Amazon and Intel earnings lead to a tech sell-off, and Binance is hacked for $6.3B

Good morning. Or is it? This is the 8:30 process is off today, and Al Ruda, Baron's associate editor, is here with us, a friend of the show. It's good to see you Al. Thank you for coming in. Thank you for coming in even amidst what is a tough. I

thought about like, I don't know, I don't feel well.

This isn't the morning for me.

So like, you know, perfect storm and then some, right between Amazon and Intel disappointments, a huge hack at Binance is driving down cryptocurrencies and crypto stocks alike. Oil prices higher, concerns about the war ramping up again.After the midterms, do you remember, like I said in our, in our morning meeting, Anthropicccess One came out on Monday, Monday, and we have lived a year in between then and now, and, and like swung from the heights of euphoria to the depths of despair. So I guess we start with despair this morning.

Think about how busy the week has been.Amazon, Alphabet, Intel, Sanddisk, the Fed, the ECB, Christine Lagarde is leaving the ECB, the anthropic S1.Just so

many forget about Caterpillar. We love

Caterpillar. We love industrial. Well, OK,

so, and I'm glad you brought that up, and I'm glad you brought that up for this reason is that like, yes, we have had this tech induced sell-off, right? The S&P 500 is down about 1.25% since its record high on October 6th. The Nasdaq is obviously down more than that. However, in that period of time.Time you want to take a guess at how many of the S&P 500 stocks are actually higher between October 6th and now.

100

higher. You think only 100 or higher, 2/3 of the S&P 500, OK, it's the other

way around, yeah, yeah, yeah, right.

It's the revenge of the little guys, yeah,

andthis is something that um that Mark Newton talked about of Fundstrack talked about on Market Ha yesterday is that we've had this rotation under the surface.And so yes, so I guess I'm starting on an optimistic note. Yes, we're going to dive into all of the tech badness, but like the silver lining is healthcare is up 10% in that period of time and that's one of the groups that he likes, by the way, and some of the other folks on the panel have liked and like a lot of investors lately have been talking about healthcare as an area that they're rotating to, whether it's stuff like senior housing or insurers.Or biotech, right, um, so that's interesting. Staples are up 8%. I don't know that people are quite as excited about Staples, right? Energy is up 8%, and of course we're gonna talk more about energy later in the show with Exxon and Chevron earnings, but energy is the number one group this year by like a lot, um, and it's up 8% in that period of time. Financials are up, so like the only groups that are down are industrial, sorry, Caterpillar, um, but it's because.It's linked to the AI trade, right? Oh, it's an AI information technology and communication services. Those are the down group. So it hasn't been a wholesale sell-off and the S&P equal weight has held up better. It's been a rotation, which is kind of interesting, but

AI is the only thing that matters.

It is. That's what I was, I was trying to be optimistic. I

hear you. We appreciate that, Julie

Hyman.Um, AI does feel like it's the only thing that matters and so like, so how are we then to read the story of this week and the story of AI as we sort of zoom out, right? Um, in other words, is it the message that we got from anthropic, which is that.Oh, guess what? They're not burning cash like crazy. They might in the future, but they're not right now. They're $100 billion on hand, right? They're actually bringing in more revenue, and then you have the enormous spending on the other hand by the hyper scaler. So like what do we, what do we do with that as we put ittogether?

I think that, well, a couple of things. So we had SpaceX the week before and that could have saved the market, right? AI monetization was better than expected.These data centers are paying back in 6 months, says Elon. Then we've got the anthropic S1. They're actually much more profitable than people expected. Year over year revenue was up 1,300%, and you're like, OK, OK. And then we got the tech earnings. Now we're talking about this. I will play the role of permanent optimist.So Google has a secular issue in Alphabet has a secular issue with Google Search, but because that's partly because cloud is growing. Amazon's cloud services business was spectacular. It was e-commerce. Intel, the data center businesses, awesome. Consumer PCs, that's uh oh, so it's not that the earnings were awful again.I feel like I'm going to be struck by lightning. It's just that it wasn't enough to support the market, so we're in this really weird spot of like.Decele like the rate of growth right now we'll get strategists the second derivative of growth is decelerating and so I knew this was coming, but it wasn't awful. It just wasn't enough to support expectations. Well,

this gets back to the idea that the expectations keep getting higher.Because when we started this cycle, everyone was just really excited about all the numbers. They were excited by the capex. They were excited by the span. They were excited by the promise. Now we're, I don't know, what do you want to call it, 2 years into this, and the question is, OK, who's going to make money here? Who's going to be profitable? Who's going to show good margins? And I expect arrive? When does the promise, is it fulfilled? And as you've pointed out rightly several times this week, how much.Do I, the investor, want to pay for it?

Yes, exactly. And so like when you talk about the good and the bad, and, and this is actually something Dan Ives wrote about this morning, um, of Yorkville Ives, that he was talking about the good and bad, the disruptors and the disruptes, and this week we learned in many cases they're in the same company, right? Like to your point, what you're talking about. And so I guess.The question is which is worth more, the cloud business going up or the search business, to take Alphabet as an example, being challenged by your own product, products?

We can probably do it with numbers, right? The ad business or Google services, whatever includes search. We call it. Everyone calls it search. It's something else in the 100.Uh, that's like $40 billion in operating profit. Cloud is 10, right? So they're trying to play this game of like, and overall things were up.Um, but yeah, so the search is still bigger and then everybody flips out. Well,

and sort of like to bring it home, um, there was a, um, a post on X that I saw this morning that kind of like speaks to this that I'm, I'm curious to get your takes on from this guy named Martin or maybe it's Martin Varsovsky because he's Argentine. That's why I say maybe it's Martin Martin who is a big investor, has a big following, and he sort of.Maybe this was written by AI, but the point remains, he says for 20 years these were the best businesses ever invented. You wrote the code once, sold it to billions of people, and almost every new dollar of revenue fell to the bottom line. AI doesn't work like that. Every answer runs on a chip someone had to buy and on electricity someone has to pay for.Tech is turning into something closer to a utility. Huge upfront costs, long paybacks, and profits that depend on keeping the machines full, that can still be a great business, but it is a different business, and investors are only starting to price it that way. The old moat was Cody says the new one is cash.A utility is not worth as much as a tech company, right? And so like, so the growth though is probably going to be different, right, bigger than, I

meanutilities aren't growth stocks. That's just not their model.

It isn't. They're cash generators, but like I, I don't know that I buy that these will merely be cash generators without it'll be more complicated growing. It's probably a hybrid of the two, but it comes back to that question.Of like, is that less attractive is that business less attractive, not just by size, but by margin and by growth and all the other stuff that those street values.

So, uh, I'm again I'm playing the role of the permanent optimist we, uh, that I could, I could reframe that as this is your classic pylon post that is essentially saying.AI monetization won't justify the spend, which is the same argument we have had for two years. That's a fine argument to make. It's a good point. We all need to worry about it, but you know, like just going through the numbers they're spending so much, they're spending so much, they're spending so much, we're just saying I don't know if it's worth it. That's not a new argument, Martin.Sorry,

no, it's not a new argument, it's not a new argument,

and

he's

winning this week,

right? That's what I was going to say, but it's thrown into relief every time you get these new numbers. It's also an argument, of course, that Ed Zittron has made, um, who, for people who are not familiar with him, he is a former and current, I think, PR guy who has made now is writing a big newsletter about.That is anti-AI. He went on Jon Stewart's podcast this week, which probably gained him some, some further reach, and he's, he's changed his reasons over time as to why he's been anti-AI, but effectively his argument is now what you were just discussing, except he sees it like going to its most disastrous conclusion where everything sort of collapses, and I think like part of the reason that arguments like that resonate is not necessarily because people listening are like.Following the numbers, it's because they don't like AI and so they like that sort of resonates with them when you're looking at, and I keep, I keep citing this poll over this ABC News poll over the last week, 57% of Americans think AI is bad for society. So like there's a certain bias there that when they hear a narrative like that they're going to say, oh yeah, that makes sense tome.

People feel bad about it.And so when someone says, here's the data that shows you it's bad, that's very comforting.

Like this guy's talking about a bunch of numbers and that sounds, that sounds right to

me and then he's saying it very loudly and so that sounds really scary and bad, but it's

interesting because like we're not, it's funny, Yahoo Finance and Baron's like stocks are not morally good or bad. We prefer stocks to go up because of what we do. I mean there are a gazillion reasons to worry about AI.From property values to farmland to uh the potential extinction of our species according to Anthropic and it's S1 from Monday, um.Yeah, but, uh, yeah, whether, whether the, uh, whether the bots that kill us earn an ROI, that's a, that's a separatequestion.

Yeah, I mean there was a great note out from, uh, Mark Mahaney over at Evercore. Um, he's speaking about Amazon specifically this week, but I, I think it speaks to kind of all the motion we've seen this week. He says it's an expectations correction and not a fundamentals correction. This gets back to your point, Al. A lot of the numbers weren't bad.People just wanted more,

yeah, and you know, you just like just from our own little lives and talking, I'm sure like the, the, the level of nerves going into earnings season was so high. Like it was everybody was waiting for the shoe to drop, um, you know, and everybody was like, well I don't understand why the NASDAQ's at an all-time high, you know, chip stocks are off. Why is NASDAQ on an all-time high? I can't, I don't even understand it. Oh, why did Nvidia hit an all-time high in recent weeks?Like it was very twitchy going into earnings.

Yes, so you mentioned Mark's comments on Amazon. Let's let's kind of dig into Amazon specifically here for a minute here. So the Cafax number we're talking about, we've been talking around CapEx, the actual number is $77 billion in the third quarter.Yeah, what's

$77 billion between friends?

General Motors is what that is.

Overall revenue, overall revenue was up 12% to around $202 billion but that missed estimates. And I've seen the bulls this morning saying, well, Amazon's talking about creating $1 trillion businesses, more than one, in the next decade.And so there is like some optimism around that underlying. I also saw an interesting note from Laura Martin this morning of Needham where she made a good point. She said, and this is something I've talked a lot about, like of all of these companies, Amazon is the one that has most adeptly over the years put its, um, you know, foot on the gas when it comes to spending.And then taking it off again, like invested, it's gone cash flow negative a number of times, yes, and it's worked out. It's made those necessary investments, and so she's like, if anybody, if I'm going to trust anybody to do this, it's going to be

Amazon. So Dan Ives has a note out on Amazon this morning. He's been outperforming that stock, uh, very healthy price target, and he says to Laura's point, spending is the price of leading.If you want to get ahead right now, you've got to be willing to eat a lot of that Capex and tell your investors it's going to be OK, we know what we're doing. And then Andy Jasse can get on stage and point to the fact that AWS is growing very healthily, and he's expecting it to grow north of 40% both in the next two years, which is a pretty strong growth margin.

Yeah, I mean, it's, it's, yeah, we're just, you know, I find it, I don't, again, the role of permanent optimist is being played by Al. It's, it's so like if we like if Google said, you know what, this whole thing, you know what, AI is going to kill us all, we're just going to, so and then free cash flow went back to $40 billion a quarter. Would the stock go up?Or would people say, wait a second, where's your growth coming

from? So are you getting off the train? Yeah, why are

you getting off the train? Why aren't you leading? And if you're right, so if everybody's like, you know we got to pull this back, so don't worry, we'll generate billions in free cash flow, we'll buy back stock. I'm not sure that's what would drive shares higher,

right? And so.The concern here again goes goes back to like an echo of alphabet which is like are you cannibalizing your actual, not cannibalizing in this case, but I know there are questions and Gene Munster has brought this up of Deepwater that like um what what do we do in a in an agent shopping future? What does that do to Amazon? I don't think anybody has a good answer for that yet because we don't know what it looks like but in the meantime.Um, Jassie is saying AWS is going to grow more than 40% in the next two years.Like

that should be and that's not

over the world,that's super, that's super reassuring.

That's not over the next two years, that is each of the next two years. Al, you pointed this out earlier, part of the story on the Amazon sell-off might be the retail numbers that came in a little bit weaker than expected. There's a, there's a little twinge here that I found interesting. So they moved up Prime Day.And moved it up to Q2 in most of their largest markets. Their argument is that look, if we hadn't done that, which we did for our own strategic reasons around buying principles, if we hadn't done that, Q3 revenue would have been better. And so what are you worried

about? But they were, but that was expected though. People knew that that was going to happen. That's not where the disappointment. That's

a great point because people are smart. Like when I, when I, um, oh what was it, uh, it was tariff refunds and somebody's earnings. Oh, Caterpillar's earnings or something like that.Like, well, people weren't happy with the tariff free. I mean, people knew.And you can back them up anyway, but the other thing, that's like the tech weather, you know, when you get like a construction company like we missed a quarter, it was weather, man. Sorry, we couldn't do it. It's like we moved up prime day. We're sorry.

We couldn't build as many houses because it rained a lot in Louisiana. Yeah, that's like, that's like the

tech version of the weather excuse. Oh man,

I, I feel by that.Yeah, I buy that. All right, should we move on? Should we talk Intel a little bit? Let's talk Intel, or, or

maybe not. Maybe we just move right past Intel. Should we just blow right.

You can't, you can't be an optimist by just ignoring the bad stuff, Al. Come on,

qualify your optimism.

We're not gonna, we're not gonna allow that one. We're not gonna allow thatone.

Intel, a bit of an interesting story. Adjusted EPS beating estimates, revenue basically in line. The data center business, Al, you and I were talking about this before we got on.Pretty healthy beat there, 7.32 billion against expectations for 6.68 billion, up 78% year on year. But where was the weakness that everybody latched onto? It was that PC market, and that was driving a lot of, of schadenfreud for the last 12 hours for this stock and putting some tough questions to let Bhutan about does that market come back? What do you do with these memory prices? Is that going to hurt you? And of course he wants to say, look at the data center numbers.But people are short term creatures.

Yeah,well, I mean, I mean, I got to take my medicine on, uh, you know, Q4 guidance was weak. It was, right? So they gave Q4 guidance below the street, which is death, uh, for stocks and tech stocks and highly valued tech stocks, um, but you know this is that crossover of, uh, you know, AI and the consumer, right? You can't charge endlessly higher prices for PCs and have people buy them.It's a bummer.

And this is the other, this is a very different case from we were just talking about where it was expected like Stacey Raskin over at Bernstein said the outlook was terrible and then Intel clearly did not see it coming, right? This caught it off guard, which is interesting. No, it's interesting given that.We all have been talking about, you know, memory chip pricing and what that's been doing to costs overall quarters. So and like we know that consumers are getting more resistant to paying those prices. So what does that say about this company that they didn't expect it.You know,

you

would have

thought they would have seen the headlines out of Apple 66, maybe 3 months ago when everybody was saying the prices are going up. Intel, where were

you? Yes, I think that, I think, you know, I'm going to make analogies where none are needed. If you look at Boeing.Right, so Kelly took over in 24. I think Kelly Ortberg has done a good job. Q3 was a disaster. We call that strike one for Kelly. He, he's built some goodwill, I think, with investors. I think Li Ban is in the same spot. I think he's built a lot of goodwill, but not seeing it and not calling it out is like, OK, that's strike one, right? Um, so I wouldn't be ready to declare like.Mr. Bhutan detached, but I would say like, we, we got to tighten this

up. Well, and here's the difference between Boeing and Intel. We own Intel. We collectively as a country right own Intel, right? That's true. We're invested in that company. Well, I mean, respectfully,

the president is Boeing's number one salesperson.

Sure, yes, peeing perhaps not the best, but, but in other words,

like, but like I understand

the royal we,

but so it's, it's pretty, you know.It's, it's very interesting the like alignment of interestsat this point

and that stock took a huge leg up a few months ago when President Trump came out in the Oval Office and said this is the best business I've ever seen. I love Intel. And then over the last 12 hours that stock has lost a 25% of its value

and I actually don't even gets to thetwitchiness. I kind of even don't just mean Intel. I mean, to your point earlier, like we all like to see stocks go up. We're looking at ownership.Stock ownership in the US at a record high. It's like 48%, I think now, and this idea that like everybody's so invested in tech, it can't go down. This can't fail. It has to work because everybody's invested in tech. The companies are all spending all this cap backs like it has, it all

has to work. Well this is something that we like, I think sometimes it gets lost in all the discussion of what happens if the tech bubble bursts, all these stocks go down. You forget that these stocks are.Now the dominant weights across all of the major indexes and so if they do sell off, you're going to see people lose

a lot of money. Yeah, I don't thinkanybody is forgetting that. Maybe not, but we don't, I mean concentration risk is like the constant refrain anyway. No,

I thinkyour average stock investor is probably very, very aware of how indexed they are to this trade, and strategists

are talkingabout it a lot. I was just thinking when you talk about twitchiness, when we talk about Le Pan.The whole tech complex has lost a little trust. Do you know what I mean? And that's sort of the twitchiness. It's like all of these, frankly, incredibly rich guys were telling us it's going to be great, and then we're like, oh no, what if it's not? Yeah,

yeah, yeah, that's a great point. Should we sneak in Sandusk?

Yeah, let's sneak in Sandusk.Another big beat, beating on both, uh, top and bottom.Maybe not enough. Maybe not exactly what the market was looking for.

I mean, the I guess cash flow from operations was a little messed, a littlemess, maybe that's

yeah, but another area where we see data center sales beating again, and yet you don't see a lot of excitement. Yeah,

I just don't think you could, I, I mean, simpler. I just don't, I don't think you could see that stock go up when Intel's down 25. I mean, I like, I just.I think down 9 they should carry management on a on a on a litter. Like I, I just, it's, it's just gonna be a bad day. Like earlier right after the, right after the close, according to Janet at Baron's, I believe the stock was only down like 4 and then you get Intel and then you get so I'm not, I'm not dismissing results and operating cash flow. I'm just saying like this is just a bad

day

and something like Microsoft closed lower.Yesterday, right, yes,

yes, yes, yes, um, something else I noticed sort of later in the morning, um, Koia, which is another flash memory company, its profit outlook actually was below estimates and you know implies that maybe this memory cycle isn't going to last forever, right? And that's a company that competes with the memory chip makers, so.

Said the surge in memory and flash memory prices was easing after several quarters of breakneck growth. Yeah, yeah,

the second derivative

of growth. That's a tough signal. If you're a strategist, you're looking at 3rd derivatives.

So there is a mix of like, and we talked a little bit about this yesterday, there's a mix of like just vibes, right, that that unease with like.This gap that we have between the spending and the demand and the ROI, like what does that gap look like? How long is that gap? When do we close the gap? Do we even close the gap? That's mostly vibes based and then like real stuff,

real numbers

where somebody's saying like the increase in flash memory pricing is starting to slow and you know we

see coming.Down at some of these hyperca

orthe search business is not, we're not monetizing the new AI search like we were the old search or in the case of Amazon ad sales missing estimates, YouTube missing estimates, which to me is still kind of blowing my mind.

PC ad Intel missing coming in below expectations. Yes, so

this is not just like.Uh, you know, sort of the expectations were too high and everything, even though it looked perfect, was still coming down. Like, there actually was stuff to even for the optimist, there was stuff, it wasn't perfect, you know, there was stuff in here that was not great. The

optimist says stocks don't go straight up. However, but to your point, and we can make, uh, I'm sure we'll talk about this later, but you know it's a little bit of consumer stress, right? Like a lot of these ad sales, PC sales, um.We're starting to like, OK, inflation can't be this high, rates, my mortgage can't be 7.And I continue to consume and support.The monetization of YouTube, right, and you know what, I, I got to, you know, not buy the Sunday ticket.

And thenpart of the problem is if the tech stocks continue to go down and the wealth effect is going down, guess what? The higher net worth and consumers who have been pulling everything else along, it's going tobite. Yes,that's that's, it's going to bite and be a shakier place. So

maybe ultimately Apple does care if oil is 120.

Maybe it does. Maybe it does.

It should.I guess

I would argue it should. I would argue it

should, but we were a post-oil economy, you know, based on the last few months, but maybe we're

not. We're not.

No, I mean this is the, you know, we're, we're going into this after the break, but this is like one of those lines of, oh, the US is energy independent. No, we're not. We are so dependent on oil.The AI story, I will keep arguing until the day I die is also an oil story. It's an energy story. It's a copper story. You can't relieve some of those pressures. That's gonna hit AI. All of that hits the consumer and we just have this circle.

All right, we're gonna take a break on that, on that lovely cheery note

cheery.

Oh, and guess what we're gonna talk about? Another cheery story, a huge hack, a record hack of Binance, $6.3 billion.

The biggest heist of all time.

Yes, we'll talk about it next.

Welcome back to the 8:30 where we are set to talk about a record breaking heist at Binance, the largest cryptocurrency exchange in the world by daily trading volume. Estimates for $6.3 billion worth of cryptocurrency stolen, the largest reported crypto hack from the stats I've seen, it's the largest heist of all time.They've suspended withdrawals and deposits. The leaders of Binance have come out and said, Look, your money is safe. We will make you whole. Anybody who ends up losing money. But regardless, not only is this a tough look for Binance, it is a tough look for the entire crypto complex.

And for some reason the word heist to me implies like sexiness and jewels and costumes. No, we're talking about like a horribletheft.

Yes, no, it's it's, it's.

Um, that, uh, and, and it seems like from what CZ has said, the head of finance, that it maybe came through one computer that was the initial vulnerability that then got its way into the system. Binance has said it's going to make people whole from this. It's unclear, unclear exactly how they do have something called a secure asset fund for users, but they tend only to give to keep around a billion dollars in that.We don't know exactly how much went out the door before they were able toshut this down.

Sounds like they've frozen about 3 billion, but we won't know for a while what exactly made it out before they did that. Research also indicating that this was very likely attributed to a hacking group in North Korea who has gone after crypto wallets and crypto exchanges before, kind of the new age of I want to take your point about.Heists. No, no, no, we are not in the age anymore of a bank job, right? We are now in the age where really sophisticated hackers can pull off a really massive devastating attacks. $6.3 billion worth gone is nothing to sniff at. That is a huge amount of

money and it's not, it's not apparently affecting Binance US. It's it's internationally. This is people's, this is real people's money,

yes.And I mean it raises so many questions beyond sort of the, you know, we were joking about it might signal the end of the heist movie because this is just but one laptop. I mean, unbelievable and then like from a, from a know your client perspective or back office perspective, you know, banks suddenly look traditional banking looks, uh, maybe some of those regulations make sense. So I mean it it opens up so manyquestions.

Said this this morning, it makes the traditional banking sector kind of look like the adults in the room because part of the reason that model works, part of the reason SWIFT works is because you have diversification. You have everything is spread across different asset holders. There's not the concentration of crypto in a few major exchanges.

It's like a metaphor for everything you worry about with crypto. You worry about it funding illegal enterprise in a way that isn't.Likely to happen at a traditional bank. It's supposed to be unhackable and and unstealable unless you just do it, uh, traditionally and hacking with a computer. So like, uh, you know what, what even is this asset like all of the issues that people have had with crypto over the past few years. This is like, see schadenfreude. It's a day

for schaden. Well, and I think, but I think even the people who are in the industry now, you know, are kind of freaked out bythis,

yeah.Let's get a little bit more on this, uh, bringing in Owen Lau, he's the ClearStreet managing director and senior analyst. Owen, thank you for being here on such short notice with us on what I'm sure is a busy day for you. Let's just start here. This is a major hack, it looks like the largest on record for the crypto industry, potentially kind of for heists and, and hacks like this of all time.In the first hours after this, how should people be looking at this? How should crypto investors be thinking about what this implies more broadly?

Yeah, so first of all, I thank you for having me. Uh, it's good to be here. Um, I think you, you all have provided a pretty good idea about the background and also the numbers, $6.3 billion. This is the largest hack in crypto history, but they also have frozen $3 billion of fund and also Judye also mentioned the billion dollars emergency fund. So the net number would be about maybe $2 billion or so. The second one is.At $1.5 billion back in February 2025. If you look at the history, usually people were very, very concerned about the industry and it would say, hey, this is the end of the industry, but if you look at mountain gods and also Bibi I just mentioned, look at Binance right now, the implication to Bitcoin prices extremely actually resilient. It's only down by about 3.6%. Now, I'm not saying this is a good thing, but I would say in theThe term, there with volatility. I think the industry has to wake up to the point that they have to protect the customer funds. They do have to have a pretty good cybersecurity system to give more confidence to crypto investors.

Owen, I, you know, I've talked to a lot of crypto investors over the years and they will frequently say that their product is superior to cash, right? I don't remember a $6.3 billion hack of a bank happening.Right, so, so, you know, what's the defense when something like this happens?

Yeah, it's hard to defend, um, uh, but again, this is, uh, it, this industry that has this hack happened before, um, and you look at the reaction to the industry, it looks like they've learned a lesson that they try to stick together. So it's not like people trying to finger point each other, they really try to find out the solution.By the way, if you look at who froze the fund, it is actually Tether and also Circle because they have the centralized approach in crypto so that they can freeze these funds. So you can tell many CEOs, the industry people, they're trying to stick together to solve the problemat this point.

Oh, and one of the biggest worries we've seen around the development of Frontier AI is of course its potential for use in hacking. Cryptocurrency by nature is technologically based. It is susceptible to those kinds of attacks. As we see the frontier AI development and maybe some bad actors pushing that even further, how does the crypto industry need to adapt to try to get ahead of, or at least keep pace with the developments on the AI crypto and hacking side?

Yeah, that's a very good point. I think the whole industry, not just the crypto, but the banking industry you mentioned, they also have to upgrade their system. But the key thing about this hack is, it's actually, it looks like to me it's an inside job, like if you, like you also mentioned that this is actually through a developer ops laptop.So it's an old school hack that maybe someone got into Binance internal system and then they use that laptop to hack, um, like to to facilitate some unauthorized withdrawal. So to me, the whole industry, not just crypto industry, have to upgrade the system to defend like in these like new AI age.

Owen, this is Al Root. What what is this sort of hack mean on the regulatory side?In terms of any backlash or oversight from regulators after they take a look at this and basically moving crypto closer to almost traditional banking.

Yeah, I am pro regulation. I, I actually support the passage of the clarity Act so that, you know, we have more tools and more regulations to govern the industry. Now we don't have it, we still haven't had it. I don't know when we can have it. So I, I really support we should have a thorough and sophisticated regulation.system that can protect customer funds at the same time they can impose a lot more regulations at KYCAML, all these systems on no matter it's crypto or maybe banking industry. We need a goodLike regulatory framework to really protect the industry and also give confidential investors.

Owen, I take your point that when we've seen hacks before, you know, things have sort of come back. This is a much bigger one, obviously. I mean, and I'm looking at the reactions this morning at least, and anything that has anything to do with crypto is trading lower this morning, you know, the Coinbases of the world, Robinhood.Even though Bitcoin itself is not down that much, it is down.And if you look at the premise that basically the rise in prices of crypto and cryptocurrency exchanges is contingent on adoption, right? It's still contingent on adoption, and adoption is contingent on the number continuing to go up. We all know this, whatever else you can say about like what crypto is good for, people buy it because they see it as an appreciating asset.If retail investors and institutions don't see it as a safe asset, how is that not an existential risk to the whole thing?

Right, because what we have been telling investors is, I know many people focus on the price, on the like some of the Ethereum and Bitcoin prices, but I actually tell people to look at the the utility, the use case for blockchain, which is tokenization and also agenda commerce and also B2B payments like stablecoin. Those are, uh, in my opinion, those are the real utility.For blockchain to thrive longer term. So tokenization meanings you put like the paper type equities into a blockchain version so that you can trade these equities 24/7 and globally that can increase the distribution for your stock.I think those are kind of the real use cases and utility that can benefit the whole capital markets and also the payment routes. To me, that's the real thing for blockchain instead of like trading up and down. I know speculation, it's the first use case, but in my opinion, I think if the blockchain.wants to move into like a longer term, like sustainable stage, they have to move on to more tokenization agenda commerce and also stablecoin B2B payments phase. I think that would, and then you will see more benefit and also more um like utility coming out from this industry.

Oh, and I want to kind of push that one step further. One of the big critiques around cryptocurrency exchanges, you look at traditional stock exchanges, those stock exchanges serve orders, they, they fill order books, but they are not actually holding.The stocks that are moving, they don't they don't hold those holdings for clients, whereas on the crypto side, a lot of these exchanges do also hold the crypto itself in some shape. Is that something that the industry needs to move away from in light of some of some of the news we've seen recently around hacks and attempted hacks?I mean, I,

I I I'm not quite sure what you mean by like holding the securities, but if you, if you go back to your tokenization point, right, so I think the whole industry, even NASDAQ and traditional exchanges, they encourage um like the exchange or broker to have the underlying assets. So for example, if you're tokenize Microsoft shares, you need to have a Microsoft shares in your custody so that they can tokenize yourYour stock or the token I securities and then you can change it or move it into more like an electronic version and flow it 24/7. So, to me, having an underlying assets, hold these on your balance, your hold these in your custody, it's very important because you can also get the dividend rights and also a shareholder right back to the shareholders and that can preserve what we want to transition.Away from the paper format to tokenize format and preserve all these rights for shareholders. So, I think that's kind of the key thing when we talk about tokenization and underlying assets.

Oh, and thank you so much for your time. We really appreciate you coming on on what I'm sure is a very busy morning.

Thanks a lot. Well, as we've been talking about, markets are on edge this morning. It's the hack. It's the tech earnings. It's a lot. It's been a wild week. Joining us now is Lawrence Sprung, Midland Financial founder for this week's FA Corner brought to you by Capital Group. Larry, it's great to see you. I, I'm, I'm.I'm so curious to get the temperature on what you're hearing from your clients like on a week like this, do you get a lot of calls? Do people say like, am I too exposed to what's going on in tech? We were talking earlier about concentration risk. Is that a question that you tend to get?

Yeah, thankfully, it is not a question we've been getting, uh, you know, usually or even this week, because I think one of the things that we've done is we've framed things well. I mean, we've had some tremendous, uh, you know, growth within the markets. We've had tremendous diversification.And we've prepared our families that we serve for some volatility around the election. Now it just so happens, I don't know how much of this may be election driven, but at the same time it seems like it's earnings driven. So for us, I guess timing worked out well because we did have and prepare our families for some level of volatility here and around the election.

Larry, what, this is Al from uh Baron's. What, what are some of the umPractical things you do to sort of manage that volatility in terms of either taking down positions or building cash, or diversifying, I think that's probably a good topic for people today.

Yeah, I, I, I agree. I think the best time to repair the roof is when the sun is shining, so, you know, in, in the midst of days like today, I, we don't typically recommend makingHolistic changes, but when the sun comes out again, which it will, that's really the time to re-look, because if, if you had a problem with what was going on in the markets over the last several days, and it gave you angst, then that means that there's something not inherently right with your portfolio, and, and that should be rectified and, uh, you know, re-examined and perhapsReallocated. I don't know that right in this moment, that's the ideal time, but you want to do that, and I, I think, to your point, times like this really give us those gut checks to have those really meaningful conversations with families, to see how they are feeling, cause it's been a while that we've had an upswing in the markets, and it's easy to feel good during thosetimes.

Larry, I think a lot of us have been focused over the last week on the tech sector, the tech equities there, but if you zoom out just a little bit, there are some more kind of macro clouds on the horizon, whether that is the midterms, whether it's the potential for the Iran war to heat back up after those elections, whether it is the budget fight we're about to get in Washington, what we see abroad in the bond market. When you talk to your clients, how do you discuss those more macro issues and how you should think aboutHow those play into your portfolio and what you do with them.

If you look historically at those macro issues, and you know, listen, I, I know some of the worst words are this time is different, but at the same time, or you know, this time is different, if you look at historically speaking, these macro issues tend to be a lot of noise. If you line up the macro issues with the markets and how they performed, theyTypically are blips on the radar, if not, you know, almost irrelevant. I think a lot of times you, you, at the end of the day, red, blue, people are interested in green, that's at, you know, what they're looking for, and they need to see profits and, and business working. And a lot of times as these macro events take place, businesses are very nimble to look around the corner and figure out how are they going to.Adjust to this new normal and you know shortly after they usually make those adjustments, become more profitable. So we don't see many times where these macro issues cause a lot of issues for the markets long term.

Larry, Larry, I would just push back in one particular instance, and that's if you're dealing with somebody who's very close to retirement, right, and who maybe is relying on that, yes, they've had their, their career right to hopefully build up earnings in the market.But how do you advise them differently if they're getting close to retirement age and if there is increased volatility in the market? Is there anything different that you sort of shift around?

So one of the things we do for the families we serve is we stress test each of their situations as they get closer and closer to retirement, and we look at a worst case scenario, we actually model if they were to retire today, and the markets were to perform like they did in 07, 08, '09, which is exactly what you're talking about. That's a person's worst fear, right? I retire, then have a couple of bad years, how is that going to affect things? We actually stress test versusThose same uh market movements in those years to see how they will perform, and we use that as a conversation piece to see if they want to become less aggressive, more aggressive as they move into retirement, and it allows us to make sure and ensure that they have enough cash on the sidelines to uh hit those living expenses that they need, so the reliance on the portfolio is not going to be as heavy, and on days like this, they don't have to be, you know, as concerned.

Larry, thank you for your time, sir. We appreciate the insight as always.

Thank you. Enjoy.

Well, the story's been a lot of tech this week, but Julie, what was that best performing sector for this year? Energy. Energy, yes, it was. We got the biggest day of the quarter for energy this morning. Uh, BP earnings coming out overnight and then Exxon and Chevron here in the States coming out. The story is the same as it was last quarter, but it is even stronger now. These companies are seeing some banner profits, record profits even.Because of the refining scarcity, I mean, you look at BP profit reaching the highest level in 18 years because of the refining margin. Exxon beating profit expectations, raising its dividend for the 44th straight year. Chevron beating estimates, refining profit, highest level on records at $4.93 billion.It's a great time to be turning oil into anything else and selling it. Yes,

it definitely is.

Yes, I was looking at Chevron this morning and Chevron and Exxon. Their stocks are both trading at about 15 times forward earnings, and that actually tells me that.For better or for worse, people sort of expect this level of profitability to continue, right? Classically with oil at 100%, you might even expect single digit PEs because wait a second, things will normalize.The PEs are pretty much in line with history, which sort of tells me that you look at the forward strip and you look at all of these sophisticated oil measures, but it seems like we may have higher for longer,

higher for longer,

and even if the prices, the crude price doesn't remain high.The idea that they can still maintain some level of those refining margins, they might be continuing on that. I mean, you flagged this number this morning, the profitability of the Venezuelan oil that Chevron is

Chevron saying this morning that it's it's its production costs for Venezuelan barrels.Is around or below $20 a barrel, which makes it one of the most profitable oil fields and oil sources in the world. They're expecting to get to 300,000 barrels per day by the end of the year in Venezuela. They want to kick that up to 600,000 barrels. If you're Chevron, if you're Mike Wirth, those are the positions to go after because look at the margin you're capturing $20 and then the international price is at $100 110 dollars. Your refining products are even higher. That is a crazy margin to be capturing.

And and just to put a fine point on it, um, when I was talking about energy um as a group being the best performer this year, it's up around 50%, and these stocks, each, Chevron and Exxon, are up around 50% this year. So it's funny, um, we were having a discussion earlier in the week about, OK, if you're not going to be in AI or if you're, if you want to hedge your bets in AI, like where do you want to be if people were in energy this year.You've done well. They've obviously done very

well, done very well. And then, you know, I had, I had a friend, as a very quick anecdote, you know, you can lock in your heating oil, heating oil and diesel very close from a product perspective. You can lock in. That's right, it's 6 bucks to lock it in. Last year was 3. Yes, so her heating bill is going to double no matter what.Um, which is reflected in those numbers, but I'm not sure what the takeaway, I'm not sure what my optimistic takeaway, you

know what, you know what the takeaway is? Time to get some solar panels on your house.

Time to

get some

solar

or wear a Jimmy Carter sweater

or wear a Jimmy Carter sweater. Uh, like, let's, let's tease that out though for a minute. Like if you take the, the numbers out of BP, the refining margin, uh, indicator for this quarter was $46.70 a barrel. Man. Last quarter, last quarter.It was $29.60 a barrel a year ago from this quarter. It was $15.80 a barrel. And just to give that top line number again, right now it's 4670 cents.That is unbelievable, and you make a very good point, and you both do, that even if we see the war abate a little bit and the war in Ukraine as well abate a little bit, even if we see the futures price of Brent and WTI, the two big contracts, come down, 11 to 12% of the world's refining capacity is offline right now, and refineries have to go through maintenance. More of that is going to come if we do see the wars heat up. We just saw Ukraine this morning resume striking Russian refineries.We're not getting away from those refining margins anytime soon, so for these businesses where take a BP and they want to cut debt really aggressively, this is the time to be taking cash, cutting debt really aggressively, hitting your targets, and if you're an investor looking at this, to your point, these stocks are trading at a place where you're assuming we're going to be here for a good little while.

It's uh it's wild that, you know, it's like oil is the new tech. We have accelerating margins and like with memory, we're now going to start saying when does the capacity, when does the refining squeeze end? Yes, and then when we start to see those, then we'll we'll have the stocks.Off, but that's not a very helpful observation. It's just, you know, what we'll be thinking about

next year. And of course this is a banner issue in the midterms gas prices where they are in this country, diesel prices, that's something that both parties have to address.

Yes, affordability generally.So those two stocks or 3 stocks if you count BP, are the are the rare green spots this morning as I'm looking at stocks in the pre-market. Rivian's there too. Rivian also reported Kenview I'm seeing is on there on the consumer staple side is in the green, but other than that it is a sea of red. Intel down.25, 26%. Amazon down 7%. SpaceX is down. Nvidia is down. Apple is down. Reddit also reported and those shares are down 20, 24%. Um, the neo clouds are down. BitMiner, Iron, Corewe. I'm just going down the list here. Alphabet is down. Strategy is down, which reported last night, but of course is also being affected by the sentiment around the hack. Like you get the idea we are looking at, at least initially a big, big risk off day.

So my optimistic take is it's. Here we go. It's

Friday. It's Friday. Happy Halloween. The market's closed tomorrow.

The market is and sometimes on Friday things drift higher over the course of the day.

Yeah, these are very, but you know, I would optimism is not assuming that Intel will close off its low. That does not qualify as optimism. But you know these things, you know, corrections are OK.Like Larry was saying, we have to be vigilant and you have to always check in. Yes, um, but you know, it's, it's, you know, hopefully Nvidia saves us in a couple of weeks. You know what, do you

know what my optimistic take is? What's that, Julie? I'm off next week. Oh,

so he's going on vacation.

I don't have to worry about.This stuff. Well, I probably still will. All right, that is, that is it for the 8:30. Al, thank you so much for coming in. Happy Friday. Appreciate it. I can only imagine what Brian Sazi has cooking for you folks left next with this, uh, unleashed. He will be unleashed.