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Did Elon Musk go too far with his latest email to federal workers? · The Financial Exchange Show

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  Speaker 2: Good morning, Welcome back to the Financial Exchange. It is
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  Speaker 2: Mike Armstrong, Mark Fandetti and Tucker Silva with you on
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  Speaker 2: a Monday morning where most major markets in the US
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  Speaker 2: are being pushed again into the red and should the
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  Speaker 2: NASDAK close here will actually push it into the red
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  Speaker 2: for the full calendar year twenty twenty five. It was
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  Speaker 2: a big sell off on Friday, with NAZDAK and Dow
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  Speaker 2: off more than two percent, SMP off about one point
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  Speaker 2: seven and that's continuing at least on the SMP and
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  Speaker 2: NASDAK today with the NASDAK off one hundred and sixty
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  Speaker 2: five points or eight ten percent, SMP currently anyway off
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  Speaker 2: about zero point three percent in early trading, Yield on
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  Speaker 2: the ten year Treasury also moving down just a bit
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  Speaker 2: to four point four percent, and price barrel of oil
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  Speaker 2: standon steady here at seventy dollars and fifty it's per barrel.
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  Speaker 2: We will keep things updated here when it comes to markets,
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  Speaker 2: because they have been fair bit bouncy after opening up
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  Speaker 2: in sorry not opening, but early market trading before the
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  Speaker 2: before the bell showing indications of moves upwards being erased
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  Speaker 2: in early trading as we close in on the noon
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  Speaker 2: hour here, when it comes to.
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  Speaker 3: You know, it makes sense. We're talking about big policy
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  Speaker 3: changes in the last hour. I called it regime change.
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  Speaker 3: More clinically, you could call it a change in our institutions,
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  Speaker 3: and tariffs are one example of that. There are others.
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  Speaker 3: It would be surprising if investors assigned the same valuation
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  Speaker 3: something else we talked about in the last hour the
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  Speaker 3: stocks under a new regime as they did under the
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  Speaker 3: old regime. I'm not saying they won't, but it would
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  Speaker 3: be a little bit surprising.
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  Speaker 2: And by regime here, what we we don't mean is political.
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  Speaker 3: Yeah, I mean like dictator now. No, I just mean
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  Speaker 3: set of norms, rules, practices that you can depend on,
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  Speaker 3: that's all. I just mean tariffs, eye tariffs versus modest tariffs,
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  Speaker 3: or broad and universal versus tactical, No, cafe standards for
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  Speaker 3: automobiles versus strict cafe standards, corporate average fuel economy, a
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  Speaker 3: whole sort of basket of factors that translates into the rules, norms,
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  Speaker 3: practices that we operate right under. I don't mean, I
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  Speaker 3: don't mean a person. So that may be the relevant.
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  Speaker 2: Two In any case we have markets moving down for
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  Speaker 2: a second straight day. Friday was a fairly big sell off,
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  Speaker 2: but as a reminder, it might have just felt big
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  Speaker 2: because we haven't had much volatility over the course of
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  Speaker 2: the last few years, very very little since twenty twenty
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  Speaker 2: in terms of downside volatility. But a moved downwards for
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  Speaker 2: the S and P five hundred to the tune of
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  Speaker 2: two percent go back one hundred years is pretty common. Happens,
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  Speaker 2: you know, once a month on average. It's not that
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  Speaker 2: extraordinary to see a downturn like we did on Friday
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  Speaker 2: of last week. So what's next? Anybody's guests. But there's
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  Speaker 2: still a lot of questions out there about this. As
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  Speaker 2: you described regime change, what will tax rates look like,
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  Speaker 2: what will tariffs look like? A lot of questions remain
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  Speaker 2: unanswered about the not so distant future.
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  Speaker 3: It's actually surprising stocks have held up as well as
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  Speaker 3: they have.
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  Speaker 2: Well, I think there's plenty of positives go along with
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  Speaker 2: the regime change questions about teriffs. Right, there's almost a
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  Speaker 2: certainty of lower taxes than there otherwise would have been.
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  Speaker 3: Are we talking lower taxes though, or just an extension
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  Speaker 3: of current tax.
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  Speaker 2: I mean by that tax rates where they would have
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  Speaker 2: other been otherwise been come twenty twenty six, were the
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  Speaker 2: Trump administration not the ones guiding thing?
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  Speaker 3: Do you think anybody was pricing in a sunsetting of
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  Speaker 3: the twenty eighteen tax cuts.
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  Speaker 2: I think only on the portion of Americans earning maybe
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  Speaker 2: half a million dollars in more. Had had Harris one,
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  Speaker 2: I think those would have gone back to a higher rate.
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  Speaker 2: I think that's fair to say, and I think it's
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  Speaker 2: very unlikely.
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  Speaker 4: To change under Trump administration.
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  Speaker 3: That's fair.
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  Speaker 2: Federal agencies received sorry No. Federal workers received an email
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  Speaker 2: over the weekend from the Department of Government Efficiency asking
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  Speaker 2: them to not asking them, instructing them to in five
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  Speaker 2: bullet point points explain what they accomplished last week.
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  Speaker 4: Then the federal.
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  Speaker 2: Agencies themselves basically gave a reverse order to their employees
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  Speaker 2: saying do not respond to this email. Not all of them,
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  Speaker 2: but several of them, including the FBI at the hands
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  Speaker 2: of new director Cash Ptel, telling employees to pause any response.
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  Speaker 2: State Justice, Defense, and Health and Human Service departments sent
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  Speaker 2: similar messages to their teams. So you have one person
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  Speaker 2: out there saying if you don't respond by midnight, you
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  Speaker 2: will be fied. This saying you will be terminated. It
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  Speaker 2: will be taken as a resignation if you fail to respond. Meanwhile,
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  Speaker 2: your boss is saying, do not respond. In the meantime,
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  Speaker 2: there's something flashing across my screen here that a lawsuit
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  Speaker 2: has already been filed challenging Musk's resignation threat to those
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  Speaker 2: federal workers.
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  Speaker 4: So I don't know. Yeah, there are confusing times to
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  Speaker 4: be a federal worker.
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  Speaker 3: Some labor economists are concerned that the short term job
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  Speaker 3: loss pupose it's necessary.
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  Speaker 2: I was asked this question, actually, mark that, Hey, let's
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  Speaker 2: assume that a lot more of these layoffs, resignations, whatever
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  Speaker 2: you want to call them, voluntary buyouts move forward.
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  Speaker 1: Right.
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  Speaker 2: We already know of some seventy five thousand from the
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  Speaker 2: buyout offer that are going to be occurring sometime later
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  Speaker 2: this year. By some accounts, there's been an additional thirty
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  Speaker 2: thousand workers layoffs that have occurred via layoffs and other
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  Speaker 2: different types of factors. I mean, it's tough to do
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  Speaker 2: one of those all else equal, But what does that mean.
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  Speaker 3: It's a big enough shock to possibly send the economy
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  Speaker 3: into recession, seems to be the consensus. It's not my area, yep,
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  Speaker 3: but just surveying the landscape of opinions on this. So
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  Speaker 3: people who do serious work in this very specialized area,
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  Speaker 3: they seem to think the shot could be big enough.
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  Speaker 3: Now it may be necessary. Maybe we need to pair. Sure,
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  Speaker 3: I think my gut says we do need to pair
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  Speaker 3: half the federal workforce. But I also ignow this is
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  Speaker 3: why libertarians never get elected, because we have borderline stupid ideas.
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  Speaker 3: We'd want to cut spending by trillions of dollars. If
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  Speaker 3: you do that, it is shock therapy. It will almost
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  Speaker 3: certainly send the economy into a tailspin, which is why
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  Speaker 3: you want to implement anything like that gradually.
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  Speaker 2: So I was asked this question this morning by mac gannon,
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  Speaker 2: the host of the Main Show, because he got asked
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  Speaker 2: the same question by a listeners. Hey, what happens if
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  Speaker 2: they do move forward with this type of thing? And
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  Speaker 2: it's really tough to do one of those all else
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  Speaker 2: equal type of scenarios, not for anything.
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  Speaker 3: But where would a non economist even start? How would
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  Speaker 3: you know? How would I I'm not a labor economist.
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  Speaker 3: I don't have a model at my fingertips that's going
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  Speaker 3: to allow me to estimate the knock on effects of
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  Speaker 3: something like this throughout the economy. The FED is feverishly
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  Speaker 3: running those numbers. So we're some private sector teams of PhDs, Mike,
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  Speaker 3: But how in the world would anybody who the.
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  Speaker 2: Other pieces to me that are really unclear? Right, the
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  Speaker 2: seventy five thousand people who took the buy out, what's
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  Speaker 2: the average age there that matters?
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  Speaker 3: Sixty six? They were going to do retire anyway?
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  Speaker 2: No, Like we don't know, like were these people going
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  Speaker 2: to retire anyway and go on Social Security?
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  Speaker 4: Shortly?
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  Speaker 2: What areas the government have been actually laid off? Where
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  Speaker 2: are those skill sets? Are they going to transfer to
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  Speaker 2: private sector jobs? It's really really challenging to come up
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  Speaker 2: with any sort of theory as to how this works.
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  Speaker 3: It's coming fast and furious. The White House is on
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  Speaker 3: a rampage, and that's not a judgment. It's just it's
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  Speaker 3: a credit to their energy level. But I will say again,
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  Speaker 3: wake me up in two years, is the deficit smaller?
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  Speaker 3: Is the economy growing at least as fast? It's growing
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  Speaker 3: at a very solid pace, or was over the last
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  Speaker 3: several quarters that we've been able to maintain that as
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  Speaker 3: inflation continued to moderate. That's going to be where the
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  Speaker 3: proof is not in these one offs about sensational investments
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  Speaker 3: from Apple that may or may not have been planned previously,
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  Speaker 3: or sensational threats from Elon Musk to fire the entire
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  Speaker 3: federal workforce. Show me what the aggregate measures of economic
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  Speaker 3: health look like in a year or two. That will
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  Speaker 3: give us a verdict on the success of the total
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  Speaker 3: the sum total of these policies.
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  Speaker 2: I do agree, and I think the sensationalism come from
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  Speaker 2: DOZES is is too bad because a lot of the
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  Speaker 2: work that they're doing is probably necessary and a good
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  Speaker 2: thing to go look at efficiency in the government. The
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  Speaker 2: problem that we have gone on and on about is
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  Speaker 2: them saying that they're going to cut what did they
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  Speaker 2: originally say, like two trillion dollars in spending, at which
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  Speaker 2: point all of us just laughed and said, that's not
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  Speaker 2: going to happen. And clearly it's not happening, but there
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  Speaker 2: have been real gains in terms of.
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  Speaker 4: Reduction in spending.
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  Speaker 2: The claims from the Department of Government Efficiency or that
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  Speaker 2: they've saved the federal government some fifty five billion dollars,
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  Speaker 2: that's probably not true. It's probably somewhere between zero and
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  Speaker 2: fifty five.
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  Speaker 3: We'd be a little firmer there, and say, Wall Street Journal, Bloomberg,
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  Speaker 3: New York Times have all looked at that number, called
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  Speaker 3: it a joke. Yes, being kind, yes, the savings are
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  Speaker 3: a fraction, and they're one off savings. They don't recur,
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  Speaker 3: and many of them were planned anyway. But let's I mean, Mike,
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  Speaker 3: suppose it was fifty five billion dollars in savings. That's
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  Speaker 3: one hundred and sixty one dollars per citizen. Or if
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  Speaker 3: you prefer to spread it out among households because not
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  Speaker 3: a resitizen pay taxes, that's four hundred and sixteen dollars
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  Speaker 3: per household. That would be our doge dividend under their
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  Speaker 3: numbers that anybody who's looked at I mean, anybody who's
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  Speaker 3: looked at this subjectively says their numbers are fanciful.
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  Speaker 2: And that's again my point is this is important. It
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  Speaker 2: should get done. We should look at where the government
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  Speaker 2: can be more efficient. But telling me that you're going
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  Speaker 2: to cut it by two trillion dollars and then everyone
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  Speaker 2: coming back and saying, well, actually would be lucky to
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  Speaker 2: do it by you know, are these numbers do you
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  Speaker 2: think so five hundred billion dollars? It's just it's it
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  Speaker 2: creates too much noise and unrealistic expectations.
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  Speaker 3: Are these numbers so big that they're almost incomprehensible? Because
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  Speaker 3: when I was doing the division on this, I'm using
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  Speaker 3: scientific notation so I can do it fast in my
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  Speaker 3: little computer here, Like that's a lot of a billion
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  Speaker 3: has nine zeros, a trillion has twelve zeros. That takes
• 10:51
  Speaker 3: a long time to put into Excel, So you're going
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  Speaker 3: to use the shortcut. Are these numbers so big that
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  Speaker 3: we can it's it's easy to confuse us, Like fifty
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  Speaker 3: five billion suppose to fifty five billion they claim is real?
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  Speaker 3: Does that just sound impressive? Because it's such a that
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  Speaker 3: number is indistinguishable for most people, myself included, I have
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  Speaker 3: no intuition for it from fifty five trillion. These numbers
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  Speaker 3: are so big that we're easily bamboozled. Maybe by Musk,
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  Speaker 3: who's a bit of a he's a lovable con artist,
• 11:20
  Speaker 3: but he's a bit of a con artist. He's a
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  Speaker 3: mischievous I.
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  Speaker 4: Wouldn't have used the word con artist, but yes, he
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  Speaker 4: has been very much. He has a history.
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  Speaker 2: Of making out landish claims that turn out to be
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  Speaker 2: a little I think that's.
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  Speaker 3: The Oxford definition of connor.
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  Speaker 2: Maybe, yeah, maybe, let's take a quick break. When we
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  Speaker 2: come back. Walmart put out a pretty tepid out look
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  Speaker 2: as far as their expectations. Is it real? Should we
• 11:45
  Speaker 2: be concerned about? And what we'll be here? What will
• 11:47
  Speaker 2: we be hearing this week from other retailers. That's next
• 11:49
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  Speaker 2: Walmart has been kind of a highlight of the US
• 13:13
  Speaker 2: retail sector over the course of the last few years,
• 13:16
  Speaker 2: especially in the light of some failures among Target and
• 13:20
  Speaker 2: other competing companies that really just struggled to stand out
• 13:25
  Speaker 2: in the same way over the COVID time period. Walmart's stock,
• 13:28
  Speaker 2: by the way, over the course of the last five
• 13:30
  Speaker 2: years up some hundred and fifty eight percent, but over
• 13:32
  Speaker 2: the last ten five days rather off by about eleven
• 13:36
  Speaker 2: most of that coming on Friday of last week, when
• 13:39
  Speaker 2: they gave a pretty tepid outlook coming from their retail sales.
• 13:44
  Speaker 2: And what I found interesting about it was they were
• 13:47
  Speaker 2: not giving a bad outlook saying, look at all this
• 13:49
  Speaker 2: uncertainty around China tariffs where we import all of our
• 13:52
  Speaker 2: stuff from. It was really a tep it outlook when
• 13:55
  Speaker 2: it came to consumers visiting their stores and wanting to
• 13:58
  Speaker 2: buy things in the same volume that they have over
• 14:01
  Speaker 2: the last few years. A few things about this one.
• 14:06
  Speaker 2: Walmart has a pretty good history of coming out early
• 14:09
  Speaker 2: in the calendar year and saying, look, we're setting pretty
• 14:12
  Speaker 2: low expectations here, we'll see where things come, and then
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  Speaker 2: beating those expectations handily. So there could be some of
• 14:19
  Speaker 2: that gaming going on here. But I wonder what it
• 14:22
  Speaker 2: means for the Okay, maybe they're not the single largest
• 14:26
  Speaker 2: retailer anymore, but one of the largest retailers and one
• 14:28
  Speaker 2: of the largest employers in the country saying yeah, we
• 14:31
  Speaker 2: don't think consumers are going to spend quite like they
• 14:33
  Speaker 2: did over the last few.
• 14:36
  Speaker 3: Well, there are two things. One is the impact on
• 14:40
  Speaker 3: Walmart specifically, and their stock was priced for perfection as
• 14:43
  Speaker 3: the expression goes up, and it's nearly doubled in the
• 14:47
  Speaker 3: past year. I think something like that. We talked about
• 14:49
  Speaker 3: this a bit last week, so that was revenues have
• 14:54
  Speaker 3: grown so fast and I'm sorry, I don't have the
• 14:55
  Speaker 3: numbers in front of me anymore. In the past a
• 14:58
  Speaker 3: few years relative to the period immediately before that, investors
• 15:02
  Speaker 3: seem to be pricing in that level of growth indefinitely
• 15:05
  Speaker 3: which was probably unrealistic. So some of it is the
• 15:07
  Speaker 3: inevitable of blowing off of some of that excess.
• 15:11
  Speaker 4: Can we generalize from that?
• 15:12
  Speaker 3: Mic? We always ask this question. I'll say, again, give
• 15:15
  Speaker 3: me the data, you know, wake me up in a year,
• 15:17
  Speaker 3: tell me what spending years and with GDP was, and
• 15:19
  Speaker 3: then I'll tell you whether or not this was significant
• 15:21
  Speaker 3: in the grand scheme of things.
• 15:22
  Speaker 2: Yeah, Like I said, I think Walmart has a generally
• 15:24
  Speaker 2: good pulse on the state of the overall consumer. Right,
• 15:29
  Speaker 2: they serve more American consumers in person than any other
• 15:33
  Speaker 2: company out there, right, Like nobody else has that visibility
• 15:37
  Speaker 2: into what's going on with people. You could make a
• 15:40
  Speaker 2: claim for Amazon, but again, shopping habits in person, nobody
• 15:44
  Speaker 2: does it like Walmart does. And so I do think
• 15:46
  Speaker 2: they have a generally good perception of what's going on
• 15:49
  Speaker 2: with the state of the average American.
• 15:51
  Speaker 4: But I don't think you should at any.
• 15:54
  Speaker 2: Point use what one company is saying about where they
• 15:57
  Speaker 2: think their future sales are going to be to extrapolate
• 15:59
  Speaker 2: a out the overall economy, because they can have a
• 16:02
  Speaker 2: lot of different motivations here, right, Might Walmart just be
• 16:05
  Speaker 2: giving us the lower end of their forecasts in an
• 16:08
  Speaker 2: attempt to boost their share price in the future by
• 16:11
  Speaker 2: beating those lower guided forecasts. Absolutely, and so we will
• 16:15
  Speaker 2: get reports from home depot, Low's TJX, among others who
• 16:20
  Speaker 2: are going to be reporting, and shares of Costco and
• 16:22
  Speaker 2: Target fell on Thursday and Friday when this news came out.
• 16:27
  Speaker 2: But I don't know that I would extrapolate too far
• 16:30
  Speaker 2: from here, Like what's going on at Walmart could just
• 16:33
  Speaker 2: be a Walmart issue. And like I said before, I'm
• 16:35
  Speaker 2: not sure how much I buy that they're actually anticipating
• 16:38
  Speaker 2: a big drop off in their sales. I think it
• 16:41
  Speaker 2: might just be a gaming tactic.
• 16:43
  Speaker 3: Yeah, they're also Walmart's a bit of a since I'm offending, uh,
• 16:47
  Speaker 3: big corporation, here we go. Walmart's a bit of a
• 16:49
  Speaker 3: welfare queen, are they not? Yes, well, big time right,
• 16:53
  Speaker 3: I mean they're not maybe not as big as Tesla.
• 16:55
  Speaker 3: Since I early days, I've been beating that drum today, Yeah,
• 17:00
  Speaker 3: the huge welfare queen. Perhaps it's a shot across.
• 17:02
  Speaker 4: The You mean by that big welfare queen they depend.
• 17:06
  Speaker 3: On SNAP Supplemental Nutritional Assistance food stamps YEP as it
• 17:10
  Speaker 3: used to be called for. Is it a quarter of
• 17:13
  Speaker 3: their revenue or a quarter of their grocery revenue. I
• 17:15
  Speaker 3: asked this question last week and I didn't look it up,
• 17:17
  Speaker 3: but it's a huge fraction of their revenue, a smaller
• 17:21
  Speaker 3: part of their earnings, I assume, but they depend on
• 17:24
  Speaker 3: government spending more than most do. To put it differently,
• 17:27
  Speaker 3: are they warning politicians about a potential slow down because
• 17:32
  Speaker 3: it's in their interest to maintain high level of spending?
• 17:36
  Speaker 2: You get rid of some of these food stamp programs,
• 17:38
  Speaker 2: or limit what it can be purchased on. Like you know,
• 17:41
  Speaker 2: you make a lot more margin on Coca Cola products
• 17:45
  Speaker 2: than you do on lettuce, so if you uh, you know,
• 17:50
  Speaker 2: there's been some talk of limiting snap. There's been some
• 17:52
  Speaker 2: talk of eliminating it. There's been some talk of restricting
• 17:56
  Speaker 2: what types of items can be purchased under it, And
• 17:58
  Speaker 2: you're right, yeah, that could be piece of this as well,
• 18:01
  Speaker 2: is sending a message to politicians today wouldn't be good
• 18:03
  Speaker 2: for our business if you went about doing this. The
• 18:05
  Speaker 2: other thing that they if we're talking about. I wasn't
• 18:07
  Speaker 2: sure which direction you were talking about when it came
• 18:09
  Speaker 2: to Welfare and Walmart, But they're employees, right, Some historically
• 18:14
  Speaker 2: at least a fairly low compensated group of employees. And
• 18:18
  Speaker 2: I remember there being you know, rumors or I think
• 18:21
  Speaker 2: some fact based a reporting on, Hey, you get a
• 18:24
  Speaker 2: job at Walmart, and they teach you how to sign
• 18:26
  Speaker 2: up for Medicaid, teach you how to sign up for
• 18:29
  Speaker 2: food stamp benefits yourself, because frankly, the wages that they
• 18:32
  Speaker 2: pay don't really compensate enough to live in the areas
• 18:36
  Speaker 2: where those stores are, and so verily, very heavily reliant
• 18:40
  Speaker 2: on a number of different ways on public support benefits.
• 18:43
  Speaker 2: And we will we will see if any of those
• 18:44
  Speaker 2: actual changes go into place. But I think that these
• 18:47
  Speaker 2: are if you listen to Congress people in terms of
• 18:51
  Speaker 2: where they are looking to cut costs in order to
• 18:54
  Speaker 2: afford the tax changes that they want to make. Medicaid
• 18:57
  Speaker 2: was a big one, foodstamps is not as big of
• 19:01
  Speaker 2: a budget number that you can actually use to pull
• 19:04
  Speaker 2: spending back, but I'm sure that will be looked at
• 19:06
  Speaker 2: as well. And you know, neither of those things would
• 19:09
  Speaker 2: be terribly good for Walmart's business. Let's take a quick
• 19:12
  Speaker 2: break when we come back, going to have the trivia
• 19:15
  Speaker 2: winner for you next, and then I want to get
• 19:17
  Speaker 2: into the home buying situation. We've re entered the spring
• 19:21
  Speaker 2: housing market. We're seeing an uptick and inventory across the country.
• 19:25
  Speaker 2: What does it mean for you this spring? That's next
• 19:27
  Speaker 2: to the Financial Exchange.
• 19:41
  Speaker 1: Bringing the latest financial news straight to your radio every day.
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• 20:01
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• 20:24
  Speaker 5: Trivia question today was who is Steve's jobs partner in
• 20:28
  Speaker 5: creating Apple? That would be Steve Wozniak Jobs in Bosniak
• 20:32
  Speaker 5: founded Apple and jobs parents' garage. Wosniac single handedly designed
• 20:37
  Speaker 5: and built the duo's first computer, the Apple.
• 20:40
  Speaker 4: One.
• 20:41
  Speaker 5: Winner today of the Financial Looks Shane Show t shirt
• 20:44
  Speaker 5: was Eric from Milton Newham Excuse me, Eric from Milton,
• 20:47
  Speaker 5: New Hampshire if I could talk? Taking home that Financial
• 20:51
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• 20:53
  Speaker 5: day here on the Financial Exchange. See complete contest rules
• 20:57
  Speaker 5: at Financial Exchange Show dot com.
• 20:59
  Speaker 2: Home finally starting to get somewhat of an upper hand again.
• 21:04
  Speaker 2: According to the Saint Louis Federal Reserve in the month
• 21:07
  Speaker 2: of January total listings for homes, and I am including
• 21:12
  Speaker 2: in this both single family and condos. So if you
• 21:16
  Speaker 2: look at different data sets from Redfinn, for example, it's
• 21:18
  Speaker 2: a different data series here. But according to the Saint
• 21:20
  Speaker 2: Louis Federal Reserve, there are eight hundred twenty nine three
• 21:24
  Speaker 2: hundred and seventy six listings as of January twenty twenty five.
• 21:28
  Speaker 2: If I go back to January of twenty twenty there
• 21:31
  Speaker 2: are about nine hundred and fifty one thousand listings, so
• 21:34
  Speaker 2: still below those pre COVID levels, but been slowly climbing
• 21:38
  Speaker 2: our way back up, at least in many parts of
• 21:41
  Speaker 2: the country. So that number there, that's about eighty seven
• 21:44
  Speaker 2: percent of pre COVID listings. And you go take a
• 21:49
  Speaker 2: look at this story, right, there's a quote here from
• 21:51
  Speaker 2: Ryan Duncan, a twenty eight year old in Texas. According
• 21:55
  Speaker 2: to the Wall Street Journal, he quote didn't hesitate to
• 21:58
  Speaker 2: negotiate when he bought an Austin, Texas duplex for five
• 22:01
  Speaker 2: hundred and seven thousand dollars in November. The closing price
• 22:03
  Speaker 2: was ten grand below ask quote. It definitely feels like
• 22:07
  Speaker 2: a buyer's market to me. And in Texas, he's probably right.
• 22:11
  Speaker 2: Inventories in January and Texas were one hundred and nineteen
• 22:14
  Speaker 2: percent of what they were in January of twenty twenty.
• 22:18
  Speaker 2: In Florida they were one hundred and twenty one point
• 22:20
  Speaker 2: seven percent. However, if you're listening up here in the
• 22:25
  Speaker 2: cold Northeast, you're not seeing this at all. It remains
• 22:29
  Speaker 2: the same story that I've been harping on in terms
• 22:32
  Speaker 2: of the housing market for months now. In the state
• 22:34
  Speaker 2: of Maine, inventory levels sitting at forty nine point six
• 22:37
  Speaker 2: percent of January twenty twenty levels, New Hampshire forty nine
• 22:41
  Speaker 2: point three percent, Massachusetts fifty five point six, Rhode Island
• 22:45
  Speaker 2: forty point six, Connecticut twenty eight percent of pre COVID
• 22:50
  Speaker 2: housing inventory levels. And so I keep reading stories like
• 22:54
  Speaker 2: this and being like, what planet do these people live on?
• 22:57
  Speaker 2: And that planet is Florida and Texas primarily, but that
• 23:00
  Speaker 2: that's a massive portion of both the existing inventory that's
• 23:04
  Speaker 2: out there in the United States as well as a
• 23:06
  Speaker 2: lot of the new home building that has occurred. You know,
• 23:09
  Speaker 2: you think about areas where there's been a lot of
• 23:12
  Speaker 2: home building.
• 23:13
  Speaker 4: Of the course, the last few years.
• 23:14
  Speaker 2: It's not the northeast. It's been Florida, it's been Texas,
• 23:17
  Speaker 2: it's been Tennessee, Colorado, Arizona, these states where there are frankly,
• 23:22
  Speaker 2: there's more space to build, there's more friendly zoning laws,
• 23:26
  Speaker 2: and you're seeing a very big divergence in terms of
• 23:30
  Speaker 2: the state of the housing market in one place versus another.
• 23:33
  Speaker 3: That's not a bad thing. A more fragmented housing market
• 23:36
  Speaker 3: might result in natural buffer shock absorbers aren't quite the
• 23:41
  Speaker 3: right analogy, but you know what I mean. It might
• 23:44
  Speaker 3: result in contained collapses like the Florida real estate market
• 23:48
  Speaker 3: periodically just collapses.
• 23:50
  Speaker 4: Yeah.
• 23:50
  Speaker 3: Right, So there are others to Vegas, and probably lots
• 23:54
  Speaker 3: of other examples that you know about. It would be
• 23:57
  Speaker 3: nice to return to. And I don't know that we'll
• 23:59
  Speaker 3: get there, because as many aspects of home ownership have
• 24:02
  Speaker 3: been nationalized, I feel like I don't mean literally taken
• 24:04
  Speaker 3: over by the government. I just mean they're moved now
• 24:06
  Speaker 3: by common factors. But a more fragmented and robust national
• 24:11
  Speaker 3: market might result from this fragmentation. That probably wouldn't be
• 24:16
  Speaker 3: a bad thing.
• 24:17
  Speaker 2: No, it likely wouldn't be, but it does speak to
• 24:19
  Speaker 2: in my view that sentiment survey we got from home
• 24:22
  Speaker 2: builders last week, which was quite negative. It was a
• 24:26
  Speaker 2: pretty bad sentiment survey. And this is why, right, you
• 24:30
  Speaker 2: don't have big national home builders building a bunch of
• 24:33
  Speaker 2: homes in Connecticut. There's nowhere to do so, there's no
• 24:36
  Speaker 2: permits being issued, there's no big developments going on. They're
• 24:39
  Speaker 2: all going on in Florida, Texas, Arizona and all those markets.
• 24:43
  Speaker 2: You're now seeing homes for sale that are higher than
• 24:45
  Speaker 2: any time in the last five years. And so if
• 24:48
  Speaker 2: you're a home builder, you're taking a look out there
• 24:50
  Speaker 2: and saying, well, my supply costs could go up.
• 24:53
  Speaker 4: If tariffs go up. No guarantee there.
• 24:55
  Speaker 2: But even if they don't, I don't really see a
• 24:58
  Speaker 2: lot of sales going on in the places that I
• 25:00
  Speaker 2: would want to build homes in the first place. So
• 25:02
  Speaker 2: what am I going to do. I'm probably going to
• 25:04
  Speaker 2: button down and not build a whole bunch of new
• 25:06
  Speaker 2: homes over the course the next few months.
• 25:07
  Speaker 4: Yeah.
• 25:07
  Speaker 3: What I struggle with, and nobody knows the answer, I
• 25:10
  Speaker 3: don't think, is will this get resolved very quickly or
• 25:12
  Speaker 3: will it I e will a big recession happen that
• 25:15
  Speaker 3: depresses home prices as they've tended to do over the
• 25:17
  Speaker 3: last few cycles, and it just sort of fixes the problem.
• 25:20
  Speaker 3: These imbalances resolve as demand deflates.
• 25:22
  Speaker 4: If it does.
• 25:24
  Speaker 2: If it does, I would expect remember in no way, right, Like,
• 25:27
  Speaker 2: you know, it was a really nasty housing market across
• 25:30
  Speaker 2: the country, and the Northeast wasn't excluded from that, But
• 25:33
  Speaker 2: the price swings you saw in areas like the greater
• 25:36
  Speaker 2: Boston market were nothing like we're.
• 25:38
  Speaker 3: Saying, points, Yeah, Boston held up well.
• 25:41
  Speaker 2: So and based on this data, I don't know that
• 25:45
  Speaker 2: I would expect much different. Right If you're still seeing
• 25:47
  Speaker 2: inventory levels in New England that are on average less
• 25:51
  Speaker 2: than half of what you saw five years ago, I'm
• 25:54
  Speaker 2: not sure that that recession, should it come, will do
• 25:56
  Speaker 2: a whole lot to housing prices this cycle, either.
• 26:01
  Speaker 3: In this market maybe not maybe or maybe it's just
• 26:03
  Speaker 3: so maybe it is really a supply issue, and you
• 26:05
  Speaker 3: never really know which end, the supply or demand end,
• 26:09
  Speaker 3: is responsible for price movement. You can't, as a researcher
• 26:12
  Speaker 3: would say, it's it's it's an identification problem and that
• 26:15
  Speaker 3: sounds if that sounds second it actually is, you can't tell.
• 26:19
  Speaker 3: So for example, during the early stages of COVID. We
• 26:21
  Speaker 3: have a supply or demand problem. Jason Furman over at
• 26:23
  Speaker 3: Harvard would say you had a demand problem. Or Larry Summers,
• 26:26
  Speaker 3: also at Harvard. We dumped way too much stimulus into
• 26:28
  Speaker 3: the economy in a very short period. Others say, no, no,
• 26:32
  Speaker 3: it was a supply problem. We all remember container ships
• 26:35
  Speaker 3: building up at ports and foreign markets are walking down.
• 26:38
  Speaker 1: Yep.
• 26:39
  Speaker 3: Yeah, so, and the researchers will disagree on this, probably forever, right.
• 26:45
  Speaker 4: Till the end, till the sun burns out.
• 26:47
  Speaker 3: Yes, there's a similar Yeah, there's a similar problem in
• 26:51
  Speaker 3: my mind, although housing economists might disagree and say that's
• 26:55
  Speaker 3: really stupid and here's why. But I've always wondered, how
• 26:57
  Speaker 3: exactly do you disentangle the the problem of access demand
• 27:03
  Speaker 3: for housing from lack of supply for Is the economy,
• 27:05
  Speaker 3: said differently, Is the economy just too Oh? Is it
• 27:08
  Speaker 3: just another manifestation of an economy that's running beyond its
• 27:12
  Speaker 3: speed limit?
• 27:13
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• 28:35
  Speaker 1: advisory services Mark.
• 28:36
  Speaker 2: We talk a lot about earnings reports from Walmart and
• 28:40
  Speaker 2: snap programs and things like that, but the facts remain
• 28:43
  Speaker 2: that today the US economy is more dependent than ever
• 28:46
  Speaker 2: on wealthy Americans, and in fact, household spending among those
• 28:51
  Speaker 2: making two hundred and fifty thousand dollars or more is
• 28:54
  Speaker 2: accounting for about half of all spending across the entire economy,
• 28:59
  Speaker 2: meaning that ten percent of earners are doing half of
• 29:02
  Speaker 2: the spending across the country, which is an all time
• 29:05
  Speaker 2: record since the data began getting collected in the nineteen eighties.
• 29:08
  Speaker 2: What should we make of this other than the story
• 29:11
  Speaker 2: that we've talked about before, which is a growing upper class,
• 29:15
  Speaker 2: a growing lower class, but a shrinking middle class. We've
• 29:17
  Speaker 2: talked about that, I think a few weeks ago. We've
• 29:19
  Speaker 2: seen that occur since the nineteen sixties and seventies. But
• 29:22
  Speaker 2: what were your main takeaways here on this?
• 29:24
  Speaker 3: You just said, my first observation is that this is
• 29:30
  Speaker 3: consistent with data on growing inequality generally. Is it a
• 29:33
  Speaker 3: bad thing? Probably a bad thing for stability. I'll leave
• 29:37
  Speaker 3: that to the political scientists. Sure, economists should probably stay
• 29:40
  Speaker 3: neutral on matters like that. You could document it it's interesting,
• 29:43
  Speaker 3: but commenting on its implications should be reserved for I
• 29:47
  Speaker 3: think political scientists and sociologists. I was surprised though, that
• 29:51
  Speaker 3: it's at the steady upward trend. It's virtually uninterrupted. There's
• 29:54
  Speaker 3: a nice little chart in the Wall Street Journal, and
• 29:56
  Speaker 3: it's a steady, virtually uninterrupted upward trend.
• 30:00
  Speaker 4: Mike, Yeah, it's really.
• 30:02
  Speaker 2: It generally has been really since the like I said,
• 30:05
  Speaker 2: data was started collected in the late eighties, you've seen
• 30:08
  Speaker 2: the portion of spending occurring from the top ten percent
• 30:10
  Speaker 2: growing and growing. And I think it also speaks to
• 30:13
  Speaker 2: a lot of these stories we cover where people are
• 30:15
  Speaker 2: unhappy with the shopping experience, or unhappy with their fly
• 30:19
  Speaker 2: unhappy with their flying experience, or all these different things.
• 30:22
  Speaker 2: And my answer is, well, it's companies responding to the
• 30:26
  Speaker 2: reality of so much of the spending coming from either
• 30:30
  Speaker 2: the very low end or the very high end, and
• 30:33
  Speaker 2: you kind of have to choose where you're going to
• 30:35
  Speaker 2: make your money these days, and companies like Spirit and
• 30:38
  Speaker 2: others who have tried to deliver a consistently low cost
• 30:42
  Speaker 2: product kind of failing over the last few years because
• 30:45
  Speaker 2: people where the spending is coming from has been very
• 30:48
  Speaker 2: persistently and from a growing percentage from those willing to
• 30:52
  Speaker 2: upgrade on things like a business class seat or those
• 30:55
  Speaker 2: other luxuries. And so you see it in retail, you
• 30:57
  Speaker 2: see it in all sorts of different companies in terms
• 30:59
  Speaker 2: of the products that they've remote.
• 31:00
  Speaker 3: Doesn't necessarily mean that anybody's worse off. Spending could be growing. Face,
• 31:03
  Speaker 3: So this is what share of a growing pie?
• 31:06
  Speaker 4: Yep?
• 31:06
  Speaker 3: Are you yep? Responsible for?
• 31:08
  Speaker 4: True? True?
• 31:09
  Speaker 2: There's been other pieces that speak to those, you know,
• 31:12
  Speaker 2: some people being a lot of people being worse off.
• 31:14
  Speaker 4: This is not that.
• 31:14
  Speaker 2: This is just saying that, look, a portion of the spending,
• 31:17
  Speaker 2: a growing portion of the spending is coming from those
• 31:20
  Speaker 2: making the top decile of income levels.
• 31:23
  Speaker 4: Let's take a quick break. When we come back, bit
• 31:26
  Speaker 4: a stack roulette. That's next.
• 31:28
  Speaker 1: Miss any of the show. The Financial Exchange Show podcast
• 31:32
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• 31:36
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• 31:44
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• 31:47
  Speaker 1: on breaking business news All morning. Long Face is the
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  Speaker 1: Financial Exchange Radio Network.
• 32:00
  Speaker 5: This segment of the Financial Exchange is brought to you
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• 32:46
  Speaker 2: Everyone hates pennies. Accept this guy. That's the title from
• 32:50
  Speaker 2: the Wall Street Journal. Lest you be confused, he's a
• 32:52
  Speaker 2: lobbyist for the penny industry, so let's not sugarcoat this
• 32:56
  Speaker 2: one at all. But he does bring up some interesting
• 32:58
  Speaker 2: pieces here. So the individual in question here is a
• 33:03
  Speaker 2: Mark Weller, who has now spent three decades defending the
• 33:06
  Speaker 2: smallest US currency. He is employed as a Washington lobbyist
• 33:12
  Speaker 2: by our Zach I think is the name of the
• 33:14
  Speaker 2: company which used to be a part of what's that
• 33:19
  Speaker 2: big jarring company, the company that makes like Mason jars. Nonetheless,
• 33:24
  Speaker 2: they split off and now they just make the raw
• 33:27
  Speaker 2: materials that go into creating pennies and sell them to
• 33:30
  Speaker 2: the US.
• 33:30
  Speaker 4: Meant ball ball, thank you welcome.
• 33:36
  Speaker 2: He makes one interesting point, I think, which is, Hey,
• 33:38
  Speaker 2: if we get rid of all the pennies, then we're
• 33:39
  Speaker 2: gonna be using a lot more nickels. And guess what
• 33:42
  Speaker 2: nichols cost thirteen point eight cents to produce. So we
• 33:45
  Speaker 2: have a cost of production issue across the change line here,
• 33:51
  Speaker 2: and so maybe we just need to round everything to
• 33:53
  Speaker 2: the closest fifty cent and start making fifty cent coins.
• 33:55
  Speaker 3: They didn't have a corporate photo with this guy. He's
• 33:57
  Speaker 3: crossing the street just like he's about to get hit
• 34:01
  Speaker 3: by a or by some nickel lobbyist driving a back.
• 34:08
  Speaker 4: Yeah.
• 34:08
  Speaker 2: So he does not really bring up any valid points.
• 34:14
  Speaker 5: No.
• 34:14
  Speaker 2: The only one that he tries to make a point
• 34:17
  Speaker 2: here is that it's going to result in inflation for
• 34:20
  Speaker 2: consumers because retailers are going to round up to the
• 34:23
  Speaker 2: nearest five cents. To my question, which portion of retail
• 34:28
  Speaker 2: sales occur in cash these days, I'm betting it's pretty small.
• 34:35
  Speaker 2: I'm betting it's a fairly small portion. And so I
• 34:39
  Speaker 2: personally would favor the cost savings of getting out of
• 34:42
  Speaker 2: the penny business or just I don't know, replacing him
• 34:45
  Speaker 2: with like plastic a little you know, really cheap to
• 34:48
  Speaker 2: manufactured type things. But I think we'd all just prefer
• 34:50
  Speaker 2: to get out of that then have plastic money sitting
• 34:53
  Speaker 2: in our pockets. So I am going to go ahead
• 34:57
  Speaker 2: and depart with Mark Weller here, and I think the
• 34:59
  Speaker 2: majority the Americans are saying, yeah, we can just make
• 35:03
  Speaker 2: those collectible items instead.
• 35:04
  Speaker 3: As you say, it's comical because the only arguments advanced
• 35:08
  Speaker 3: are self interested arguments. There's nothing you.
• 35:12
  Speaker 4: Don't see a lot of There's people.
• 35:14
  Speaker 2: You don't see a lot of people out in the
• 35:16
  Speaker 2: streets with their signs saying keep the penny, we need
• 35:20
  Speaker 2: to keep this in circulation.
• 35:22
  Speaker 4: All you have is.
• 35:24
  Speaker 2: The lobbyist for the largest manufacturer of the zinc and
• 35:30
  Speaker 2: copper coated product that turns into Pennies saying we can't.
• 35:33
  Speaker 4: Get ready of this. So, yeah, I don't find it compelling.
• 35:36
  Speaker 4: I don't find it compelling.
• 35:38
  Speaker 3: Speaking of selling, Mikey to see the story how the
• 35:41
  Speaker 3: Internet made in store shopping deser But we've all experienced this, right,
• 35:44
  Speaker 3: spare shelves, desolate, desolate shopping floors and experiences hard to
• 35:52
  Speaker 3: get a salesperson. Look, this is made buying certain things tough.
• 35:57
  Speaker 3: We're used to do as Americans get stuff and having twenty choices,
• 36:02
  Speaker 3: getting exactly what you want and walking out of the
• 36:04
  Speaker 3: store with it. I'm gonna point out for what it
• 36:07
  Speaker 3: is worth. And I've never had the experience of needing
• 36:09
  Speaker 3: something urgently and not being been able to get it.
• 36:11
  Speaker 3: They point out here that particularly among women's clothes, on average,
• 36:16
  Speaker 3: only nine percent of advertised women's clothing advertised online is
• 36:21
  Speaker 3: available in stores. So for certain types of goods, and
• 36:24
  Speaker 3: this is I understand, a big deal for a lot
• 36:25
  Speaker 3: of people, it's a big inconvenience. But just keep in
• 36:27
  Speaker 3: mind this allows stores to smooth out their profits just
• 36:30
  Speaker 3: in time inventory, which was a big phenomenon that's been
• 36:32
  Speaker 3: unfolding for decades now, a big phenomenon in the eighties
• 36:35
  Speaker 3: and nineties is arguably partly responsible for the smoothing of
• 36:38
  Speaker 3: the business cycle and the reduction and inflation. So overall, Mike,
• 36:41
  Speaker 3: the consequences of this should be good, even though it's
• 36:45
  Speaker 3: less convenient.
• 36:46
  Speaker 2: Furthermore, I'm not sure that I'm willing to attribute things
• 36:49
  Speaker 2: such as locked shelves around razor blades to a growth
• 36:53
  Speaker 2: in online shopping. It seems to be misattributing some of
• 36:57
  Speaker 2: the dissatisfaction that we have within store shopping. I find
• 37:00
  Speaker 2: it annoying too when I have to call a sales
• 37:02
  Speaker 2: associate to buy a thing of deodorant at a CVS
• 37:05
  Speaker 2: in a major city. That's frustrating. But I don't think
• 37:08
  Speaker 2: online shopping did that to us. I think that's just
• 37:11
  Speaker 2: an effect of all of this. And yeah, if you
• 37:14
  Speaker 2: want a better shopping experience, you can go to a
• 37:18
  Speaker 2: very high end shopping center where they will provide that
• 37:21
  Speaker 2: great experience.
• 37:22
  Speaker 4: Or we all need to change our habits.
• 37:24
  Speaker 3: They're locking up deodorant. I buy mine online, Seriously, they.
• 37:26
  Speaker 2: Lock up speech to have been in a high end trench, yes,
• 37:32
  Speaker 2: always by the high end French deodorant. No.
• 37:35
  Speaker 4: I was in a target in San Francisco, Yes.
• 37:38
  Speaker 2: And it was locked just like everything else, as was
• 37:42
  Speaker 2: the travel size container of ibuprofen locked behind a case.
• 37:46
  Speaker 2: That took me good ten minutes to get a sales
• 37:48
  Speaker 2: associate from Target over there to unlock it and deal
• 37:51
  Speaker 2: with all of that. But that is the new shopping experience,
• 37:54
  Speaker 2: and frankly, we're kind of to blame. Markets remain open
• 37:58
  Speaker 2: and have stage a bit of a comeback here. Dow
• 38:02
  Speaker 2: Jones currently up one hundred and seventy four points or
• 38:04
  Speaker 2: four tenths of a percent, the SMP flat, and the
• 38:07
  Speaker 2: Nasdaq still down, but a lot less than it was
• 38:09
  Speaker 2: off now eighty four points or four tenths of a percent.
• 38:12
  Speaker 2: We'll have a full recap for you again tomorrow, folks,
• 38:15
  Speaker 2: so tune in and have a great rest of your day.