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Fed Rate Decision Looms as Social Security Cuts Raise Concerns · The Financial Exchange Show

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  Speaker 1: is The Financial Exchange with Paul Lane and Mark Vandetti.
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  Speaker 2: Welcome back to the Financial Exchange, taking a look around
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  Speaker 2: at markets. The tech sector continues to rally after a
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  Speaker 2: good day yesterday with the NASDAQ up almost a full percent,
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  Speaker 2: the S & P 500 up about a half percent
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  Speaker 2: of the Dow Jones relatively flat.
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  Speaker 3: Paul Lane, Mark Venditti, and.
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  Speaker 2: Tucker Silva here with you on a busy week for
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  Speaker 2: the markets and the economy. We will have a Federal
• 1:34
  Speaker 2: Reserve meeting that will kick off tomorrow afternoon. All indications
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  Speaker 2: are that the Federal Reserve will continue to stay pat
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  Speaker 2: and will not change direction on its interest rate hikes.
• 1:46
  Speaker 2: They had hiked in the last meeting, but all indications
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  Speaker 2: that they will stand pat and keep interest rates in
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  Speaker 2: the range of 3.75% to 4%. According to the CME
• 1:57
  Speaker 2: Futures Group, which tries to assess the probability of a
• 2:00
  Speaker 2: rate decision in one direction or another, only about a
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  Speaker 2: 10% chance that you'd see a surprise hike. In terms
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  Speaker 2: of other economic data points out there, Anthropic has announced
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  Speaker 2: its intention to go public, likely debuting on the NASDAQ
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  Speaker 2: in the middle of November. So that certainly has a
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  Speaker 2: lot of enthusiasm around the tech sector. But we kick
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  Speaker 2: off this hour of the program by talking about the
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  Speaker 2: Federal Reserve and specifically some of the messaging around NASDAQ
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  Speaker 2: The administration, Kevin Warsh, came in with a real desired
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  Speaker 2: concerted effort to be a little bit quieter and speak less,
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  Speaker 2: provide less guidance than his predecessors, criticizing the Fed's tendency
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  Speaker 2: to sort of over-inform.
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  Speaker 3: Investors.
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  Speaker 2: That effort in general, while Warsh has been a little
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  Speaker 2: bit certainly more muted than Jerome Powell was, the slack
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  Speaker 2: has been picked up, it seems like, by a lot
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  Speaker 2: of other Fed members. But Mark, curious, because you are
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  Speaker 2: more attuned to this than I am, just what you
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  Speaker 2: felt so far of this sort of dichotomy between what
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  Speaker 2: Kevin Warsh wants and what the Federal Reserve members have
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  Speaker 2: actually gone out and done, and just any commentaries on
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  Speaker 2: his policy in general.
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  Speaker 4: I don't know how I feel about this disconnect between
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  Speaker 4: what he wants. The governor, the bank presidents can do
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  Speaker 4: whatever they want. The board of governors can do whatever
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  Speaker 4: they want to, although the Fed should speak with one
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  Speaker 4: voice because they're trying to influence our expectations, which in
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  Speaker 4: turn will drive prices and wages and thus inflation. If
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  Speaker 4: people believe the Fed to be, let me put it
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  Speaker 4: this way. Let me tie this into credibility for a second.
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  Speaker 4: If people believe the Fed will, when the time comes,
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  Speaker 4: inflict pain on the economy to rein in inflation, it
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  Speaker 4: will have to inflict less pain on the economy to
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  Speaker 4: rein in inflation. If you believe someone's going to punish
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  Speaker 4: you for doing something bad, the consequences will be less
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  Speaker 4: dire because you won't commit the offense to the same degree.
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  Speaker 4: That's a really convoluted way of putting it.
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  Speaker 1: Sorry.
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  Speaker 4: So credibility is important. Warsh knows this. Warsh doesn't like
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  Speaker 4: so-called forward guidance because he feels like that deprives the
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  Speaker 4: Fed of valuable market signals. When the Fed says we're
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  Speaker 4: going to keep rates elevated for a substantial period of
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  Speaker 4: time or low for a substantial period of time, as
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  Speaker 4: they did during the 2000s, for example, or after COVID,
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  Speaker 4: that puts downward pressure on longer-term interest rates. And that's deliberate.
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  Speaker 4: Short-term interest rates don't influence the real economy that much.
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  Speaker 4: It's the expected path of short-term interest rates and therefore
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  Speaker 4: longer-term rates, which reflect that that do.
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  Speaker 5: Right.
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  Speaker 4: If this sounds confusing, that's okay.
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  Speaker 1: It is.
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  Speaker 4: Warsh would prefer to let markets instead set longer-term interest
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  Speaker 4: rates and that the Fed infer what people are thinking
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  Speaker 4: based on that, which they can't do if the Fed
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  Speaker 4: is always jawboning the long end of the Treasury yield curve.
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  Speaker 4: Does that make sense? If it doesn't, that's okay. I'll...
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  Speaker 4: You have to really, really, of course, I've done a
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  Speaker 4: poor job explaining it, but you also have to think
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  Speaker 4: about it a lot.
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  Speaker 2: No, there's a lot at stake here when you're talking
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  Speaker 2: about the debt markets. And it's important to maybe step
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  Speaker 2: back for a second and sort of look to Mark's
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  Speaker 2: point on the shorter end of the curve. What does
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  Speaker 2: that impact to the daily listener here? It can impact
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  Speaker 2: home equity lines of credit, which are often tied to
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  Speaker 2: the moves in interest rates. It can impact credit card rates.
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  Speaker 2: It can impact money markets and CDs that you collect
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  Speaker 2: at your local bank. That is generally the impact that
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  Speaker 2: you'd see as a consumer. But to Mark's point on
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  Speaker 2: the longer end of the curve, so when we're talking
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  Speaker 2: about the Fed funds overnight rate, that's for short-term lending.
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  Speaker 2: For longer-term lending, the U.S. 10-year treasury is of utmost
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  Speaker 2: focus because when you're looking at a 30-year fixed mortgage,
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  Speaker 2: there is almost a direct correlation between how the U.S.
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  Speaker 2: 10-year Treasury moves and 30-year fixed mortgage moves have sort
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  Speaker 2: of transpired. And what we sit right now is 5%
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  Speaker 2: on the U.S. 10-year Treasury from what was 4.15% to
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  Speaker 2: start this year.
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  Speaker 4: Yeah, I would have never put it this way 10,
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  Speaker 4: 15 years ago that short-term rates don't matter much because
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  Speaker 4: we think of the Fed as controlling short-term rates. And,
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  Speaker 4: of course, what the Fed does matters. But Bernanke actually
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  Speaker 4: wrote that in his book, his most recent book. Short-term
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  Speaker 4: rates are not where the action is. It's what they
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  Speaker 4: can do to affect longer-term rates that has an impact
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  Speaker 4: on investment and spending. So one way to influence longer-term
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  Speaker 4: rates is so-called forward guidance. If you tell markets, again,
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  Speaker 4: short-term rates are going to be low for an extended period,
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  Speaker 4: long-term rates should come down because long-term rates reflect what
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  Speaker 4: you expect short-term rates to be between now and the
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  Speaker 4: date of that long-term, say, bond.
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  Speaker 5: Right.
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  Speaker 1: Uh.
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  Speaker 4: warsh again prefers to let markets have a uh... uh... uh...
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  Speaker 4: predominant role in setting long-term rates in the fed can
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  Speaker 4: use them better as a consequence to infer people's inflation
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  Speaker 4: expectations for example in the backdrop i don't know where
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  Speaker 4: i come down on that by the way i'm not
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  Speaker 4: not judging either either day john williams new york fed
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  Speaker 4: president uh... accomplished academic uh... he would prefer use forward
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  Speaker 4: guidance he believes that's a important tool for influencing the
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  Speaker 4: real economy warsh obviously subscribes to a different view.
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  Speaker 2: The stage that we have set is inflationary pressure has
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  Speaker 2: become a significant concern of the Federal Reserve. By hiking
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  Speaker 2: in the last meeting, they indicated such, and all of
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  Speaker 2: their messaging has mirrored that sort of objective to get
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  Speaker 2: Interest rates and inflationary pressure is under control.
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  Speaker 3: You've got the U.S.
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  Speaker 2: 10-year treasury, as I mentioned moments ago, spiking from 4.1%
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  Speaker 2: early in the year to as high as 5.3%, though
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  Speaker 2: in the month of October, it has come down a
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  Speaker 2: degree to about 4.98%. At the moment, all of these
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  Speaker 2: things influence the economy greatly, particularly on that US 10-year
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  Speaker 2: side of things, whether it's the housing market, but also
• 8:19
  Speaker 2: what we talked about a little bit earlier in the program,
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  Speaker 2: this idea of all of the debt issuance that is
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  Speaker 2: going with AI infrastructure. That creates just all sorts of
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  Speaker 2: financing impacts when you have interest rates moving. And so
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  Speaker 2: it is something that is of real significance to the economy.
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  Speaker 2: It'll be interesting to see what the Federal Reserve comes
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  Speaker 2: out with when it gets together tomorrow.
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  Speaker 3: We're going to take a quick.
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  Speaker 2: Break here, but when we come back, we'll do a
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  Speaker 2: little bit more Fed talk, as well as covering a
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  Speaker 2: cost of living adjustment for Social Security right after this break.
• 8:53
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  Speaker 2: The Fed needs better models. A piece here from the
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  Speaker 2: Wall Street Journal. The central bank can improve its forecasting
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  Speaker 2: by including the value of the dollar in its modeling. Mark,
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  Speaker 2: your thoughts on the Fed and its models need to
• 9:44
  Speaker 2: be tweaked.
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  Speaker 4: I don't know. Yeah, I don't know what... Malpass is
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  Speaker 4: a pretty well-known sort of commentator, but he's not a
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  Speaker 4: trained economist, and it sort of shows. I mean, of course,
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  Speaker 4: they consider the foreign exchange value of the dollar, but
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  Speaker 4: their workhorse model contains exactly what you think it would.
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  Speaker 4: There's an equation. I mean, I just have to say
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  Speaker 4: it for demand in the economy. There's an equation for
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  Speaker 4: supply in the economy. And then to sort of wrap
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  Speaker 4: it up, to close the model, as a researcher would say,
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  Speaker 4: there's a rule that the Fed follows, something like the
• 10:16
  Speaker 4: Taylor rule that we talk about a lot. So it's
• 10:19
  Speaker 4: not really clear. And that's what you, those are, those
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  Speaker 4: describe the motion of the economy. If I give it,
• 10:26
  Speaker 4: so the Fed wants to know, if we lower rates,
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  Speaker 4: what's the economy going to look like in one quarter,
• 10:29
  Speaker 4: two quarters, three quarters out? And then how long will
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  Speaker 4: it take for the rate cut to have its full effect,
• 10:34
  Speaker 4: et cetera? So when this, I started reading and I said,
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  Speaker 4: I can't do it. So sorry. But you got to
• 10:43
  Speaker 4: be specific. Like which which is it the demand side
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  Speaker 4: you think they get wrong? Is it the supply side?
• 10:49
  Speaker 4: Is it how long it takes wages and prices to change?
• 10:52
  Speaker 4: Those are all components of the workhorse model that not
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  Speaker 4: just the Fed uses, but investment banks with their armies
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  Speaker 4: of PhDs and stuff like that. I mean, of course,
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  Speaker 4: the FOMC talks about the foreign exchange value of the dollar.
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  Speaker 4: They're just not going to make their policy rule.
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  Speaker 1: Maybe.
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  Speaker 4: And he could have just said it this way. The
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  Speaker 4: policy rule right now is sort of like a Taylor-type rule,
• 11:12
  Speaker 4: where the Fed sets the nominal or real, depending on
• 11:15
  Speaker 4: how you want to think about it, real meaning after inflation,
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  Speaker 4: interest rate based on some gap between what the economy
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  Speaker 4: is doing today and what it should be doing, potential GDP,
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  Speaker 4: if you like, and actual, and some gap between your
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  Speaker 4: inflation target and actual inflation. And it's nice and simple.
• 11:30
  Speaker 4: If the economy is running hot and inflation is running hot...
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  Speaker 4: The weight you place on each of those two terms,
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  Speaker 4: the output gap and the inflation gap, dictates what you
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  Speaker 4: do with the real rate or the nominal rate. It
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  Speaker 4: doesn't matter, really, for purposes of this example. So is
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  Speaker 4: he suggesting we use a Taylor rule and then tack
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  Speaker 4: a foreign exchange value of the dollar term on that?
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  Speaker 4: And what's the right foreign exchange value of the dollar,
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  Speaker 4: by the way? How are we going to determine that?
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  Speaker 4: There are theories. that get at the fundamental value, but
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  Speaker 4: not everybody agrees.
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  Speaker 3: Right.
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  Speaker 4: So that's like a structured way to approach his point.
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  Speaker 4: I did not detect that, and that's why I stopped
• 12:05
  Speaker 4: like two paragraphs in. Of course the FOMC members are
• 12:09
  Speaker 4: concerned with a rapidly rising or falling dollar and what
• 12:13
  Speaker 4: that could indicate about the state of monetary policy.
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  Speaker 3: Light on specifics, I hear you.
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  Speaker 4: Did he say that at the part I couldn't muster
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  Speaker 4: the strength to get to? Did I miss something?
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  Speaker 2: No, I think you encapsulated it pretty well, and I
• 12:24
  Speaker 2: always appreciate your expertise.
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  Speaker 4: It's like saying the Fed should watch gold. Well, yeah,
• 12:30
  Speaker 4: I happen to agree. But are you saying they should
• 12:32
  Speaker 4: set monetary policy based on the gold value? You could
• 12:35
  Speaker 4: think of gold value, the dollar, as no different than
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  Speaker 4: any other foreign exchange value. It's just something's in the numerator,
• 12:40
  Speaker 4: something's in the denominator. Either it's Great Britain pounds or gold.
• 12:43
  Speaker 4: And that's like, either way, you've got a relative value there. Similarly,
• 12:48
  Speaker 4: you could put the dollar. So the value of the
• 12:52
  Speaker 4: dollar relative to what? Like our major trading partners or
• 12:56
  Speaker 4: like it just raises more questions. I'm more disappointed in
• 13:00
  Speaker 4: the lack of substance in an article like that than
• 13:03
  Speaker 4: I am in the concept because the concept is valid. Right. Right.
• 13:07
  Speaker 2: Social Security is expected to be depleted in the next
• 13:10
  Speaker 2: six years. Not sure if you've heard, which could lead
• 13:12
  Speaker 2: to a 25% cut for all beneficiaries. And now policymakers
• 13:17
  Speaker 2: and experts are looking at all different ways of trying
• 13:20
  Speaker 2: to address the program's looming insolvency. One of them that
• 13:25
  Speaker 2: is being mentioned around is as a potential solution. And
• 13:30
  Speaker 2: I don't think this will get at the whole solution
• 13:33
  Speaker 2: because there are much bigger structural problems in place than
• 13:35
  Speaker 2: this alone. is the COLA, or it's called the Cost
• 13:38
  Speaker 2: of Living Adjustment. In 2027, the COLA will be 3.6%.
• 13:42
  Speaker 2: That's up from 2.8% this year. The average beneficiary, that
• 13:48
  Speaker 2: means another $ 75 a month. The way the Social Security
• 13:52
  Speaker 2: Administration does it is they tie a formula to a
• 13:55
  Speaker 2: subset of the Consumer Price Index data. to basically calculate
• 14:00
  Speaker 2: the cost of living change each year. A lot of
• 14:02
  Speaker 2: Social Security recipients will probably tell you that while those
• 14:05
  Speaker 2: increases are helpful, a lot of times they can get
• 14:09
  Speaker 2: offset by the Medicare Part B premiums that are increasing
• 14:13
  Speaker 2: at an even faster rate than the cost of living
• 14:16
  Speaker 2: adjustment is covering on the benefit side of things. So
• 14:22
  Speaker 2: this is one proposal out there. It doesn't really... Solve everything.
• 14:26
  Speaker 2: The proposal is specifically implementing a flat COLA rate and
• 14:30
  Speaker 2: capping adjustments for high earners or switching to a chain
• 14:33
  Speaker 2: COLA to reduce some of the spending. Again, I don't
• 14:36
  Speaker 2: think this gets at the.
• 14:38
  Speaker 3: Shortage in general. These are sort of moves on the
• 14:40
  Speaker 3: fringes on my end of things.
• 14:42
  Speaker 4: Yeah, that's one way to reduce the liability. That is
• 14:46
  Speaker 4: a benefit cut, though.
• 14:47
  Speaker 3: It is, absolutely.
• 14:48
  Speaker 4: Relative to expectations.
• 14:49
  Speaker 3: Absolutely.
• 14:49
  Speaker 4: That's a benefit cut. You can't impose that on people
• 14:51
  Speaker 4: getting it today.
• 14:53
  Speaker 3: Exactly.
• 14:53
  Speaker 4: It's got to be done for future beneficiaries.
• 14:55
  Speaker 3: You're absolutely right.
• 14:56
  Speaker 2: It's a huge benefit to those collecting today that there
• 14:59
  Speaker 2: is some sort of adjustment to account for inflationary pressure.
• 15:02
  Speaker 4: Yeah, and to put that in.
• 15:06
  Speaker 4: Real terms, concrete terms for yourself, go to one of
• 15:09
  Speaker 4: these annuity calculators and price it with and without a COLA, right?
• 15:12
  Speaker 1: Yeah.
• 15:12
  Speaker 4: It goes down by like half if you want a COLA.
• 15:14
  Speaker 1: Right.
• 15:15
  Speaker 4: Because you're buying insurance. Now, as COLA, correct me if
• 15:18
  Speaker 4: I'm wrong, in the annuity world, I usually specified... values, 2%, 3%, 4%, 5%.
• 15:22
  Speaker 4: They never say CPI.
• 15:24
  Speaker 1: No, no.
• 15:25
  Speaker 3: It's always a fixed percentage.
• 15:26
  Speaker 4: That would be an incredible option and also a very
• 15:28
  Speaker 4: expensive one.
• 15:29
  Speaker 3: Absolutely.
• 15:31
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  Speaker 2: in your emergency fund may need to change with it.
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• 16:41
  Speaker 2: Online shoppers and shoppers everywhere are concerned that retailers are
• 16:46
  Speaker 2: using AI to jack up prices. An excerpt here from
• 16:50
  Speaker 2: a Wall Street Journal piece in which a local U.S.
• 16:54
  Speaker 2: citizen bought a hard drive through Walmart's app and then
• 16:59
  Speaker 2: got a really bad feeling about the price. On his phone,
• 17:04
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  Speaker 2: but on his wife's phone, it cost.
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  Speaker 3: $ 110 less.
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  Speaker 2: Using cookies or store data against him was the concern
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  Speaker 2: that he had because he's a product manager at a
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  Speaker 2: technology company. making him a more likely target to make
• 17:25
  Speaker 2: this purchase. And as a result, now this is a
• 17:29
  Speaker 2: small anecdotal example of the broader concern that a lot
• 17:33
  Speaker 2: of people have regarding AI-induced price anxiety.
• 17:38
  Speaker 3: This is something that isn't new.
• 17:40
  Speaker 2: I know I experienced this phenomenon years prior with flight prices.
• 17:45
  Speaker 2: They'll use your browsing data or history if you're looking
• 17:49
  Speaker 2: at flying from Boston to Tampa. In January, and you
• 17:52
  Speaker 2: look at it once on your laptop and you come
• 17:54
  Speaker 2: back to it a week or two later, you're going
• 17:56
  Speaker 2: to see oftentimes the price change to not be in
• 17:59
  Speaker 2: your favor because of that tracking and its history. So that,
• 18:03
  Speaker 2: in a sense, isn't new. The concern that people have
• 18:07
  Speaker 2: sort of voiced is that in-store, there would be this
• 18:12
  Speaker 2: pivot away from the sticker prices to digital pricing in
• 18:16
  Speaker 2: which they would enact some of these changes on a
• 18:19
  Speaker 2: very quick... basis if it's extremely there's a huge downpour
• 18:25
  Speaker 2: all of a sudden umbrellas get marked up you know
• 18:28
  Speaker 2: 25 percent of stores as an example yeah i'd like.
• 18:31
  Speaker 4: To see them try it and then i'd like to
• 18:34
  Speaker 4: see people vote with their feet yeah right let them
• 18:37
  Speaker 4: try it don't.
• 18:38
  Speaker 2: Try it at walmart and then someone walks out the
• 18:40
  Speaker 2: door and go buys it somewhere else.
• 18:42
  Speaker 4: Yeah the the first impulse doesn't have to be well
• 18:45
  Speaker 4: let's let's pass a law You know, let's get government involved. Sorry,
• 18:50
  Speaker 4: I'm on this anti-government trip today.
• 18:52
  Speaker 3: I didn't even say anything about government.
• 18:54
  Speaker 4: No, no, no, but invariably that's one of the proposed solutions. Well,
• 18:58
  Speaker 4: let's make this illegal.
• 18:59
  Speaker 2: Right.
• 18:59
  Speaker 4: And it could be a politician for me to party today.
• 19:01
  Speaker 4: Republicans used to be a free market party. No more. No,
• 19:05
  Speaker 4: people can vote with their feet if they don't like it.
• 19:07
  Speaker 2: That's what competition is all about, that you have Walmart,
• 19:11
  Speaker 2: you have Kroger, you have Amazon.
• 19:12
  Speaker 4: Yeah, I will shop at some place that doesn't scan
• 19:14
  Speaker 4: my retina. And then change my prices when I walk
• 19:17
  Speaker 4: in the door.
• 19:17
  Speaker 2: Yeah.
• 19:17
  Speaker 3: Exactly.
• 19:18
  Speaker 2: Taking a look around at markets, S & P 500
• 19:20
  Speaker 2: is up about a half percent. The Dow Jones is
• 19:24
  Speaker 2: up 50 points. We're going to have much more on
• 19:26
  Speaker 2: the markets and the economy with Wall Street Watch and
• 19:29
  Speaker 2: much more of the financial exchange right after this break.
• 19:39
  Speaker 1: Bringing the latest financial news straight to your radio every day.
• 19:44
  Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
• 19:49
  Speaker 3: Time now for.
• 19:50
  Speaker 1: Wall Street Watch. Tracking the stocks, the data, and the
• 19:54
  Speaker 1: headlines driving markets so far today. Right here on the
• 19:57
  Speaker 1: Financial Exchange Radio Network.
• 19:59
  Speaker 5: Tech continuing to rally one day after Anthropic filed to
• 20:03
  Speaker 5: go public. The Fed also kicks off its two-day meeting
• 20:06
  Speaker 5: today where a decision... On interest rates, we'll follow tomorrow afternoon.
• 20:10
  Speaker 5: Right now, the Dow is up 0.1% or 59 points up.
• 20:11
  Speaker 5: S & P 500 up over 0.5% or 42 points higher.
• 20:12
  Speaker 5: NASDAQ now up 1% or 260 points up.
• 20:13
  Speaker 3: Also, 2000 is up 0.8%.
• 20:13
  Speaker 5: 10-year Treasury yield is unchanged ahead of the Fed meeting
• 20:15
  Speaker 5: at 4.993%. Crude oil down 1.5% at $ 100, while Brent
• 20:17
  Speaker 5: up is at $ 113 a barrel. Broadcom is up over
• 20:37
  Speaker 5: 3% following reports that the chipmaker helped arrange a $ 63
• 20:41
  Speaker 5: billion deal with several major banks to finance the purchase
• 20:44
  Speaker 5: of chips for Anthropic. Meanwhile, JetBlue rallying 20% after the
• 20:49
  Speaker 5: airline affirmed its pledge to turn an operating profit next year,
• 20:53
  Speaker 5: saying its turnaround strategy is working even with higher fuel costs.
• 20:59
  Speaker 5: Boeing beat revenue expectations. However, it doesn't expect to significantly
• 21:03
  Speaker 5: ramp up output of its best-selling 737 MAX aircraft until
• 21:07
  Speaker 5: the second half of next year as it grapples with
• 21:11
  Speaker 5: a slower-than-expected pace of wing production. Boeing shares are now
• 21:14
  Speaker 5: down nearly 10%. Royal Caribbean's third quarter profit rose on
• 21:18
  Speaker 5: strong bookings, prompting it to lift its forecast for the
• 21:21
  Speaker 5: year even as fuel prices rise. Royal Caribbean shares are
• 21:25
  Speaker 5: up by 7%. And Visa will report earnings after today's
• 21:31
  Speaker 5: closing bell. I'm Tucker Silver and that is Wall Street Watch.
• 21:36
  Speaker 2: Dividend stocks are having an excellent October as tech sector
• 21:40
  Speaker 2: struggles at peace here.
• 21:42
  Speaker 3: From MarketWatch.
• 21:44
  Speaker 2: Largely, the significant month for the dividend producers has been
• 21:49
  Speaker 2: due to a drop in interest rates that we've seen
• 21:52
  Speaker 2: over the month of October.
• 21:54
  Speaker 3: As we had discussed, the U.S.
• 21:55
  Speaker 2: 10-year Treasury had spiked to as high as 5.3%. in
• 22:00
  Speaker 2: the month of September. Now it sits at 5%. Typically,
• 22:05
  Speaker 2: these high dividend-paying stocks that you'll see in these funds,
• 22:09
  Speaker 2: not all of them, but many of them are purchased
• 22:13
  Speaker 2: because of the cash flow that they generate from a
• 22:16
  Speaker 2: dividend perspective. And as a result, these dividend-paying companies are
• 22:21
  Speaker 2: sensitive to moves in interest rates. So as interest rates
• 22:24
  Speaker 2: go up on the U.S. 10-year treasury, the valuations of
• 22:27
  Speaker 2: these companies increase. tend to go down and vice versa.
• 22:30
  Speaker 2: Not always across the board, but you've seen the yield
• 22:35
  Speaker 2: here on some of these dividend payers come up and
• 22:39
  Speaker 2: the performance on their stocks has done quite well. Though,
• 22:43
  Speaker 2: if you look back on a year-to-date basis, it certainly
• 22:45
  Speaker 2: has been tech that has been the main driver of markets.
• 22:50
  Speaker 4: Yeah, I don't really have any... It's just sort of
• 22:53
  Speaker 4: one of those, well, yeah, that happens from time to
• 22:56
  Speaker 4: time phenomena. When growth stocks– I'll just break stocks broadly
• 23:01
  Speaker 4: into growth and value categories. Value and high yield don't–
• 23:06
  Speaker 4: and high dividend yield don't neatly overlap or completely overlap,
• 23:11
  Speaker 4: but they have more in common than, say, high dividend
• 23:15
  Speaker 4: yield in growth companies, I think. Yeah. Yeah, it's sort
• 23:20
  Speaker 4: of a rotation among styles.
• 23:23
  Speaker 3: Yeah, and I think.
• 23:24
  Speaker 2: What's important to note is that we had covered this
• 23:27
  Speaker 2: piece in the show a few weeks back where it
• 23:30
  Speaker 2: was perhaps a large cap value manager or maybe in
• 23:34
  Speaker 2: a different, maybe smaller mid cap value. But basically, it
• 23:38
  Speaker 2: was trying to compare its performance to the S &
• 23:40
  Speaker 2: P 500 and saying that this particular area of the market,
• 23:43
  Speaker 2: I believe it was large cap value. had trailed the
• 23:45
  Speaker 2: S & P 500 for a significant period of time.
• 23:48
  Speaker 3: And to me, my commentary on that.
• 23:50
  Speaker 2: Was it's not fair to make that comparison because, to
• 23:53
  Speaker 2: your point, it's a different style of investing. It's not
• 23:56
  Speaker 2: an apples-to-apples comparison. You're putting different focuses on your invested
• 24:02
  Speaker 2: capital than when you're buying, like in this instance, dividend-paying
• 24:06
  Speaker 2: stocks than a more blended or growth-focused portfolio.
• 24:11
  Speaker 4: I guess it depends on why you're making the contrast.
• 24:13
  Speaker 1: If you.
• 24:14
  Speaker 4: claim or believe that value companies will deliver a premium,
• 24:19
  Speaker 4: a positive difference, relative to the broad market over time,
• 24:24
  Speaker 4: it is okay to make that comparison. You could say
• 24:26
  Speaker 4: the value premium's not been there. There was no benefit
• 24:30
  Speaker 4: taking on active risk, which you do when you invest
• 24:32
  Speaker 4: differently than the market, the S & P 500 in
• 24:35
  Speaker 4: this example. No point in taking it on if you're
• 24:38
  Speaker 4: not going to be rewarded for it systematically over a
• 24:41
  Speaker 4: long period of time. So I think it is okay
• 24:44
  Speaker 4: to make that comparison. But there may be times when
• 24:48
  Speaker 4: that leads you to incorrect conclusions, like over shorter periods.
• 24:54
  Speaker 1: Sure.
• 24:55
  Speaker 2: GLP-1s are really making a significant impact on the economy.
• 25:01
  Speaker 2: There is now 38 million Americans who are on GLP-1
• 25:06
  Speaker 2: weight loss drugs. And in particular, this piece here in
• 25:09
  Speaker 2: the Financial Times covers the impact to many different sectors.
• 25:13
  Speaker 3: Economy.
• 25:13
  Speaker 2: One that they highlight in their first example is a
• 25:17
  Speaker 2: big and tall bespoke soup maker business by the name,
• 25:22
  Speaker 2: Alan Horowitz is the name of the the person who
• 25:25
  Speaker 2: runs that fifth-generation big and tall store in New York,
• 25:30
  Speaker 2: Alan David Customs is his name, where they have seen
• 25:34
  Speaker 2: a 10% to 12% hit off their revenue in the
• 25:37
  Speaker 2: big and tall suit stores as a result of GLP-1
• 25:40
  Speaker 2: usage causing significant weight loss around many different U.S. citizens
• 25:45
  Speaker 2: and then broadly in the U.K. as well there's uses here.
• 25:50
  Speaker 2: And it goes on to hit the different areas that
• 25:52
  Speaker 2: could be benefited. The penetration on these is low now, Mark.
• 25:56
  Speaker 2: It has been gravitated more towards these higher income earners
• 25:59
  Speaker 2: that have access to it, but it's going to open
• 26:02
  Speaker 2: up to everyone having access to them, whether we get
• 26:04
  Speaker 2: to the generics or just their subsidy provided by health
• 26:08
  Speaker 2: insurance plans. I believe Medicare, I forget if they have
• 26:11
  Speaker 2: picked them up yet, but regardless, these are only going
• 26:15
  Speaker 2: to become more and more prevalent. And as a result
• 26:17
  Speaker 2: of that, particularly consumer CPG brands or consumer packaged goods
• 26:21
  Speaker 2: brands are going to have to reframe their strategies. Think
• 26:25
  Speaker 2: of the makers of Doritos or Twinkies, all the snack
• 26:30
  Speaker 2: mix where just appetites are going to be more suppressed
• 26:33
  Speaker 2: for more Americans. You're going to have less volume of
• 26:36
  Speaker 2: purchase on the soda front, on all these other different fronts,
• 26:40
  Speaker 2: and they're going to have to figure out a new
• 26:42
  Speaker 2: way to meet the market demands. And so it's an
• 26:45
  Speaker 2: area that I've Been interested in just studying the companies
• 26:49
  Speaker 2: and just some of the side benefits of the drugs.
• 26:52
  Speaker 2: I mean, they get the most publicity for the weight
• 26:55
  Speaker 2: loss stuff, but there's a lot of studies in place
• 26:57
  Speaker 2: to have impacts in other areas of people's lives, whether
• 27:01
  Speaker 2: it's heart and kidney production or other areas. And so
• 27:05
  Speaker 2: I just feel as if, and I'm not the first
• 27:07
  Speaker 2: one to say this, these are only going to become
• 27:10
  Speaker 2: more prevalent usage, particularly as the price ports come down.
• 27:14
  Speaker 2: And so the benefits that they highlight for some of
• 27:16
  Speaker 2: the sections of the economy, they're going to do well.
• 27:18
  Speaker 2: Gyms actually will do well. You might think, oh, you've
• 27:21
  Speaker 2: lost weight. There's going to be no need to go
• 27:23
  Speaker 2: from the gym. But the way GLP-1s work is that
• 27:26
  Speaker 2: you actually lose muscle and bone density much faster. So
• 27:30
  Speaker 2: as a result of that, you sort of need to
• 27:32
  Speaker 2: gravitate towards weightlifting to try and offset some of those
• 27:35
  Speaker 2: benefits that you get on the weight loss side, but
• 27:38
  Speaker 2: a potential detriment on the muscle mass and bone density
• 27:41
  Speaker 2: side of things. on the airline front highlight them, which
• 27:45
  Speaker 2: I did not. immediately think of carrying less weight is
• 27:48
  Speaker 2: some benefit on their end of things. And then the
• 27:51
  Speaker 2: other area that they highlight here is on the health
• 27:54
  Speaker 2: and beauty side because there are some side effects that
• 27:57
  Speaker 2: can impact hair loss and other areas on the injection
• 28:02
  Speaker 2: side of things that they highlight in this piece. So
• 28:04
  Speaker 2: interesting to see what the weight loss economy and all
• 28:07
  Speaker 2: the trickle-down impacts of these drugs.
• 28:08
  Speaker 4: I mean, obesity and just being overweight is the source
• 28:11
  Speaker 4: of all trouble as you get older. There's so many...
• 28:15
  Speaker 4: morbidities related, I think that's the right term, related to
• 28:18
  Speaker 4: being overweight. We all think of heart disease. There are
• 28:21
  Speaker 4: others too. It's brutal on your joints, maybe knees in particular.
• 28:25
  Speaker 4: So over time, I think you made a great point.
• 28:27
  Speaker 4: Over time, we're all going to be able to afford this.
• 28:29
  Speaker 4: It's going to become common. And if there's ever been
• 28:32
  Speaker 4: an argument for encouraging the production or subsidizing even a drug,
• 28:36
  Speaker 4: like this is it. The payoff, think of it, this
• 28:40
  Speaker 4: is a very modest short-term investment in exchange for a
• 28:43
  Speaker 4: lifetime of treatment of morbidities. The payoff is huge.
• 28:45
  Speaker 3: If you're an insurer, think about it. If you can
• 28:47
  Speaker 3: get people on these.
• 28:49
  Speaker 2: Earlier, it really gets your back-end costs down significantly if
• 28:52
  Speaker 2: you can avoid some of these more catastrophic costs.
• 28:55
  Speaker 4: Yeah, nice pun.
• 28:57
  Speaker 3: Exactly. Nice pun.
• 28:59
  Speaker 4: But spending's going to shift. Yes, in the short term,
• 29:01
  Speaker 4: it'll be really disruptive. A lot of maybe consumer staples companies,
• 29:04
  Speaker 4: some of those that you mentioned, are going to take
• 29:06
  Speaker 4: a hit. But that spending's going to shift.
• 29:10
  Speaker 1: Right.
• 29:10
  Speaker 4: To other parts.
• 29:11
  Speaker 1: Of the economy.
• 29:11
  Speaker 3: Whether it's wellness or gyms or wherever it goes to.
• 29:14
  Speaker 3: Or whatever.
• 29:14
  Speaker 4: They just got more discretionary income now because I don't
• 29:17
  Speaker 4: have all the co-pays. I'm not buying all the junk food,
• 29:21
  Speaker 4: which isn't cheap necessarily, et cetera. So, yeah, short-term disruption,
• 29:28
  Speaker 4: as is the case with a lot of things, including AI.
• 29:29
  Speaker 4: There's going to be a lot of short-term disruption. But
• 29:31
  Speaker 4: the potential long-term gains are gigantic.
• 29:34
  Speaker 2: Should be a benefit, hopefully, across the board as they
• 29:37
  Speaker 2: continue to become more and more.
• 29:39
  Speaker 3: Yeah, it's a great story.
• 29:40
  Speaker 2: We're going to take a quick break here on the
• 29:42
  Speaker 2: Financial Exchange. When we come back, a little bit of
• 29:44
  Speaker 2: Stack Roulette right after this.
• 29:46
  Speaker 1: Wall Street, the economy, and the business stories making headlines.
• 29:50
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• 29:53
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• 29:58
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• 30:03
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• 30:07
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• 30:11
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• 30:14
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• 30:26
  Speaker 5: The 2026 DAV 5K Boston is sold out and the
• 30:30
  Speaker 5: race is coming up Saturday, November 7th. at Fort Independence
• 30:34
  Speaker 5: on Castle Island.
• 30:36
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• 30:36
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• 30:39
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• 30:43
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• 30:51
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• 30:55
  Speaker 3: That's DAV5K. Boston. Time for a little bit of Stack Roulette. Mark,
• 31:00
  Speaker 3: what do you got for us?
• 31:01
  Speaker 4: Paul, what do you make of this? Numerous outlets are
• 31:03
  Speaker 4: reporting the GM will be, and maybe you knew this,
• 31:07
  Speaker 4: leaving the New York Stock Exchange, where it's currently listed.
• 31:11
  Speaker 4: And it will be listing effective the 17th of November
• 31:14
  Speaker 4: on the NASDAQ and will be eligible for inclusion by
• 31:18
  Speaker 4: virtue of its size, its market cap, the value of
• 31:20
  Speaker 4: all of its stock in the so-called NASDAQ 100 index.
• 31:24
  Speaker 4: Most people associate the NASDAQ with technology companies for legacy companies.
• 31:30
  Speaker 4: It was more favorable to list there at one point.
• 31:33
  Speaker 4: They certainly don't associate old industry companies like GM with
• 31:37
  Speaker 4: your typical NASDAQ 100 company. This appears to be just
• 31:41
  Speaker 4: like optics.
• 31:41
  Speaker 3: Branding exercise. Just theater, just optics. This is perplexing.
• 31:46
  Speaker 2: It seems like Jenner Motors has been just trying to
• 31:50
  Speaker 2: be more like Tesla for years now.
• 31:53
  Speaker 3: They got all.
• 31:54
  Speaker 2: excited about EVs and had stated, I believe it was
• 31:58
  Speaker 2: them that said by 2035, they weren't going to be selling,
• 32:02
  Speaker 2: you know, gas combustion engines. And they took a huge
• 32:05
  Speaker 2: write down, huge losses in all their investment in their
• 32:09
  Speaker 2: EV endeavors. And now they are trying this rebrand to
• 32:13
  Speaker 2: get them a little bit more on investors' minds when
• 32:17
  Speaker 2: it And software-related services, I'm sorry, GM, it's going to
• 32:24
  Speaker 2: take a lot more than a switch to the NASDAQ
• 32:26
  Speaker 2: to make me think of you as a tech company.
• 32:30
  Speaker 2: And maybe they're trying to command the higher valuations that
• 32:33
  Speaker 2: come with tech rather than the low valuations that.
• 32:38
  Speaker 4: They trade at today. Is it that transparent? I think
• 32:41
  Speaker 4: you've just summarized really nicely why... Some think they're doing it.
• 32:46
  Speaker 4: Could they be this sort of clumsy about it? They
• 32:49
  Speaker 4: want the higher valuation. And you get it if investors... To.
• 32:54
  Speaker 2: Your point, or to answer your question of, yes, this
• 32:57
  Speaker 2: does seem to be the focus behind this move, because
• 33:00
  Speaker 2: the CFO is quoted as saying that GM's technologically driven strategy,
• 33:07
  Speaker 2: according to the CFO, Paul Jacobson... is the reason why
• 33:10
  Speaker 2: the NASDAQ is a, quote, natural home for our listing
• 33:14
  Speaker 2: as we grow.
• 33:14
  Speaker 4: Oh, my God. This guy makes probably $ 10 million a year.
• 33:18
  Speaker 4: That's his big idea. Let's change the exchange we list
• 33:22
  Speaker 4: on to get a higher multiple valuation.
• 33:24
  Speaker 2: You've got to change the perspective of everyone around here.
• 33:29
  Speaker 2: They clearly think that their stock... is cheap. GM recently
• 33:33
  Speaker 2: announced that they were doing $ 20 billion of share buybacks
• 33:37
  Speaker 2: earlier this month. That adds to the tens of billions
• 33:39
  Speaker 2: that they've already spent on buying back its stock since 2023.
• 33:43
  Speaker 2: They got so low because of sort of this failed
• 33:46
  Speaker 2: effort to invest significantly in EV technology that they're still
• 33:51
  Speaker 2: trying to showcase, to be clear. But there has been
• 33:55
  Speaker 2: a lot more focus on the business into its traditional
• 33:59
  Speaker 2: pickups and.
• 34:01
  Speaker 3: Yeah, they've doubled down on the.
• 34:02
  Speaker 4: Big internal combustion engine powered stuff. Toyota's going to eat
• 34:06
  Speaker 4: their lunch on hybrids someday, including on big trucks. I've
• 34:11
  Speaker 4: never read a thing about them pioneering interesting battery technology.
• 34:16
  Speaker 4: They could be forgiven, I guess, for swaying with the
• 34:20
  Speaker 4: political winds. Everybody's doing that these days. One regime comes in,
• 34:23
  Speaker 4: they love the Green New Deal. Another regime comes in,
• 34:25
  Speaker 4: they hate so-called windmills and want to tear it all down.
• 34:29
  Speaker 4: That ebb and flow is probably going to continue.
• 34:32
  Speaker 2: The NASDAQ is really on a roll here. If you
• 34:36
  Speaker 2: look at some of the companies that it's added over
• 34:38
  Speaker 2: the course of the last three or four years... They've
• 34:41
  Speaker 2: got Walmart last year, DoorDash in 2023. And then you
• 34:46
  Speaker 2: have Anthropic set to be on the NASDAQ. SpaceX came
• 34:50
  Speaker 2: out on the NASDAQ. So the New York Stock Exchange
• 34:53
  Speaker 2: is losing some of its luster. against NASDAQ just taking
• 34:59
  Speaker 2: its lunch with companies left and right here. Some news
• 35:03
  Speaker 2: on the merger and acquisition front. There could be possibly
• 35:05
  Speaker 2: a deal between DoorDash and Instacart. This is a piece
• 35:09
  Speaker 2: here from MarketWatch in which they say it's all about
• 35:12
  Speaker 2: keeping up with Amazon and Walmart. When it comes to
• 35:17
  Speaker 2: delivery of groceries, I at least think of Instacart as
• 35:20
  Speaker 2: sort of the pioneer in the space. I remember when
• 35:24
  Speaker 2: my wife was living in Boston, she was one of
• 35:26
  Speaker 2: the first people to show it to me. And now
• 35:28
  Speaker 2: it's become ever more popular that the Walmarts and Amazons
• 35:32
  Speaker 2: of the world, Amazon buying Whole Foods kind of got
• 35:34
  Speaker 2: its infrastructure on the delivery side. Right now, Walmart has
• 35:38
  Speaker 2: about 31% of the market share on grocery store deliveries.
• 35:42
  Speaker 2: beating out Amazon, which is at 24%. Instacart is sort
• 35:45
  Speaker 2: of trailing. And Kroger, too, is trailing those two big
• 35:51
  Speaker 2: behemoth that command almost 60% of the market share. You
• 35:55
  Speaker 2: would think by aligning with DoorDash and the infrastructure that
• 35:58
  Speaker 2: DoorDash has already on the delivery side and logistics side
• 36:01
  Speaker 2: of things, that makes for a stronger company. It's rumored
• 36:04
  Speaker 2: that the purchase price would be about $ 17 billion to
• 36:08
  Speaker 2: purchase Instacart.
• 36:10
  Speaker 3: It's a tough business.
• 36:11
  Speaker 4: It's so funny that people treat this as like a frontier,
• 36:14
  Speaker 4: kind of cutting edge. My grandmother... In the, like, 70s,
• 36:18
  Speaker 4: used to have her groceries delivered. Grocery delivery is not new.
• 36:22
  Speaker 4: Of course, it was, like, the kid down the street
• 36:24
  Speaker 4: from the market.
• 36:24
  Speaker 3: Yeah, Peapod.
• 36:25
  Speaker 2: Like, grocery delivery is hardly a new concept. I should
• 36:30
  Speaker 2: revise my statement of saying, like, in the smartphone age,
• 36:33
  Speaker 2: they kind.
• 36:33
  Speaker 3: Of brought it more to the forefront.
• 36:36
  Speaker 2: No criticism of you at all. It's just the way
• 36:38
  Speaker 2: it's talked about now. It is a good point to
• 36:40
  Speaker 2: bring up that it's not a new concept. Delivering groceries?
• 36:44
  Speaker 4: It's at least 100 years old.
• 36:45
  Speaker 2: The technology around it has changed slightly, but ultimately it
• 36:49
  Speaker 2: is something that you're right, is as old as time.
• 36:52
  Speaker 2: So we'll have to see if DoorDash can end up
• 36:56
  Speaker 2: acquiring Instacart. Instacart has been on a good run this year.
• 37:00
  Speaker 2: The stock was up 30% or so. So far where
• 37:04
  Speaker 2: DoorDash's stock had been down about 25%.
• 37:09
  Speaker 3: Another quick.
• 37:09
  Speaker 5: I'm sorry, just before we wrap, Paul, we only got
• 37:12
  Speaker 5: a I met it here on the show, but I
• 37:14
  Speaker 5: just want to remind listeners that we will be doing
• 37:16
  Speaker 5: a remote broadcast of the Financial Exchange tomorrow at the
• 37:20
  Speaker 5: Museum of American Finance at 200 Seaport Boulevard right in
• 37:24
  Speaker 5: Boston in the lovely Seaport. It's going to be Chuck.
• 37:28
  Speaker 3: It's going to be Mike.
• 37:29
  Speaker 5: We're going to have the museum president, David Cowan, joining us,
• 37:33
  Speaker 5: and then former CNBC senior markets correspondent, Bob Pisani, joining
• 37:37
  Speaker 5: us on the show tomorrow as well. Once again, Museum
• 37:40
  Speaker 5: of American Finance. Tomorrow, financial exchange from 10 to noon.
• 37:44
  Speaker 3: Awesome. Should be a great day for it. The weather
• 37:47
  Speaker 3: looks tremendous.
• 37:48
  Speaker 2: Taking a look at the S & P 500, it
• 37:50
  Speaker 2: is up about 0.7% in early trading here. The Dow
• 37:54
  Speaker 2: Jones is up about 80 points. And the NASDAQ is
• 37:57
  Speaker 2: rallying quite a bit, up almost 1.25% at the moment.
• 38:02
  Speaker 3: That's all the time that.
• 38:03
  Speaker 2: We have for today's program. We'll be back at it
• 38:05
  Speaker 2: tomorrow morning at 10 a.m. Thanks so much for joining
• 38:08
  Speaker 2: us live.