델타항공의 부진한 3분기 실적, 앤트로픽이 AI 모델에 대한 '학대적 행동' 금지

The 8:30 Hosts Julie Hyman, Jake Conley, and Pras Subramanian tackle the day's biggest market stories, including OpenAI's (OPAI.PVT) forecasts for annualized revenue, SpaceX's (SPCX) tightening competition with telecom giants, and Delta Air Lines (DAL) missing its third quarter earnings estimates. F/m Investments CEO and CIO Alex Morris also comes on the program to discuss what the recent bond sell-off and interest rate environment mean for portfolios. I'm doing it. I'm doing it. Welcome to the 8:30. Welcome to the 8:30. It's I. It is I, Pross, Julie, and Jake. It is I, the voice of God. Happy Friday. We made it to Friday.Thank you, it's here, uh, but a lot of news to cover, a lot going on today. It's not a slow day on Friday, sadly. Um, so let's talk about a little, uh, a little early morning mover here, Delta Airlines, right? So Delta reported 3rd quarter results, uh, kind of missing the mark here. Revenue coming in just below the analyst estimates. EPS, adjusted EPS missing too, uh, sort of adjusting that income, but the big story is they were hit by 500 million.Uh, and higher fuel costs compared to a year ago, uh, compared to their July guidance, uh, the total fuel bill for the quarter hit $4.1 billion up 62% from a year ago. So basically they had to cut their guidance here for the full year EPS and full year cash flow. Uh, CEO Eric Snell, uh, telling me and a bunch of reporters on a.Call that the full impact of the guidance cut was quote, it's all fuel, right? And that was the big thing that the reason why they they were impacted here, um, you know, their premium and loyalty business kept growing but not enough to compensate for that kind of massive fuel bill. So, uh, now seen at 6 billion for the year.I mean it's just extraordinary. That's a pretty steep.That is a steep cost year over year. That is incredible. I mean this is also probably one of the most visible sectors where we see the impact of the war in Iran on prices. Like usually it's a little more diffuse with airlines it's like, no, no, no, no, no, there's your fuel bill. There is your projecting for the full year, as you said, $6 billion.In fuel costs up 62% year to year, it's ridiculous. One thing I like to point out with Delta though, because this is a fun detail for any energy nerds like myself, they're the only major US airline that still runs and operates a refinery where they get a little bit of a little bit of relief on oil prices by basically turning oil into.You know, marine fuel, jet fuel, diesel, and then selling those products. The refinery benefit they got for this quarter was 13 cents a gallon. Their adjusted fuel price for the quarter was 361 cents a gallon. After that, it would have been 374 cents a gallon, which sounds like a small increase, but when you're buying millions and millions of gallons, that adds up quite significantly. Something really interesting I caught in those earnings this morning, they're projecting.A fuel cost of 4250 cents a gallon for the fourth quarter, that would be basically a whole $1 more expensive than what they got this quarter, but they're also expecting their refinery benefit to more than double to 40 cents a gallon. Basically, we are going to be making some more money, and we heard Ed Bastian say this, the CEO there say this to CNBC this morning. Look, we expect fuel prices are only going higher in the fourth quarter, so they're going to make more money in the refinery, but it's also going to cost them.Significantly more again and they might have to raise fares and they might have to raise fares to compensate that. You get the pressure on the consumer right away. You're already hiking fares. Yeah, yeah, go ahead. Well, I was just going to say I was looking at the CPI numbers this morning collectively for what airline fares did in August, year over year they were up something like 23%. So I mean, obviously we've been seeing, I mean that's non-seasonally adjusted, but nonetheless like we've been seeing huge.Increases in airfares as itis, I mean, even like the eye test, right, where that, that's right, term for the eye test, but you just go online and look for prices for flights or it's holidays or just leisure travel, it's skyrocketing the amount and, and, uh, Ed Bastian talking about basically, you know, where people are still buying flights at least on Delta, right? They're still able to sell, uh, they, they actually increased capacity a little bit compared to earlier this year when they had to cut capacity because.It was flights that were not, uh, profitable for them given fuel prices. It's an interesting airline when you think about it because they're able to, they're, this is a massive fuel bill and they're able to not only weather it but then actually, uh, you know, still show multi-billion dollar, uh, full year sort of operating profit and things like that that they're actually making money still. It's the other operators that I'm having difficulties with that, in particular some of the budget airlines that that are really kind of low margin business. We've seen, you know, Spirit go out of business and.Um, American Airlines has not been able to weather the storm as, as much as Delta has, uh, and it's probably because they don't have that Delta sort of premium business, but also we talked about earlier, Jake and I are talking about the credit card remuneration.Yes, on track. Yes, well, the other thing is like the stock has done better too, that's, right? So Delta is up 18% this year. United's down 4%. American's down 16.5%. Southwest, which is now hovering in the, I don't know, nether regions in between premiumand discount budget-ish,a bit less so than it used to be, right? That's a little changed year to date. And so Delta, this has really paid off for Delta now as we have been talking about, there's now this like.Kerfuffle, if you will, it's a good word for it between Elon Musk and Ed Bastian, the CEO of Delta, over Skylink and whether Starlink, excuse me, Skylink, Starlink, Starlink. I like Skylink. I like Skylink a little more. Starlink Skydance is and whether that is going to be offered on Delta. Bastian says no, but like again, if you look at, and I don't know what's going to be discussed on the call, but if you look.At the numbers you don't see that at least on the surface of these numbers, right? That's right. And and the stocks come down from its highs, but it is still far and away the outperformer this year. I saw a commentator talking about how you won't see Delta talk about they don't not actually going to know if they're losing premium buyers, right, but you'll see it in booking because in some areas you can actually look for I want, I want Starlink. How many of the bookings have changed potentially premium, potentially.When I say premium like hire cabin business stuff like that changing because they selected Starlink as an option, we'll see, but it'll definitely come up in the call. Uh, he has to address it, you know, we're, uh, Jake and I were watching, uh, Ed Bastian earlier on doing an interview at CNBC talking about how he has no problem with Elon Musk and that quote. I, he says, quote, I own a Tesla. I, I drive a Tesla, he said. I've got no problem with the man as a man. I drive a Tesla reporting that has been out there that, that said. He said, he said he didn't say it, right? He, he, he said he didn't say the thing that you don't want to be in business with Elon Musk, right? He didn't he say that, uh, yeah, he said like this is not a kerfuffle, like this is all kind of be over exaggerated, and he also said, look, I've got no problem with him. Uh, he pointed out that, uh, when Starlink was first getting off the ground, Delta was really, uh, closely in talks with them. His argument is that when Delta was ready to scale that up, Starlink wasn't ready, so they went with other options. I, I imagine.Elon would have a very different perspective on how all this has gone down. We saw that tweet that said, look, Ed Bastian's going to lose his job over this to not work with Starley, which is a very Elon Musk thing to say. Bastian says, look, I don't even pay. I'm not worried. I, I answered to my board, you know. And if you look at again, if you look at the stock year to date, that guy's not getting fired, right.Done better than all of the others. The call is not until 10, is that right? So a little later, yeah, so, so we're, you know, we won't get more granularity on any of this. I also do have a, uh, I have a very good consumer nugget for you guys before we move on, a good anecdote. Two good friends of mine went to Montreal are in Montreal right now. They're based in New York here.And because of how expensive the flights were to get it last minute, they took a 13 hour Amtrak from New York to Montreal on a, they left at like 7 in the morning and got to Montreal at, I don't wanna do the math, like like 8 o'clock at night. And, and how much did they save? do you know? I think it's like a few 100 bucks, which I was like, it's really not worth it there for 3 or 4 days. So this is what I said, you lost a day in Montreal, right. I probably would have just paid the fare. It was kind of a cooltrain ride. I will say they were posting photos on Instagram the whole time, and it was, I mean, you're going through the mountains, it's beautiful. You're in the Canadian, you have to actually get out at the border and like show your passport and then get back on, but so it's like, it's like a 78 hour drive, I believe, right, but it's what, a 45 minute to 1 hour flight, right. Or and you, you can also book an overnight sleeper, which they did not do. They just took an all day like business, business, business class train for an hour long flight. We take an overnight sleeper. That's insane. I know. Are they in a wagon and, and horses like pulling them across, through the, through the Arctic tundra of, uh, of, of Upper Canada, which they're not actually gonna be going through. I, I have no, uh, I have no segue here.So we're gonna, we're going to move on. OK, well, do we switch around the order or do we not switch around the? No, I don't think. We are. We did, OK. Oh, we need to make sure that we all, OK, well, OK, guess what? Here's our segue. Our segue iswe're sticking Elon Musk is this we're, that's the segue. There yougo. Oh, you're gonna take my segue now. Is that what's gonna? Cut the mic. I wanna have the awkward segue. Cut the awkward segue. I'll just be quick. All right, I'll get a fun one for you. Remember the mobile ad slogan when that a while ago? Can you hear me now? Can you hear me now? Well, now.The mobile operators can hear SpaceX now with the latest move here you hear the music? The news here. SpaceX purchased a swath of low band spectrum. We'll get into that, which would allow them, when paired with the existing sort of network they have, uh, the ability to for a future mobile network, right, uh, a terrestrial network here. The low band allows signals to pass through obstacles and buildings, whereas SpaceX is.Existing network or or transmission lines can can basically have these satellite to direct stuff that you're doing let's say outside or on a boat like that. So, uh, great, that's, that's the good news, right? Whether tech whether technically SpaceX can actually create a full terrestrial direct to cell network is another story. Uh, a lot has to be done before their presumed target of early 2028 service. So that's happening, but the.The Market so far is sort of buying it with we're seeing the AT&T, Verizon, T-Mobile getting slammed here. Uh, they're taking that very seriously, even though there could be some technical and a long way to go before they actually get to that point, right? That's to your point. A lot of these stocks, you know, AT&T, T-Mobile, Verizon really going off a cliff yesterday and then into this morning. But I want to quote from, uh, JPM's, uh, Sebastian Petty and his team.They say, and this is your exact point, we continue to see limited near-term risk for US wireless incumbents given the time, the infrastructure, and the capital required to build a competitive terrestrial network. These are not like Capex businesses running a national grid.For cell service is a huge, huge business, and it's a very different model than offering what Starlink offers right now. Well, OK,so this is what I was trying to wrap my head around this morning like what needs to happen still? OK, so it's great they've got, they've bought this new bandwidth. What does that mean? There's still, so the pieces that need to happen still are that network, right? How do you connect it all? And so putting it all together this morning, there are a couple of different things they can do. They can build its own, build their own, which you had a note from.and it said it would be $80 billion. It would take a long time a lot of expense to do that, as we know, SpaceX already is spending a lot of money on other stuff. They could do, and I guess this is something that Gwy Shotwell, the CEO of SpaceX, has talked about. They could build like little stations with Starlink antennas. They could partner with a cable company or they could rent capacity from one of the big carriers. Now up till now those big carriers, the ones whose stocks are falling this morning, said no, we're not going to rent you capacity becauselike you're going.You take our business, right? So the question is, and some of the analysts floated this possibility, are they sort of bluffing as a way of putting pressure on those carriers to force their hand and get them to eventually rent them some capacity, put their business, existing business under such pressure that they then are forced to do so. So you know there's a bit of gamesmanship going on here, but we were just showing some of the other companies because.You know you're seeing all of those mobile companies fall, but we're seeing other spectrum owners, those shares go higher, and you know some of these tower owners, because the thinking is, could SpaceX eventually do some deals with them and buy some of the bandwidth and networking from them. So what you were talking about with regards to renting the space, it's called an MVNO type business, mobile virtual network operator. Think of Mint Mobile companies like that. So could SpaceX.Buy a Mint Mobile and then they then they by virtue of buying Mint Mobile they have the access to that contract. But you know the RyanReynolds company is that Mint that is Ryan Reynolds, yeah, yeah, he does all theads. But you know, Verizon and AT&T will say, Whoa, whoa, whoa, we were, this is not the same deal, so there could be some issues there. But you mentioned that TD Cowan note about the bluffing, right? So they say, quoting from their, from their note, they tell us, they say we believe a logical conclusion point space us going through the motions quote to build a network to intentionally depress wireless.Forcing multiple so low that it carry either caves like you said or signs and MVNO or ultimately gets taken out, right? That that also is a possibility. I mean this is very out there stuff, right? So that's sort of what we're talking about here. It's hard to say what their game plan is at their word they can't, they, they claim to be saying we're gonna build this out. We're gonna build out our own network. It's gonna be combining satellite assets with either, like you said, terrestrial assets like, uh, SpaceX antennas they're gonna.In that that that bandwidth and distributed out terrestrially or God knows how maybe it's all direct from satellite we'll see, but it's all exciting stuff in the industry. I think people want innovation they want change. They don't want to be constantly locked into these carriers. Well, but then thequestion is change to what? Like, OK, so if I'm going to change, there has to be a reason for me to change and not just because it's a whole new thing. If I'm locked into Verizon for 10 years, that mightbe a reason that people would change. So is this service.Going to be better. We know now in rural areas it is better, but when there is high load capacity, like when there's a lot of people on the network at once, Starlink doesn't currently have the capacity to handle that. That's right. So they would have to change that. OK, so what about cost? Is it going to be cheaper? We know that's how something like T-Mobile has had some success, and there's been some wars in between the mobile carriers at one point or another, maybe a little bit, right? Maybe SpaceX will have a little.More flexibility off like they're going to have to win on something. They can't just win by existing. Well, in theory, in theory it's cheaper to do satellite than build out terrestrial, the terrestrial towers and all that if you have to do, but you have tocombination. But if you have to do terrestrial, you have to do. I mean this is TD Cowan's $0.80 billion and years of it's likely that they're not going to do that particular route. But also they wouldn't do a full build. But also you're, you're going to have this other business of the just the general.A satellite-based Wi Fi that makes a lot of money and that can subsidize your build out for direct to direct and mobile or direct to sell stuff, right, uh, again, it's it'd be nice to have an analyst. I'm just kidding. I mean it's also, yeah, yeah, yeah, yeah, it's, it's also, I think there's an argument from the Musk supporting community of look, don't bet against this guy, the Musksupporting community. I like that. Doyou know what else is really, it's not a bad point, but do you know what else is really, really expensive and really hard? Rocket science.And SpaceX dominates rockets. It is the primary NASA contractee now. It's the primary contractee for several other national space agencies, but it has taken 20 years. It's taken a long time, but who really is competing in that space anymore with SpaceX on a serious scale? And this is a conversation we keep having about the MAG 7, but I think it applies here too, you know, T-Mobile or AT&T, Verizon, these companies have been around for a long time. They're big incumbents.But the top 20, top 40 companies in any given sector are almost never the same 20 to 40 years later. So if you have the time.Maybe this is the threat of we're starting to see some of that uh potential threat to incumbency. But also this is also, if you know Elon, this is, this is a move for the stock, right? This is the things that he likes to do, big bold initiatives. Who knows if they actually come to pass and when they come to pass, but that's right. That's right. Well, taking some other, uh, lofty targets, um, the lofty targets this morning, um, OpenAI is back in the news. Bloomberg reporting overnight that OpenAI expects to reach or exceed.$70 billion in annualized revenue by year end. Annualized revenue is the figure that the labs such as OpenAI and Anthropic like to use, but they don't even use the same metric. They don't so this is part of the problem. They don't quantify it the same way. OpenAI hit approximately $50 billion at the end of September in annualized revenue. They're expecting now to hit $70 or reach that by year end.That said, at basically the same time we got this Bloomberg report, the FT, the Financial Times, comes out and says their reporting shows it's actually going to be closer to 50 than the $70 billion target. The problem here, or at least part of the problem, is how these companies do their accounting. Yes.Annualized revenue is not a, I mean, it's not, not a real number, but it's not a figure you would typically see from a real earnings report. Like you just report your quarterly or your annual revenue. The reason you annualize it is to get rid of some of that lumpiness and some other reasons, but the problem here comes down to how they calculate it, calculate it, excuse me. OpenAI recognizes only its share of revenue through cloud partners that it gets, uh, like it only for the deals it has with cloud partners, it only recognizes its own share of that revenue.Anthropic counts the uh the gross amount of certain cloud partner sales, so it's the.They quibble with how they count what is theirs versus what is somebody else's and so that leaves you in a position where they could be doing the same amount of business essentially.But then arriving at two vastly different figures, 50 billion versus 70 billion tired of this none of this matters. The S1s are ready, so none of this IPO. That's thething, like, oh God, all these numbers are fake drip, drip, drips. Like let's just get the S1s so we have the actual numbers and so we can actually get our arms around what these businesses are, you know, I'm tired of all the conjecture and I know, I know analysts have to have a view. I know it's important.For the market to have some sense of if these companies are making money, but until we get both S1s, this is all conjecture because these are private companies who do not actually have to report anything, right? So is it weird then we're seeing all these the, the names associated to the AI trade like getting rocked by these headlines, right? Like, obviously it makes sense that they are, but like you said, nothing's confirmed. It's all backward looking data. We don't know what's new the problem in the.Absence of certainty and in the absence of clarity, the market seizes on this, this, these leaks and this grasp onto what you have drip of information, and it's unclear if the opening the FT report yesterday where they talked about this $20 billion sort of understatement, is that really what was going on? Was it just a misunderstanding of what they were measuring?And on for what time period it's unclear to me exactly what's going on there, but yeah, it put pressure on all these stocks yesterday and it looks like that selloff iscontinuing. It's also, it's also worth just pointing out the way you calculate annualized revenue or the way they seem to be doing it is by taking some short window of the revenue you made, revenue you made, excuse me, and then extrapolating that out for the rest of the year, which.Anyone would tell you is kind of an assumption on, on several different frames. Like if you assume that something's gonna, gonna double over and over and over again, you get to unrealistic numbers. Yeah, also you could look, look at, look at Apple, right? You take their holiday quarter and like they're annualizing revenue in the holiday quarter, right? This, this is like, right, and that's bad, right? And the, I think our assumption is, is that they are doing it for that reason because it is lumpy. It's very lumpy. They want to smooth it out and growing and growing, right, right.And growing, whereas maybe it's sort of moving in fits and starts as windifferent contracts. Good projections of annualized revenue are good for valuation ahead of an IPO. Opening eyes, raising another $30 billion round to get them valued at $1.4 trillion. The way you do that is by telling your VCs, your funders, all of those people, look how fast our revenue is growing. Look at where we're going to be. That's how you justify.We should be worth $1.5 trillion. I wonder if, you know, with, you know, SpaceX, a unique sort of lockup schedule for the insiders, are we gonna see that with anthropic? Are we gonna see with open AI? I don't know because it feels I feel like we have two different sides, and we have the sides of people who are very skeptical in the market with regards to the pressure felt by the coral reefs of the world, right? And then you have the other side of the, the private fundraising for OpenAI. Yes, it's not as much as they wanted, but it's still a lot. And same with anthropic.Are these guys who just want to get in now because they can want to, they can get out later at a lot higher value? Is that what this is all just a trade, or is it true believers, right?It's a great question. This, this is also, and with that revenue is only one half of the picture. The other half of the picture is all the debt getting issued by this industry. And so when we get those S1s, the really critical number is going to be how much money are you actually making in reality with hard numbers because x amount of hundreds of billions of dollars of debt is now on the, on the credit market.At some point, as we keep saying every single day, someone's gotta pay that off someday, so someone's gotta hold the bag in the auto world, right, to build a factory costs like a decent sized factory, $5 billion. It's a lot of money. People freaked out. It's so much spending. It's so much, uh, it's a huge commitment.$5 billion in this world is like a closet in the data. It's nothing, you know, it's the numbers mean nothing. We all, we all scoffed at a company that was valued at something like $200 million. It's like you're not even playing in the same ballpark. You're in the, you're in the Little Leagues scoffed. Um, OK, finally, before we, before we take our little break, I just wanted to flag.Some changes. So the Frontier labs periodically update their terms and conditions. Everybody periodically updates and nobody reads. There's one that's interesting in Anthropic's latest update. They say, quote, We've added a prohibition on sustained and needless, abusive or cruel behavior toward our models.Um, so in other words, you cannot be abusive to Claude, the AI bot. You can be, you can like express frustration, but the Claude will end the conversation if you are being too mean, which goes to this whole question of like personhood and rights, and I mean like I guess it's nice that they don't want people to be mean. Can I, can I give you my, my perspective on this? So no, don't give me. To your point, this comes after that phenomenal story in The New York Times about how the labs have been meeting with religious leaders trying to make the argument to the Pope, the head of the Catholic Church of all people, that these should be considered humans with human rights and personhood and consciousness and souls, which is a very hard argument to make. I mean, I, I come down on the side of, yes, it's impressive what the technology can do, but strip this down, it's 1s and zeros. This is code. This is not.If I, uh, you know, if I, if, if someone is dumped by their romantic partner.In most circumstances, the response is sadness and devastation of some kind. If I just turn off chat GPT and never use it again, it doesn't care. But where I, I, I, so the focus has been on consciousness. Where I think this could actually matter, however, is the fact that LLMs only parrot what they're given, you know, it's only so good as what you feed it. This is why we saw early on when some, when some of this was, uh, when this was first launched, we saw some of these.Uh, LLMs putting out Nazi ideology because they were finding it on X. I have a theory that a lot more of this than consciousness is if people are being abusive, saying mean things, cursing out their chatbot, the worry is that eventually the chatbot starts reflecting that back to users. Let me add onething. I asked Claude about this rule. What do you think about this rule? What is it, what does it say about sentience and all that kind of stuff?Etc. it said a couple things. First thing, it said, you know, it, it makes, it's an asymmetric risk thing. Look, if I do have feelings and this makes me feel bad, this is a good, a good policy, right? Second thing, the effect on people, it's the same thing with, with while we're not cruel to animals. It's a thing that we as a society, yeah, and the last thing he said, this is the one I thought was most interesting, overlap with misuse, quote, prolonged abusive pressure is often part of trying to break a model safeguards.Uh, so the behavior is already something a company would want to discourage. So if you just were abusing this liability, give me the freaking thing, liability, it might, OK, fine, here you go, take it.So that's what they, that's what Claude says about anthropic's own rules. So I thought that was the most compelling reason why they want to curtail abuse, which also asking Claude, this is very like through the looking glass, like we're asking the robot what's the robot. I was aware of that. I was aware of that. Alright guys, we're gonna take a break. We'll be right back. We'll be talking rates, talking rates. Welcome back to the 8:30. We have been watching rates go ever higher with a little bit of a slowdown in the advance in yields I guess to some extent, but let's talk about what people should be doing in their portfolios, if anything with the action that we've seen. Alex Morris is joining us now. FM Investment CEO.CIO for this week's FA quarter brought to you by Capital Group. Alex, it's great to see you. It's been a minute, so you have been watching this very closely, as have we all, obviously. So how do you think about the sort of knock-on effects in the market, what you change in your fixed income portfolio itself, and then kind of around that what people need to be awareof. Yeah, I think higher rates have seemed to spook, uh, some people, which is kind of funny because those are the same people who 8 years ago were complaining, we can't find any return in the fixed income market. So, you have to choose your, your poison here. Now, it's, it was really an interesting auction, which I know most folks aren't gonna go home and talk about Treasury auctions, but we should talk about what happened at the 10 year auction.Tremendous demand, which was great. We were worried that we would fall short of demand. But the government borrowed money at the highest rate it's done so since 2000. So, a bit of a mixed bag there. The good news is though, there's an actual return to be had now in the rate space, and although it's, it's impossible to time the market, and, and all of the catch the falling knives metaphors will be absolutely right.As a, a newsletter writer put it, uh, the newsletter crew and me today when asking about buying more of U30, UTHY as we put it, is, his, his answer was super size it. Because if you're in and you believe this is gonna work, that's gonna be your best return. It's just gonna be a little bumpy along the way. Alex, you know, you, you, you write, uh, rates come down eventually. The question is why. One answer, an actual economic oopsy that forces the Fed to cut meaningfully. You know, I don't think anyone's talking about cuts right now, so I'm, I'm fascinated to hear from you what that might actually look like, like what are the, what are the scenarios you're game planning for that? Well, I think there is one person who's talking about cuts all the time. It's the president.And I think that's the most meaningful question, because the president has also threatened to use trade policy, in lieu of monetary policy in an effort to get rate cuts, and he does have the ability to do that, and, and I think the biggest threat to the Fed today is the administration creating a situation where rates are artificially brought down, either through yield curve control, or need to be brought down in a normal way, because something else has gone wrong, and theThe the realm of things that could go wrong is big and scary, and, and most are well avoided. But it's unusual that the president is so invested in the tenure, and I get it. I mean, the tenure drives mortgage rates, and mortgage rates are, you know, a big part of the American dream, particularly with midterms coming up, that's top of mind for a lot of politicians, but practically speaking, there's no greatEconomic reason today for rates to be cut, much the opposite. That doesn't mean there aren't a lot of political pressures that very much need to see the 10 year and the 30 year come down dramatically. Hey Alex Pross here, you know, we've been debating about debating this for weeks now. What part of the whole sort of rate spike in recent, recent months is due to, you know, just fiscal spending that's sort of bigger than what most people expect and think that's unsustainable. I think it's a good part of it, but it's not a new phenomenon, right? It's just nice that we crossed 40 trillion, so we had a chance to talk about the debt as a problem. But 20 years ago, this was all the political chatter. Fiscal responsibility, there was always the party running on fiscal responsibility and the party who was spending. Now, both parties.He's pretty unabashedly run on the, let's spend more strategy. And it seems to work. They keep getting re-elected on that, that, uh, ticket. But this is a problem, it is getting worse. The government is now making it worse, because the more they have to borrow at high rates, the faster that flywheel works against them.But I don't know that the demand at the auctions or just general conditions are giving at least the political side of the, the, the sphere enough ammo to say we should stop justyet. By the way, Alex, Prass asked you that because he's trying to settle the argument, the ongoing argument.Because I don't think that the current uh increase in yields is that tied to these debt concerns, as you say, it's sort of like always low level in the background, but that, that's just me. I think it's, I think it's more some of the other, some of the other stuff that we've been watching, but maybe, maybe, I think your answer could cut both ways. Maybe he can, maybe he can take some credit for thisdeal. There certainly is something there, uh, Ross, for, for your side of the argument, but you couldn't argue against oil and a handful of other things that are just making economic conditions hard, and a Fed that seems to be very split. If you read the FOMC minutes, you got a 12-0 vote, but there are two totally different camps on the fundamentals of how inflation works and why.And that will ultimately spill out into more contentious votes in the next, in the coming weeks and months. Alex, I want to zoom out a little bit here. You know, you go back to the beginning of the year, one of the narratives we saw emerge was that the global market outside of the US was set to do really well this year with maybe some weakness in the US. We've not seen that play out exactly like.That and now we see the bond selloff really rippling out globally. You look at what's happening in France, in the UK, of course here in the US. When you're talking to clients about balancing the US versus global allocations, how are you, how are you telling them to weigh that and what's your thinking there? Yeah, this is one of the hardest conversations to have with any asset allocator, yourself, even when you look yourself in the mirrors, you have to be internationally diversified, even though all of the recent experience tells you that's going to sting a little bit. We still think it's, it's important. Uh, we saw 2 years ago that international, largely international value, did really well. We think this has been a growth story, right, earlier talking about.All of the AI spend and build that's going on, that's ultimately a growth story, and when you're looking for growth, you come to America. That's not generally been the international winning story. So, we're, we're understanding that it's hard to believe in that all the time, but mathematically, we agree in the long run, that's going to win out, and I think it's still a great place to be, even though I get it, it's a hard conversation to have. And Alex, when we try and figure out where rates are going here in the US, you guys, um, developed something fun called Wors GPT which try like tries to AIIs, um, Kevin Worsch and what he might do next, um, so what it, what's it telling you these days, especially since like Worsch himself hasn't said much, but as you know, a lot of other Fed officials have been very vocal recently. Yeah, it's funny because we, Kevin Warshch hasn't said much about the path of rates now, but in the past, he's had an awful lot to say. So there's a lot to train that model on. And it seems to be that the Fed is, is a general rule, seems to want to hold, but is trying to build credibility, and the, the model says, hold every time we can, but sort of give way to rate hikes when, when necessary. But if you're gonna do that, make absolutely no promises about how much higher you're gonna hike, or when you're gonna cut. AndThe model is, is starting to look at it and say maybe it's time to just hold on. Uh, certainly, it looks like doing nothing in October would be preferential just for political reasons, and the jobs report seems to give us enough room to say that they could just take a pass on October. Ideally, if they could conveniently cancel the meeting, they'd probably like to do that, but that won't happen. Imagine if we'd had a Powell GPT. Uh, Alex Morris, thank you so much for joining us. Your insights always appreciated.Alright guys, turning back to tech for a second. Some big news uh out of, out of Asia. Uh, Nikkei reporting, uh, last night, Apple has told some suppliers to reduce its October component production for the iPhone 18 Pro and Pro Max after higher memory chip costs are forcing prices higher, softening demand. Apple's not commented on this yet, but.Let's just go through some of what we're seeing here. October component orders, uh, this is what Nikkei is reporting, down at least 15% versus initial requests. Um, one high-level source describing 15 to 20% cuts for both premium models. This comes as Apple has priced that 18 Pro at $1199 the Pro Max at $1299 each $100 above the preceding model. The question, this was a question already on people's minds.This is starting to get very expensive even if you're accounting for inflation, so at what point does that really start to bite and the consumer says,Maybe I'm good with the 17. Maybe I don't need the jump right away. And then how does that ripple out when Apple's already facing really high memory prices? Or are all those ordersgoing to the duos, or all of them going to the duo, I, I don't, which I, I find a harder time to believe that, but I know. But I mean, you know, I think they're planning to make a limited run of the duo anyway. They're not planning to make that's right many of those. That's right theothers. Uh, I think it's one of these, uh, one of the stories we got here talk about how the lack of an 18.Base model, right? Do you guys mention this lack of an 18 Apple 18 iPhone 18 base model is one of the reasons why we're seeing depressed, um, numbers here because you look at the lineup right now, and it goes from 18 Pro Max to 17 to last year's model, uh, and then the iPhone Air and things like that. So maybe that has something to do with it on the margins here, but we're also talking about you saw the duo, right? Uh, there's a lot of chatter of the iPhone 20 next year that people like me are like, why should I upgrade.Why not wait for that. So, I feel like we've heard these stories kind of every year. It's like it's lessand, and analysts have kind of been talking about they've been telegraphing this too. That's I've seen some other channel checks or supply chain checks that have said the demand doesn't look as strong for this one. I mean, all of that said.The stock is down a little bit this morning. Apple is still the best performing mag 7 stock this year. It's 25%. That's right. And it does feel like investors are kind of ready to wait and see what John Turnis is going to bring them beyond just the duo. They've got their home event that's coming up next week where they're expected to roll out somenew products, and that's it's going to be a big ecosystem of products, maybe bigger than some people had expected. Yeah, I don't know if people writing about the fact that maybe a lot of.Of higher-end Apple buyers are waiting for the duo. Like they don't want the iPhone 18 Pro Max, you know, I might as well spend if I'm going to spend $1300 on the Pro Max, why not just tack on an extra $700 and get the Duo and have the, the new technology, and it's all this is the greatest innovation, right, of Tim Cook is the monthly, monthly plans what that's right. Like I actually think that the iPhone buyer is a pretty price in sensitive buyer in part because of just it is a premium product in part because they're paying every month, so like.You know, when you go to buy a new phone, do you think, oh my gosh, I'm going to drop $1300 on this, or do you think this is what my monthly payment, $50 a month, 3 years, whatever, yeah, right. I mean, I think that's how most people think about it, right? Yeah, and I had asked an Apple friend of mine, what do you, you know, they have the buyback program. What do you do with these phones? And he's like, they're extremely valuable. We sell them in other markets. Yeah, right. Other markets love these at discounted price that we refurbish them. Yes, you won't sell them in the US refurbished iPhones. You can sell them in the US too. Yeah, I suppose you can you buy refurbs? Yes, yeah, OK, so if you.If you ever get a, let's say a warranty fixed, like we've got to replace your phone. Here's a new one. That new one is a refurbed old one. They're not, it's not a brand new phone. They're like, here you go. They didn't say. And if you were, if you buy insurance on your phone and somethinghappens, yeah, right, it will give you, they'll give you a, a refurbed that if it's up to Apple's standards, probably looks and operates just like you just bought a new one. It looks brand new. Yeah, I will say one thing. You like, let's flash back like, oh God, I don't know, 12 years at this point. You remember when we used to get like, like you get the iPhone 5 and then you'd have the 5C.Which was like it was the budget version. The bag was plastic. It was, wasn't quite as sexy, but it did the job. When's the last time we got a, a budget model for any of the new phone runs? Well, no, but below the base, like, like a budget model below that because iPhone 5 was the base. 5C was the.Yeah, give me budget. Give me plastic that they've done that. I don't know when they stopped doing that. Also, thefunny thing about that is like the premium materials, everything, everybody has a case on the phone, right? You can'teven tell. It doesn't even matter what the thing is made of? Well, maybe the 20 will be all glass. Our producer John likes to live life on the edge. He doesn't have a case on his phone, and it's a good thing you're not accident prone, John. Yeah, it's kind of a flex, you know.It's a flex. You don't have the bumper on your phone. You know it's not a flex is walking around after you've dropped it on the concrete because someone bumped into you because you live in New York City and people hit you all the time. OK, let's talk about a little another emerging point of tension between the tech industry and the administration, yet another. The administration yesterday said that it was going to suspend 8 technology companies from a particular green card program that allows them to.Foreign workers into the US and to obtain permanent residency. Microsoft was at the top of the list. Adobe was on that list as well, and then it was a number of Indian sort of outsource companies, IT companies known for outsourcing like Cognizant and Infosys. And what was interesting is even as this was happening against Microsoft and JD Vance called Microsoft the worst offender for this program, Satya Nadella, the CEO, was at the White House getting an award yesterday for his innovation.And tech leadership. There's a picture of him getting that award. So obviously quite a split screen here with Vance criticizing them on the one hand and then this happening on the other hand. And you know there's been a lot of consternation within the tech community because they rely on these workers. They say they need these workers. They say it brings cheaper labor. Well, it's but it's not always cheaper. They're bringing them here, not for the non-outsource firms. That's not what theargument is that it's more that it's qualified.that they can't get the qualified people that they need here in the US that it's not as though it is taking jobs of people who are here. It's that there's not the supply that they need, at least that's traditionally beenthe argument. The administration wanting to get both sides of it here, right? Like, right, we, we want to award Satya Nadella and all this great tech stuff that we're doing, but then we don't want these H-1B visa workers come here and take away American jobs. Well, like you said, they're not taking away American jobs or people where companies need presumably to do certain tech things, right? So, uh, how do you have it both ways, and it's.It's, you know, as an Indian American myself, it's not exactly a good thing to see when we when we talk about what's been happening, you know, politically too, talking about Indian people, and, you know, University of Texas stuff. That's right, and talking about who are real Americans. Yes, for people who are not super online.This has been now now over the past month or so there has been a huge increase in anti-Indian racism effectively in certain segments of the not even just the far right but even some of the moretraditional GOP and then also we've seen the unraveling of like we believe in a meritocracy.Except not for you, right? There's, there's a little bit of that too. So there's we don't want you to do too well, right, right, or we don't really believe in it. Like we're like we, we come here and be a part of this country as long as you work hard and do well, OK. Oh, you still can't be part of this country, you know. So I know I'm, I'm hijacking this little bit, not at all, but I think it's all part of the same conversation about where we are, uh.With minorities and people from South Asia coming to this country and doing quite well in some in some parts, yeah, you tech. Well, I mean, look at the CEO of Microsoft. That's right. I mean you even just look at like take, take these tech companies that are, you know, regardless of any criticism, criticisms of them, excuse me, they are pushing technology to its furthest points. You want the smartest possible people you can find to be working on that.If that if that exists not here but elsewhere, of course you're going to hire whoever around the world you can find who is the best at what they can do. And would that not be what you want in Silicon Valley to have the smartest people regardless and the administration obviously has been a huge supporter of the AI industry of the tech industry wantsto build out. So it's interesting that you have again the sort of two sides of that same coin. So we'll see what ends up.You know, if this ends up sticking, if it ends up getting expanded to other companies as well, I imagine it would get challenging, you'll see this, this sort of confusion with people like Elon Musk, right? Yeah, he's somewhat anti-immigrant, but then he says we can't hamper the H-1B program, right? Which side do you want, right? You can't have both, yeah, yeah, exactly. All right, on that note, on, on.On that note, no, there's no segue there. There's a, it's OK. There's, there's no segue, a segue, I guess I'm next year, right? Go ahead. Are we doing, are we doing meta? We're taking meta. Yeah, well, I mean, sticking with big tech, you know, we're just, this is all like a top speaking of meta, we're just, we're just like going with the, with the flow here. We're like, should we go to the next topic? Yeah, I think we should go to the next topic. I think we should, yeah, uh, so meta, so meta, interesting, interesting story here about.Uh, basically they're banning TikTok, their big competitor, from advertising on the platform, right, uh, which of course sort of makes sense, right? A spokesman said, hey, we don't have to run ads from a competitor whose goal is to pull people off our apps. Declining promotional services to competitors is normal business practice across industries. Sure, makes a lot of sense. But then also there's also the context of Meta having to pay a big fine and having to try to police their, their, their, their platforms with regards to safety for minors, and they want.People like TikTok, they want YouTube to do that, and they're not doing that, right? So maybe this is a bit of, OK, you're not helping us out, we're gonna take it to you now, right? And also, I mean, there was a point in time when Facebook was the dominant social media platform for, you know, the kind of, uh, sub 21 demographic. There was then a point in time when that was Instagram. There was then a point in time when that was Snapchat. Two of those, Facebook and Instagram, belonged to Meta. Now that is.By and large, TikTok, if you just look at the growth share, even through the potential bands and the handover to American investors and whatnot, the growth of TikTok in the US market is just absolutely huge. It is worth pointing out the Meta's restrictions are not just for TikTok in the US, it's US, Canada, Egypt, Indonesia, Japan, Thailand, and Vietnam, so a host of countries. But if you're meta saying we are actively losing.Some, some cachet and some market share here. Why would we, it does make sense to say, why would we let our competitor advertise? I mean, I have, I have two thoughts on this. One is like, do people really find out about TikTok from ads? Like how effective are TikTok ads on Meta? I don't know.Like, well, that's if you're on Instagram, you're probably also already on TikTok, right? Yeah. Solike why is TikTok even bothering, right? Is it?Is it do they need it? Is it to needle their competitors? So that's thought one. And thought two. Remember when we were going to get rid of TikTok? Oh, I remember. Remember that? Yeah, yeah, when it was a national security threat. Yeah, we were going to wall it off from the rest of TikTok. Yeah. Did that ever actually happen? Did it everget walled off? Not that I know of. And did it ever get like sold US, the US business to Oracle or whatever that deal was? So I didn't we just give up on them like spying on us, I think.I think there was some change of owner. It was, it was an actual law that said they had to divest of it. It is. They, they did change. They keep divestingthe US back. They keep pushing back the rule, right? But because it was like Silver Lake and Oracle were all involved here in taking stakes. Um, the idea, I think, was US majority ownership of the US segment of TikTok because of some of the China hawks on the hill. Why do I not remember if that actually closed? I believe it, unless I'm wrong, I believe it closed. Um, but do they still have the algorithm did they, but they didn't get the algorithm, isn't that what it was? The US didn't get, yeah, you, you can't, like the US doesn't have control over some of the algorithmic stuff, hesays that John is saying it's a joint venture. There you go, TikTokUSDS, which is not really what the China hawks on the hill were looking for. They were looking for a full ban, full divestiture of any Chinese interest because of the idea that you can use that algorithm, which is very powerful to push election interference, to push anti-American ideas, um, you know, kind of society level, um, you know, espionage and subterfuge.That's the concern. But a year on from now, to your point, TikTok's lost no popularity in the US. I was just laughing about how we're just sort of like, what's going on here? Is that really what's going on here? I'm not sure. Uh, one thing that I did, that's part of the story, like it, it became a nothing. Well, I did see that's really interesting from the meta TikTok point of view is that.TikTok can operate in China and the US. Meta can only operate in the US and others cannot go into China. So it's, we can't access the biggest market in the world, um, and that's maybe just a little bit of like we're upset about that and maybe we're gonna make you pay TikTok, right? Like, but like you said, so I can't advertise on your plat. Who cares, right now if they said something to the fact of like we can't upload TikTok native videos to IG, which you can do right now.That would be interesting, right, but I'm not sure why they haven't, they haven't then that there are a lot of creators who get revenue from both by cross posting stuff. So if you, if you cut that off, Meta is going to then have a lot of very angry creators who say, Look, you're taking half of the revenue I make from the business I run on this platform. Yeah,yeah, um, OK guys, it's Friday. It's, it's October. It's almost Halloween. Couldn't we use a palate cleanser? We can use a palate cleanser. Um, Rivian is out with a new ad featuring none other than Bill Murray. Bill Murray leans into Ghostbusters and has a Rivian as the ghost. What was the thing called? What was the car called? The one. The one. So I guess now the Rivian is serving as the Eo one and it's, uh, the ad features Bill Murray, uh, blasting slimer.Um, from, from a Rivian, but as you pointed out, like there's an actual product, like, yeah, there's a console, right,of Rivian in the ad you'll see, so a lot of the like, like Tesla and Rivi and other tech companies that work in autos, like they'll do like Halloween updates, holiday updates, they'll do fun little things like Tesla will do a light show for Christmas, right? So in this case, Rivian really, they've had a Halloween sort of software update here and there, but this is their biggest one ever because not only do they, are they building this Ecto one car to go around, it's gonna go around in.Places and be seen. They built this really cool. You can see they're really cool, um, uh, uh, OS there that kind of has a skin over the top of the Arrivian sort of operating system and it kind of gives you that fun like Ao one sort of switches and dials, uh, and you have like little marshmallow men kind of walking around the dials. Yeah, yeah, it's really cool, and I think for kids it's fantastic, but hey, kids, even us, we love it. I come on, I'm looking forward to this. If I had an, I've had an, I had a I mean there's a look at the what that looks Ghostbusters.It's one of like the defining movies and you can see the lights Halloween. The lights are are flickering everywhere in the car to give you the morecool, that's yeah, yeah, yeah, it's, it's, I mean, it's, it's, it's, it's bringing real culture into the vehicle, into the car. There are a lot of people who, if you have a Rivian, I would want to drive around on Halloween with that up. That's just fun. It's just fun probablyget like the little um Ghostbusters thing and stick it on the outside of your car too. That's right. I mean, all of that said, like Rivian.And needs a little positive buzz, right? Cross? I mean, I was just looking at the stock. It's down 27% this year, um, so you know, I don't know what the sales have been looking like, but, and I don't know if anybody's is this gonna convert a buyer Deliveries, deliveries were actually good. They had a good, they had a good quarter, sort of ramping up with a lot of R2. They, they, they reconfirmed their, their delivery for your guidance. So that was, that was a positive for them. Uh, so business wise.R2 was necessary. It needed to come out. It needs to keep ramping up. Uh, that's very exciting for them. But I mean, I'm noting that Columbia Pictures is the, the studio behind, you know, the Ghostbusters, so they had to sign that deal and, you know, that sort of thing. I think Columbia is part of So, is it part of Sony? I can't tell, um, but anyway, it's not part of the massive other conglomerate, the Skydance world, I believe, right, um, but this is a cool way to sort of merge those two things together. Yeah, it's, it's fun to have fun. Maybe we need an A30 Eo one. We should go in if the car comes here. We, I'll find out. Oh, obviously we will have to get in it and like do the show from the road to put on TikTok and they should put it in front of the, the, the firehouse. That's the, that was the, oh, in Tribeca, the firehouse. They're probably already they got it. Yeah. All right, that's it for the 8:30. Brian Sazi, um, they're gonna unleash him next. Happy, uh, early Halloween. I can't wait for a spooky son.