Latest / The Financial Exchange Show / Retail Sales Miss, Big Data Week Ahead, and What 15% “Growth” Really Means

Transcript

Retail Sales Miss, Big Data Week Ahead, and What 15% “Growth” Really Means · The Financial Exchange Show

• 0:00
  Speaker 1: The Financial Exchange is produced by Money Matters Radio and
• 0:03
  Speaker 1: is hosted by employees of the Armstrong Advisory Group, a
• 0:06
  Speaker 1: registered investment advisor. All opinions expressed are solely those of
• 0:09
  Speaker 1: the hosts. Do not reflect the opinions of Armstrong Advisory
• 0:11
  Speaker 1: or anyone else. Investments can lose money. This program does
• 0:14
  Speaker 1: not offer any specific financial or investment advice. Please consult
• 0:18
  Speaker 1: your own financial, tax, and estate planning advisors before making
• 0:20
  Speaker 1: any investment decisions. Armstrong Advisory and the advertisers heard on
• 0:24
  Speaker 1: this program do not endorse each other or their services.
• 0:26
  Speaker 1: Armstrong and Money Matters Radio do not compensate each other
• 0:29
  Speaker 1: for referrals and are not affiliated. This is the Financial
• 0:35
  Speaker 1: Exchange with Paul Lane and Mark Fandetti, Your exclusive look
• 0:39
  Speaker 1: at business and financial news affecting your day, your city,
• 0:43
  Speaker 1: your world. Stay informed and up to date about economic
• 0:47
  Speaker 1: and market trends plus breaking business news every day. The
• 0:51
  Speaker 1: Financial Exchange is a proud partner of the Disabled American
• 0:54
  Speaker 1: Veterans Department of Massachusetts. Help us support our great American
• 0:58
  Speaker 1: heroes by visiting das V five K dot Boston and
• 1:02
  Speaker 1: making a donation today. Face is the Financial Exchange with
• 1:06
  Speaker 1: Paul Lane, and Mark Vandetti.
• 1:11
  Speaker 2: Welcome, welcome, welcome to this Tuesday edition of the Financial
• 1:15
  Speaker 2: Exchange as we shake off some of the Super Bowl
• 1:18
  Speaker 2: hangover that didn't really go our way in the New
• 1:21
  Speaker 2: England area. But this week for US and the Financial
• 1:24
  Speaker 2: Exchange is sort of like our super Bowl week in
• 1:27
  Speaker 2: terms of the amount of economic data that is coming
• 1:29
  Speaker 2: out this week. It is truly a very busy week
• 1:33
  Speaker 2: in terms of what we'll see. We have a retail
• 1:35
  Speaker 2: sales report that we're going to get into and just
• 1:37
  Speaker 2: a moment that was released at eight thirty this morning.
• 1:40
  Speaker 2: We're gonna get a jobs report tomorrow, and then we
• 1:44
  Speaker 2: are also going to get a CPI inflation report on Friday.
• 1:48
  Speaker 3: Is very rare that you have all those reports within
• 1:51
  Speaker 3: the span of one week.
• 1:52
  Speaker 2: Typically they are broken out into the one a week
• 1:57
  Speaker 2: cadence by the way the scheduling is released. But our
• 2:00
  Speaker 2: super Bowl mark, we got it all this week. We
• 2:02
  Speaker 2: got a little bit of labor, a little bit of inflation,
• 2:05
  Speaker 2: and then a little bit of the consumer pulse with
• 2:08
  Speaker 2: retail sales, and we'll start with that this morning. A
• 2:11
  Speaker 2: very weak retail sales report that came out for the
• 2:15
  Speaker 2: month of December, and US, we're expecting for spending to
• 2:18
  Speaker 2: grow zero point four percent month over month in the
• 2:21
  Speaker 2: month of December. We saw that the spending for the
• 2:24
  Speaker 2: holiday season in the month of December was flat, and
• 2:27
  Speaker 2: if you look back year over year on the spending trend,
• 2:31
  Speaker 2: it basically was down in effect, where you had retail
• 2:34
  Speaker 2: sales from last year in December of twenty twenty four
• 2:37
  Speaker 2: to December of twenty twenty five growing two point four percent.
• 2:40
  Speaker 2: But that's against the backdrop of inflation that was running
• 2:43
  Speaker 2: about two point seven percent over the same span of time.
• 2:46
  Speaker 2: So really a not a very strong report here at all.
• 2:51
  Speaker 2: There were sever areas that were quite weak. Some of
• 2:54
  Speaker 2: this was a little bit anticipated. We did see some
• 2:56
  Speaker 2: soft spending on autos and home furnishing and appliances, and
• 3:00
  Speaker 2: that was sort of perhaps baked in, but but worse
• 3:03
  Speaker 2: than anticipated here. And as a result of that, you've
• 3:06
  Speaker 2: got markets that are in relatively mixed territory, slightly positive.
• 3:10
  Speaker 2: On the equity side of things, I don't think they're
• 3:12
  Speaker 2: as concerned. We do see that the bond markets are
• 3:15
  Speaker 2: having a pretty sharp reaction here, where we've got the
• 3:18
  Speaker 2: US ten year treasury off about five bass points down
• 3:21
  Speaker 2: from four point two percent to four point one five percent,
• 3:25
  Speaker 2: and so Mark, I'll throw it right to you. Just
• 3:26
  Speaker 2: initial reactions from this release this morning on the retail
• 3:30
  Speaker 2: sales side.
• 3:30
  Speaker 3: Of things, I have no reaction.
• 3:32
  Speaker 4: You really shouldn't.
• 3:33
  Speaker 3: It's like, oh God, we're up to a rough start.
• 3:36
  Speaker 3: Have to I'm going to throw them out the window.
• 3:38
  Speaker 4: Do I have to do it yet? Said kidding, I
• 3:41
  Speaker 4: really don't. Though you made a good you made a
• 3:43
  Speaker 4: good analogy, because it's it's not the right way to
• 3:46
  Speaker 4: think about markets to the super Bowl, and in a
• 3:48
  Speaker 4: game any sport, every play matters, you could always look
• 3:52
  Speaker 4: off you hadn't missed that free throw or whatever, the
• 3:55
  Speaker 4: game's outcome would have been different. That is not true
• 3:58
  Speaker 4: of day to day movements in market, nor is it
• 4:01
  Speaker 4: especially not true, nor is it true with respect to
• 4:04
  Speaker 4: day to day movements and statistics in economic statistics. Nobody
• 4:08
  Speaker 4: looks back in the fourth quarter of two thousand and
• 4:10
  Speaker 4: eight and says I, had retail sales just gone the
• 4:13
  Speaker 4: other way, we would And I'm using an extreme example there,
• 4:16
  Speaker 4: because that the the individual observations, the data we get
• 4:20
  Speaker 4: from month to month, they're not it's gonna send it's
• 4:23
  Speaker 4: gonna sound a little silly, but they're not like individually,
• 4:27
  Speaker 4: They're not as important individually as is the trend that.
• 4:30
  Speaker 3: They point to.
• 4:31
  Speaker 4: So and you could say, well, each one is the
• 4:33
  Speaker 4: sequence is an important part of the trend. So you
• 4:37
  Speaker 4: can't while you can't dismiss any one data point, nor
• 4:40
  Speaker 4: can you read much into it. Now, you guys do
• 4:43
  Speaker 4: a daily show here, so you have to come on
• 4:45
  Speaker 4: the air and talk about whatever the news is and
• 4:48
  Speaker 4: try to make some inference from it. But that's not
• 4:50
  Speaker 4: the way a researcher would would look at it. So
• 4:52
  Speaker 4: I always kind of I struggle with how to how
• 4:56
  Speaker 4: to make these minute to minute releases kind of relate
• 5:00
  Speaker 4: and relevant. If something falls through the floor and it's
• 5:04
  Speaker 4: confirming what other data is saying, that might be interesting.
• 5:07
  Speaker 4: But this is kind of an anomally, Paul, because all
• 5:10
  Speaker 4: other indicators, with the exception of some softness in the
• 5:13
  Speaker 4: labor market, which we'll get to YEP, are pointing toward
• 5:16
  Speaker 4: reasonably strong economic growth, which we measure using GDP. Another
• 5:20
  Speaker 4: topic we're going to get to, A big component of
• 5:23
  Speaker 4: which just in an accounting sense, is spending.
• 5:26
  Speaker 2: Is consumption, and the month of November's numbers were quite
• 5:29
  Speaker 2: strong so that is the backdrop heading into this month
• 5:32
  Speaker 2: that we did see in November a over half percent
• 5:35
  Speaker 2: increase month of a month on retail sales. You know
• 5:38
  Speaker 2: some mentioning today that perhaps what we saw in December
• 5:43
  Speaker 2: was some of the effects from some of the tariffs,
• 5:46
  Speaker 2: just because of some of the areas. But like you said,
• 5:48
  Speaker 2: it has to be a larger trend before you're willing
• 5:50
  Speaker 2: to go and point in that direction. Like like you said,
• 5:54
  Speaker 2: you're trying to analyze these on the fly and do
• 5:56
  Speaker 2: the best that you can to pick out where the
• 5:58
  Speaker 2: trends could really be good analogy.
• 6:00
  Speaker 4: Maybe you know the people who say global warming it's
• 6:03
  Speaker 4: called out today. Well, first of all, it's called global
• 6:05
  Speaker 4: warming because it's not just how you feel when you
• 6:07
  Speaker 4: walk outside your house. But secondly, you get to look
• 6:09
  Speaker 4: at average temperatures and there is something funky going on.
• 6:13
  Speaker 4: I'm not saying what its cause is, I'm not qualified to,
• 6:16
  Speaker 4: but that's an example of focusing on one like data
• 6:19
  Speaker 4: point and not thinking about larger trends over not just
• 6:23
  Speaker 4: weeks and months, but really years.
• 6:26
  Speaker 2: Right and on the spending front, if you look back
• 6:30
  Speaker 2: at some of the larger trends, like you were mentioning
• 6:33
  Speaker 2: we have had really strong economic growth. It is important
• 6:35
  Speaker 2: to point that out. Q three GDP was at four
• 6:38
  Speaker 2: point four percent as of its most recent revision. We're
• 6:42
  Speaker 2: looking at for Q four of GDP about four point
• 6:46
  Speaker 2: two percent at the moment, though that's.
• 6:47
  Speaker 3: Supposed to be revised a little bit here today.
• 6:50
  Speaker 2: Of that growth that we've seen in the economy, there
• 6:53
  Speaker 2: has been a three and a half percent growth in
• 6:56
  Speaker 2: consumer spending. That does make up a bulk of some
• 6:59
  Speaker 2: of the GDP growth that we've seen.
• 7:01
  Speaker 3: It's about two thirds.
• 7:03
  Speaker 2: When you're looking at economic growth is tied to what
• 7:05
  Speaker 2: is the consumer getting out there and spending. So it
• 7:08
  Speaker 2: is worth noting that, hey, December did come in weaker
• 7:11
  Speaker 2: than anticipated from a spending perspective, but like Mark has mentioned,
• 7:16
  Speaker 2: you got to string together a couple months of that
• 7:18
  Speaker 2: data to really point to it being significant. Because we
• 7:22
  Speaker 2: did have that November number was quite strong.
• 7:25
  Speaker 4: And it's not a natural way to react because somebody
• 7:28
  Speaker 4: presents you with a number, it's either big bigger than expected.
• 7:32
  Speaker 4: It's always relative expectations that matters, I guess, because markets
• 7:34
  Speaker 4: are pricing in in theory what's expected. It's natural to think, well,
• 7:40
  Speaker 4: I'm supposed to react to this. The media is talking
• 7:42
  Speaker 4: about it. These guys on the radio were talking about it.
• 7:45
  Speaker 4: It must mean something, and not necessarily.
• 7:49
  Speaker 2: On the other front, retail sales just anything else. I
• 7:53
  Speaker 2: think that it is worth pointing out here I mentioned
• 7:55
  Speaker 2: the weakness on autos and home furnishings and appliance. We
• 7:57
  Speaker 2: did see some other areas that saw a little bit
• 8:01
  Speaker 2: in the way of gains. We saw building materials for
• 8:05
  Speaker 2: garden equipments accrease one point two percent. We saw gains
• 8:10
  Speaker 2: at sporting goods stores almost up a half percent there,
• 8:14
  Speaker 2: But it was those furniture stores and clothing retailers that
• 8:17
  Speaker 2: saw a bit of a decline. As I mentioned to
• 8:20
  Speaker 2: kick off the show, really big week in terms of
• 8:22
  Speaker 2: economic reports being released. The retail sales one was one
• 8:25
  Speaker 2: that came out this morning, but tomorrow we'll get the
• 8:29
  Speaker 2: jobs report, which I would argue is probably the most
• 8:31
  Speaker 2: significant of the week, just given the amount of scrutiny
• 8:35
  Speaker 2: and focus on the labor market, and in particular, not
• 8:38
  Speaker 2: only will we get what we anticipate for January's gains
• 8:42
  Speaker 2: in the labor market, which is estimated to be around
• 8:45
  Speaker 2: seventy thousand jobs that were added for the month of January.
• 8:49
  Speaker 2: We had fifty thousand that were added in the month
• 8:52
  Speaker 2: of December. The unemployment rate it sits at four point
• 8:55
  Speaker 2: four percent. But not only are we going to get
• 8:57
  Speaker 2: updates on those figures, we will also get a backward
• 9:01
  Speaker 2: looking revision as to how many jobs were added from
• 9:04
  Speaker 2: March of twenty four through March of twenty five. So
• 9:07
  Speaker 2: certainly that is going to be of a lot of
• 9:10
  Speaker 2: focus for what the Federal Reserve does from an interest
• 9:14
  Speaker 2: rate policy perspective, and what markets will be looking at
• 9:16
  Speaker 2: tomorrow morning when that comes out.
• 9:18
  Speaker 4: Mark yeah for perspective. In twenty twenty two, coming out
• 9:22
  Speaker 4: of what twenty twenty one, coming out of COVID, four
• 9:24
  Speaker 4: million new jobs were added according to the so called
• 9:28
  Speaker 4: Establishment Survey of Payrolls. That number jumped in twenty twenty
• 9:33
  Speaker 4: two to six point two million, just staggering. So the
• 9:35
  Speaker 4: economy was growing fast, too fast. That's why we had inflation.
• 9:38
  Speaker 4: The economy was exceeding it's it's speed limit, it's productive capacity,
• 9:42
  Speaker 4: if you'll like, and then things started to cool off.
• 9:44
  Speaker 4: Three point three million jobs in twenty twenty two, two
• 9:46
  Speaker 4: point one million jobs in twenty twenty three. Excuse me,
• 9:49
  Speaker 4: three point three million, two point one million in twenty
• 9:52
  Speaker 4: twenty four, and we twenty twenty five through we had
• 9:59
  Speaker 4: we got December, right, this is we're gonna get January.
• 10:01
  Speaker 4: So we got yeah, this is for the full year
• 10:02
  Speaker 4: one point four a million, but subject to revision, right right,
• 10:06
  Speaker 4: So clear downward trend, but off a feverish, unnaturally hot pace.
• 10:12
  Speaker 4: So the question I struggle with is not that you asked,
• 10:15
  Speaker 4: but uh, is this just a normalization? I mean, unemployment
• 10:18
  Speaker 4: it's at four point four percent. If you put that
• 10:21
  Speaker 4: in a hat, that rate, and you pulled that out
• 10:22
  Speaker 4: of the hat, and whatever you pulled out of hat
• 10:24
  Speaker 4: was going to be the unemployment rate, you'd be really
• 10:26
  Speaker 4: proud of yourself. That's extraordinarily low in historical terms. But
• 10:30
  Speaker 4: there are some people who think what it should be
• 10:32
  Speaker 4: three I guess or I don't know.
• 10:35
  Speaker 2: Well, it's it's something that just looking forward, that is
• 10:39
  Speaker 2: worth scrutinizing, because if you do see a significant uptick
• 10:42
  Speaker 2: on the unemployment rate, you would imagine that you'd see
• 10:45
  Speaker 2: weakening consumer spending and there would be.
• 10:49
  Speaker 3: From it.
• 10:49
  Speaker 4: But maybe that's just the norm. I don't know, is
• 10:51
  Speaker 4: that just the normalism? And I'm throwing a lot, a
• 10:52
  Speaker 4: lot of thrown out, a lot of rhetorical stuff here
• 10:54
  Speaker 4: that's not very helpful. But my point is as a researcher,
• 10:57
  Speaker 4: you never really know what if the economy is so
• 10:59
  Speaker 4: called natural rate, it's non inflationary rate has jumped to
• 11:01
  Speaker 4: five and a half. I don't think so, but historically
• 11:05
  Speaker 4: it was between five and six. It got below five
• 11:09
  Speaker 4: in the late nineteen nineties in the productivity miracle that
• 11:14
  Speaker 4: was brought about by it allowed unemployment to be very
• 11:21
  Speaker 4: low without inflation. Taking up question is where are we now?
• 11:25
  Speaker 2: We're going to take a quick break here on the
• 11:27
  Speaker 2: Financial Exchange. When we come back, a lot more to
• 11:29
  Speaker 2: talk about in what is a very busy week, previewing
• 11:33
  Speaker 2: inflation as well as some other economic reports that are
• 11:35
  Speaker 2: due out in this busy week.
• 11:36
  Speaker 3: Right after this break.
• 11:38
  Speaker 1: Face is your home for the most comprehensive coverage of
• 11:41
  Speaker 1: the economy and the trends on Wall Street is the
• 11:44
  Speaker 1: Financial Exchange Radio Network. The Financial Exchange streams live on YouTube.
• 11:51
  Speaker 1: Subscribe to our page and stay up to date on
• 11:53
  Speaker 1: breaking business news all morning long. Face is the Financial
• 11:57
  Speaker 1: Exchange Radio Network.
• 12:02
  Speaker 5: Remember you can watch the show live every day on
• 12:04
  Speaker 5: our YouTube page. While breaking business news, and all of
• 12:07
  Speaker 5: our content is also archive, so if you want to
• 12:10
  Speaker 5: go back and see an interview or a discussion about
• 12:13
  Speaker 5: a specific topic, it's all there with the click of
• 12:16
  Speaker 5: a button. Just search the Financial Exchange Show on YouTube
• 12:20
  Speaker 5: and hit that subscribe button.
• 12:23
  Speaker 2: As I was mentioning in the earlier segment, really big
• 12:26
  Speaker 2: week this week in terms of economic reports. We'll get
• 12:29
  Speaker 2: the jobs report tomorrow, and then on Friday we will
• 12:32
  Speaker 2: get the CPI inflation report for the month of January.
• 12:35
  Speaker 2: So we're gonna spend a couple minutes here just talking
• 12:37
  Speaker 2: about that report that is due out on Friday. Inflation
• 12:41
  Speaker 2: has run at two point seven percent year over year
• 12:45
  Speaker 2: in terms of what we're anticipating for Friday's release we're
• 12:49
  Speaker 2: looking at I believe it was two point four percent
• 12:52
  Speaker 2: in terms of what they're anticipating for the inflation on
• 12:56
  Speaker 2: the consensus for Friday's numbers. But something that is in
• 13:01
  Speaker 2: big focus as you head into to twenty twenty six.
• 13:05
  Speaker 2: There has been perhaps some arguments mentioned out there that
• 13:08
  Speaker 2: I don't put a lot of weight in that there
• 13:09
  Speaker 2: will be post holiday adjustments by retailers that will be
• 13:14
  Speaker 2: reflected in this January report. These price adjustments will will
• 13:17
  Speaker 2: tick up. A lot of that is seasonally adjusted, when
• 13:20
  Speaker 2: you know typically retailers will go in in January and
• 13:23
  Speaker 2: adjust prices, so a lot of these reports adjust for
• 13:26
  Speaker 2: that fact of seasonality. So I don't know if necessarily
• 13:30
  Speaker 2: that will be a huge piece of it, but certainly
• 13:34
  Speaker 2: that is a big focus part of the dual mandate
• 13:36
  Speaker 2: for the Federal Reserve, and dovetails into the next item
• 13:40
  Speaker 2: here to address is not only are we going to
• 13:42
  Speaker 2: get the inflation report on Friday, but also it is
• 13:46
  Speaker 2: going to be another indicator for the Federal Reserve to
• 13:50
  Speaker 2: sort of assess in terms of what they're going to
• 13:51
  Speaker 2: do from an interest rate perspective. If we take a
• 13:54
  Speaker 2: look right now at the CME futures market, about a
• 13:58
  Speaker 2: week ago, you had, in terms of the probabilities of
• 14:01
  Speaker 2: where interest rates were going to go from the Federal
• 14:03
  Speaker 2: Reserve a ninety percent probability that they were going to
• 14:07
  Speaker 2: continue to stay the course in the next upcoming meeting
• 14:10
  Speaker 2: on March eighteenth and keep interest rates at three and
• 14:13
  Speaker 2: a half to three point seventy five percent on that
• 14:15
  Speaker 2: Fed funds rate. With some of the retail sales reports
• 14:18
  Speaker 2: numbers that we got this morning, and just some of
• 14:21
  Speaker 2: the trends over the course of the last few days
• 14:23
  Speaker 2: or so. It is now at about close to an
• 14:25
  Speaker 2: eighty ten split of holding rate static versus potentially pricing
• 14:29
  Speaker 2: in a little bit more of a likelihood of a
• 14:32
  Speaker 2: cut here heading into this next meeting.
• 14:34
  Speaker 4: Yeah, this relate the fed's UH dilemma, and it's always
• 14:37
  Speaker 4: in a bit of a pickle because unemployment and inflation,
• 14:40
  Speaker 4: and you could substitute for unemployment vacancies GDP relative to potential.
• 14:46
  Speaker 4: There are a lot of ways to measure slack in
• 14:47
  Speaker 4: the economy, and the best way changes over time. That's
• 14:50
  Speaker 4: a challenge in and of itself. The FED is always
• 14:53
  Speaker 4: trying to determine is the economy running too hot, too cold,
• 14:57
  Speaker 4: or just right? Just right means demand is grow swing
• 15:00
  Speaker 4: no faster than supply. The FED you can think of
• 15:04
  Speaker 4: as controlling demand. They print money, lower interest rates, or
• 15:08
  Speaker 4: take money out of the economy. It's a little more
• 15:11
  Speaker 4: complicated than I'm obviously portraying it, but this gives you
• 15:14
  Speaker 4: the gist of it. Take money out of the economy,
• 15:16
  Speaker 4: they slow demand and thus slow inflation. Fed's always asking
• 15:21
  Speaker 4: is the economy again growing too fast relative to its
• 15:23
  Speaker 4: productive capacity. Is demand outpacing supply. Demand really outpaid supply.
• 15:27
  Speaker 4: In twenty twenty two and twenty twenty three, we saw
• 15:30
  Speaker 4: the result inflation was that all the Fed's fault. No, Now,
• 15:34
  Speaker 4: the FED can control inflation in the very long run,
• 15:37
  Speaker 4: money supply lines up, money supply growth lines up well
• 15:40
  Speaker 4: with inflation in the long run, doesn't line up well
• 15:42
  Speaker 4: with it in the short run. There too many other
• 15:43
  Speaker 4: factors buffeting the economy globally that impact inflation. So the
• 15:50
  Speaker 4: Fed's job, needless to say, is hard. But ultimately responsibility
• 15:55
  Speaker 4: for stable, low, long term inflation lies with the Fed
• 15:59
  Speaker 4: because that's driven by the supply of money, which they control.
• 16:03
  Speaker 2: Sure, what we're looking at is also a focus is
• 16:07
  Speaker 2: the neutral rate, which is basically this idea of hey,
• 16:10
  Speaker 2: where where should interest rate policy be? That neither, like
• 16:14
  Speaker 2: you were just kind of alluding to as some of
• 16:15
  Speaker 2: the responsibility stimulates or constraints growth. That is sort of
• 16:18
  Speaker 2: what the FED is always trying to feel around and find.
• 16:21
  Speaker 2: But it's something that is abstract. You're never going to
• 16:23
  Speaker 2: know exactly where it is. It's more of a feeling
• 16:27
  Speaker 2: out process, and some of these reports help to give
• 16:29
  Speaker 2: a little bit of guidance, but as you mentioned, it's
• 16:32
  Speaker 2: really hard to balance. The two focuses are that inflation
• 16:35
  Speaker 2: and job grop of the feder Reserve. And on the
• 16:39
  Speaker 2: inflationary front, it is about two and a half percent
• 16:41
  Speaker 2: that we're anticipating on the year over year over year
• 16:45
  Speaker 2: number from an increase on the inflationary front. But right
• 16:50
  Speaker 2: now investors are pricing in that there would be two
• 16:52
  Speaker 2: rate cuts this year. You've got the FED on their
• 16:56
  Speaker 2: most recent projections projecting in one of course, will have
• 17:00
  Speaker 2: Kevin Warsh succeeding Jerome pal in May of this year,
• 17:04
  Speaker 2: so that is going to be a focus. On the
• 17:07
  Speaker 2: last Federal Reserve meeting vote, you had ten people who
• 17:10
  Speaker 2: had voted to keep rates where they were at about
• 17:13
  Speaker 2: three and a half to three point seventy five percent,
• 17:15
  Speaker 2: and two dissenting.
• 17:16
  Speaker 3: So that is all on the table.
• 17:19
  Speaker 2: Over the course of the next couple of days, we'll
• 17:22
  Speaker 2: get more economic data points there and then that meeting
• 17:24
  Speaker 2: though is not going to be to the middle of March.
• 17:27
  Speaker 4: If you want a little framework for thinking about the FED,
• 17:29
  Speaker 4: the Thermostat analogy is Okay, I use it a lot,
• 17:31
  Speaker 4: you love it, but it's flawed. Yeah, as much as
• 17:34
  Speaker 4: I can love anything. I guess ah, but that's it.
• 17:37
  Speaker 4: Dose My emotional issues are not what we're talking about here.
• 17:39
  Speaker 4: The idea with the thermostat analogy is, well, the fed's
• 17:43
  Speaker 4: job is to heat the economy up when it's running
• 17:45
  Speaker 4: too cold, and vice versa. The problem with that analogy
• 17:48
  Speaker 4: is that the FED doesn't know what the actual temperature
• 17:51
  Speaker 4: is right now, so it's got to guess at that.
• 17:53
  Speaker 4: The FED doesn't know when the furnace is going to
• 17:55
  Speaker 4: come on or the HVAC system is going to come on.
• 17:57
  Speaker 4: You bump it up a couple of degrees because somebody
• 17:59
  Speaker 4: in the house can lanes. It might not come on
• 18:01
  Speaker 4: for six months if you're the FED. This is that
• 18:03
  Speaker 4: that's another problem with my little thermistat analogy. Another problem
• 18:06
  Speaker 4: is that you don't know what the temperature is going
• 18:07
  Speaker 4: to be outside by the time the freainging hvac does
• 18:10
  Speaker 4: come on.
• 18:11
  Speaker 3: Yeah, in my house, different rooms kind of heat up
• 18:13
  Speaker 3: in different ways just to do the piping there too,
• 18:16
  Speaker 3: so that that probably plays in.
• 18:17
  Speaker 4: These are the problems you have when you live in
• 18:19
  Speaker 4: a seventy five hundred square.
• 18:20
  Speaker 3: Foot yeah right home.
• 18:22
  Speaker 4: Most of us never we'll just never know those struggles no,
• 18:25
  Speaker 4: but the thermostat analogy is okay. But it's actually if you
• 18:27
  Speaker 4: think about why it's a bad analogy, it helps you
• 18:30
  Speaker 4: understand the challenges the FED faces. Imagine if when you
• 18:33
  Speaker 4: went to change your thermostat, you didn't know exactly what
• 18:35
  Speaker 4: it was outside, and you didn't know exactly when the
• 18:38
  Speaker 4: HVAC was going to come on, and you don't really
• 18:40
  Speaker 4: know exactly how the temperature in one room relates to
• 18:43
  Speaker 4: the room in another, so you can sort of adjust
• 18:46
  Speaker 4: the temperature in your house, but good luck. That's the
• 18:48
  Speaker 4: challenge the FED faces. And that's why the thermostat analogy,
• 18:52
  Speaker 4: although it's the best I can come up with to date,
• 18:54
  Speaker 4: why it kind of fails.
• 18:56
  Speaker 2: It's it's hard and you only they only have so
• 18:58
  Speaker 2: many tools to fix it, and one of the ones
• 19:00
  Speaker 2: that we talk about most frequently is the interest rate one.
• 19:03
  Speaker 2: They can also control the monetary supply.
• 19:05
  Speaker 3: Those are really the.
• 19:06
  Speaker 4: Well those are by controlling the supply of money, you
• 19:08
  Speaker 4: control I mean, ultimately they print money.
• 19:10
  Speaker 2: Right taking a look at markets here, we've got the
• 19:13
  Speaker 2: Dow Jones up about two hundred and fifty plus points.
• 19:16
  Speaker 2: They're rallying about a half percent plus. We've got the
• 19:19
  Speaker 2: S and P five hundred up about sixteen points or so,
• 19:22
  Speaker 2: or a quarter of our percent. We're gonna have much
• 19:24
  Speaker 2: more on the markets when we come back from this rate.
• 19:27
  Speaker 2: We've got Wall Street Watch and much more here on
• 19:29
  Speaker 2: the Financial Exchange.
• 19:30
  Speaker 3: Stick with us, Like.
• 19:40
  Speaker 1: Us on Facebook and follow us on Twitter at TFE show.
• 19:44
  Speaker 1: Breaking business news is always first right here on the
• 19:48
  Speaker 1: Financial Exchange Radio Network. Time now for Wall Street Watch.
• 19:54
  Speaker 1: A complete look at what's moving markets so far today
• 19:57
  Speaker 1: right here on the Financial Exchange Radio Network.
• 20:00
  Speaker 5: Well, markets aren't positive Territory modestly, as Walter reacts to
• 20:04
  Speaker 5: a somewhat underwhelming retail sales report from the month of
• 20:07
  Speaker 5: December to cap off the holiday season, where sales climb
• 20:11
  Speaker 5: zero point four percent, down from zero point six percent
• 20:14
  Speaker 5: in November. Traders are also sifting through more fourth quarter
• 20:18
  Speaker 5: earnings from the likes of Coca Cola, CBS Health, and Spotify.
• 20:23
  Speaker 5: Right now, the Dow is up over half a percent,
• 20:25
  Speaker 5: or two hundred and sixty two points higher, S and
• 20:28
  Speaker 5: P five hundred up about a quarter percent or seventeen
• 20:31
  Speaker 5: points higher. NASDAC also up about a quarter percent or
• 20:35
  Speaker 5: fifty points higher. RUSTED two thousand mostly flat, edging higher.
• 20:39
  Speaker 5: Tenure treasure reel down four basis points at four point
• 20:42
  Speaker 5: one four to nine percent, and crude oil up about
• 20:46
  Speaker 5: a third of a percent higher, trading at sixty four
• 20:48
  Speaker 5: dollars and fifty five cents a barrel. Beverage giant Coca
• 20:52
  Speaker 5: Cola reported earnings this morning that missed revenue expectations for
• 20:55
  Speaker 5: the fourth quarter, while it's adjusted earnings beat. The company
• 20:59
  Speaker 5: guided for twenty twenty six organic revenue growth of four
• 21:02
  Speaker 5: to five percent and comparable earnings growth of seven to
• 21:06
  Speaker 5: eight percent. Coke stock is down over one and a
• 21:09
  Speaker 5: half percent to this point. Meanwhile, audio streaming company Spotify
• 21:13
  Speaker 5: seeing its stock rally eighteen percent after the company saw
• 21:17
  Speaker 5: its monthly active users grow to seven hundred and fifty
• 21:20
  Speaker 5: one million, up eleven percent from the same period a
• 21:24
  Speaker 5: year ago and above street forecasts. Spot excuse me. Spotify's
• 21:29
  Speaker 5: premium subscribers also increased ten percent to two hundred and
• 21:34
  Speaker 5: ninety million. Elsewhere, Taiwan Semiconductor posted its higher highest monthly
• 21:39
  Speaker 5: revenue ever to four hundred and one point three billion
• 21:42
  Speaker 5: dollars in January, up thirty seven percent from a year ago.
• 21:46
  Speaker 5: Shares are up by one percent, sticking with the chip sector,
• 21:49
  Speaker 5: where On Semiconductor saw its sales decline and its two
• 21:53
  Speaker 5: biggest businesses and narrowly missed revenue expectations for the previous quarter.
• 21:58
  Speaker 5: That stock is up by about three percent. CBS Health
• 22:02
  Speaker 5: reported fourth quarter earnings and revenue that beat expectations with
• 22:05
  Speaker 5: a health insurer also held its twenty twenty six profit guidance. However,
• 22:10
  Speaker 5: the stock is up by two percent, and after today's close,
• 22:14
  Speaker 5: we'll see more earnings from the likes of Ford, Robinhood
• 22:18
  Speaker 5: and Gilead Sciences. I'm Tucker Silvan.
• 22:21
  Speaker 1: That is Wall Street watch.
• 22:23
  Speaker 2: President Trump stating that his federal pick for or his
• 22:27
  Speaker 2: pick for the Federal Reserve chair, Kevin Warsh, can get
• 22:29
  Speaker 2: the economy to hit fifteen percent growth. Unclear what statistic
• 22:34
  Speaker 2: he was trying to tie that to. Perhaps GDP growth,
• 22:38
  Speaker 2: that's what you'd think when you're economic growth, But that
• 22:40
  Speaker 2: fifteen percent is an absolutely staggering number. Over the course
• 22:43
  Speaker 2: of the last five decades, GDP growth in America has
• 22:47
  Speaker 2: averaged two point eight percent, So the idea that it's
• 22:50
  Speaker 2: going to do five times that is particularly as developed
• 22:53
  Speaker 2: as the economy that we are, is a little bit staggering.
• 22:57
  Speaker 4: Let's let's talk about that. Let's is that plausible? Is
• 23:00
  Speaker 4: that a plausible statement? Can the Fed get the economy
• 23:02
  Speaker 4: to grow fifteen percent just a year over year? The
• 23:05
  Speaker 4: answer is, what do you think it is? No, yes, absolutely,
• 23:07
  Speaker 4: if they can do that, actually it would all be
• 23:10
  Speaker 4: it would all be inflation. I assume, Yeah, it's obvious.
• 23:14
  Speaker 4: It's almost a trick question. Yes, say come on, are
• 23:16
  Speaker 4: you kidding me? But and I don't think this is
• 23:18
  Speaker 4: what the.
• 23:18
  Speaker 2: We're gonna have to hide her into the desk if
• 23:19
  Speaker 2: we run at fifteen percent inflation.
• 23:22
  Speaker 4: It's useful to keep this in mind. You can measure
• 23:23
  Speaker 4: what's GDP gross domestic product. It's just an accounting construct.
• 23:27
  Speaker 4: It's what we spend, what the government spends, what businesses spend,
• 23:30
  Speaker 4: and then a little adjustment for so called net exports.
• 23:33
  Speaker 4: But just think of it as the sum total of
• 23:35
  Speaker 4: all the spending in the economy. There are other ways
• 23:37
  Speaker 4: to look at economic output. You can look at the
• 23:39
  Speaker 4: income side of the equation. For example, they should give
• 23:42
  Speaker 4: you roughly the same answer. So GDP is for better
• 23:45
  Speaker 4: for worse. How we measure how we're doing, how the
• 23:49
  Speaker 4: economy is doing? So could the FED get the economy
• 23:53
  Speaker 4: to grow at fifteen percent. Yeah, I can get the
• 23:55
  Speaker 4: economy to grow at one hundred percent. The problem is
• 23:57
  Speaker 4: that you're not adjusting for inflation. In the nineth teen seventies,
• 24:00
  Speaker 4: for example, the mid nineteen seventies. In seventy three, GDP
• 24:04
  Speaker 4: grew was quite an inflation every year. The CPI year
• 24:08
  Speaker 4: over year was about six percent, but GDP growth even
• 24:12
  Speaker 4: nete of that was high, but total they growed eleven
• 24:14
  Speaker 4: and a half percent. The highest GDP again nominal, which
• 24:19
  Speaker 4: is a fancy way of saying without the not adjusting
• 24:22
  Speaker 4: for exactly Yeah, GDP growth in nineteen seventy eight was
• 24:25
  Speaker 4: thirteen percent. Seven percent of that was inflation. Right now,
• 24:29
  Speaker 4: I'm this is a little bit sloppy the way I'm
• 24:32
  Speaker 4: doing it, But the point is the fedkin engineer any
• 24:35
  Speaker 4: growth rate, but it's not leading to higher living standards.
• 24:40
  Speaker 4: If most of that growth or half of it, and
• 24:43
  Speaker 4: some of the examples I gave is coming from increases
• 24:46
  Speaker 4: in the price level, nobody's any better off. Now. I
• 24:49
  Speaker 4: don't think that level of subtlety was happening in the
• 24:52
  Speaker 4: analysis that lie behind whatever it is you're reading there.
• 24:57
  Speaker 4: But I will tell you just in the interest of
• 24:59
  Speaker 4: not just saying, well, what a stupid statement. Who would
• 25:01
  Speaker 4: say something like that? A more interesting question maybe because
• 25:03
  Speaker 4: we try to learn together on this show and maybe
• 25:06
  Speaker 4: impart something to the audiences. Could that happen? Yeah, fed
• 25:09
  Speaker 4: can do that. You wouldn't probably wouldn't like that, but yeah,
• 25:12
  Speaker 4: the Fedkin engineer really any growth rate?
• 25:15
  Speaker 3: No, I don't think it's very interesting, dude, It is
• 25:17
  Speaker 3: very interesting.
• 25:17
  Speaker 2: That is interesting because no one would speak glowingly about
• 25:21
  Speaker 2: the nineteen seventies for those levels of economic growth. No
• 25:25
  Speaker 2: one would reminisce back is how great things where. It's
• 25:27
  Speaker 2: quite the contrary.
• 25:28
  Speaker 4: This is why it's important to when someone's telling you something,
• 25:31
  Speaker 4: ask for perspective. You gave some good perspective. You pointed
• 25:33
  Speaker 4: out in the last fifty years, GDP growth has been
• 25:36
  Speaker 4: you said, you're talking about real GDP growth adjustment for
• 25:39
  Speaker 4: replace it has been nearly three percent. Three percent was
• 25:42
  Speaker 4: about the average of the second half of the twentieth century.
• 25:44
  Speaker 4: Since then, it's been about two percent. That that's a
• 25:47
  Speaker 4: big slowdown. It doesn't sound like a lot, but in
• 25:49
  Speaker 4: terms of standards of living, we'd be about forty percent
• 25:52
  Speaker 4: richer had GDP continued to grow at the rate of
• 25:55
  Speaker 4: the previous century. It's useful to have some of these,
• 25:59
  Speaker 4: some of these fact about the economy in your back
• 26:01
  Speaker 4: pocket if you're into this stuff, even if you're only
• 26:04
  Speaker 4: into it casually, so that you know how to call
• 26:08
  Speaker 4: BS on something that's obviously BS.
• 26:11
  Speaker 3: It's interesting the fifteen percent.
• 26:12
  Speaker 2: It's good you put in perspective that it is possible
• 26:15
  Speaker 2: because I wasn't thinking about the inflationary part.
• 26:18
  Speaker 3: Of it, that it could make it possible.
• 26:20
  Speaker 4: So, yeah, it's like I said, I can make everybody
• 26:23
  Speaker 4: a millionaire. Give me control of the money supply. I'll
• 26:25
  Speaker 4: make you all million billionaires, trillionaires, pick how many zeros
• 26:28
  Speaker 4: you want. You're not gonna be any better off than
• 26:30
  Speaker 4: you are today. It's just gonna have to tag a
• 26:33
  Speaker 4: bunch of zeros onto.
• 26:34
  Speaker 2: The prices of everything. Yeah, a little bit like that.
• 26:38
  Speaker 2: Kevin Warsh is set to be appointed in May of
• 26:41
  Speaker 2: this year, but also there is the current hearing going
• 26:45
  Speaker 2: on regarding the federal budget building renovation products, so perhaps
• 26:50
  Speaker 2: he gets delayed his appointment a little bit. But certainly
• 26:54
  Speaker 2: President Trump has some high expectations for him, so we'll
• 26:56
  Speaker 2: see how that all plays out.
• 27:00
  Speaker 4: But you understand in light of what we've been talking
• 27:01
  Speaker 4: about for the past forty five minutes. Now nearly you
• 27:04
  Speaker 4: can't come into that job with a preconception about interest
• 27:07
  Speaker 4: rates thinking they only need to come down, because, as
• 27:10
  Speaker 4: we've been discussing, it's about striking the right balance given
• 27:14
  Speaker 4: where unemployment or whatever your measure of slack is in
• 27:17
  Speaker 4: the economy, and where not only inflation is today, but
• 27:19
  Speaker 4: where you think it will be.
• 27:21
  Speaker 2: Exactly a great piece here today in the Wall Street Journal,
• 27:24
  Speaker 2: this is by Greg ibb. The big money in today's
• 27:28
  Speaker 2: economy is going to capital, not labor, and he did
• 27:31
  Speaker 2: a fantastic view sort of of where we've been. If
• 27:34
  Speaker 2: you look back in nineteen eighty, IBM was the bell
• 27:39
  Speaker 2: of the ball, the most valuable company in the United
• 27:41
  Speaker 2: States with over four hundred thousand employees and the largest
• 27:45
  Speaker 2: market cap at that point in time. Today, if you
• 27:48
  Speaker 2: look at the same sort of pinnacle position of the
• 27:51
  Speaker 2: most valuable company in the United States, Nvidia has that
• 27:54
  Speaker 2: slot where he makes the point that they are twenty
• 27:57
  Speaker 2: times more valuable and five times more and this is
• 28:00
  Speaker 2: adjusted for inflation compared to where IBM was back in
• 28:05
  Speaker 2: the nineteen eighties, though it only has one tenth of
• 28:09
  Speaker 2: the workforce, and Vida employs about forty thousand people compared
• 28:12
  Speaker 2: to the four hundred thousand that IBM employed. And specific
• 28:16
  Speaker 2: to this broader context of these two behemoth companies of
• 28:21
  Speaker 2: one of yesteryear, though still around today but not in
• 28:23
  Speaker 2: the same scope and scale, and the one today in
• 28:27
  Speaker 2: video that dominates the markets is in particular just a
• 28:31
  Speaker 2: analysis on where all that money, where are the profitability
• 28:35
  Speaker 2: is going And it breaks down first from a broader perspective,
• 28:38
  Speaker 2: and we just hit it on a little bit that
• 28:40
  Speaker 2: GDP is just trying to encompass economic growth, all the
• 28:44
  Speaker 2: value that's being added to the economy. And if you
• 28:47
  Speaker 2: look specifically at a manufacturing business what it produces in
• 28:52
  Speaker 2: terms of its goods, it has its sales and then
• 28:57
  Speaker 2: it has its input the costs that are associated that
• 28:59
  Speaker 2: go in to building out those goods.
• 29:01
  Speaker 3: The difference between the two the sales less the costs.
• 29:04
  Speaker 2: All that excess is usually distributed out through wages and
• 29:08
  Speaker 2: profits and interests. And what has changed so dramatically over
• 29:13
  Speaker 2: the last forty years, as Greg get pointed out in
• 29:15
  Speaker 2: this piece here, is that much more of that profitability
• 29:19
  Speaker 2: was going to the labor force back in nineteen eighty
• 29:22
  Speaker 2: and that percentages has dramatically decreased over the course of
• 29:26
  Speaker 2: the last forty years. That fifty eight percent of those
• 29:29
  Speaker 2: gains from what businesses we're selling were going to the
• 29:32
  Speaker 2: labor force. That number sits at about fifty one percent today.
• 29:36
  Speaker 2: And he does that by measuring out gross domestic income
• 29:40
  Speaker 2: just to sort of get a sense for what is
• 29:42
  Speaker 2: the labor force actually taking away from the profitability of
• 29:45
  Speaker 2: the firms. Rather a lot more of that money and
• 29:48
  Speaker 2: profitability rather than going to the actual workforce and form
• 29:52
  Speaker 2: of wages, is going to household wealth in terms of
• 29:55
  Speaker 2: people who have stock ownership. And I just thought it
• 29:58
  Speaker 2: was an interesting analysis that you the.
• 30:02
  Speaker 4: Right statistic, And I don't know why he didn't use it.
• 30:03
  Speaker 4: His share of labor compensation. It's actually this series is
• 30:06
  Speaker 4: reported by it's in various databases. You can actually get
• 30:10
  Speaker 4: it on FRED sometimes we talk about FRED. It's accessible
• 30:13
  Speaker 4: and it's easy to read. You can make your own
• 30:15
  Speaker 4: charts and all that crap. If you're into that SHAREFF
• 30:18
  Speaker 4: labor comp Yeah, is now And it's exactly the definition
• 30:21
  Speaker 4: is exactly what it sounds like. How much of the
• 30:24
  Speaker 4: economy's income goes to labor it's at zero point five
• 30:26
  Speaker 4: six eight today about fifty seven percent. In nineteen seventy
• 30:31
  Speaker 4: it was about sixty five percent. So that's the most
• 30:35
  Speaker 4: widely followed measure of how well how income's being abortioned.
• 30:42
  Speaker 4: And one way to think about this is that productivity
• 30:45
  Speaker 4: has been going up faster than wages. If you think
• 30:48
  Speaker 4: about a unit labor cost is compensation divided by what output?
• 30:56
  Speaker 4: Am I thinking about that?
• 30:57
  Speaker 1: Right?
• 30:57
  Speaker 2: Well? Basically, yes, this idea that then of Daniel actual
• 31:00
  Speaker 2: employees in this country relative to it, there were forty
• 31:03
  Speaker 2: years ago, far fewer people who work in manufacturing, but
• 31:05
  Speaker 2: more goods produced, right that general concept, Yeah.
• 31:08
  Speaker 4: And the composition of the labor force is a result
• 31:13
  Speaker 4: how much of it is unionized bargaining power. When comp
• 31:18
  Speaker 4: is not rising as fast as productivity, that so you're
• 31:24
  Speaker 4: not get you're not reaping the full benefits of your
• 31:26
  Speaker 4: increased productivity. When that happens, by necessity, the share of
• 31:34
  Speaker 4: income that goes to workers has to fall.
• 31:36
  Speaker 2: And that's what we've seen in since twenty nineteen. Profits
• 31:39
  Speaker 2: are up forty three percent from the S and P
• 31:42
  Speaker 2: five hundred companies, but average hourly wages are only up
• 31:45
  Speaker 2: three percent adjusted for inflation over that period of time.
• 31:49
  Speaker 2: And so there's a lot more meat on the bone
• 31:51
  Speaker 2: here that I want to get into because I think
• 31:54
  Speaker 2: it is a really interesting piece to sort of examine
• 31:56
  Speaker 2: and sort of furthers the concepts that we've talked about
• 31:59
  Speaker 2: regarding the K shape economy that we sort of sit
• 32:01
  Speaker 2: and today. So we're gonna take a quick break here
• 32:03
  Speaker 2: on the Financial Exchange. When we come back, we'll be
• 32:05
  Speaker 2: talking more about this piece as well as the S
• 32:08
  Speaker 2: and P S five hundred's next target of seven thousand
• 32:11
  Speaker 2: right after this break here on the Financial Exchange.
• 32:14
  Speaker 1: The Financial Exchange Show podcast drops every day on Apple, Spotify,
• 32:18
  Speaker 1: and iHeartRadio. Hit that subscribe button and leave us a
• 32:21
  Speaker 1: five star review. You're listening to the Financial Exchange Radio Network.
• 32:26
  Speaker 1: Find daily interviews and full shows of the Financial Exchange
• 32:29
  Speaker 1: on How Are YouTube page. Get cut up on anything
• 32:32
  Speaker 1: and everything you might have missed. This is the Financial
• 32:35
  Speaker 1: Exchange Radio Network.
• 32:43
  Speaker 5: This segment of The Financial Exchange is brought to you
• 32:46
  Speaker 5: by the US Virgin Islands to part of tourism. Experience
• 32:49
  Speaker 5: America's Caribbean and fall naturally and rhythm with the herpeat
• 32:52
  Speaker 5: off the Islands while enjoying incredible beaches, world class cuisine,
• 32:55
  Speaker 5: and unforgettable sunsets. The weather is perfect all year round.
• 32:59
  Speaker 5: Said to visit USVII dot com and book your trip
• 33:02
  Speaker 5: to Saint Croix, Saint Thomas, or Saint John. Enjoy one
• 33:05
  Speaker 5: or all three on the vacation of a lifetime. The
• 33:08
  Speaker 5: USVII is America's Caribbean paradise, playing your winterscape now at
• 33:11
  Speaker 5: visit USVII dot com. That's visit USVII dot com.
• 33:16
  Speaker 2: Spinning back here to this story that was part of
• 33:19
  Speaker 2: the Wall Street Journal this morning, where it goes over
• 33:22
  Speaker 2: just sort of the shift that we've seen in the
• 33:25
  Speaker 2: economy specific to some companies in the United States over
• 33:28
  Speaker 2: the course of the last forty years, where there has
• 33:30
  Speaker 2: been a big shift from capital, or rather two capital
• 33:35
  Speaker 2: from labor. Where basically labor was receiving fifty eight percent
• 33:39
  Speaker 2: of the total proceeds of economic output as measured by
• 33:43
  Speaker 2: gross domestic income, which is kind of similar to the
• 33:46
  Speaker 2: concept of GDP in nineteen eighty. That percentage sits at
• 33:50
  Speaker 2: the third quarter of last year at fifty one percent,
• 33:52
  Speaker 2: So we've dropped from fifty eight percent of sort of
• 33:55
  Speaker 2: the benefits being reaped by a company going to the
• 33:59
  Speaker 2: labor the staff on hand through the course of wages
• 34:02
  Speaker 2: and bonuses and other types of coverage to now down
• 34:05
  Speaker 2: to fifty one percent. And so where has that money
• 34:08
  Speaker 2: gone if it's not going to labor, A lot more
• 34:11
  Speaker 2: of it has gone to profits. And ultimately, if you
• 34:14
  Speaker 2: follow out that chain, more profits of a company, typically
• 34:17
  Speaker 2: you see increase earnings and as a result, you see
• 34:20
  Speaker 2: the stock price going up of companies, just very broadly speaking.
• 34:25
  Speaker 2: And so it hits on this idea that I have
• 34:28
  Speaker 2: mulled over a lot where it just seems like mark
• 34:31
  Speaker 2: to me, and this helps put some numbers behind it,
• 34:34
  Speaker 2: but it's not exactly precise. That the stock market has
• 34:38
  Speaker 2: a lot more bearing on sort of consumer spending and
• 34:42
  Speaker 2: sort of the amount of optimism that folks have for
• 34:47
  Speaker 2: the economy, particularly in the higher end of things, than
• 34:50
  Speaker 2: it did five years ago, ten years ago. And maybe
• 34:52
  Speaker 2: that's just emblematic of what's been a really great run
• 34:55
  Speaker 2: for markets over the last three or four years or so.
• 34:57
  Speaker 2: There is a stat that Greg Get points to here
• 34:59
  Speaker 2: in the Walt Your Journal piece that if you look
• 35:02
  Speaker 2: back at twenty nineteen, household stock wealth was two hundred
• 35:07
  Speaker 2: percent of their annual disposable income. That figure now sits
• 35:11
  Speaker 2: at three hundred percent today, and obviously that is reflective
• 35:14
  Speaker 2: of a really good five or six year run for
• 35:16
  Speaker 2: the markets. But the amount of money people have on
• 35:19
  Speaker 2: the hire income side of things that is invested in
• 35:21
  Speaker 2: stocks is three times what they would make from an
• 35:24
  Speaker 2: annual disposable income. And so this is a point that
• 35:27
  Speaker 2: I've mulled over and I do feel like has more
• 35:29
  Speaker 2: impact than it did previously how the market's fare and
• 35:32
  Speaker 2: how that impacts consumer behavior.
• 35:34
  Speaker 4: And it's a double edged sword. This is a big area.
• 35:38
  Speaker 4: So I'm not going to pretend to have any deep
• 35:40
  Speaker 4: insights with respect to your last comment, though the effect
• 35:45
  Speaker 4: you're describing has been pretty well documented. It's called the
• 35:48
  Speaker 4: wealth effect, and it's exactly what it sounds like. It's
• 35:51
  Speaker 4: the percentage of stock gains. If stocks go up one percent,
• 35:54
  Speaker 4: how much does spending go up? Somewhere between three, five,
• 35:58
  Speaker 4: maybe seven cents. The wealth effect is somewhere in the
• 36:01
  Speaker 4: load to mid single digits. That changes. But most researchers
• 36:06
  Speaker 4: agree that there is such a thing. Is it bigger
• 36:10
  Speaker 4: and is it more stable now than it used to be?
• 36:13
  Speaker 4: And if so, what happens when stocks crash when they
• 36:16
  Speaker 4: inevitably do. There was a time when a crash inequities,
• 36:21
  Speaker 4: I don't think nineteen twenty nine. That didn't bode well
• 36:24
  Speaker 4: for investment, but it didn't freak people. It did freak
• 36:27
  Speaker 4: people out, I shouldn't say that, but it didn't immediately
• 36:30
  Speaker 4: cause a drop in people's net worth. It did immediately
• 36:34
  Speaker 4: cause a drop in some types of spending. Though interestingly,
• 36:36
  Speaker 4: very few people own equities in those days. We're not
• 36:39
  Speaker 4: talking nearly on hundred years ago, which is why I
• 36:40
  Speaker 4: bring it up. What would the effect be like today?
• 36:43
  Speaker 4: I don't know.
• 36:44
  Speaker 3: Yeah.
• 36:44
  Speaker 2: Doug Petta is strategists at BCA Research. He estimated that
• 36:49
  Speaker 2: a ten percent stock return, including dividends taxed at the
• 36:52
  Speaker 2: highest marginal rate, would boost spending capacity as much as
• 36:56
  Speaker 2: an eighteen percent rise in income. Again, that's just one
• 36:59
  Speaker 2: research take on it, but sort of furthering this idea
• 37:02
  Speaker 2: that I've multied the.
• 37:03
  Speaker 4: Problem with approaches like that. I do that occasionally internally
• 37:06
  Speaker 4: when I say to the group, here's the wealth effect,
• 37:08
  Speaker 4: and here's how you estimated. Is that you can't assume
• 37:11
  Speaker 4: that those relationships will will hold They're not very good
• 37:14
  Speaker 4: at they don't hold up really well as as forecasters.
• 37:18
  Speaker 2: Taking a look around at markets, market's largely in positive
• 37:23
  Speaker 2: territory here, shaking off a weak retail sales report that
• 37:26
  Speaker 2: we got earlier this morning, with the Dow jones up
• 37:29
  Speaker 2: about two hundred and thirty points are close to half percent,
• 37:32
  Speaker 2: the S and P five hundred is up about fourteen
• 37:35
  Speaker 2: points zero point one eight percent, and the Nasdaq is
• 37:38
  Speaker 2: is relatively flat, only up about twenty six points at
• 37:41
  Speaker 2: the moment. The US ten year Treasury is off about
• 37:44
  Speaker 2: five basis points, sitting at about four point one point
• 37:46
  Speaker 2: five percent on that retail sales miss, and we've got
• 37:50
  Speaker 2: oil sitting at around sixty four dollars a barrel, not
• 37:54
  Speaker 2: moving too much. The most interesting area the market in
• 37:57
  Speaker 2: twenty six in terms of volatility has definite and gold
• 38:00
  Speaker 2: and silver, but they're not being nearly as volatile as
• 38:03
  Speaker 2: they've been in the past, with gold only off about
• 38:06
  Speaker 2: one percent today, sitting at a little over five thousand
• 38:08
  Speaker 2: dollars an ounce, and silver's off about two percent. That's
• 38:12
  Speaker 2: all the time that we have for the first hour
• 38:13
  Speaker 2: here on.
• 38:13
  Speaker 3: The Financial Exchange. We're going to take a quick
• 38:15
  Speaker 2: Break, but we've got much much more to cover here
• 38:17
  Speaker 2: on the second hour stick with us here on the
• 38:19
  Speaker 2: Financial Exchange