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A Market Full of Noise — But No Direction? · The Financial Exchange Show

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Speaker 1: Chuck Zada and Mark Vandenny.
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Speaker 2: Kicking things off here, Chuck, Mark and Tucker with you.
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Speaker 2: And as we move through the Thursday trading session, we
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Speaker 2: got very modest downward drift in equity markets. The SMP
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Speaker 2: is off about a third of a percent, same with
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Speaker 2: the Dow and same with the NASDAK composite. So all
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Speaker 2: major agencies off about a third of a percent. Nothing
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Speaker 2: really to write home about, nothing particularly exciting, uh, but
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Speaker 2: just the continuation of what we've seen this year. Where look,
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Speaker 2: if you if you're looking at the price return of
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Speaker 2: the S and P five hundred through the first you
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Speaker 2: know six, I'm sorry, through the first fifty days of
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Speaker 2: twenty twenty six, not trading days, but just like actually
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Speaker 2: the first fifty days you can't really get excited about
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Speaker 2: in neither direction. The SMP is up zero point twenty
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Speaker 2: four percent that time. Okay, it's fine, but again under
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Speaker 2: the surfaces where all of the action is happening. Even today,
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Speaker 2: you know, again we talked about S andps off, you know,
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Speaker 2: about a third of a percent. Software getting beaten up
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Speaker 2: again into it down a couple percent. You've got who's
2:18
Speaker 2: this one Cadence design is off four percent, big asset
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Speaker 2: managers on the heels of Blue Owl announcing permanent gating
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Speaker 2: of one of their private credit funds. You've got Blackstone
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Speaker 2: down six percent, KKR is down four, Apollos down almost
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Speaker 2: six So that's the downside. The upside. Hey, you've got
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Speaker 2: energy stocks. Chevron is up one point six percent, with
2:39
Speaker 2: oil prices moving up in fears of potential Middle East conflict.
2:45
Speaker 2: Walmart reported earnings up a couple percentage points there. Deer
2:48
Speaker 2: reported earnings up eleven percent for a good old deer
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Speaker 2: in company. So a lot of movement under the surface,
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Speaker 2: even as the index as a whole just kind of
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Speaker 2: sits there, shrugs and says, eh, I don't really want
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Speaker 2: to go up. I don't really want to go down.
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Speaker 2: I'm cool, just chilling here. That's what the S and
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Speaker 2: P has been saying so far this year. Tenure Treasury
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Speaker 2: also cool, just chilling here. It's up four tenths of
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Speaker 2: a basis point to uh four point eight five percent,
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Speaker 2: Almost no movement on that front.
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Speaker 3: Yeah, you know, Chuck, when you put it that way,
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Speaker 3: we often give the stock market a personality. Yeah who
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Speaker 3: called it, mister market? Not Benjamin Graham, but maybe it
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Speaker 3: was Benjamin.
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Speaker 2: Graham might yeah, it might have been rightly, doesn't it say?
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Speaker 3: It sounds like something he would say sometimes in mister
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Speaker 3: market anthropomorphized. Yes, yes, yes, we do. We give a
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Speaker 3: human here, we give it human qualities.
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Speaker 2: Right.
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Speaker 3: He said it was sort of manic depressive, And I
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Speaker 3: don't know someone might be struggling with that or have
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Speaker 3: a family member. So I don't want to give it
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Speaker 3: a mental illness name and say that's a bad thing.
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Speaker 3: But you know, he what he meant was sometimes it's up,
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Speaker 3: sometimes it's down, and sometimes it's over league xuberant, sometimes
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Speaker 3: it's deeply depressed. It's got this sort of split personality
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Speaker 3: type characteristic. And the fact that we give an average
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Speaker 3: of a bunch of things that we decided to put
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Speaker 3: together any type of organizing personality or try to assign
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Speaker 3: any type of trait to it is sort of weird.
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Speaker 3: I mean, it's a construct. So why should these companies,
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Speaker 3: other than their common response to economic and financial events,
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Speaker 3: be expected to when you sort of average them. We
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Speaker 3: do it on a market cap basis. There are other
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Speaker 3: ways to do it. Why should you expect that average
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Speaker 3: to mean anything? There's an answer. It's that they do
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Speaker 3: tend to move together in response to, say, economic events,
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Speaker 3: but at the same time, it shouldn't be surprising that
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Speaker 3: the market does nothing. But then, as you point out,
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Speaker 3: there's all this turmoil right under the surface.
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Speaker 2: Yeah, right now, if you wanted to anthropomorphize this market,
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Speaker 2: whoa uh huh. You're on a boat and on that boat,
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Speaker 2: you're fishing, and you're just kicking back, having a beer
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Speaker 2: or two, and you're like, oh, I hope there's some
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Speaker 2: fish down there, and you know, your lines just hanging
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Speaker 2: off the side of the boat, you got your lure on.
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Speaker 2: You're like, maybe it'll be a tuna, maybe it'll be
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Speaker 2: a tarpin. I'm not sure what it's gonna be. And underneath,
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Speaker 2: it's like there's this feeding frenzy going on where there's
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Speaker 2: sharks just like taking like giant bites of like everything.
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Speaker 2: There's whales coming through and eating all these minnows and stuff,
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Speaker 2: and you're just chilling up there kind of oblivious to it.
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Speaker 2: That's what the S and P is right now. There
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Speaker 2: is a feeding frenzy underneath, and it's just sitting there
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Speaker 2: on the boat like, hey man, pass me another corona,
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Speaker 2: maybe a light, you know, like like that's kind of that's.
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Speaker 3: The other analogy, definitely less colorful than yours, but that
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Speaker 3: people use as a swan. On the surface, it appears
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Speaker 3: to be stationary or gliding slowly, but if you look underneath,
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Speaker 3: it's paddling frantically.
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Speaker 2: No.
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Speaker 3: Yeah, yeah, that's a good kind of analogy.
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Speaker 2: Yeah, yeah, very similar.
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Speaker 4: I like the beer one better, thank you, thank you.
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Speaker 2: Gold is up twenty three ninety and ounce to five
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Speaker 2: thirty three and forty cents. Crude oil We mentioned, you know,
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Speaker 2: additional airplanes and additional ships being tasked into the Middle
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Speaker 2: East over the last couple of days, has more fears
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Speaker 2: of potential disruptions to oil supply if there's any kind
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Speaker 2: of protracted, protracted conflict that evolves there. And so we've
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Speaker 2: got West Texas Intermediate up a dollar forty eight a
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Speaker 2: barrel to sixty six sixty seven per barrel right now.
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Speaker 2: Tripa National Averagur gas prices is also up overnight another
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Speaker 2: six tenths of ascent to two ninety two and nine
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Speaker 2: tenths right now. So that is what is moving in
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Speaker 2: markets at the moment. Good segue into the Wall Street
6:44
Speaker 2: Journal piece what to make of this very weird market
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Speaker 2: and it is just again, really really weird. The word
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Speaker 2: that you want to have on the tip of your
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Speaker 2: tongue right now is dispersion, because it's what's driving everything.
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Speaker 2: Dispersion is a fancy way of saying stuff's not going
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Speaker 2: the same way. And so year to date, like let's
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Speaker 2: again kind of extrapolating on the one day piece. Year
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Speaker 2: to date, Microsoft is down seventeen percent, Amazon's down eleven,
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Speaker 2: Oracles down eighteen, palent Teers down twenty three, Google's down three,
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Speaker 2: broad Calms down two. Like a lot of your big
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Speaker 2: tech has just gotten bopped on the head and is like, okay,
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Speaker 2: like what do we do? And the money's not just
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Speaker 2: leaving the market and going like out into Casher into bonds.
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Speaker 2: It's been Hey, Caterpillars up thirty two percent year to date,
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Speaker 2: Walmart's up sixteen, Exon's up twenty six, JA and J's
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Speaker 2: up eighteen. Even silly little Verizon, which hasn't been able
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Speaker 2: to get out of its way in like two decades,
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Speaker 2: is up twenty percent year to date. And so this
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Speaker 2: is pretty much kind of keeping the index pinned without
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Speaker 2: any real movement in either direction. The bulls will point to, hey,
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Speaker 2: you know, we reach new all time highs just you
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Speaker 2: know a month ago. Yeah you did that all time
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Speaker 2: high was about one percent higher than one back in October.
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Speaker 2: So you didn't really have much of behind it, you know,
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Speaker 2: you weren't really you know, kicking anywhere. The bears will say, hey,
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Speaker 2: this market's been you know, pretty dodgy. We've had you know,
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Speaker 2: pullbacks every month for the last you know, four or
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Speaker 2: five months. It's only a matter of time. But ultimately
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Speaker 2: you need one of two things to happen to unstick
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Speaker 2: this market. You need either market leadership to develop saying yes,
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Speaker 2: follow me to freedom, like I'm the one that you
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Speaker 2: can trust, which quite honestly, I don't know if you're
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Speaker 2: gonna get that with like the Verizons and Johnson's and
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Speaker 2: Johnson's of the world. There's a reason why, you know,
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Speaker 2: Verizon hasn't really gone anywhere in the last twenty years,
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Speaker 2: and it's because it's just a really boring company. Like
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Speaker 2: that's just just the deal, Like it's it's just kind
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Speaker 2: of how it is. Uh when when you look at them,
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Speaker 2: you know, Verizon, like over the last five years, revenue
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Speaker 2: growth averages one point five percent, earnings per share of
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Speaker 2: decreased by one point one percent per year over that time.
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Speaker 2: It's just like, okay, so you up twenty percent this year,
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Speaker 2: proved to me than anything exciting is happening. So you
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Speaker 2: need market leadership to develop, either in the form of
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Speaker 2: previous leadership recapturing that mantle text saying yeah, we figured
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Speaker 2: out a way to monetize AI and now we can
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Speaker 2: drive forward again, or something else has to develop. Energy,
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Speaker 2: which again, like here's the thing about energy, like it's
9:19
Speaker 2: it's never what you want like leading a market for
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Speaker 2: any extended period of time, because when energy is leading
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Speaker 2: the market usually means energy prices are up. You get
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Speaker 2: demand destruction elsewhere, and so you end up with an
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Speaker 2: economy that struggles because of high energy prices. But look,
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Speaker 2: maybe it's you know, financials, maybe it's consumer cyclical, maybe
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Speaker 2: it's healthcare. Something else has to take up the mantle,
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Speaker 2: and nothing's really been able to do it convincingly enough
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Speaker 2: to break us out to the upside. On the downside,
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Speaker 2: you need something that actually breaks the positive stories that
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Speaker 2: you have in markets to say no, these aren't going
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Speaker 2: to be enough to keep the economy going. So there's
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Speaker 2: a bunch of extra spending that's expected from the one
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Speaker 2: big beautiful bill, from additional tax refunds and things like that.
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Speaker 2: There's a bunch of bonus appreciation in there for new
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Speaker 2: capex this year. If something starts to break those stories
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Speaker 2: where hey, consumer spending is pulling back or companies are
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Speaker 2: cutting back on capex plans, that breaks those stories and
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Speaker 2: potentially can lead the market lower. But none of that's
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Speaker 2: happened yet. And so what you end up with in
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Speaker 2: this case, where there's no story that can really take
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Speaker 2: hold and drive the whole ship. You're on the boat
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Speaker 2: drinking my ties, like that's what it is. The S
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Speaker 2: and P is just bobbing up and down, chilling. You
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Speaker 2: got the sharks below circling and everything. But nothing's happening.
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Speaker 2: And so at this point, that's why I get to
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Speaker 2: use my favorite Shakespeare quote. You know, as I used
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Speaker 2: this when I was talking to Chris Ryan this morning
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Speaker 2: on WGR, he said, how would you describe this market
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Speaker 2: this year? It's full of sound and fury signifying nothing.
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Speaker 2: That's the deal. It's a lot of noise, but nothing's
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Speaker 2: actually happening. With that in mind, let's take a quick
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Speaker 2: break and then we'll come back. We'll make some more
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Speaker 2: noise and do a little bit of trivia right after this.
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11:41
Speaker 4: Had time for trivia here on the Financial Exchange on
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12:35
Speaker 2: We've got a piece in the Wall Street Journal here.
12:38
Speaker 2: It's a great look actually at a phenomenon that we've
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Speaker 2: been talking about as long as I can remember, which
12:43
Speaker 2: is the uh the aging of America and the impact
12:47
Speaker 2: that we see on the economy, and titled over sixty five.
12:51
Speaker 2: Congratulations you own the economy, which I will push back
12:56
Speaker 2: on as a proud millennial and say, given what I
13:00
Speaker 2: am seeing now from advertisers pandering to millennials in ways
13:05
Speaker 2: that I never thought possible for advertisers, at least, the
13:09
Speaker 2: millennials own the economy. But I digress. In any case,
13:15
Speaker 2: Here's what we are seeing in terms of net worth,
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Speaker 2: and this is data from the Federal Reserve. In nineteen
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Speaker 2: eighty nine, those age seventy and older had about nineteen
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Speaker 2: percent of all the net worth in the United States.
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Speaker 2: Today it's thirty two percent. The fifty five to sixty
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Speaker 2: nine demo held thirty seven percent of the wealth in
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Speaker 2: the country at that point in time in nineteen eighty nine.
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Speaker 2: Today's forty two percent. So basically that over fifty five
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Speaker 2: demo has gone from owning about fifty six percent of
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Speaker 2: the wealth in nineteen eighty nine to seventy four percent today.
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Speaker 2: It's a big chunk. The only thing that's relatively consistent
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Speaker 2: those under age forty basically don't have very much of it.
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Speaker 2: They went from twelve down to seven, so just again
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Speaker 2: just not much on that side of things. The other
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Speaker 2: place that we are seeing this just in terms of
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Speaker 2: the big impact is from the Congressional Budget Office. They
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Speaker 2: basically take Social Security, Medicare, civilian and military retirement veterans
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Speaker 2: benefits and they net offsetting receipts for them for the
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Speaker 2: elderly sixty five plus demo, and what we see is
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Speaker 2: that federal spending is a percentage of GDP on elderly
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Speaker 2: programs has gone from six percent of GDP in nineteen
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Speaker 2: eighty nine to nine point four percent today, so it's
14:36
Speaker 2: an inititional three percent of GDP. The other way to
14:39
Speaker 2: phrase it is those costs of increase by fifty percent
14:42
Speaker 2: relative to GDP, which is a pretty big increase, which
14:45
Speaker 2: also kind of gets to like why we are where
14:49
Speaker 2: we are from a deficite perspective, because basically, if you
14:52
Speaker 2: hold everything else equal in terms of, hey, we're going
14:55
Speaker 2: to continue to spend X on everything other than senior benefits.
15:00
Speaker 2: But senior benefits grow by three percent and you were
15:03
Speaker 2: previously running two to three percent deficits, you wind up
15:05
Speaker 2: in a world where you now have six percent deficits.
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Speaker 3: Fair, Mark, I think it is fair. It was baked
15:11
Speaker 3: into the cake. Life expectancies rising to the extent that
15:15
Speaker 3: they have was was not although you could have extrapolated
15:19
Speaker 3: from the twentieth century trend and kind of figured that out,
15:24
Speaker 3: and they the actuarial, the actuaries who worked on Social
15:29
Speaker 3: Security in eighty three and have have made proposals since,
15:33
Speaker 3: you know, had pointed this out. But so rising life expectancy, Chuck,
15:38
Speaker 3: and just leaving program structure in place got us to
15:42
Speaker 3: where we are.
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Speaker 2: Today, combined with decreasing birth rates.
15:47
Speaker 3: Yeah, thank you. Then well there's that. Yeah, that's a
15:49
Speaker 3: somewhat related fiscal problem of how you fund this stuff. Yes,
15:56
Speaker 3: so it's a good problem to have, but it's very difficult.
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Speaker 3: A good problem in that increasing life expectancy and quality
16:03
Speaker 3: of life is the end uh is is the is
16:09
Speaker 3: the purpose of a market economy. It delivers that. And
16:13
Speaker 3: I don't want to get off on a tangent here,
16:14
Speaker 3: but it is worth pointing out that this a good
16:16
Speaker 3: problem to have.
16:17
Speaker 2: And and you want higher quality.
16:20
Speaker 3: You don't just want to live to be a four
16:21
Speaker 3: hundred year old vampire. You want to you want to
16:23
Speaker 3: live a good quality. You want to continue to do
16:25
Speaker 3: the things that you you know, now some cast off
16:27
Speaker 3: in a in somebody's basement. Uh, you want a high
16:31
Speaker 3: quality life. And we've the market economy has has delivered
16:35
Speaker 3: that you could compare life expectancies across economies with different regimes.
16:40
Speaker 3: And and this is why preserving what i'll just call capitalism,
16:44
Speaker 3: even though that has a bad connotation to some people,
16:46
Speaker 3: is so darn important just life expectancy and quality of life.
16:50
Speaker 3: So there's there's that which makes this a good problem
16:53
Speaker 3: to have. Unfortunately, it's hard to claw back or claw
16:56
Speaker 3: back isn't the right word, but you know what I
16:58
Speaker 3: mean to take back benefits wants their promise.
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Speaker 2: Well, the downside is just that we've decided that we've
17:03
Speaker 2: decided two things Unfortunately. The first is we're just gonna
17:07
Speaker 2: keep uping the benefit level, like not only like, hey,
17:10
Speaker 2: here's what your promised but hey, here's more So that's
17:15
Speaker 2: problem number one. Problem number two is that the way
17:19
Speaker 2: we've decided to pay for it is to not like
17:22
Speaker 2: we're just like, oh, it's fine. We've basically just abdicated responsibility.
17:27
Speaker 2: And I'm not gidding the stuff that we're doing. I'm
17:30
Speaker 2: not saying these are bad things in a vacuum. But
17:33
Speaker 2: let's look at a couple different pieces of legislation from
17:35
Speaker 2: the last fifteen years. The first is the Social Security
17:37
Speaker 2: Fairness Act, which undid some of the regulations put into
17:41
Speaker 2: place in the nineteen eighties in order to help stabilize
17:43
Speaker 2: social security. Basically, hey, if you're collecting a public pension,
17:46
Speaker 2: your social security is offset by a certain amount. We
17:49
Speaker 2: undid that. I'm not saying this is bad in practice,
17:53
Speaker 2: but it is something where we're saying, hey, we're gonna
17:55
Speaker 2: pay more out to seniors as a result of this,
17:59
Speaker 2: and how we're gonna pay for it, well, we're just
18:01
Speaker 2: not going to worry about that, We'll just borrow more. Again, fine,
18:05
Speaker 2: in a vacuum. The problem is when you make those
18:07
Speaker 2: decisions on a repeated basis. And now I'm going to
18:09
Speaker 2: go back to the Affordable Care Act, which when did
18:12
Speaker 2: that pass mark was that twenty ten or twenty eleven.
18:14
Speaker 2: I always forget.
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Speaker 3: I want to say twenty ten or earlier.
18:18
Speaker 2: It's been in place fifteen years now. It wasn't two
18:21
Speaker 2: thousand and nine, it was twenty ten. Okay, so it's
18:23
Speaker 2: been in place sixteen years now. And one of the
18:26
Speaker 2: key principles in the Affordable Care Act was that the
18:30
Speaker 2: ratio of how much insurers could charge folks in higher
18:35
Speaker 2: age brackets relative to younger ones had to compress. They
18:39
Speaker 2: had to do this in order to make the math
18:41
Speaker 2: work so that basically you didn't end up with a
18:43
Speaker 2: bunch of people in healthcare marketplaces who were in their
18:47
Speaker 2: sixties paying way more for insurance than they would have previously.
18:51
Speaker 2: The counter to it is that then those in their
18:53
Speaker 2: twenties and thirties had to bear that additional cost. You're welcome,
18:58
Speaker 2: but this is this the trend that we see through
19:02
Speaker 2: this legislation, which is, hey, you're asking those in their
19:05
Speaker 2: twenties and thirties to continue to pick up the tab
19:07
Speaker 2: for those older than them. And it's one thing to
19:11
Speaker 2: do it and say it's going to be covered by
19:14
Speaker 2: X tax revenue, but it's another to say, yeah, we're
19:17
Speaker 2: just gonna borrow to finance this. And when the people
19:20
Speaker 2: in their twenties and thirties are then in their sixties,
19:22
Speaker 2: well maybe that's when all of this is really starting
19:24
Speaker 2: to come due from a fiscal sense, and maybe you
19:26
Speaker 2: don't have the same flexibility to get those benefits when
19:29
Speaker 2: you're there later on. That's where you've got some gnarliness
19:33
Speaker 2: that potentially happens. So now that we've discussed that, let's
19:38
Speaker 2: take a quick break so I can get some avocado toast.
19:40
Speaker 1: The least financial news straight to your radio every day.
19:44
Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
19:50
Speaker 1: Time now for Wall Street. Watch a complete look at
19:53
Speaker 1: what's moving markets so far today right here on the
19:57
Speaker 1: Financial Exchange Radio Network.
19:59
Speaker 4: Markets are trading more honestly lower as Wall Street reacts
20:02
Speaker 4: to fourth quarter earnings from Walmart posted earlier this morning.
20:05
Speaker 4: Investors are also keeping a close eye on it energy
20:08
Speaker 4: markets amid escalating tensions between the US in Iran. Right now,
20:13
Speaker 4: the Dow is down by over four tenths of one percent,
20:16
Speaker 4: or two hundred and fifteen points lower s and P
20:19
Speaker 4: five hundred down nearly a quarter percent or fifteen points.
20:23
Speaker 4: Nasdaq is off by a tenth of a percent, russ
20:26
Speaker 4: A two thousand dipping mostly flat, A ten yere treas
20:29
Speaker 4: reeled also flat at four point zero eighty five percent,
20:33
Speaker 4: and crude oil up two percent higher today trading at
20:36
Speaker 4: sixty six dollars and fifty cents a barrel. Walmart reported
20:41
Speaker 4: solid quarterly sales, driven by gains in grocery and online purchases,
20:45
Speaker 4: as the big box retailer continue to attract more shoppers
20:49
Speaker 4: from all income groups. Whoever, Walmart's full your outlook fell
20:53
Speaker 4: short of street expectations. Walmart stock has been back and
20:57
Speaker 4: forth so far today, and it's now off by how
21:00
Speaker 4: for percent. Meanwhile, Carvana share is sinking eight percent after
21:04
Speaker 4: the online used car platform disappointed with its quarterly earnings
21:08
Speaker 4: despite record car sales boosting revenue elsewhere by now pay
21:12
Speaker 4: letter from Klarna swung to a quarterly loss despite a
21:15
Speaker 4: jump in revenue as more than doubled its banking customers.
21:20
Speaker 4: That stock is now down by twenty five percent. Beer
21:24
Speaker 4: Berger Molson Coors is seeing its stock drop over six
21:27
Speaker 4: percent after reporting a week forecast. The company CEO said
21:31
Speaker 4: that it plans to invest in and expand lower priced brands.
21:37
Speaker 4: Deer stock rallying twelve percent, now after the equipment maker
21:40
Speaker 4: said demand in the construction in small agricultural markets was recovering,
21:44
Speaker 4: and Wayfair stock plunging ten percent despite the online furniture
21:48
Speaker 4: retailer posting its first annual sales gain since twenty twenty.
21:53
Speaker 4: I'm Tucker Silva and that is Wall Street Watch. And
21:56
Speaker 4: in the previous segment, we asked you the trivia question
22:00
Speaker 4: was the second alternate flavor of Coca Cola? That would
22:03
Speaker 4: be Vanilla coke. Dana from Swanscott, Mass is our winner today,
22:07
Speaker 4: taking home a Financial Exchange Show t shirt. Congrats to Dana,
22:11
Speaker 4: and we play trivia every day here in the Financial
22:13
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22:17
Speaker 4: Com got a piece.
22:19
Speaker 2: In Bloomberg here. Inflation is down, but if Americans still
22:23
Speaker 2: feel an affordability squeeze, and I think that when we
22:29
Speaker 2: talk about this, So remember when we're talking about inflation,
22:32
Speaker 2: there are two different numbers that we talk about. The
22:35
Speaker 2: first is the price level, which is how much do
22:37
Speaker 2: things cost? And it's important to remember that in the aggregate,
22:41
Speaker 2: outside of very bad economies, the price level does not
22:46
Speaker 2: move down. Fair Mark, Fair Chuck, what you do see.
22:52
Speaker 2: You might see individual items that see downward fluctuations in price. Hey,
22:55
Speaker 2: eggs have come down in the last year. Okay, well,
22:57
Speaker 2: the reason why groceries are still up is because bits
23:00
Speaker 2: through the roof. But this is what I mean, Like
23:02
Speaker 2: in the aggregate, you don't see the price level come down.
23:05
Speaker 2: I think this is this why a lot of us
23:07
Speaker 2: are frustrated now, is that the price level went up
23:09
Speaker 2: very quickly and didn't come down, and we're still trying
23:13
Speaker 2: to play catch up from some of the you know,
23:17
Speaker 2: cost of living increases that we saw in the past
23:20
Speaker 2: several years. When we talk about the rate of change
23:23
Speaker 2: on inflation, that has come down significantly. If you take
23:27
Speaker 2: a look at again kind of your most commonly cited one,
23:31
Speaker 2: the CPI CPI right now headline including food and fuel
23:36
Speaker 2: is running at two point four percent for the last year.
23:40
Speaker 2: This compares to back in March of twenty two when
23:44
Speaker 2: headline CPI was running eight and a half percent and
23:48
Speaker 2: June of twenty two when it topped nine percent. So
23:51
Speaker 2: the rate of inflation has come down dramatically. The price
23:55
Speaker 2: level has not. Because the price level doesn't come down
23:59
Speaker 2: unless the to me is very very bad, Like you
24:03
Speaker 2: go and you look at the CPI data and you say, hey,
24:06
Speaker 2: when has it ever been negative? It's basically recessions. And
24:12
Speaker 2: then like all kinds of stuff before World War Two,
24:14
Speaker 2: when inflation and deflation went crazy, Like just as an example,
24:20
Speaker 2: we all remember how bad Mark, you remember how bad
24:23
Speaker 2: you know, nine percent inflation felt right? Sure wasn't good.
24:28
Speaker 2: Annual inflation in mid twenty twenty, I'm sorry, mid nineteen
24:33
Speaker 2: twenty hit twenty one plus percent. Twenty one plus percent.
24:40
Speaker 2: And by the way, inflation during most of the late
24:42
Speaker 2: nineteen tens was elevated over fifteen percent a year for
24:46
Speaker 2: like a three or four year period. So you know,
24:50
Speaker 2: to everyone who's like, oh, like, this is as bad
24:51
Speaker 2: as it's ever been, go back one hundred years. It
24:53
Speaker 2: was worse.
24:56
Speaker 3: The monetary standard was different just to yes, I kind
24:59
Speaker 3: of been a important point. We were on the gold
25:01
Speaker 3: standard or the gold exchange standard more accurately. So when
25:04
Speaker 3: gold came in is it did during periods of global
25:08
Speaker 3: crisis that could push inflation up. It wasn't anything the
25:11
Speaker 3: government did. Gold was the money supply and it was
25:15
Speaker 3: outside of more or less the government. Now they could
25:17
Speaker 3: try to manipulate it by buying or selling gold, but
25:21
Speaker 3: by manipulating the price of goal. But gold was the
25:24
Speaker 3: supply of money, so different regime pre and post World
25:28
Speaker 3: War pre and post nineteen thirty three, and then again
25:30
Speaker 3: there was a big break in nineteen seventy one, So
25:34
Speaker 3: just worth keeping that in mind. When someone makes those
25:37
Speaker 3: types of comparisons, you got to ask, well, could it
25:39
Speaker 3: have been the monetary standard because it was very different.
25:43
Speaker 2: So we then get to, Okay, ultimately like why does
25:47
Speaker 2: this feel so uncomfortable then? And it's because really, from
25:53
Speaker 2: late twenty twenty through mid twenty two, median real earnings
25:59
Speaker 2: on a weekly went down and they still haven't quite
26:03
Speaker 2: recovered back to where they were before. The Now, some
26:06
Speaker 2: of this was in the form of you know, transfer
26:07
Speaker 2: payments and things like that that went out, but this
26:11
Speaker 2: is the big thing, is that not everyone is back
26:14
Speaker 2: to that kind of living standard at this point, and
26:18
Speaker 2: so that's why people generally don't feel very good. The
26:21
Speaker 2: other thing that I'll point out is, and this is
26:24
Speaker 2: something that I think every generation goes through, and again
26:28
Speaker 2: I've gone through this enough just to know when it's happening.
26:32
Speaker 2: Is part of the reason why I think we tend
26:36
Speaker 2: to feel you know, frustrated about not just pricing. But
26:39
Speaker 2: I think one of the other things that that bothers
26:42
Speaker 2: us about the economy now is availability in that you know,
26:48
Speaker 2: there's just much more competition. Like quite honestly, there are
26:50
Speaker 2: more people that are trying to do the same things
26:52
Speaker 2: that have limited spaces to do. So the example that
26:56
Speaker 2: I'll give just because I'm from Boston, Fenway Park is
26:59
Speaker 2: an Yes, they've expanded it slightly, but it's still seats
27:04
Speaker 2: in you know, the mid to high thirty thousands, and
27:06
Speaker 2: the population of the US is way up over the
27:09
Speaker 2: last thirty years. So you know, when I was a kid,
27:13
Speaker 2: I remember going to Fenway and oh like, here's how
27:15
Speaker 2: much you know it costs to get in, and here's
27:16
Speaker 2: you know, blah blah. But there are so many more
27:18
Speaker 2: people competing for that same limited number of seats. Same
27:21
Speaker 2: with Disney World, the beach that you went to as
27:24
Speaker 2: a kid. There are just so many more people that
27:28
Speaker 2: are trying to get to the same limited number of
27:30
Speaker 2: beaches and the same number of lakes and golf courses
27:34
Speaker 2: like all this stuff, there are limitations. Golf courses a
27:37
Speaker 2: bad example, because you can build more, but like you
27:39
Speaker 2: can't just go build a new lake. It doesn't really
27:41
Speaker 2: exist aside from you know, Walt Disney trying to do
27:44
Speaker 2: like the little lagoons and stuff they do. So I
27:47
Speaker 2: think part of our frustration with pricing is also the
27:50
Speaker 2: fact that there's so much more competition for the same
27:55
Speaker 2: stuff that we remember doing and as a result supply
27:59
Speaker 2: and demand, Like there's only one lake Winnipesaki, there's only
28:03
Speaker 2: one French quarter in New Orleans, Like there's only so
28:07
Speaker 2: much space for like those people to go, And so
28:10
Speaker 2: the prices can go up because demand can move up
28:12
Speaker 2: a ton, but the supply is limited.
28:14
Speaker 3: You know what, You know what, that's a fantastic point.
28:18
Speaker 3: This mini greade inflation we had in twenty two, twenty
28:20
Speaker 3: twenty three. It coincided with all of these other sources
28:24
Speaker 3: of discontent and people feeling alienated. That would have been
28:28
Speaker 3: happening anyway because of demographic changes, changes in technology, and
28:32
Speaker 3: the complexion of the economy. Add to that the mini
28:36
Speaker 3: grade inflation of twenty twenty two twenty three, the residual
28:40
Speaker 3: effects of which we're still living with. And that's just
28:43
Speaker 3: a sort of conspicuous whipping boy to which people can
28:49
Speaker 3: sort of attribute their resentment. Resentments may not be the
28:53
Speaker 3: right word their frustration, but there are other forces that
28:55
Speaker 3: have been at work for decades, mainly technology driven, not
28:59
Speaker 3: trade driven, notstanding what politicians want you to believe, that
29:03
Speaker 3: are at the source of all the societal uphevils that
29:06
Speaker 3: we've been experiencing. I think inflation is probably more a
29:08
Speaker 3: symptom than a cause.
29:11
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30:12
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30:23
Speaker 2: Piece in the Wall Street Journal, the Federal Reserve wants
30:25
Speaker 2: to change how you shop for a mortgage. And here's
30:30
Speaker 2: what the proposal is. Basically, after the Great Financial Crisis,
30:34
Speaker 2: there were new rules that were put in place that
30:36
Speaker 2: required banks to set aside more money to cover potential
30:39
Speaker 2: losses because I don't know, Mark, maybe we didn't want
30:43
Speaker 2: to go through another financial crisis.
30:46
Speaker 3: Yes, pretty good motivation.
30:48
Speaker 2: So what you ended up with was banks which had
30:50
Speaker 2: originated about sixty percent of mortgages and service ninety five
30:53
Speaker 2: percent of them in two thousand and eight, they went
30:56
Speaker 2: in and by twenty twenty three banks only origed need
31:00
Speaker 2: thirty five percent of mortgages and serviced forty five percent
31:03
Speaker 2: of them. So these non bank lenders ended up taking
31:06
Speaker 2: on the mantle. Think about all of like the commercials
31:10
Speaker 2: that you see for mortgage origination, whether it's you know,
31:13
Speaker 2: rocket mortgage or guaranteed right like, all these non bank
31:17
Speaker 2: lenders handle the bulk of it now. And so what
31:21
Speaker 2: is being proposed here, and this is coming from Michelle Bowman,
31:25
Speaker 2: who is the Federal Reserves Vice Chair for Supervision, is
31:29
Speaker 2: putting out a plan that would change the amount of
31:31
Speaker 2: money that banks are required to set aside in order
31:34
Speaker 2: to originate and then service mortgages. And so again I
31:41
Speaker 2: think that we'd still have to see, you know what
31:43
Speaker 2: the details are here, But the idea behind this is, hey,
31:48
Speaker 2: you want more competition through banks being able to compete
31:53
Speaker 2: in the mortgage space, and that will help to make
31:56
Speaker 2: the mortgage market healthier with more options for consumers to
32:00
Speaker 2: choose from. I'm not sure it makes a huge difference
32:04
Speaker 2: as far as mortgage rates, because again, banks still do
32:08
Speaker 2: originate loans right now. It's not like they don't originate
32:10
Speaker 2: any it's just you know, dropped from sixty percent down
32:13
Speaker 2: to thirty five percent of the market. So I don't
32:18
Speaker 2: think that this makes a huge difference in terms of
32:20
Speaker 2: the the rates that you would see out there. Maybe
32:25
Speaker 2: a little bit on the margins. But I mean when
32:26
Speaker 2: I say a little bit, I'm talking like less than
32:30
Speaker 2: a tenth of a percent. Maybe you see, you know,
32:33
Speaker 2: against it's not like if you go to like Chaser
32:35
Speaker 2: Bank of America, you don't see ads for originating mortgages
32:38
Speaker 2: right now. But maybe it just makes the availability a
32:41
Speaker 2: little bit higher, and maybe it can be done in
32:43
Speaker 2: a way that isn't as destabilizing as it was into
32:46
Speaker 2: the run up to the financial crisis, because the lending
32:49
Speaker 2: standards overall are much higher still. I think that's the theory.
32:53
Speaker 2: Is that a fair summary?
32:54
Speaker 3: Mark, Yeah, it frees up money to lend. It should
32:59
Speaker 3: be easy to quit wantify how much this will free
33:01
Speaker 3: up and then estimate how much capital would be become
33:06
Speaker 3: available to potential borrowers. If it's not more than the
33:09
Speaker 3: two hundred billion that Fanny I always get Fanny and
33:13
Speaker 3: Freddy confused. Whoever one of the GSS dumped into the
33:16
Speaker 3: mortgage market last month, we know that pushed rates down.
33:19
Speaker 3: This is not entirely the same effect, but it shouldn't
33:22
Speaker 3: be hard to quantify. This may be a little cavalier
33:24
Speaker 3: on my part. Someone who specializes and it may say
33:27
Speaker 3: no you idiot. It's actually quite hard to quantify, and
33:29
Speaker 3: here's why. But I look forward to some work being
33:31
Speaker 3: done on proposals like this to see whether they'd make
33:34
Speaker 3: a meaningful impact, and then, of course, would it push
33:37
Speaker 3: home prices up or down? My guess is up by
33:40
Speaker 3: increasing demand for homes. I don't know if that's the
33:43
Speaker 3: effect they have in mind.
33:44
Speaker 2: Quick break here, we've got stack roulette.
33:48
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35:00
Speaker 2: Mark what do you got for stack roulettes check.
35:02
Speaker 3: We talked a lot about inflation over the course of
35:05
Speaker 3: the show today. In the short run, a lot of
35:07
Speaker 3: things can move prices up or down. On average, prices
35:11
Speaker 3: tend to go up. You made that point, well, we
35:14
Speaker 3: call that inflation. The FED is often not responsible for
35:19
Speaker 3: short term movements in the price level. Oil prices spiking
35:24
Speaker 3: can push them up. That type of shock is not uncommon.
35:28
Speaker 3: It can go in either direction. But in the long term,
35:31
Speaker 3: the FED controls inflation. It's useful to keep that in mind.
35:34
Speaker 3: There is a one for one relationship between the growth
35:37
Speaker 3: and the supply of money and the growth in prices,
35:40
Speaker 3: So the FED is entrusted with keeping prices stable on
35:44
Speaker 3: average over long periods of time. That's why it's so
35:47
Speaker 3: I have to say, shocking to me that the White
35:50
Speaker 3: House continues to attack the FED. Yesterday, Kevin Hassett, director
35:55
Speaker 3: of the National Economic Council basically the chief economist for
35:58
Speaker 3: the administration, said that a couple of New York FED
36:01
Speaker 3: economists who did a study on tariffs and concluded what
36:05
Speaker 3: every other researcher over the past fifty years has concluded,
36:07
Speaker 3: which is consumers pay them, which, by the way, is
36:09
Speaker 3: kind of the point. If you want consumers to shift
36:12
Speaker 3: to domestic goods, you want the foreign goods to get
36:14
Speaker 3: more expensive. She said, these economists should be disciplined his
36:17
Speaker 3: word for concluding that tariffs raised prices. Now, I'm hoping
36:21
Speaker 3: I misunderstood the way Hasset's remarks were represented. I'm hoping
36:26
Speaker 3: he's been misquoted or just meant to say something else.
36:30
Speaker 3: But the idea that researchers should be disciplined because they
36:33
Speaker 3: applied widely accepted methods and arrived at an objective conclusion
36:39
Speaker 3: with a reasonably high certainty in a statistical sense, is
36:44
Speaker 3: forgive me, but crazy. Today a FED Governor Neil Kashkari,
36:49
Speaker 3: Minneapolis Fed President, in response to that, tried to rebut
36:57
Speaker 3: essentially what the what the administration the administration's critique of
37:03
Speaker 3: the Fed. So there is war of words between the
37:04
Speaker 3: Fed and the White House. It's really counterproductive, bad for inflation,
37:09
Speaker 3: and it continues, as you can tell to shock me.
37:12
Speaker 2: Taking a look at markets as we head towards the
37:15
Speaker 2: top of the hour, Dows off about half a percent,
37:18
Speaker 2: SMP down a third, Nasdaq down about a quarter percent today,
37:23
Speaker 2: so all three major indices in the red, but nothing
37:27
Speaker 2: too significant happening on that side. The big move that
37:30
Speaker 2: we are seeing continues to be in oil, where we've
37:34
Speaker 2: got West Texts Intermediate up almost two and a half percent,
37:37
Speaker 2: Brent crude up about two and a quarter. These both
37:41
Speaker 2: on concerns of a potential US Iran conflict. So you've
37:47
Speaker 2: got that going on that is impacting energy markets, and
37:52
Speaker 2: again we'll kind of see how things play out over
37:54
Speaker 2: the next couple of weeks on that front and what
37:58
Speaker 2: develops there. Put some fear being priced into energy markets
38:02
Speaker 2: over the last month or so, as West text Intermediate
38:06
Speaker 2: now up about eleven percent during that time's take a
38:11
Speaker 2: quick break for the rest of the day here. I
38:13
Speaker 2: hope you all enjoy the rest of the day, but
38:17
Speaker 2: we'll see you tomorrow with another show to wrap up
38:20
Speaker 2: the week.