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What recent jobs data is telling us about the economy · The Financial Exchange Show

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Speaker 2: Good morning, Happy Thursday, Welcome back to the Financial Exchange.
1:15
Speaker 2: It is a jobs week here on the Financial Exchange.
1:17
Speaker 2: Even though that that headline got a bit disrupted this
1:20
Speaker 2: week from other news that has been making headlines. I'm
1:23
Speaker 2: not even only talking about Venezuela, because we've got a
1:25
Speaker 2: bunch of juicy bits from the President yesterday on all
1:29
Speaker 2: sorts of different areas of the economy, from housing to
1:32
Speaker 2: to the functioning of the stock market, so we'll be
1:34
Speaker 2: diving in there. We got the Jolt report yesterday, initial
1:38
Speaker 2: jobless claims this morning, and we will have a full
1:41
Speaker 2: on monthly jobs report tomorrow morning. All this with the
1:46
Speaker 2: backdrop of a labor market that has undoubtedly been weakening
1:49
Speaker 2: over the last several years, and been showing that throughout
1:52
Speaker 2: the course of the last several Really, at any data
1:55
Speaker 2: point you look at, whether it's the unemployment rate, the
1:58
Speaker 2: pace of job hiring. The only one that really hasn't
2:01
Speaker 2: consistently flashed warning signs would be the pace of layoffs.
2:05
Speaker 2: But that oftentimes doesn't. It oftentimes shows up when you're
2:08
Speaker 2: in a truly.
2:09
Speaker 3: Bad uh, you know, and rapping all claims. Yeah, first
2:13
Speaker 3: time claims for un employment, which you.
2:14
Speaker 4: Have been quite low and suggestive of a strong labor market.
2:18
Speaker 3: Correct.
2:19
Speaker 4: Yeah, so sorry you said that, But that's that's the
2:22
Speaker 4: real puzzle because of their frequency and their superiority according
2:26
Speaker 4: to some as a as a forecast.
2:28
Speaker 2: Yeah, they are more rapid in terms of when they
2:30
Speaker 2: come out, and so that that does give you some
2:33
Speaker 2: more up to date information. But I think if you
2:36
Speaker 2: take it in the context of what we saw and
2:40
Speaker 2: what we ended up defining last year when people were
2:43
Speaker 2: losing their minds over the sum rule recession indicator and
2:46
Speaker 2: and all these factors, if we take it in the
2:48
Speaker 2: context of a labor market that, rather than in free fall,
2:51
Speaker 2: is one that has been normalizing after in exceptionally tight
2:56
Speaker 2: period of time during twenty twenty one, twenty twenty two,
2:59
Speaker 2: and most of twenty twenty three, then maybe this is
3:03
Speaker 2: actually normal for jobless claims and we're still during that
3:06
Speaker 2: normal still seeing that normalization period. I would love that
3:10
Speaker 2: answer because it means that we might not be heading
3:12
Speaker 2: for a recession. It's also pretty abnormal for that to happen.
3:15
Speaker 4: Well, there's evidence for that. GDP growth was quite strong
3:19
Speaker 4: in the second and quite strong as an understatement. It
3:22
Speaker 4: was unnaturally strong in the second and third quarter. The
3:26
Speaker 4: JILT report that you refer to that we get data
3:28
Speaker 4: on yesterday, the ratio of vacancies to people available to
3:33
Speaker 4: fill those vacancies has come down from about two to
3:37
Speaker 4: about one. So it's come down by fifty percent. But
3:40
Speaker 4: in historical terms, Mike, because you know, it's still quite
3:44
Speaker 4: i'll say robust, it's much higher than it was in
3:47
Speaker 4: the mid twenty tens, about as high as it was
3:50
Speaker 4: in the late twenty tens. We got productivity data this
3:54
Speaker 4: morning that suggests that productivity exploded in the third quarter
3:59
Speaker 4: roughly five percent annualized rate. Last time we saw that
4:03
Speaker 4: was a couple of years ago, so it's not unprecedented,
4:06
Speaker 4: but it's suggestive of a vigorous economy. Trade deficit is falling.
4:12
Speaker 4: That's a slightly different matter that maybe we'll talk about later.
4:16
Speaker 2: So let's talk about the job data that we've gotten
4:19
Speaker 2: so far and kind of jump in here.
4:21
Speaker 3: I just saw a headline flash against a long.
4:23
Speaker 2: Bloomberg that futures are falling after a worse than expected
4:27
Speaker 2: weekly jobless claims report. I don't see anything worse than
4:29
Speaker 2: expected here. Initial claims did increase slightly by eight thousand.
4:32
Speaker 2: They came in a two hundred and eight thousand for
4:35
Speaker 2: the week ending January third. Previous level was revised up
4:39
Speaker 2: slightly from one hundred and ninety nine to two thousand.
4:42
Speaker 3: This is a.
4:43
Speaker 2: Very low and slow pace of jobless claims. Just to
4:47
Speaker 2: be set the context here, this is the lowest level
4:51
Speaker 2: for this average that we've seen for the last four
4:54
Speaker 2: weeks since April of twenty twenty four. So this is
4:57
Speaker 2: a non concerning report.
4:59
Speaker 1: I mean to look, I'm not.
5:00
Speaker 4: Saying the economy isn't slowing. And another headline is flashing Moran,
5:04
Speaker 4: the president's puppet on the FED Board of Governors, wants
5:09
Speaker 4: one hundred and fifty one point five percentage point cut
5:12
Speaker 4: in the federal funds rate.
5:13
Speaker 3: Which is cursively this year triple what markets are using.
5:17
Speaker 4: So he's to call it out like. Look, he again
5:20
Speaker 4: is the president's tody on the FED Board. You could
5:22
Speaker 4: say you like that or you don't. You could say
5:23
Speaker 4: you want the president to control monetary policy or you don't.
5:26
Speaker 4: That's a slightly different matter, but he's an outlier. There's
5:29
Speaker 4: nothing to suggest the economy needs effectively emergency support from
5:33
Speaker 4: the Federal reserve right now, especially considering that inflation, though
5:37
Speaker 4: it has come down a lot in the past couple
5:38
Speaker 4: of years, remains elevated relative to the Fed goal.
5:41
Speaker 3: So the weekly job is claims number no concerns there.
5:44
Speaker 2: Layoffs do not appear to be happening in Massa in
5:46
Speaker 2: spite of challenger grand Christmas predictions all from last year,
5:51
Speaker 2: of all the announced layoffs hitting the highest levels in years,
5:54
Speaker 2: we just haven't seen it in the real data. So
5:56
Speaker 2: I'm going to dismiss that one jolt support out yesterday.
6:00
Speaker 2: Weakest pace of job openings in fourteen months, I believe it.
6:05
Speaker 3: It's a level is.
6:06
Speaker 4: We don't really look at that level level. I know
6:09
Speaker 4: you know that, but yeah, but it's still nearly one
6:13
Speaker 4: for one. That is the number of vacancies to the
6:15
Speaker 4: number of unemployed people, which pre COVID would have been
6:19
Speaker 4: considered indicative of strength.
6:21
Speaker 2: So I think on the side of job as claims,
6:24
Speaker 2: no trend for an indication of layoffs. On the side
6:27
Speaker 2: of job openings, some indication of a weakening over the
6:32
Speaker 2: last fourteen months.
6:34
Speaker 4: But relative, like your relative, I like your term normalization, Mike.
6:39
Speaker 4: The labor market was feverishly hot under COVID and that
6:42
Speaker 4: pushed up helped to push up inflation.
6:44
Speaker 2: Final data point we will be getting on the labor
6:47
Speaker 2: market is tomorrow, So tomorrow we'll be getting that jobs report,
6:50
Speaker 2: the all important Jobs report. Two surveys that get put
6:53
Speaker 2: together will tell us information about how many people are
6:56
Speaker 2: looking for work, what is the unemployment rate. They're going
6:59
Speaker 2: to be doing a household or they've already conducted a
7:01
Speaker 2: household of surveys, a separate household sorry, a separate survey
7:05
Speaker 2: of households, and then a separate survey of businesses to
7:09
Speaker 2: get us a combination of how many companies hired people
7:13
Speaker 2: in the aggregate, how many people were hired in the
7:16
Speaker 2: month of December, and combine that with how many people
7:20
Speaker 2: were looking for work, how many people had jobs, give
7:22
Speaker 2: us that unemployment rate that likes to get focused on
7:25
Speaker 2: quite a bit, and the FED is quite focused on
7:28
Speaker 2: expectations that I am seeing median forecast for jobs created
7:32
Speaker 2: to come in at seventy three thousand for the month
7:35
Speaker 2: of December, pretty low number compared to where we've been
7:39
Speaker 2: for the last several years. I think, you know, if
7:41
Speaker 2: you look at a chart of this, we probably averaged
7:43
Speaker 2: what three to four hundred thousand back in twenty twenty three,
7:47
Speaker 2: one hundred and fifty to two hundred thousand and twenty four,
7:49
Speaker 2: and then you know below one hundred thousand for twenty
7:53
Speaker 2: twenty five, So clearly a trend line that you can
7:55
Speaker 2: draw there, and the unemployment rate expected to come at
7:58
Speaker 2: four and a half percent, coming down slightly actually from
8:01
Speaker 2: four point six percent of the previous month. Anything else
8:04
Speaker 2: to say about expectations for tomorrow's jobs report. I think
8:08
Speaker 2: the context of all of this is it's some of
8:10
Speaker 2: the first normal reports that we should be getting following
8:13
Speaker 2: the government shutdown. And while there might be some small
8:16
Speaker 2: lingering effects of that government shutdown in these reports, generally speaking,
8:20
Speaker 2: we're getting a normalization.
8:21
Speaker 4: I'd say, don't get too bogged down in the details.
8:24
Speaker 4: The critical thing it depends on what you're using this
8:27
Speaker 4: data for. If you're just trying to forecast unemployment because
8:30
Speaker 4: that's your job, and there are some economists who just
8:32
Speaker 4: do that for big banks, etc. Then you are very
8:36
Speaker 4: concerned with every tenth of a percentage point. The bigger
8:39
Speaker 4: picture here is that unemployment in the fours or fives,
8:43
Speaker 4: assuming it's not going up or down dramatically, is historically speaking,
8:49
Speaker 4: I was gonna say, good, it's never good that anybody
8:51
Speaker 4: who wants work can't find it, But that's indicative of
8:54
Speaker 4: a strongly Anything in the fours or fives would be
8:56
Speaker 4: consistent with a strong labor market.
8:59
Speaker 3: Yeah, and I think that's some context.
9:01
Speaker 2: I was spaking with somebody this morning who you know,
9:04
Speaker 2: was talking to their daughter and their friends are all
9:07
Speaker 2: struggling to find jobs in their area. And we hear
9:10
Speaker 2: this repeated a lot that younger Americans right now, especially
9:13
Speaker 2: in the white collar workforce, are struggling to find work.
9:17
Speaker 2: AI is getting blamed, But honestly, I really look at
9:21
Speaker 2: this and think that that is much more indicative of
9:24
Speaker 2: just what we are experiencing, which is the pace of
9:27
Speaker 2: change matters. We came off of an extraordinarily tight labor
9:30
Speaker 2: market a few years ago. It has now loosened. It's
9:34
Speaker 2: loosened to a point that historically is pretty normal, but
9:38
Speaker 2: compared to where we were a few years ago, that
9:41
Speaker 2: is pretty abnormal, and people are feeling the effects.
9:44
Speaker 4: Yes, we might have to get used to unemployments being
9:47
Speaker 4: it may settle down somewhere in the in the fives.
9:50
Speaker 4: If there is indeed a productivity revolution, propelled by AI underway,
9:54
Speaker 4: we'll need fewer people to do stuff as the economy
9:58
Speaker 4: is currently organized, re organize around different goods and services,
10:02
Speaker 4: and jobs will shift, but that transition could be disruptive.
10:07
Speaker 4: That sounds like a very cold way of saying that
10:10
Speaker 4: people may not find jobs as quickly as they'd like.
10:12
Speaker 4: It sounds callous, but that's just kind of the reality.
10:15
Speaker 4: And this morning's productivity numbers are supportive. I'm not sure
10:18
Speaker 4: I buy it, but they're supportive of that idea.
10:22
Speaker 3: Let's take a quick break.
10:23
Speaker 2: When we come back, a little bit more on the
10:25
Speaker 2: state of the labor market, minimum wage changes, and then
10:27
Speaker 2: I want to get over to the housing market after that.
10:29
Speaker 3: Next on the Financial Exchange.
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11:35
Speaker 2: I always find it interesting, but we are broadcasting right
11:37
Speaker 2: now from Massachusetts, which has a slightly higher than average
11:41
Speaker 2: unemployment rate. The average unemployment rate across the country in
11:44
Speaker 2: November was four point six percent. I'm counting one, two, three, four, five, six, seven,
11:49
Speaker 2: eight nine ten states sorry, ten states including the District
11:54
Speaker 2: of Columbia that are over that rate. Massachusetts very slightly
11:59
Speaker 2: higher at four point seven percent, along with Alaska, Kentucky,
12:03
Speaker 2: Delaware in at four nine, Michigan and at five, Nevada
12:06
Speaker 2: at five two, Oregon at five to two, New Jersey
12:09
Speaker 2: at five four, California at five five, and d c
12:13
Speaker 2: Up at six point five percent.
12:15
Speaker 3: I frankly, you know I talked about at the beginning
12:17
Speaker 3: of last year.
12:18
Speaker 2: How M, some of the policies from the Trump administration
12:21
Speaker 2: surrounding grants for higher education as well as medical research
12:26
Speaker 2: out of those universities could hit the Massachusetts economy a
12:31
Speaker 2: little bit harder than others. I don't know that this
12:34
Speaker 2: evidence really supports that, right. If we're seeing an unemployment
12:37
Speaker 2: rate that's one tenth of a percent higher than the
12:40
Speaker 2: national average, I don't know that it does anything to.
12:42
Speaker 4: Do a year you have, Sorry, I don't have the data.
12:45
Speaker 4: Where was it.
12:45
Speaker 3: The pace of change for the Massachusetts unemployment rate has a.
12:49
Speaker 4: Change greater, a lot faster, So maybe hard to tease
12:53
Speaker 4: out other factors though, like you said.
12:55
Speaker 3: Yeah, it tends to be.
12:57
Speaker 2: But I think you know, when we talk about, hey,
12:59
Speaker 2: how are you feeling about the state of the economy,
13:01
Speaker 2: this between gas prices and in the unemployment rate in
13:04
Speaker 2: your area, those two factors play a big role in
13:07
Speaker 2: how you're thinking about things. For instance, in Hawaii, South
13:10
Speaker 2: and North Dakota you've got unemployment rate under three percent.
13:14
Speaker 2: I'm guessing it feels like a pretty darn good labor
13:16
Speaker 2: market there, whereas if you're in California you're looking at
13:19
Speaker 2: something at five and a half percent. It is a
13:21
Speaker 2: very different situation depending on where you're looking at.
13:24
Speaker 4: Yeah, I don't know. It depends Like you said, it
13:25
Speaker 4: depends on what's typical, And I said tease out and
13:29
Speaker 4: meant to say control for other factors, like there might
13:31
Speaker 4: be some weather related event or some industry specific, non
13:35
Speaker 4: government policy related shock that hits Massachusetts or California especially hard.
13:41
Speaker 4: California might have a structurally higher unemployment rate because their
13:44
Speaker 4: benefits are more generous. Europe has a structurally high unemployment rate,
13:49
Speaker 4: maybe partly for that reason. So I don't know what
13:53
Speaker 4: the baseline should be like. Is California's unemployment rate of
13:57
Speaker 4: five point five percent? Is that intolerably high? Policymakers be
14:00
Speaker 4: doing something or is there something about the structure of
14:02
Speaker 4: their economy.
14:03
Speaker 3: That makes that normal that results.
14:05
Speaker 4: In unemployment settling on somewhere.
14:07
Speaker 3: Like a twenty dollars fast food minimum wage, for.
14:10
Speaker 4: Instance, Something like yeah, we're going to talk about the
14:12
Speaker 4: minimum wage. Probably doesn't help on him. It may not
14:15
Speaker 4: hurt employment, the jury will probably always be out on that,
14:19
Speaker 4: but it almost certainly doesn't help unemployment if your goal
14:21
Speaker 4: is to get it down.
14:23
Speaker 2: So frequently we'll cover policies that get rolled out state
14:26
Speaker 2: by state level that we find ludicrous and bad for
14:29
Speaker 2: the economy, and California's fast food minimum wage is one
14:32
Speaker 2: of them that we've loved to criticize over the last
14:34
Speaker 2: several years.
14:35
Speaker 3: President Trump proposed.
14:36
Speaker 2: A new variable in the housing market yesterday, and I'm
14:41
Speaker 2: going to try and control Mark here, because markets, especially,
14:45
Speaker 2: I think upset about these types of policies. I'm a fanatic,
14:49
Speaker 2: especially when they come from Republicans, I.
14:51
Speaker 4: Think because I expect more from them. President history, I've
14:54
Speaker 4: given up on them, but I used to expect more
14:55
Speaker 4: from Republicans.
14:56
Speaker 2: Precise Mark, I think holds Republicans in particular to a
15:01
Speaker 2: very high bar when it comes to.
15:02
Speaker 4: Because I used to give them money because they were
15:04
Speaker 4: a free market party. Now I want it back.
15:07
Speaker 3: Yeah.
15:07
Speaker 2: So the President proposed yesterday the idea of preventing large
15:14
Speaker 2: institutional institutional buyers from being able to purchase single family residences. Okay,
15:22
Speaker 2: let's just take that policy on its face. It is
15:25
Speaker 2: not a new idea. It has been floated among many
15:29
Speaker 2: circles and many politicians for.
15:30
Speaker 3: Years, although primarily from pretty far left leaning politicians.
15:34
Speaker 2: I've heard this echoed from Bernie Sanders and Elizabeth Warren
15:38
Speaker 2: for years now, and it is being proposed by the
15:42
Speaker 2: President at this point in time, which again maybe not
15:46
Speaker 2: surprising given the populace push within.
15:48
Speaker 3: The Republican Party right now. I don't really want to
15:50
Speaker 3: get into the politics. That's fair but not surprising.
15:52
Speaker 2: I don't think let's talk about the merits of the conversation, though,
15:56
Speaker 2: because that's where I want to go to, because it's
15:58
Speaker 2: a pretty clear line that I think is trying to
16:02
Speaker 2: be drawn here on the factors that affect prices, which is,
16:07
Speaker 2: if you want to bring prices down, generally speaking, you
16:10
Speaker 2: can find a way to lower demand or you can
16:12
Speaker 2: increase supply. Is that the I mean, the basic fundamental
16:15
Speaker 2: of where you get prices supply any market. And the
16:19
Speaker 2: idea here is, well, this is a pretty easy way,
16:23
Speaker 2: a pretty populist way to hit at demand.
16:27
Speaker 3: So why do you view this as.
16:30
Speaker 4: I know, why would you use I mean, my first
16:32
Speaker 4: reaction was that's probably anyone who's ever looked at institutional activity.
16:36
Speaker 4: Institutional activity means Goldman, Sachs and Blackstone and others buying
16:41
Speaker 4: single family homes. Let me say, first of all, I'm
16:44
Speaker 4: uncomfortable with the idea because we bail these institutions out
16:47
Speaker 4: every time there's a market downturn, and we're bailing them
16:49
Speaker 4: out with FED policy every day. So we coddle these institutions,
16:53
Speaker 4: then we allow them to buy up single family homes.
16:56
Speaker 4: Ideally they'd fail, like a bunch of them would have
16:59
Speaker 4: gone out of business in two and eight. You can
17:01
Speaker 4: tell I'm still indignant about the Great Recession in the
17:03
Speaker 4: way we coddled big banks. Now they get to go
17:06
Speaker 4: in and buy up single family homes. Now, on the margin,
17:09
Speaker 4: they're probably not pushing up prices. Nobody's ever found evidence
17:12
Speaker 4: of that, but.
17:12
Speaker 2: It's estimated that they own about half a percent of
17:15
Speaker 2: the TNS single family But you know.
17:19
Speaker 4: The techniques used to tease out the effects of one
17:26
Speaker 4: class of buyers versus another aren't perfect, So I find
17:30
Speaker 4: it hard to believe that on the margin in some
17:32
Speaker 4: markets they might not be putting a floor under prices
17:35
Speaker 4: or buying them up. What I want to say, like is,
17:37
Speaker 4: during the next financial crisis, I want all these institutions
17:39
Speaker 4: to fail. I don't want to freak and bail them
17:40
Speaker 4: out again. And I want all these houses to come
17:42
Speaker 4: on the market and sell for pennies on the dollar
17:44
Speaker 4: that would make me feel better. That is a first
17:47
Speaker 4: best solution would be just let the market work, not
17:51
Speaker 4: start to pick and choose who gets to buy houses
17:54
Speaker 4: who doesn't. Then who we're going to bail out during
17:56
Speaker 4: the next crisis, which they brought on in the first place.
17:58
Speaker 4: It's one damn intervation. And forgive me for using the
18:02
Speaker 4: radio version of vulgarity during my little diet tribeer, but
18:06
Speaker 4: one intervention begets another. And if I sound like Rand Paul,
18:10
Speaker 4: it's because I'm trying to He's absolutely right with respect
18:13
Speaker 4: to this stuff. Government's just got to stop futzing with
18:17
Speaker 4: things because it just creates more problems for government to
18:19
Speaker 4: step in and solve.
18:20
Speaker 2: So one, I go back to my same thesis. Americans
18:26
Speaker 2: don't want cheaper houses because if you make houses cheaper,
18:30
Speaker 2: it means that the value of your current home goes down.
18:34
Speaker 3: I want that, though, because.
18:36
Speaker 2: I want to sell my home someday my kids.
18:39
Speaker 3: To have a more valuable home. Like we see this
18:41
Speaker 3: in the way people vote over and over again.
18:44
Speaker 4: Some of us who plan on staying in our homes
18:46
Speaker 4: for a while don't care about the value, not certainly,
18:49
Speaker 4: not today. I want some appreciation ideally I'd like to
18:51
Speaker 4: recoup some of my I don't want to. Yeah, well,
18:55
Speaker 4: the word investment was on the tip of my tongue,
18:57
Speaker 4: but I'm not sure I think about my house that way.
18:58
Speaker 4: I think about it as a source of income. I'm
19:01
Speaker 4: paying myself rent.
19:03
Speaker 1: Go ahead.
19:03
Speaker 2: Suffice to say, I don't think we did this story
19:09
Speaker 2: justice yet. I think we have to come back to it.
19:11
Speaker 2: But we're hard up against a break. We're gonna take
19:12
Speaker 2: a quick break. Wall Street Watch is coming up next
19:15
Speaker 2: that I want to continue to debate this topic of
19:18
Speaker 2: should large corporations be able to buy single family homes?
19:22
Speaker 2: Is there some merit to what the president is talking
19:24
Speaker 2: about and what would be the effects on the housing market.
19:26
Speaker 2: That's next on the Financial Exchange.
19:40
Speaker 1: Like us on Facebook and follow us on Twitter at
19:43
Speaker 1: TFE show. Breaking business news is always first right here
19:47
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:52
Speaker 1: Street Watch, a complete look at what's moving markets so
19:55
Speaker 1: far today right here on the Financial Exchange Radio Network.
19:59
Speaker 5: After yesterday's pullback, Marc is today are mixed as traders
20:03
Speaker 5: digest jobless claims data and ready for tomorrow's all important
20:07
Speaker 5: jobs report for the month of December. Right now, the
20:11
Speaker 5: Dow is up three tenths of a percent, or one
20:13
Speaker 5: hundred and forty three points. SMP five hundred is now
20:16
Speaker 5: completely flat, Nasdaq off by half a percent, one hundred
20:20
Speaker 5: and twenty two points lower, Russell two thousand is up
20:23
Speaker 5: seven cents of a percent, ten Your Treasure reeled up
20:26
Speaker 5: four basis points at four point one seven nine percent,
20:29
Speaker 5: and crude oil up one and a half percent higher
20:32
Speaker 5: trading of fifty six dollars and eighty four cents a barrel.
20:35
Speaker 5: Several defense stocks are rallying after President Trump called for
20:39
Speaker 5: a one and a half trillion dollar defense budget in
20:41
Speaker 5: twenty twenty seven, a significant increase from the nine hundred
20:45
Speaker 5: and one billion dollars approved by Congress in twenty twenty six.
20:48
Speaker 5: Lockheed Martin and Northrop Grumman are up by seven percent,
20:52
Speaker 5: while RTX shares are climbing over three percent higher. Meanwhile,
20:56
Speaker 5: Applied Digital stock is jumping fourteen percent after the AI
20:59
Speaker 5: in structure company beat earnings expectations for its most recent
21:04
Speaker 5: quarter and also saw its revenue roughly triple. Elsewhere, the
21:07
Speaker 5: maker of Modello and Corona Constellation brands reported lower quarterly
21:12
Speaker 5: sales in profit as customers continued to buy less beer. However,
21:16
Speaker 5: the results did beat expectations. Shares are up by six percent.
21:21
Speaker 5: According to Bloomberg, China plans to reprove some imports of
21:24
Speaker 5: Nvidia's H two hundred SCHIPs as soon as this quarter,
21:27
Speaker 5: and video shares are down by one percent. CrowdStrike announced
21:30
Speaker 5: that it is buying identity management startup SGNL and a
21:35
Speaker 5: deal valued at nearly seven hundred and forty million dollars.
21:38
Speaker 5: CrowdStrike shares are down by two percent, and Apple shares
21:43
Speaker 5: they're off by over one percent. Following news that JP
21:46
Speaker 5: Morgan Chase has reached a deal to take over the
21:49
Speaker 5: Tech Giants credit card program from Goldman Sachs. I'm Tucker
21:52
Speaker 5: Silva and that is Wall Street Watch.
21:54
Speaker 2: So back to the housing market for a moment again. Yesterday,
21:57
Speaker 2: the President floated the idea of banning law our institutional
22:00
Speaker 2: buyers from owning single family or I don't know if
22:03
Speaker 2: it's owning or buying single family homes.
22:06
Speaker 3: I think it might have been buying single family homes
22:10
Speaker 3: to diest.
22:11
Speaker 2: I would think not that'd be an extreme that'd be
22:13
Speaker 2: an extreme.
22:14
Speaker 3: Measure, although that would be interesting.
22:18
Speaker 2: You have until December thirty, first of this year to
22:20
Speaker 2: divest of all of your single Yeah, that that'd be
22:22
Speaker 2: pretty messy. So in the aggregate, this is a a
22:30
Speaker 2: government cost free method of reducing demand in the housing market. Right.
22:34
Speaker 2: It doesn't cost the government to anything to say hey,
22:38
Speaker 2: if you are a corporation with more than X number
22:42
Speaker 2: of dollars or employees or however they determine large corporate buyer,
22:46
Speaker 2: to say you can't do this anymore. So I'm guessing
22:49
Speaker 2: it appeals from that perspective. It certainly appeals from a
22:52
Speaker 2: populist area where Okay, if I'm you know, if I'm
22:55
Speaker 2: trying to buy a home and I lose out to Blackstone,
22:58
Speaker 2: I probably don't feel all that good, and so I
23:01
Speaker 2: might be in favor of this. I don't know what
23:04
Speaker 2: it does to home builder sentiment, but it can't be
23:06
Speaker 2: anything good.
23:07
Speaker 1: Right.
23:08
Speaker 2: We've seen the likes of lenaar and other big home
23:12
Speaker 2: builders as of late saying hey, we are really pulling
23:15
Speaker 2: back on home building because we just do not see
23:18
Speaker 2: any good scenarios for pricing. If you immediately eliminate one
23:22
Speaker 2: of the large buyers of homes, then that's not going
23:25
Speaker 2: to help with sentiments. You might have a slower pace
23:27
Speaker 2: of home building. So I'm not convinced that this method
23:31
Speaker 2: immediately brings down home prices. I would be very hesitant
23:35
Speaker 2: to believe that that's the case. The other thing I'm
23:37
Speaker 2: just wondering about is I wonder how big of a
23:41
Speaker 2: role these corporate institutional buyers of homes actually played in
23:46
Speaker 2: times like twenty ten. Because that's what immediately came to
23:48
Speaker 2: mind for me, is I know Plenty has been criticized
23:53
Speaker 2: by what was the firm that Manuchin led back during
23:59
Speaker 2: the Great Financial Crisis was buying up properties like crazy on,
24:02
Speaker 2: you know, for pennies on the dollar.
24:04
Speaker 3: I don't recall, but I don't remember.
24:06
Speaker 2: It certainly led to some stability back in the twenty
24:10
Speaker 2: tens of Hey, here is a buyer that actually has
24:13
Speaker 2: cash to go out and buy homes, whereas the overall
24:15
Speaker 2: market was a free fall. And so I do just wonder, Hey,
24:18
Speaker 2: by removing a potential buyer of homes, do you create
24:23
Speaker 2: more I guess, more volatility and more downward pressure? Is
24:27
Speaker 2: it a less liquid market? And I think the answer
24:30
Speaker 2: would be would have to be yes. If you're removing
24:31
Speaker 2: a potential buyer, you were creating a less liquid market.
24:34
Speaker 3: For homes. Do I think it's the worst idea in housing?
24:38
Speaker 2: No, I guess I think this is less bad than say,
24:42
Speaker 2: the government subsidizing the cost for mortgages, or you know
24:46
Speaker 2: something else that's been floated around there, artificially bringing down
24:49
Speaker 2: interest rates for buyers for a period of time. I
24:52
Speaker 2: think this is less responsible or less irresponsible than that idea.
24:57
Speaker 2: But we keep going back to housing affordability and what
25:00
Speaker 2: are the problems? And the problems are that we don't
25:01
Speaker 2: build enough homes for the number of people that want
25:04
Speaker 2: to own them, and so I go back to this
25:08
Speaker 2: over and over. We need less regulation in housing, not more.
25:11
Speaker 2: This is more regulation in housing. I don't think it
25:14
Speaker 2: fixes any of the problems that we're experiencing. I don't
25:17
Speaker 2: think it leads to more home construction, which is what
25:19
Speaker 2: we ultimately need. And if you want to make homes
25:22
Speaker 2: more affordable, then the method is create the conditions for
25:26
Speaker 2: a freer market where builders want to build more homes.
25:31
Speaker 4: Yeah. I mean, I'm looking frantically here for recent some data,
25:35
Speaker 4: just academic quality, you know, peer reviewed studies on the
25:40
Speaker 4: impact of institutional buyers, and the results are as they
25:42
Speaker 4: often are with statistical analyzes ambiguous. It's not even clear
25:49
Speaker 4: what your best guess would be, what your best guess
25:52
Speaker 4: should be if you were told a large potential buyer
25:55
Speaker 4: will be removed from the market, because you can't just
25:57
Speaker 4: Pauline and I were talking about this yesterday. When you're
26:00
Speaker 4: analyzing the effects of any policy or the action of
26:04
Speaker 4: any one participant in a market, you can't just look
26:06
Speaker 4: at that in isolation, because other things are changing too.
26:09
Speaker 4: If we did remove institutional buyers from the market, it's
26:13
Speaker 4: possible others I don't know, sovereign wealth funds would step in,
26:17
Speaker 4: or some difficult to anticipate change in the way other
26:22
Speaker 4: participants in the market behave would take place. So it's
26:25
Speaker 4: very hard to say x Anti beforehand how things will
26:29
Speaker 4: turn out. So I don't really know, Mike, I mean
26:32
Speaker 4: the free market Iatola in me says, stop messing with
26:39
Speaker 4: the decisions of individuals, whether that be corporations or people
26:44
Speaker 4: like us, and just let markets work. If you think
26:47
Speaker 4: houses are unaffordable, then make it easier for people to
26:50
Speaker 4: afford everything by say, shifting the tax burden from income
26:53
Speaker 4: to consumption or something. Now that would push up the
26:57
Speaker 4: prices of some goods, So maybe that's in perfect solution,
27:01
Speaker 4: so that the economic prediction, what prediction you should make
27:05
Speaker 4: if you're using an economic framework here is just not
27:08
Speaker 4: clear to me, nor is it clear to some of
27:10
Speaker 4: the research that I'm again frantically standing here no, because
27:14
Speaker 4: I mean, this is added but you're a you're adding
27:17
Speaker 4: rental supply by letting institutional investors buy. They're adding rental supply,
27:21
Speaker 4: so it helps renters.
27:22
Speaker 2: But my point would be blocking the institutional buyers to me,
27:26
Speaker 2: is additional regulatory burden in a housing market that all
27:29
Speaker 2: arguably already has too much.
27:30
Speaker 4: And also, how do you do that legally? How do
27:32
Speaker 4: you tell one class of buyers you can participate in
27:35
Speaker 4: this market, but another class of buyers who happen to
27:37
Speaker 4: be corporations, which under the law have are afforded the
27:40
Speaker 4: same privilegeous protections, et cetera. Right corporations, whether we like
27:45
Speaker 4: it or not, do possess the same economic rights as people.
27:49
Speaker 4: You can't stop them from going. So how exactly what
27:52
Speaker 4: are you gonna And doesn't Congress the president can't.
27:54
Speaker 3: I know, the Congress would have to do. Maybe maybe
27:56
Speaker 3: you like the.
27:56
Speaker 4: Way the president rules, like Henry the eighth, Maybe you don't,
27:59
Speaker 4: but I mean, we're not a medieval monarchy here. You're
28:03
Speaker 4: going to have to get the people's proxies i e.
28:06
Speaker 2: Congress peoples, which, by the way, would be so fascinating
28:09
Speaker 2: because again, the biggest supporters of the policy like this
28:12
Speaker 2: have been the likes of Bernie Sanders and others of
28:17
Speaker 2: that economic mindset, and so the voting block on something
28:21
Speaker 2: like this, to me would be absolutely fascinating. I personally
28:24
Speaker 2: don't think it goes anywhere, but it is very much
28:26
Speaker 2: a populist economic proposal, and frankly, I just don't think
28:30
Speaker 2: if you're going to get serious about solving the home
28:33
Speaker 2: affordability problem, I don't think there's any evidence that this
28:37
Speaker 2: does it for you.
28:38
Speaker 3: I don't if there's.
28:39
Speaker 2: Any evidence that this improves any of the situations in
28:42
Speaker 2: the intermediate term. I think it just is probably something
28:45
Speaker 2: that helps you at the voting booth a little bit
28:48
Speaker 2: because it is probably a pretty popular policy to say no,
28:51
Speaker 2: no corporations can buy new homes. You won't need to
28:54
Speaker 2: be competing with Blackstone when you go submit your.
28:56
Speaker 4: Offer again, but think about what that does to the
28:58
Speaker 4: rental market. There are people who have benefited from institutional buying,
29:03
Speaker 4: and as you said during the financial crisis, which is
29:06
Speaker 4: when Blackstone initially stepped in and scooped up thousands of
29:09
Speaker 4: homes that were in under distressed circumstances that provided a
29:14
Speaker 4: floor for the rest of us in some ways, so.
29:17
Speaker 2: Beware unarguably prevented more foreclosures during the early twenty ten stage.
29:23
Speaker 2: Was these institutional buyers buying homes at foreclosure and at
29:27
Speaker 2: distressed sales.
29:28
Speaker 4: And I'll say again, Mike, this is a government that
29:30
Speaker 4: governs least governs best types. I know I'm a wild
29:32
Speaker 4: eye libertarian here, but the last resort should be some
29:36
Speaker 4: heavy handed government intervention. Maybe we're at that point because
29:40
Speaker 4: people think we've tried everything else, or maybe, like you said,
29:43
Speaker 4: it's an election year and politicians are looking for expedients.
29:47
Speaker 3: Let's take a quick break.
29:48
Speaker 2: When we come back, one more proposal from the Trump administration,
29:52
Speaker 2: this time about functioning of the stock market and specifically
29:55
Speaker 2: with defense companies. We'll be talking about that next Financial Exchange.
29:58
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30:39
Speaker 2: President Trump saying he will not permit dividends and stock
30:42
Speaker 2: buybacks for defense companies. I read this headline and I
30:45
Speaker 2: saw some coverage of it yesterday, and I think it
30:46
Speaker 2: was a little bit miscategorized. What he was really saying
30:49
Speaker 2: is that many of the defense companies that he has
30:52
Speaker 2: grown frustrated he does not believe have invested enough in their.
30:58
Speaker 3: Ability to quickly roll.
31:00
Speaker 2: Out new products for the military and to more quickly quote,
31:06
Speaker 2: defense companies are not producing our great military equipment rapidly enough,
31:10
Speaker 2: and once produced, not maintaining it properly or quickly. So
31:13
Speaker 2: he's using this as a seeming threat or incentive to
31:17
Speaker 2: get these companies to invest more heavily back into themselves,
31:20
Speaker 2: rather than saying, hey, I want to permanently prohibit defense
31:24
Speaker 2: companies from being able to pay dividends or stock buybacks,
31:27
Speaker 2: which I view as sorry, slightly differently, because when I
31:31
Speaker 2: viewed that initial thing, I said, Okay, what are you
31:33
Speaker 2: doing here? And are you going to do the same
31:36
Speaker 2: thing for Amazon or SpaceX or other major companies.
31:39
Speaker 4: He's on a Henry the eighth trip. Forget about that
31:41
Speaker 4: for a second. I mean, the legality of that is
31:45
Speaker 4: something I'm not qualified to comment on, but sure, you know,
31:47
Speaker 4: if that's legal, then you know, I don't know what
31:50
Speaker 4: the hell being an American is about. That said, why
31:54
Speaker 4: would you buy the share of any company for which
31:57
Speaker 4: the any the the the political authority can limit returns
32:02
Speaker 4: to shareholders? The only reason you buy a stock. Some
32:05
Speaker 4: people buy it in the hopes of it going up,
32:07
Speaker 4: and then you pass it along. You pass the bag
32:09
Speaker 4: along to a greater fool. That's a little bit unkind.
32:12
Speaker 4: But some people don't really care whether or not there's
32:15
Speaker 4: great earnings potential in the future. They just think people
32:18
Speaker 4: will want it more in the future than they do
32:19
Speaker 4: today and the price will therefore go up. But most
32:21
Speaker 4: of us buy companies because we're going to get cash back.
32:24
Speaker 2: They think their profits are going to grow and therefore
32:27
Speaker 2: the company will have.
32:30
Speaker 3: Payback a larger portion of the profits.
32:32
Speaker 4: That that that payback could come in the forms of
32:34
Speaker 4: increased earnings per share, which is what share buybacks do,
32:36
Speaker 4: or of course, dividends. If you prohibit share buybacks and dividends,
32:41
Speaker 4: why would I buy a defense and industrial company? Effectively
32:45
Speaker 4: makes it now. I know they're going bonkers today because
32:49
Speaker 4: while he's taking something away with one hand, the president
32:53
Speaker 4: is or seems to be, or wants to.
32:55
Speaker 3: It's floating a fifty percent increase to the.
32:57
Speaker 4: A massive none of which you'll be able to share
32:59
Speaker 4: with shareholders, though, because you can't increase your dividend and
33:02
Speaker 4: you can't increase repurchases.
33:04
Speaker 2: So one, I do believe, like you said, that this
33:07
Speaker 2: would most certainly require an Act of Congress to actually
33:10
Speaker 2: prohibit that. Said, the President has shown that he has
33:13
Speaker 2: quite a bit of influence. I look at this and
33:16
Speaker 2: compare it to the agreement that he struck with in
33:19
Speaker 2: Vidia to say, hey, we are going to pay the
33:23
Speaker 2: US government twenty five percent of chip sales from China
33:26
Speaker 2: as a kind of voluntary contribution. If the President says, hey,
33:30
Speaker 2: we are going to review defense contracts with Raytheon, Lockheed,
33:34
Speaker 2: Martin and all these unless they eliminate their dividend, then.
33:38
Speaker 4: Take our business where right I don't.
33:41
Speaker 3: Know where else you go to.
33:43
Speaker 2: There is no other defense company I think is the
33:45
Speaker 2: difference here.
33:46
Speaker 4: I assume they'll comply just to get him off their backs.
33:49
Speaker 4: But again, as a shareholder, that's not a very appealing problem.
33:53
Speaker 4: How do I recoup my investment? How do I even
33:57
Speaker 4: calculate what my reward is likely to be?
34:00
Speaker 2: General Dynamics, Lockheed Martin, and North of Grumman each fell
34:02
Speaker 2: around three percent following the president's comments. Like Mark mentioned,
34:06
Speaker 2: there is also a carrot there, with a massive increase
34:09
Speaker 2: to the defense budget being proposed.
34:11
Speaker 4: By the Yeah, now that I think about it, though
34:12
Speaker 4: I don't know how much of it does alleviate the
34:16
Speaker 4: sting of not being able to benefit from any of
34:19
Speaker 4: those revenues or eventually earnings if I can't get them
34:22
Speaker 4: in the form of a dividend.
34:24
Speaker 3: To me, it wouldn't.
34:24
Speaker 2: But I also wouldn't fundamentally take the president's statement about
34:27
Speaker 2: this seriously.
34:28
Speaker 3: Oh, okay, don't.
34:30
Speaker 2: I don't think that's heart warming or or or anything,
34:34
Speaker 2: but I wouldn't take it.
34:35
Speaker 3: You're supposed to.
34:35
Speaker 4: Be like entertainment. I'm not supposed to actually process any
34:39
Speaker 4: of this.
34:39
Speaker 2: For watch investment. Watch what I do not what I say.
34:42
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36:00
Speaker 2: I don't know what Goldman was doing yesterday that got
36:02
Speaker 2: the attention of every reporter out there, But they simultaneously
36:06
Speaker 2: say that high valuations are putting equities at risk, and
36:11
Speaker 2: they see consumer stocks gaining amid.
36:14
Speaker 3: AI valuation worries. I know these are just the headlines.
36:18
Speaker 4: Well, it could they could do relative They could both fall,
36:20
Speaker 4: but consumer stocks could do relatively better.
36:22
Speaker 3: Is that what I think?
36:23
Speaker 4: That's what they are a little generous here, But yeah,
36:25
Speaker 4: I could see those two things not being totally contradicting.
36:27
Speaker 3: I just find this to be I mean, like day
36:31
Speaker 3: late and Buck shortly.
36:32
Speaker 2: Yes, US stock valuations are quite high and everyone should
36:36
Speaker 2: be concerned about it, and I guess so is Goldman.
36:40
Speaker 4: Well, yeah, you sound like an idiot if you just
36:42
Speaker 4: dismissed them, because and maybe we could pick this up
36:44
Speaker 4: because it's a big topic. But you can't assume that
36:47
Speaker 4: people will be willing to pay more for future earnings
36:52
Speaker 4: that the pace of that willingness to pay, the growth
36:55
Speaker 4: of that willingness to pay, which is the P and
36:57
Speaker 4: PE will outpace earnings in Deathfinitely said differently, you can't
37:01
Speaker 4: believe PE ratios will go up and up and up FOREU.
37:04
Speaker 2: So is this just something that every major bank has
37:05
Speaker 2: to say, otherwise they look like an idiot when the
37:07
Speaker 2: market crash.
37:08
Speaker 4: If I came I work for you. If I came
37:09
Speaker 4: into you and said, Mike, I don't think these elevated
37:11
Speaker 4: p's are probable. I think they're just going to continue
37:13
Speaker 4: to go up in definitely maybe for the rest of
37:15
Speaker 4: my career, until you stop paying me, you'd said, well,
37:17
Speaker 4: you're not a serious person. That's that's lazy and stupid.
37:20
Speaker 4: So yes, I think that it's it's it's a perfunctory
37:22
Speaker 4: it's it's a it's a it's a gesture.
37:24
Speaker 2: I guess my point would be that it's not worthy
37:26
Speaker 2: of publishing. Well, it's Goldman said, if you're if you
37:29
Speaker 2: are unfamiliar, stock market valuations are exceptionally high today, that
37:36
Speaker 2: does not mean that the markets will necessarily crash tomorrow.
37:39
Speaker 2: They have been exceptionally high for an extended period of time.
37:42
Speaker 2: Really since twenty twenty three. Uh, Historically, when they have
37:46
Speaker 2: gotten as high as they are, it does not spell
37:49
Speaker 2: terribly good news for what I deem to be the
37:51
Speaker 2: intermediate term.
37:53
Speaker 4: Yeah, expect turns should be a little tempered, so all.
37:57
Speaker 4: We're not saying anything's going to crash. Just expect lower
37:59
Speaker 4: returns than the you know, fifteen percent we've had over
38:01
Speaker 4: the last ten years.
38:02
Speaker 3: Good summary.
38:03
Speaker 2: Glad we covered that for the ten thousandth time in
38:07
Speaker 2: the last two years.
38:08
Speaker 3: Quick break. A lot more to cover in the second
38:09
Speaker 3: hour of the Financial Exchange. We'll be right back, folks.