Host: Wall Street is mixed on this Thursday morning as traders digest fresh retail sales as well as producer inflation figures alongside critical semiconductor numbers from TSMC. Now the AI trade is rapidly maturing from a blind check speculative wave and relentless search for a genuine pricing power drawing comparisons to the historic fiber optic boom where demand exploded but investor capital was wiped out. While meanwhile in the financial sector, JPMorgan this week delivered a rare earnings miss while quietly accelerating a half billion dollar reserve bill. So are credit squeezes and private debt liquidity brewing beneath the surface? Joining us live here at the New York Stock Exchange to break down the AI bottlenecks as well as bank balance sheets and private credit risks is Mark Mali, CIO at Sebert Financial. Mark, good morning. Thank you so much for joining us.
Mark Mali: Thank you for having me.
Host: Well, here we are in the final quarter of 2026, and there's a lot to digest when we're talking about the macros, the fundamentals, as well as everything that's happening across asset classes. But of course we're seeing this divergence when it comes to the major equity averages and the focus is on AI. So when it comes to artificial intelligence, tell us about pricing power.
Mark Mali: Yes, well, this is, this is the big challenge, right? So you know, obviously the narrative is the same high-level narrative of AI driving the indexes, right, because of their heavy weight on the cap-weighted indices, and here we are in this quarter finally we're going to get earnings, but we're looking at different things, right? So pricing power meant something different maybe two quarters ago than what it means right now, right? Two quarters ago we were looking at the physical supply chain. We might have looked at chips, memory chips that became a bit of a bottleneck where you see companies like Micron suddenly get pricing power and change everything, and then we started looking at power and all the ancillary things that go into building data centers as being those areas that have this pricing power. And now here we are and we're talking about actually possibly finance, the financing. The dollars, the investment dollars themselves, possibly being in a position where you're seeing some friction where they themselves might be having some pricing power as you see the cost of borrowing money to build these data centers is going up significantly as we've seen in the past couple of days.
Host: Mark, you bring up an important point because we're all concerned about the ROI when it comes to the AI buildout, but change is very constant and swift when it comes to AI. So what are you seeing when it comes to the bottlenecks? Where are they right now?
Mark Mali: Well, look, right now I think the biggest challenge in the bottleneck is that the biggest challenge in terms of the investment thesis is things are moving so fast and there are so many moving parts that it's the markets and the investors are trying desperately to digest that, right? And so there are so many very critical parts of what it takes to get us to, at the end of the day, have an AI product that we, you and I, can use in our everyday life. There's so much that goes into it. It's a very, very deep ecosystem and like I said, now I think the markets are trying to digest that. We're learning what those challenges are and we're seeing it's not just one thing. It's not the technology for sure. Everything is certainly progressing very positively, but again it takes a lot of ingredients and if one of these ingredients is experiencing a challenge, it could affect the entire market. I think a lot of investors are trying to figure out what the impact actually is and what it means on the broader investment thesis for these companies right now.
Host: Yes, and we got results out from ASML as well as TSMC and of course we're digesting those results as well as the outlook moving forward, but it is also earnings season for the big banks, and we got results out earlier this week as well as yesterday, and there are a lot of moving parts here, but I do want to hone in on JPMorgan in particular. So why are they hoarding cash?
Mark Mali: Well, you know, interesting question, right? That was where I zoomed in, right? So I said we look at different things, different quarters. Maybe two or three quarters ago I was constantly looking at JPMorgan, looking at the big banks to see how well is the consumer doing, right, because we want to know how the consumer is doing, especially the low- and middle-end consumer, right? And so we were concerned that we would see a falloff in consumption that might cause a bigger challenge for the economy. Clearly not the case as we're also seeing from the numbers yesterday and this morning, the retail sales numbers. But now then we started focusing on the high-end consumer, right? Are they being challenged? And now what we're looking at, what are the banks, what involvement might the banks have? What are they doing in terms of their investments in companies like the AI ecosystem? And they're involved in one way or another, but as you suggested, what I saw the other day in JPMorgan is that they are increasing their cushions for bad loans quietly, not crazy, but that's a sign, right? So you've got to look at that when the conservative banks start behaving more conservatively, one wonders, are they perceiving that there might be some bumps down the road? And if you look further down in the notes and you pay attention to the quiet narratives, right, we probably were talking about AI a lot today. They're heavily involved in financing as well, whether directly or indirectly, and we recently heard of them sort of pulling back a little bit on some of their commitments to these private equity-type investments, private credit-type investments. Not surprising. I think that's been an ongoing move for JPMorgan, but it continues, right? So they're perceiving, I wouldn't say the frothiness, but they're looking at it from a different sort of, different risk calculus than maybe a year ago where everyone was clamoring to have a hand in that AI investment even at the institutional level.
Host: And Mark, you brought up the American consumer, and I know viewers out there that are watching the show live right now from the nation's airport gates, hotel lounges, as well as business lounges. They're asking when is the price of gas going to come down and when is inflation going to ease because we got those hotter-than-expected core CPI figures yesterday. We got producer prices and we've all been concerned about the pass-through. So when we're talking about the K-shaped economy, where on the credit curve are you most concerned about right now and why?
Mark Mali: Yes, well, so we've been concerned about the, we've been concerned about the lower part of the K for a long, long time. We definitely see, despite what the common narrative is, we definitely see a lot of challenges, right? We see increasing credit balances on credit cards. We are seeing some signs that delinquencies are increasing on credit cards and we have a suspicion that a lot of this consumption is being sustained by unfortunately credit. And where does that typically happen? It happens in the lower part of the K. And of course many people who were formerly on the upper part of the K are now finding themselves falling into that lower part of the K. We see that with a lot of the retail earnings. You see it with Walmart, which we'll get in a couple of weeks, where they talk about a change in customer, right? They're getting high-end customers are now moving into their stores, customers that they never had before. That's because higher-paid people are now trying to conserve their money. So there's a big challenge. Talking about the CPI number yesterday, it was not a cool number. It was a little bit hotter, warmer than expected, but not surprisingly, it was principally driven by energy. This morning's number, the PPI number, is far more concerning to me because again, we're looking at work in process right now, so we see now numbers that are baked into the system that producers are now paying that significantly, or significantly higher than most of us were expecting, and that's already baked into the system. That means they've already taken that cost. So you're talking about roughly 2%. That's the difference between the producer prices and let's say the consumer prices. Who's eating that? We know that, yes, companies eat some of that, but we know that eventually I like to think of it as a conveyor belt, right? So the cost of the good that's sitting now on the conveyor belt is significantly higher as per the PPI this morning. It's eventually going to land where you and I go and shop, and there's not much we can do to change the cost that went into that price. Diesel prices, of course, distillates, all that stuff is driving it. There's no question about it. And when those prices come down, and they will, they're not going to happen tomorrow. We're figuring, so we're penciling in now something in 2017. It takes some time for that to heal itself, but still, even if it all healed itself tomorrow, we still, I'm talking about that conveyor belt. We're looking at producer prices that were significantly higher in the 6% handle, right, and those are ultimately going to cost you and I money. There's no question about it. So you know we're talking about not next week, maybe next quarter if we're lucky we're going to start to see those things. They're going to happen. It's going to be different in each sector of the economy, but for sure they're going to get there. We jokingly say oil is the oil of all industry, right? The reality is diesel really is the oil of all industry because everything that we're sitting on right now at one point in time had something to do with diesel, the truck that delivered it, the train, whatever it was, most likely. Those prices are going to again land with you and I as consumers.
Host: Yes, absolutely, Mark, because we've seen diesel prices at record highs in addition to the gains we've been seeing go across the board for those refined oil products. But this is indeed concerning, especially since we saw those gains at both the headline level and that is going to trickle down to the consumer. So I appreciate all your insights today, Mark. Thank you so much for coming back on the show.
Mark Mali: Thank you for having me. Thank you.
