access to. But as a rental property owner, you are paid daily, on your property, not monthly, because finance is becoming more and more continuous, as opposed to I mean, remember when we go all cheered when we went from t plus three to T plus two in traditional finance, it took like two years to get that done. This is all you know, the thing about crypto is that clearing is settlement. There's not, there's no difference between it. So back to your cell phone example is you can get this done immediately, you can make a payment, immediately, you can make it with sub Penny transaction clauses. But there's an onus on you to make sure that you don't lose your password for your money. You know, these intermediaries do serve a very important purpose. So there's a lot more responsibility involved right now in crypto. And I think one of the problems is that we've got to make it more user friendly, and kind of meet traditional investors in the middle with how well we take care of them versus how much we can save costs by getting rid of some of these these intermediaries.

Anthony Scaramucci  50:51  
Okay, so what brought on I'll stipulate this, I'm sure you agree. We're both bullish on the sector. We're both bullish on the idea that the blockchain and layer one technologies like algoryn, will be used to tokenize real world assets. I personally just invested in a self portrait. That Basquiat made of himself and Andrew Warhol, the portrait was sold for $32 million at auction a few years ago, the gentleman that purchased the piece of art is a friend of mine, he sold 20%, of the painting to a group of his friends, and he tokenized it and so I bought the token, it's sitting in my wallet, it represents this painting. And so that's happening, is going to happen in real estate is going to happen in other real world assets. I want you to paint a picture for me, of where we are in 2029. It's, it's five years from now, that was well time the horn outside wearing five years from now, where are we? What's tokenized? What isn't? What is algorithms role in all of this? Five years from today? And as you and I both know, the five years comes up very quickly.

Staci Warden  52:11  
Yeah, five years comes up quickly. But I think we are in very early innings for crypto more broadly. So we'll start with crypto more broadly. And then the answer for algorand is of course, you know, total world domination of crypto. I expect that to heavy happening in five years. But crypto is going to continue to make inroads into traditional finance and traditional finance, I think is going to continue to avail itself of the of the good things about crypto Etherium, for example, it's very, very decentralized, but it doesn't scale very well. The transaction costs are very high that call gas fees are very high. If you look at another protocol, like Solana, for example. It's a very fast protocol, but it's not particularly decentralized. You have to run enterprise grade hardware to participate in that network. With algorithms you can participate in the security of that network with the laptop but performant laptop, but you also have a lot of scale to to and speed to it. And we are quantum secure. That comes from having some Brainiac cryptographers working with algorithms so the history of transactions on Algren are quantum secure, meaning you cannot go back in time and say, Oh, Staci didn't really pay Anthony actually Anthony paid Staci and change that and so that I can kind of double spend the same amount of money the same dollar that I have. So we solved what is called what vitriolic Buddha is very famous trilemma. So we were able to get decentralization and at the same time, speed and scalability and at the same time security. So thank you for teeing me up to talk about that core value proposition

Anthony Scaramucci  52:19  
Somebody's going to tune into the show. A lot of people are not where you and I are. You know, I had the eureka moment five years ago, I knew I had to be in this part of the world. from an investment point of view, I needed to understand it better. Some people are going to tune into this show, I want a part of it. What makes this show successful is here's a portal, here's a look into the future. And you've described it eloquently. Talk about the roadmap ahead, the consensus invest incentives coming up. I had the chance to be with your CTO, serendipitously this morning. And he was talking about some of the things that are coming up in terms of tokenomics Algoran. And some of the things you guys are working on. Tell us about that. 

Staci Warden  54:41  
Okay, well, as I said, we were founded by an academic and our academic is very, let's call him pure of heart. And he recognized that you only need a laptop to help run this protocol. And so he said, you as a good citizen If you avail yourselves of this ecosystem, you as a good citizen should help run, you know keep up the security of the network. Every other blockchain though, pays you to do this to keep up the security of the network by staking your currency of choice or by mining in the case of Bitcoin. So we have though and then so we have decided to move to a forum where you are going again, you're going to be compensated for putting your algos to work to secure this network. Now the difference and we call this a pure proof of stake because unlike other networks, you you maintain ownership of your algos, you're not locking them up anywhere, you can continue to use them. But if they're staked now, for the first time, you will be able to earn money for for performing that service. That is very easy for me to say. But that is a very big engineering project. And we have been working on that for you know, a good part of a year. And when I say we, I mean the brainiacs over at Algoran technologies in Boston, but they are building that out. And we expect to go live with that this this fall. So if you want to participate in the end, you will be able to do this easily. It's not that you have to go and big by you know, get a mainframe computer or any of that other nonsense. You can do this easily. And you will be able to earn money for the work that you do securing this network. So it's pretty exciting. Because you know, because the energy footprint of this network is about that that is required to charge a Tesla for a year. It's a very lightweight. It's a very lightweight network. But you do have to stake your algos to make sure that we're decentralized enough because that's a part of where our security comes from. So we're going to pay you to do that. And I know you're going to do that Anthony.

Anthony Scaramucci  56:49  
Well, yeah, I'd love money. So of course, I'm going to be doing that you have a new CMO, I also had the opportunity to meet him this morning. Your new CMO told me that for the last 10 prior years, he worked at Google to build out something called Android and the largest software package operating system for cellular phones in the world. So it's not just Samsung, it's Motorola. It's everything other than Apple is coming through Android. How did you snare him? Tell me, you know, I need recruiting techniques from Staci Ward of the Algoran foundation. So give me the pitch. How did you snag him? 

Staci Warden  57:35  
Yeah, you know, I did, I'm sure some members of the Algoran community are also going to be listening. And we have had some marketing stalling en el gran for some time. And we had a good cmo before, but not quite good web three CMO. And I will say very talented, but not right for us. And so I could not make a mistake with our CMO, again, you know, the community is just has no tolerance for this at all. So I really needed to make sure that I got the best the a perfect CMO. And when you think about Android, and he told me when I first had the opportunity to speak with him that he had a budget of $30,000 when he started and there was no Android on one phone. And he had to build this thing up from scratch for for for Google. And it occurred to me that androids an operating system in the same way that algorand is an operating system, all of these kinds of headwinds. I was very struck there by the fact that people are still bullish on the United States and the United States is the place to

Anthony Scaramucci  58:40  
buy the s&p.

Staci Warden  58:41  
you know, look, I always say, you know, my friends come to me and ask me for investment advice, I say, First leave it to the professionals, and second be diversified. And so I think if you don't have a lot of time and a lot of expertise, you're definitely better off buying broad index. This is why these Bitcoin ETFs are so exciting, by the way, because, you know, there are there's a you know, let's call it $4 trillion in retirement income. And people of our age Anthony we use we typically use registered investment advisors, and ri A's they typically buy ETFs right? And so the idea that, you know, Wealth Advisors, like you guys, you are of course, you know, you are of course the professionals that people should leave their these, these decisions to, but also you have an opportunity now to have an entirely new asset class in a product that you're that your users are covered that you're in that your customers are comfortable understanding and so if you take that, that those trillions of dollars in assets under management that that advisors like Wealthion have and you just imagine this is not financial advice. It's just imagine 1% 2% 3% in a Bitcoin ETF, for example, then that's, to me a very interesting way to diversify. And it's a bullish, of course signal for the sector as a whole. And the cryptocurrency sector as a whole does tend to follow Bitcoin differently. I think that was a bit a bit garbled, but

Anthony Scaramucci  1:00:23  
I think it's I think it's important because you're tapping into consensus, a lot of very smart people. And of course, for those listening in you can go to Wealthion.com. And you can yourself plugged into our group of RIA's, Wealthion advisors, if you will, for free consultation. So Wealthion.com. Before I let you go, we take questions from the audience. Okay, so we're gonna fire up some questions.

Staci Warden  1:00:52  
And all the hard questions go to Anthony, all the easy questions should come to me.

Anthony Scaramucci  1:00:56  
Alright. Well, I'm going to read them and then you tell me the ones you want to take. Okay. Right. The economy on paper seems to be going in the right direction. However, I want to be prepared. What are the top things you suggest to protect myself from an economic collapse? This is Johnson from New Hampshire.

Staci Warden  1:01:16  
Okay, I think if you are a global investor, I think the problem always is that when the neighborhood starts going to if your neighborhoods go first, and so you want to be in the center of town as it were. So I do think if the if the economy globally starts to get in some trouble, I think you want to bring back to the US, I think you want to make sure you are in well capitalized too big to fail bank, I think you should make sure you probably stay under the FDIC 250,000 limit in in each bank. And I like property for diversification. And I think you should consider some small allocation to digital assets, as well.

Anthony Scaramucci  1:02:03  
Alright so good. It's good. It's great answer. I think, I think the biggest thing Johnson is stay diversified. But stay optimistic. I think what ends up happening is we get very nervous when economies are shaking, or there's a recession or a financial crisis. And we get nervous, but the best thing to do really is just to sit tight. 

Staci Warden  1:02:25  
So Etherium came along and said you can do all these different things, you can really what he introduced was programmable money. It's decentralized, but it's also not very fast and has some still costs associated with performing, performing. Then people try to lower those costs by building things on top of Etherium are found founder watched all of this develop. And as I said, he invented some very important cryptographic proofs. He never had the idea to attach money to them. But he watched this. And he said, I think I could probably build a good one of those, like, I know how to build this. And so he he came along, and he built Etherium. And I mean, algorand and algorand takes the best security principles from Bitcoin and the best programmability from Etherium. And it has we have a very performant blockchain, I would say, on those in those regards.

Anthony Scaramucci  1:03:19  
That's a great answer. Thank you. There's another question from a business owner. This is Adam from New York City. barely anyone I know is signing a commercial real estate lease. What do you see for this market in the coming years, as pre COVID leases expire? And I can say this from the restaurant business, because I own a restaurant in New York City with a few friends. The foot traffic on our restaurant is down 35%. So the question, Stacy, for me is will people return to work? Or will there be this working mobility, I can say here at skybridge. And again, I'm being very honest and vulnerable. I probably have twice the size of an office that I need. And you can see behind me, there's a few empty desks. There's some people working if I move my head, you can see them. But the truth be told, we have a lot more work flexibility now than we did a few years ago. And I think people will downsize accordingly. I think it could have a negative impact on commercial real estate. What's say you have anything to add to that?

Staci Warden  1:04:25  
Yeah, I mean, I will say I'm really looking forward to my ability to buy a nice apartment on Park Avenue. I mean, I might have to have a copy machine next to my kitchen and not every room will have windows but I really looking forward to the repurposing of all of this office space into nice apartments for people. Look, I'm not going to comment really on the commercial real estate market except to say that those of you listening that are in your 20s especially but in your 20s and 30s. Go to the office, if you can, I mean you are really missing Make something it's okay for me to work from home. It is not okay if you're in your 20s to have a career where you are working from home, the culture, the mentoring, the being in the information flow. This is really, really important. So if you can get in there at least three days a week, but if you can get in and four days a week, it will be very good for your career, I can promise you that.

Andrew Brill  1:05:22  
Thanks for joining us for the weekly market recap if you need help being financially resilient, please head over to Wealthion.com and sign up for a no obligation portfolio review with one of our investment advisors. Thanks again for watching. Until next time, be informed, stay empowered, and may your investments flourish