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Could investors be in for a big surprise in 2025? · The Financial Exchange Show

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  Speaker 1: Face is The Financial Exchange with Mike Armstrong and Mark Fandetti.
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  Speaker 2: Good morning, Welcome back to the Financial Exchange on a Tuesday,
• 1:17
  Speaker 2: as we head towards the holidays and the end of
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  Speaker 2: the year here on the Financial Exchange, wrapping up what
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  Speaker 2: has been a pretty wild two years in equity markets here,
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  Speaker 2: and we start off the show today with a discussion
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  Speaker 2: of inflation, because tomorrow at eight thirty am, the Consumer
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  Speaker 2: Price Index will be released from the Bureau of Labor Statistics,
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  Speaker 2: and we've got a couple pieces about just how it
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  Speaker 2: might be looked at, how we should interpret it, and
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  Speaker 2: how the Fed may interpret it when they sit down
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  Speaker 2: a week from tomorrow. So kicking things off here at
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  Speaker 2: Mike Armstrong, Mark Fandetti and Tucker Silva with you, recapping
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  Speaker 2: a day after a rougher day for equity markets yesterday.
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  Speaker 2: But let's dive right into that inflation report, Mark, because
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  Speaker 2: last month, and really for the last five or six months,
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  Speaker 2: as far as I can tell, inflation has been a
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  Speaker 2: bit of a non story. No big surprises, no big
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  Speaker 2: bursts in inflation, and generally a year of inflation that's
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  Speaker 2: been defined as getting a lot of help from energy markets.
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  Speaker 2: Oil price is substantially lower compared to just a year ago,
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  Speaker 2: and that's been a big help to people's wallets as
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  Speaker 2: inflation rates have been coming in under that three percent range.
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  Speaker 2: Why are some out here saying, hey, this one could
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  Speaker 2: shift the thinking on some of that.
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  Speaker 3: I don't know exactly why one report should matter more
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  Speaker 3: than others. I read the headline and the stack of
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  Speaker 3: stories that Tucker prepared to and I thought, well, we
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  Speaker 3: get the same information. You should probably wait every month's
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  Speaker 3: observation equally, unless you have reason to suspect that it's
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  Speaker 3: something structural or fundamentally.
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  Speaker 4: Well, everyone knows November is way more important than every month.
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  Speaker 4: I think you.
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  Speaker 3: I think yeah for spending, Maybe you know yeah for
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  Speaker 3: other data series. There are some predictable ebbs and flows.
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  Speaker 3: I think you brought up the key point. We really
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  Speaker 3: don't know yet and won't know for some time whether
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  Speaker 3: the abating of inflation headline inflation, which is what most
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  Speaker 3: people gravitate towards, is due to special factors like subdued
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  Speaker 3: energy prices, falling energy prices more specifically, and other components
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  Speaker 3: under the hood of inflation, or due to the FEDS
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  Speaker 3: having hiked and slowed demand to bring it more in
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  Speaker 3: line with the economy's capacity to produce, which is why
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  Speaker 3: we strip out things like food and energy and look
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  Speaker 3: at core inflation, and core c CPI has been more
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  Speaker 3: elevated than headline. It's running somewhere in the three and
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  Speaker 3: a half percent if you mike as you like to do,
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  Speaker 3: annualize the last few months, so diddo with median and
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  Speaker 3: other measures of underlying inflation.
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  Speaker 2: So general state of play. As of the most recent
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  Speaker 2: reading on inflation year over year, prices in the aggregate
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  Speaker 2: were up two point six percent when you look at
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  Speaker 2: October of twenty four versus October of twenty twenty three.
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  Speaker 2: That's the rate of inflation that we saw over the
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  Speaker 2: most recent year, being helped quite a bit by energy prices.
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  Speaker 2: Gasoline prices for example, during that same time period down
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  Speaker 2: twelve point two percent and have just been a very
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  Speaker 2: helpful drag.
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  Speaker 4: On the rate of inflation of the last year.
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  Speaker 2: If you want to strip out those volatile items, because hell,
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  Speaker 2: we strip them out on the way up, might as
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  Speaker 2: well strip them out on the way down to you're
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  Speaker 2: at a more like low threes rate of inflation. Three
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  Speaker 2: point three percent if you strip out that food and energy.
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  Speaker 3: And I think it's important to explain why, because to
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  Speaker 3: some it might sound like the statisticians that the economists
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  Speaker 3: to calculate the stuff, we're trying to game the system.
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  Speaker 3: And the reason is that all over, simplify a little
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  Speaker 3: here and say the FED doesn't control those underlying components. Now,
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  Speaker 3: the FED doesn't control a lot of components of inflation.
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  Speaker 2: No, they don't set prices, frigs, right, they don't set makes,
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  Speaker 2: but they.
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  Speaker 3: Do influence demand, which can push up components of the
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  Speaker 3: CPI and therefore overall prices.
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  Speaker 2: And so, to use an economic term, they would assume
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  Speaker 2: that the demand for things like food at grocery stores
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  Speaker 2: and gasoline are fairly inelastic, regardless of what they do
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  Speaker 2: on the interest rateside.
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  Speaker 3: Yeah, there's not much you can do about it. You
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  Speaker 3: need to buy food, right, Not.
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  Speaker 4: What you can do about it.
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  Speaker 2: You probably need to buy a gasoline unless you're going
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  Speaker 2: to invest in an electric vehicle.
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  Speaker 4: Yeah, we'll start carpooling, which most people don't.
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  Speaker 3: Do, right, right, right, So there are other measures of
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  Speaker 3: underlying inflation. You can trim some of the extremes at
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  Speaker 3: either end of the distribution, the highs, the very high eyes,
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  Speaker 3: the very low lows. The median gives you that the
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  Speaker 3: so called trimmed means, which the median is just an
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  Speaker 3: extreme version, gives you that. You have to look at
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  Speaker 3: a variety of measures of underlying inflation, you get a
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  Speaker 3: sense for whether the economy is running too hot and
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  Speaker 3: right now, those suggest that inflation's a little bit above,
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  Speaker 3: not intolerably above, but a little bit above the Fed's
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  Speaker 3: two percent goal, which is you and Chucksada like to
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  Speaker 3: point out, is a little bit arbitrary. Where you want
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  Speaker 3: inflation is where you're just not thinking about it, where
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  Speaker 3: it's just background noise, a dull hum, like it was
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  Speaker 3: before twenty twenty. I think we're probably back to that point.
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  Speaker 3: People aren't talking about it every day, Mike, I don't
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  Speaker 3: know if that's your sense. Not.
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  Speaker 2: Yeah, not in the same way as they were just
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  Speaker 2: a couple of years ago. So state of play again,
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  Speaker 2: as we mentioned, year of year inflation most recently sitting
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  Speaker 2: at two point six percent. Expectations for tomorrow is for
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  Speaker 2: that number to creep up a bit to two point
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  Speaker 2: seven percent. Stripping out food and energy still sitting flat
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  Speaker 2: at three point three percent, year over year. However, I
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  Speaker 2: will notate that the three month average on core inflation
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  Speaker 2: is what we describe that's running at three point six percent.
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  Speaker 2: So I'll be interested to see if we see a
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  Speaker 2: continuation of a slight upturn in prices when it comes
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  Speaker 2: to those non controllable items like gasoline, sorry, those items
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  Speaker 2: that are out of the Fed's control, which we strip
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  Speaker 2: out food prices, energy prices, et cetera.
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  Speaker 3: And median too and trimmed me and there are these
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  Speaker 3: other measures, and it's worth pointing. Can I point up?
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  Speaker 4: Please?
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  Speaker 3: We don't talk about the I'm on every other week
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  Speaker 3: or so, and I usually just beat the same drum.
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  Speaker 3: But I think that's okay because the audience varies. There
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  Speaker 3: is this tension and the short term between inflation and
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  Speaker 3: unemployment and GDP growth as a result, so you could
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  Speaker 3: put you could substitute GDP growth thro un employment in
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  Speaker 3: the sentence that I just delivered. So it wouldn't surprise me,
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  Speaker 3: and it shouldn't surprise anybody if inflation remains a little
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  Speaker 3: bit elevated, given that the economy seems to be strong,
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  Speaker 3: seems to continue to be strong.
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  Speaker 2: It leads me this piece from MarketWatch I'm gonna just
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  Speaker 2: give you the headline here investors may face a major
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  Speaker 2: inflation surprise next year. How pros are preparing. I'm just
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  Speaker 2: gonna put it out there that if Market Watches publishing this,
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  Speaker 2: it doesn't seem like it would be much of a
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  Speaker 2: surprise for anybody if we saw inflation tick up. Fair
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  Speaker 2: to say, like, if Marketwah has it in there, you know,
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  Speaker 2: front of page publication that inflation may be a surprise
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  Speaker 2: to the upside, then guess what, everybody? Uh, you know,
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  Speaker 2: how many times have we heard stories, or read stories
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  Speaker 2: or just ourselves debated whether or not policies implemented by
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  Speaker 2: the Trump administration could be inflationary, Like it's all that
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  Speaker 2: anyone is talking about. So might we see some inflation
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  Speaker 2: in twenty twenty five entirely possible? Should anybody be surprised
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  Speaker 2: by that?
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  Speaker 4: Gee? I sure hope not? Yeah?
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  Speaker 3: I mean, look, specifically, if the Trump administration imposes severe
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  Speaker 3: broad tariffs, all lse equal and that is a very
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  Speaker 3: important caveat that will push up prices in the short term,
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  Speaker 3: it should not lead to persistent inflation. That depends on
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  Speaker 3: how the Fed responds and whether or not consumer whether
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  Speaker 3: or not our expectations for inflation go up, and those
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  Speaker 3: two things are related, but all else may not be equal.
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  Speaker 3: A lot of people have pointed out that the very
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  Speaker 3: high tariffs imposed in the late nineteen twenties early nineteen
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  Speaker 3: thirties were not inflationary. Well, in the early nineteen thirty
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  Speaker 3: specifically so called smooth Howley, they were non inflationary because
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  Speaker 3: there were bigger things pushing down on demand. So it
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  Speaker 3: does depend on what else is going on with the economy.
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  Speaker 2: Let's take a quick break. When we come back. We
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  Speaker 2: have that Federal Reserve meeting coming up a week from now.
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  Speaker 2: There's been I don't know, my take has been a
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  Speaker 2: sense of a pivot coming from j Powell from the Fed.
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  Speaker 2: We'll talk about that next and what Jay is likely
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  Speaker 2: to say about the state of the economy at the
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  Speaker 2: next week's meeting.
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  Speaker 4: Quick break, we'll be back for that next.
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  Speaker 2: According to the Chicago Mercantile Exchange, when the Federal Reserve
• 10:44
  Speaker 2: meets a week from tomorrow, December eighteenth, they'll be sitting
• 10:48
  Speaker 2: down at adjusting interest rates. There is right now, according
• 10:51
  Speaker 2: to betting on those markets, an eighty six point one
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  Speaker 2: percent probability of a twenty five basis point rate cut.
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  Speaker 4: I have to go double chapter. That seems a little
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  Speaker 4: bit less certain than we usually are.
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  Speaker 2: A week away from a meeting, so I feel like
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  Speaker 2: we're usually in the ninety five plus percent probability range
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  Speaker 2: right now. Again, eighty six percent is pretty high, but
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  Speaker 2: I think it speaks a little bit to the uncertainty
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  Speaker 2: around Jerome Powell's path, and perhaps the uncertainty around tomorrow's
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  Speaker 2: inflation report as well, which again I think is going
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  Speaker 2: to be uninteresting generally speaking. But the greater uncertainty comes
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  Speaker 2: from when you look at a few months later, and
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  Speaker 2: there's always less certainty when you're looking at a further
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  Speaker 2: time period. But the range of potential outcomes when we
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  Speaker 2: are looking at say the May meeting, so four meetings
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  Speaker 2: from now, generally speaking, investors are anticipating rates would be
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  Speaker 2: a little bit lower, but in fact the most likely
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  Speaker 2: outcome is that they are only about half a percent
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  Speaker 2: lower than where we are today.
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  Speaker 3: So yeah, it's too far out to forecast.
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  Speaker 2: You throw out the window, agreed, And the ranges here
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  Speaker 2: are anywhere froms exactly where rains are now to a
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  Speaker 2: full percentage point to lower than whe they are now.
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  Speaker 2: And I think that speaks to one thing, though, which
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  Speaker 2: is there are some who are anticipating a resurgence in
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  Speaker 2: inflation come Q. One of next year, depending on policies
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  Speaker 2: that are implemented.
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  Speaker 3: Yeah, all l SQL, the policies that are being hinted at,
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  Speaker 3: we don't really know how things are going to shake out,
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  Speaker 3: but they are inflationary.
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  Speaker 1: Sure.
• 12:22
  Speaker 3: In fact, they're stagflationary. You deport a lot of people,
• 12:24
  Speaker 3: You're taking people out of the labor force, like fort
• 12:27
  Speaker 3: of migrant farm workers are undocumented. A good fraction of
• 12:32
  Speaker 3: the construction industry in big cities like Charlotte and Atlanta
• 12:35
  Speaker 3: and other places is undocumented. That is stagflation. I'm not
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  Speaker 3: saying don't do it. Maybe there's a good national security
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  Speaker 3: argument for it. I'm just saying, all l SQL, that
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  Speaker 3: is stagflationary. It slows growth, it increases pressure on prices.
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  Speaker 3: Not a good set of circumstances. Obviously. The other point
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  Speaker 3: I'll make air mic, and it's one I made in
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  Speaker 3: the last segments, so sorry for being repetitive, is that
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  Speaker 3: these two forces, inflation and unemployment or growth, because those
• 13:02
  Speaker 3: two terms, those two concepts can be used interchangeably. They're
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  Speaker 3: in constant tension in the short term. So the FED
• 13:08
  Speaker 3: is just trying to find the right balance. Sometimes we
• 13:11
  Speaker 3: talk about finding the right balance is finding the right
• 13:13
  Speaker 3: neutral or natural rate of interest that you talk about
• 13:17
  Speaker 3: a lot on the financial exchange. It's a really hard
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  Speaker 3: job because that's a moving target. So in that sense,
• 13:22
  Speaker 3: every data point is important. As you said at the
• 13:25
  Speaker 3: top of the show, though I don't really understand why
• 13:27
  Speaker 3: this month would be more important than any other month.
• 13:30
  Speaker 3: Maybe it is due to the uncertainty, the marginal uncertainty
• 13:34
  Speaker 3: as to whether or not the federal hike next week
• 13:37
  Speaker 3: all s EQL. If they believe that the risks to
• 13:39
  Speaker 3: the labor market, the risks more broadly to the economy,
• 13:42
  Speaker 3: are greater than the risks of inflation breaking out again,
• 13:45
  Speaker 3: they should continue to ease.
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  Speaker 2: One exercise that we did at the beginning of this
• 13:49
  Speaker 2: year that I will just acknowledge, and granted we can't,
• 13:52
  Speaker 2: you know, actually celebrate this one until January when we
• 13:55
  Speaker 2: get all the final data for December. But my point
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  Speaker 2: at the beginning of this year, when we were entering
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  Speaker 2: a year where rates seemed like they were close to peeking,
• 14:04
  Speaker 2: inflation was in the process of coming down, but we
• 14:06
  Speaker 2: were still very nervous about a a resurgence in inflation
• 14:09
  Speaker 2: and b a recession. I think would you acknowledge at
• 14:13
  Speaker 2: the beginning of this year, there were some that were
• 14:14
  Speaker 2: concerned about those two things. Sure, In fact, I would
• 14:17
  Speaker 2: say they're the most common concerns that were out there
• 14:19
  Speaker 2: for the economy.
• 14:20
  Speaker 3: What else is there right right? Inflation because the economy
• 14:24
  Speaker 3: is too hot, or you're fighting disinflation and recession because
• 14:27
  Speaker 3: the economy is not hot enough. That's it.
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  Speaker 2: I looked at it and said, look, if we can
• 14:32
  Speaker 2: end twenty twenty four with both unemployment and inflation below
• 14:37
  Speaker 2: four and a half percent, then I needed in my
• 14:40
  Speaker 2: mind to have some definition of what a soft landing is.
• 14:43
  Speaker 2: And I'm sure that nobody else out there feels the
• 14:47
  Speaker 2: same exact way about what I'd where I landed on
• 14:50
  Speaker 2: a soft landing.
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  Speaker 4: But it would appear to me almost.
• 14:55
  Speaker 2: Definitive that we are going to achieve that soft landing
• 14:58
  Speaker 2: for twenty twenty four. Again, the economy. We've talked about
• 15:00
  Speaker 2: this before. The economy never lands. It's always evolving, it's
• 15:03
  Speaker 2: always changing. We're talking now about the possibility of inflation
• 15:06
  Speaker 2: in twenty twenty five, mass deportations, lower taxes, higher tarrifs.
• 15:10
  Speaker 2: Who knows which of those get implemented and how that
• 15:12
  Speaker 2: affects all things. But I have to take this moment
• 15:16
  Speaker 2: to say I was very critical of the fed's lack
• 15:20
  Speaker 2: of action in twenty twenty two and their slowness to
• 15:24
  Speaker 2: respond to very clear inflation a few years ago. However,
• 15:29
  Speaker 2: I really cannot argue with results since then, and ultimately
• 15:33
  Speaker 2: I might disagree with how they came to their conclusions,
• 15:36
  Speaker 2: the messaging they put out there, wishy washiness on the
• 15:39
  Speaker 2: part of Jerome Powell, and a failure to really convey
• 15:43
  Speaker 2: what his view on the economy is. I still think
• 15:46
  Speaker 2: those things may be true, but ultimately, if they succeed
• 15:49
  Speaker 2: in getting inflation down to where they have without sparking recession,
• 15:53
  Speaker 2: I gotta take my hat off and say, you know,
• 15:55
  Speaker 2: don't mess with the results.
• 15:57
  Speaker 3: Yeah, I think that's the key point. The proof is
• 15:59
  Speaker 3: in the p VO. We're back to inflation existing in
• 16:03
  Speaker 3: the background where it's not dominating every conversation, which is
• 16:06
  Speaker 3: a good thing. Growth has remained healthy to the extent
• 16:09
  Speaker 3: that that's to the Fed's credit. We don't really know.
• 16:12
  Speaker 3: Special factors may have helped to moderate inflation while not
• 16:15
  Speaker 3: harming growth, like the decline and energy prices that you
• 16:18
  Speaker 3: cited earlier in the show, Mike. But yeah, it's look
• 16:21
  Speaker 3: you get credit for what happens on your watch, or
• 16:24
  Speaker 3: you get dinged, as Biden Harris did, for what happens
• 16:27
  Speaker 3: on their watch. And I think it is self evident
• 16:31
  Speaker 3: that the FED should have acted more quickly. Voters were
• 16:34
  Speaker 3: really pissed, and they remained pissed so much so that
• 16:38
  Speaker 3: they This is true all over the world.
• 16:41
  Speaker 2: Yeah, globally, they voted pretty much everybody out office that
• 16:43
  Speaker 2: was in charge of the economy from twenty twenty through
• 16:46
  Speaker 2: twenty twenty four.
• 16:47
  Speaker 3: So I think self evidently the FED should have acted
• 16:50
  Speaker 3: more quickly. I don't know what people's reaction to a
• 16:53
  Speaker 3: recession would have been, or slower growth, the trade off
• 16:56
  Speaker 3: probably would have been worth it. Well, we'll never know.
• 16:58
  Speaker 3: We can't run that, Eerriman. The biggest wildcard to me
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  Speaker 3: related to all this is will the Fed's independence be
• 17:06
  Speaker 3: compromised In twenty twenty five, the President elect seems to
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  Speaker 3: be backing away from Yeah.
• 17:12
  Speaker 2: He conducted an interview over the weekend where he was asked,
• 17:14
  Speaker 2: was it over the weekend of the CNN or ABC interview?
• 17:17
  Speaker 2: ABC interview with WelCom are where he backed off? Maybe
• 17:20
  Speaker 2: you're talking about different No. I think that was the
• 17:22
  Speaker 2: interview where I think he said.
• 17:23
  Speaker 3: He wouldn't fire Powell or something, but they haven't pinned
• 17:26
  Speaker 3: him down. What is your view on monetary policy? How
• 17:28
  Speaker 3: should it be set? What should its goals be? The
• 17:30
  Speaker 3: journalists who are always trying to zing him never ask
• 17:33
  Speaker 3: him broader questions to tease out his his philosophy. That
• 17:38
  Speaker 3: would be more interesting to me. What should monetary policy?
• 17:41
  Speaker 3: And that's the fancy way of saying what the FED does?
• 17:44
  Speaker 3: The FED controls the money supply, Thus monetary policy, what
• 17:47
  Speaker 3: should it try to accomplish? Mister president elect? What roles
• 17:50
  Speaker 3: should elected officials play in that process? What would you
• 17:54
  Speaker 3: have done in twenty twenty one? Would you have hiked
• 17:56
  Speaker 3: rates and killed the recovery? These again self import and
• 18:00
  Speaker 3: journalists who never took an economics class, they don't have
• 18:02
  Speaker 3: the depth. Forgive me, but they're lightweights. They don't have
• 18:04
  Speaker 3: the depth to ask questions like that. I'd love to
• 18:06
  Speaker 3: know what he would have done, or any aspiring Fed
• 18:10
  Speaker 3: but in ski would have done under those circumstances? Do
• 18:13
  Speaker 3: you understand those trade offs? What would you have done?
• 18:15
  Speaker 3: Would a president ever hike interest rates under what circumstances
• 18:19
  Speaker 3: like let's let's unpack this a bit, mister President elect.
• 18:23
  Speaker 3: They never asked the interesting questions because they're always trying
• 18:25
  Speaker 3: to zing the guy.
• 18:27
  Speaker 2: Well that and I think only about two percent of
• 18:30
  Speaker 2: the American public would find those questions answers to those
• 18:33
  Speaker 2: questions to be interesting.
• 18:34
  Speaker 4: You and myself included. But you know, I don't think
• 18:36
  Speaker 4: a lot of them.
• 18:37
  Speaker 3: Look, that's why I'm alone most of the time, I guess,
• 18:40
  Speaker 3: and I can live with that because those are damn
• 18:42
  Speaker 3: good questions I want to be asked.
• 18:44
  Speaker 2: They're fantastic questions that any president should need to answer.
• 18:47
  Speaker 3: Instead of will you fire Powell? What would you rather
• 18:50
  Speaker 3: he have done?
• 18:51
  Speaker 1: Yeah?
• 18:51
  Speaker 2: Not?
• 18:52
  Speaker 3: Do you like the guy? Is he gonna upstage you?
• 18:55
  Speaker 3: Or should you? Those are not interesting questions, Mike. They
• 18:58
  Speaker 3: don't get to the meet They don't get to the
• 18:59
  Speaker 3: heart of the map.
• 19:00
  Speaker 2: In any case, Jerme, Powell and the Federal Reserve will
• 19:03
  Speaker 2: be sitting down. Like I said, a week from tomorrow. Tomorrow,
• 19:06
  Speaker 2: we will be getting the CPI report for the month
• 19:09
  Speaker 2: of November, and according to all indicators, we will be
• 19:13
  Speaker 2: getting what I defined as a soft landing for twenty
• 19:15
  Speaker 2: twenty four, which again I'll be the first to say
• 19:17
  Speaker 2: I did not think that was possible, because history showed
• 19:22
  Speaker 2: that it wasn't. But nonetheless that's where we are. Quick
• 19:24
  Speaker 2: break Wall Street Watch coming up. Then I want to
• 19:26
  Speaker 2: talk a bit about the housing market for twenty twenty five.
• 19:41
  Speaker 1: Like us on Facebook, then follow us on Twitter at
• 19:44
  Speaker 1: TFFE show. Breaking business news is always first right here
• 19:49
  Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
• 19:54
  Speaker 1: Street Watch. A complete look at what's moving market so
• 19:57
  Speaker 1: far today right here on the Financial extrame Change Radio Network.
• 20:01
  Speaker 5: Markets our mixed territory is traders away. Tomorrow morning's Consumer
• 20:04
  Speaker 5: Price Index for the latest gauge on inflation, followed by
• 20:08
  Speaker 5: the Producer Price Index on Thursday morning. Right now, the
• 20:13
  Speaker 5: Dow is off by only fifteen points, SMP five hundred
• 20:16
  Speaker 5: up nearly eight points, and the Nasdaq is up by
• 20:19
  Speaker 5: about a half a percent or ninety nine points. RUSSED
• 20:22
  Speaker 5: two thousand is up nearly half a percent as well,
• 20:25
  Speaker 5: or excuse me, down nearly half a percent or ten points.
• 20:29
  Speaker 5: Tenyure treasure reeled is up by three basis points at
• 20:33
  Speaker 5: four point two to three percent, and crude oil is
• 20:36
  Speaker 5: flat today, trading just above sixty eight dollars a barrel.
• 20:40
  Speaker 5: Oracle down by eight percent after the cloud software company
• 20:43
  Speaker 5: missed the analyst estimates for its fiscal second quarter earnings
• 20:47
  Speaker 5: and revenue. Oracle also issued guidance for the current quarter,
• 20:51
  Speaker 5: calling for revenue growth of seven to nine percent. Meanwhile,
• 20:55
  Speaker 5: AI software company C three dot Ai posted a smaller
• 20:58
  Speaker 5: than expected quarterly life and better than expected revenue. The
• 21:03
  Speaker 5: company also announced a new partnership with Microsoft. However, that
• 21:07
  Speaker 5: stock is down by four percent. Datablase database platform provider
• 21:12
  Speaker 5: Mango dB announced its CFO and COO would step down
• 21:17
  Speaker 5: effective January thirty first. Aside from the shakeup, the company
• 21:20
  Speaker 5: beat earning exam revenue expectations and also raised its fourth
• 21:24
  Speaker 5: quarter forecasts. However, that stock down by ten percent. Elsewhere,
• 21:29
  Speaker 5: shares in Alaska Era jumping by sixteen percent after the
• 21:32
  Speaker 5: company got it higher for its fourth quarter and also
• 21:35
  Speaker 5: said it would buy back one billion dollars in stock.
• 21:40
  Speaker 5: And Sticking with the airline space, where Bernstein upgraded American
• 21:44
  Speaker 5: Airlines to outperform from market perform. With firm said the
• 21:48
  Speaker 5: improving industry backdrop and its new credit card deal improves
• 21:52
  Speaker 5: the outlook that stock. Excuse me, American Airline stock is
• 21:55
  Speaker 5: up by four percent. I'm Tucker Silvan that's Wall Street.
• 21:59
  Speaker 2: Watch Mark, couple pieces here on the state of the
• 22:02
  Speaker 2: real estate market. Would you like me to summarize, in
• 22:05
  Speaker 2: my view, the good news first or the bad news first?
• 22:09
  Speaker 3: I don't know. Whatever you find are interesting, Just give
• 22:11
  Speaker 3: me an answer here, Mark, okay, the bad news, all right?
• 22:13
  Speaker 4: The bad news.
• 22:14
  Speaker 2: Across New England, inventory levels are abysmal. They have remained
• 22:18
  Speaker 2: abysmal since COVID, and they have barely moved in terms
• 22:22
  Speaker 2: of improvement here. So I always take a look at
• 22:25
  Speaker 2: the total number of homes for sale in a state
• 22:29
  Speaker 2: compared to where they were during the same month pre COVID,
• 22:35
  Speaker 2: So that would be November of twenty twenty four where
• 22:38
  Speaker 2: we have today versus twenty nineteen in November. In Massachusetts
• 22:42
  Speaker 2: there are currently fifty seven and a half percent the
• 22:45
  Speaker 2: level of homes for sale compared to twenty nineteen. New
• 22:47
  Speaker 2: Hampshire fifty one point seven, Main fifty nine point seven,
• 22:51
  Speaker 2: Rhode Island forty three percent of that inventory, Connecticut twenty
• 22:55
  Speaker 2: nine point seven percent, and sorry, Vermont, I forgot about you,
• 22:58
  Speaker 2: so I don't have you in this listing. The good
• 23:00
  Speaker 2: news is that if you look at pretty much everywhere
• 23:03
  Speaker 2: else in the United States, it's not so bad. Across
• 23:06
  Speaker 2: the US, the total active listings as of November twenty
• 23:10
  Speaker 2: twenty four, we're at eighty three point four percent of
• 23:13
  Speaker 2: pre COVID levels. It's not a you know, that wasn't
• 23:16
  Speaker 2: exactly a screaming buyer's market. But we were sitting at
• 23:19
  Speaker 2: eighty three point four percent. Florida now one hundred and
• 23:22
  Speaker 2: fifteen percent, Arizona one hundred and eighteen percent, Texas one
• 23:26
  Speaker 2: hundred and seventeen percent. In California, I threw in there
• 23:29
  Speaker 2: just as the largest state eighty five point six percent,
• 23:32
  Speaker 2: so right in line with the national average.
• 23:34
  Speaker 3: Sorry you were we let no, no, no, it's fine,
• 23:37
  Speaker 3: thank you. I we'd like to see the Jesus may sound.
• 23:41
  Speaker 3: Housing accountists probably say, IM an idiot, but here we go.
• 23:45
  Speaker 3: We'd like to see the real estate. I think it
• 23:47
  Speaker 3: would be a good sign if the real estate market
• 23:48
  Speaker 3: became more fragmented, more disparate. These these results were more
• 23:53
  Speaker 3: disparate and differentiated. National housing markets have gotten us into
• 23:58
  Speaker 3: trouble a couple times in the past twenty five years.
• 24:03
  Speaker 4: What about this data would indicate to you it's not differentiated.
• 24:07
  Speaker 4: I mean, you.
• 24:07
  Speaker 3: Nobody know this. This is good this is good.
• 24:09
  Speaker 4: So you think, yeah, yeah, I'm sorry.
• 24:10
  Speaker 3: I can't even look happy when I want to.
• 24:12
  Speaker 2: Because Connecticut is sitting at like thirty percent of pre
• 24:15
  Speaker 2: COVID inventory. Florida is sitting at one hundred and eighteen
• 24:17
  Speaker 2: percent or hundred and fifteen.
• 24:18
  Speaker 3: Now, the bad news is Florida might be in some
• 24:21
  Speaker 3: other markets might be in trouble. It's not it's not funny,
• 24:23
  Speaker 3: but Florida is like chronically.
• 24:25
  Speaker 4: Crazy, always overbuilt, right, boom, but thank.
• 24:28
  Speaker 3: You exactly in florida'sn't.
• 24:30
  Speaker 2: A similar story of Texas, kind of defined by more
• 24:34
  Speaker 2: by the energy sector, but always defined by the key point.
• 24:37
  Speaker 3: It was so energy dependent for decades. Maybe that's a
• 24:40
  Speaker 3: little different now they seem to have diversified their economy.
• 24:43
  Speaker 3: But I think more evidence of differences to oversimplify that
• 24:49
  Speaker 3: in real estate markets would probably be a good thing.
• 24:52
  Speaker 3: So Florida doesn't, for example, kill the whole country the
• 24:56
  Speaker 3: way the California mortgage market killed in the Vegas and
• 24:59
  Speaker 3: others killed a whole market in two thousand and six,
• 25:01
  Speaker 3: two thousand and seven.
• 25:03
  Speaker 2: So the CNBC has a piece out today, you know,
• 25:06
  Speaker 2: five housing market predictions for twenty twenty five. They all
• 25:09
  Speaker 2: seem fairly safe in terms of the predictions that they're making.
• 25:12
  Speaker 2: First one is, hey, home price growth that has been
• 25:15
  Speaker 2: absolutely nuts over the last few years. Prices will still grow,
• 25:18
  Speaker 2: but at a more modest rate of four percent. Okay,
• 25:22
  Speaker 2: all right, I don't you.
• 25:23
  Speaker 3: Would say that about anything which trend.
• 25:25
  Speaker 2: Right, We've talked about every single data point that's returning
• 25:28
  Speaker 2: to its pre COVID norms, and I suppose that this
• 25:30
  Speaker 2: shouldn't be any different. In terms of our expectations. Rents,
• 25:36
  Speaker 2: they expect to flatten a little bit, a little bit
• 25:38
  Speaker 2: more room to negotiate there. I think that's as more
• 25:40
  Speaker 2: and more inventory has come online. We'll see there's a
• 25:44
  Speaker 2: lot of buyers who are probably going to end up
• 25:46
  Speaker 2: renting over the next year because there still is no inventory.
• 25:48
  Speaker 2: But we'll see how that plays out. Bumpy and volatile year.
• 25:53
  Speaker 2: For mortgage rates, they're they're expecting mortgage rates to average
• 25:57
  Speaker 2: six point eight percent, but could hover around the low
• 26:00
  Speaker 2: six percent if the economy continues to slow again, no
• 26:03
  Speaker 2: big change.
• 26:04
  Speaker 3: Well, that's an interest rate prediction which is full learned.
• 26:07
  Speaker 2: As we all know, more home sales in twenty twenty
• 26:10
  Speaker 2: than in twenty twenty four. Again, if we are seeing
• 26:12
  Speaker 2: an uptick in inventory. I would hope that you expect
• 26:15
  Speaker 2: some some uptick in home sales. And then the last
• 26:17
  Speaker 2: piece that I actually do find to be a somewhat
• 26:20
  Speaker 2: interesting prediction is that climate risks will bake into home
• 26:24
  Speaker 2: prices more than they have in the past. I'm unsure
• 26:27
  Speaker 2: about this one, but I could buy it. Zillow, Redfin
• 26:30
  Speaker 2: other providers are now providing a lot more data in
• 26:33
  Speaker 2: terms of climate risks, such as wildfire risk, flooding risk
• 26:37
  Speaker 2: right in the listings. I don't know how much people think.
• 26:40
  Speaker 3: Anybody cares. It's until you get the insurance bill or
• 26:43
  Speaker 3: you realize the properties uninsurable. People will react, myself included
• 26:46
  Speaker 3: by the way I want to see I want to
• 26:49
  Speaker 3: see it in the price of something other than the
• 26:52
  Speaker 3: And this is only indirectly impacting lis see.
• 26:56
  Speaker 4: I don't know.
• 26:56
  Speaker 2: I mean, it depends on how you shop, obviously, But
• 26:58
  Speaker 2: if I'm browsing redfin and I'm looking at that property
• 27:01
  Speaker 2: and one of them is showing a nine out of
• 27:04
  Speaker 2: ten flood risk and the other one's showing a four
• 27:06
  Speaker 2: out of ten, I might go look at the four
• 27:08
  Speaker 2: out of ten first. I'll be interested to see I'm
• 27:11
  Speaker 2: sure a few years Yeah, I'm sure a few years
• 27:14
  Speaker 2: from now, we'll see a correlation in terms of offer
• 27:16
  Speaker 2: prices on higher flood.
• 27:17
  Speaker 3: Risks, you low ball them and you buy a pontoon
• 27:19
  Speaker 3: boat or something.
• 27:20
  Speaker 4: Yeah, yeah, yeah, that sounds like a good plan.
• 27:23
  Speaker 2: One other interesting data point that I saw on the
• 27:27
  Speaker 2: housing market, which is not really capturing any of these things,
• 27:29
  Speaker 2: is an estimate from Zillo. And we've all heard about
• 27:34
  Speaker 2: the largely baby boomers who are aging in place, not
• 27:37
  Speaker 2: wanting to leave their homes, in part because it's such
• 27:39
  Speaker 2: a difficult buyer's market, and they might have a mortgage
• 27:42
  Speaker 2: that they're locked into, or frankly, they might just be
• 27:44
  Speaker 2: comfortable where they are not wanting to move. Zilo estimates
• 27:47
  Speaker 2: that there are a record twenty one million empty nester
• 27:51
  Speaker 2: homes right now, which they define as a home with
• 27:54
  Speaker 2: two empty bedrooms that are being underutilized. I'm not exactly
• 28:00
  Speaker 2: sure what to do with that information, other than to
• 28:02
  Speaker 2: say there seem to be a large number of homes
• 28:07
  Speaker 2: that are probably more expensive than those homeowners actually need
• 28:12
  Speaker 2: in terms of the housing.
• 28:14
  Speaker 3: Supposed to do shut the you know, how do you
• 28:17
  Speaker 3: I believe me, I've thought about this I have an
• 28:19
  Speaker 3: extra space too that I'm making real estate tax on.
• 28:21
  Speaker 3: I'm like, how do I make this seem unlivable so
• 28:24
  Speaker 3: that I what do I need to infest this with?
• 28:27
  Speaker 3: How many raccoons need to live there before I get
• 28:29
  Speaker 3: a break on my property tax?
• 28:30
  Speaker 2: I think the only way to read into this would
• 28:33
  Speaker 2: be that there are a number of homes that were
• 28:36
  Speaker 2: conditions right, people would consider selling maybe, but you need
• 28:39
  Speaker 2: the extra room.
• 28:39
  Speaker 3: For the kids or the occasional guest, or they barely
• 28:43
  Speaker 3: visit your trophy collection mic or yeah whatever, Yeah, And
• 28:47
  Speaker 3: that's twenty one.
• 28:48
  Speaker 4: Out of those.
• 28:52
  Speaker 2: Participation Ribbon Sure Trophy. There are no actual wins in this,
• 28:57
  Speaker 2: and I.
• 28:57
  Speaker 3: Do sympathize with empty nesters who are occupying more room
• 29:02
  Speaker 3: than they.
• 29:03
  Speaker 4: Well, wait, what are you supposed to do? Yeah, where
• 29:05
  Speaker 4: you're gonna go?
• 29:06
  Speaker 3: You're gonna go to a You're gonna go to a
• 29:08
  Speaker 3: conde overpriced condo.
• 29:09
  Speaker 4: Right.
• 29:11
  Speaker 2: I've made the argument that might be the right call anyway,
• 29:13
  Speaker 2: because even though it might seem overpriced, you're gonna get
• 29:17
  Speaker 2: a lot on that sale, and your overall occupancy costs
• 29:20
  Speaker 2: are going to come down dramatically in most cases.
• 29:23
  Speaker 3: Oh, is that what you found.
• 29:24
  Speaker 1: Yeah.
• 29:24
  Speaker 2: I mean, you know, even manufacturing a condo fee, you know,
• 29:27
  Speaker 2: the amount of space that you need to ensure the
• 29:29
  Speaker 2: amount of upkeep on a property, especially especially the folks
• 29:31
  Speaker 2: that are following themselves finding themselves in the situation where like, oh, yeah,
• 29:35
  Speaker 2: I used to plow my driveway, shovel my walkway, and
• 29:38
  Speaker 2: mow my own lawn, and now I'm hiring all that out. Yeah,
• 29:42
  Speaker 2: there is a big price difference there. But I just
• 29:44
  Speaker 2: don't know how many of that twenty one million are
• 29:46
  Speaker 2: actually falling into that place. That was the one stat
• 29:48
  Speaker 2: that I found compelling. But it's probably been elevated for
• 29:53
  Speaker 2: a few years and they still haven't sold the home.
• 29:55
  Speaker 2: So what's gonna get them into kick them into gear?
• 29:57
  Speaker 2: I don't have I think we know what's gonna kick
• 30:00
  Speaker 2: in gear.
• 30:00
  Speaker 3: It's gonna it's a health event. Or yeah I did.
• 30:03
  Speaker 3: I didn't even mean. Jeez, Mike, that's dark now. Of course,
• 30:06
  Speaker 3: of course that's where I wanted you to go. I
• 30:07
  Speaker 3: set that up so that you look like the jerk.
• 30:09
  Speaker 2: Let's take a quick break. When we come back, I
• 30:12
  Speaker 2: want to talk a bit about stock buybacks. That's next
• 30:14
  Speaker 2: on the financial Exchange.
• 30:16
  Speaker 1: The financial Exchange streams live on YouTube. Like our page
• 30:20
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• 30:22
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• 30:27
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• 30:34
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• 30:37
  Speaker 1: Financial Exchange Radio Network.
• 30:54
  Speaker 2: Bloomberg has a piece this morning worried about stocks. One
• 30:57
  Speaker 2: trillion dollars in buybacks will help Mark. I want to
• 31:01
  Speaker 2: start with a more basic premise. Uh, And I'm not
• 31:04
  Speaker 2: sure you're gonna be able to handle it because you're
• 31:05
  Speaker 2: just cracking up in laughter here.
• 31:07
  Speaker 3: But we were laughing off air about the existence of.
• 31:10
  Speaker 2: Santa and Elf on a shelf, and and just you know,
• 31:13
  Speaker 2: all all the things that are part of.
• 31:16
  Speaker 3: Sorry, I'm sorry for this is a serious subject.
• 31:19
  Speaker 4: Yep.
• 31:19
  Speaker 3: Yes, that has implications for people's financial well being. So
• 31:23
  Speaker 3: let's hit this. The existence of the gravity that it deserves,
• 31:25
  Speaker 3: this subject.
• 31:26
  Speaker 4: The existence of Santa.
• 31:28
  Speaker 3: Yes, well that's too. That would certainly make the tirement
• 31:30
  Speaker 3: easier if that.
• 31:32
  Speaker 4: Let's move on.
• 31:34
  Speaker 2: So, uh, I want to start with a basic premise
• 31:36
  Speaker 2: of dividends versus buybacks, because they are two different, very
• 31:42
  Speaker 2: common accounting maneuvers that companies will utilize when they have
• 31:46
  Speaker 2: what they internally define as some extra cash.
• 31:48
  Speaker 3: That they have the cash, they don't better to do
• 31:51
  Speaker 3: with it.
• 31:51
  Speaker 2: Some companies prefer one versus the other. Warren Buffett famously
• 31:55
  Speaker 2: never pays dividends, but does participate in stock buybacks. Amazon
• 31:58
  Speaker 2: has historically not offered in the way of dividends, at
• 32:01
  Speaker 2: least during their earlier years. I guess, starting with that
• 32:06
  Speaker 2: basic premise, how do they impact shareholders differently when you
• 32:09
  Speaker 2: think about dividends versus buybacks?
• 32:11
  Speaker 3: I think for purposes of this discussion, the important point
• 32:15
  Speaker 3: is that for the market as a whole, buybacks are
• 32:18
  Speaker 3: just a way of returning cash. As you said to
• 32:20
  Speaker 3: shareholders are they add to the yield of stock so
• 32:24
  Speaker 3: all else equal hire buybacks And they're expected to breach
• 32:28
  Speaker 3: the trillion dollar marks soon and may next year as well.
• 32:31
  Speaker 3: We won't know until after the fact. But these provide
• 32:35
  Speaker 3: a substantial, as they point out on the Bloomberg piece
• 32:37
  Speaker 3: Bloomberg Piece, a substantial tailwind to equity returns. Think of
• 32:41
  Speaker 3: it like a dividend that that doesn't have to be
• 32:45
  Speaker 3: substantial and recurring. It gives the company the flexibility to hold.
• 32:50
  Speaker 2: To conserve cash in tougher times, and to effectively. I mean,
• 32:54
  Speaker 2: if I'm thinking about it, right, increase the percentage of
• 32:58
  Speaker 2: the company you own with the same number of shares.
• 33:00
  Speaker 3: Right when shares somebody is going to sell their shares
• 33:04
  Speaker 3: back to the company, but remaining shares have a greater.
• 33:07
  Speaker 4: You're reducing the shares outstanding.
• 33:09
  Speaker 3: Right, and therefore earnings per share when you make that
• 33:13
  Speaker 3: denominator of shares smaller goes up. So yeah, you have
• 33:17
  Speaker 3: a greater interest in.
• 33:17
  Speaker 4: The versus the dividend. You're literally just paying cash to
• 33:20
  Speaker 4: shareholders in one way shape.
• 33:21
  Speaker 3: Which they could reinvest in. I mean, money's fungibles, you
• 33:24
  Speaker 3: could do the same thing with it, So it's sort
• 33:27
  Speaker 3: of it's it's equivalent theoretically. But the bigger point that
• 33:30
  Speaker 3: they make here is that buybacks are on track to
• 33:33
  Speaker 3: hit a record. This is a tailwind all l sequel.
• 33:37
  Speaker 3: It's also to be expected because the economy has been good,
• 33:41
  Speaker 3: revenues have been high, Companies are increasingly cash flush. What
• 33:46
  Speaker 3: else are they going to do with it? Not not
• 33:49
  Speaker 3: every company finds itself in that situation. Some have profitable,
• 33:52
  Speaker 3: profitable in the sense the return on expected investment uh
• 33:56
  Speaker 3: out is greater than alternative uses.
• 33:59
  Speaker 2: I think the bigger point that we make with just
• 34:02
  Speaker 2: about every article is just because Bloomberg says that stock
• 34:06
  Speaker 2: buybacks are going to top a trillion dollars in twenty
• 34:09
  Speaker 2: twenty five does not necessarily mean that will help. Stocks
• 34:12
  Speaker 2: are going to respond to the economic conditions on the ground.
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• 34:25
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  Speaker 3: They don't want to be committed and they may have
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  Speaker 2: enough risk with my portfolio to outpace inflation over the
• 35:08
  Speaker 2: long term? Armstrong Advisor Group would love to sit down
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• 35:51
  Speaker 2: UH. The tip for Tat from China is already heating
• 35:55
  Speaker 2: up a bit more. We had over the weekend TikTok face.
• 36:00
  Speaker 2: It's more formal ban from a US court and a
• 36:05
  Speaker 2: further appeal by TikTok. You've had a lot written about
• 36:09
  Speaker 2: that and some reactions overseas from that around the same time,
• 36:13
  Speaker 2: although we'll see if this was, you know, directly in
• 36:16
  Speaker 2: reaction to TikTok or some of the other things that
• 36:18
  Speaker 2: were put into place. China is now probing in Vidia
• 36:23
  Speaker 2: for monopoly status and anti trust behavior, which I think
• 36:27
  Speaker 2: anybody that follows Chinese economic policy would find a bit
• 36:30
  Speaker 2: humorous given how they treat that.
• 36:33
  Speaker 3: Why are they even going through the charade of some process.
• 36:37
  Speaker 2: Yeah, just call them a guy, so we know where
• 36:39
  Speaker 2: you're going with this.
• 36:40
  Speaker 4: Yeah.
• 36:41
  Speaker 1: Uh.
• 36:43
  Speaker 2: It is one of the advantages that China has on
• 36:46
  Speaker 2: the negotiating table is you know, in the United States,
• 36:48
  Speaker 2: it takes us a year to ban something like TikTok,
• 36:51
  Speaker 2: which is very clearly a national security threat, and might
• 36:54
  Speaker 2: take another year for it to go through all of
• 36:56
  Speaker 2: the appeals.
• 36:57
  Speaker 4: And all of the motions, uh, for it to act.
• 37:00
  Speaker 4: Don't we be banned?
• 37:00
  Speaker 3: Don't we not want in video selling chips in China?
• 37:02
  Speaker 1: Anyway?
• 37:03
  Speaker 2: Well, I think the answer is more nuanced. We don't
• 37:06
  Speaker 2: want in video selling certain chips in China. We do
• 37:10
  Speaker 2: want in video selling there. Let me call them just
• 37:13
  Speaker 2: stupid chips in China, Like, hey, you know the the
• 37:16
  Speaker 2: lower end items that are really profitable to in Vidia
• 37:20
  Speaker 2: and fund all of the research that they're able to do.
• 37:23
  Speaker 2: Watch into their Yeah, into their AI powered chips. Yeah,
• 37:27
  Speaker 2: we don't really want that piece going away, But we
• 37:29
  Speaker 2: do want the very high end, very powerful chips that
• 37:33
  Speaker 2: power the world supercomputers. We don't want those going to China,
• 37:37
  Speaker 2: and surprise, surprise, China is not a huge fan of that.
• 37:40
  Speaker 2: So since those most recent restrictions have gone into place
• 37:44
  Speaker 2: in the Biden administration, you've had China now put in
• 37:47
  Speaker 2: mega exports controls around rare earth materials, and now you
• 37:51
  Speaker 2: have this thing here where they're saying, look, in Vidia
• 37:55
  Speaker 2: is a monopolist and you know potentially we're going to
• 37:58
  Speaker 2: ban these products coming in. And why that's a problem
• 38:01
  Speaker 2: is again and Video only sells their dumb chips to China.
• 38:05
  Speaker 2: Many other suppliers have equivalent types of products there. That's
• 38:10
  Speaker 2: all the time we have for this hour of the
• 38:11
  Speaker 2: Financial Exchange quick break. Markets have turned positive for the day.
• 38:14
  Speaker 2: We will have a full market recap and much much
• 38:17
  Speaker 2: more coming up next