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Hot Jobs Report Raises Rate Hike Questions as AI Disruption Fears Grow · The Financial Exchange Show

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Speaker 1: heroes by visiting DAV five K Boston and making a
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Speaker 1: donation today. This is the Financial Exchange with Chuck Zada
1:06
Speaker 1: and Mark Vandetti.
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Speaker 2: Chuck, Mark and Tucker with you here and kicking things
1:15
Speaker 2: off today. We had a jobs report that came out
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Speaker 2: at UH It was a thirty this morning Eastern Time,
1:23
Speaker 2: and jobs report much better than anticipated, one hundred and
1:25
Speaker 2: thirty thousand jobs created for the month versus expectations of
1:29
Speaker 2: forty to seventy k. Unemployment rate dropped from four point
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Speaker 2: four to four point three percent. You go through again
1:36
Speaker 2: kind of all the the big data data pieces in
1:39
Speaker 2: here and hard to find bad ones. The household data showed,
1:44
Speaker 2: you know, an even greater number of jobs added, five
1:47
Speaker 2: hundred and twenty eight thousand. Remember the household and establishment
1:50
Speaker 2: survey don't often add up, they're not always the same.
1:53
Speaker 2: Labor force participation rate improved from sixty two point four
1:56
Speaker 2: to sixty two point five percent, so you know, that
2:00
Speaker 2: makes the unemployment rate drop even more impressive. Other things
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Speaker 2: that you saw aggregate payroll growth now running back up
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Speaker 2: around four point eight percent year over year to dropping
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Speaker 2: to three point seven percent last month with the new
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Speaker 2: updated numbers. So overall, good jobs report, but one that
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Speaker 2: quite honestly, with some of the wage growth that you're
2:21
Speaker 2: seeing underlying it, if you were to see a few
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Speaker 2: more of these, you know, come through in the next
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Speaker 2: couple months, it really does then tilt the balance of
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Speaker 2: risks in the you know, remaining two thirds of the
2:31
Speaker 2: year to Hey, inflation could move higher if you start
2:35
Speaker 2: seeing weekly wage growth numbers coming in consistently at point
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Speaker 2: seven percent month over month. That is not just hot,
2:42
Speaker 2: that is like very very, very very hot, and would
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Speaker 2: represent a material shift that could become problematic. This is
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Speaker 2: one month. Let's not overreact to it. Let's see how
2:54
Speaker 2: things go. So overall, I think this is a very
2:57
Speaker 2: solid jobs report that if you see more of them,
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Speaker 2: you're not getting any more rate cuts and you might
3:03
Speaker 2: start getting rate hikes.
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Speaker 3: Yeah, I think that's where a reasonable analyst should land
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Speaker 3: on this. We had a couple very strong quarters of
3:12
Speaker 3: GDP growth, the second and third, if I'm remembering correctly,
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Speaker 3: in twenty twenty five, we probably finished the year very strong.
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Speaker 3: There were some weaknesses in some high level employment data.
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Speaker 3: You pointed it out earlier in the show, But as
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Speaker 3: it turns out, those may have been Now that's a
3:29
Speaker 3: tricky phrase to use because we don't how it's going
3:31
Speaker 3: to turn out, but if this persists, those were a blip.
3:36
Speaker 3: The economy is unquestionably running hotter than its potential, said differently, Well, actually,
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Speaker 3: I don't know that I would say that any differently.
3:45
Speaker 3: Economy's running too hot, whether you look at GDP. Arguably,
3:49
Speaker 3: if you look at unemployment too unemployment in the low
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Speaker 3: fours is probably unnaturally low. That's probably below the threshold
3:55
Speaker 3: at which inflation starts to rise. Said differently, the Fed
3:59
Speaker 3: is over stimulus the economy. It's growing demand too fast
4:02
Speaker 3: relative to the growth in supply in the productive capacity
4:06
Speaker 3: the economy.
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Speaker 2: So ultimately, I think this is the thing that we're
4:11
Speaker 2: going to watch the next couple months. Is this turn
4:13
Speaker 2: that's happening in the labor market going to continue or
4:17
Speaker 2: is this, you know, a one month blipping the data
4:19
Speaker 2: for whatever reason. I don't know. We'll see what we get.
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Speaker 2: But how does this potentially impact the balance of risks
4:27
Speaker 2: on you know, that inflation versus unemployment question that the
4:31
Speaker 2: Fed has over the rest of the year. It's a
4:33
Speaker 2: big one, especially with a new FET chair that's that's
4:35
Speaker 2: going to be AMA coming.
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Speaker 3: How much of an unemployment a low unemployment fanatic and
4:40
Speaker 3: that sounds cool because anybody out of a job creates
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Speaker 3: an unemployment crisis in their world. But it's unreasonable to
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Speaker 3: want to push the economy below the mid to low fours.
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Speaker 3: And I'm just basing that on recent experience of what
4:53
Speaker 3: seems to be sustainable late twenty tens and going a
4:57
Speaker 3: little farther back late nineteen nineties, though there were a
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Speaker 3: things going on. Then what kind of fanatic forgive me,
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Speaker 3: but wants to push unemployment below four percent when inflation
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Speaker 3: is elevated. That's clearly, that's I say, clearly, because inflation
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Speaker 3: goes it was very high when unemployment was below four percent.
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Speaker 3: That's that's why I amplify that with clearly, that's clearly
5:18
Speaker 3: not sustainable, and people were very upset with elevated inflation.
5:22
Speaker 2: So I was I was gonna talk about something else
5:24
Speaker 2: to kick this hour off, but we're sitting in on this. No no, no, no, no, no, no,
5:28
Speaker 2: no apologies here on the financial exchange. Okay, Let's let's
5:34
Speaker 2: dig in a little bit more on this in a
5:36
Speaker 2: couple of respects. The first is, there's two things that
5:40
Speaker 2: I want to talk about on this. The first is,
5:44
Speaker 2: hasn't the messaging from the Trump administration in the last
5:46
Speaker 2: six months or so been we're going to run the
5:49
Speaker 2: economy hot.
5:50
Speaker 4: Yes, it has sound familiar, Joe Bien.
5:53
Speaker 2: And so ultimately, if they're trying to which, by the way,
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Speaker 2: all of the policy making indication that that's where they're going.
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Speaker 2: When you talk about, you know, the big beautiful bill
6:02
Speaker 2: and the additional stimulus that that's going to kick into
6:05
Speaker 2: the economy this year, it makes sense from that perspective.
6:09
Speaker 2: So they're telling you that they want to run the
6:11
Speaker 2: economy hot. There are signs that the labor market may
6:15
Speaker 2: be turning and starting to hotten up. If we will,
6:19
Speaker 2: and I will, and so I am a big believer
6:22
Speaker 2: in Hey, you know, when someone's telling you what they
6:24
Speaker 2: want to do and they're actually doing it, like, okay,
6:26
Speaker 2: you should probably believe them. The other piece that I
6:30
Speaker 2: think has the potential to make this hotter from an
6:33
Speaker 2: inflation perspective, if this turn in the labor market is real,
6:39
Speaker 2: if labor demand turns up in a world where labor
6:41
Speaker 2: supply is flat to contracting, you've got big problems on
6:46
Speaker 2: the inflation side of things.
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Speaker 3: Well, yeah, and generalize that if demand they just think
6:52
Speaker 3: of overall economic demand and think the FED is controlling it.
6:55
Speaker 3: The problem in twenty twenty one. The problem in the
6:57
Speaker 3: seventies too. In addition to the price spikes in seventy three,
7:01
Speaker 3: seventy four and again in seventy nine that exacerbated inflation,
7:05
Speaker 3: the Fed thought the economy could grow faster than it
7:07
Speaker 3: was growing, and therefore they could keep interest rates lower
7:11
Speaker 3: than they would otherwise. They misread the structure of the economy.
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Speaker 3: It's like overfeeding your dog or cat. You don't understand
7:19
Speaker 3: their activity levels properly. You're pushing their calorie intake beyond
7:23
Speaker 3: what's necessary to keep their weight stable. It's sort of
7:26
Speaker 3: that's not my best analogy, but a pet owner kind
7:29
Speaker 3: of gets that. You got to you got to find
7:30
Speaker 3: the right diet, the find the right dose at your food,
7:35
Speaker 3: dose at your food whatever, relative to your pet's activity.
7:37
Speaker 3: If it's trying to do the same thing, it's how
7:39
Speaker 3: much do we feed this this big dog the economy, Well,
7:42
Speaker 3: if I don't want it to gain weight, I don't
7:44
Speaker 3: want it to lose weight either, where weight is analogously
7:46
Speaker 3: inflation here, and that's always changing.
7:50
Speaker 2: So it's yeah, I'm very much you know of the opinion. Look,
7:55
Speaker 2: you already had this demographic tsunami that was coming with
7:58
Speaker 2: baby boomers retiring, and there aren't enough twenty two year
8:02
Speaker 2: olds to replace all of the sixty two and seventy
8:05
Speaker 2: two year olds that are retiring. It's a math problem,
8:07
Speaker 2: and it's not a complicated one. It's it's simple subtraction.
8:11
Speaker 2: If X is greater than why then you have more
8:14
Speaker 2: people leaving the economy than coming in. And that's that's
8:16
Speaker 2: where we start. But then when you throw in the
8:19
Speaker 2: immigration piece as well, it's one where hey, now your
8:22
Speaker 2: potential you know, relief valve for labor supply is you know,
8:27
Speaker 2: being closed, and this has the potential if labor demand
8:31
Speaker 2: ticks up in any meaningful fashion, you've got an inflation problem.
8:35
Speaker 2: Because if I am a restaurant and Mark, if there's
8:41
Speaker 2: anything that Italians know about, it's restaurants. You know, it's
8:45
Speaker 2: like every one of us has at least like six
8:48
Speaker 2: cousins and uncles who are you know, in some form
8:50
Speaker 2: of the restaurant food chain pun intended And so ultimately
8:57
Speaker 2: you're running a restaurant, your margins, as they are if
9:00
Speaker 2: you're successful, are like four percent. They're not good. And
9:05
Speaker 2: now your labor cost goes up because you know, Johnny
9:08
Speaker 2: got a new job working down the street and so
9:10
Speaker 2: you got to bring someone in who's new, but you
9:12
Speaker 2: got to pay them more. And so you're sitting there,
9:14
Speaker 2: You're like, Okay, this just ate all of my profits.
9:17
Speaker 2: I gotta raise prices. This is how inflation happens. People
9:20
Speaker 2: are like, oh, what is inflation. Ultimately, it's companies deciding
9:23
Speaker 2: to raise prices and when enough of them do it,
9:25
Speaker 2: and enough of that is supported by the demand side
9:28
Speaker 2: for people to pay for those price increases, that's why
9:30
Speaker 2: inflation happens. And so this is the dangerous thing that
9:35
Speaker 2: we have to watch for and see how it develops.
9:38
Speaker 2: Let's take a quick break. When we come back or
9:41
Speaker 2: joined by Luke Kwa from Sherwood News, we're talking about
9:44
Speaker 2: why the tech world and the finance world have very
9:47
Speaker 2: different opinions on artificial intelligence.
9:50
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10:12
Speaker 2: As promised, we are now joined by Luke Kawa from
10:15
Speaker 2: Sherwood News. Luke wrote a piece last week. It's titled
10:18
Speaker 2: why There's a huge vibe difference between tech and finance
10:21
Speaker 2: on AI. I immediately sent to Tucker and said, Tuck,
10:24
Speaker 2: you got to get Luke back on the show, and
10:26
Speaker 2: Tucker was nice enough to reach out. So Luke, appreciate
10:29
Speaker 2: you joining us today.
10:31
Speaker 5: Always my pleasure, man, Luke.
10:32
Speaker 2: What is this huge vibe difference that you're describing in
10:35
Speaker 2: this piece?
10:37
Speaker 5: Yeah, I think to encapsulate it, you can turn first
10:40
Speaker 5: to the markets and you can say AI's been negative
10:43
Speaker 5: for the stock market this year. If you look at
10:45
Speaker 5: pretty much every day, there is a rolling series of
10:48
Speaker 5: industries that are seemingly at risk of being disrupted by AI.
10:52
Speaker 5: And it doesn't matter, like I think people talking about,
10:55
Speaker 5: you know, the idea that you're not going to vibe
10:58
Speaker 5: code your way to this kind of new great salesforce
11:01
Speaker 5: or big app like that doesn't matter. What matters is
11:04
Speaker 5: might you in ten fifteen years And if that's the case,
11:09
Speaker 5: then that's something you have to worry about now. So
11:11
Speaker 5: it's been kind of negative for a rolling series of industries,
11:14
Speaker 5: from you know, software to add tech, to gaming, insurance
11:19
Speaker 5: even recently brokerages. So that's that's the kind of the
11:23
Speaker 5: the easy part, the market's part. The other part is.
11:26
Speaker 6: Something that you know, I'm happy I got to write
11:28
Speaker 6: about it before this viral post on Twitter from from
11:31
Speaker 6: Matt Schuber that was effectively entitled something big is happening,
11:35
Speaker 6: And I think that post kind of encapsulates what I
11:37
Speaker 6: was trying to get at pretty well, and it's that
11:39
Speaker 6: everyone in the tech.
11:41
Speaker 5: Space who is very high touch with AI tools is
11:45
Speaker 5: going that, like, hey, with with some of the recent
11:48
Speaker 5: progress by Claude and from some of the newer chat
11:51
Speaker 5: GPT iterants, some of the new tools developed that like,
11:55
Speaker 5: this is this is the real shift. They're arguing in
11:57
Speaker 5: terms of the way they are working day to day
12:00
Speaker 5: has fundamentally changed, and they're saying that, hey, we're on
12:03
Speaker 5: the bleeding edge of it. We're seeing it first, it's
12:05
Speaker 5: coming for you, and it's going to be pervasive. So
12:08
Speaker 5: there is this gap between the market going okay, like
12:11
Speaker 5: a guy's kind of zero perhaps negative sum, and the
12:15
Speaker 5: tech guys going this is so fundamentally transformative. And there
12:18
Speaker 5: are ways to kind of explain away the gap, but
12:21
Speaker 5: you know, it's a big one. I think it Warrant's
12:23
Speaker 5: kind of monitoring right now.
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Speaker 2: Yeah, I've I've spent the last couple of weeks now
12:27
Speaker 2: kind of digging in more on this and kind of
12:29
Speaker 2: seeing like some of the actual functionality. And I've gotten
12:32
Speaker 2: to the point now where you know, I've kind of
12:34
Speaker 2: had my my Ahama moment or like my oh crap moment,
12:38
Speaker 2: like depending on how you want to look at it.
12:40
Speaker 2: And you know, you mentioned look like no one's gonna
12:43
Speaker 2: like vibe code themselves like the next salesforce, like just
12:46
Speaker 2: for their personal use. But here's the middle ground that
12:50
Speaker 2: that I think is interesting to explore. All these tech
12:52
Speaker 2: companies have been laying people off left and right over
12:55
Speaker 2: the last couple of years. What's to stop three engineers
12:59
Speaker 2: from one of them from saying, hey, we can vibe
13:02
Speaker 2: code the next one and start a company and sell
13:04
Speaker 2: our product at a fraction of the cost of the
13:06
Speaker 2: legacy ones on the market and eat into market share.
13:09
Speaker 2: And that impacts those companies as well.
13:13
Speaker 5: Yeah, I think the kind of the middle ground, or
13:15
Speaker 5: the part that you know software companies are doing, they're
13:18
Speaker 5: obviously incorporating AI agents themselves. I think what you're getting
13:22
Speaker 5: at is how can you effectively disintermediate at a much
13:27
Speaker 5: leaner scale and The kind of the moat that a
13:31
Speaker 5: lot of established software companies have is the legacy data
13:34
Speaker 5: and the fact that it's been there. It's all been there.
13:37
Speaker 5: So the kind of the workaround or the kind of
13:40
Speaker 5: justifying your existence would be, hey, you know, in the
13:43
Speaker 5: same way that you rent for a seat or you
13:45
Speaker 5: pay for a seat in terms of software, well, you're
13:47
Speaker 5: going to be paying for access and performance.
13:50
Speaker 2: To that data and that set.
13:51
Speaker 5: So that's a way of trying to like extract a rent,
13:54
Speaker 5: so to speak, from the the legacy data set, even
13:58
Speaker 5: as kind of AI agents, whether that's from kind of
14:01
Speaker 5: other existing companies or from new entrants, try to irb
14:06
Speaker 5: that away. I think then the difficulty is, well, you know,
14:10
Speaker 5: how big of a rent can you get before you
14:12
Speaker 5: just decide, okay, it's worth reinventing the whole kit and kaboodle.
14:15
Speaker 5: Like Jensen Wong said that, you know, nobody's going to that.
14:19
Speaker 5: AI agents are just going to use tools that are there.
14:22
Speaker 5: They're not going to reinvent hammers and chain saws. The
14:25
Speaker 5: chain saws one got me really worried. But you know,
14:28
Speaker 5: I think at a certain point, if the margins are
14:30
Speaker 5: big enough, high margins are a big kick me sign
14:33
Speaker 5: that says compete and go in there and take it.
14:36
Speaker 2: And this is the whole thing, which is software has
14:40
Speaker 2: had this wide moat for a while in these areas
14:43
Speaker 2: because it's you needed, you know, hundreds or thousands of
14:45
Speaker 2: engineers in order to build the stuff, and then you
14:47
Speaker 2: need to sell it and hopefully get to profitability when
14:49
Speaker 2: you get to scale. But once you get there, you've
14:52
Speaker 2: got these fat margins that you just sit on because
14:54
Speaker 2: it's so hard for new entrants to come in. If
14:58
Speaker 2: those we're talking about the potential commoditization of that software space,
15:02
Speaker 2: are we not?
15:04
Speaker 5: I would say, you know, completely and utterly, and you
15:07
Speaker 5: know that's something. Hey, I write a lot about things
15:10
Speaker 5: that go up and down on charts. I am not
15:13
Speaker 5: immune from this commoditization.
15:14
Speaker 2: And I think all of us are going to get hit.
15:17
Speaker 5: Yeah, yeah, all of us in different ways.
15:20
Speaker 2: I think it's Ah.
15:21
Speaker 5: Some things I'm trying to keep in mind and remembering
15:24
Speaker 5: is hey, like the worst ais that will ever be
15:28
Speaker 5: used commercially are being used now, They're probably going to
15:30
Speaker 5: get better. And what do I have to offer that
15:34
Speaker 5: is kind of independent of things that are easily commoditizable
15:38
Speaker 5: that's not something I have an easy answer to on
15:40
Speaker 5: the day by day, to be quite honest, and I
15:42
Speaker 5: think that's kind of reflected in what we see broadly
15:45
Speaker 5: in markets, is there's margins that are getting intact. Nobody
15:49
Speaker 5: knows whether this is going to be open AI and
15:53
Speaker 5: tropics kind of net profits over time, or whether this
15:56
Speaker 5: is something that really, I would say, as the Internet
15:59
Speaker 5: establishes itself, is more of a broader consumer surplus over time.
16:02
Speaker 5: So that's a big tvd's.
16:06
Speaker 2: It's gonna be wild. And I'm now on the trend
16:09
Speaker 2: that this is going to happen faster than any of
16:11
Speaker 2: us expected the last month or so. It has really
16:13
Speaker 2: changed my thinking and looking at this. Luke, I appreciate
16:17
Speaker 2: you joining us. I appreciate you writing this piece because
16:19
Speaker 2: it was one of the ones that got me thinking
16:21
Speaker 2: really and looking forward to talking again soon.
16:24
Speaker 5: I appreciate the bemeback Man. Thanks a lot.
16:26
Speaker 2: That is Luke Kawa from Sherwood News talking about what
16:30
Speaker 2: we are seeing in artificial intelligence at the moments.
16:34
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17:33
Speaker 2: Mark Continuing the AI chatter here a couple pieces one
17:37
Speaker 2: from uh well both from Bloomberg uh talking about you know,
17:40
Speaker 2: basically anything that Wall Street views that could be in
17:43
Speaker 2: AI's crosshairs is basically stocks are just getting arbitrarrily dumped.
17:48
Speaker 2: Yesterday as an example, uh, you had a case where
17:52
Speaker 2: a bunch of finance companies Charles Schwab lpl Finance a
17:56
Speaker 2: bunch of the big you know, custodians in the finance
17:59
Speaker 2: space getting hit because all Truest Corporation rolled out an
18:04
Speaker 2: AI based tax strategies tool that they said could automate
18:07
Speaker 2: a lot of that process. And so pretty much what
18:11
Speaker 2: you're seeing right now. And again, I don't know how
18:13
Speaker 2: much of this is right or wrong, but it sell first.
18:16
Speaker 2: Ask questions later. When businesses are viewed to be under
18:20
Speaker 2: threat by artificial intelligence.
18:23
Speaker 3: Yeah, I think one way to think about it, if
18:25
Speaker 3: you're concerned about your own role, and to your and
18:28
Speaker 3: Luke's point, I guess we all should be to a degree,
18:30
Speaker 3: is if you wrote down what you did, could somebody
18:33
Speaker 3: just following those instructions execute successfully and perform your job?
18:38
Speaker 2: I e.
18:39
Speaker 3: Does it require any judgment and any experience at all?
18:41
Speaker 3: If the answer is no, you're probably vulnerable in this
18:44
Speaker 3: short term. Would you agree with that, Chuck?
18:47
Speaker 2: Yes. And the other differentiating factor is does it require
18:50
Speaker 2: anything anything in the physical world or anything relationship based
18:55
Speaker 2: at this point? Yes, If it requires those things you
18:58
Speaker 2: have more.
18:59
Speaker 4: Time, Yeah, it's yeah.
19:00
Speaker 2: If it doesn't, there's a there's a rapidly ticking clock,
19:06
Speaker 2: you know, And I don't know whether that is six
19:07
Speaker 2: months or eighteen months, but it's not a decade. It's
19:11
Speaker 2: like this is now coming faster than we thought. As
19:16
Speaker 2: Luke said, look, let me take a quick break here.
19:19
Speaker 2: When we come back, I want to dig in more
19:21
Speaker 2: on one thing that he said. We've also got the
19:23
Speaker 2: trivia answer in Wall Street Watch.
19:24
Speaker 1: Too, bringing the latest financial news straight to your radio
19:33
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19:36
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19:42
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19:45
Speaker 1: on the Financial Exchange Radio Network.
19:47
Speaker 7: Some job be trading on Wall Street to this point
19:49
Speaker 7: as investors react to US stronger than expected January job support,
19:53
Speaker 7: where one hundred and thirty thousand jobs were added last month,
19:57
Speaker 7: above expectations of sixty five. The unemployment rate also ticked
20:01
Speaker 7: lower to four point three percent. Right now, the Dow
20:05
Speaker 7: is only off by forty six points, SMP five hundred
20:09
Speaker 7: edging two points higher, Nasdaq down about a third of
20:12
Speaker 7: a percent, Rusted two thousand selling off one percent, ten
20:16
Speaker 7: year treasure reeled is up one basis point at four
20:18
Speaker 7: point one six two percent, and crude oil up nearly
20:22
Speaker 7: two percent higher now trading just above sixty five dollars
20:25
Speaker 7: a barrel. Kraft Heines announced this morning it is pausing
20:28
Speaker 7: work on a previously announced plan to split the company,
20:31
Speaker 7: stating that many of the company's issues are fixable and
20:34
Speaker 7: within its control. Craft heinds shares are edging higher. Meanwhile,
20:39
Speaker 7: shares and Warner Brothers Discovery are modestly higher. After The
20:43
Speaker 7: Wall Street Journal reported activists Investor and Korra built a
20:46
Speaker 7: near two hundred million dollar stake in Warner and plans
20:50
Speaker 7: to oppose its deal with Netflix, saying Warnerfield to adequately
20:53
Speaker 7: engage with Paramount's rival offer. Netflix, by the way, is
20:57
Speaker 7: down by over two percent. Elsewhere, Adernas stock is down
21:01
Speaker 7: eight percent following news that the FDA refused to review
21:04
Speaker 7: the drug maker's application to sell a new seasonal flu vaccine.
21:09
Speaker 7: Lift stock is dropping nearly fifteen percent after its fourth
21:13
Speaker 7: quarter ridership numbers disappointed. However, it's CEO said consumer demand
21:17
Speaker 7: remained strong, and shares and toy manufacturer Mattel are plunging
21:21
Speaker 7: twenty four percent after miss earnings and revenue expectation. City
21:26
Speaker 7: Group in JP Morgan Chase also both downgraded the stock.
21:31
Speaker 7: I'm Tucker Silva and That is Wall Street Watching. On
21:33
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21:59
Speaker 2: Federal Reserve Bank of New York out with their latest
22:03
Speaker 2: quarterly report on Americans and their household finances. What they
22:09
Speaker 2: show is that credit card debt has now topped one
22:11
Speaker 2: point two eight trillion dollars. It's a five point five
22:15
Speaker 2: percent jump from the prior year. Remember, inflation is running
22:19
Speaker 2: about three percent, so it's about a two and a
22:21
Speaker 2: half percent jump in real terms. That's the one that matters,
22:25
Speaker 2: and matters also, Hey, how much of this is being
22:28
Speaker 2: rolled over each month and not paid versus how much
22:31
Speaker 2: is being paid off? Because ultimately, if you have that
22:34
Speaker 2: credit card balance but you pay it off every month,
22:36
Speaker 2: it's not really a problem in any way, shape or form,
22:40
Speaker 2: at least not in your you know, current state. So
22:44
Speaker 2: I always, you know, we get these and you know,
22:46
Speaker 2: it's always good to you know, poo poo them and
22:48
Speaker 2: be like, oh, like, you know, here are the things
22:49
Speaker 2: that you need to look at. Is there anything that's
22:52
Speaker 2: actually concerning when you look at the data from this
22:57
Speaker 2: most recent quarterly report?
23:01
Speaker 4: Hard to say. I don't know, Like I don't know
23:02
Speaker 4: where to put it.
23:03
Speaker 3: You know, if you're a researcher, maybe this is an
23:06
Speaker 3: input into a model of yours that forecasts spending. Maybe
23:11
Speaker 3: this is an input into a model that forecasts growth.
23:14
Speaker 3: Maybe both those two things are related. I don't use it,
23:17
Speaker 3: so I don't want to say something, you know, really stupid.
23:22
Speaker 3: Only someone who used the data and knew what it
23:24
Speaker 3: was a useful input to would would pick up on it.
23:27
Speaker 3: But it hard to say, like it doesn't feel good. Well, geez,
23:30
Speaker 3: debt grew in real terms. That can't be good. No,
23:33
Speaker 3: I guess not unless people are one economic explanation as well,
23:36
Speaker 3: people expect future earnings growth to be higher. We keep
23:39
Speaker 3: hearing about a productivity miracle of AI that may eventually
23:42
Speaker 3: make its way into wages.
23:45
Speaker 4: It look there, that's two ifs.
23:46
Speaker 3: So first it happens, then workers workers benefit, and maybe
23:53
Speaker 3: people are spending on it. This is so weak, but
23:55
Speaker 3: I'll throw it out there. Maybe they're spending an inticipation
23:57
Speaker 3: about that. I don't think anybody would take that seriously though.
24:00
Speaker 2: The place that I tend to come back to is
24:04
Speaker 2: the household debt service ratio. Basically, what percentage of your
24:07
Speaker 2: disposable income do debt payments makeup? Right now Q four
24:13
Speaker 2: it's about eleven point six percent. That's the most recent
24:15
Speaker 2: data that is released here in Q four seven. Right
24:19
Speaker 2: before everything fell apart in the financial crisis, it was
24:23
Speaker 2: fifteen point eight And for most of the last forty
24:26
Speaker 2: five years we have the data set I'm looking at
24:28
Speaker 2: here goes back to nineteen eighty it was generally between
24:31
Speaker 2: twelve and fourteen percent. That's kind of where it tended
24:34
Speaker 2: to live. So fifteen point eight percent right before the
24:37
Speaker 2: financial crisis was yeah, significantly high compared to where it
24:41
Speaker 2: had previously been. Eleven point six percent. You're basically at
24:46
Speaker 2: the same place that you were at for most of
24:49
Speaker 2: the twenty eleven through twenty nineteen period. I'm just not
24:54
Speaker 2: convinced that Americans are borrowing too much in the aggregate. Again,
24:59
Speaker 2: I'm not saying that there aren't problems, but when you
25:03
Speaker 2: look at the fact that unfortunately, most of the spending
25:07
Speaker 2: is now done by that top five to ten percent
25:10
Speaker 2: of Americans, And so as long as they can continue
25:13
Speaker 2: to service their debt, the struggles of you know, the
25:16
Speaker 2: bottom fifty to sixty percent, they don't necessarily impact the
25:21
Speaker 2: US economy in the same way that they may have previously.
25:24
Speaker 2: And like it's it's not good, Like this is not
25:27
Speaker 2: good from a societal perspective, that such a large portion
25:31
Speaker 2: of Americans are really struggling to pay the bills. And
25:35
Speaker 2: somehow it still doesn't like influence the economy enough. But
25:38
Speaker 2: it's kind of where we are right now.
25:42
Speaker 4: Any thoughts, Mark, No, I think you make a good point.
25:46
Speaker 3: I wonder about a debt service relative to interest rates.
25:52
Speaker 3: Debt service includes mortgages, right and longer term? Yes, okay,
25:57
Speaker 3: so you've got some of that was refined. Some of
25:59
Speaker 3: that represents mortgagees taken out at rates that were artificially logos.
26:04
Speaker 3: The FED was effectively capping them for a while. I
26:09
Speaker 3: don't know what, Chuck, I don't know.
26:11
Speaker 2: So, yeah, it's what we'll see where this goes. Folks.
26:14
Speaker 2: We are talking about the overall you know, health of
26:18
Speaker 2: the US economy and health of personal finances here and
26:21
Speaker 2: if you've got questions about heading into retirement in your
26:25
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26:30
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26:34
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26:37
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26:42
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26:44
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26:50
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26:55
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26:58
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27:00
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27:03
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27:06
Speaker 2: plan and just want a second opinion, you can head
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Speaker 2: over to Armstrong Advisory dot com, click that get started
27:12
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27:14
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27:19
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27:35
Speaker 2: Last segment, we were also chatting with Luke Kawa, and
27:40
Speaker 2: you know, I said I had one more thought that
27:41
Speaker 2: I wanted to give as it relates to AI, and
27:44
Speaker 2: it's something that he said, but I want to dig
27:46
Speaker 2: in on it a little bit more, and that's Look,
27:48
Speaker 2: the AI models that you see today that are being used,
27:53
Speaker 2: they are the worst ones that will exist going forward.
27:56
Speaker 2: And plenty of us, myself included, we've been critical of,
28:01
Speaker 2: you know, Google telling you to, you know, go eat
28:03
Speaker 2: rocks ten years or two years ago. We've been critical of,
28:06
Speaker 2: you know, all of the dumb stuff that some of
28:09
Speaker 2: these consumer facing versions of AI have produced. But ultimately,
28:15
Speaker 2: if you're looking at what the cutting edge models can
28:17
Speaker 2: do now, and remember just how quickly this has evolved
28:20
Speaker 2: in that two years from now, these are going to
28:21
Speaker 2: look even more different from what they are today. If
28:26
Speaker 2: you're trying to judge AI by the mistakes that were
28:29
Speaker 2: made early on, that's like trying to decide whether you're
28:31
Speaker 2: gonna get on a plane today based on what the
28:33
Speaker 2: Wright brothers did, and I would not have hopped on
28:37
Speaker 2: that plane, you know, in Kitty Hawk, North Carolina. But yeah,
28:40
Speaker 2: you better believe that I'm gonna you know, hop on
28:42
Speaker 2: a seven thirty seven and fly to wherever because you know, again,
28:47
Speaker 2: basically air travel at this point is the safest way
28:49
Speaker 2: to get from you know, from one place to another.
28:52
Speaker 2: So I do think that, you know, for those who
28:55
Speaker 2: are AI skeptical and I'm in this category, but what
28:59
Speaker 2: I've seen in the last month, I do think has
29:02
Speaker 2: changed how I think about it, I urge you not
29:06
Speaker 2: to get stuck on well, I saw this you know
29:09
Speaker 2: article that it told people to do blah blah blah.
29:12
Speaker 2: I get that. And I'm also not trying to just
29:15
Speaker 2: like push away the concerns about, hey, you know, you've
29:18
Speaker 2: got you know, AI programs that are you know, trying
29:21
Speaker 2: to get into you know, allowing erotica for their users,
29:25
Speaker 2: and oh like you can generate these images and these
29:27
Speaker 2: videos like no, like that's the dumb consumer facing stuff
29:31
Speaker 2: that that is you know, not good and and and
29:33
Speaker 2: look like there's there's a lot of crap that goes
29:36
Speaker 2: along with it. But don't let that crap cause you
29:40
Speaker 2: to miss what I do think now is going to
29:43
Speaker 2: be a fundamental change in the way that a ton
29:45
Speaker 2: of knowledge work to begin with, and potentially even physical
29:48
Speaker 2: work ends up evolving what it evolves into in the
29:53
Speaker 2: next several years and over the next decade. It's it's
29:57
Speaker 2: I know there's a lot of crap there, and and
30:00
Speaker 2: trust me, like when it continues to come up, we
30:01
Speaker 2: will call out the crap, but understand that when it
30:05
Speaker 2: comes to people trying to actually do real work using this,
30:09
Speaker 2: some of the things that have come about in the
30:10
Speaker 2: last month or two are absolutely transformational. And it's okay
30:14
Speaker 2: to still be skeptical. But skeptical doesn't mean that you
30:17
Speaker 2: just bury your head in the sand and say that
30:18
Speaker 2: there's nothing actually happening here. Just take a quick break.
30:22
Speaker 2: When we come back, let's do a little bit of
30:23
Speaker 2: stack roulette.
30:24
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30:27
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31:15
Speaker 2: Mark, what do you have for me for stack roulette?
31:17
Speaker 1: He?
31:17
Speaker 3: Can I go back to AI for just I have
31:19
Speaker 3: a riveting stack roulette item.
31:21
Speaker 4: It's it's so mind blowing.
31:22
Speaker 3: I'm debating whether or not to share it. But can
31:25
Speaker 3: I go back to AI for a second. It's I
31:27
Speaker 3: know it's it's one of your favorite subjects, right, and
31:29
Speaker 3: you're you're unusually knowledgeable, So can I hit you with something.
31:32
Speaker 2: I'm knowledgeable enough to be dangerous?
31:34
Speaker 3: Well, that's that's what I'm not even knowledgeable enough to
31:37
Speaker 3: be dangerous, which.
31:37
Speaker 2: Mark, You're always dangerous?
31:39
Speaker 3: Yeah, I don't need as The baseline for me is
31:42
Speaker 3: is heightened heightened. Everybody should be on heightened alert.
31:45
Speaker 2: So is it to me?
31:47
Speaker 3: One of the paradox is potential paradoxes of AI is
31:49
Speaker 3: it's going to be life changing like the Internet was.
31:51
Speaker 3: I mean, life is different than it was in nineteen
31:53
Speaker 3: ninety than it is today just because the Internet and
31:56
Speaker 3: it's fusion with the smartphone. But the trend in growth
32:01
Speaker 3: didn't change. In fact, it's slowed down for reasons other
32:04
Speaker 3: I assume than that we're all online a lot, maybe
32:06
Speaker 3: wasting time. Maybe that's not a coincidence. Now that I
32:08
Speaker 3: think about it, Is it possible AI is transformative? It
32:12
Speaker 3: changes the way we all work, It makes some professions
32:14
Speaker 3: obsolete and introduces ones we couldn't even imagine, but doesn't
32:18
Speaker 3: actually change the long term trend in growth.
32:24
Speaker 2: Would say that again, So I don't.
32:26
Speaker 3: Okay, here's I could see AI being. I'll just use
32:29
Speaker 3: the word transformative, even though it's cliche. It changes everybody's life,
32:32
Speaker 3: just like the Internet has. But it doesn't necessarily mean
32:35
Speaker 3: we're going to be any richer now. And I know
32:37
Speaker 3: this sounds ridiculous, then say any richer in twenty five
32:42
Speaker 3: or fifty years than we would have been had it
32:44
Speaker 3: not been introduced. Other things would have come along. They
32:46
Speaker 3: would have been sources of growth, not as dramatic, but
32:49
Speaker 3: the economies, the growth is driven by bigger forces, is
32:56
Speaker 3: what I think i've is what I think I believe
32:59
Speaker 3: about this, because things like the Internet and before that,
33:01
Speaker 3: electricity didn't change the trend in growth, and I'm not
33:06
Speaker 3: sure AI will either.
33:07
Speaker 4: As much as that sounds like a contradiction.
33:10
Speaker 2: What's your what's your mind blowing thing for stack roulettes
33:13
Speaker 2: or that?
33:13
Speaker 3: Okay, that apparently didn't impress you.
33:15
Speaker 4: Okay, that was it?
33:17
Speaker 3: No, no, no, see this is well if that didn't,
33:20
Speaker 3: if that didn't do anything that you know, a Providence
33:28
Speaker 3: College of B minus, which which is where I went
33:30
Speaker 3: for undergrad that's that's that's quite weak.
33:33
Speaker 4: Okay.
33:34
Speaker 3: Uh CBO released its budget projections today. That's the Congressional
33:37
Speaker 3: Budget Office, the non part.
33:38
Speaker 2: Okay.
33:39
Speaker 3: And I don't know, Tuck, if we have a sound
33:40
Speaker 3: effect for something for a man getting skinned alive or
33:44
Speaker 3: like a devastating world killing explosion, but not not good
33:50
Speaker 3: relative to the size of the economy. And this is
33:52
Speaker 3: all this, you can get bogged down in numbers, really fast.
33:55
Speaker 3: I think the upshot here for those of us that
33:58
Speaker 3: don't like dealing with like scientific notation when it comes
34:01
Speaker 3: to expressing big numbers and when percentages getting compounded becomes bewildering,
34:06
Speaker 3: is that budget deficits are expected deficits, the cumulative effect
34:11
Speaker 3: of which is the debt expected to continue to grow.
34:14
Speaker 3: There will be no interruption because of demographics. The debt
34:17
Speaker 3: is a percentage of the US economy is expected to
34:20
Speaker 3: continue to grow. It's currently at about one hundred percent
34:23
Speaker 3: of so called GDP. It's going to be at least
34:26
Speaker 3: twenty percent more than that in several years from now,
34:30
Speaker 3: and it will continue to grow at five per six
34:32
Speaker 3: to six of GDP a year. The question is, Chuck,
34:35
Speaker 3: when do things break?
34:37
Speaker 2: When do they break?
34:39
Speaker 4: Nobody knows?
34:39
Speaker 3: The right answer is that nobody knows the right answer.
34:41
Speaker 3: It's it's it's well, I could say one thing. I
34:44
Speaker 3: guess we're closer to that point than we were five
34:47
Speaker 3: or ten years ago. But maybe those goalposts move.
34:50
Speaker 1: I don't know.
34:51
Speaker 2: It's because it's not physics. You know, there's not a
34:54
Speaker 2: level that you get up to where you say, okay,
34:57
Speaker 2: this is broken. Like it's It varies based on on
35:00
Speaker 2: the specific situation, the country, the issue were you know,
35:03
Speaker 2: there's a wide range that you can get into here.
35:08
Speaker 2: Ultimately it does get more and more uncomfortable. And part
35:11
Speaker 2: of it is also look the CBO projections, they never
35:15
Speaker 2: project any kind of recession happening. Ever, they just because.
35:20
Speaker 4: Because they're not predictable.
35:21
Speaker 2: They're not economists who predict recession, and so it's just okay,
35:24
Speaker 2: here's the baseline, steady state. The fascinating thing is that
35:28
Speaker 2: we're basically running recession level deficits in the absence of
35:31
Speaker 2: a recession, and so when one eventually comes, whether it's
35:35
Speaker 2: in a year, whether it's in five years, ten, like,
35:37
Speaker 2: no one knows when it's going to be. The economists
35:40
Speaker 2: have successfully predicted fifty five of the last one recessions.
35:44
Speaker 2: But ultimately, when that recession does come, if you're running
35:48
Speaker 2: six percent deficits annually before that, where do you end
35:53
Speaker 2: up after that? We probably like eight to twelve percent.
35:55
Speaker 3: We saw that in twenty twenty there was a big
35:57
Speaker 3: structural deficit.
35:59
Speaker 4: Total lefis less.
36:00
Speaker 3: What's what's being paid an interest to people going into COVID.
36:04
Speaker 3: Trump was running the economy hot and it was enjoyable.
36:07
Speaker 4: Stocks were growing up.
36:08
Speaker 3: Growth was solid, but we went into it with a
36:10
Speaker 3: big deficit relative to GDP, and as you point out,
36:14
Speaker 3: emergencies happen and then things just explode. And by the way,
36:18
Speaker 3: when we say break, like at some point this is
36:20
Speaker 3: gonna break, what does that mean? It means higher inflation,
36:22
Speaker 3: higher interest rates. It doesn't necessarily mean the end of
36:24
Speaker 3: like civilization, no, just just leaner times.
36:27
Speaker 2: For a while. Yeah, there's you always get the people
36:30
Speaker 2: that are like, oh, like, you know, something's gonna happen.
36:32
Speaker 2: It's like, well, what do you think is gonna happen?
36:33
Speaker 2: They're like, I don't know. Well, yeah, it generally means,
36:36
Speaker 2: as Mark said, it's it's higher inflation and or higher
36:39
Speaker 2: interest rates. So cost go up and it's really uncomfortable
36:42
Speaker 2: in growth slows and that's that's not good for anyone. Uh,
36:45
Speaker 2: but you know, we'll kind of have to see how
36:48
Speaker 2: it unfolds. Take a look at markets right now. You've
36:51
Speaker 2: got kind of a mixed set up here. The Dow
36:54
Speaker 2: is up one tenth of a percent, so is the
36:56
Speaker 2: S and P, and a's that composite though down about
36:58
Speaker 2: a third of a percent. So again kind of that
37:01
Speaker 2: AI trade dragging on markets. Right now, and even with
37:04
Speaker 2: the good jobs report, at least through the morning, not
37:07
Speaker 2: able to kind of get any escape velocity. Inequities still
37:11
Speaker 2: somewhat range bound as they've been in recent weeks. Earlier
37:17
Speaker 2: today you had a little bit of a self going
37:19
Speaker 2: on in bonds. That's abated. The tenure treasury is up
37:22
Speaker 2: one basis point now, that's not really anything to write
37:24
Speaker 2: home about, so there's not much movement on that front either.
37:28
Speaker 2: We're gonna take a break for the next twenty four hours,
37:32
Speaker 2: but since tomorrow is a weekday, we're gonna be back
37:35
Speaker 2: and doing another show, and you can tune into us
37:37
Speaker 2: then if you liked what you heard today,