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Does this bull market have room to run? · The Financial Exchange Show

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Speaker 1: donation today. This is the Financial Exchange with Chuck Zada,
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Speaker 1: and Mark Fandetti.
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Speaker 2: Chuck, Mark and Tucker with you here on a federal
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Speaker 2: reserve Wednesday. The Fed is going to be announcing interest
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Speaker 2: rate policy at two pm. J Powell will be giving
1:24
Speaker 2: a nice little press conference with a purple tie at
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Speaker 2: two thirty pm Eastern time. And thus far, markets not
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Speaker 2: really doing much of anything in the aggregate, but again
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Speaker 2: a lot swirling under the surface right now. The S
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Speaker 2: and P five hundred up five points, again pretty quiet,
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Speaker 2: the Dow Jones up forty one points, nasdak can posit
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Speaker 2: up thirty eight points, so about a point one percent
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Speaker 2: rise across your major US indicase ten year treasury selling
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Speaker 2: off very modestly, up two point eight basis points to
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Speaker 2: four point two five one percent. Mortgage rates continuing to
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Speaker 2: hold in that at kind of six point one to
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Speaker 2: six point two range right now at six point one
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Speaker 2: five percent, according to Mortgage News Daily.
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Speaker 1: UH.
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Speaker 2: Taking a look at other markets, the dollar index bouncing
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Speaker 2: back a bit on comments from Treasury Secretary Scott Besson
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Speaker 2: today that the US does want a strong dollar. So
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Speaker 2: the dollar index back up a quarter percent after falling
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Speaker 2: more than three percent over the last week and a
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Speaker 2: half or so, and we've got gold despite that continuing
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Speaker 2: to rip along with other precious metals. Golds up another
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Speaker 2: one hundred and eighty nine dollars an ounce to fifty
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Speaker 2: two to seventy one eighty cents, Silver up another six
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Speaker 2: and a half percent, and we've got crude oil up
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Speaker 2: about one percent today on West Texas Intermediate sixty two
2:47
Speaker 2: cents a barrel to sixty three to ZHO one. This
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Speaker 2: on a post from President Trump this morning warning Iran
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Speaker 2: of additional military action if certain items related to their
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Speaker 2: nuclear program and other items are not fulfilled by Iran.
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Speaker 2: So you've got crude oil up a touch. Gas prices
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Speaker 2: though down nine tenths of ascent overnight. This on a
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Speaker 2: little bit of improvement as far as refinery capacity in
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Speaker 2: the US as the extreme cold has abated in some
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Speaker 2: parts of the country. But mark all eyes this after
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Speaker 2: you're gonna be on the federal reserve, And quite honestly,
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Speaker 2: I think this is going to be the technical term
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Speaker 2: is a really useless meeting. The FED most likely is
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Speaker 2: not going to make any policy changes. On top of that,
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Speaker 2: I think that the J. Powell press conference is going
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Speaker 2: to be dominated by questions about the Fed's independence, that
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Speaker 2: he typically doesn't want to answer during a live Q
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Speaker 2: and A. And so I don't think we're going to
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Speaker 2: get any particularly interesting information because no one's going to
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Speaker 2: want to ask about monetary policy. Everyone's gonna want to
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Speaker 2: ask about FED independence, and we're gonna be left sitting
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Speaker 2: here having j pollis say, I can't answer that at
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Speaker 2: the moment right now.
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Speaker 3: Yeah, I think that's the game for journalists who are
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Speaker 3: looking to up their profile.
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Speaker 2: It's they want the scoop.
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Speaker 3: You bait him, you say the president said your mother
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Speaker 3: was a bad cook, mister chairman, any comment or something like,
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Speaker 3: you know, something like that. Debate him, and of course
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Speaker 3: he's not gonna he said what he had to say,
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Speaker 3: will probably refer them to his video. Look, this is
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Speaker 3: a vitally important issue. This is if you're in a
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Speaker 3: monetary policy and this is a specialization.
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Speaker 4: In and of itself.
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Speaker 3: So sure, generalists like us, you know, we we only
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Speaker 3: scratch the surface. But this is the most important issue
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Speaker 3: probably of our lifetimes, in terms of stability of the
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Speaker 3: financial system, the independence of the FED, because we know
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Speaker 3: what can happen when politicians get their hands on controlling
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Speaker 3: the money supply, namely inflation, instability.
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Speaker 4: It's bad for everything.
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Speaker 3: So this is a critical and you can't underscore it
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Speaker 3: enough issue that's probably not going to be talked about today.
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Speaker 2: So ultimately we're going to be left with a FED
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Speaker 2: meeting that I don't think is really going to provide
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Speaker 2: us any useful, actionable insight. I think that look, anytime
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Speaker 2: you're talking about the FEDI comes down the balance between
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Speaker 2: two things. It's their dual mandate. We want to provide
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Speaker 2: maximum employment and price stability, and looking at where we
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Speaker 2: are right now, the employment side of the ledger is
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Speaker 2: the one where I think in the last six months
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Speaker 2: I've personally had the larger questions about where that's going
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Speaker 2: in the short term. There are some signs that maybe
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Speaker 2: we've got some green shoots on the employment side of things,
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Speaker 2: as continuing unemployment claims have been flat year over year
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Speaker 2: for the first two weeks of this year. This compared
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Speaker 2: to the last several years where we've seen continuing unemployment
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Speaker 2: claims rising about four to six percent year over year.
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Speaker 2: So you sit there and you say, Okay, is there
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Speaker 2: something that's maybe turning the corner on the employment side.
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Speaker 2: Don't know, it's not really supported by much other data.
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Speaker 2: At this point. But weekly claims tend to be one
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Speaker 2: of the first signs that something is changing in the
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Speaker 2: labor market, and so maybe you've got something that's happening there.
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Speaker 2: We'll need another four to six weeks to be able
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Speaker 2: to tell if there's really some meat on that bone.
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Speaker 2: So I think that's the state of play with the
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Speaker 2: labor market. But if that's the case, especially the FED
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Speaker 2: would sit there and say, yeah, we've now done an
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Speaker 2: additional seventy five basis points and cuts. We're gonna give
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Speaker 2: this a little bit of time to sink in and
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Speaker 2: see if anything is needed, because the situation certainly doesn't
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Speaker 2: appear to be exponentially worsening. It's not the kind of
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Speaker 2: move you normally see in a recessionary labor market where
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Speaker 2: unemployment spikes up rapidly. It came in by two tents
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Speaker 2: of a percent in the most recent jobs report. So
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Speaker 2: I think they're kind of waiting and see on that side,
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Speaker 2: and that there's no thing that would be out there
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Speaker 2: saying yes, you need to cut right now. On the
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Speaker 2: hike side, Okay, we've gotten a bunch of you know,
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Speaker 2: kind of back data now from the October November time frame,
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Speaker 2: from Cpippi PCE that data's come in at this point,
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Speaker 2: there's nothing in there that you look at where you're like, okay,
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Speaker 2: Fed's got a hike. So ultimately it kind of gets
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Speaker 2: to a place where it's, you know, buying large expected
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Speaker 2: they're not going to do anything on the monetary policy
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Speaker 2: side of things. We don't get a summary of economic
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Speaker 2: projections this month, so there's no dot plot telling us
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Speaker 2: what they're thinking about future growth or inflation or anything.
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Speaker 2: And as we discussed, the Q and A session with
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Speaker 2: Ja Powell is probably gonna be next to worthless. So
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Speaker 2: I don't know, do you just kind of take a
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Speaker 2: nap from two to three thirty today instead? I mean,
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Speaker 2: I won't like I have to watch what's going on,
7:52
Speaker 2: but you know, normally you can at least glean like
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Speaker 2: I always pull, Like there's usually like two or three
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Speaker 2: quotes in the press conference that I'm like, oh, like
7:59
Speaker 2: that's in interesting. I'm just not sure we're even going
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Speaker 2: to get that today.
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Speaker 3: Yeah, I mean, you could think of the fed's job.
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Speaker 3: I don't know if this analogy works. I've probably used
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Speaker 3: it before as calibrating calories to your weight loss goal.
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Speaker 4: You have this ideal I like.
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Speaker 2: The thermostat one better.
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Speaker 4: That's another this notion of feedback.
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Speaker 2: We do that because it's been kind of a heavy
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Speaker 2: month with the holidays and everything.
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Speaker 4: You know on it. It's a source subject for some people.
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Speaker 3: Yeah, so you could think of the FED as a thermostat,
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Speaker 3: cooling the economy when it runs too hot and doing
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Speaker 3: the opposite, and vice versa. I should say the problem
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Speaker 3: is that the ideal temperature is always changing because the
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Speaker 3: structure of the economy is changing.
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Speaker 4: So you don't know.
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Speaker 3: Sometimes you hear the phrase neutral or natural rate of interest,
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Speaker 3: also referred to as our star. Unhelpfully, all these things
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Speaker 3: mean the same thing. You hear that thrown around. What
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Speaker 3: they're trying to get at there is that there is,
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Speaker 3: in theory, this ideal rate of interest that keeps inflation
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Speaker 3: at bay but doesn't stifle the economy. The problem is
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Speaker 3: we don't know what unemployment rate represents an economy that's
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Speaker 3: operating at potential, neither stifled nor stimulated. Is it four
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Speaker 3: point four percent where unemployment sits today, or is that
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Speaker 3: too low given the economy's productive capacity. It's a question
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Speaker 3: that can't be answered because you don't know what the
9:22
Speaker 3: economy's productive capacity, also referred to confusingly as the supply
9:26
Speaker 3: side of the economy. If you prefer to think in
9:28
Speaker 3: those terms, we don't know what that is day to day.
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Speaker 3: You can infer it from the fact that inflation's not
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Speaker 3: rising an unemployment is stable. Well, maybe we're at the
9:36
Speaker 3: sweet spot. The Fed's got to be looking ahead, though,
9:38
Speaker 3: because their policy changes have take effect with a lag.
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Speaker 3: What they do today affects the economy in one to
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Speaker 3: several quarters from now. That's just the nature of monetary policy.
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Speaker 2: To take a quick break. When we return, we've got
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Speaker 2: trivia and then a piece from the Wall Street Journal
9:56
Speaker 2: asks does this bull market have room to run? We'll
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Speaker 2: try to answer that question after this.
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Speaker 2: Mark this a piece in the Wall Street Journal. It
11:53
Speaker 2: has the headline does this bullmarket have room to run
11:58
Speaker 2: answer it for us.
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Speaker 3: Sure, I can I think summarize the optimist or the
12:03
Speaker 3: pro argument, which is, if you look at something like
12:06
Speaker 3: a pe multiple we say that fast, and it's easy
12:10
Speaker 3: to lose sight of the fact that PE is a ratio,
12:15
Speaker 3: is a quotient. You know, there's a numerator and then
12:17
Speaker 3: you divide it by the denominator. P is in the
12:19
Speaker 3: numerator and E is in the bottom. Pes are very high,
12:24
Speaker 3: and that's usually interpreted as investors being exuberant about something. Sure,
12:30
Speaker 3: so they're willing to pay more for future earnings. If
12:32
Speaker 3: earnings catch up, say AI sparks productivity improvements, companies don't
12:38
Speaker 3: pay all that out as wages and their profits go
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Speaker 3: up or other sort of cost savings are achieved due
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Speaker 3: to AI or due to whatever. Pes can get more
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Speaker 3: reasonable on the backs of rising earnings that could keep
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Speaker 3: stocks not only from falling, but help them to keep rising.
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Speaker 3: So it all depends on the E and the pe.
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Speaker 2: What about the other side of the equation. What's the
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Speaker 2: what's the what's the bad case?
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Speaker 3: The bad case is that it's never happened that highpees
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Speaker 3: have never returned to Earth because E went up while
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Speaker 3: PE either didn't grow or only grew very slowly.
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Speaker 2: I just want to be clear of what you said.
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Speaker 3: Yeah, I hopefully I said that, righty, yes, no, no, no, okay,
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Speaker 3: Just you're saying that in situations in the past where
13:21
Speaker 3: we've had high.
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Speaker 2: PE ratios, yeah, those have never come down because earnings
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Speaker 2: went up faster than prices.
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Speaker 3: Now it's never not as Yeah, I'm comfortable with that state,
13:31
Speaker 3: but yes, it's normally stocks in an air pocket, investors
13:35
Speaker 3: realize they were too optimistic, the p comes way down
13:38
Speaker 3: and thus PE comes down.
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Speaker 2: Now, what we can see, and again this is more
13:43
Speaker 2: on a micro level with individual stocks, you can see
13:47
Speaker 2: corrections in time versus corrections in price. And what I
13:51
Speaker 2: mean by that is, okay, you can see, like the
13:55
Speaker 2: the obvious case for a correction in price is stock
13:58
Speaker 2: A went from one hundred dollars to four hundred and
14:00
Speaker 2: then back down to two hundred. That's correction and price.
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Speaker 2: The other thing that you can see sometimes is stock
14:07
Speaker 2: goes from one hundred to four hundred and then just
14:09
Speaker 2: stays at four hundred for five years because there's no
14:12
Speaker 2: momentum to move it up, but the earnings are gradually
14:14
Speaker 2: improving and then finally it's ready to move again. That
14:18
Speaker 2: doesn't usually happen with in disease. You don't usually see
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Speaker 2: an index just sit somewhere for five years. Like it's
14:25
Speaker 2: just not how you see US stocks as a whole move.
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Speaker 2: So I think that the question, in my mind there
14:33
Speaker 2: is an interesting one in that. Look. For the last
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Speaker 2: three months, we've been very very slowly grinding higher in
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Speaker 2: the S and P. We're up about one percent from
14:43
Speaker 2: the October high, which if you do the math, that
14:45
Speaker 2: represents like a four percent annual growth rate if that
14:49
Speaker 2: were to continue. This is happening against a backdrop where
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Speaker 2: a couple of the mag seven names are struggling somewhat.
14:57
Speaker 2: During that time, Microsoft, Meta have both been you know,
15:00
Speaker 2: kind of lagging, a couple were just kind of chopping
15:02
Speaker 2: wood through there, Amazon and Apple. Apple more recently has
15:05
Speaker 2: you know, kind of started to slide a bit, and
15:07
Speaker 2: Google is absolutely ripping to the top side. Despite all
15:11
Speaker 2: of that, you've got this broadening out that's happened in
15:13
Speaker 2: markets that people are you know, trying to get excited about,
15:16
Speaker 2: because again I get it, the conventional wisdom is, hey,
15:19
Speaker 2: you want a broader participation in the market, that's a
15:21
Speaker 2: sign of a healthier market. But because of the concentration
15:25
Speaker 2: of these few names, it's hard for the market as
15:28
Speaker 2: a whole to just you know, roar ahead. If Microsoft
15:32
Speaker 2: is pulling back ten percent, if Broadcom is pulling back
15:35
Speaker 2: ten percent, if in video is just flat, it's hard
15:38
Speaker 2: to get a market ripping ahead with like a third
15:42
Speaker 2: of it basically sitting there being like, no, we're not
15:43
Speaker 2: really participating. So I think ultimately the question on this,
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Speaker 2: in my opinion, is one of two things needs to
15:54
Speaker 2: happen in order for the bull market to run. You
15:57
Speaker 2: either need AI to be that thing so that you're
15:59
Speaker 2: tech stocks take off again, or the rest of the
16:03
Speaker 2: economy needs to strengthen enough such that the rest of
16:06
Speaker 2: the S and P can can kind of plow forward
16:09
Speaker 2: even if the AI trade is starting to come off
16:11
Speaker 2: a bit. Yeah, I'm looking at it just a little
16:14
Speaker 2: bit more micro in terms of, hey, here's where we are,
16:17
Speaker 2: what are the paths forward, because otherwise you're going to
16:20
Speaker 2: run into the same thing that we've run into the
16:22
Speaker 2: last time that you know, the last couple times that
16:24
Speaker 2: small caps and banks and everything else have tried to lead,
16:27
Speaker 2: which is no, we tried it, but we didn't really
16:30
Speaker 2: like it in you know, August of twenty four. We
16:33
Speaker 2: tried it, but we didn't really like it in April
16:36
Speaker 2: of twenty five. Are you going to get something similar
16:39
Speaker 2: this year? I don't know, Like I don't know what
16:41
Speaker 2: this year develops into, but there is a path towards
16:45
Speaker 2: this bull market having room to run. And it's just
16:48
Speaker 2: a question of do either of those, you know, couple
16:51
Speaker 2: of questions get answered positively.
16:53
Speaker 3: Yeah, we should be more worried about the big picture stuff,
16:57
Speaker 3: independent monetary policy, the strength quality of our institutions. Those
17:02
Speaker 3: sound like like high minded, abstract things.
17:04
Speaker 4: Who cares.
17:05
Speaker 3: You may be thinking, I want to know what my
17:07
Speaker 3: stock's earnings are going to be in the upcoming quarter.
17:09
Speaker 3: And if you're only if you're only renting that stock,
17:12
Speaker 3: if you plan on getting out of that position soon,
17:14
Speaker 3: maybe that's the right mentality. But for most of us,
17:17
Speaker 3: the big question is will the economy.
17:21
Speaker 4: Grow?
17:22
Speaker 3: And I'll just leave it at that without expanding. Will
17:25
Speaker 3: the economy grow as fast as it has over the
17:28
Speaker 3: past twenty five years or even fifty years, say two
17:32
Speaker 3: or so percent per year. That's not per capita, but
17:35
Speaker 3: that is real, that is after inflation.
17:37
Speaker 4: Will it grow like that?
17:38
Speaker 3: Over the next twenty or thirty years or whatever my
17:40
Speaker 3: investment time frame is. And if so, can I expect
17:44
Speaker 3: publicly traded companies to participate in that growth to the
17:47
Speaker 3: extent that they have. We risk that growth by and
17:51
Speaker 3: this is not a political statement, it's just a fact
17:53
Speaker 3: about our institutions. We risk that growth if we imperil
17:59
Speaker 3: independent mondit terry policy making, because everybody thinks it was
18:02
Speaker 3: such a big part of the stability that we've enjoyed.
18:06
Speaker 2: Piece in Bloomberg Opinion that has a title that I
18:10
Speaker 2: just find kind of comical that ai bubble is getting
18:12
Speaker 2: closer to popping. Well, that's like, you know, the well,
18:17
Speaker 2: technically today I'm closer to dying than I was yesterday.
18:20
Speaker 2: But like it still doesn't tell you anything actionable about
18:23
Speaker 2: what to do about that, you know, Like, Okay, like
18:27
Speaker 2: the ebubble is getting closer to popping, Well, when's it
18:31
Speaker 2: gonna pop? And how is it gonna pop?
18:33
Speaker 3: Yeah, a lot of a lot of questions begged by
18:36
Speaker 3: that title.
18:37
Speaker 2: Beyond that, I actually read through the piece and I'm
18:39
Speaker 2: just sitting there and I'm going, I'm just not sure
18:40
Speaker 2: that the facts are in evidence in this piece. It
18:42
Speaker 2: tries to say that tariff policy is slowing the construction
18:47
Speaker 2: of AI data centers, for which I don't actually see
18:51
Speaker 2: any evidence presented. It's also trying to make the case
18:55
Speaker 2: that immigration policy is slowing the construction of data centers. Again,
18:59
Speaker 2: I don't really see any evidence presented on that front.
19:02
Speaker 3: It should they should in theory, both those things should
19:04
Speaker 3: be true. But you're right, right, It's just like you're right.
19:08
Speaker 2: But it's just like there's nothing that I can put
19:12
Speaker 2: that I can look at to actually evaluate, Hey, is
19:14
Speaker 2: this happening or not. Instead it's just tough, Well, this
19:17
Speaker 2: should be happening, But I I just can't see anything
19:21
Speaker 2: that's that's conclusively stating that conclusion or getting to that conclusion.
19:25
Speaker 2: Just take a quick break. When we come back, we've
19:28
Speaker 2: got Wall Street Watch and the Trivia Answer after.
19:30
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19:44
Speaker 1: Every day, It's the Financial Exchange on the Financial Exchange
19:48
Speaker 1: Radio Network. Time now for Wall Street Watch. A complete
19:54
Speaker 1: look at what's moving markets so far today right here
19:57
Speaker 1: on the Financial Exchange Radio Network.
19:59
Speaker 5: Mark kits are completely flat at the moment ahead of
20:02
Speaker 5: the conclusion to the FEDS meeting, while interest rates are
20:05
Speaker 5: widely expected to hold steady. Wall Street will closely be
20:09
Speaker 5: watching FED Chairman Jerome Poul's press conference at two thirty.
20:13
Speaker 5: Wall Street's also ready for big tech earnings due out
20:16
Speaker 5: after the bell. Right now, the Dow is up only
20:19
Speaker 5: forty eight points, about a tenth of a percent. SMP
20:22
Speaker 5: five hundred is completely flat, NASDAK up only eight points,
20:28
Speaker 5: russ In two thousand is down about four tenths of
20:31
Speaker 5: a percent. Ten Your Treasure reeled up three basis points
20:33
Speaker 5: at four point two five to three percent, and crude
20:36
Speaker 5: oil up nearly nine tenths of a percent, rating just
20:40
Speaker 5: below sixty three dollars a barrel. Chip sector garnering attention
20:44
Speaker 5: today due to a couple of items, ASML reported solid
20:47
Speaker 5: fourth quarter earnings with orders above analysts expectations, while it's
20:50
Speaker 5: twenty twenty six sales forecast impressed, ASML shares are down, however,
20:55
Speaker 5: by about two percent. Separately, reports indicate that China has
20:59
Speaker 5: approved per of In Video's each two hundred AI chip
21:02
Speaker 5: for the first time, giving authorization to several of the
21:05
Speaker 5: video's Chinese customers, and Video stock is up almost two percent. Meanwhile,
21:10
Speaker 5: Amazon said it would cut about sixteen thousand corporate jobs
21:14
Speaker 5: This comes after the e commerce giant announced the layoffs
21:17
Speaker 5: back in October of about fourteen thousand jobs. Amazon stock
21:21
Speaker 5: is dipping over half a percent elsewhere as Starbucks reported
21:25
Speaker 5: store traffic growth for the first time in two years,
21:29
Speaker 5: citing its turnaround efforts. However, shares are now pulling back.
21:32
Speaker 5: After rallying and early trading, The stock is now up
21:36
Speaker 5: almost two percent. AIGHTE and T reported stronger than expected
21:39
Speaker 5: quarterly results, sending shares up five percent, Texas Instruments jumping
21:45
Speaker 5: seven percent after reporting better than expected guidance for the
21:48
Speaker 5: current quarter, and after today's close, all eyes will turn
21:51
Speaker 5: to Big Tech or Microsoft, Meta, Tesla, and IBM will
21:55
Speaker 5: post their fourth quarter results. I'm Tucker Silvan. That is
21:59
Speaker 5: whiles you're watch. On the previous segment, we asked the
22:01
Speaker 5: trivia question who is the random inclusion on the We're
22:04
Speaker 5: the World single? That would be Dan Akroyd.
22:07
Speaker 4: Yeah, dan Akroyd.
22:08
Speaker 5: Tim from Pittsfield, Mass is our winner today taking on
22:11
Speaker 5: the Financial Exchange Show.
22:12
Speaker 2: Teacher.
22:12
Speaker 5: Congrats to Tim and we play trivia every day here
22:16
Speaker 5: on the Financial Exchange. See complete contest rules at Financial
22:20
Speaker 5: Exchange Show dot com.
22:21
Speaker 2: Couple housing stories that I want to talk about Mark
22:23
Speaker 2: first one from CNBC. Home buyers are backing out of
22:26
Speaker 2: deals at the fastest pace in nearly a decade. According
22:30
Speaker 2: to Redfind, more than forty thousand signed home purchase agreements
22:33
Speaker 2: were canceled in December, representing sixteen point three percent of
22:35
Speaker 2: all homes they went under contract. Uh, And I just
22:41
Speaker 2: I'm not sure that there's a ton of meat on
22:45
Speaker 2: this bone as far as it being a problem, because
22:48
Speaker 2: everything else in real estate data is pointing towards basically
22:57
Speaker 2: what we've been seeing for the last six to twelve munch,
23:01
Speaker 2: which is the housing market slowly starting to recover balance
23:05
Speaker 2: which right now is skewed heavily, you know, towards sellers,
23:11
Speaker 2: but trying to you know, come back towards buyers in
23:13
Speaker 2: a number of markets, most notably Florida and Texas. And
23:17
Speaker 2: so I'm just not seeing anything that's like fresh new
23:22
Speaker 2: signs of concern in housing at this point, especially when
23:28
Speaker 2: you look at like the highest percentage of contract cancelations
23:30
Speaker 2: came in Atlanta. I don't think the Atlanta market is
23:34
Speaker 2: emblematic of anything at this point.
23:36
Speaker 3: In particular, you're not seeing it in the national price
23:39
Speaker 3: statistics problem you'd expect, you could infer that there's some
23:43
Speaker 3: down with pressure on prices. You're not seeing that these
23:47
Speaker 3: markets rose at extreme rates. This could just be I
23:50
Speaker 3: don't know. I don't want to sound naive. I mean,
23:51
Speaker 3: maybe it is the beginning of a housing apocalypse and
23:54
Speaker 3: certain localities, but they may not view like.
23:57
Speaker 2: You said, so that's already begun. Like again, you've got
23:59
Speaker 2: like your prices are down like twenty percent. If you
24:02
Speaker 2: get you know, Fort Myer's prices they're down almost twenty
24:04
Speaker 2: past right after rising.
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Speaker 4: I'll say, more than the national average.
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Speaker 2: I'm sorry, but look, the way you get back to
24:12
Speaker 2: housing affordability is prices coming down, yeah, right, or prices
24:18
Speaker 2: coming down relative to incomes, which means that prices might
24:21
Speaker 2: stay flat but incomes go up three percent for a
24:24
Speaker 2: few years, and that's how you get there. But it's
24:26
Speaker 2: gonna be a process. Like, you don't just get to
24:28
Speaker 2: housing affordability with prices still going up. That's not really
24:33
Speaker 2: a thing.
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Speaker 3: I don't think so, unless real wages are going up faster.
24:37
Speaker 2: Which is unless unless you're talking about like Turkey or
24:40
Speaker 2: something like that, which is not an economy that I
24:42
Speaker 2: think we want to emulate.
24:44
Speaker 3: Well, in terms of monetary policy, We're on our way,
24:46
Speaker 3: but yes, generally speaking, no.
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25:52
Speaker 2: Now, if you do want what I think is going
25:54
Speaker 2: to continue to become more of the conversation in the
25:57
Speaker 2: next year or two, it is insurance pricing, and basically
26:03
Speaker 2: there's a piece in Barons that that gets it. I
26:06
Speaker 2: think what is is, you know the crux of this,
26:08
Speaker 2: which is, look, the housing market has been locked up
26:12
Speaker 2: for the last couple of years. We've been seeing only
26:14
Speaker 2: about four million transactions a year from existing home sales,
26:18
Speaker 2: and normally you'd be seeing like five to six million
26:21
Speaker 2: as kind of the standard. So as such, there are
26:23
Speaker 2: far fewer people that are moving. And the big thing
26:26
Speaker 2: that happens when you move, particularly if you move to
26:28
Speaker 2: an entirely new geography, you get repriced completely differently from
26:32
Speaker 2: an insurance perspective. And so because we haven't had a
26:35
Speaker 2: lot of housing activity, people don't realize just how bad
26:38
Speaker 2: the insurance situation is out there, and it's likely going
26:42
Speaker 2: to come to a head in the next couple of years.
26:43
Speaker 2: I'm sure that there are plenty of you listening who
26:44
Speaker 2: are saying, no, Chuck, I realize how bad it is.
26:47
Speaker 2: My premiums have gone up, you know, one hundred percent
26:50
Speaker 2: over the last few years in Florida or thirty percent
26:52
Speaker 2: over the last few years in the Midwest. Like trust me, Like,
26:56
Speaker 2: I know that you're feeling it, but not to the
26:57
Speaker 2: same extent. And so what you end up with here, though,
27:03
Speaker 2: is look, as much as you might not like it,
27:06
Speaker 2: most people, if they get an insurance premium you know,
27:08
Speaker 2: adjustment or a premium hike that comes through, they kind
27:13
Speaker 2: of sit there and the like, oh, like, I can't
27:14
Speaker 2: believe I have to pay an extra you know, four
27:16
Speaker 2: hundred bucks this year, Like I really don't like it,
27:18
Speaker 2: but fine, whatever. The big shift happens when you move
27:22
Speaker 2: somewhere different and you're sitting there and you're going, wait,
27:25
Speaker 2: my insurance costs were twenty five hundred a year. Now
27:28
Speaker 2: I'm moving and they're going to thirty seven hundred. And
27:31
Speaker 2: this is some of the reason why you may start
27:33
Speaker 2: to see an uptick in UH home purchase application cancelations
27:38
Speaker 2: or cancelations, simply because when you're going through the pre
27:43
Speaker 2: approval process, you're getting approved for a loan from a
27:49
Speaker 2: bank to go and say yes, you can borrow X
27:52
Speaker 2: dollars to go and buy this house. What you're not
27:55
Speaker 2: doing during that pre approval is getting an insurance quote.
27:59
Speaker 2: And quite on, like, we could make a case that
28:01
Speaker 2: maybe insurance quotes need to be part of a preapproval process,
28:04
Speaker 2: but neither here nor there. What then happens is once
28:07
Speaker 2: your offer is accepted, you go out and you say, okay,
28:10
Speaker 2: I need to go and get my insurance quote before
28:12
Speaker 2: you know, deadline xyz in order to keep moving forward.
28:16
Speaker 2: And this is where the process is breaking down, where
28:19
Speaker 2: someone might be expecting, hey, the insurance quote is going
28:23
Speaker 2: to come in at you know, four thousand dollars because
28:24
Speaker 2: that's what they're used to, and then it comes in
28:27
Speaker 2: at eight and they're like, okay, we're not moving if
28:30
Speaker 2: the insurance cost is moving up that much. This is
28:33
Speaker 2: going to become much more part of the conversation in
28:35
Speaker 2: the next year or two, as we see the home
28:38
Speaker 2: market unlocking a little bit in higher resale volumes starting
28:43
Speaker 2: to tick through. It's going to come with some of
28:46
Speaker 2: these sticker shocks on new insurance premiums, and that's going
28:51
Speaker 2: to be something that gets a whole bunch of people,
28:54
Speaker 2: you know, more upset because the prices are only moving
28:56
Speaker 2: in one direction.
28:58
Speaker 3: According to the PPI, which has a subcategory for premiums
29:02
Speaker 3: for property and casualty insurance, homeowner's insurance has increased at
29:08
Speaker 3: an annual rate. This is average of four and a
29:11
Speaker 3: half percent since twenty twenty. I'm going from January twenty
29:14
Speaker 3: twenty to actually through November of twenty twenty one, so
29:17
Speaker 3: I'm dropping a month at the end, but this is
29:18
Speaker 3: close enough. That's that's faster than overall inflation, which has
29:23
Speaker 3: increased at a three point eight percent rate over the
29:25
Speaker 3: same period. I bring that up for two reasons. I
29:27
Speaker 3: guess just the comparison might be worthwhile noting. I don't know,
29:34
Speaker 3: but nobody's surprised that premium inflation is outpaced.
29:37
Speaker 2: That was over what period?
29:39
Speaker 3: I went back to January twenty twenty, and I took
29:42
Speaker 3: the change in the index. The index is just a number,
29:44
Speaker 3: so you take the change and then you can annualize.
29:46
Speaker 4: Which is what I did here.
29:46
Speaker 3: I did that for both CPI, which again three point
29:50
Speaker 3: seven eight percent is the change in CPI over the
29:52
Speaker 3: six year period ending the end of last year versus
29:55
Speaker 3: four point five percent. Rounding a little for homeowners insurance.
29:57
Speaker 3: I'm a little surprised because I thought the change homeowners
30:00
Speaker 3: insurance the rate I should say, the rate of inflation
30:03
Speaker 3: in insurance would have been higher. But cumulatively, I mean
30:10
Speaker 3: that's still like yeah it is, it's exactly yeah, Yeah,
30:13
Speaker 3: you're exactly right.
30:14
Speaker 2: So like that's still a bit like yeah, and certainly
30:17
Speaker 2: if you look at certain markets, it's obviously that's the
30:20
Speaker 2: higher than that. And I'm guessing that there's something on
30:24
Speaker 2: a methodology standpoint where I'm sure there's huge estimation there.
30:29
Speaker 2: Like I know, just for CPI as an example, CPI
30:32
Speaker 2: has a huge not footnote and it's basically a whole
30:35
Speaker 2: document that you can read on their health insurance calculation,
30:38
Speaker 2: just as an example. And the CPI health insurance document
30:42
Speaker 2: basically says, we can't actually generate, you know, a real
30:47
Speaker 2: reading of what of what health insurance is changing at
30:51
Speaker 2: because there's so many different permutations of what's going on.
30:55
Speaker 2: It could be Okay, your premium stays flat, but your
30:57
Speaker 2: deductible goes way up, and you're copays go down, but
31:02
Speaker 2: you're out of pocket max goes up. Like there's so
31:05
Speaker 2: the CPI basically is like, we make a really you know,
31:09
Speaker 2: probably good best guess estimate at it, but we don't
31:12
Speaker 2: know what's going on.
31:13
Speaker 3: You're right, you could see even more variations in terms
31:15
Speaker 3: of options and riders on homeowners insurance.
31:17
Speaker 2: Right, it's like, oh, like you've got you know, do
31:19
Speaker 2: you want any wind coverage versus you know, wind and
31:22
Speaker 2: hail versus you know, what's your deductible on you know,
31:24
Speaker 2: other damage? Do you want anything for water? Do you
31:26
Speaker 2: want anything for you know, electronics? Do you have any
31:28
Speaker 2: kind of riders attached to it? There's no way to
31:31
Speaker 2: actually do what you can't pardon the pun, but you
31:37
Speaker 2: can't do an apples to apples comparison. I can look
31:41
Speaker 2: at the price of apples this year and compare it
31:42
Speaker 2: to last year. You can't do that with homeowner's insurance
31:46
Speaker 2: because there's so many different permutations.
31:48
Speaker 4: Why is that a pun?
31:50
Speaker 2: Apples to apples?
31:51
Speaker 4: Yeah?
31:51
Speaker 2: What do you mean?
31:52
Speaker 4: Why is it? What are we punning?
31:53
Speaker 2: What's what I'm saying? You can't do an apples to
31:54
Speaker 2: apples comparison. It actually is an apples to apples. Maybe
31:57
Speaker 2: it's not a pun, Maybe it's just a I don't know. Oh,
32:00
Speaker 2: it's it's like an inception of puns. It's an incept pun.
32:05
Speaker 2: God Man, that sucked. Let's take a break to wash
32:08
Speaker 2: that out of our mouth and we'll come back with
32:09
Speaker 2: something better after this.
32:12
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33:29
Speaker 3: Now we all know the dollar has weakened this year.
33:32
Speaker 3: It's not necessarily alarming. It just means it takes fewer
33:37
Speaker 3: foreign currency units, if you will, few lesser amounts of
33:41
Speaker 3: foreign currency to buy a dollar. There's an ebbinflow in
33:44
Speaker 3: currency markets, and there are complicated factors that are behind
33:49
Speaker 3: movements in the dollar. But it probably didn't help the dollar.
33:55
Speaker 3: You don't necessarily want the dollar to go up or down,
33:58
Speaker 3: and over time there's no real trend in the price
34:00
Speaker 3: of the dollar relative to other currencies. But traditionally, presidents
34:05
Speaker 3: and members of the executive branch have not commented on
34:08
Speaker 3: the value of the dollar, other than to say a
34:10
Speaker 3: strong dollar is in the US's interest, as Bob Rubin
34:14
Speaker 3: used to say. Clintons Treasury Secretary, the President came out
34:17
Speaker 3: yesterday and said he thought that what is happening to
34:20
Speaker 3: the dollar was quote great that gave some people, and
34:23
Speaker 3: it's been declining. So it takes more dollars to buy,
34:25
Speaker 3: say euros or whatever. It's actually a little more subtle
34:28
Speaker 3: than that, but i'll just leave it at that. President
34:30
Speaker 3: said it was great. That was interpreted by some to
34:34
Speaker 3: mean he favors further weakening of the dollar because that
34:37
Speaker 3: would make exports more competitive, So there's a reason for that.
34:41
Speaker 3: It also makes imports more expensive and can drive up inflation,
34:44
Speaker 3: and it can destabilize capital flows. So not helpful to
34:48
Speaker 3: have an excessively volatile dollar either way. Treasury Secretary came
34:51
Speaker 3: out this morning you may have seen this saying the
34:54
Speaker 3: US has a strong dollar policy. He elaborated a little bit,
34:59
Speaker 3: which is unfortunate, but at least he said it, and
35:02
Speaker 3: that seemed to allay fears that the administration was going
35:06
Speaker 3: to say jawbone the dollar down, which would be disruptive
35:09
Speaker 3: and potentially inflationary.
35:10
Speaker 2: I don't think there's any you know. Look, here's the thing.
35:18
Speaker 2: Two things I think are true at the same time. Look,
35:20
Speaker 2: the US dollar has gone through a very brief, sharp
35:24
Speaker 2: drop in its value. It's gone from the Dollar Index
35:29
Speaker 2: has gone from around ninety nine to five down to
35:31
Speaker 2: ninety six five, so about a three percent drop in
35:33
Speaker 2: the span of a week, which is a sizeable move.
35:37
Speaker 2: I mean, that's that's holland like, let's let's make no
35:40
Speaker 2: bones about it, but this is happening. Like if you
35:44
Speaker 2: if you just look at this across different asset classes
35:47
Speaker 2: and try to make sense out of what's happening here.
35:50
Speaker 2: It's not investors fleeing out of US stocks. US stocks
35:54
Speaker 2: are like the SP five hundred hit cosed a new
35:57
Speaker 2: all time high yesterday, So like, let's let's get rid
35:59
Speaker 2: of like the panic noise around this. It certainly, I think,
36:05
Speaker 2: given the fact that global stocks have been outperforming US
36:09
Speaker 2: stocks over the last week, does speak to, at least
36:12
Speaker 2: in the short term, a preference to allocate additional flows globally.
36:17
Speaker 2: But that could also be just because the global economy
36:20
Speaker 2: is showing signs of recovery after a tough twenty twenty five.
36:25
Speaker 2: It's not necessarily related to you know, anything about anything else.
36:31
Speaker 2: At the same time, there certainly are concerns on the
36:33
Speaker 2: margins that we've discussed about. Hey, if the dollar does
36:37
Speaker 2: start to become you know, less of a safe hazen,
36:42
Speaker 2: less of a safe haven for international investors because of
36:46
Speaker 2: policy disagreements, whether it be on tariffs or greenland or
36:50
Speaker 2: whatever else. It may be then yes, you could see
36:53
Speaker 2: at the margin capital flows start to shift. But to
36:55
Speaker 2: this point, if this were really about oh, investors are
37:00
Speaker 2: pulling their capital out of the US, no, no, you
37:03
Speaker 2: would be seeing it in stocks and bonds, and you
37:05
Speaker 2: are not seeing it in stocks and bonds.
37:08
Speaker 4: A lot of players I know, but I just see.
37:10
Speaker 2: These hysterically online, these pieces that are like, oh, like,
37:15
Speaker 2: it's you know, investors are fleeing the dollar. Well, they
37:17
Speaker 2: might be fleeing the dollar, but they're not fleeing dollar
37:20
Speaker 2: denominated assets. And that's an important thing that I think
37:24
Speaker 2: is worth pointing out here is if this were really
37:28
Speaker 2: capital flight, US stocks would not be holding up the
37:32
Speaker 2: way they will.
37:32
Speaker 4: I don't think we'll ever see capital.
37:34
Speaker 2: No, no, no, but it's being talked about. Yeah, that's irresponsible,
37:37
Speaker 2: and it is irresponse.
37:39
Speaker 3: Well, there are lots of players in the foreign exchange market.
37:41
Speaker 3: There's commercial banks that affect transactions, for sure, companies these
37:44
Speaker 3: some of these have nothing to do with concerns about
37:47
Speaker 3: policy or US safe haven status, worries about debt, which
37:51
Speaker 3: are ongoing.
37:52
Speaker 2: It's just hey, we're like a European company that's investing
37:55
Speaker 2: in Africa and we need to convert some dollars into
37:57
Speaker 2: whatever currency we're using, you know, like exactly at the same.
38:00
Speaker 3: Time, though gold and other metals popping does suggest that
38:03
Speaker 3: may be deeper forces.
38:04
Speaker 2: I don't want to be all currencies. It's not just
38:07
Speaker 2: you know, like that's the thing. The cross asset signals
38:10
Speaker 2: are not telling you that this is purely a dollar story.
38:13
Speaker 2: We're gonna take a quick break for the next twenty
38:15
Speaker 2: four hours uh FED meeting and a bunch of earnings
38:18
Speaker 2: that we're gonna cover tomorrow. Make sure you tune in