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Bad Jobs News Sends Stocks Higher · The Financial Exchange Show

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  Speaker 2: Well, we made it, team. It's Friday morning here on
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  Speaker 2: The Financial Exchange. We're going to try not to go
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  Speaker 2: off the rails this Friday, but it might happen a
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  Speaker 2: little bit.
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  Speaker 3: It's already happened a few times this morning before we
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  Speaker 3: went on air. It just happened.
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  Speaker 2: Just now it went off the rails, and we're going
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  Speaker 2: to try and keep this train going. On the rails
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  Speaker 2: this Friday. But we've got a great show, jam-packed show
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  Speaker 2: today with a Jobs Friday financial exchange. We'll be joined
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  Speaker 2: in the second hour of the program by both Michael
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  Speaker 2: Santoli from CNBC and Paul LaMonica from Barron's. Both of them,
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  Speaker 2: but separately. They won't be joining us together. That would
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  Speaker 2: be a fun new segment.
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  Speaker 3: An interesting debate. I don't know. But both of them
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  Speaker 3: will be joining later in the program. Is it sauce
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  Speaker 3: or is it gravy?
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  Speaker 4: Santoli, Fandetti, and LaMonica.
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  Speaker 3: Up next. Interviewed by a Scotsman. Scottish-Canadian. But in any case,
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  Speaker 3: at 8.30 a.m.
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  Speaker 2: This morning, Mark, we had a jobs report for the
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  Speaker 2: month of September, and markets are surging by 1%, which
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  Speaker 2: must mean it was just an incredibly robust jobs report
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  Speaker 2: with tons of creation.
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  Speaker 3: A lower unemployment rate. No, no, of course.
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  Speaker 2: Tell me what we got, though. Raw numbers here. We
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  Speaker 2: got this jobs report, again, just an hour and a
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  Speaker 2: half ago. It's relatively fresh off the presses.
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  Speaker 3: Headline numbers, what did the media cling on to?
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  Speaker 4: The headline is, I think, Mike, here, it was a
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  Speaker 4: softer than expected, softer than hoped for.
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  Speaker 3: Sure.
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  Speaker 4: For everybody except financial markets, and we'll talk about why
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  Speaker 4: in just a second. Payrolls, new jobs added. But there
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  Speaker 4: are two surveys here, as you and Chuck Zotta talk
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  Speaker 4: about a lot. One is of firms, one is of households.
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  Speaker 4: The firm survey, the so-called establishment survey, reported 29,000 new
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  Speaker 4: jobs created. Down from $ 133, 000 in August.
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  Speaker 2: And anticipation was for somewhere in the $ 80, 000 range.
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  Speaker 4: That's been about the trend lately. It's always safe to
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  Speaker 4: go with the recent trend in economic data because there's
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  Speaker 4: a lot of persistence to it when you're not sure.
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  Speaker 4: So softer month over month. Moreover, the prior two months
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  Speaker 4: were revised downward. These are just estimates. They could be
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  Speaker 4: plus or minus $ 130, 000 in any given month.
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  Speaker 2: And by the way, how those revisions happen, generally speaking,
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  Speaker 2: it's not that like, oh, whoopsie, we miscalculated.
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  Speaker 4: You get more responses.
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  Speaker 2: Right.
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  Speaker 4: That's the vast majority of any adjustments. I've never worked
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  Speaker 4: at BLS. But that's my understanding.
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  Speaker 2: It would be a lot funnier if they just carried
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  Speaker 2: the one wrong. But yeah, that's not usually what happens.
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  Speaker 4: Yeah, these guys don't make those types of mistakes.
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  Speaker 3: They're career statisticians.
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  Speaker 4: Right, and I know some people try to undermine BLS
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  Speaker 4: data and stuff. But you just report what you're given,
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  Speaker 4: and then you form an error band around it based
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  Speaker 4: on the size of the... response, just like they do
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  Speaker 4: with polling. You say, well, candidate A is up by
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  Speaker 4: two plus or minus three, so they're within the margin
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  Speaker 4: of error. Anything plus or minus 130,000 jobs, Mike, is
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  Speaker 4: within the margin of error. If you like to put
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  Speaker 4: it in more fancy terms to impress your friends, it's
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  Speaker 4: not statistically different from zero is the right way to
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  Speaker 4: say it, as crazy as that sounds. So when they
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  Speaker 4: say 133,000 jobs, I'm now using the revised numbers, so
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  Speaker 4: this isn't quite an apt comparison, but suppose they said 130,000
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  Speaker 4: jobs were created last month. Everybody would say, great, that's solid.
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  Speaker 4: More than most people think is needed to keep unemployment stable. Ah,
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  Speaker 4: but due to sampling errors... broadly speaking, that could have
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  Speaker 4: actually been zero. It's not statistically different from zero with 95%.
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  Speaker 3: Could have also been 260,000.
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  Speaker 4: Thank you. I don't know why I looked at the
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  Speaker 4: downside there, necessarily.
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  Speaker 3: I do. I know why you looked at the downside, Mark.
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  Speaker 4: Because you're a big jerk.
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  Speaker 1: Have you met you?
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  Speaker 4: Because you're a big jerk. And at the same time, Mike,
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  Speaker 4: so a little evidence of softer labor market conditions according to.
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  Speaker 2: According to the establishment survey.
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  Speaker 4: I've talked a lot. What about the household survey? You
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  Speaker 4: want to hit that?
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  Speaker 2: Slight uptick in the unemployment rate, which arguably is what
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  Speaker 2: the Federal Reserve, in their thinking about the labor market,
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  Speaker 2: cares a little bit more about. They are concerned about
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  Speaker 2: the tightness of the labor market, not necessarily the level
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  Speaker 2: of job creation on a month-to-month basis, or at least
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  Speaker 2: the last Fed was when they stated it publicly. I
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  Speaker 2: haven't heard Kevin Warsh say it, but I assume that
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  Speaker 2: the models haven't changed all that much.
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  Speaker 3: And so.
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  Speaker 2: when you see that unemployment rate moving around, that tends
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  Speaker 2: to be something that Fed focuses on. And so this report, again,
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  Speaker 2: didn't indicate job loss, didn't indicate to me at least,
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  Speaker 2: I don't think it indicated to you either that we're
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  Speaker 2: heading towards a recession, but it was a revision of
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  Speaker 2: the previous understanding of the labor market to a pretty
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  Speaker 2: significant degree and an uptick in the unemployment rate ever
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  Speaker 2: so slightly to, again, an unemployment rate that by historical
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  Speaker 2: standards is probably in the top 50 Certainly the top
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  Speaker 2: quarter of unemployment rates that we've.
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  Speaker 3: Ever had, maybe the top 10%.
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  Speaker 4: Oh, yeah, easily.
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  Speaker 3: Easily the top 10%.
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  Speaker 4: Only a few times in history, 60s, 90s, late 20-teens
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  Speaker 4: for a brief period today. So it's pretty rare.
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  Speaker 2: Yes.
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  Speaker 3: So labor market remains strong.
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  Speaker 2: However, this was worse than expectations, and so naturally the
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  Speaker 2: markets are going crazy. We are definitely, at least for today,
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  Speaker 2: in a bad news is good news market because this
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  Speaker 2: market– What have we been talking about for the last...
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  Speaker 2: Anybody that's been listening to this show knows what we've
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  Speaker 2: been talking about for the last month and a half, really.
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  Speaker 2: It's all been about rates. It's all been about tightness
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  Speaker 2: at the Fed. Are they going to follow through? Inflation,
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  Speaker 2: concerns about where things go from here, and the surge
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  Speaker 2: in interest rates.
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  Speaker 3: The Q3 surge.
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  Speaker 2: In the 10-year Treasury was the biggest that we have
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  Speaker 2: seen in a quarter since the 90s. It was a
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  Speaker 2: quick and rapid increase in interest rates.
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  Speaker 1: And.
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  Speaker 3: this report today, at.
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  Speaker 2: Least the media's interpretation, is that it gives cover to
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  Speaker 2: the Fed for those governors who don't want to vote
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  Speaker 2: for another rate increase at this next meeting.
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  Speaker 4: The kind of interesting thing about this, and the Fed's
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  Speaker 4: economists know this very well, and so do most of
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  Speaker 4: the people who sit on the FOMC, Federal Open Market Committee,
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  Speaker 4: the body that decides the level of short-term interest rate
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  Speaker 4: target they're going to aim for. We're talking about the
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  Speaker 4: demand side of the economy today, not the supply side.
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  Speaker 4: The oil price shocks are about an entirely different source
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  Speaker 4: of disruptions to the price level to inflation that the
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  Speaker 4: Fed is trying to control by managing inflation expectations. That
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  Speaker 4: was the reason for the rate hike, which can do
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  Speaker 4: very little good at a quarter percent and will take
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  Speaker 4: quarters anyway to have its effect. So they're trying to
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  Speaker 4: manage our expectations right now, not manage demand. This is
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  Speaker 4: what we're talking about today is about the demand side
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  Speaker 4: of the economy. I guess the reason why the market
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  Speaker 4: views this as good news and virtually every weak economic
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  Speaker 4: data point that suggests the Fed may not try to
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  Speaker 4: stifle demand to cool inflation since the great recession since
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  Speaker 4: two thousand eight two thousand nine has been received positively
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  Speaker 4: seems very for perverse to most sure by the way
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  Speaker 4: we meet bad news is good few jobs are created
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  Speaker 4: market celebrating what's going on market is way too attuned
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  Speaker 4: to short-term interest rates, things that don't affect your estimate
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  Speaker 4: of Tesla or whatever your favorite stocks is, value 5,
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  Speaker 4: 10 years from now. It shouldn't affect it at all.
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  Speaker 2: True.
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  Speaker 4: Nevertheless, we hang on every hint that the Fed will
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  Speaker 4: or won't lower rates, and they send markets up as
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  Speaker 4: they are today, and it's nice to see.
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  Speaker 3: Yeah, I'll take it.
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  Speaker 4: Yeah, sure. Well, yes.
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  Speaker 3: Sure.
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  Speaker 4: You sound... You sound in turn, I sound perverse by
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  Speaker 4: saying I don't get it, but I really don't get it.
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  Speaker 4: This has nothing to do with, if anything, this pushes
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  Speaker 4: oil up further. Well, I shouldn't put, market exuberance does,
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  Speaker 4: I should say. Easier money does. Softer demand could unbalance,
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  Speaker 4: reduce pressure on energy prices, but now I'm really stretching
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  Speaker 4: for like an optimistic take, an optimistic take for in
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  Speaker 4: turn why markets are, are taking an optimistic take on today.
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  Speaker 4: Bond yields down, stock prices up. Sorry, that was convoluted.
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  Speaker 2: In terms of sector by sector information here, we tend
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  Speaker 2: to go through it on the establishment survey side of things.
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  Speaker 2: So as we said, 29,000 jobs created. Healthcare continues to
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  Speaker 2: be a bulk of it. 17,000 jobs coming from the
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  Speaker 2: healthcare sector. Construction continuing to add, I would guess, likely
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  Speaker 2: from data centers, but construction jobs up 11,000, manufacturing up 9,000,
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  Speaker 2: but losses in the areas of financial activities and then
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  Speaker 2: pretty steady employment in other areas. So, yeah, overall, we
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  Speaker 2: didn't see a big surge in average hourly earnings.
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  Speaker 3: We didn't see.
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  Speaker 2: anything that to me would exert additional pressure on the
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  Speaker 2: fed for a rate hike at the next meeting.
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  Speaker 4: Can we talk about on the other side is this
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  Speaker 4: mildly is there a whiff of stagflation here can we
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  Speaker 4: talk about that when yes let's uh think about it
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  Speaker 4: and talk about.
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  Speaker 2: It Let's take a quick break because Tucker just blew
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  Speaker 2: me a kiss or something.
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  Speaker 3: I don't know what he was doing there.
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  Speaker 1: No, chef's kiss.
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  Speaker 3: But let's take a quick break, and Mark wants to
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  Speaker 3: talk about... I don't know.
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  Speaker 4: It just popped into my head.
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  Speaker 2: The other curse S-word, which is stagflation, next on The
• 10:30
  Speaker 2: Financial Exchange.
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  Speaker 2: Okay, Mark, you teased a tantalizing question before the last break.
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  Speaker 2: We got a jobs report this morning that indicated slightly
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  Speaker 2: higher unemployment, a slower pace of job hiring than what
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  Speaker 2: we've experienced for the last few months.
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  Speaker 3: And you asked, is this a hint? I don't know
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  Speaker 3: what you said, but a hint of stagflation.
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  Speaker 4: Is there a whiff of stagflation in the air? Stagflation
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  Speaker 4: being a hybrid, obviously. The stag is stagnation. It refers
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  Speaker 4: to slowing economic growth. Deflation is probably self-explanatory. Inflation... term
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  Speaker 4: was invented after the nineteen seventies prior to which economists
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  Speaker 4: thought you can have both if you have rising unemployment
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  Speaker 4: is going to slow inflation full stop in seventies were
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  Speaker 4: different why expectations shocks sub-oil price shocks inflation expectations the
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  Speaker 4: fed misread potential gdp thought the economy to run hotter
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  Speaker 4: than it was running what if the eighties today's report
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  Speaker 4: is make it easier for the fed arguably makes it
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  Speaker 4: harder we've got elevated inflation that everybody agrees needs to
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  Speaker 4: come down it was still running no matter which metric
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  Speaker 4: you use at about 3.5% year over year at last check, right?
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  Speaker 3: Yeah.
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  Speaker 4: So now there's some evidence of a slowing labor market,
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  Speaker 4: and that's a lagging indicator, too. So things could be— I' m
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  Speaker 4: not— I don't buy it.
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  Speaker 3: Good. Okay, fine.
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  Speaker 4: I just think the Fed's researchers are thinking about this
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  Speaker 4: this morning, though. We've got a slowing demand side of
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  Speaker 4: the economy. We've got, as you pointed out, a mini
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  Speaker 4: version of what happened during the 70s when there were
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  Speaker 4: two big supply shocks, 73, 74, and then in 79—
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  Speaker 4: both oil-related, obviously. There was a little food shock there, too,
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  Speaker 4: in between. When I say little, it was huge by
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  Speaker 4: today's standards, less than the oil price shock at the time.
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  Speaker 4: So you get these shocks hitting the economy. You get
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  Speaker 4: tariff shocks.
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  Speaker 2: I think that's where the similarities are. You've had six
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  Speaker 2: years of shocks to the economy now from COVID, stimulus, war, oil, tariffs.
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  Speaker 2: All of those things have led to, I think, a
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  Speaker 2: reasonable case why you could see inflation expectations elevated. But
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  Speaker 2: I'm not– if you have a weaker employment scenario, the
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  Speaker 2: concern becomes what happens to the consumer? Can they keep
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  Speaker 2: on at this pace? And this is not a consumer-driven
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  Speaker 2: economy right now. This is an AI-driven economy.
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  Speaker 4: Yeah, but if my consumer– PCE, personal consumption– go ahead.
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  Speaker 3: You know what I'm going to say.
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  Speaker 4: I know what you're going to say.
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  Speaker 3: If it gets terrible, then consumers will pull back in
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  Speaker 3: the economy.
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  Speaker 4: But it only takes a little bit of a pullback
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  Speaker 4: by consumers to– most recessions are not PCE-driven. They're not spending-driven.
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  Speaker 4: They're investment-driven, more specifically inventory-driven. Can we go to– yesterday's
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  Speaker 4: or the day before is GDP revisions. You saw that line,
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  Speaker 4: and I sometimes make this point internally about spending on
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  Speaker 4: computers and peripherals. For the first time in several quarters,
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  Speaker 4: it detracted from GDP. I'm not saying, and Paul Lane
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  Speaker 4: made this point, he's like, how do you know that's
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  Speaker 4: data centers?
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  Speaker 3: Well, you don't.
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  Speaker 4: It could be IBM spent less on servers. It could
• 14:02
  Speaker 4: be we at Armstrong Advisory spent less on laptops. I'm exaggerating.
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  Speaker 4: We're not big enough. It's data centers.
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  Speaker 2: It's data centers. There's too much to be spent there.
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  Speaker 4: Okay, so for the first time in several quarters, data
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  Speaker 4: center spending, not on the pads and the utilities, but
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  Speaker 4: on the computer, on the NVIDIA chips, on the Micron chips.
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  Speaker 4: That went down. I've not heard it talked about a lot.
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  Speaker 4: It's in the data. It's black and white. I'm just
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  Speaker 4: a high-level time series person, so I don't pretend to
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  Speaker 4: know exactly what's going on under the hood. But if
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  Speaker 4: that story changes even a little bit, And spending gets
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  Speaker 4: even a little bit softer. Growth has not been fast
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  Speaker 4: enough to prevent paltry levels to the point that we'll
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  Speaker 4: push unemployment up. And you do. Boy, I know I'm
• 14:44
  Speaker 4: layering assumption upon assumption here. But it's all database, though.
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  Speaker 4: I'm looking at these little changes over the past couple periods.
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  Speaker 4: This does not make things easier for the Fed. I
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  Speaker 4: think in some ways it makes them harder because inflation...
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  Speaker 4: and more importantly, inflation expectations, which drive future inflation, are
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  Speaker 4: still elevated. What do you do? Do you tighten? Continue
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  Speaker 4: to tighten just to wring the last bit of inflation
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  Speaker 4: out of the economy and risk a recession?
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  Speaker 2: I would think that so long as you have data
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  Speaker 2: center construction, again, not falling apart, which I agree, that
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  Speaker 2: can be a volatile investment, right? The pullback that could
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  Speaker 2: come from that could be rapid.
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  Speaker 4: Even a little one, though.
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  Speaker 3: But... I would.
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  Speaker 2: Think that your concerns about inflation remain pretty elevated right
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  Speaker 2: now if you're the Fed. And, you know, while it
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  Speaker 2: might not happen in October, you've got another meeting in December.
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  Speaker 2: And unless the war comes to an end in Iran,
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  Speaker 2: I don't think you have much.
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  Speaker 4: There's always that possibility to oil falling would give you
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  Speaker 4: massive disinflation. We've seen that before, but effectively doing the
• 15:44
  Speaker 4: Fed's job for it because that acts on expectations.
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  Speaker 3: So back to the Fed for a moment here.
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  Speaker 2: When we take a look at expectations, because I think
• 15:53
  Speaker 2: these expectations are what's driving equity markets higher today. A
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  Speaker 2: week ago, the CME, the Chicago Mercantile Exchange, has a
• 16:02
  Speaker 2: tool called the FedWatch tool where you can see where
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  Speaker 2: people are placing their bets. And a week ago, you
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  Speaker 2: had a 64.2% likelihood of a rate hike at that
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  Speaker 2: October meeting up to the four to four and a
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  Speaker 2: quarter range. today you have an 18.3% chance. So yeah,
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  Speaker 2: that to me is the whole story of equity markets today.
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  Speaker 2: I don't think it's necessarily the wise investment to make,
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  Speaker 2: but to your point, it has been the investment that
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  Speaker 2: everyone has made for the last 16 years.
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  Speaker 4: It's reflex.
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  Speaker 2: And it's, yeah, it's a bit of reflex here. When
• 16:35
  Speaker 2: you think the Fed's not going to hike, you suddenly
• 16:38
  Speaker 2: pull back on equities. Sometimes you drive bond yields higher
• 16:41
  Speaker 2: if you're thinking that they are not serious about inflation,
• 16:44
  Speaker 2: but Today, those bond yields coming in on the longer end.
• 16:48
  Speaker 4: That, to me, I get a little bit more, even though, again,
• 16:51
  Speaker 4: this is a demand side story today. There's a supply
• 16:56
  Speaker 4: side element, too, with the participation rate, which we never
• 16:58
  Speaker 4: talk about because, frankly, it moves so slowly. There is
• 17:02
  Speaker 4: a supply side element, too. And supply side just means
• 17:05
  Speaker 4: things that affect the economy's ability to produce. And the
• 17:08
  Speaker 4: demand side is exactly what you think it is. It's spending,
• 17:11
  Speaker 4: not just by people, but by firms, government, and government
• 17:13
  Speaker 4: as well.
• 17:14
  Speaker 3: So we focused all on the jobs report this morning.
• 17:18
  Speaker 2: This is what happens, though, when you get too narrow.
• 17:23
  Speaker 2: We can't ignore the fact that also oil prices are
• 17:25
  Speaker 2: off nearly 5% today, Mark. So we're hyping up equity
• 17:29
  Speaker 2: markets and saying, oh, it's all based on this weak
• 17:31
  Speaker 2: jobs report.
• 17:32
  Speaker 3: Bad news is good news. Well, there's also some pretty
• 17:34
  Speaker 3: damn good news this morning.
• 17:35
  Speaker 4: Were you watching it early? I don't watch these things
• 17:38
  Speaker 4: tick by tick. But did it start falling after 8.30
• 17:40
  Speaker 4: when we got the employment numbers?
• 17:41
  Speaker 3: It definitely jumped after 8.30.
• 17:43
  Speaker 4: The pace of decline accelerated, you mean.
• 17:46
  Speaker 1: It was immediate.
• 17:47
  Speaker 3: Sorry.
• 17:48
  Speaker 4: Oil went down by a lot, too, at the same time.
• 17:50
  Speaker 3: Yes.
• 17:51
  Speaker 4: So what's the story there? Is it demand might slow?
• 17:53
  Speaker 4: Because you said this earlier. Unemployment goes up. Demand slows.
• 17:58
  Speaker 4: That reduces demand for commodities as well. There's a lot
• 18:03
  Speaker 4: of variables here moving at the same time. It's difficult
• 18:05
  Speaker 4: to handle this verbally.
• 18:07
  Speaker 2: I don't think that the bulk of the energy sell-off
• 18:10
  Speaker 2: is coming from the jobs report. I think the bulk
• 18:13
  Speaker 2: of it from what I am seeing came overnight on
• 18:16
  Speaker 2: this news of potential energy reserve releases from the EU,
• 18:20
  Speaker 2: continued story of ships navigating through the Strait of Hormuz.
• 18:24
  Speaker 2: You got a little bit of a sell-off in oil
• 18:26
  Speaker 2: prices after that jobs report at 8.30, but mostly what
• 18:29
  Speaker 2: we are seeing here is coming from just general optimism
• 18:34
  Speaker 2: about energy markets this morning on a culmination of a
• 18:38
  Speaker 2: few different stories.
• 18:39
  Speaker 3: And so.
• 18:40
  Speaker 2: Yes, I attribute a lot of the growth in equities
• 18:42
  Speaker 2: today to that jobs report. The bad news is good
• 18:46
  Speaker 2: news scenario. But we're getting... For those concerned about another
• 18:50
  Speaker 2: rate hike, we're getting good news. For those concerned about
• 18:53
  Speaker 2: crazy energy prices, we're getting good news. And for those
• 18:57
  Speaker 2: concerned about higher and raising interest rates, we're getting good news.
• 19:01
  Speaker 3: It's all interrelated, but yeah.
• 19:03
  Speaker 4: How should somebody who's concerned... Maybe we talk about this
• 19:05
  Speaker 4: on the other side. How should somebody who's concerned with
• 19:07
  Speaker 4: real economic variables... and their standard of living in a
• 19:12
  Speaker 4: very material sense, how should they feel after today's report?
• 19:16
  Speaker 4: It's very easy to get wrapped up in what markets
• 19:18
  Speaker 4: are doing.
• 19:19
  Speaker 3: Let's take a quick break.
• 19:20
  Speaker 2: When we return, we're going to have a full market
• 19:22
  Speaker 2: update from Tucker. And then, yeah, we'll talk about what
• 19:26
  Speaker 2: all of this stuff means for Main Street.
• 19:28
  Speaker 3: That's next.
• 19:39
  Speaker 1: Like us on Facebook and follow us on Twitter at TFEShow.
• 19:44
  Speaker 1: Breaking business news is always first, right here on the
• 19:47
  Speaker 1: Financial Exchange Radio Network. Time now for Wall Street Watch.
• 19:53
  Speaker 1: Tracking the stocks, the data, and the headlines driving markets
• 19:56
  Speaker 1: so far today right here on the Financial Exchange Radio Network.
• 20:00
  Speaker 5: Stocks are up and yields are falling after the September
• 20:03
  Speaker 5: jobs report revealed 29,000 jobs were added in September, weaker
• 20:07
  Speaker 5: than forecast. Right now, the Dow is up about half
• 20:10
  Speaker 5: a percent or 240 points up.
• 20:11
  Speaker 3: S & P 500 is rallying 1% or 76 points.
• 20:12
  Speaker 5: Tech-heavy Nasdaq up 1.6% or 439 points higher. Russell 2000
• 20:14
  Speaker 5: is up nearly 1.5%. Ten-year Treasury yield is down two
• 20:16
  Speaker 5: basis points at 5.214%. Crude oil down nearly 5% at $ 88,
• 20:18
  Speaker 5: while Brent is down 3% trading at $ 98 a barrel.
• 20:36
  Speaker 5: Struggling sportswear giant Nike is seeing its stock tumble further
• 20:40
  Speaker 5: this morning, down 5% after the company said it expects
• 20:43
  Speaker 5: sales to keep declining this fiscal year, citing its struggles
• 20:47
  Speaker 5: in China. Nike also said it plans to shrink its operations,
• 20:50
  Speaker 5: cut jobs and merge regional businesses. Meanwhile, several memory storage
• 20:55
  Speaker 5: companies are seeing losses after Nikkei reported that Toshiba will
• 20:58
  Speaker 5: double its production capacity for hard disk drives used in
• 21:02
  Speaker 5: data centers. Seagate and Western Digital are down over 10%.
• 21:06
  Speaker 5: On Semiconductor is rising 4%, following reports that it will
• 21:10
  Speaker 5: acquire Synaptics for $ 123 per share in cash. Synaptics is
• 21:15
  Speaker 5: rallying 13%. And Tesla is up over 5% after reporting
• 21:20
  Speaker 5: better-than-expected vehicle deliveries for the third quarter. I'm Tucker Silva,
• 21:26
  Speaker 5: and that is Wall Street Watch.
• 21:28
  Speaker 2: Mark, we were talking before the break about all of
• 21:33
  Speaker 2: the different factors here. This jobs report, today's market moves.
• 21:37
  Speaker 2: It's a bad news is good news day on equity markets,
• 21:40
  Speaker 2: at least from the jobs report perspective and clearly from equities.
• 21:43
  Speaker 2: That is what they responded to. Equities were up a
• 21:46
  Speaker 2: little bit before this report, but they surged afterwards. So
• 21:49
  Speaker 2: I think it's a clear reading here of bad news
• 21:51
  Speaker 2: is good news. You want to discuss like, OK, give
• 21:55
  Speaker 2: me every day, man, like forget about all the financial
• 21:57
  Speaker 2: analysts and.
• 21:58
  Speaker 3: You know, market watchers that are looking today at all this.
• 22:00
  Speaker 4: Yeah, they're just excited because stocks are up.
• 22:02
  Speaker 5: Yeah.
• 22:02
  Speaker 4: And that's how people in financial journalism who don't know
• 22:06
  Speaker 4: what they're talking about. I'll just be candid. I mean,
• 22:08
  Speaker 4: us here, we're professionals in our own domains. And we
• 22:12
  Speaker 4: bring real world experience to this.
• 22:15
  Speaker 1: Job.
• 22:15
  Speaker 4: At least I used to think that.
• 22:17
  Speaker 3: Yeah.
• 22:18
  Speaker 4: Until you reacted that way.
• 22:19
  Speaker 3: Until I started nodding my head.
• 22:20
  Speaker 4: Yeah, I mean, you got your area, I got my area,
• 22:24
  Speaker 4: you know, and this is like how we apply it
• 22:27
  Speaker 4: to an extent.
• 22:30
  Speaker 2: So practically speaking, what are your concerns about this?
• 22:34
  Speaker 4: The financial press, their salaries are paid by big mutual
• 22:37
  Speaker 4: fund and other companies and former investment banks. They have
• 22:40
  Speaker 4: to be cheerleaders for the most part. They have to be.
• 22:43
  Speaker 4: It's the only thing that keeps them on the air.
• 22:44
  Speaker 2: Sorry.
• 22:44
  Speaker 3: Go take a look at Bloomberg and you will see
• 22:46
  Speaker 3: the advertisements.
• 22:47
  Speaker 4: Who do they have on as guests? They have on
• 22:49
  Speaker 4: people you've never heard of before with XYZ Fund Manager.
• 22:53
  Speaker 4: So they are not unconflicted.
• 22:58
  Speaker 3: Sure.
• 22:59
  Speaker 4: So you can downweight any exuberance you hear from the
• 23:04
  Speaker 4: financial press is what I'm saying. When you... When you
• 23:11
  Speaker 4: pierce that sort of veil, that's not quite the right metaphor,
• 23:14
  Speaker 4: but anyway, you get to the question of how does
• 23:18
  Speaker 4: this affect the way the Fed's thinking about the economy
• 23:20
  Speaker 4: given the tools that they have at their disposal and
• 23:22
  Speaker 4: how should that affect the average person's perception of the economy?
• 23:29
  Speaker 4: Today's news wasn't good. You already summed it up. Unemployment's up.
• 23:34
  Speaker 4: Not by much. It's still low by historical standards, but
• 23:36
  Speaker 4: it's up a little bit. That alone would not be concerning.
• 23:39
  Speaker 4: job growth has only been 68,000 this year. Now that's
• 23:42
  Speaker 4: better than on average per month. That's better than last
• 23:45
  Speaker 4: year's 9,000. Yeah. But it was running it over 120,000
• 23:51
  Speaker 4: the year before that. And over 200,000 the year before that.
• 23:55
  Speaker 4: Some of that was the natural slowdown from the COVID
• 23:59
  Speaker 4: hiring splurge.
• 24:00
  Speaker 2: And some of it's demographics. There are two something million
• 24:04
  Speaker 2: fewer people.
• 24:04
  Speaker 4: The labor force has shrunk.
• 24:06
  Speaker 1: Yeah.
• 24:07
  Speaker 4: Since we started this immigration crackdown, labor force is one
• 24:11
  Speaker 4: input to long-term growth, to potential GDP. The other is
• 24:15
  Speaker 4: how much we do per hour for productivity. Loosely speaking,
• 24:18
  Speaker 4: it's the sum of those two growth rates, labor force
• 24:21
  Speaker 4: growth plus productivity growth, loosely speaking. So long-term growth prospects
• 24:26
  Speaker 4: don't look better than they did a year ago. Stocks
• 24:29
  Speaker 4: are supposed to be– so if you are– let me–
• 24:31
  Speaker 4: can we maybe answer the question? How should Main Street
• 24:33
  Speaker 4: feel about– how should you and I– I don't have
• 24:37
  Speaker 4: a huge stake in the outcome of today's market performance.
• 24:41
  Speaker 4: It's not going to move the needle on how long
• 24:43
  Speaker 4: I work either way. But should I feel better or
• 24:45
  Speaker 4: worse about the economy today– I feel worse.
• 24:51
  Speaker 3: Sorry.
• 24:52
  Speaker 4: You're thinking about it. I just want to fill the
• 24:53
  Speaker 4: airtime like you help me do sometimes.
• 24:55
  Speaker 2: Slightly worse, balanced by the fact that energy prices are
• 24:58
  Speaker 2: coming down.
• 24:58
  Speaker 4: Real wage growth, Mike.
• 24:59
  Speaker 1: 0.1%.
• 24:59
  Speaker 2: Yeah.
• 25:03
  Speaker 4: A good, healthy rate is somewhere between 0.2, 0.3. By healthy,
• 25:06
  Speaker 4: I mean enough to exceed your cost of living, assuming
• 25:12
  Speaker 4: the Fed's controlling inflation. But 0.1% is pathetic. It's paltry.
• 25:17
  Speaker 4: So it's hard to look at any aspect of today's report.
• 25:20
  Speaker 4: Market reaction aside, don't let your views be tainted by
• 25:24
  Speaker 4: exuberance in bond and stock markets today. Though if you
• 25:26
  Speaker 4: own a lot of stocks, I can understand why you would.
• 25:28
  Speaker 3: My longer term....
• 25:31
  Speaker 2: I was asked the same question, like, what should I
• 25:33
  Speaker 2: actually think about this as Ed Lambert this morning? And
• 25:37
  Speaker 2: my answer was, there's too much that's unpredictable. But if
• 25:41
  Speaker 2: I had to nail down one thing I felt pretty
• 25:44
  Speaker 2: confident about, it would be that I'm more concerned about
• 25:47
  Speaker 2: inflation for the next 10 years than we experienced for
• 25:51
  Speaker 2: the last 10.
• 25:53
  Speaker 4: Yep, inflation's going to remain elevated.
• 25:54
  Speaker 3: That's the one thing that I feel pretty confident in
• 25:56
  Speaker 3: my concerns.
• 25:57
  Speaker 4: And there is a connection between what we see happening
• 25:59
  Speaker 4: in labor markets and inflation. If potential growth is slowing,
• 26:03
  Speaker 4: because labor force growth is... has gone negative over the
• 26:06
  Speaker 4: past year and a half, which is unusual outside of
• 26:10
  Speaker 4: some extreme event like war that takes people out of it.
• 26:14
  Speaker 4: And that's because of immigration policy. Demographics had been slowing it,
• 26:18
  Speaker 4: but we decided we're going to make America an unfriendly
• 26:21
  Speaker 4: place for people to come and seek work. You could
• 26:23
  Speaker 4: say you love that. You could say you don't like it,
• 26:27
  Speaker 4: but it's happening. That slows potential GDP. That argues potentially...
• 26:33
  Speaker 4: for tighter monetary policy than the Fed previously thought because
• 26:36
  Speaker 4: you can't run the economy as hot.
• 26:39
  Speaker 5: Giving assets to your children can be part of an
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• 27:37
  Speaker 1: The proceeding was paid for and the views expressed are
• 27:39
  Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
• 27:41
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• 27:44
  Speaker 1: Cushing and Armstrong do not endorse each other and are
• 27:46
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• 27:47
  Speaker 3: All right, two pieces here, Mark.
• 27:49
  Speaker 2: One from the Journal, one from Bloomberg, both about government
• 27:51
  Speaker 2: rising debt, rising interest rates, bonds selling off. Bloomberg says
• 27:56
  Speaker 2: as bond yields rise, the U.S.
• 27:58
  Speaker 3: Is flirting with disaster.
• 27:59
  Speaker 2: And Wall Street Journal says high government debt is adding
• 28:02
  Speaker 2: fuel to the global bond market sell-off.
• 28:06
  Speaker 3: Overdone or accurate description of things at the moment?
• 28:09
  Speaker 4: Accurate. It's just a question of when. So at some point,
• 28:14
  Speaker 4: Government debt crosses the threshold of sustainability. Nobody thinks it's
• 28:19
  Speaker 4: going to get paid off. Governments, historically, they don't grow
• 28:26
  Speaker 4: their way out of it. There was this time in
• 28:27
  Speaker 4: the late 2010s when some economists said, the real growth
• 28:31
  Speaker 4: rate of the economy is higher than the real interest
• 28:35
  Speaker 4: rate paid on government debt. So debt to GDP is
• 28:38
  Speaker 4: just going to go down naturally. And that's true under
• 28:39
  Speaker 4: those benign assumptions. It's no longer the case. Debt to
• 28:42
  Speaker 4: GDP is getting big. It's well over 100%. And if
• 28:47
  Speaker 4: you count debt owned by the Fed, it's much higher.
• 28:49
  Speaker 4: The question is, when does it get to the point
• 28:53
  Speaker 4: where investors no longer believe it will be paid off
• 28:57
  Speaker 4: and they start demanding much higher interest rates? Are we
• 29:00
  Speaker 4: seeing early indications now that we've reached that threshold? There's
• 29:03
  Speaker 4: some empirical evidence, evidence in the data, appropriately evaluated statistically,
• 29:09
  Speaker 4: that suggests, yeah, globally investors don't view Treasuries... as the
• 29:14
  Speaker 4: safe haven that they once did. Treasury should not command
• 29:17
  Speaker 4: the premium that they, the safety premium that they once did.
• 29:20
  Speaker 2: And there's some interesting, you know, data to back up
• 29:23
  Speaker 2: this argument, at least in other countries, for example.
• 29:27
  Speaker 3: I mean, certainly we talked about the U.S.
• 29:28
  Speaker 2: Treasury yield surging over the quarter to, you know, by
• 29:32
  Speaker 2: 83 basis points, biggest quarterly increase since 94. The more
• 29:36
  Speaker 2: compelling stuff that I saw was around, countries within the G7, France, Italy,
• 29:41
  Speaker 2: see giant leaps in their 10-year treasury yield, especially when
• 29:44
  Speaker 2: compared to Germany.
• 29:45
  Speaker 3: That's interesting to me, right?
• 29:47
  Speaker 2: These are two countries that are in far worse fiscal
• 29:50
  Speaker 2: positions than Germany is, and you're seeing the rate on
• 29:53
  Speaker 2: their debt increase rapidly. On the other hand, Japan... in
• 29:57
  Speaker 2: worse shape than all of them from a debt to
• 29:59
  Speaker 2: gdp level and not seeing their bond.
• 30:01
  Speaker 4: Well most of their bonds are owned by p citizens
• 30:04
  Speaker 4: yeah so there's not this there's a lot more potential
• 30:08
  Speaker 4: for u.s. rates to rise probably than japanese rates of
• 30:11
  Speaker 4: do i want to put it that way i'll just
• 30:13
  Speaker 4: leave it for now it's this really good you said
• 30:16
  Speaker 4: spreads between more credit worthy sovereigns like germany and france
• 30:18
  Speaker 4: and italy are interesting uh... france in italy's yields would
• 30:22
  Speaker 4: probably be a lot higher if they didn't have the
• 30:23
  Speaker 4: backstop of the he cd yeah he cd european central
• 30:27
  Speaker 4: bank their equivalent of our fed it will most certainly
• 30:29
  Speaker 4: have to bail them out if it wants to keep
• 30:31
  Speaker 4: them in the euro area there's no good resolution to
• 30:35
  Speaker 4: to to this we are i don't it's gonna be
• 30:37
  Speaker 4: slow moving or abrupt we are on that the cusp
• 30:42
  Speaker 4: it may not be a precipice like cusp it might
• 30:44
  Speaker 4: be be like a long runway type cusp, if I
• 30:47
  Speaker 4: could stretch that analogy that far. But rates probably are
• 30:51
  Speaker 4: not coming down in a secular way. I'm not saying
• 30:55
  Speaker 4: they won't drop by a full percentage point if we
• 30:57
  Speaker 4: hit an economic soft patch. But the benign rate environment
• 31:01
  Speaker 4: of the past 40-plus years is almost certainly in.
• 31:04
  Speaker 2: The France-Italy piece is also fascinating, too, because these are
• 31:09
  Speaker 2: not countries that can print their way out of deficits.
• 31:12
  Speaker 4: Well, they will be if they exit the euro area.
• 31:14
  Speaker 4: That's their only.
• 31:15
  Speaker 3: But that's the compelling piece, right?
• 31:17
  Speaker 2: And what makes them different from Japan, what makes them
• 31:19
  Speaker 2: different from the United States, is they gave up their control.
• 31:22
  Speaker 3: Of their sovereign currency.
• 31:24
  Speaker 2: So, yeah, making a comparison between France, Italy, and Germany,
• 31:27
  Speaker 2: I like that comparison. Comparing Japan to France, Italy, and Germany,
• 31:32
  Speaker 2: it's a little bit of a different scenario. Let's take
• 31:34
  Speaker 2: a quick break. When we return, a lot more from
• 31:38
  Speaker 2: the Financial Exchange.
• 31:38
  Speaker 3: We'll be right back.
• 31:40
  Speaker 1: Business and financial news affecting the markets and your wallet.
• 31:43
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• 31:46
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• 31:51
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• 31:54
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• 31:57
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• 32:00
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• 32:03
  Speaker 5: The Financial Exchange is a proud partner of the Disabled
• 32:06
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• 32:32
  Speaker 2: Mark, we've got oil prices on the West Texas benchmark
• 32:35
  Speaker 2: off by nearly 4.5% today. We've been covering stories about
• 32:41
  Speaker 2: more oil making it through the Strait of Hormuz than
• 32:44
  Speaker 2: has been happening in recent months. Didn't move oil prices
• 32:47
  Speaker 2: over the course of this week. Seemingly, that was maybe
• 32:50
  Speaker 2: counteracted by the fact that China was buying a heck
• 32:53
  Speaker 2: of a lot more oil on markets and also restricting
• 32:56
  Speaker 2: the export of some refined products. But this morning, we've
• 32:59
  Speaker 2: got prices down. What seems to be the cause behind
• 33:04
  Speaker 2: it so far as we can tell?
• 33:05
  Speaker 4: I guess as we were just talking about the announcement
• 33:10
  Speaker 4: by the G7 countries, which is the biggest developed market economies,
• 33:14
  Speaker 4: us and the usual suspects in Europe and Japan as well,
• 33:19
  Speaker 4: of the release from our respective reserves of, what is it,
• 33:24
  Speaker 4: 100 million barrels?
• 33:25
  Speaker 5: Correct.
• 33:25
  Speaker 3: Yeah. Okay.
• 33:26
  Speaker 4: So that's the equivalent of a day's worth of world
• 33:29
  Speaker 4: oil consumption.
• 33:31
  Speaker 2: Yeah, we consume 100 to 105 million barrels a day
• 33:35
  Speaker 2: of oil in the global market.
• 33:37
  Speaker 3: So this is.
• 33:38
  Speaker 4: But Andy, it's a big increase in supply, I guess,
• 33:41
  Speaker 4: depending on how you look at it. Maybe the right
• 33:43
  Speaker 4: way to look at it is how much of the
• 33:47
  Speaker 4: reduction in supply resulting from the now, I guess, partial
• 33:50
  Speaker 4: closure of the Strait of Hormuz.
• 33:52
  Speaker 2: Yep.
• 33:52
  Speaker 4: And any deterrent effect the Houthis are having elsewhere. How
• 33:56
  Speaker 4: much of that will it cover and for how long?
• 34:00
  Speaker 4: So overall production is down, what, 10 or so million
• 34:03
  Speaker 4: barrels a day? I think so. I mean, we don't
• 34:05
  Speaker 4: even know how much is getting out of there.
• 34:07
  Speaker 5: Right.
• 34:07
  Speaker 4: I mean, obviously America is motivated to say everything's getting
• 34:11
  Speaker 4: out of there. We control the Strait, but we all
• 34:12
  Speaker 4: know that's not true because... Outlets like Bloomberg report tanker traffic.
• 34:19
  Speaker 2: What is true is that tanker traffic has increased. It
• 34:21
  Speaker 2: has increased pretty substantially. But we are not near where
• 34:25
  Speaker 2: we were back in February. And the cost to ship
• 34:29
  Speaker 2: that oil is substantially higher because of insurance costs and
• 34:32
  Speaker 2: bunker fuel that goes into those.
• 34:34
  Speaker 3: Ships that are transporting it.
• 34:37
  Speaker 2: I feel comfortable saying this because as soon as I
• 34:40
  Speaker 2: say it, I know that oil prices are going to
• 34:41
  Speaker 2: shoot back down to $ 60 a barrel, and that would
• 34:44
  Speaker 2: make me feel pretty happy inside, but I have to
• 34:46
  Speaker 2: say I don't see much of a path towards oil
• 34:48
  Speaker 2: ship getting back down to $ 60 a barrel in the
• 34:51
  Speaker 2: not-so-distant future.
• 34:52
  Speaker 4: Well, that path is an unpleasant one. It's recession.
• 34:58
  Speaker 2: You think about the effects here, right? You've got a
• 35:00
  Speaker 2: bunch of energy-insensitive builders of AI data centers who don't
• 35:07
  Speaker 2: really cost how much diesel costs to get the stuff
• 35:10
  Speaker 2: on the trucks to ship it to them. you have
• 35:14
  Speaker 2: the Middle East that is a mess, and even if
• 35:17
  Speaker 2: you're really optimistic on that and say, oh yeah, the
• 35:20
  Speaker 2: war is going to end shortly after the midterm elections,
• 35:24
  Speaker 2: then you still do not have a return to where
• 35:27
  Speaker 2: we were there in February. I don't know what it
• 35:29
  Speaker 2: looks like, but it probably does not mean.
• 35:31
  Speaker 4: Why is it going to end after the midterm? Because
• 35:33
  Speaker 4: the White House believes that Iran is holding out to
• 35:37
  Speaker 4: inflict maximum electoral pain on the president's party. Is that
• 35:42
  Speaker 4: the rationale?
• 35:43
  Speaker 3: I don't know.
• 35:43
  Speaker 2: Just the president saying that he's going to end the
• 35:45
  Speaker 2: war shortly after the midterms is all I'm taking.
• 35:47
  Speaker 4: Well, if that happened, that would be....
• 35:50
  Speaker 3: Very welcome.
• 35:52
  Speaker 4: Yeah, it would be wildly disinflationary. That's not quite the
• 35:54
  Speaker 4: right adverb, but it would be very disinflationary.
• 35:56
  Speaker 3: It would.
• 35:57
  Speaker 4: That would make the Fed's job easy. Go ahead.
• 36:00
  Speaker 2: But even if it did happen, right, like the things
• 36:03
  Speaker 2: that I think about, China has been curtailing their purchases
• 36:06
  Speaker 2: of oil on markets for months now. they are presumably
• 36:09
  Speaker 2: going to want to ramp those back up and maybe
• 36:11
  Speaker 2: refill the stockpiles.
• 36:12
  Speaker 3: The U.S.
• 36:13
  Speaker 2: Is most certainly going to want to refill our stockpiles
• 36:16
  Speaker 2: of reserves because we are scraping the bottom of those barrels.
• 36:20
  Speaker 2: Countries like India, if they have even a penny left over,
• 36:23
  Speaker 2: they're going to want to build their own stockpiles of
• 36:25
  Speaker 2: oil going forward. All sorts of developing nations who did
• 36:28
  Speaker 2: not have reserves in stock are going to want them
• 36:31
  Speaker 2: going forward.
• 36:32
  Speaker 3: And again, even if the war ends, I think I saw....
• 36:38
  Speaker 2: I don't remember the price per barrel. I think it
• 36:40
  Speaker 2: was maybe $ 3 of transport cost per barrel.
• 36:43
  Speaker 4: Yeah, that's baked in the cake indefinitely, right?
• 36:46
  Speaker 2: That was back in February. Now I think it's in
• 36:48
  Speaker 2: the 30s, right? So, again, coming from insurance, bunker fuel,
• 36:53
  Speaker 2: all those things. But if the war ends, I don't
• 36:55
  Speaker 2: think it's going back to three.
• 36:56
  Speaker 4: No, not as long as there's a threat.
• 36:58
  Speaker 3: So, I don't know.
• 37:00
  Speaker 4: You'd have to eliminate the threat, right? That's going to
• 37:02
  Speaker 4: be costly, too. We'll be spending a lot more on
• 37:04
  Speaker 4: defense to eliminate the threat.
• 37:05
  Speaker 3: Right. So, I don't know.
• 37:06
  Speaker 5: Again.
• 37:07
  Speaker 2: The second I start making predictions about energy prices is,
• 37:10
  Speaker 2: to me, a fool's errand. But I have a tough
• 37:13
  Speaker 2: time seeing the scenario where prices get marginally more attractive.
• 37:18
  Speaker 4: We're just saying the world is different, not controversial. You've
• 37:21
  Speaker 4: got to believe that no matter what your political philosophy
• 37:24
  Speaker 4: or personal forecast for this or that. It's going to
• 37:27
  Speaker 4: cost more to get oil out of the Middle East,
• 37:30
  Speaker 4: whether it's because we're keeping the straight open. It's going
• 37:32
  Speaker 4: to cost Americans more because we're going to have to
• 37:35
  Speaker 4: spend more on defense to keep the straight open. which
• 37:37
  Speaker 4: means you either have to cut spending someplace else, which
• 37:40
  Speaker 4: reduces demand in the economy. I'm not going to go
• 37:42
  Speaker 4: through all the scenarios. Just the underlying, the operating principle
• 37:46
  Speaker 4: here is, the overriding principle, is there's no free lunch.
• 37:49
  Speaker 3: Yeah.
• 37:50
  Speaker 2: Market surging today. S & P now up a full
• 37:52
  Speaker 2: percentage point. NASDAQ up one and a half. Oil prices
• 37:55
  Speaker 2: down 4%. Yield on the 10-year Treasury, interesting. Flat for
• 38:01
  Speaker 2: the day. Was down earlier, flat now.
• 38:04
  Speaker 3: Quick break.
• 38:05
  Speaker 2: A lot more to cover in the second hour of
• 38:06
  Speaker 2: the Financial Exchange, including both Michael Santoli and Paula Monica.
• 38:11
  Speaker 3: Quick break. We'll be right back.