Latest / The Financial Exchange Show / Jobs Data, Market Rotation, AI Threats & China’s Treasury Warning Explained

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Jobs Data, Market Rotation, AI Threats & China’s Treasury Warning Explained · The Financial Exchange Show

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Speaker 2: Chuck Mike Tucker with you, and we've got a full
1:16
Speaker 2: slate for the week, some big data points that we're
1:20
Speaker 2: gonna be uh examining over the course of the week.
1:25
Speaker 2: On the earning side, we'll start there and kind of
1:27
Speaker 2: we'll do this is a little bit of a build
1:29
Speaker 2: up because the earnings.
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Speaker 3: It's not last week's blockbuster fine like it's it's it's okay,
1:35
Speaker 3: like okay.
1:36
Speaker 2: Coca Cola reports earnings, to be honest. And again another
1:41
Speaker 2: one that kind of surprised me when I when I
1:44
Speaker 2: saw this Coca Cola. If you had to guess, Michael,
1:47
Speaker 2: how much revenue Coca Cola did in the last twelve months,
1:52
Speaker 2: what do you think it is?
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Speaker 3: Three quarters of an Uber? Pretty cool because you're just
2:00
Speaker 3: about there.
2:01
Speaker 2: Coca Cola did about ninety percent of Uber's revenue in
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Speaker 2: the last twelve months.
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Speaker 3: So what are the dollars? So I don't sound like
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Speaker 3: a you know.
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Speaker 2: Forty eight billion for coke, fifty two billion for Uber.
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Speaker 3: Okay, thanks you. So here's the thing we like to
2:15
Speaker 3: talk about.
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Speaker 2: Coke is like this bell weather for something, and it's
2:21
Speaker 2: just not anymore. It's it's not to say that they're
2:25
Speaker 2: like useless, Like it's it's a hugely valuable brand and
2:28
Speaker 2: everything like that. Still a company worth three hundred billion dollars.
2:31
Speaker 2: But their their revenue grows by like three percent a
2:36
Speaker 2: year and they keep doing that over and over and over,
2:40
Speaker 2: and yeah, like they're growing the pie.
2:42
Speaker 3: I get that.
2:43
Speaker 2: But here's the thing Coke right now, Remember Coke went
2:48
Speaker 2: through a kind of down period in the twenty tens.
2:51
Speaker 2: Coke's revenue today is equal to what it was in
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Speaker 2: twenty thirteen. It's been thirteen years and their revenue hasn't
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Speaker 2: budged effectively. Yeah, and it's because they're just it's a
3:02
Speaker 2: saturated market for them. So I'm not really that interested
3:05
Speaker 2: in Coke earnings because.
3:07
Speaker 3: By the way, part of that is a execution problem,
3:10
Speaker 3: I would think, because if I look at Pepsi, I
3:13
Speaker 3: have to believe that over the last thirteen years they
3:15
Speaker 3: have grown their their revenue base, and I think they've
3:18
Speaker 3: done so by obviously they're a different company than Coca Cola.
3:22
Speaker 3: The Coca Cola is very purely beverage focused and Pepsi's not.
3:26
Speaker 3: But that was a choice. Yeah, they did that on purpose, right.
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Speaker 3: I think about the Super Bowl as PEPSI had two
3:31
Speaker 3: of them. They had the one, you know, shot across
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Speaker 3: the bow of Coca Cola. They also had one advertising
3:37
Speaker 3: their healthy soda brand, Poppy. So there's that.
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Speaker 2: Yeah, so Coke, I just it's not to say that
3:43
Speaker 2: they're irrelevant, because you can't say that one of the
3:46
Speaker 2: most valuable brands in the world is irrelevant. But from
3:52
Speaker 2: a market perspective, like, what do we expect Coke to
3:55
Speaker 2: tell us?
3:56
Speaker 3: Ever? Yeah, not much, I guess, you know.
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Speaker 2: I just don't expect them to tell us very much,
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Speaker 2: is what I'm saying. Other companies that we have reporting
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Speaker 2: earnings this week, Cisco, great, it's you know, two thousand
4:08
Speaker 2: and one again, Yahoo tell us you know what's going
4:11
Speaker 2: on there. McDonald's. We've already talked about how you know,
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Speaker 2: Uber's way bigger than them. So I do think there's
4:16
Speaker 2: a little bit more signal there than Coke, just in
4:18
Speaker 2: terms of what they can tell us about Americans buying habits,
4:22
Speaker 2: just because deciding to go out to a restaurant is
4:25
Speaker 2: a fundamentally different proposition than whether or not you're going
4:28
Speaker 2: to buy coke when you're at the grocery store. But
4:31
Speaker 2: so I think there's still some signal there, even though
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Speaker 2: it's not as much as there used to be. We've
4:38
Speaker 2: got on Thursday Airbnb, which I think will be an
4:41
Speaker 2: interesting one to hear about just from a travel perspective.
4:45
Speaker 2: But it's again not just not a great week of earnings.
4:48
Speaker 2: What it is a great week for is economic data,
4:52
Speaker 2: one of the best because of the government shutdown that
4:54
Speaker 2: lasted like two and a half days. Tomorrow we get
4:59
Speaker 2: retail sales data for the month of December. So it
5:02
Speaker 2: is outdated because we're still catching.
5:03
Speaker 3: Up on some of this stuff, but it's a holiday
5:05
Speaker 3: shopping season retail sales report that in and of itself
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Speaker 3: will be interesting. It's just backwards. Look, it's still.
5:11
Speaker 2: Somewhat relevant, you know, it's not too far out of
5:13
Speaker 2: date at this point. Tuesday, I'm sorry, Wednesday, we're getting
5:18
Speaker 2: the jobs report that was supposed to be last Friday.
5:21
Speaker 2: So this is going to be an important one because
5:25
Speaker 2: what we have seen in the month of January, continuing
5:28
Speaker 2: unemployment claims have inflected down. We're now flat year over
5:31
Speaker 2: year for basically the first few weeks of the year,
5:34
Speaker 2: And is there a shift happening in the labor market
5:37
Speaker 2: that is positive? This job's report could start to confirm
5:42
Speaker 2: that it wouldn't because it's still one month, but maybe
5:44
Speaker 2: you start to cluster some positive data there and see
5:47
Speaker 2: an improving labor market. That would be fantastic. Thursday, we've
5:51
Speaker 2: got more jobless claims data and existing home sales data,
5:55
Speaker 2: and then the rare double dip Friday. See we get
6:00
Speaker 2: CPI and jobs in the same week. Shutdown, and so
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Speaker 2: that is going to be another one that we're gonna
6:07
Speaker 2: be looking at very closely just to see, Hey, what's
6:10
Speaker 2: going on with the inflation picture. We've seen some improvement
6:13
Speaker 2: on the periphery in the last month or two. Does
6:16
Speaker 2: that continue into the new year or was it just
6:20
Speaker 2: you know, data collection issues because of the shutdown back
6:24
Speaker 2: the first shutdown back in last year, not the three
6:28
Speaker 2: day one this year.
6:29
Speaker 3: This was the longer one. So you know, we'll see
6:32
Speaker 3: what we get.
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Speaker 2: But ultimately, I'm pretty excited to see this economic data
6:36
Speaker 2: come through now that we are through the bulk of earnings,
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Speaker 2: at least from a does this matter or not perspective.
6:43
Speaker 2: The only one that's really left out standing from an
6:46
Speaker 2: earnings perspective is in Vidia, and they report in a
6:50
Speaker 2: couple of weeks as they always do.
6:52
Speaker 3: The contextual backdrop here. Last week you saw the chances
6:55
Speaker 3: of a rate cut increasing on the heels of really
7:01
Speaker 3: a new narrative taking over the stock market. I think
7:03
Speaker 3: that's the only thing I can point to that would
7:05
Speaker 3: have shifted the focus on the rate cut cycle. That
7:10
Speaker 3: did see about a ten percentage point swing in terms
7:13
Speaker 3: of more likely for that rate cut at the next
7:16
Speaker 3: series of meetings, although still quite unlikely to happen. The
7:20
Speaker 3: other backdrop obviously, a new Federal Reserve president going to
7:23
Speaker 3: be a chairperson, going to be taking over once he
7:26
Speaker 3: can get confirmed and get Frankly, I think once he
7:29
Speaker 3: gets a confirmation hearing, he will be confirmed. But the
7:31
Speaker 3: question is when will that hearing actually take place. Also,
7:35
Speaker 3: you know you mentioned earnings not the most interesting companies
7:39
Speaker 3: reporting earnings, but I will point out that we did
7:41
Speaker 3: last week have scheduled some of the most interesting companies
7:43
Speaker 3: to report earnings, and frankly, the news took a back
7:46
Speaker 3: seat to kind of breaking AI trends that took over
7:51
Speaker 3: the market narrative last week. So not that the earnings
7:54
Speaker 3: reports from Alphabet and Amazon last week, yep, weren't important.
7:58
Speaker 3: Their stocks got clobbered on them, But the real thing
8:03
Speaker 3: that mattered to markets last week was not on the calendar.
8:05
Speaker 3: It was all about this new series of tools from Claude,
8:09
Speaker 3: and that whole narrative is going to continue to develop
8:13
Speaker 3: here as investors shake out what it means for whole
8:16
Speaker 3: segments of the market.
8:18
Speaker 2: And this market is just in a really interestingly boring
8:24
Speaker 2: exciting spot. Can't be both, it can be Can I explain?
8:28
Speaker 2: It's it's bore sighting. That's what this market is right now.
8:31
Speaker 3: In the last sense, bor siding to me sounds like
8:35
Speaker 3: some sort of Russian oligarch.
8:38
Speaker 2: Or No, it's you go and you go bor siding,
8:41
Speaker 2: you know, like, oh, I'm going down to Texas for
8:43
Speaker 2: you know, a bor siding trip. In any case, for
8:47
Speaker 2: the last four months now, since late October, the S
8:50
Speaker 2: and P five hundred is up a total of fifteen points,
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Speaker 2: less than a quarter percent, and yet we are less
8:56
Speaker 2: than one percent off all time highs. So this is
8:59
Speaker 2: a market that does not really want to move higher.
9:03
Speaker 2: It's had ample opportunity to and cannot move conclusively higher.
9:09
Speaker 2: It also has as had ample opportunity during that time
9:12
Speaker 2: to go splot. I count four different two percent plus
9:17
Speaker 2: pullbacks during that time. One of which was a five
9:19
Speaker 2: percent plus pullback.
9:21
Speaker 3: And by the way, other markets out there that I
9:25
Speaker 3: think people talk about in the same way that they
9:26
Speaker 3: do the stock market have gone splat go. Take a
9:28
Speaker 3: look at crypto markets, for example, during the same window
9:31
Speaker 3: of time, and they've experienced all the downside without much
9:34
Speaker 3: of the upswing.
9:35
Speaker 2: And the thing that has been holding this market together
9:38
Speaker 2: is what's called dispersion, which is basically, hey, even when
9:42
Speaker 2: markets have been pressured, you haven't had like everything selling
9:45
Speaker 2: off all at once. It's been confined to a few areas.
9:49
Speaker 2: And rather than people just rotating out of stocks, they've
9:51
Speaker 2: just rotated.
9:52
Speaker 3: To other parts of the equity markets.
9:55
Speaker 2: So, hey, you know software is getting cobvered, but you
9:58
Speaker 2: know energy is ry, or you've got you know, semiconductors
10:03
Speaker 2: getting clobbered one day, but consumer staples is rising. And
10:07
Speaker 2: this is what we've talked about, where we've got this
10:10
Speaker 2: broadening market now where last year's market leadership is struggling,
10:14
Speaker 2: that that tech and AI trade is struggling, and everything
10:17
Speaker 2: else is trying to.
10:18
Speaker 3: Lead everything else.
10:19
Speaker 2: You know, like Walmart's there and it's like follow me
10:22
Speaker 2: to freedom. You've got Coca Cola being like I can
10:25
Speaker 2: do with Verizon even's like, I'm up nineteen percent. Pay
10:28
Speaker 2: attention to me, I'm Verizon, and yet this market just
10:32
Speaker 2: struggles to get upside capture. And it's just because the
10:36
Speaker 2: stuff that has been lagging is just so big and
10:39
Speaker 2: just so you know, draggy right now.
10:41
Speaker 3: So we've talked going into this year, the whole narrative
10:44
Speaker 3: about the market in twenty twenty six was the rotation,
10:48
Speaker 3: the rotation out of some of these giant companies into
10:52
Speaker 3: some of the other laggards in the market. And by
10:56
Speaker 3: saying you some of that.
10:57
Speaker 2: You're seeing a ton of it in my opinion, I mean,
10:59
Speaker 2: look we're seeing so far this year in terms of performance.
11:03
Speaker 2: Microsoft is down fifteen percent this year, Oracles down nineteen,
11:06
Speaker 2: Palenteers down twenty one, Amazon's down seventeen, Tesla's down eight.
11:11
Speaker 2: Those are the bad ones. The flat ones are Google
11:15
Speaker 2: and Meta are flat. Apple's flat and videos up two percent,
11:18
Speaker 2: broad Calms down two percent. Software is getting annihilated, like
11:23
Speaker 2: you've got all that stuff that just isn't really moving.
11:26
Speaker 2: And then you look at you, like Verizon's up nineteen
11:30
Speaker 2: percent this year, Exxon Mobil's up twenty four, Caterpillars up
11:33
Speaker 2: twenty seven, Walmart's up seventeen, merk is up twelve. What
11:39
Speaker 2: do we got over here? New Mount Mining's up nineteen?
11:42
Speaker 2: You got all this just torque on markets, but they're
11:47
Speaker 2: not really going anywhere. So it's a boor sighting market
11:50
Speaker 2: in my opinion, under the surface, very exciting, lots of danger,
11:54
Speaker 2: lots of you know, happiness on the surface is kind
11:58
Speaker 2: of like, Okay, I get that we made new all
12:01
Speaker 2: time highs last week, but there by like four points
12:04
Speaker 2: on the S and P and gosh, I you know,
12:08
Speaker 2: can't we just go back to the summer of twenty
12:10
Speaker 2: twenty five when things were just you know, cranking along,
12:12
Speaker 2: like wouldn't that be nice? And the answer is no, Like,
12:14
Speaker 2: the market's gonna do what it's gonna do. So I
12:18
Speaker 2: think it's a really interesting situation right now.
12:20
Speaker 3: And we're right in the middle of.
12:22
Speaker 2: This you know, rotational torque period in markets that is
12:26
Speaker 2: pretty cool to watch and presenting some opportunities, but it's
12:30
Speaker 2: not really getting the broad markets anywhere. Let's take a
12:33
Speaker 2: quick break. When we return, let's see do we want
12:37
Speaker 2: to talk about Friday's rebound at all? Or are we
12:38
Speaker 2: good on stocks?
12:40
Speaker 3: I think yes? Or no? I want to talk about
12:43
Speaker 3: the SaaS entire situations and software generally, and the AI
12:48
Speaker 3: shake up last week, which includes what happened on Friday.
12:51
Speaker 3: That's next on the Financial Exchange.
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13:56
Speaker 2: Mike, you want to do a little bit of cleanup
13:58
Speaker 2: on Friday's market movement where we saw the S and
14:01
Speaker 2: P rise two percent on basically no news from the
14:04
Speaker 2: day before.
14:05
Speaker 3: Yeah, I was clear by the dip trade. Yes, it's
14:08
Speaker 3: all it was was people jumping back in and buying
14:11
Speaker 3: the dip, as we have seen, especially retail investors do
14:15
Speaker 3: pretty much every time the market has taken a significant
14:18
Speaker 3: dip over the course of the last three years. I
14:21
Speaker 3: think a few things on this one. Just because the
14:24
Speaker 3: market rebounded does not mean the individual components. Did you know,
14:28
Speaker 3: Alphabet shares are down seven and a half percent over
14:31
Speaker 3: the course of the last five days. Amazon shares down
14:33
Speaker 3: fifteen and a half percent over the course of the
14:35
Speaker 3: last five days. So some of the companies that got
14:37
Speaker 3: punished in trading last week have not recovered. And certainly
14:40
Speaker 3: when you take a look at those companies that were
14:42
Speaker 3: the subject of what actually sparked. Can we talk about
14:46
Speaker 3: what sparked the market pressure on software companies last week?
14:49
Speaker 3: It was a report from who actually produced the I
14:53
Speaker 3: know it was reported by several different outlets, but something
14:56
Speaker 3: sparked the news that Clauds new tools were so impressive,
15:01
Speaker 3: and the narrative took over that, Oh, if this really
15:06
Speaker 3: makes app design and website development and all sorts of
15:11
Speaker 3: software creation that much easier, then why do any of
15:17
Speaker 3: these companies that have massive market share and massive profit
15:19
Speaker 3: margins really matter? And so that narrative I don't think
15:24
Speaker 3: changed with Friday's news, but I do think probably some
15:29
Speaker 3: investors looked at all that and said, like you did
15:32
Speaker 3: on Wednesday, I believe it was maybe Thursday. Am I
15:35
Speaker 3: really going to go use AI to file my taxes tomorrow? No?
15:39
Speaker 3: Probably not, But the overall narrative still but still here.
15:44
Speaker 3: And here's the thing.
15:47
Speaker 2: I may not build something myself to go do that, sure,
15:52
Speaker 2: but there are a bunch of smart people that are
15:55
Speaker 2: going to be able to build things so quickly and
15:58
Speaker 2: so cheaply that the fat margins that software companies have
16:03
Speaker 2: had for their entire existence.
16:07
Speaker 3: Are going to get bludgeoned.
16:10
Speaker 2: And I want to read part of a piece this
16:14
Speaker 2: is from I ended up reading this this morning. Was
16:17
Speaker 2: published by Steve Yeggy or maybe it's yegg y E
16:20
Speaker 2: g g E. Hard to say for sure, you Gay, Yeah,
16:24
Speaker 2: Steve Gay, It's probably Yeggy right, I don't know. In
16:28
Speaker 2: any case, Steve worked at basically a whole bunch of
16:32
Speaker 2: tech companies over the course of his career. He's just
16:36
Speaker 2: to give you, like an example, he's ex Amazon, ex Google,
16:40
Speaker 2: like he knows his stuff in the tech space. And
16:44
Speaker 2: I found this part very interesting. A little bird from
16:51
Speaker 2: somewhere in sales told me that all companies are asking
16:53
Speaker 2: variations of just the two same questions. They bluster and
16:57
Speaker 2: bluff and try to act in form, but they are
16:59
Speaker 2: all teared. When you custer their questions, they break down
17:02
Speaker 2: into will everything be okay? And will we be here
17:06
Speaker 2: in five years? The default answer, I'm afraid is no.
17:10
Speaker 2: And he's basically talking about he's looking at what Anthropic
17:14
Speaker 2: is doing with claud and Cowork and not Copilot, clod
17:19
Speaker 2: code and things like that, and he says, the default
17:21
Speaker 2: answer I'm afraid is no. If you do nothing, you
17:24
Speaker 2: are almost certainly going to get overrun. If you have
17:29
Speaker 2: an atom moat, then you stand a pretty good chance
17:32
Speaker 2: of weathering the storm. If you execute well. You might
17:35
Speaker 2: be like, what's an atom moat?
17:36
Speaker 3: Just a chance?
17:37
Speaker 2: Mind you, it's a moat, not a force field. But
17:39
Speaker 2: atoms are a pretty good moat. If you make beer
17:42
Speaker 2: or work with humans or ship stuff, say, you've got
17:45
Speaker 2: a bit more time to work with maybe to find
17:47
Speaker 2: your feet in the AI era. So basically if you
17:49
Speaker 2: work with stuff other than computers, so basically, the closer
17:54
Speaker 2: you are to the human being, yes, the better off
17:56
Speaker 2: you are in this. But if you have a strictly
17:58
Speaker 2: online or software as a service presence with no atoms
18:02
Speaker 2: in your product whatsoever, just electrons, then you are candidly
18:06
Speaker 2: pretty screwed if you don't pivot. And I don't think
18:08
Speaker 2: there are any recipes for pivoting yet. This is all
18:11
Speaker 2: new when it's happening very fast, and like the again,
18:17
Speaker 2: you just look at this and what he's talking about.
18:20
Speaker 2: He's like, they built clud Cowork apparently ten days. They
18:25
Speaker 2: launched it ten days after they had the first idea
18:27
Speaker 2: to do it. And it's partly because the tools that
18:31
Speaker 2: they're using, these AI tools allow them to build very quickly,
18:34
Speaker 2: and so it's just iterating very very fast. And so
18:39
Speaker 2: the idea is not so much that I am going
18:41
Speaker 2: to code some way for me to file my taxes,
18:44
Speaker 2: but that some laid off engineer from into it could say, hey,
18:49
Speaker 2: I've got caud code. I'm gonna get two of my
18:51
Speaker 2: buddies together. We're gonna code the heck out of this
18:54
Speaker 2: thing in three days, and we're gonna release super duper
18:57
Speaker 2: TurboTax that's gonna be a tenth of the cost of TurboTax,
19:03
Speaker 2: and that's the threat.
19:05
Speaker 3: The reason that the dot com era really broke down
19:08
Speaker 3: in markets, in my mind, was that a cool, new
19:11
Speaker 3: emergent technology came out and it took a long time
19:13
Speaker 3: to be monetized. The pace at which some of this
19:16
Speaker 3: change is changing right now leads to a big question
19:20
Speaker 3: of will it take so long to be monetized? Given
19:23
Speaker 3: what you just said about ten day release plan quick break,
19:26
Speaker 3: Wall Street Watch is coming up next.
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19:54
Speaker 1: far today right here on the Financial Exchange Radio Network.
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Speaker 4: After last week's while ride cap by a strong rebound
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Speaker 4: on Friday, Wall Street's bracing for yet another busy week,
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Speaker 4: highlighted by a delayed jobs report and CPI reading for
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Speaker 4: the latest on inflation. In addition to more fourth quarter earnings.
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Speaker 4: Right now, markets are in positive territory modestly. Dow is
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Speaker 4: up by only seventeen points, SMP five hundreds up three
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Speaker 4: tenths of one percent, or nineteen points. NASDAC up nearly
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Speaker 4: half a percent or one hundred and two points higher.
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Speaker 4: Russell two thousands up over a tenth of a percent.
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Speaker 4: Tenure Treasure Real up one basis point at four point
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Speaker 4: two one point eight percent. In crewde Oil up above
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Speaker 4: three quarters of a percent, trading just above sixty four
20:40
Speaker 4: dollars a barrel. Novinorda shares jumping over four percent higher
20:44
Speaker 4: after Hymns and Hers pulled its we go be copycat
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Speaker 4: weight loss pill off the market after Novo threatened legal
20:51
Speaker 4: action against the telehealth firm. Hymns and Her stock by
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Speaker 4: the way, tumbling twenty six percent on that news. Meanwhile,
20:58
Speaker 4: chip maker st Microelectronics announced a multi billion dollar deal
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Speaker 4: with Amazon to support infrastructure for cloud and AI data center.
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Speaker 4: Shares in the semiconductor company are up by seven percent. Elsewhere.
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Speaker 4: A Bloomberg report this morning that Alphabet is looking to
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Speaker 4: raise about fifteen billion dollars from a US high grade
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Speaker 4: dollar bond sale. Alphabet shares are mostly flat Oracle rising
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Speaker 4: by about eight percent after the tech company received an
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Speaker 4: upgrade to buy from neutral from DA Davidson Grocery giant
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Speaker 4: Kroger named former Walmart executive Greg forn as its foran
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Speaker 4: as its next CEO. Kroger stock is up by six percent,
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Speaker 4: while Walmart's shares are dipping. And tomorrow morning, ahead of
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Speaker 4: the opening bell AstraZeneca, Coca Cola, BPCVS Health, Marriott, and
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Speaker 4: Spotify are among the names reporting their quarterly earnings. I'm
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Speaker 4: Tucker Silva and that is Wall Street Watch.
21:56
Speaker 2: So, as we noted, we do get the jobs report
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Speaker 2: for jan were coming out this week in two days
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Speaker 2: on Wednesday. Expectations are fairly muted, somewhere around forty to
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Speaker 2: seventy thousand jobs created. Unemployment rate expected to stay either
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Speaker 2: at four to four move up modestly to four point
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Speaker 2: five percent.
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Speaker 3: Average hourly earnings.
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Speaker 2: Expected to come in ato point three percent month over
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Speaker 2: month growth. And those are really the big ones that
22:23
Speaker 2: we get, you know, Street estimates for. So you got
22:27
Speaker 2: a piece here in Bloomberg that's talking about this. The
22:30
Speaker 2: headline is next to us job support will define just
22:33
Speaker 2: how much the labor market is slowing down or it won't.
22:36
Speaker 2: And this is gonna.
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Speaker 3: Be my point.
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Speaker 2: We have some potential signs of green shoots appearing in
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Speaker 2: the labor market in the last few weeks. I say
22:46
Speaker 2: potential because like a few weeks of good data does
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Speaker 2: not make a trend, and in fact, it's concentrated in
22:52
Speaker 2: a couple reports, and so I'm not even sure that
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Speaker 2: you can conclusively say there's anything happening yet, but it's
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Speaker 2: it's a maybe. And ooh, I think that we just
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Speaker 2: need to be open to the possibility that this Job's
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Speaker 2: report may start to show some of that improvement that
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Speaker 2: we've seen in the weekly jobless claims in payroll tax withholding,
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Speaker 2: because that data had been not great for really the
23:15
Speaker 2: last you know, the payroll tax withholding for the last
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Speaker 2: six months. The continuing jobless claims has been bad for
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Speaker 2: the last like two and a half three years, And
23:24
Speaker 2: so I'm open to the possibility that maybe we're starting
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Speaker 2: to see some improvement, but we need to start seeing
23:29
Speaker 2: it printing across more data sets than just the ones
23:33
Speaker 2: that we have had at this point.
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Speaker 3: So frankly, let's imagine for a moment that this Job's
23:38
Speaker 3: report comes in exactly at estimate which is around fifty
23:41
Speaker 3: thousand jobs created in four point four percent unemployment rate
23:44
Speaker 3: tells us literally nothing about the pace of change in
23:47
Speaker 3: the labor market. Sure, I think the percentage number that
23:51
Speaker 3: unemployment rate, to me is the most important one, as
23:54
Speaker 3: it has been for some time, because the job creation
23:56
Speaker 3: or job elimination numbers are difficult to context allies in
24:01
Speaker 3: the rapidly changing state of the labor market. As we've
24:04
Speaker 3: talked about, right, you do have far less immigration to
24:07
Speaker 3: the US, you have a lot of deportations, a lot
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Speaker 3: of retire reason, so that number is important to the
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Speaker 3: Federal Reserve when they're creating their models for the future.
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Speaker 3: But if you're trying to get a read on the
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Speaker 3: state of the labor market, the unemployment rate is the
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Speaker 3: most important one. And if it stays right at four
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Speaker 3: point four percent, which is where it was at the
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Speaker 3: last read and is around the highest it's been since
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Speaker 3: the recovery from COVID pandemic, I don't know that that
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Speaker 3: really tells you much. No, I guess it tells you
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Speaker 3: it hasn't worsened.
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Speaker 2: Yes, I think the reason why the headline job number
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Speaker 2: matters to me is just because, ultimately, to a certain extent.
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Speaker 2: We don't know the extent anymore, just because again, the
24:52
Speaker 2: sources of spending are changing with demographic shifts, in that
24:55
Speaker 2: there's a larger proportion of people that are retired now
24:59
Speaker 2: than before, and so their income and their spending isn't
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Speaker 2: as isn't dependent at all on employment the way that
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Speaker 2: it used to be. But there still is a large
25:09
Speaker 2: portion of the population that, Hey, in order to be
25:12
Speaker 2: able to spend money, you do need to earn it
25:14
Speaker 2: from a job, and so if you're seeing a slowdown
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Speaker 2: in payroll growth, it potentially points to a slow down
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Speaker 2: in spending growth. Is it a one to one ratio, No,
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Speaker 2: because there are other places that other people in the
25:27
Speaker 2: population can get spending power from. But it does still matter.
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Speaker 3: Yeah. I Mean what I was gonna say is, even
25:34
Speaker 3: if I got a bad read on that, right, let's
25:36
Speaker 3: say the unemployment rate stayed at four to four and
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Speaker 3: the job creation number came in at half, is what
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Speaker 3: is expected like twenty five thousand? Yeah, I think that
25:45
Speaker 3: I would still discount it because of what's coming up
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Speaker 3: here in the next couple of months, which we've talked
25:50
Speaker 3: about at length, a lot of big tax refunds, and
25:53
Speaker 3: so while you know, long term, if the trend line
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Speaker 3: is to no job creation, then yes, obviously we have
25:59
Speaker 3: some concerns about what people are going to be able
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Speaker 3: to spend and how they're going to do it, But
26:04
Speaker 3: not immediately immediately, I'm much more interested in, Okay, what
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Speaker 3: do people do with those juicy tax refunds that they get? Starting? Yeah,
26:14
Speaker 3: when did when did the tax filing open? Like a
26:16
Speaker 3: week and a half ago, So you know, starting in
26:18
Speaker 3: three weeks, we're going to start to see these really
26:20
Speaker 3: start pouring in. Yes, and that's going to be more
26:23
Speaker 3: telling to me than anything we learned in the job support. Uh.
26:27
Speaker 2: Then, also, I gotta tell you, like, I'm seeing all
26:32
Speaker 2: kinds of mixed signals now on hiring in terms of
26:37
Speaker 2: like how hard or how easy it is to find
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Speaker 2: a job right now. On one hand, you look at
26:42
Speaker 2: some of this and you got like a piece in
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Speaker 2: the Wall Street Journal, this is why it's so hard
26:45
Speaker 2: to find a job right now. I saw another piece
26:48
Speaker 2: somewhere this morning I can't remember where that people looking
26:52
Speaker 2: for jobs have gotten so desperate that they're paying headhunters
26:55
Speaker 2: to find them jobs. Yeah, later on is that okay? Yeah,
26:59
Speaker 2: I knew it was so I couldn't remember like where
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Speaker 2: it was. So in any case, you've got stuff like
27:05
Speaker 2: this that's like, oh, it's so hard to find a
27:07
Speaker 2: job right now, and then the same time you've got
27:12
Speaker 2: job openings by the indeed data ticking up. The Paycheck's
27:16
Speaker 2: Small Business Jobs index is ticking up a little bit
27:19
Speaker 2: in January, and so I'm just trying to reconcile these
27:24
Speaker 2: different things that we're seeing, and where I get to is, again,
27:29
Speaker 2: I think we may possibly be starting to see green shoots,
27:32
Speaker 2: but it's just too early for most people to notice.
27:35
Speaker 3: Yes, That's where I would land is. I haven't seen
27:37
Speaker 3: anything written by anybody saying, oh, look how easy it
27:40
Speaker 3: was to find a job. No, So I think I'm
27:44
Speaker 3: with you that we could be seeing indications of a
27:46
Speaker 3: thong in the labor market. Perhaps, you know, the job
27:49
Speaker 3: openings rate has hit its low and we're going to
27:53
Speaker 3: see some improvement going forward on there, but it hasn't
27:57
Speaker 3: been confirmed, and I definitely don't think people are feeling
27:59
Speaker 3: it in the actual labor market. And so for the
28:01
Speaker 3: time being, people are still feeling yesterday's news in the
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Speaker 3: labor market, which is weakening, a weakening job market, especially
28:10
Speaker 3: for those without a job, and it will take time
28:12
Speaker 3: to turn that nervous feeling that people are having. Just
28:18
Speaker 3: take a quick break.
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Speaker 2: When we return, we'll talk about what China is talking
28:22
Speaker 2: about when it comes to US treasuries.
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29:00
Speaker 2: We got a piece in Bloomberg this morning. China urges
29:03
Speaker 2: banks to curb exposure to US treasuries quote. Chinese regulators
29:09
Speaker 2: have advised financial institutions to rein in their holdings of
29:12
Speaker 2: US treasury, citing concerns over concentration risks and market volatility.
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Speaker 2: According to people familiar with the matter, officials urged banks
29:20
Speaker 2: to limit purchase of US government bonds and instructed those
29:23
Speaker 2: with high exposure to pair down their positions. That people said,
29:27
Speaker 2: asking not to be identified discussing private deliberations. The director
29:32
Speaker 2: does not apply to China's state holdings of US treasuries.
29:37
Speaker 2: So few different things as it relates to this. The
29:41
Speaker 2: first is that US treasuries have actually been remarkably calm
29:45
Speaker 2: over the last nine months or so, like, there really
29:49
Speaker 2: has not been very much wiggle in them at all.
29:54
Speaker 2: Taking a look at the ten year treasury and you know,
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Speaker 2: you go back to let's say May first, the low
30:02
Speaker 2: that we've seen is around three to nine four, the
30:04
Speaker 2: high is around four to six, and for most of
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Speaker 2: the time we've been between four to one and four four.
30:09
Speaker 2: That's actually a pretty tight range on treasury. So this
30:13
Speaker 2: is not really a volatility thing. What this is, in
30:17
Speaker 2: my opinion, is China setting up another nice little point
30:23
Speaker 2: of leverage in advance of some negotiations that are going
30:26
Speaker 2: to be happening in the next month or two.
30:28
Speaker 3: They did this exact same thing with rare earths, I
30:32
Speaker 3: believe it was before the last meeting between Trump, Trump
30:35
Speaker 3: and Shijingping and the whole again, the whole premise here
30:38
Speaker 3: is ratchet up, you know, potential conflict ahead of the
30:44
Speaker 3: meeting so that you have something very easy to negotiate away.
30:47
Speaker 3: Would the Chinese banks have any real legitimate concerns about
30:53
Speaker 3: banks buying more treasuries other than the concern everybody has,
30:57
Speaker 3: which is, well, the US could sanction us and we
31:00
Speaker 3: might have that problem. I don't think so.
31:02
Speaker 2: No, And if they were concerned, they wouldn't be holding
31:04
Speaker 2: two hundred ninety eight billion dollars worth of them right now.
31:07
Speaker 3: So not to say they don't have leverage over the situation,
31:11
Speaker 3: but this seems to me to be the reason that
31:13
Speaker 3: they are doing it. They're trying to ratchet up leverage.
31:15
Speaker 2: So I don't believe that this means that China actually
31:18
Speaker 2: thinks that there is a problem with holding US debt,
31:21
Speaker 2: because if you did think that, you wouldn't put out
31:25
Speaker 2: a directive like this. You would just sell it and leave.
31:28
Speaker 3: People to pick up the pieces later. Yeah.
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32:41
Speaker 2: Worsh calls for Fed Treasury accords. Worsh's call for Fed
32:45
Speaker 2: Treasury accords stirs debate in thirty trillion dollars bond markets.
32:50
Speaker 2: So what Kevin wars is talking about Worsh being the
32:54
Speaker 2: new pick for the Chair of the Fed, assuming he
32:58
Speaker 2: gets confirmed by the Senate is basically hey. The FED
33:04
Speaker 2: and the US Treasury Department at one point right after
33:08
Speaker 2: World War two worked together to try to manage the
33:14
Speaker 2: interest rate situation advantageously for the United States.
33:19
Speaker 3: Types of bonds that were issued, what maturity, how much,
33:22
Speaker 3: et cetera.
33:23
Speaker 2: Yes, it was eventually abandoned, largely because in the midst
33:28
Speaker 2: of trying to manage their way out of the fiscal
33:31
Speaker 2: largess of financing World War Two in the aftermath of it,
33:35
Speaker 2: at one point, annualized inflation hit north of twenty percent,
33:39
Speaker 2: and they said, oh, gee, this isn't really working anymore.
33:41
Speaker 2: And this ended up being when you know, the Breton
33:44
Speaker 2: Woods Accord Accord Breton Woods system came into effect, and
33:48
Speaker 2: so you had this whole post war economic system that
33:51
Speaker 2: came into effect. Then that worked until it didn't in
33:54
Speaker 2: the nineteen seventies.
33:56
Speaker 3: So is the idea It's been seventy five years, so
33:58
Speaker 3: we need to test out bad ideas well.
34:00
Speaker 2: It's unclear exactly what Worsh is talking about in terms
34:05
Speaker 2: of specifics here. Yeah, and I'll quote from Bloomberg, Neither
34:09
Speaker 2: Worsh nor Treasury Secretary Scott Beston has detailed what they
34:11
Speaker 2: may consider after the former Fed governor takes the helm.
34:14
Speaker 2: The nominee did say in a CNBC interview last year
34:18
Speaker 2: that in agreement could describe plainly and with deliberation what
34:21
Speaker 2: the Fed's balance sheet size would be with the Treasury
34:24
Speaker 2: laying out its debt issuance plans. So basically, would the
34:27
Speaker 2: Fed commit to buying certain levels of debt from the Treasury.
34:33
Speaker 2: The answer is, okay, they could do this. And again,
34:36
Speaker 2: there's no free lunch on this. There's a reason why,
34:40
Speaker 2: you know, these things tend to typically happen, and it's
34:43
Speaker 2: not because everything is all hunky dory.
34:45
Speaker 3: Here's one thing I'm pretty sure of. I don't think
34:48
Speaker 3: the incoming Federal Reserve chair is going to sign on
34:51
Speaker 3: to a new plan to limit his own ability to
34:55
Speaker 3: influence policy. Right. That could be one of the outcomes
35:00
Speaker 3: here is, hey, we want to give some more power
35:02
Speaker 3: to Treasury and give it away from the Federal Reserve
35:05
Speaker 3: more in favor of the Treasury. Do you know many
35:08
Speaker 3: appointed officials who are excited about giving away their own authority. No,
35:13
Speaker 3: So I don't find it likely that Warsh is going
35:15
Speaker 3: to go do that.
35:16
Speaker 1: No.
35:16
Speaker 2: Really, what this is talking about, and this is quote
35:19
Speaker 2: now from Tim Dewey, who's the chief economist at sgh Macroadvisors.
35:23
Speaker 2: Tim someone who I've followed on social media for like
35:26
Speaker 2: fifteen years. He's one of the best FED watchers around
35:28
Speaker 2: and knows his stuff. Rather than insulating the FED, it
35:32
Speaker 2: could look more like a framework for yield curve control,
35:35
Speaker 2: basically where the FED tries to control yields at all
35:39
Speaker 2: points along the yield curve, not just.
35:40
Speaker 3: The short term.
35:42
Speaker 2: A public agreement that synchronized the Fed's balance sheet with
35:45
Speaker 2: treasury financing explicitly ties monetary operations to deficits. And that
35:51
Speaker 2: was exactly what happened in a nineteen fifty one agreement.
35:53
Speaker 2: It went what bluh And that's exactly what the nineteen
35:57
Speaker 2: fifty one agreement brought to an end. F had capped
36:00
Speaker 2: both short and longer dated treasury yields during World War
36:03
Speaker 2: Two in its aftermath to hold down borrowing costs. But
36:06
Speaker 2: that recipe because post war inflation to soar. However, and
36:10
Speaker 2: so this is the risk is if you already have
36:13
Speaker 2: enough aggregate demand and now you you know, lower borrowing costs,
36:17
Speaker 2: either to try to manage, you know, things from an
36:21
Speaker 2: expense perspective from the US Treasury Department, or to try
36:24
Speaker 2: to get you know, housing, you know, payments down and
36:26
Speaker 2: things like that. It potentially unleashes more demand than you
36:29
Speaker 2: have the constructive capacity to cover, and that's how you
36:32
Speaker 2: end up with inflation. So that's the potential concern on
36:36
Speaker 2: this filed in your back pocket. We don't have any specifics.
36:40
Speaker 2: Worsh is not yet confirmed. We'll take a look at
36:43
Speaker 2: it if it gets to that point, but this is
36:44
Speaker 2: just something that's being talked about and we'll see what happens.
36:48
Speaker 2: I ultimately don't know if anything actually comes of this.
36:51
Speaker 3: I think there's just a lot to be said that
36:53
Speaker 3: we just don't know about what Kevin Worsh is going
36:56
Speaker 3: to do. He has been a hyper fed critic, but
37:01
Speaker 3: almost exclusively when Democrats are under you know, are in
37:05
Speaker 3: control of the White House, and so I just don't
37:09
Speaker 3: have a firm understanding of what his viewpoint is going
37:12
Speaker 3: to be as he takes over at the Federal Reserve,
37:16
Speaker 3: because his philosophy pretty consistently over the last fifteen years
37:20
Speaker 3: has been for the FED to interfere a little bit
37:24
Speaker 3: less in overall markets. And he's also, I think arguably
37:28
Speaker 3: been very much in favor of focusing on the inflation
37:32
Speaker 3: portion of the dual mandate. I have no idea what
37:36
Speaker 3: that is going to carry over for twenty twenty six
37:39
Speaker 3: and KNW Kevin Worship pointed to the chairperson.
37:42
Speaker 2: Yeah, I think we're gonna have to see what the
37:45
Speaker 2: actual activity looks like, what the mix looks like. And again,
37:51
Speaker 2: so much gets talked about before someone comes into one
37:53
Speaker 2: of these positions, and ultimately a lot of it tends
37:57
Speaker 2: to be noise and you have to see how they
37:58
Speaker 2: actually act as opposed to what they're see saying in
38:00
Speaker 2: the run up to it.
38:01
Speaker 3: Let's take a quick break here.
38:03
Speaker 2: We have our two of the Financial Exchange coming up
38:07
Speaker 2: just a little bit