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Does more trouble lie ahead for US jobs? · The Financial Exchange Show

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Speaker 1: Zada and Mark Vandetti.
1:24
Speaker 2: Chuck, Mark and Tucker with you here, and stock stuck
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Speaker 2: in neutral. Today. The Dow Jones Industrial Average is up
1:30
Speaker 2: twenty five points, the SMP is down to the Nasdaq
1:33
Speaker 2: down nine, so not much of anything going on in equities,
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Speaker 2: Bonds not much different to the tenure Treasury is up
1:40
Speaker 2: one point one basis point Yahoo. And when we look
1:44
Speaker 2: at what's going on in commodity markets, we got West
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Speaker 2: Texas Intermediate up ninety five cents a barrel to sixty
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Speaker 2: four to thirty six, so a little bit of an
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Speaker 2: upward move there. And then with gold down thirty dollars
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Speaker 2: seventy cents anounced to thirty seven eighty five, I guess
1:57
Speaker 2: it's got to take a break sometime, and today happens
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Speaker 2: to be at least, you know, one of the times
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Speaker 2: when it's it's taken a break. But overall, pretty quiet,
2:06
Speaker 2: market's pretty quiet news day. Only things that we've gotten
2:10
Speaker 2: today a little bit of mortgage application data which continued
2:14
Speaker 2: to strengthen very modestly week over week after a big
2:17
Speaker 2: jump last week. And we got new home sales data
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Speaker 2: that came out at ten am. They showed an unexpected
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Speaker 2: big jump from zero point six five million, six hundred
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Speaker 2: and fifty thousand units on an annual basis in the
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Speaker 2: prior month up to eight hundred thousand. I don't see
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Speaker 2: any other supporting data out there that shows any real
2:38
Speaker 2: strength in the housing market. So for now, I'm kind
2:40
Speaker 2: of just chalking this up to some kind of anomalous reading,
2:43
Speaker 2: because really there's nothing else in housing that seems to
2:47
Speaker 2: be showing any meaningful signs of life, and so I
2:52
Speaker 2: kind of look at this and say, okay, fi a
2:55
Speaker 2: little way, but most likely we're going to see some
2:57
Speaker 2: kind of regression next month. If we happen to see
3:00
Speaker 2: more strength, okay, maybe there's something there, but for now,
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Speaker 2: I can't really square this with anything else that I've
3:06
Speaker 2: seen in housing, and so it's a good data point,
3:09
Speaker 2: but it doesn't really mess with the whole rest of
3:12
Speaker 2: the picture in housing. Top story this hour, and where
3:16
Speaker 2: I want to kick things off, is this piece from
3:19
Speaker 2: the Financial Times more trouble eze ahead on the US
3:22
Speaker 2: job front, and it's talking more about this in the
3:27
Speaker 2: context of you know, the FED obviously and the cutting
3:30
Speaker 2: that they did last week on an interest rates, but
3:34
Speaker 2: in terms of further concerns for the labor market in
3:39
Speaker 2: the next few months. Mark a couple things that they
3:43
Speaker 2: put out here in terms of, you know, things that
3:46
Speaker 2: you need to watch for. Hey, number one, you've got
3:51
Speaker 2: a bunch of job losses in the government sector that
3:55
Speaker 2: are going to be showing up in the next month
3:57
Speaker 2: or two, just because a lot of those people that
3:58
Speaker 2: were part of of the the doze cuts back in
4:04
Speaker 2: the spring, they were on a six month deferral, and
4:06
Speaker 2: so a lot of those people are going to stop
4:08
Speaker 2: being paid pretty shortly. Other things that are going on,
4:13
Speaker 2: you have continued potential drag from AI slowing hiring. You've
4:16
Speaker 2: also got surveys that are out today showing the thing
4:19
Speaker 2: companies are most concerned about today is weakening demand, which
4:23
Speaker 2: obviously tends to impact hiring because demand the leads hiring.
4:27
Speaker 2: So that's obviously something that you need to watch on
4:29
Speaker 2: that side of things. And this piece also gets at
4:32
Speaker 2: the thing we've talked about on the labor supply side,
4:34
Speaker 2: which is look for pretty much all of the economic
4:38
Speaker 2: data that we have in American history, labor supply has
4:42
Speaker 2: never been a limiting factor for job growth. It's always
4:46
Speaker 2: been labor demand. I'm sure if we had you know,
4:50
Speaker 2: data from the eighteen sixties, it would obviously show something different.
4:55
Speaker 2: But given the you know, the limitations on data that
4:58
Speaker 2: we have, labor supply has never been a limiting factor.
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Speaker 2: But today, when you have baby boomers continuing to retire
5:06
Speaker 2: in larger numbers than they are being replaced by from
5:08
Speaker 2: gen zers, and you have deportations and fear of deportations
5:14
Speaker 2: taking a number of immigrants out of the labor pool,
5:20
Speaker 2: you look at this and you say, hey, you've got
5:22
Speaker 2: this weird situation where, yeah, there's really slow job growth
5:26
Speaker 2: right now, but it might actually be matching what we're
5:30
Speaker 2: seeing on labor supply, and so it kind of raises
5:34
Speaker 2: questions about exactly how the Fed's going to act given
5:37
Speaker 2: the uncertainty about where labor supply goes in the next
5:40
Speaker 2: six to twelve months.
5:41
Speaker 3: Yeah, I guess, as others have noted, that may make
5:44
Speaker 3: the unemployment rate a bad indicator of slack in the
5:48
Speaker 3: economy because it could if you think of it as
5:51
Speaker 3: a ratio, which it is, and the growth in the
5:54
Speaker 3: top part of the ratio could equal the growth in
5:56
Speaker 3: the bottom part of the ratio. That could be both
5:58
Speaker 3: very low levels of growth of the ratio doesn't change,
6:01
Speaker 3: so it's not really telling you what's going on. Vacancies
6:03
Speaker 3: might be a better indicator, or payrolls might be a
6:06
Speaker 3: better indicator. I really don't know, but it clearly distorts
6:09
Speaker 3: what used to be a reliable signal on what the
6:12
Speaker 3: FED used to depend on to determine whether or not
6:14
Speaker 3: it needed to rein in versus goosing demand, which is
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Speaker 3: the way it acts on the real economy.
6:20
Speaker 2: When we look at the place that tends to tends
6:28
Speaker 2: to get people nervous when it comes to hiring, construction
6:34
Speaker 2: is always one of the ones that tends to roll
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Speaker 2: over in recessions for obvious reasons. When you talk about,
6:41
Speaker 2: you know, major expenses, talk to either any family or
6:44
Speaker 2: any business and ask them, Hey, how much does real
6:47
Speaker 2: estate makeup of your monthly budget, and generally they'll say, yeah,
6:52
Speaker 2: it's one of the two or three biggest line items,
6:54
Speaker 2: depending on the exact you know people that you're talking to.
6:58
Speaker 2: So what we have here right now is a case
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Speaker 2: where if you look at the year over year construction
7:06
Speaker 2: the year over year growth in construction employment, uh, and
7:11
Speaker 2: just kind of look at this as it's gone through
7:13
Speaker 2: this cycle. So I'm excluding, you know, kind of the
7:17
Speaker 2: whole twenty twenty window for obvious reasons. But if you
7:22
Speaker 2: look at, you know, starting kind of mid twenty twenty one,
7:25
Speaker 2: you had construction job growth running at about two point eight
7:28
Speaker 2: percent year over year. In August of twenty one, that
7:31
Speaker 2: actually went up as high as five point oh one
7:33
Speaker 2: percent in July of twenty two. Hey, we got more
7:36
Speaker 2: construction going on. We need more people in the construction industry.
7:39
Speaker 2: Hiring is up since July of twenty twenty two. The
7:45
Speaker 2: pace of hiring is slowed by July of twenty three,
7:48
Speaker 2: I'm just gonna kind of go, you know, year over
7:49
Speaker 2: year here, it went from five point oh one to
7:52
Speaker 2: two point eight eight percent year over year growth. By
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Speaker 2: July of twenty four, it was down to two point
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Speaker 2: four to nine percent. So again and still fine, Like,
8:01
Speaker 2: those numbers are not bad, they're they're perfectly acceptable to
8:04
Speaker 2: normal economy. But it's really that in the last year
8:07
Speaker 2: or so, we've now gone from two point four to
8:09
Speaker 2: nine percent year over year growth down two point seven
8:12
Speaker 2: percent year over year growth. And that's a pretty you know,
8:15
Speaker 2: stark deceleration there. And I was looking at the data
8:18
Speaker 2: this morning, and since the data set that we have
8:23
Speaker 2: Fortunately it goes back to nineteen forty Since World War Two,
8:28
Speaker 2: construction job growth aside from the World War Two period,
8:32
Speaker 2: which I'm going to exclude for again obvious reasons, a
8:36
Speaker 2: lot of people in the construction industry went overseas to fight,
8:39
Speaker 2: so there was obvious contraction. Then, if you look at
8:43
Speaker 2: the last eighty five years, year over year, construction job
8:48
Speaker 2: growth has gone negative sixteen times during that time. In
8:52
Speaker 2: twelve of those instances there were recessions. And it's because
8:57
Speaker 2: construction is a huge driver of marginal economic activity. And
9:01
Speaker 2: so when you start to see construction rolling over like this,
9:04
Speaker 2: even though employment as a whole tends to be a
9:07
Speaker 2: lagging indicator, the construction industry is a leading indicator, and
9:11
Speaker 2: construction employment to a certain extent is a coincident indicator
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Speaker 2: with recessions. So the concern that you have if you're
9:18
Speaker 2: watching this is, look, if construction jobs numbers go negative
9:23
Speaker 2: year over year, that's usually not a good sign for
9:26
Speaker 2: the US economy and for the labor market, you know,
9:29
Speaker 2: as it relates to it, simply because labor, aside from construction,
9:34
Speaker 2: tends to be a lagging indicator, and so the job
9:36
Speaker 2: losses usually come you know as you go through the recession,
9:39
Speaker 2: not an advance of it.
9:41
Speaker 3: In a lot of ways, this is feeling like a
9:42
Speaker 3: traditional pre global financial crisis, pre eight nine business cycle.
9:48
Speaker 3: We've forgotten what those are like, but typically coming out
9:51
Speaker 3: of a recession, the FED has lowered rates by a
9:54
Speaker 3: lot during the recession. That stimulates demand. Yeah, that boosts
9:58
Speaker 3: all kinds of employment, including constructionuction and thus housing activity,
10:02
Speaker 3: and all the incidental and knock on effects associated with that.
10:06
Speaker 3: At some point rates have been too low for too long.
10:09
Speaker 3: The FED has to be an inflation begins to tick up,
10:12
Speaker 3: it makes things uncomfortable for politicians and policymakers. The FED
10:16
Speaker 3: wants to preserve its independence and do a good job,
10:18
Speaker 3: so it raises rates. It slows the economy. Usually raises
10:22
Speaker 3: rates too much because it's impossible to gauge these things precisely,
10:26
Speaker 3: and the cycle repeats. This is feeling more like a
10:29
Speaker 3: traditional business cycle. The FED may have left rates too
10:33
Speaker 3: high too long, though I don't think there's evidence of that,
10:36
Speaker 3: and other important pockets of data we'll see. But as
10:42
Speaker 3: long as nothing hits us from out of left field,
10:44
Speaker 3: and that's a very dangerous statement to make. Those are
10:46
Speaker 3: famous last words, this will probably unfold like a typical
10:49
Speaker 3: business cycle, the Fed will have to continue to lower
10:53
Speaker 3: rates in order to avert recession. The challenge here, much
10:56
Speaker 3: like in the nineteen seventies, is inflation is elevated, so
11:02
Speaker 3: you might induce a recession, but that might not bring
11:05
Speaker 3: down underlying inflation.
11:08
Speaker 2: Just take a quick break. When we return, we've got
11:10
Speaker 2: some trivia, and then I want to talk a little
11:13
Speaker 2: bit about in VideA and the stories that we've seen
11:18
Speaker 2: the last week or two surrounding the AI space. Just
11:22
Speaker 2: some interesting things that are giving me tech bubbly vibes.
11:29
Speaker 2: But yeah, you'll have to wait until after the break
11:32
Speaker 2: to hear what those are.
11:34
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12:11
Speaker 4: All right time for trivia here in the Financial Exchange
12:13
Speaker 4: and we're gonna continue our sitcom theme this week. One
12:18
Speaker 4: of the most popular sitcoms of the sixties was Bewitched.
12:21
Speaker 4: Bewitch starred Elizabeth Montgomery as Samantha and Dick York is Darren.
12:27
Speaker 4: Dick York was replaced by Dick Sargent as Darren for
12:30
Speaker 4: the show's final three seasons, and in two thousand and five,
12:34
Speaker 4: be Witch was remade as a movie starring Nicole Kidman
12:38
Speaker 4: as Samantha. So our trivia question today which actor portray
12:44
Speaker 4: Darren in the two thousand and five movie Bewitched? Once again?
12:48
Speaker 4: Which actor portray Darren in the two thousand and five
12:52
Speaker 4: movie Bewitched. Be the fifth person today to text us
12:57
Speaker 4: at six one seven three six two thirteen eighty five
13:00
Speaker 4: with correct answer you know when a Financial Exchange Show
13:03
Speaker 4: T shirt once again. The fifth correct response to text
13:06
Speaker 4: us to the number six one seven three six two
13:09
Speaker 4: thirteen eighty five will win that T shirt. See complete
13:12
Speaker 4: contest rules at Financial Exchange Show dot com.
13:16
Speaker 2: So a couple of days ago, we got the headline
13:21
Speaker 2: that uh in Vidio was going to invest up to
13:23
Speaker 2: one hundred billion dollars into open ai the additional detail
13:28
Speaker 2: that we've gotten, it's going to come in these ten
13:30
Speaker 2: billion dollars tranches to allow open Aiye to try to
13:34
Speaker 2: build out more compute capacities so that they can finally
13:38
Speaker 2: build the computer that ends the world. You know, that's
13:41
Speaker 2: that's that's the goal in this is give us, give
13:45
Speaker 2: us the computer that's smarter than us, that decides we
13:47
Speaker 2: don't need you anymore, and you know, okay, we'll see
13:50
Speaker 2: what happens with all this. So immediately upon seeing this,
13:57
Speaker 2: and granted I was not, you know, the mature, you know,
14:02
Speaker 2: weathered veteran that I am today, but it immediately gave
14:06
Speaker 2: me flashbacks to the tech bubble because what we saw
14:12
Speaker 2: in the last you know, kind of the waning year
14:15
Speaker 2: or so of the tech bubble was something called vendor financing,
14:20
Speaker 2: and vendor financing was what companies like Cisco and do
14:23
Speaker 2: you guys remember Nortel, No, you do remember Nortel. They
14:29
Speaker 2: were I'm trying to think of how big they got
14:32
Speaker 2: when they were finally are they even still around now? No,
14:37
Speaker 2: they're not, of course not.
14:38
Speaker 4: No. They filed for bankruptcy in two thousand and nine
14:42
Speaker 4: and they ceased operation.
14:45
Speaker 2: Okay, this was it was. The bankruptcy was settled in
14:47
Speaker 2: twenty seventeen, but they were a telecom and networking equipment manufacturer.
14:53
Speaker 2: Surprised they were around in you know, two thousand, just
14:55
Speaker 2: like everyone else. That's what they did. And as we
14:59
Speaker 2: got ward's the end of that cycle. Companies like Cisco
15:03
Speaker 2: and Nortel, they went through this vendor financing cycle, which
15:07
Speaker 2: was pretty much, hey, we're gonna give our customers credit
15:12
Speaker 2: in order to buy our products. And generally you look
15:17
Speaker 2: at that and you're like, okay. So it meant that
15:18
Speaker 2: these companies had money, but it also meant that their
15:22
Speaker 2: customers didn't have the money to buy their products, and
15:25
Speaker 2: so demand was going to slow down if they didn't
15:27
Speaker 2: basically give their money to the customers to give back
15:30
Speaker 2: to them. It's pretty much what it was. And this peaked,
15:36
Speaker 2: by the way, at around a twenty five thirty billion
15:41
Speaker 2: dollar run rate in two thousand. This according to a
15:46
Speaker 2: piece from Newsweek that I found. And so you've got
15:49
Speaker 2: Nvidia today saying, hey, we're gonna give open ai up
15:53
Speaker 2: to one hundred billion dollars so that open ai can
15:56
Speaker 2: give one hundred billion dollars back to us in order
15:59
Speaker 2: to buy chips. Okay, So do you actually make any
16:03
Speaker 2: money in doing that? Well, no, But it's the thought
16:05
Speaker 2: that counts, is kind of how it ends up being.
16:09
Speaker 2: And I just kind of look at this and it
16:13
Speaker 2: makes me feel very nervous about where we are in
16:18
Speaker 2: the cycle. Not that Nvidio is going to go out
16:20
Speaker 2: of business, because again, while Nortel did, there are plenty
16:23
Speaker 2: of tech bubble legacy companies that are still here, whether
16:26
Speaker 2: you look at you know, Dell or Cisco or Intel,
16:31
Speaker 2: and these aren't you know, bad companies or anything. I mean,
16:33
Speaker 2: you can even say, like until the last couple of years,
16:35
Speaker 2: Intel was generally pretty good and then they just kind
16:37
Speaker 2: of fell off a cliff starting in like twenty nineteen.
16:41
Speaker 2: So I just kind of look at this and it
16:45
Speaker 2: makes me nervous about where we are in the cycle
16:48
Speaker 2: because anytime, like Mark, let's let's say that you you're
16:53
Speaker 2: Italian like me, okay, and let's say that I make
16:57
Speaker 2: the best pasta, it's just whoa, whoa, whoa, It's no, no, no,
17:02
Speaker 2: I got all, I got it all going on, Like
17:05
Speaker 2: my pasta is top notch okay.
17:08
Speaker 3: And I'll let you explain that to my mother.
17:10
Speaker 2: It's fine, better than her, better than hers. Okay, it's fine.
17:14
Speaker 2: It might not be better than hers, but you know
17:16
Speaker 2: she's not available to say that. I'm here right now
17:18
Speaker 2: trying to get to get it for you. Right, And
17:21
Speaker 2: so here's the deal. You've been buying five dollars a
17:24
Speaker 2: day in pasta for me because you're just like, Chuck,
17:27
Speaker 2: this is this is the best, this is hypothetical, it's
17:30
Speaker 2: the best. I'm loading up, I'm backing up the bucks
17:32
Speaker 2: on anything a day. And finally you get to the
17:34
Speaker 2: point where you're like, you know what inflation's going on?
17:38
Speaker 2: While it's getting a little thin, Chuck, I don't know
17:41
Speaker 2: if I can do it now. I mean why I've
17:42
Speaker 2: been raking it in because it only costs me a
17:43
Speaker 2: dollar to make the stuff. It's like, I'm good at it,
17:46
Speaker 2: but mostly I'm good at making money off you. And
17:50
Speaker 2: I go, Mark, you know what, how about this, I'm
17:54
Speaker 2: gonna give you twenty five dollars so that Monday through
17:58
Speaker 2: Friday next week you can buy my pasta. I'm gonna
18:03
Speaker 2: I'm vendor financing your purchases because I know that you
18:07
Speaker 2: love it. You just need a little help getting over
18:09
Speaker 2: the hump. I'm gonna do that. I give you twenty
18:12
Speaker 2: five dollars. Next week, you give me twenty five bucks
18:14
Speaker 2: and I give you a bunch of pasta, net net,
18:17
Speaker 2: I'm out a bunch of wheat and eggs and flour
18:19
Speaker 2: and everything. And you're sitting there saying I didn't have
18:22
Speaker 2: to pay a thing. That doesn't fill me with confidence
18:26
Speaker 2: when instead of pasta, we're talking about forty thousand dollars semiconductors.
18:31
Speaker 3: Yeah, I think the issue here for me with and
18:33
Speaker 3: I don't know enough about this to say something over
18:38
Speaker 3: all a little caveat, I'll just speculate. It does feel
18:43
Speaker 3: a little bit like they don't have anything better to
18:45
Speaker 3: do with their capital, like well, buy back shares or
18:48
Speaker 3: make an investment in they have in the next generation
18:52
Speaker 3: chip development technology or whatever that's incredibly vague.
18:56
Speaker 2: Because they need the number to grow up.
18:58
Speaker 3: Yeah, there behold into these very aggressive growth forecasts. We
19:02
Speaker 3: all know they can't hit them indefinitely for reasons we
19:05
Speaker 3: talked about in the last hour. A company can't grow
19:07
Speaker 3: faster than the economy or the market on average for
19:10
Speaker 3: that matter, forever.
19:11
Speaker 2: So it does seem a little bit desperate.
19:14
Speaker 3: But at the same time, in the comparison to vendor financing.
19:17
Speaker 3: I just don't know, because that's viewed as a legitimate
19:21
Speaker 3: sales tool. I mean it happens, for example, when you
19:23
Speaker 3: buy a car and Carvana, I don't know, finances it
19:26
Speaker 3: with their captive arm, their captive financing arm.
19:29
Speaker 2: Let's take a quick break. When we return, we got
19:33
Speaker 2: Wall Street Watch in the trivia answer.
19:40
Speaker 1: Bringing the latest 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
19:54
Speaker 1: what's moving market so far today right here on the
19:57
Speaker 1: Financial Exchange Radio Network.
20:00
Speaker 4: Well after the S and P five hundred snapped a
20:02
Speaker 4: three day winning streak yesterday, markets today are a little changed.
20:06
Speaker 4: This morning, we saw more housing data posted where sales
20:10
Speaker 4: of newly built homes rosa much larger than expected twenty
20:14
Speaker 4: point five percent in August compared with July, to the
20:17
Speaker 4: highest level since January of twenty twenty two. That according
20:21
Speaker 4: to the US Census. Right now, the Dow is down
20:25
Speaker 4: by a tenth of one percent, or fifty five points lower.
20:28
Speaker 4: SMP five hundred also down by about a tenth of
20:30
Speaker 4: a percent or eight points. Nasdaq also down by tenth
20:34
Speaker 4: of percent or thirty points lower. Russ two thousand down,
20:38
Speaker 4: you guessed it a tenth of a percent. Tenure Treasure
20:40
Speaker 4: Reeled is up two basis points at four point one
20:43
Speaker 4: three nine percent. In crude oil up nearly two percent higher,
20:47
Speaker 4: trading at sixty four dollars and fifty six cents a barrel.
20:51
Speaker 4: Ali Baba jumping over nine percent after the Chinese tech
20:54
Speaker 4: company said it will boost spending on AI models and
20:57
Speaker 4: development to more than fifty three billion million dollars. Sticking
21:01
Speaker 4: with tech in AI, where Micron Technology has reported a
21:04
Speaker 4: it's a revenue sword forty six percent in the previous quarter,
21:08
Speaker 4: driven by demand for AI developers. Micron's outlook for the
21:12
Speaker 4: current quarter also beat expectations, However, that stock is retreating
21:16
Speaker 4: about two percent. Meanwhile, shares in Lithium America is surging
21:21
Speaker 4: ninety seven percent now after Reuter's reported that the US
21:24
Speaker 4: is negotiating a stake as large as ten percent in
21:27
Speaker 4: the Canadian mining company. Lithium America's is also developing a
21:32
Speaker 4: mine with General Motors, sending shares in GM up by
21:35
Speaker 4: about two percent, and according to Bloomberg, Oracle is seeking
21:38
Speaker 4: to borrow fifteen billion dollars from the US investment grade
21:42
Speaker 4: bond market. Today, as the software maker ramps up it's
21:46
Speaker 4: spending to meet the needs of the AI boom, Oracle
21:49
Speaker 4: shares are down about two and a half percent. I'm
21:52
Speaker 4: Tucker Silva and that is Wall Street Watch. And in
21:54
Speaker 4: the previous segment, we asked you the trivia question which
21:57
Speaker 4: actor portrayed Darren in the two thousand and five movie Bewitched.
22:02
Speaker 4: That would be Will Ferrell. Charlie from Scarborough, Maine is
22:06
Speaker 4: our winner today, taking home a Financial Exchange Show teacher.
22:09
Speaker 4: Congrats to Charlie. We play trivia every day here in
22:12
Speaker 4: the Financial Exchange See complete contest rules at Financial Exchange
22:16
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22:17
Speaker 2: Can we talk a little bit about that GM Lithium
22:20
Speaker 2: America's item. Let's do it the one that Tucker just
22:24
Speaker 2: brought up. It's not in your stack. Oh good, Yeah,
22:28
Speaker 2: So basically, Tucker correct me, look at that later. What
22:32
Speaker 2: you just said was that GM is going in on
22:34
Speaker 2: that mining venture with them.
22:37
Speaker 4: They are currently developing a mind Yes, that's what I've read.
22:41
Speaker 2: What a horrible idea with vertical integration. There's a reason
22:46
Speaker 2: why automakers don't do it for their raw materials. Is
22:50
Speaker 2: because they have no expertise and specialization in doing so.
22:54
Speaker 3: I think of Henry Ford when I think of that.
22:55
Speaker 3: Didn't he buy rubber plantations?
22:57
Speaker 2: So he went further than that. He bought lane and
23:00
Speaker 2: in Brazil and tried to set up a commune called
23:03
Speaker 2: ford Landia that was going to basically produce the rubber
23:08
Speaker 2: and other raw materials needed and send it up to
23:11
Speaker 2: the US for production and everything. It wasn't quite like
23:17
Speaker 2: it wasn't you know, it didn't go as badly as
23:20
Speaker 2: it could have been, Like not everybody died, but they
23:22
Speaker 2: shut it down within a year or two because they
23:24
Speaker 2: were like, this is horrible, it's not working. Why because
23:27
Speaker 2: you have no expertise in doing any of this stuff.
23:30
Speaker 2: So I have no doubt that GM is looking at
23:33
Speaker 2: this saying, well, we're gonna need the lithium. Why don't we,
23:35
Speaker 2: you know, help develop you know, the venture and everything.
23:38
Speaker 2: Like I'm sure it comes from a place of good intentions.
23:41
Speaker 2: But if that's the case, hey, why don't you also
23:44
Speaker 2: own a bunch of iron mines and a bunch of
23:47
Speaker 2: steel smelters and you know all the stuff that you know,
23:50
Speaker 2: why don't you go and you know, buy a bunch
23:52
Speaker 2: of rubbertories.
23:53
Speaker 3: Sounds very nineteenth century, doesn't it.
23:55
Speaker 2: What makes lithium different that you feel like, hey, we've
23:58
Speaker 2: got some way that we can do it that's better
24:00
Speaker 2: when you clearly don't. So the nicest thing I can
24:05
Speaker 2: say about it is, at least, this is kind of
24:07
Speaker 2: an ancillary business. Is not like you remember when AMC
24:09
Speaker 2: got all that money from an equity raise and they
24:11
Speaker 2: went out and they bought like a gold mine. It's
24:15
Speaker 2: not that at least, so you like, you could at
24:17
Speaker 2: least say it's it's it's at least an ancillary business
24:21
Speaker 2: like AMC does not need any They don't need to
24:23
Speaker 2: buying gold in order to show movies. To me, this
24:27
Speaker 2: you could say, okay, like I understand they're thinking. But historically,
24:29
Speaker 2: there's a reason why automakers are not involved in the
24:32
Speaker 2: production of the raw materials needed to make their cars,
24:36
Speaker 2: and that is they're not any good at it. So
24:40
Speaker 2: who knows if GMS identified that this is actually you know,
24:44
Speaker 2: viable and useful. Who knows that this is gonna actually
24:46
Speaker 2: end up working out well for them? But whenever a
24:50
Speaker 2: car company in particular gets outside their comfort zone, immediately
24:54
Speaker 2: I'm just like Nope, you're gonna need that capital for
24:56
Speaker 2: something else. Running your car company is expensive. Don't don't
24:58
Speaker 2: go doing dumb stuff. It's kind of where I get
25:02
Speaker 2: to there. I don't know, Yeah, I could see that.
25:05
Speaker 2: Let's talk about this piece here, actually, yeah, let's talk
25:09
Speaker 2: about this is the diversified portfolio dead. The AI boom
25:12
Speaker 2: has turned an age old investing rule on its head.
25:15
Speaker 2: A couple things. This piece largely talks about, you know,
25:18
Speaker 2: some studies that have been done on more concentrated portfolios
25:21
Speaker 2: and whether or not that's good or bad. And the
25:23
Speaker 2: answer basically always boils down to, hey, if you have
25:25
Speaker 2: any actual investing skill, it's good, but most of us
25:28
Speaker 2: don't have investing skill, and so it's bad. That's kind
25:31
Speaker 2: of where it gets to the other piece. You know,
25:35
Speaker 2: like they quote you know, Warren freaking Buffet, which like
25:40
Speaker 2: quoting Warren Buffett on investing and saying, hey, you should
25:42
Speaker 2: do this is like quoting Ted Williams on baseball and
25:45
Speaker 2: being like, oh, like just do that. Like just because
25:49
Speaker 2: it works for Ted Williams doesn't mean it's gonna work
25:51
Speaker 2: for you. Like, these are generational talents at their respective trades,
25:55
Speaker 2: and you should not take advice from like the best
25:58
Speaker 2: person ever any specific thing, because it usually doesn't apply
26:03
Speaker 2: to you.
26:04
Speaker 3: Yeah, hard to operationalize it when you don't have their
26:06
Speaker 3: level of skill. If you substitute for sixty forty just
26:10
Speaker 3: the generic term diversified, the answer is yeah, probably. If
26:14
Speaker 3: you're older, for example, well, you probably need some growth
26:17
Speaker 3: and inflation protection. Stocks have historically been good at those things.
26:21
Speaker 3: You might also need some money to meet short term
26:24
Speaker 3: needs educational or other expenses that will arrive in the
26:29
Speaker 3: next several years. Well, you might not want to put
26:31
Speaker 3: that money in equities in stocks, because stocks can experience
26:35
Speaker 3: serious draw downs price to clients, and they can sometimes
26:42
Speaker 3: last for a while. So, of course, most investors should
26:45
Speaker 3: be somewhat diversified. Arguably every investor should, except for people
26:49
Speaker 3: with an extremely long time arizon. Some investment folks, not all,
26:54
Speaker 3: but some would argue that they can afford to be
26:56
Speaker 3: entirely inequities and even borrow to buy more.
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28:07
Speaker 2: One other piece here. Whenever I see something, a piece
28:10
Speaker 2: that's written talking about, Hey, you know, because of x
28:15
Speaker 2: y Z doing so well, does that mean you shouldn't diversify?
28:19
Speaker 2: Usually means that that XYZ whatever it is, has about
28:22
Speaker 2: run its course.
28:23
Speaker 3: Yeah, you could write a piece like that every year,
28:25
Speaker 3: just substitute of fill in just you know, fill in
28:27
Speaker 3: the blank for.
28:28
Speaker 1: X y Z.
28:28
Speaker 2: That's why whatever the best performance yeah, whatever the best
28:30
Speaker 2: performance sector is because generally, if you look at the
28:33
Speaker 2: history of the S and P five hundred, hey, you
28:35
Speaker 2: might have a trend that lasts like two or three
28:37
Speaker 2: years that that's you know, kind of a longer term one.
28:40
Speaker 2: But generally the best performing sectors in the S and
28:43
Speaker 2: P change every year and you have no idea what
28:48
Speaker 2: they're going to be based on how the prior year went.
28:51
Speaker 2: So when you see something being like, oh, should you
28:53
Speaker 2: like not diversify and just invest in AI, it's probably
28:57
Speaker 2: not like, why weren't you writing this piece three years ago?
29:00
Speaker 2: Is the question that I would ask. Yeah, no, it's
29:02
Speaker 2: not clear.
29:02
Speaker 3: To me who they're writing for. For an individual investor,
29:05
Speaker 3: that is incredibly bad advice. If you're a family office,
29:09
Speaker 3: which is an investment advisor that runs money for one
29:13
Speaker 3: or more very wealthy families, or if you're running a
29:16
Speaker 3: hedge fund, which is an unconstrained type investment strategy usually
29:19
Speaker 3: catering to wealthy people who can afford exotic forms of risk, well,
29:23
Speaker 3: they tend to not be diversified and they use a
29:27
Speaker 3: very unusual skill in unusual ways, but all for most
29:34
Speaker 3: of us, for nearly all of us. The rules of
29:36
Speaker 3: them you learn about when you go to your first
29:39
Speaker 3: four h one K education session, when you sign up
29:42
Speaker 3: for your plan or you're signed up for it, those
29:44
Speaker 3: will apply for the rest of your lives.
29:47
Speaker 2: Piece and CNBC and exclusive from them. Ford courts riskier
29:51
Speaker 2: borrowers with lower rates for F one to fifty pickups.
29:55
Speaker 2: I'll quote here from the piece. Ford is racing to
29:57
Speaker 2: sell more F one fifty pickups this quarter by offering
29:59
Speaker 2: lower interest rates to buyers with the weakest acceptable credit histories.
30:04
Speaker 2: So this, I guess, is Ford's version of like a
30:06
Speaker 2: buy now, pay later, and that they're gonna let you
30:08
Speaker 2: buy now and Ford's gonna pay later. Because af Ford
30:10
Speaker 2: wanted to offer these rates all the time, they would do,
30:14
Speaker 2: so they're doing so now because they want the money
30:16
Speaker 2: from the F one fifty sales today, probably because inventories
30:18
Speaker 2: are building, would be my guess. And in return they're
30:22
Speaker 2: willing to accept lower interest payments and probably higher defaults
30:26
Speaker 2: as a result of this.
30:28
Speaker 3: Yeah, I guess depends on what happens in the broader economy.
30:31
Speaker 3: If things go south, those defaults will pick up and
30:35
Speaker 3: this will seem like an incredibly ill, ill advised and
30:39
Speaker 3: in retrospect, ill faded move.
30:41
Speaker 2: Whenever we see something like this, it's just like, Okay,
30:44
Speaker 2: I know, I feel I always come back to.
30:47
Speaker 1: Look.
30:48
Speaker 2: Basically, every bubble in history has been caused by two things,
30:52
Speaker 2: securitization and leverage. And this is the leverage piece. It's
30:57
Speaker 2: are you, you know, levering up people that can't afford
31:00
Speaker 2: to make the payments? And are you going to end
31:03
Speaker 2: up in a problem?
31:03
Speaker 3: Yeah, they're by definition they can't afford it. That's what
31:06
Speaker 3: credit rating scores exist for. It's not to make life
31:08
Speaker 3: hard for us. It's to make sure you don't overextend yourself.
31:12
Speaker 2: Yep. Yeah, it doesn't fill me with the warm and fuzzies.
31:16
Speaker 3: No, sounds like a terrible idea. Honest, I hate to
31:18
Speaker 3: be a party pooper. Maybe it works out, but odds
31:22
Speaker 3: are doesn't right for the people who are induced into
31:25
Speaker 3: borrowing huge amounts of money to pay for these beautiful
31:28
Speaker 3: vehicles who wouldn't want one, But you know it's probably
31:31
Speaker 3: not the right thing to do.
31:32
Speaker 2: Just take a quick break. When we return.
31:35
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32:50
Speaker 2: Mike, what do you got? Mark?
32:54
Speaker 3: Whoever you are, well, Chuck, I want to tell you
32:56
Speaker 3: how handsome I am today?
32:57
Speaker 2: Is that in Mike Armstrong impression. Yeah, it's cause he's
33:00
Speaker 2: I can't do him. Well, he's he's way too.
33:02
Speaker 1: Low for me. I don't know.
33:04
Speaker 3: That's that's that's closest I'm ever going to again. Okay, And
33:06
Speaker 3: if we could not let him hear that, that would
33:08
Speaker 3: be wonderful too. Touch we could dump the last twenty
33:11
Speaker 3: seconds to the show from the Financial Times. This speaks
33:17
Speaker 3: to the challenges that all developed countries are facing with
33:22
Speaker 3: a larger number of retirees being supported by with the
33:25
Speaker 3: with the growth rate of retirees growing faster than the
33:27
Speaker 3: growth rate of people still in the workforce. The story
33:30
Speaker 3: is about Italy. Italy weighs freezing its retirement age at
33:33
Speaker 3: sixty seven. The Maloney's government. Prime Minister Georgia Maloney's government
33:37
Speaker 3: is considering making this change. The reason I bring it
33:40
Speaker 3: up is that I was surprised to find out that
33:43
Speaker 3: Italy's pension law links the statutory retirement age to life
33:48
Speaker 3: expectancy improvement, so it goes up automatically, whereas now their
33:52
Speaker 3: pension law governs relationships between labor and it's more broad
33:57
Speaker 3: than what we're talking about with social security, very much
33:59
Speaker 3: so the closest analog we have a social securities normal
34:02
Speaker 3: retirement age, which by coincidence is sixty seven. But what
34:05
Speaker 3: sort of impressed me about Italy's system, if you will,
34:11
Speaker 3: is that it escalates automatically. Ours has to be increases
34:15
Speaker 3: in and ra under social security have to be legislated,
34:18
Speaker 3: and the Prime Minister is under pressure to put a
34:21
Speaker 3: ceiling on that because obviously older folks are squawking. I
34:25
Speaker 3: was also a little bit surprised to learn that the
34:27
Speaker 3: number of people over fifty still working in Italy, or
34:31
Speaker 3: the percentage, is nearly fifty percent, whereas here our fifty
34:35
Speaker 3: five and over labor force participation rate is about forty percent.
34:40
Speaker 3: So for what it is worth, firstly, we're all facing
34:43
Speaker 3: the same challenges in the developed world, more people retiring,
34:46
Speaker 3: fewer people working, or a higher growth rate in the
34:49
Speaker 3: retirement age part of the workforce than in the overall workforce.
34:53
Speaker 3: And the fact that Italy's laws are a little bit
34:56
Speaker 3: or practices are a little more stringent than ours. As
34:59
Speaker 3: I read this, I'm.
35:02
Speaker 2: Going to talk a little bit about this piece on
35:05
Speaker 2: the NFL rights and potential renegotiation. So back in twenty
35:12
Speaker 2: twenty one, the NFL signed an eleven year, one hundred
35:16
Speaker 2: eleven billion dollar media rights deal for distribution, and the
35:22
Speaker 2: league has an opt out cause after the twenty nine
35:25
Speaker 2: to thirty season, which is five years from now, four
35:29
Speaker 2: years from now, and Roger Goodell, the NFL Commissioner, said
35:34
Speaker 2: this yesterday. I think our partners would want to sit
35:36
Speaker 2: down and talk to us at any time when we
35:37
Speaker 2: continue dialogue with them. I like that opportunity. Obviously it's
35:41
Speaker 2: not gonna happen this year, but it could happen as
35:42
Speaker 2: early as next year. That could happen. So obviously you
35:47
Speaker 2: start say, okay, why do the owners want to renegotiate
35:53
Speaker 2: the rights deal today? You know what what gives? Like,
35:58
Speaker 2: what's what's the reason? And the obvious answer that you
36:01
Speaker 2: come up with as well, they think they can get
36:02
Speaker 2: more money for the rights today as opposed to where
36:06
Speaker 2: it was four or five years ago. A couple things
36:09
Speaker 2: that go through my head. The first is, look, you
36:11
Speaker 2: obviously went through a substantial bout of inflation since this
36:14
Speaker 2: deal was signed. Prices in general are higher, and so
36:18
Speaker 2: the owners look at this and say, great, like we
36:21
Speaker 2: locked in prior to that, we want, you know, more
36:24
Speaker 2: than we were getting and we think instead of getting
36:26
Speaker 2: you know, ten billion dollars a year in this media
36:28
Speaker 2: rights deal, maybe we can get you know, twelve or thirteen,
36:31
Speaker 2: so it's you know, twenty thirty percent higher. Okay, Like
36:35
Speaker 2: I understand that, But again, why now? Like what why
36:39
Speaker 2: not last year? Why not next year?
36:42
Speaker 1: Like?
36:42
Speaker 2: Why now? What's the the reason for this? And the
36:48
Speaker 2: only piece that I keep coming back to is there
36:51
Speaker 2: have been a couple of things written about this to
36:53
Speaker 2: a certain extent where when you look at the price
36:57
Speaker 2: of pro sports teams today, it's basically at the point
37:02
Speaker 2: where individuals can afford them. You have to have these
37:05
Speaker 2: consortums or a bunch of private equity money or sovereign
37:08
Speaker 2: wealth wealth funds from the Middle East that come in
37:11
Speaker 2: and are able to do this. And in order to
37:15
Speaker 2: entice some of those groups, most notably the private equity
37:19
Speaker 2: firms and the sovereign wealth funds, you have to actually
37:21
Speaker 2: show that you can make a return on the investment.
37:24
Speaker 2: You know, the Norwegian Sovereign wealth funder, the Saudi Sovereign
37:28
Speaker 2: Wealth fund doesn't want to invest in an NFL team
37:32
Speaker 2: just so that they can go to the games and
37:33
Speaker 2: the owner's box on Sunday they don't need that in
37:37
Speaker 2: order to have like their place in society. It's not
37:40
Speaker 2: you know, Daniel Snyder buying, you know, the commanders being like, oh, like, yeah,
37:44
Speaker 2: I'm the biggest fan ever. It's no, they don't care.
37:46
Speaker 2: They just want them right right. So when you look
37:49
Speaker 2: at this, I think part of it that I get
37:53
Speaker 2: come back to is, hey, because these teams need to
37:56
Speaker 2: have their value continue to go up in order to
38:00
Speaker 2: make the whole thing work. You've got to have a
38:03
Speaker 2: faster negotiating cycle and more money coming in on a
38:07
Speaker 2: more rapid basis. And that's where I think the impetus
38:10
Speaker 2: is for the owners on this. Let's take a quick
38:13
Speaker 2: break for the rest of the day. We're gonna be
38:16
Speaker 2: back at it tomorrow. We get some jobless claims and
38:17
Speaker 2: existing home sales data. We'll filly in on all that
38:20
Speaker 2: and more tomorrow