Latest / The Financial Exchange Show / Oil Surges, Bonds Sell Off, and the Fed’s No-Win Dilemma

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Oil Surges, Bonds Sell Off, and the Fed’s No-Win Dilemma · The Financial Exchange Show

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Speaker 1: donation today. This is the Financial Exchange with Chuck Zada,
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Speaker 1: and Mike Armstrong.
1:13
Speaker 2: Chuck, Mike and talking with you here as we look
1:16
Speaker 2: to finish up the week and hope everyone is doing great. Yeah,
1:24
Speaker 2: I always like to I always like to see people
1:27
Speaker 2: doing well. You know, it's it's good to see. But
1:29
Speaker 2: what's not doing well right now? Most markets outside of oil,
1:34
Speaker 2: here's the deal. Stocks are feeling a little bit of
1:37
Speaker 2: pain today. Nothing crazy, but it's it's you know, modest downday,
1:40
Speaker 2: the S and P's off about sixty points zero point
1:43
Speaker 2: nine percent, the dows off two hundred and fifty points
1:45
Speaker 2: half percent. Now is that composite feeling the worst? It
1:48
Speaker 2: is off two hundred and eighty two points, are about
1:50
Speaker 2: one to quarter percent. So you've got a little bit
1:53
Speaker 2: of pain in stocks. The place that as of this
1:56
Speaker 2: very moment is feeling a lot of pain is the
1:59
Speaker 2: bond market. Uh, because bond yields and this is not
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Speaker 2: just a US thing. So this is not you know,
2:04
Speaker 2: remember like every time bond yields go up, people like, oh,
2:07
Speaker 2: like it's because the US became less trustworthy or this no, no, no,
2:12
Speaker 2: stop it now bad. What's actually happening is bonds globally
2:18
Speaker 2: are selling off. It's not just the US that you
2:21
Speaker 2: are seeing this. The US Tenure Treasury is up ten
2:25
Speaker 2: basis points to four point three eight percent.
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Speaker 3: Uh.
2:28
Speaker 2: The UK Treasury is up seventeen basis points to five
2:32
Speaker 2: point oh one percent. The German Bund is up eight
2:37
Speaker 2: basis points to three point oh three percent. This is
2:39
Speaker 2: a global phenomenon. It's not people being like, oh, we're
2:42
Speaker 2: gonna liquidate our US assets. So if anyone's trying to
2:44
Speaker 2: tell you that based on like this move today, you
2:47
Speaker 2: can tell him no. Chuck said bonds were selling off
2:51
Speaker 2: all over the world and he was looking at the
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Speaker 2: data when he said that exactly what you say.
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Speaker 3: Uh. The Uh, let's see by way, We'll be happy
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Speaker 3: to tell you if there is a sell America trade
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Speaker 3: going on, yes, like trust me, Like, I'll tell you.
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Speaker 2: I'm not gonna lie to you. It's just that's not
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Speaker 2: what's what's happening today. It's a it's a worldwide cell
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Speaker 2: bond trade that is happening.
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Speaker 3: Uh.
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Speaker 2: The dollar index is strengthening zero point four seven percent
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Speaker 2: to ninety nine fifty two. Gold continuing to get bopped
3:20
Speaker 2: on the head down another thirty six eighty overnight or
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Speaker 2: I guess during the day two UH to forty five,
3:26
Speaker 2: sixty six and thirty cents. And we've got crude oil
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Speaker 2: West Texas Intermediate up a dollar eighty six a barrel
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Speaker 2: to ninety eight even Brent crude up a dollar sixteen
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Speaker 2: to one oh nine eighty one in the triple A
3:36
Speaker 2: national average for gas prices up another two point eight
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Speaker 2: cents overnight to three ninety one and two tenths UH.
3:42
Speaker 2: Based on what we're seeing in gasoline futures, we're going
3:45
Speaker 2: to hit the four get four dollars a gallon mark
3:48
Speaker 2: somewhere in the Monday to Wednesday time frame, depending on
3:52
Speaker 2: exactly what happens over the weekend. So that's where we
3:54
Speaker 2: are right now. Let's see. As always, if you have questions,
3:58
Speaker 2: you can text the show at six pet seven three
4:00
Speaker 2: six two thirteen eighty five. If you have feedback, like
4:04
Speaker 2: Chuck that color makes you look a little big, I know,
4:08
Speaker 2: and you can send that too to h six one
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Speaker 2: seven three six two thirteen eighty five. Let's see piece
4:16
Speaker 2: in Bloomberg. Central banks won't be writing to the rescue
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Speaker 2: this time. It's true. The reason why is that central
4:22
Speaker 2: banks can't print oil, they can't print that gas, and
4:24
Speaker 2: they can't print aluminum, Yeah, fertilizer.
4:28
Speaker 3: No sign that we are here. But the question would
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Speaker 3: be if you start to see an uptick in unemployment
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Speaker 3: in the economy. I mean, this was this was the
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Speaker 3: whole ballgame on Wednesday of this week when Ja Powell
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Speaker 3: was speaking, was what happens if the unemployment rate starts
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Speaker 3: to move like it did during previous recessions and we
4:47
Speaker 3: are dealing with a price shock like the one we
4:51
Speaker 3: are dealing with right at this very moment. Investors have
4:54
Speaker 3: certainly become accustomed to whenever the economy falls apart see
4:58
Speaker 3: twenty twenty set two thousand and eight, central banks come
5:02
Speaker 3: rushing in. They flood the economy with cash and fix
5:06
Speaker 3: a lot of the problems. They also contribute to, you know,
5:09
Speaker 3: all sorts of problems too. But you know, they fixed
5:12
Speaker 3: the problem for the asset market. They fixed Yeah, they
5:14
Speaker 3: fixed the market problem.
5:16
Speaker 2: Yeah. What what central banks can't fix? Again? This is
5:21
Speaker 2: the shirt that I want made. They can't print oil, right.
5:25
Speaker 3: But I guess the question would be would they even
5:27
Speaker 3: try and rescue asset prices in an event like this,
5:30
Speaker 3: because they are I'm sure if it got bad enough
5:34
Speaker 3: they would, But I'm wondering what steps you would take,
5:37
Speaker 3: because I think the last thing that any central banker
5:42
Speaker 3: wants to do is be remembered in history as the
5:46
Speaker 3: next Arthur Burns.
5:48
Speaker 2: It's it's true.
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Speaker 3: And so Arthur Burns presided over the FED in the
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Speaker 3: nineteen seventy Aailiure caved to political pressure and kind of
5:56
Speaker 3: screwed the economy for better part of a decade.
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Speaker 2: So again, and it's I don't envy the job that
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Speaker 2: any central banker has to deal with right now, because
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Speaker 2: the question is, look, it's the same question that you're
6:08
Speaker 2: always dealing with in economics and markets. Is what I'm
6:13
Speaker 2: seeing temporary or permanent? And nothing's actually permanent, but it's
6:18
Speaker 2: more like it's something is this temporary or is it
6:19
Speaker 2: long term? And quite honestly, like until you know how
6:28
Speaker 2: the Middle East situation resolves, you can't answer that question
6:34
Speaker 2: right There are paths in which it resolves in the
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Speaker 2: next week or two to the positive, there are paths
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Speaker 2: in which it might take years to resolve to the positive.
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Speaker 1: You know.
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Speaker 2: Yeah, I'm not saying that I have any idea where
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Speaker 2: it's going to be, but like you can envision pads
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Speaker 2: and there's different likelihoods of them happening, but you can
7:02
Speaker 2: envision all kinds of different possibilities there. And so if
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Speaker 2: you don't know either a how steep the inflation is
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Speaker 2: going to be and how long it's gonna last. And
7:11
Speaker 2: let's say that the job market weekends further, I think
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Speaker 2: where you probably end up in is there is a
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Speaker 2: point at which central banks say, deal with the jobs
7:20
Speaker 2: and we'll figure out the inflation later, because we at
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Speaker 2: least have a prescription for dealing with the jobs. We
7:26
Speaker 2: can't deal with both of these things at the same time,
7:29
Speaker 2: but if we do nothing, we're kind of screwed on
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Speaker 2: both sides. So where that point is is anyone's guess.
7:37
Speaker 2: I suspect, based on where we are now, if you
7:40
Speaker 2: were to see the unemployment rate tick north of five,
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Speaker 2: FED starts saying, okay, we'll look through the inflation and
7:47
Speaker 2: start cutting. It's a gut feeling more than anything like
7:54
Speaker 2: drum Karl doesn't take my calls, so I have no idea,
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Speaker 2: but my gut says, hey, you know that would be,
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Speaker 2: from the start of this cycle, a pretty meaningful move.
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Speaker 3: It's also an all else equal argument, right, It's if
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Speaker 3: unemployment crashes through five and inflation is still under some level.
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Speaker 3: Because if it's both.
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Speaker 2: Here's the thing. The central bank trying to deal with inflation,
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Speaker 2: as we saw back in twenty two A, it's gonna
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Speaker 2: make the unemployment problem worse. And now you still like
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Speaker 2: it doesn't deal with the inflation problem right away. So
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Speaker 2: now you've got unemployment that's worsening faster and inflation is
8:32
Speaker 2: still high. I think what they would prefer to do,
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Speaker 2: just based on everything that I know about how this
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Speaker 2: FED is operated, take the edge off the employment situation
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Speaker 2: and we'll figure out the inflation piece later. I'm not
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Speaker 2: saying that's right, but it's how they've acted when faced
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Speaker 2: with high inflation previously.
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Speaker 3: Yeah, yeah, I'm very concerned about what that could mean.
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Speaker 3: But let's let's not deal with that problem until you
8:59
Speaker 3: get that because there are no indications right now that
9:02
Speaker 3: the unemployment situation is worsening at the moment. Yes, and
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Speaker 3: that is something that draws out over months, not weeks.
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Speaker 2: So we'll see how all this develops in the coming weeks.
9:12
Speaker 2: But this is the framework that the Fed's gonna, i think,
9:14
Speaker 2: use to navigate it. To take a quick break. When
9:17
Speaker 2: we come back, we've got trivia and then we're talking
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Speaker 2: airlines or no, sorry, we're not talking that. We're talking
9:24
Speaker 2: about what retirement planning mistake can lead to headaches in
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Speaker 2: your seventies. It's not just banging your head against a wall.
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Speaker 2: We'll tell you what it actually is right after this.
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Speaker 2: THEMS is some good nerds. This retirement planning mistake can
11:22
Speaker 2: lead to headaches in your seventies. Well, don't spoil it now.
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Speaker 2: What is it?
11:29
Speaker 3: Uh? It is having accounts all over the place. Mostly
11:35
Speaker 3: it's retirement accounts all over the place. That's a particular headache.
11:38
Speaker 3: But I'll extend this piece to any types of accounts
11:40
Speaker 3: all over the place. So here is yeah, the tricky
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11:47
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11:50
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Speaker 3: that it was seventy and a half. Now it's seventy five.
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Speaker 3: When you turn seventy five, you might have iras and
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Speaker 3: old four oh one ks or four or three b's
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Speaker 3: scattered all over the place. I see it all the time.
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Speaker 3: So let's imagine for a moment that you have two
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Speaker 3: irays at two different custodians, plus a four oh one
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Speaker 3: K at a place that you're no longer employed. You
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12:34
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12:40
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12:42
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12:44
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12:53
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12:57
Speaker 3: in twenty twenty.
12:58
Speaker 2: Four, that's a lot.
13:00
Speaker 3: It's like one in ten people not taking the required amount.
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Speaker 3: And by the way, the tax penalty average of more
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13:29
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15:06
Speaker 2: You know who's very upset right now. Mortgage brokers, Yeah,
15:10
Speaker 2: and basically anyone who's in a sales position related to
15:14
Speaker 2: the UH the housing market. On February twenty seventh, the
15:19
Speaker 2: average thirty year fixed rate mortgage in the United States
15:22
Speaker 2: was five point nine to nine percent, according to Mortgage
15:24
Speaker 2: News Daily, so they were at six point four to three.
15:26
Speaker 2: So it's almost a half percent bump in three weeks.
15:29
Speaker 2: I honestly, I hadn't looked at this in a little while.
15:32
Speaker 2: I had not realized we had reached that much higher
15:34
Speaker 2: than where we were. Well, buckle up, because after today
15:37
Speaker 2: again the ten your treasury is up ten basis points.
15:39
Speaker 2: You're probably up above six and a half percent by tomorrow.
15:43
Speaker 2: And this is right as you're heading into like this
15:45
Speaker 2: is the peak of the spring housing season, you know,
15:48
Speaker 2: March and April are it, Like that's that's like the
15:51
Speaker 2: big time. And so you've got mortgage rates that have
15:54
Speaker 2: moved up half a percent, and so that's gonna put
15:57
Speaker 2: a ton of pressure then on selling prices to be
16:01
Speaker 2: able to find their level. And one of the things
16:04
Speaker 2: that had helped home prices maintain, you know, some semblance
16:08
Speaker 2: of year over year growth through the end of last year,
16:11
Speaker 2: was that mortgage rates fell from around seven percent down
16:14
Speaker 2: to six and that allowed the housing market to keep
16:17
Speaker 2: you know, a modest like one to two percent annualized
16:20
Speaker 2: growth on a national basis. You've got this hitting here
16:23
Speaker 2: right now at the same time as you know, other
16:26
Speaker 2: prices potentially starting to move up, and I think you've
16:29
Speaker 2: got real questions as to what it means for uh,
16:32
Speaker 2: the spring housing season in terms of pricing that sellers
16:36
Speaker 2: can expect to get. Yeah, it's gonna be uh something
16:39
Speaker 2: to watch there.
16:40
Speaker 3: Yeah, So the supply growth had already slowed this year,
16:46
Speaker 3: so I don't know the exact numbers, but Mike Simonson.
16:48
Speaker 2: Published around eight to nine percent year over year.
16:51
Speaker 3: Okay, last year, supply growth was up a good thirty
16:54
Speaker 3: percent at this time.
16:55
Speaker 2: Yeah, Now, some of it you're not going to have
16:56
Speaker 2: back to back thirty percent growth years because you already
17:00
Speaker 2: recovered a lot of the inventory that you expect.
17:02
Speaker 3: But I do think eight to nine percent was less
17:05
Speaker 3: than many were expecting.
17:06
Speaker 2: I think even even talking with Mike, he was looking
17:10
Speaker 2: more originally for kind of that twelve to fifteen percent
17:12
Speaker 2: growth and it's just been slower.
17:16
Speaker 3: So I'm really unsure what this actually means for prices.
17:18
Speaker 3: By the way, higher rates, Yeah, I mean, obviously higher
17:22
Speaker 3: rates limit the capacity for people to put in higher bids,
17:26
Speaker 3: but does it also limit inventories sets that you end
17:29
Speaker 3: up with a different more competition, like fewer sellers, but
17:35
Speaker 3: a bigger reduction I'm sorry, fewer buyers, but a bigger
17:38
Speaker 3: reduction in the number of sellers because people don't want
17:40
Speaker 3: to write. Because at the same time, new home construction
17:43
Speaker 3: has just dropped off a ledge, so that supplies not
17:46
Speaker 3: really moving into markets at the moment.
17:49
Speaker 2: Well, and we still don't know how new home construction
17:51
Speaker 2: is going to play with what's going on in commodity markets.
17:55
Speaker 2: You know, the stuff that's being built right now, you've
17:59
Speaker 2: got to finish it because you've got you know, your
18:01
Speaker 2: contracts and stuff, and okay, I've got to get this done.
18:04
Speaker 2: But what do builders do when they look out the
18:07
Speaker 2: landscape and they're like, no, I see what's happened to
18:10
Speaker 2: the price of you know, the plumbing, and I see
18:12
Speaker 2: what's happened to the price of lumber, And I see
18:15
Speaker 2: like that stuff is all moving up just because the transportation.
18:18
Speaker 3: Aspect of it, I mean, final piece here that is
18:22
Speaker 3: just US centric. What is Congress going to do to
18:25
Speaker 3: me as a potential home builder? There's the new restrictions
18:28
Speaker 3: that they want to put in place regarding single family
18:32
Speaker 3: corporate home ownership. And the latest iteration I saw was
18:36
Speaker 3: that new home construction I think would need to be
18:40
Speaker 3: sold within a decade.
18:41
Speaker 2: I think it was seven years or seven years.
18:43
Speaker 3: Okay, So I mean again, not that all homes are
18:47
Speaker 3: built for the purpose of renting, but if you can't
18:51
Speaker 3: find a but some are. Yeah, I mean if you can't,
18:53
Speaker 3: if you can't find a buyer of it, you might
18:55
Speaker 3: be willing to sell it to a company that was
18:57
Speaker 3: planning to rent it. And so what sort of supplied
19:00
Speaker 3: is that removed from the construction pipeline as well? So yeah,
19:03
Speaker 3: I still think we're going to see inventory upticks, but
19:08
Speaker 3: it's not going to get us back to those pre
19:10
Speaker 3: COVID levels much faster.
19:12
Speaker 2: Taking oak at market, stocks remain down on the day.
19:15
Speaker 2: Smp is down sixty one points, Dow is off two
19:17
Speaker 2: ninety nine, Nasdaq off three hundred tenure US Treasury continuing
19:22
Speaker 2: to sell off now off eleven basis point step to
19:25
Speaker 2: four point thirty nine to one percent, getting close to
19:29
Speaker 2: touch in four to four for the first time in
19:31
Speaker 2: a little bit. Here take a quick break, We've got
19:33
Speaker 2: the trivia answer in Wall Street watch Next.
19:41
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19:46
Speaker 5: It's the Financial Exchange on the Financial Exchange Radio Network.
19:51
Speaker 5: Tell you out full whoa Street, watch treking, the stocks,
19:55
Speaker 5: theodato and the headlines driving markets so far today right
19:58
Speaker 5: here on the Financial extra Change Radio Network.
20:05
Speaker 4: Well markets are extending their losses as we are now
20:08
Speaker 4: three weeks into the conflict, and Iran markets are also
20:11
Speaker 4: on pace for their fourth consecutive losing week Right now,
20:15
Speaker 4: the Dow down over half a percent or two hundred
20:17
Speaker 4: and forty four points, SMP five hundred now down by
20:20
Speaker 4: eight tenths of a percent or fifty three points lower,
20:23
Speaker 4: Nasdaq down one point two percent or two hundred and
20:26
Speaker 4: sixty six points, Russell two thousand down about one point
20:29
Speaker 4: three percent. Ten year treasurreilled up ten basis points at
20:34
Speaker 4: four point three eighty four percent, in oil up one
20:37
Speaker 4: point three percent, trading right around ninety seven dollars a barrel.
20:42
Speaker 4: Well super micro Computer shares are sinking twenty eight percent
20:46
Speaker 4: after US prosecutors charge three people, including the company's co founder,
20:51
Speaker 4: with smuggling machines with high end in Nvidia chips to China. Meanwhile,
20:56
Speaker 4: FedEx is up by over one percent after the shipping
21:00
Speaker 4: giant hiked its outlook as revenue increased in the previous quarter. Elsewhere,
21:05
Speaker 4: the Wall Street Journal reported that Unilever is in talks
21:08
Speaker 4: to separate its food business and combine it with spice
21:11
Speaker 4: maker McCormick. Both companies have since confirmed the talks. Unilever
21:16
Speaker 4: shares are modestly higher, while McCormick shares are dipping and
21:20
Speaker 4: Planet Labs rallying over twenty eight percent after the satellite
21:24
Speaker 4: imagery company reported better than expected fourth quarter results while
21:28
Speaker 4: its full year revenue guidance also impressed. I'm Tucker Silvan.
21:32
Speaker 4: That is Wall Street Watching. On the previous segment, we
21:34
Speaker 4: asked you the trivia question which Massachusetts college is the
21:39
Speaker 4: most desirable for parents of high school students that according
21:43
Speaker 4: to the Princeton Review, by the way, and the answer
21:46
Speaker 4: is mit Edgar from Marlborough, mass is our winner today
21:50
Speaker 4: taking on the Financial links Change Show t shirt and
21:53
Speaker 4: we played trivia every day here on the Financial Exchange.
21:57
Speaker 4: See complete contest rules at Financial liks Change Show dot com.
22:02
Speaker 2: Piece of New York Times Nay Companion won the Boston Globe.
22:05
Speaker 2: The New York Times. One is titled Dinner and no drinks.
22:08
Speaker 2: Restaurants are struggling as Americans drink less. The when the
22:13
Speaker 2: globe is fifteen dollars, mocktails are here to stay. It's
22:16
Speaker 2: a small win for a struggling restaurant industry. So one
22:20
Speaker 2: of the trends that's been picking up steam is not
22:24
Speaker 2: drinking as much.
22:25
Speaker 3: Twenty twenty five, gallop Pull found that the US drinking
22:28
Speaker 3: rate was at a new low, only fifty four percent
22:31
Speaker 3: of respondence reporting that they drank alcohol.
22:33
Speaker 2: And in particular, when you look at younger demos gen Z,
22:39
Speaker 2: they are reporting, you know, even higher rates of not drinking.
22:44
Speaker 2: So a couple things that I think are true here,
22:48
Speaker 2: just in a big macro sense before we dig in.
22:51
Speaker 2: I think if you look at it, gen Z, not
22:55
Speaker 2: drinking is probably we tend to have like a pendulum
22:58
Speaker 2: on these things. And I think it's just a little
23:01
Speaker 2: bit of a response to kind of what came before though.
23:04
Speaker 3: Over exuberance of teenagers and college students. Yeah, drinking maybe.
23:10
Speaker 2: Where I wouldn't be surprised if we go longer term,
23:12
Speaker 2: like once the one after gen Z is known as
23:14
Speaker 2: jen Alpha because we're just really unoriginal now like used
23:17
Speaker 2: to be. You could have cool generation names like the
23:19
Speaker 2: baby boomers are the greatest generation, or even those cute
23:22
Speaker 2: little millennials. Now it's just slap another letter on them
23:26
Speaker 2: and like, oh, we ran out of you know, English ones, great,
23:29
Speaker 2: go to the Greek alphabet. Let's do that again. Like
23:31
Speaker 2: that that sounds fun. You know, can't wait till we
23:34
Speaker 2: get to generation omicron Like that'll be you know, wonderful.
23:38
Speaker 2: But in any case, I wouldn't be surprised if like,
23:43
Speaker 2: whether it's jen alpha or I guess beta is probably
23:45
Speaker 2: like the ones that are just being born now, because
23:47
Speaker 2: I think we're like right at the start of that
23:50
Speaker 2: or maybe the next year or two, there're gonna be
23:53
Speaker 2: some booze bags. Like, oh, I'm telling you this is
23:56
Speaker 2: always a pendulum.
23:57
Speaker 3: So you don't think that this goes the direction of
24:00
Speaker 3: cigarettes drinking. Yeah, no, I'm not saying like the to
24:05
Speaker 3: the extent cigarettes went, but there's clearly a mounting health
24:12
Speaker 3: campaign to make people aware of the health risks with drinking.
24:17
Speaker 3: And it was again, if you're going to measure this
24:21
Speaker 3: and decreased sales, clearly very successful when it came to cigarettes,
24:24
Speaker 3: But that was also paired with massive increases and taxes
24:27
Speaker 3: that I'm not saying with alcohol as likely.
24:29
Speaker 2: I think if you're going to write about the decline
24:31
Speaker 2: of alcohol as like a permanent thing, and I'm not
24:34
Speaker 2: saying that you are, but like, if someone wants to
24:36
Speaker 2: make that case, I think that's just like writing that
24:40
Speaker 2: New York City died in twenty twenty. Okay, you know
24:43
Speaker 2: because like listen, been in New York a few times
24:47
Speaker 2: in the last year. Places happened. Still, it's cooking. There's
24:51
Speaker 2: a reason why I made the case back in twenty twenty.
24:54
Speaker 2: I'm like, people aren't going to abandon cities because there's
24:56
Speaker 2: a reason why. Historically people have always wanted to live
25:00
Speaker 2: in cities. There's a number of them. Likewise, if you
25:03
Speaker 2: look at like all of human history, there's a reason
25:07
Speaker 2: why alcohol is a constant through basically every society since
25:11
Speaker 2: it was discovered. It's because we like it.
25:15
Speaker 3: In the meantime, what a restaurants do, because everybody's been aware.
25:19
Speaker 2: I can't wait fifty years for this to change or
25:22
Speaker 2: thirty years for this to change. If you're a restaurant
25:24
Speaker 2: tour you're like, I gotta figure out how to pay
25:26
Speaker 2: the bills Saturday.
25:27
Speaker 3: Yeah, I think they're concerning pieces you know, by all
25:31
Speaker 3: accounts when you speak to restaurant owners, fifty sixty seventy
25:35
Speaker 3: percent of profits coming from alcohol sales. Yeah, subsidizing entirely
25:41
Speaker 3: the food menu, don't I don't know. I mean the
25:45
Speaker 3: next companion piece is how fifteen dollars mocktails are here
25:48
Speaker 3: to stay? I don't know that they are. I don't
25:51
Speaker 3: know that people.
25:52
Speaker 2: That feels more fattish to me.
25:53
Speaker 3: I don't know that people are going to be willing
25:55
Speaker 3: to consume a nine dollars you know, fashion soda or
26:00
Speaker 3: a fifteen dollars mocktail.
26:02
Speaker 4: What are the margins on that thing? Fifteen dollars mocktail? What?
26:05
Speaker 2: It's kind of like you like, go to a place
26:07
Speaker 2: for breakfast and you're like, who's ordering the nine dollars oatmeal? Right? Right?
26:14
Speaker 2: What's the deal with that? You know, because I'm sure
26:16
Speaker 2: that's the But I do find restaurant menu pricing kind
26:19
Speaker 2: of interesting because look, if you are seeing those alcohol
26:23
Speaker 2: sales sliding like that was again a huge portion of
26:28
Speaker 2: your business and the food, you just don't have the
26:31
Speaker 2: margins on, and consumers are price sensitive, so you don't
26:36
Speaker 2: have a ton of room to move them necessarily. Yeah,
26:38
Speaker 2: So what do you do? So you laugh, But that
26:44
Speaker 2: was literally gonna be my my answer.
26:46
Speaker 3: I mean, yeah, they haven't seemingly given that up. I
26:49
Speaker 3: know it won't happen, that would be, but it might happen.
26:53
Speaker 3: What if they cut their prices a little bit, which
26:56
Speaker 3: prices everything? That seemed to be a bat strategy when
27:00
Speaker 3: you have But if less people are going out because
27:03
Speaker 3: of affordability issues, I don't see a ton of evidence
27:07
Speaker 3: of that quite honestly, if you can make it up
27:09
Speaker 3: on volume, yeah, I think the problem is that they
27:11
Speaker 3: are going out and they are drinking less. You know,
27:17
Speaker 3: that's that's not a very easy solution to problem, the
27:20
Speaker 3: easy problem to solve other than raising food prices.
27:24
Speaker 2: Now again this remember in any industry, you're always talking
27:28
Speaker 2: about like, what's the point in which the supply and
27:30
Speaker 2: demand curves intersect. Here's the thing. For the last fifty years,
27:37
Speaker 2: the unstoppable, dominant trend in US employment has been no
27:43
Speaker 2: matter what else is happening, you have seen increasing employment
27:47
Speaker 2: in leisure and hospitality services. Yeah, what if that? What
27:52
Speaker 2: if we've just gotten to the point where it's like
27:54
Speaker 2: in the aggregate, not like in any specific town, but hey,
27:57
Speaker 2: overall we're at peak restaurant. Could you buy that.
28:07
Speaker 3: Population growth is slowing? But no, I don't buy it,
28:10
Speaker 3: because our older population is getting bigger, and all evidence
28:16
Speaker 3: suggests that they dine out more frequently than your young families.
28:21
Speaker 3: So no, I don't think we're there yet. Okay, that group,
28:24
Speaker 3: the the baby boomer generation, I think has to start
28:27
Speaker 3: shrinking or you see a dramatic trying to kill them off.
28:30
Speaker 3: That will eventually happen. But if you see a prolonged
28:34
Speaker 3: decline in travel, the tourism travel to the US, that
28:39
Speaker 3: could do it too. But again I don't see.
28:42
Speaker 2: Me count either. What if our older people get younger?
28:47
Speaker 1: Huh?
28:48
Speaker 2: But I know I say that kind of jokingly, but
28:51
Speaker 2: here's what I mean by it. Actually, every year the
28:57
Speaker 2: net technological proficiency of a sixty year old improves. Likewise,
29:02
Speaker 2: every year the net technological proficiency of a forty year
29:05
Speaker 2: old improves, and a twenty year old and so on.
29:06
Speaker 2: Down there's kids who are twenty years old who do
29:09
Speaker 2: stuff with AI and I look at it. I'm like,
29:10
Speaker 2: I have no idea what you're doing. It's it's complete
29:12
Speaker 2: French to me. Yep, You're gonna get to a point
29:17
Speaker 2: where the media at sometime in the next like few years,
29:20
Speaker 2: that median sixty year old grew up with the Internet
29:24
Speaker 2: as like part of their adult culture in the nineties
29:28
Speaker 2: and is more comfortable ordering door dash than going out.
29:32
Speaker 2: And so how does that then impact the idea that, hey,
29:34
Speaker 2: seniors like to go out to dinner, What if they
29:38
Speaker 2: start just ordering in more and like the process of
29:43
Speaker 2: like ordering alcohol and do you order it there? You know,
29:45
Speaker 2: I've already got it at home, so I don't need
29:46
Speaker 2: to order it with it Like this is another thing
29:50
Speaker 2: to think about.
29:51
Speaker 3: Maybe, Eh, seems like a stretch.
29:55
Speaker 2: It does?
29:56
Speaker 3: I again, when I keep going Whenever I talk about,
29:59
Speaker 3: you know, spending patterns of my retiree clients, it's, hey,
30:04
Speaker 3: you're gonna suddenly have seven days a week to go
30:06
Speaker 3: do stuff instead of two. And guess what expands their
30:08
Speaker 3: leisure and hospitality spending Except laziness is the mother of invention. Yeah,
30:14
Speaker 3: and we know how to use it better as time
30:17
Speaker 3: goes on.
30:18
Speaker 2: Yeah, so we'll see. Let's take a quick break and
30:21
Speaker 2: when we come back. Paul Monica joins us from Barons
30:26
Speaker 2: right after.
30:26
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30:50
Speaker 6: Ladies and gentlemen the weekend.
31:00
Speaker 2: I promise. We're now joined by paul A Monica from
31:03
Speaker 2: Barons and we're gonna be talking some financials with Paul
31:07
Speaker 2: right after, not right after this, right now, Paul, how
31:10
Speaker 2: you doing?
31:11
Speaker 6: IM good? Thanks.
31:14
Speaker 2: When we look at the financial sector, safe to say,
31:18
Speaker 2: it's been pretty unloved to start the year, not just
31:23
Speaker 2: talking about you know, the big asset managers, you're you know,
31:26
Speaker 2: Blackstones and Apollos of the world. When we look at
31:30
Speaker 2: the performance of just the overall financial sector, it is
31:34
Speaker 2: the single worst performing sector in the S and P
31:37
Speaker 2: five hundred year to date. So talk to me about
31:41
Speaker 2: what's going on more broadly, and is there anything that
31:45
Speaker 2: looks interesting because of the pullback that we've seen.
31:48
Speaker 6: Yeah, very very good questions. Obviously, there are concerns about
31:54
Speaker 6: what's happening in private credit, the you know, the cockroaches
31:57
Speaker 6: if you will that Jamie Diamond alluded to last year
32:01
Speaker 6: when these problems were first starting to fester. I think
32:04
Speaker 6: it's only gotten worse with concerns about Blue Oul and
32:07
Speaker 6: the implosion in you know, that particular stock. But there
32:12
Speaker 6: are banks that are still holding up well. They've got
32:17
Speaker 6: you know, a feature on you know, the Baron's website
32:20
Speaker 6: is going to be in the prededition this weekend about
32:22
Speaker 6: six bank stocks that still look attractive, and one of
32:26
Speaker 6: them among the major kind of global quote unquote money centers,
32:30
Speaker 6: is City Group. You know, it's the cheapest of the
32:34
Speaker 6: big banks. So that's a list that includes JP Morgan Wells,
32:39
Speaker 6: b of A, Morgan, Stanley, and Goldman Sachs Cities Trading
32:42
Speaker 6: and only about ten times earnings estimates, you know, very
32:46
Speaker 6: attractively valued. And you know, Jane Fraser, the CEO, said
32:50
Speaker 6: at the recent conference that you know, she recognizes there
32:54
Speaker 6: are some of these idiosyncratic concerns about private credit, but
32:58
Speaker 6: you know, she's not really seeing it in you know,
33:02
Speaker 6: her bank and their portfolio. So I think some of
33:04
Speaker 6: the concerns about City whose stock is down like seven
33:08
Speaker 6: eight percent this year, maybe a little bit overdone. It
33:11
Speaker 6: looks like a good bargain, right Now, what.
33:14
Speaker 2: About the idea just that hey, when when financials are
33:17
Speaker 2: selling off before anything else, it's not really a great
33:21
Speaker 2: sign for the overall health of the market, and maybe
33:23
Speaker 2: there is some other stuff that's lurking there. Is there
33:26
Speaker 2: anything to that counterpoint?
33:28
Speaker 6: Well, again, that's a fantastic question. I have another piece
33:32
Speaker 6: on the Baron's website earlier this week that addresses that issue,
33:35
Speaker 6: that do you need to be concerned when bank stocks
33:38
Speaker 6: are underperforming the broader market? Is this say two thousand
33:43
Speaker 6: and eight all over again? You know, the kind of
33:46
Speaker 6: canaries and the coal mine, and you know, I quoted
33:49
Speaker 6: one top investment strategist who noted that, yes, there are
33:55
Speaker 6: some weird parallels maybe to two thousand and eight in
33:59
Speaker 6: some respects, but that this doesn't look as of yet
34:02
Speaker 6: to be as systemic of an issue as what we
34:05
Speaker 6: saw with the subprime meltdown. This might wind up being
34:09
Speaker 6: more of a false positive, false alarm type signal what
34:14
Speaker 6: we saw a few years ago when there were several
34:17
Speaker 6: regional bank failures. Remember when Silicon Valley went under and
34:20
Speaker 6: Signature and everyone was like, oh, here we go again.
34:23
Speaker 6: But that didn't lead to either a banking crisis or
34:29
Speaker 6: a recession. So I think the hopes are that there
34:33
Speaker 6: are still some good values in the banking sector. You're
34:37
Speaker 6: not going to see this implosion, and you're starting to
34:39
Speaker 6: see consolidation as well. You know, Fifth Third recently bought
34:44
Speaker 6: CA America, Capital One bought Discover in the credit card business,
34:49
Speaker 6: So consolidation could drive up the valuations for a lot
34:53
Speaker 6: of financial stocks as well.
34:55
Speaker 2: So this is kind of looking at some of the
34:57
Speaker 2: you know, kind of the broad sector there. What about
35:00
Speaker 2: like when you get into those sub sectors that are
35:03
Speaker 2: in there. You know, obviously you've got the asset managers
35:06
Speaker 2: that have been really hit hard, You've got insurance companies
35:09
Speaker 2: that have been you know, kind of a mixed bag
35:11
Speaker 2: as well. How do you even look at these not
35:15
Speaker 2: necessarily understanding or not necessarily knowing you know, what is underneath?
35:19
Speaker 2: There is that one where it's kind of okay, like, yeah,
35:22
Speaker 2: is buyer beware.
35:24
Speaker 6: I think that's a fair assessment. It's clearly more opaque.
35:28
Speaker 6: I think trying to find the bottom for say Blue
35:33
Speaker 6: Owl or even you know, companies like Blackstone, KKR, Apollo,
35:40
Speaker 6: you know, that might be a bit more of a
35:44
Speaker 6: dicey proposition. So I think really for investors looking at
35:48
Speaker 6: financial stocks, if you stick to banks, and particularly maybe
35:53
Speaker 6: some of the regional banks that could benefit both from
35:56
Speaker 6: consolidation and the possibility of event rate cuts. I know
36:00
Speaker 6: a lot of people are worried that we're not going
36:03
Speaker 6: to get as many rate cuts this year because of
36:04
Speaker 6: what's happening with oil and inflation concerns. Could the Fed
36:07
Speaker 6: even be hiking rates? I struggle to think that the
36:12
Speaker 6: Fed is going to overreact and start hiking rates. Do
36:17
Speaker 6: mean Powell sort of signaled that in his press conference
36:20
Speaker 6: this week, and obviously his days are numbered. Just once
36:23
Speaker 6: Kevin Warsh, assuming he gets centate confirmation, takes over, you
36:27
Speaker 6: would assume he's going to try and be more dubvish
36:29
Speaker 6: as well.
36:30
Speaker 2: Very good, Paul, appreciate you joining us today and I
36:33
Speaker 2: hope you have a great first weekend of March madness.
36:37
Speaker 6: It would have been better if Penn didn't get absolutely
36:39
Speaker 6: annihilated by Illinois last night, but I'll take it. My
36:43
Speaker 6: bracket's not in that bad shape.
36:44
Speaker 2: Did you have them going to the final four? Uh?
36:47
Speaker 6: No, you know I didn't have nineteen seventy nine flashbacks
36:50
Speaker 6: to when when they got spanked by Michigan State some
36:53
Speaker 6: guy named Irvin Johnson I think was on that team.
36:55
Speaker 2: Here's he's decent. Yeah, Paul, thanks again and have a
37:00
Speaker 2: great weekend. That is paul A Monica from Baron's talking
37:06
Speaker 2: about the financial sector. Mike, what do we miss today?
37:10
Speaker 3: JP Morgan is deploying tech to monitor junior bankers working hours.
37:13
Speaker 3: It's actually not what you think, oh though, I'm sure
37:16
Speaker 3: it'll be used for other ways too. There was a
37:19
Speaker 3: Bank of America intern I believe who died in London
37:23
Speaker 3: two years ago. Corners report indicated it might have been
37:27
Speaker 3: from working like six days straight at the office or
37:30
Speaker 3: something like that. So JP Morgan's put in a cap
37:32
Speaker 3: of eighty hours a week, and this monitoring is designed
37:37
Speaker 3: to nudge employees that you know, based on the IT
37:41
Speaker 3: systems that they use, they might be going over the
37:43
Speaker 3: reported hours that they're putting on their time sheets because
37:46
Speaker 3: they are capped those eighty hours. You can bet your
37:50
Speaker 3: you know what, to ten dollars bottom dollar that they
37:53
Speaker 3: are also going to be monitoring the opposite direction. You
37:56
Speaker 3: put fifty hours on your time sheet and your computer
37:58
Speaker 3: indicates you logged thirl. Here's the reality. Any major company
38:04
Speaker 3: out there is using technology to monitor your effectiveness and
38:07
Speaker 3: your honesty at work, and if they want to come
38:10
Speaker 3: up with a reason to terminate you, they're going to
38:12
Speaker 3: use a lot of this stuff to do so.
38:13
Speaker 2: You gotta find a happy medium, like seventy nine hours,
38:17
Speaker 2: let's take a quick break for the entire weekend, but
38:21
Speaker 2: we'll see on Monday. Have a great weekend, a safe weekend,
38:24
Speaker 2: and uh yeah, we'll see in a couple of days.