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What would a half percent rate cut mean for markets? · The Financial Exchange Show

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Speaker 1: and Mark Vandetti.
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Speaker 2: Welcome back to the financial exchange. Stocks are in relatively
1:16
Speaker 2: mixed territory. Not a whole lot of move in SMP
1:19
Speaker 2: off about four points, dal Jones up about fifty two points,
1:22
Speaker 2: and the Nasdaq, after hitting a record high yesterday, is
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Speaker 2: only off twenty six points.
1:27
Speaker 3: We did get.
1:28
Speaker 2: Some breaking news earlier this morning where it was announced
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Speaker 2: that there was revisions to the US labor market growth
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Speaker 2: over the period from March of twenty four through March
1:39
Speaker 2: of twenty twenty five, where nine hundred thousand, nine hundred
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Speaker 2: and eleven thousand jobs were revised down from prior estimates
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Speaker 2: during that period of time, showing that the labor market
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Speaker 2: was perhaps weaker than realize. We have seen over the
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Speaker 2: course of the last couple months that certainly labor growth
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Speaker 2: has slowed, the unemployment rate has ticked up to about
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Speaker 2: four point three percent, and this revision sort of highlights
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Speaker 2: that during that period of time from March of twenty
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Speaker 2: four through March of twenty five, we did have less
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Speaker 2: job growth than initially anticipated. During those months, we would
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Speaker 2: have averaged previously somewhere around one hundred and fifty thousand
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Speaker 2: plus jobs a month. That we're being added now with
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Speaker 2: these revisions, the average job growth is going to be
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Speaker 2: about seventy six thousand less than initially reported for those
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Speaker 2: average monthly payroll growth, so certainly something of all. It
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Speaker 2: is worth noting that this is backward looking data. This
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Speaker 2: doesn't really give us a good pulse on where the
2:39
Speaker 2: labor market is today, but it does further evidence that
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Speaker 2: the labor market has been relatively weak for this period
2:47
Speaker 2: of time, and it sets us up for an interesting
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Speaker 2: place for this upcoming Thursday inflation report on CPI that's
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Speaker 2: going to come out, where we've talked about the labor
2:58
Speaker 2: market has been quite and has showed signs of you know,
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Speaker 2: small cracks. Now we have an inflation report that is
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Speaker 2: anticipated to come in I believe in around three close
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Speaker 2: to three percent on the headline numbers by economist estimates.
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Speaker 2: Certainly on the core prices which strip out the impact
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Speaker 2: of food and energy, we could crest over three percent.
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Speaker 2: So you could have this potential scenario where inflation is
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Speaker 2: ticking up and remaining kind of sticky and we're seeing
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Speaker 2: some pricing pressure also at the same time having a
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Speaker 2: pretty weak labor force, and it puts the FED in
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Speaker 2: a difficult position though it seems like everything has kind
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Speaker 2: of been decided for where we sit next week, that
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Speaker 2: they will cut interest rates by a quarter of a percent,
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Speaker 2: But it could be the situation mark where we see
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Speaker 2: labor market weakening with a backdrop of inflation tick AMPT
3:51
Speaker 2: the same time, which invokes the word stagflation that was
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Speaker 2: prevalent around the late nineteen seventies. Certainly, don't think we're
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Speaker 2: anywhere near there yet, but at least brings up the concept.
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Speaker 3: Yeah, maybe I'll start there. Stagflation happens when some sort
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Speaker 3: of shock hits the factors that determine the economy's productive
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Speaker 3: capacity or potential. A stagflation, like you said, is a
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Speaker 3: combination that hybrid is a combination of stagnation, economic stagnation,
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Speaker 3: and inflation. They had to invent a new term for
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Speaker 3: that in the seventies because it was unusual prior to
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Speaker 3: that when the economy exceeded its speed limit, unemployment was
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Speaker 3: very low, GDP growth gross domestic product growth was very high.
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Speaker 3: That put upward pressure on prices through wages and through
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Speaker 3: inflation expectations. The FED had to pull the punch bowl away,
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Speaker 3: as a former FED chairman once said, and cool things down.
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Speaker 3: It helps to think of the FED as a thermostat,
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Speaker 3: cooling the economy down when it gets too hot, and
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Speaker 3: vice versa. And it does that through its control of
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Speaker 3: the money supply and its targeting of a short term
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Speaker 3: interest rate we say is shorthand. The FED controls interest rates,
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Speaker 3: but they don't they control the money supply. They have
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Speaker 3: virtual control over the Federal funds rate, which puts a
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Speaker 3: floor under bank lending rates, which in turn lowers interest
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Speaker 3: rates throughout the economy. Short term interest rates anyway, Long
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Speaker 3: term rates different story. A function of what people expect
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Speaker 3: the Fed to do in the future future interest rates.
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Speaker 3: That is an inflation expectation. So keep that distinction in mind.
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Speaker 3: Short versus long term interest rates. The Fed can control,
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Speaker 3: I mean a little fast and loose there, but it's
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Speaker 3: more or less accurate short term rates. It can influence,
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Speaker 3: certainly longer term rates in some environments. It's tried to
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Speaker 3: control long term interest rates by buying longer term bonds
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Speaker 3: during the financial crisis during and after World War Two
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Speaker 3: another example. But the Fed's main instrument is the short
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Speaker 3: term interest rate known as Federal funds.
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Speaker 2: Rate, and what that means from a consumer product side,
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Speaker 2: is money markets. There's an impact there, usually directly and immediately.
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Speaker 2: Credit card debt, which is a variable line of debt
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Speaker 2: that will fluctuate based on interest rate changes, home equi
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Speaker 2: lines of credit. Those be examples of shorter term features
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Speaker 2: that would be impacted by the FED rate cut versus
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Speaker 2: what Mark is talking about. The longer and that's your
6:07
Speaker 2: thirty year fixed mortgage. Oftentimes that's gonna move in relation
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Speaker 2: to what the longer end of the curve goes on.
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Speaker 3: Yeah, so the Fed now is asking is the economy
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Speaker 3: going to slow further? If so, that should put some
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Speaker 3: downward pressure on inflation. They can therefore afford to look past,
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Speaker 3: so to speak, current elevated inflation. Cut today, cut their
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Speaker 3: federal funds rate target, increase the money supply. To be
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Speaker 3: technically correct about this description, lower the federal funds rate,
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Speaker 3: which they more or less have control over. That should
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Speaker 3: stimulate demand. Don't worry about the overheating part of it,
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Speaker 3: because the economy is slowing anyway. You may sense by
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Speaker 3: my description that I'm starting to pile assumption upon assumption here.
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Speaker 3: I'm assuming that economic slack is increasing. They can afford
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Speaker 3: to stimulate the economy if instead the disturbance is in
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Speaker 3: the economy's supply side, so to speak, productive capacity. Then
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Speaker 3: you run the risk like the FED encountered in the
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Speaker 3: nineteen seventies, of stagflation, pushing demand too much, not recognizing
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Speaker 3: that the economy's productive capacity was either shrinking or less
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Speaker 3: than you thought it was. This was the problem in
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Speaker 3: the seventies. One of the problems the FED overestimated the
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Speaker 3: economy's productive capacity, underestimated the natural I'm saying the same
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Speaker 3: thing here, I'm just going to say it differently. Underestimated
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Speaker 3: the natural rate of unemployment. Unemployment was seven. They thought
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Speaker 3: it could be six without pushing up inflation. They were wrong.
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Speaker 3: What if these tariff disturbances and the policy uncertainty and
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Speaker 3: just general movement and economic forces have pushed the natural
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Speaker 3: rate of unemployment up to five percent, then four point
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Speaker 3: three percent where we are today is too low. Problem
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Speaker 3: is you don't know until after the fact.
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Speaker 2: That's what's so difficult about that job is you don't
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Speaker 2: know until after you know.
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Speaker 3: Paul, they're going to cut their roll in the ice.
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Speaker 3: Oh that we all. They've they've forecasted it seven ways
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Speaker 3: to they've telegraphed it. Excuse me, seven ways to Sunday.
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Speaker 3: We know what play the FED is running coming out
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Speaker 3: of this huddle. They're going to cut in a week.
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Speaker 3: They're probably gonna cut again in December. The question is
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Speaker 3: are they cutting into an economy that the supply of
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Speaker 3: labor because of deportations or whatever is dwindling. Then you
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Speaker 3: do run the risk of stagflation. My personal view is
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Speaker 3: that they are going to run that risk, but they're
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Speaker 3: indifferent to them. Keeping employment as high as possible is preferable,
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Speaker 3: and honest people can disagree about that. Using the FED
8:39
Speaker 3: to finance the federal deficit, which the White House has
8:42
Speaker 3: talked about, is reckless and I hope we don't ultimately
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Speaker 3: go down that path. That's a whole new set of
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Speaker 3: considerations and possible risks. We're not even talking about that.
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Speaker 2: Looking at the CME Group, which does probabilities and based
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Speaker 2: on futures data for where federal reserve interest rates may land.
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Speaker 2: There meeting is going to be next week on September seventeenth,
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Speaker 2: ninety two percent probability that we will see a quarter
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Speaker 2: of a percent cut, and there is still an eight
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Speaker 2: percent probably on the table that perhaps we could see
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Speaker 2: as much as a half percent cut next week. We'll
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Speaker 2: have that coverage for you here on the show next week.
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Speaker 3: So market like, how will markets? How will they react?
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Speaker 3: They're expecting a quarter point cut. If we get a
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Speaker 3: half percentage point cut, what would that tell you? How
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Speaker 3: would you react personally to that? Would you be encouraged? Alarmed?
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Speaker 2: Or I would be alarmed because ultimately that's the Fed
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Speaker 2: telegraphing that the labor market or the economic factors that
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Speaker 2: they're studying are weaker, much weaker than perhaps you or
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Speaker 2: I would anticipate. Or I would sit here and say
9:44
Speaker 2: today that this is perhaps them saying that, jeez, the
9:48
Speaker 2: labor market is in a real difficult position, whether it's
9:51
Speaker 2: the supply shock on the immigration side of things, or
9:54
Speaker 2: whatever the case may be. And I would wonder if
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Speaker 2: Wall Street would rally, because typically lower rates increases valuations,
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Speaker 2: And I wonder if that, how.
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Speaker 3: Would Wall Street react?
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Speaker 2: Would they react as, oh, this is concerning from an
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Speaker 2: economic perspective that they're doing this half percent cut, or
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Speaker 2: would they react the borrowing costs have lowered significantly, We're
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Speaker 2: on this path where we're gonna have cheap money again
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Speaker 2: from a financing perspective, And I honestly could see it
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Speaker 2: going either way. This market is so confounding that maybe
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Speaker 2: that would cause arise in markets, which would be a
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Speaker 2: surprise to me, who would read it a little bit
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Speaker 2: more pessimistically. But maybe that's because we always air more
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Speaker 2: on the side of caution. But the markets have continued enthusiasm,
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Speaker 2: come hell or high water, they just keep shugging along.
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Speaker 3: Yeah, to me, that wouldn't be the right reaction. The
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Speaker 3: FED would be conveying that they know something that we don't.
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Speaker 3: The economies in worse shape, or they think it is,
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Speaker 3: that should be bad news and reflected as such in markets.
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Speaker 3: But to your point, markets are so equity markets in
10:58
Speaker 3: particular are so used to reflexively responding to anything the
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Speaker 3: FED does on the easing side by going higher that
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Speaker 3: then markets might shoot higher than they otherwise.
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Speaker 2: It's been a favorable FED for the mart The markets
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Speaker 2: have been really benefited by the FED that has oftentimes
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Speaker 2: seemed to really sort of lend themselves to Wall Street
11:18
Speaker 2: and the stock market in general. Not like they would
11:20
Speaker 2: be doing that here, but maybe it gets interpreted that way.
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Speaker 2: We'll have to see. We're gonna take a quick break
11:25
Speaker 2: here on the financial exchange When we come back, we're
11:27
Speaker 2: gonna be doing a little bit of trivia and a
11:29
Speaker 2: little bit more about the labor force in the United States.
11:32
Speaker 2: Right after this break, The.
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12:15
Speaker 4: Let's do a little bit of trivia here in the
12:17
Speaker 4: Financial Exchange. And today is Adam Sandler's fifty ninth birthday.
12:22
Speaker 4: Sandler is the third highest grossing comedy actor. Excuse me,
12:28
Speaker 4: He's the third highest grossing comedy actor of all time,
12:33
Speaker 4: behind only Will Ferrell and Eddie Murphy. The three highest
12:37
Speaker 4: grossing Sandler movies are all Hotel Transylvania movies, with each
12:42
Speaker 4: grossing over three hundred million dollars. So our trivia question today,
12:48
Speaker 4: what is the highest grossing live action Adam Sandler movie?
12:52
Speaker 4: Once again, what is the highest grossing live action Adam
12:57
Speaker 4: Sandler movie? Be the third per since today to text
13:01
Speaker 4: us at six one seven three six two thirteen eighty
13:04
Speaker 4: five with the correct answer, and he went a Financial
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Speaker 4: Exchange Show t shirt once again. The third correct response
13:11
Speaker 4: to text us to the number six one seven three
13:14
Speaker 4: six two thirteen eighty five will win that T shirt.
13:17
Speaker 4: See complete contest rules at Financial Exchange Show dot com.
13:21
Speaker 2: Did you guys watch Happy Gilmore two? I did? Yeah,
13:23
Speaker 2: what'd you think?
13:24
Speaker 3: Eh?
13:25
Speaker 4: It's fine, a good nostalgia.
13:28
Speaker 2: Good nostalgia, but that's about it.
13:30
Speaker 4: First half was pretty good, like the track was going on,
13:33
Speaker 4: and then the second half, Yeah, I'd watch it.
13:37
Speaker 2: They had more cameos than they knew it to do it.
13:39
Speaker 2: I mean, golfers person part of the movie. Yeah, they
13:42
Speaker 2: got like the whole PGA tours.
13:43
Speaker 4: It felt like to jump in on Scottie Scheffler, will
13:46
Speaker 4: Sell Xalatorus were hilarious. A couple of the ones are great.
13:49
Speaker 4: John Daily, Yeah, but you know, the plot was okay.
13:53
Speaker 2: It was a little crazy. Yeah, I mean it was
13:55
Speaker 2: good nostalgia stuff. But Sandler's success is just uh incredible.
13:59
Speaker 2: He kid just continues to pump out movie after movie,
14:03
Speaker 2: and I don't know his first three. I think we're
14:06
Speaker 2: the best. But anyway, I digress. I want to talk
14:08
Speaker 2: a little bit here about immigration. We recently had Hyundai
14:14
Speaker 2: had a there was a detention of four hundred and
14:17
Speaker 2: seventy five people of South Korean nationals at the Hyundai
14:20
Speaker 2: LG Energy Solution factory and that was was that Virginia
14:26
Speaker 2: that that was out of the factory where they had
14:29
Speaker 2: the the workers that they were George and Georgia. You've
14:36
Speaker 2: got that Pence an energy.
14:38
Speaker 3: Plant kidding to our national audience, I'm just.
14:41
Speaker 2: Kidding, Yes, it was a plant in Georgia. Also, just
14:44
Speaker 2: you have this piece in Blueberg in general regarding the
14:47
Speaker 2: potential labor supply shock, and this is something that we've
14:50
Speaker 2: talked about on the show as well, where the American
14:53
Speaker 2: workforce is now short one point two million workers, but
14:57
Speaker 2: partially as a result of what's been a very strict
15:00
Speaker 2: campaign to you know, deport a lot of immigrants. And
15:04
Speaker 2: immigration is a very difficult subject. There's there's many differing
15:09
Speaker 2: views on it, but ultimately from an economic standpoint, and
15:12
Speaker 2: that's where we sit is our focus is how can
15:15
Speaker 2: we grow the economy because that typically will lead to
15:17
Speaker 2: a stronger stock market and that benefits shareholders. And what
15:22
Speaker 2: we do and what you do need is you need
15:25
Speaker 2: a labor supply out there. You need labor supply growth.
15:27
Speaker 2: And from a population standpoint, this country is not getting
15:31
Speaker 2: it from just outright population growth. Those numbers are slowing
15:34
Speaker 2: in declining. So to make up that differential to fund
15:37
Speaker 2: things like Social Security and other programs out there, you
15:40
Speaker 2: are going to need an increase in the labor supply.
15:43
Speaker 2: Certainly not a proponent here of a legal immigration but
15:47
Speaker 2: if there could be some sort of program that was
15:49
Speaker 2: created that would allow for a legal process of undocumented
15:53
Speaker 2: workers to transition to legal employment sets, ultimately that would
15:56
Speaker 2: be the goal here. You know, I know I'm way
16:00
Speaker 2: oversimplifying the problem, but immigration. It's a country that's built
16:05
Speaker 2: on immigration. But we just need to be able to
16:07
Speaker 2: do it in a way that is, you know, a
16:11
Speaker 2: solid process.
16:12
Speaker 3: Yeah, whatever you think of the way our immigration laws
16:15
Speaker 3: are being enforced, this is a stagflationary move. It decreases
16:21
Speaker 3: as you said the I'll just I'll broaden it and
16:25
Speaker 3: say it decreases the productive potential of the economy, which
16:28
Speaker 3: is what happens when you take workers out of it.
16:30
Speaker 3: Now you could say, I don't care they weren't here legally,
16:32
Speaker 3: get them out. Well, you could empty all the prisons
16:34
Speaker 3: and that would increase the labor supply too. Is that
16:36
Speaker 3: what you want to do? No, No, I'm not taking
16:38
Speaker 3: a position on it, although you could argue that, as
16:41
Speaker 3: I debate myself here, you could argue that, well, this
16:44
Speaker 3: is different. These are skilled workers, some of their visas expired,
16:47
Speaker 3: et cetera, et cetera. The fact is they broke the law,
16:50
Speaker 3: the law was enforced, and the result was, I guess,
16:56
Speaker 3: a good one from an immigration law point of view.
16:58
Speaker 3: From an economic point of view, this is only several
17:01
Speaker 3: hundred people. Yeah, probably not going to dramatically affect overall
17:06
Speaker 3: labor supply, overall aggregate supply, and thus make the Fed's
17:10
Speaker 3: job harder. But if we did this persistently and on
17:14
Speaker 3: a larger scale, and I guess there are arguments that
17:16
Speaker 3: we are doing it persistently and on a larger scale. Yeah,
17:19
Speaker 3: this type of stuff is stagflationary, but maybe it's necessary
17:23
Speaker 3: in the minds of some to get better conformity with
17:27
Speaker 3: our labor laws. You could argue, as you did, though,
17:31
Speaker 3: that we ought to be at the same time making
17:32
Speaker 3: it easier for people with skills to come here and
17:37
Speaker 3: make a living here and contribute to the economy. It
17:39
Speaker 3: would be nice to hear that from policymakers too.
17:42
Speaker 2: Yeah, the combination of both home bar shortage forces sellers
17:46
Speaker 2: to lower prices and walk away as the sumpter drags on. Really,
17:50
Speaker 2: what we've seen over the course of the last six
17:52
Speaker 2: month plus has been a very tepid real estate market,
17:56
Speaker 2: particularly in the South and the West, where many of
18:00
Speaker 2: those people who are listing their homes have had to
18:02
Speaker 2: decrease their prices that they're listening to that. As of
18:05
Speaker 2: data through May, more than half of the country of
18:09
Speaker 2: active listings had to decrease their prices. We've seen that
18:14
Speaker 2: the sales of previously occupied US homes are running about
18:18
Speaker 2: one percent less than they were through the first seven
18:21
Speaker 2: months of last year, and last year they sank to
18:25
Speaker 2: the lowest level of nearly thirty years. So there's just
18:27
Speaker 2: been not a lot of inventory moving. The housing market
18:30
Speaker 2: has remained incredibly stagnant. It's an issue of affordability as
18:35
Speaker 2: part of it, but you also have other areas of
18:38
Speaker 2: the country where there's just a pocket of excess inventory
18:42
Speaker 2: that you just don't have a lot of buyers chomping
18:45
Speaker 2: at the bit to be participants in whether it be
18:48
Speaker 2: Florida or the Sun Belt. There just isn't a lot
18:50
Speaker 2: of demand out there. So we'll continue to see how
18:53
Speaker 2: that situation plays out, but there doesn't really look to
18:56
Speaker 2: be any sort of near term catallus that has kind
18:58
Speaker 2: of jolt the housing market. Taking a look at the
19:02
Speaker 2: regular the stock markets, we've got little change on some
19:05
Speaker 2: of the major industries. S ANDP is up a measley
19:08
Speaker 2: two points, the Dow Jones is up a little bit
19:10
Speaker 2: more one hundred and thirty points, and the Nasdaq is
19:13
Speaker 2: off about twelve points. The US ten year Treasury remains
19:17
Speaker 2: relatively flat, sitting at four point zero eight percent, and
19:22
Speaker 2: gold is down just slightly a quarter of a percent.
19:26
Speaker 2: We're going to take a quick break here on the
19:28
Speaker 2: Finished Exchange. When we come back, the trivia answer and
19:30
Speaker 2: much more right after this break.
19:33
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19:43
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19:53
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19:56
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20:00
Speaker 4: Well, one day after the NASDAK notched a fresh record high.
20:04
Speaker 4: Markets today are mostly quiet mixed as investors sift through
20:08
Speaker 4: the annual jobs revision from the Bureau of Labor Statistics.
20:12
Speaker 4: According to those revisions, the US added nine hundred and
20:15
Speaker 4: eleven thousand fewer jobs over the twelve months that ended
20:20
Speaker 4: in March. Wall Street's also riding for two inflation readings
20:24
Speaker 4: this week. Tomorrow we have the Producer Price Index, followed
20:27
Speaker 4: by the Consumer Price Index on Thursday. Right now, the
20:31
Speaker 4: Dow is up by third of a percent, or one
20:33
Speaker 4: hundred and sixty four points higher, SMP five hundred is
20:37
Speaker 4: completely flat, and the Nasdaq is down only a tenth
20:40
Speaker 4: of percent. Russell two thousand is now down seven tenths
20:44
Speaker 4: of one percent. Tenure Treasure realed is up three basis
20:49
Speaker 4: points at four point zero eight percent, and crude oil
20:53
Speaker 4: up over one and a half percent. Hire trading right
20:56
Speaker 4: at sixty three dollars a barrel. Big news in the
20:59
Speaker 4: commodities based this morning after Anglo American agreed to merge
21:03
Speaker 4: with Tech Resources and a deal that will create one
21:06
Speaker 4: of the largest copper producers. Anglo shares are up by
21:09
Speaker 4: about nine percent, while Tech stock is up nearly fourteen percent. Meanwhile,
21:15
Speaker 4: Apple shares are down modestly ahead of its anticipated annual
21:19
Speaker 4: product event at one o'clock this afternoon Eastern Time, where
21:23
Speaker 4: the tech Giant will unveil its new line of iPhone seventeens,
21:27
Speaker 4: among other device updates. Elsewhere, Fox shares down about six
21:32
Speaker 4: percent after the Media Giant announced the Murdoch family resolved
21:36
Speaker 4: its succession battle where Lachlan Murdoch won control of the company.
21:42
Speaker 4: Casey's General Stores beat quarterly earnings and revenue estimates, boosted
21:46
Speaker 4: by strong same store sales growth. However, shares are down
21:50
Speaker 4: about one percent. Dick's Sporting Goods was upgraded by City
21:53
Speaker 4: Group to buy from neutral, saying the sports retailer will
21:57
Speaker 4: be a powerful force in athletic retail following its acquisition
22:03
Speaker 4: of foot Locker. That stock also down modestly. And after
22:06
Speaker 4: today's close, we'll see quarterly earnings from Game Stop In Oracle,
22:12
Speaker 4: I'm Tucker Silva and that is Wall Street Watch. And
22:15
Speaker 4: in the previous segment, we asked you the trivia question,
22:19
Speaker 4: what was Adam Sandler's or what is the highest grossing
22:23
Speaker 4: live action Adam Sandler movie? That would be Grown Ups
22:27
Speaker 4: That would be grown up. Steve from Westbrook, Maine is
22:30
Speaker 4: our winner today today taking home a Financial Exchange Show
22:33
Speaker 4: t shirt. Congrats to Steve and we play trivia every
22:36
Speaker 4: day here in the Financial Exchange See complete contest rules
22:39
Speaker 4: at Financial Exchange Show dot com.
22:42
Speaker 2: There is a renewed bid to end quarterly earnings reports.
22:46
Speaker 2: The Long Term Stock Exchange is trying to petition regulators
22:50
Speaker 2: to allow public companies to share results less frequently. This
22:54
Speaker 2: has been something that for the last fifty years has
22:58
Speaker 2: been pretty much the additional trajectory of US public companies.
23:02
Speaker 2: Every three months, they'll come out and do an earning
23:05
Speaker 2: support to show how the company fared over the course
23:08
Speaker 2: of the last three months. It has been criticized by
23:11
Speaker 2: the likes of Buffett and others, saying that the need
23:14
Speaker 2: for quarterly earnings reports creates, you know, too much noise
23:17
Speaker 2: and that there should be more focus on kind of
23:19
Speaker 2: the long term trajectory of a company rather than just
23:22
Speaker 2: scrutinizing do they beat expectations or come in under expectations
23:27
Speaker 2: for the recent quarter. But it is something that has
23:30
Speaker 2: not changed, like I said, over the last fifty years
23:32
Speaker 2: or so. However, now again some renewed momentum. Perhaps this
23:36
Speaker 2: idea of the shift from the quarterly earnings reports sessions.
23:40
Speaker 3: I don't know how I feel about eliminating actual earnings
23:44
Speaker 3: reports as opposed to getting away from earnings guidance, which
23:48
Speaker 3: is voluntary guidance is different. Amazon doesn't provide guidance. There
23:52
Speaker 3: are other examples. Coca Cola is one that I in
23:55
Speaker 3: a very a quick but very thorough Google search on Earth.
24:00
Speaker 3: So there are plenty of companies that don't give guidance,
24:02
Speaker 3: which is different than actually reporting. The problem with guidance,
24:07
Speaker 3: of course, is that you're then incented to game earnings
24:10
Speaker 3: to reach the guidance or to gain the number that
24:13
Speaker 3: you provide as a forecast, knowing that it's easily achievable,
24:19
Speaker 3: leading to unproductive This called volatility and stock price I mean,
24:24
Speaker 3: the reason for earnings guidance is to set investor expectations
24:29
Speaker 3: obviously and reduce share price volatility. That makes it easier
24:33
Speaker 3: to finance your investments over time. You don't want to
24:35
Speaker 3: jump a share price. You want a relatively stable, ideally
24:38
Speaker 3: growing share price. Guidance should help with that, but it doesn't,
24:41
Speaker 3: so some companies don't do it. I personally see no
24:45
Speaker 3: harm in eliminating guidance earnings themselves less frequently. I don't
24:49
Speaker 3: know they generally can if they don't contain valuable information.
24:53
Speaker 3: Maybe we need to revise earnings preparation procedures and guidelines
24:58
Speaker 3: as opposed to releasing them less frequently. I'm not sure.
25:03
Speaker 3: I haven't studied the issue. Maybe there are good statistical
25:06
Speaker 3: arguments for less frequent but more accurate earnings releases.
25:09
Speaker 2: The argument made by CEO Jamie Diamond of JP Morgan,
25:13
Speaker 2: Chase and Buffett. They co offered a journal opinion column
25:17
Speaker 2: on this, stating that companies hold back on spending and
25:20
Speaker 2: hiring to try and meet the quarterly earnings for a forecast.
25:23
Speaker 2: They very much become a hurdle that people the companies
25:27
Speaker 2: try to beat for, you know, appeasing Wall Street and
25:29
Speaker 2: their stock price. So that that's their argument.
25:32
Speaker 3: The other that's their argument against guidance, though not against
25:35
Speaker 3: releasing earnings quarterly, which right right, though those are two different. No,
25:40
Speaker 3: it does, it does get confused, and the article doesn't
25:42
Speaker 3: do a good job. And this is a complicated area.
25:44
Speaker 3: You can't just dive into this for three minutes like
25:46
Speaker 3: we do every subject on the show virtually and then
25:48
Speaker 3: cover it in five and expect to be thorough and correct. Frankly,
25:52
Speaker 3: so it is important to make that distinction. Again, do
25:55
Speaker 3: we want less information?
25:56
Speaker 2: But the other issue that you have is that there's
25:59
Speaker 2: less And I'm not saying this this should be done
26:01
Speaker 2: because of this, but there is a lot less publicly
26:03
Speaker 2: traded companies in the US. There's only about thirty seven
26:06
Speaker 2: hundred as of late June, which is down thirteen percent
26:08
Speaker 2: from three years ago, and way less than we had
26:11
Speaker 2: back in ninety seven. Not saying good or bad, but
26:13
Speaker 2: this is why these things are being kicked around that
26:17
Speaker 2: often there are issues that come with being a public
26:20
Speaker 2: company that a lot of private companies are now being
26:23
Speaker 2: more and more reticent to jump into those waters. Perhaps
26:26
Speaker 2: not having the quarterly earnings reports or the earnings guidance
26:33
Speaker 2: reports would make it so that they'd be more willing
26:35
Speaker 2: to I don't know if that would.
26:36
Speaker 3: Move so burdensome day. They don't have to do the guidance. Now,
26:39
Speaker 3: that's voluntary, as I said, according to Google, which I'm
26:42
Speaker 3: using as my authority here. Companies like Amazon, which I
26:44
Speaker 3: think I knew, Coca Cola, which I don't think I knew,
26:46
Speaker 3: do not provide forecasts so called guidance. If it's the
26:50
Speaker 3: quarterly it's If it's the formal reporting process that's onerous.
26:54
Speaker 3: Is there a better solution than no information, I guess
26:57
Speaker 3: is my pointy.
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28:06
Speaker 2: N Video's wow factor is fading back. Two years ago,
28:10
Speaker 2: in Vidia came out with a earnings beat where they
28:14
Speaker 2: forecast or sorry, enterings forecasts, where they forecast eleven billion
28:18
Speaker 2: of quarterly revenue that was fifty three percent higher than
28:21
Speaker 2: what analysts had anticipated, and it set off a string
28:24
Speaker 2: of quarters where in Vidia's revenue just went up like
28:27
Speaker 2: a hockey stick curve. They now do close to forty
28:31
Speaker 2: billion plus revenue a quarter. Back two years ago, like
28:34
Speaker 2: I was mentioning, they forecast eleven billion. They now over
28:38
Speaker 2: the trailing twelve months, have done one hundred and sixty
28:41
Speaker 2: five billion of revenue. This company has been by far
28:45
Speaker 2: the biggest benefactor of all of the AI enthusiasm. They
28:49
Speaker 2: make a tremendous amount of the chips and infrastructure that's
28:53
Speaker 2: used to build out AI computing capabilities. The piece here,
28:58
Speaker 2: to me is really just a commentary in the law
29:00
Speaker 2: of large numbers. You're not always going to be able
29:02
Speaker 2: to beat antist expectations by fifty three percent or grow
29:06
Speaker 2: your revenue by one hundred and sixty five percent, you know,
29:10
Speaker 2: year over year, and they've plateaued in a sense, but
29:13
Speaker 2: it's hard to continue to grow your revenue at that pace.
29:17
Speaker 2: And now the Wall Street expectations have more or less
29:20
Speaker 2: caught up to where Nvidia has reported on a quarterly
29:24
Speaker 2: basis from an earning's perspective. So the argument being is
29:27
Speaker 2: that they can't surprise the upside as much as they could.
29:30
Speaker 2: But to me, that's just you can't always do that
29:32
Speaker 2: with large numbers. It's hard to keep that pace.
29:36
Speaker 3: Unless they're going to get into another market. At some point,
29:38
Speaker 3: we're going to have enough data centers yep. And are
29:40
Speaker 3: they going to monopolize the chip market for those centers indefinitely?
29:44
Speaker 3: Probably not. No replacement chips will be made by somebody else.
29:48
Speaker 3: Probably at some point.
29:50
Speaker 2: Oh there's a lot of capital being thrown at that
29:53
Speaker 2: to get after The gross margins that in Nvidia have
29:56
Speaker 2: are upwards of seventy percent, So you can believe that
29:58
Speaker 2: somebody is going to come in try yea.
30:00
Speaker 3: It would be a good sign if they continue to
30:02
Speaker 3: effectively monopolize. And I use that not in a legal sense,
30:05
Speaker 3: just in sort of as a factual description wouldn't be
30:08
Speaker 3: a good sign of a healthy economy if Nvidia maintain
30:11
Speaker 3: their current position indefinitely, and they're not going to grow
30:14
Speaker 3: at their current clip in definitely, Otherwise they've become the
30:16
Speaker 3: whole economy is obviously absurd.
30:18
Speaker 2: They're a big part of the S and p F,
30:20
Speaker 2: that's for sure. With a market cap over four trillion dollars,
30:24
Speaker 2: in Vidia stock has been on a turnaspun over the
30:27
Speaker 2: last several years, a little bit more muted on a
30:30
Speaker 2: year to date basis, will continue to follow how they fare.
30:33
Speaker 2: We're going to take a quick break here on the
30:35
Speaker 2: finished Exchange. When we come back, a little bit of
30:37
Speaker 2: stack Roulette right after this break.
30:40
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31:59
Speaker 2: All right, Tom, for a little bit of stack roulette.
32:01
Speaker 2: Mark Fandetti, with his uplifting stories and humorous contents, always
32:07
Speaker 2: headline this segment. So a funny bone, so he will
32:10
Speaker 2: that lead off mister funny man himself. Fandetti.
32:14
Speaker 3: I do scour the news for something uplifting in light,
32:18
Speaker 3: but for some reason I'm drawn too. Well. Okay, so
32:22
Speaker 3: you probably you may have heard this story. If not,
32:24
Speaker 3: you will probably hear it later on today. This comes
32:26
Speaker 3: from the Wall Street Journal, but it's being widely reported.
32:28
Speaker 3: Twelfth grade math and reading scores in US hit New low.
32:33
Speaker 3: This continues a decline that started well before the pandemic,
32:38
Speaker 3: and the new low for context is since this assessment
32:42
Speaker 3: started in nineteen ninety two, scores have again gradually been
32:47
Speaker 3: declining in both reading and math categories. But there's some
32:52
Speaker 3: COMPREHENDI you so reading includes comprehension, discerning the purpose of
32:57
Speaker 3: discerning the main point of a paragraph, you know, the
32:59
Speaker 3: usual I guess sat type stuff. So one interpretation is that, wow,
33:04
Speaker 3: this is bad, perhaps due to COVID lockdowns, perhaps just
33:09
Speaker 3: due to continue a continuation of ongoing trends in erosion
33:13
Speaker 3: of comprehension and math skills. Another interpretation is that well,
33:17
Speaker 3: more people are making it to twelfth grade, so lower
33:20
Speaker 3: performers are actually graduating. That'd be a good thing. They're
33:24
Speaker 3: graduating with some skills anyway, and they're bringing down the averages.
33:29
Speaker 3: It's hard to say to what degree that effect is
33:32
Speaker 3: responsible for this ongoing trend. So not necessarily the end
33:38
Speaker 3: of the world, but hard not to come away from
33:40
Speaker 3: a story like this optimistic about, for example, something we
33:44
Speaker 3: care about future productivity and economic growth and how that
33:48
Speaker 3: relates to asset class returns and stuff like that.
33:51
Speaker 2: So I'm gonna put you on the spot here, So
33:53
Speaker 2: are these high schoolers don't?
33:55
Speaker 3: Because I don't know anything about this other than the well.
33:57
Speaker 2: Because it says the asterisk is that it's obscured by
34:01
Speaker 2: rising high school graduations rate, which could mean that more
34:05
Speaker 2: lower performing students are taking the exam. So it's for
34:07
Speaker 2: those people who are not finishing high school that they're
34:11
Speaker 2: taking this, or everybody's taking this.
34:14
Speaker 3: I interpreted that to mean more people are getting to
34:16
Speaker 3: the point where the exam is administered.
34:18
Speaker 2: Got it, got it, they're not. So these are people
34:22
Speaker 2: the worst of the vote or dragging. Yeah, so there's
34:25
Speaker 2: there's always some self selection. Like you don't just look
34:27
Speaker 2: at SAT scores and say, oh, they're going up, so
34:29
Speaker 2: kids are getting smarter. Well, no, they're self selection there.
34:32
Speaker 2: A statistician would say, well, that's you're selecting on the
34:35
Speaker 2: dependent variable.
34:36
Speaker 3: You got to look out for that. It's not it's
34:37
Speaker 3: a It's like saying wages are going up, therefore Americans
34:41
Speaker 3: are getting more skilled. Well, no, people who have skills
34:44
Speaker 3: want to get a job, they take the job. They
34:46
Speaker 3: are on the wages. You're not looking at a representative.
34:48
Speaker 3: A simple way to put this is you may not
34:49
Speaker 3: be looking at a representative sample.
34:52
Speaker 2: You're not looking at the people who are not taking
34:54
Speaker 2: the SATs or are not working.
34:56
Speaker 3: You know, you gotta look at Yeah, you gotta look
34:57
Speaker 3: at the You're not looking at a big part of
34:59
Speaker 3: the population. So in this case, we're looking at a
35:01
Speaker 3: bigger part of the population. And it may have always
35:04
Speaker 3: been the case that these scores are more representative of
35:07
Speaker 3: what an eighteen year old American of where an eighteen
35:10
Speaker 3: year old American is at in terms of math skills.
35:13
Speaker 3: So it depends on why you're using it. I guess
35:14
Speaker 3: so using it to evaluate how our teachers. I wouldn't
35:17
Speaker 3: dare blame teachers, but they may be using it to
35:19
Speaker 3: evaluate themselves orre you using it to evaluate the skills
35:22
Speaker 3: of the typical eighteen year old American. If used for
35:25
Speaker 3: the latter purpose, this is probably not appropriate. Although it
35:28
Speaker 3: may be becoming more representative. Is more people take it.
35:33
Speaker 2: Yes, it is definitely something that is out of our scope,
35:36
Speaker 2: but concerning nonetheless, Now for some more positive news here,
35:41
Speaker 2: The Wizard of Oz is going to be played out
35:46
Speaker 2: on the Sphere in Las Vegas. This is by James Dolan.
35:50
Speaker 2: The Sphere has gotten overwhelmingly positive reviews James Dolan, who
35:55
Speaker 2: is the owner of the New York Knicks, is the
35:58
Speaker 2: Sphere chairman CEO. And what they did specifically with The
36:01
Speaker 2: Wizard of Oz is they spent about one hundred million
36:04
Speaker 2: dollars to reimagine the film with Warner Brothers and another
36:07
Speaker 2: producer to use AI to upscale the film to fit
36:12
Speaker 2: on the Sphere's massive screen. And they also incorporated some
36:16
Speaker 2: technology in here and techniques that they're going to have
36:19
Speaker 2: falling apples and flying monkeys above the audience's head. And
36:23
Speaker 2: the demand for this has been incredible. Thousands of people
36:26
Speaker 2: are paying two hundred bucks to watch the film that
36:29
Speaker 2: was released more than eighty five years ago. The venue
36:34
Speaker 2: has a one hundred and sixty thousand square foot screen
36:37
Speaker 2: and from everything that I've read about it, it is
36:39
Speaker 2: supposed to be just an incredible place to watch a
36:42
Speaker 2: concert or Now they're adapting movies to the Sphere as well,
36:47
Speaker 2: and they're already in talks with trying to build out
36:50
Speaker 2: Harry Potter films or Star Wars films to invest to
36:53
Speaker 2: kind of build out these films to be launched on
36:57
Speaker 2: the Fear movie experience.
36:58
Speaker 3: How do you watch a movie on us spherical.
37:01
Speaker 4: Look up clips of this.
37:03
Speaker 3: It is out there. It works.
37:04
Speaker 4: Yeah, oh yeah, it works. It looks real, Mark like, yeah, real,
37:08
Speaker 4: and there's like wind blowing. It's really amazing.
37:12
Speaker 2: It's They've had YouTube Backstreet Boys and others perform at
37:16
Speaker 2: the Sphere on the concert side of things, and overwhelmingly
37:21
Speaker 2: the reviews have been really positive. It's weird to hear
37:25
Speaker 2: James Dolan attributed to something positive because he's gotten so
37:27
Speaker 2: much heat as the New York Nick's owner over the
37:31
Speaker 2: last twenty years or so. But there has been tremendous
37:33
Speaker 2: demand for this, and it'll be interesting to see if
37:36
Speaker 2: they build this out for others. I got to look
37:38
Speaker 2: up just what the viewing experience is like, but it's
37:41
Speaker 2: supposed to be just absolutely it's like you are out.
37:44
Speaker 3: Yeah.
37:45
Speaker 2: Even just watching the clip, you can feel like you
37:47
Speaker 2: are there. Another quick hitter here. They're bringing back the
37:51
Speaker 2: Gott Milk campaign. They're trying to get a comeback for
37:54
Speaker 2: Darry This was initially launched in nineteen ninety three. They're
37:57
Speaker 2: busting back the milk mustaches that were such a huge
38:00
Speaker 2: part of the nineties. I remember all the baseball legends
38:03
Speaker 2: participating in those campaigns. That's all the time that we
38:06
Speaker 2: have for today's episode of the Financial Exchange. Thanks so
38:10
Speaker 2: much for joining us. We'll be back at it tomorrow
38:12
Speaker 2: at ten am.