Latest / The Financial Exchange Show / Stocks keep ignoring all the bad news. They can't ignore this.

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Stocks keep ignoring all the bad news. They can't ignore this. · The Financial Exchange Show

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Speaker 2: It's Chuck Mark and been with you here and kicking
1:14
Speaker 2: things off this hour. We got some economic data that
1:17
Speaker 2: I want to get to just because this week is
1:23
Speaker 2: just kind of I think the technical term is sucked
1:27
Speaker 2: from an economic data perspective. Uh, before we do that,
1:31
Speaker 2: just looking at markets, the Dow is up seventy seven
1:33
Speaker 2: points right now, the S and P's up seventeen, Nasdaq
1:36
Speaker 2: up sixty nine. So you got about a quarter percent
1:38
Speaker 2: to a third of a percent upward drift in markets.
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Speaker 2: Nothing too exciting, but continued, you know, floating up. And
1:45
Speaker 2: so obviously you know, good news for equity holders. You've
1:48
Speaker 2: got bonds getting bid up today, the tenure down to
1:51
Speaker 2: four point three eighty three, off seven point seven basis points.
1:55
Speaker 2: This on the back of some of the weak economic
1:57
Speaker 2: data that we've seen, so I think it makes sense
1:59
Speaker 2: to discuss what that might what that might mean there.
2:04
Speaker 2: And then we've got oil West texts intermedia currently completely
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Speaker 2: flat at sixty three forty one per barrel, no movement
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Speaker 2: in either direction for oil. And we got gold continuing
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Speaker 2: to move back up now up another twenty three ninety
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Speaker 2: announced to thirty four to oh one even on the day.
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Speaker 2: So again market's nothing too crazy going on, but a
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Speaker 2: pretty strong bid in bonds. And again it comes back
2:29
Speaker 2: to the economic data. So I want to touch on
2:31
Speaker 2: this here and what it is that we've seen this week.
2:36
Speaker 2: So Monday, come in, first day of June. Okay, great,
2:39
Speaker 2: let's see what we get. Ten am ism manufacturing comes
2:44
Speaker 2: into forty eight five versus forty nine to five expected. Okay,
2:49
Speaker 2: whatever the ism manufacturing has been, you know, irrelevant for
2:52
Speaker 2: the last three to four years. It's been telling us
2:55
Speaker 2: that the US economy has been horrible during that time,
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Speaker 2: and it has not accurate predicted any turns this cycle.
3:02
Speaker 2: So yeah, we can disregard it. It's it's fine. Even
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Speaker 2: though immediately after it printed the market sold off, you know,
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Speaker 2: three quarters of a percent, it rebounded, you know, pretty
3:13
Speaker 2: convincingly over the rest of the day. Okay, fine, Yesterday
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Speaker 2: we come in, Hey, second day of June. What are
3:19
Speaker 2: we gonna get here? Jolts comes in. Job openings. Hey,
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Speaker 2: they're better than expected. Okay, this is April, so it's
3:26
Speaker 2: not really up to date. It's now, you know, two
3:29
Speaker 2: months out of date. And even though openings came in
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Speaker 2: better than expected, the quits rate dropped also, which means
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Speaker 2: the labor market might be getting a little more stagnated.
3:38
Speaker 2: I don't know if that's the right way to describe it,
3:40
Speaker 2: but that's kind of what we're seeing there, kind of
3:43
Speaker 2: a mixed report. So you say, okay, fine, let's see
3:45
Speaker 2: what we get Wednesday. We come in this morning. Mortgage
3:49
Speaker 2: rates last week had fallen by about six basis points.
3:52
Speaker 2: But despite that, refi's tick down and the purchase index
3:57
Speaker 2: also ticked down as well, beating week year over year comps,
4:02
Speaker 2: just because last year at this time rates were higher
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Speaker 2: and things were really you know, stuck in the mud
4:07
Speaker 2: in housing. But part of that's also because there are
4:10
Speaker 2: fewer cash offers now because there's not as much liquidity
4:12
Speaker 2: sloshing around, and so cash offers have dropped as a
4:15
Speaker 2: percentage of total real estate transactions. Okay, so this is
4:20
Speaker 2: a little bit messy here. Eight fifteen. This morning ADP
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Speaker 2: Employment change, which is the you know, the black sheep
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Speaker 2: of employment data. No one really likes to pay attention
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Speaker 2: to it, but everyone still looks like it's it's the
4:36
Speaker 2: movie that you watch on TV that you don't tell
4:39
Speaker 2: anyone that you watch. Like, everyone looks at ADP, but
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Speaker 2: no one wants to admit it to their friends. And
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Speaker 2: so the ADP employment data came in this month this
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Speaker 2: this morning, expectations for one hundred and fifteen thousand jobs
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Speaker 2: created came in at thirty seven thousand. It's a pretty
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Speaker 2: big miss. Okay, fine, maybe it doesn't pass through directly
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Speaker 2: into jobs Friday, so we'll write that off. Ten am
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Speaker 2: Ism services, which had rebounded in the April reading a
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Speaker 2: little bit, and you know, people are saying, okay, is
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Speaker 2: it gonna bounce back again in May? The answer is no,
5:15
Speaker 2: we're expecting to see you reading a fifty two. It
5:17
Speaker 2: came in at forty nine to nine, with the price
5:18
Speaker 2: is paid component rising to sixty eight to seven from
5:21
Speaker 2: sixty five to one, and the new orders component dropping
5:24
Speaker 2: from fifty two to three to forty six to four.
5:27
Speaker 2: New orders slowing and prices going up is basically the
5:30
Speaker 2: definition of stagflation. Like that's that's that's bad. What's the
5:34
Speaker 2: market do on it? Nothing at all. The market just
5:37
Speaker 2: continues to shrug this off. And so we're in this
5:43
Speaker 2: period now this week at least, where the economic date
5:46
Speaker 2: of this week hasn't been very good and the market's
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Speaker 2: just kind of saying, okay, whatever, whatever, whatever, It does
5:53
Speaker 2: feel like this is coming to a head on Friday,
5:55
Speaker 2: where you've got the you know, the actual, you know,
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Speaker 2: non figm payroll report, and it feels to me like, hey,
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Speaker 2: if this comes in better than expected for the second
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Speaker 2: straight month and we print you know, high hundreds, low,
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Speaker 2: two hundred thousands on jobs created, Okay, throw it all
6:13
Speaker 2: the data from the first part of the week and
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Speaker 2: it doesn't really matter if it comes in week. Then
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Speaker 2: you sit there and you're like, Okay, now we've had
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Speaker 2: a week of economic data. The May data is starting
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Speaker 2: to come in, and it's not painting a great picture
6:27
Speaker 2: about the economy. Becomes the story. So it seems to
6:30
Speaker 2: me this Friday jobs report again we don't love to
6:35
Speaker 2: those of you who have listened to our show for
6:36
Speaker 2: a while. Most of the time we're like, yeah, this
6:40
Speaker 2: is not the most important FED meeting. You can skip
6:42
Speaker 2: this one. This job's report is setting up for a
6:45
Speaker 2: pivotal point. I don't know so much for the economy,
6:47
Speaker 2: because the economy is going to economy over the next
6:50
Speaker 2: few months, but I do think it's a pivotal point
6:53
Speaker 2: for markets, where hey, do you get that next leg
6:56
Speaker 2: up because jobs still look good or does the foundation
7:01
Speaker 2: of this market start to look shaky. It feels like
7:03
Speaker 2: we're building up to this Friday job support here.
7:06
Speaker 3: Yeah, So why do we care? Because recessions or downturns
7:11
Speaker 3: are generally bad for equity prices, which is the primary
7:15
Speaker 3: focus I think of. This shows that it's the clearest
7:19
Speaker 3: universal metric of people's financial welfare. Stocks usually turn down
7:24
Speaker 3: in anticipation of recessions. Though stocks respond not to what
7:28
Speaker 3: the economy or even companies did yesterday, but what they
7:31
Speaker 3: expect those variables to do in the future. We're not
7:36
Speaker 3: seeing signs of distress in equity markets. That always gives
7:41
Speaker 3: me past Stocks are not a perfect leading indicator, but
7:43
Speaker 3: they're among and they have been among leading indicators included
7:49
Speaker 3: in forecasters' models of recessions from time immemorial. So I
7:55
Speaker 3: heed the And you know, stocks are unlike some of
7:57
Speaker 3: these other indicators you mentioned, which at irregular, which would
8:01
Speaker 3: come at relatively there's sale by the time we get them.
8:04
Speaker 3: They're pretty long frequencies between updates. Stocks are updated continuously
8:11
Speaker 3: by like the nanosecond or whatever fraction of a second
8:14
Speaker 3: you want to use in that example, and They are
8:17
Speaker 3: everybody's best guess of where the economy where companies, therefore earnings,
8:21
Speaker 3: therefore the economy are going. So I don't know, Chuck.
8:25
Speaker 3: You look at the Atlanta Fed's GDP now measure, and
8:28
Speaker 3: I know you do, and it suggests very high growth
8:30
Speaker 3: this quarter. It is a now cast, not a forecast,
8:33
Speaker 3: so it tells you what the economy appears to be
8:35
Speaker 3: growing at.
8:36
Speaker 2: As of today.
8:38
Speaker 3: Other FED banks produce similar forecasts, and they all point
8:42
Speaker 3: to at or above trend growth. And trend growth is
8:46
Speaker 3: about two percent, and that's just a function of structural forces,
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Speaker 3: likely productivity growth, likely labor force growth.
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Speaker 2: Well, I think in this case, with the projections for
8:58
Speaker 2: GDP this quarter, look we kind of told everyone, hey,
9:02
Speaker 2: don't pay too much attention to the Q one number.
9:04
Speaker 2: That's going to come in weak because of the surge
9:05
Speaker 2: of imports that came in in Q one. Well that
9:09
Speaker 2: search has reversed because you had this huge drop off
9:12
Speaker 2: in imports after the imposition of tariffs, and so Q
9:17
Speaker 2: one what was the revision negative point two? I think
9:19
Speaker 2: mm hmm annualized, right, this one's coming in at four
9:22
Speaker 2: to six. I basically look at him like average it
9:24
Speaker 2: out and you get like two and a half percent.
9:27
Speaker 3: Yeah, which is about trend growth. It's a little bit
9:30
Speaker 3: about of trend. Last year we grew it I think
9:32
Speaker 3: two point eight or two point nine. The year before
9:33
Speaker 3: that it was two point nine or two point eight,
9:35
Speaker 3: I forget, but that's quite solid. So the economy had
9:38
Speaker 3: momentum coming into twenty twenty five, as everybody knows, it
9:42
Speaker 3: hit a wall due to policy uncertainty. It seems to
9:47
Speaker 3: be I don't want to use the phrase bouncing back
9:49
Speaker 3: because many of the components of GDP never went anywhere. Now,
9:53
Speaker 3: spending ebbed eased a little bit and there, so there's
9:57
Speaker 3: some evidence of a little bit of consumer retrenchment, but
9:59
Speaker 3: nothing alarming. Look, recessions are really hard to forecast. I
10:03
Speaker 3: don't want to speak for this show. Far be it
10:06
Speaker 3: for me to do that.
10:07
Speaker 2: We're on the show.
10:08
Speaker 3: But I'll give you my two cents, which is the
10:11
Speaker 3: consensus of I think most serious researchers don't try to
10:14
Speaker 3: forecast re sessions. We talk about data. Most of these
10:17
Speaker 3: data go into economist models. Some of these data points don't,
10:21
Speaker 3: and the waiting economists sign assigned to them, and how
10:25
Speaker 3: they use them varies as they as researchers update their
10:28
Speaker 3: models to try to improve their performance. But a lot
10:31
Speaker 3: of serious researchers will tell you it's a fool's errand
10:34
Speaker 3: don't bother. Yet at the same time, it's what's driving
10:36
Speaker 3: stock prices from day to day, so we give it
10:38
Speaker 3: our best shot.
10:39
Speaker 2: Yeah, I think the big thing is look through the
10:42
Speaker 2: April data. There have been no major shift in the
10:47
Speaker 2: US economy in either direction. There was no sharp acceleration
10:50
Speaker 2: nor any sharp deceleration. As we get more of the
10:54
Speaker 2: made data, do we start to see that trend changing
10:57
Speaker 2: in either direction? Is the question. The first few data
11:00
Speaker 2: points that we've gotten this month haven't been great, but
11:03
Speaker 2: it's only a few data points, and so I always
11:06
Speaker 2: caution people into reading too much into it because the
11:09
Speaker 2: economy is always wiggling. That's the technical term. The economy
11:14
Speaker 2: is like a worm. It doesn't just go in a
11:17
Speaker 2: straight line through the dirt. It wiggles through it. And
11:20
Speaker 2: sometimes if you pay too much attention to those wiggles,
11:23
Speaker 2: you get the sense that the worm is turning, when
11:24
Speaker 2: in fact, the worm is just wiggling and it's trying
11:26
Speaker 2: to get to where it's going. So I'm a big
11:30
Speaker 2: believer most of the time don't pay attention to the wiggles,
11:34
Speaker 2: like note that they're happening, like understand what's going on
11:37
Speaker 2: and how they could evolve. But most of the time
11:41
Speaker 2: the wiggles are exactly that, Hey, this quarter the economy
11:44
Speaker 2: grew it, you know, two point seven percent. Next quarter
11:47
Speaker 2: it was one point seven That could have just been
11:50
Speaker 2: because of you know, the timing on different purchases by
11:53
Speaker 2: you know, some different groups and things like that, and
11:55
Speaker 2: it comes out in the wash. Occasionally where you have
11:58
Speaker 2: you know, meaningful chang and policy, like the imposition of
12:02
Speaker 2: tariffs and things along those lines, you do sit there
12:04
Speaker 2: and say, hey, could this mean more, and you do
12:07
Speaker 2: pay closer attention to it. But all that we've seen,
12:11
Speaker 2: even this week, most so far is a little wiggle
12:15
Speaker 2: and not really any meaningful deviation from the prior course.
12:18
Speaker 3: Yeah, the challenge is is the trend changing. You're describing
12:22
Speaker 3: trends and cycles. Trend lines, because they're engineered as such,
12:26
Speaker 3: are generally smooth. You could take a moving average. There
12:29
Speaker 3: are plenty of ways of calculating a trend for a
12:32
Speaker 3: series a variable like economic growth. The question is is
12:35
Speaker 3: the cycle just that will this variable return to its trend.
12:40
Speaker 3: Will economic growth get back on track or are we
12:43
Speaker 3: on some new trend line? If you think about what
12:45
Speaker 3: happened in two thousand and eight, we never really recovered.
12:48
Speaker 3: The growth rate recovered, but we never got back to
12:51
Speaker 3: the old trend line. Was that devastating. And there's evidence
12:55
Speaker 3: of persistence, very long term persistence in changes in GDP,
12:59
Speaker 3: which is why these wiggles do get people's attention. Though,
13:02
Speaker 3: as you said, there's no way when you're living through
13:05
Speaker 3: them to know if you're witnessing some sort of change
13:09
Speaker 3: in the trend.
13:11
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14:39
Speaker 2: Let's talk a little bit about the Friday jobs report.
14:43
Speaker 2: So eight thirty am on Friday, we're gonna get the
14:46
Speaker 2: non farm payrolls report. Expectation is for one hundred and
14:50
Speaker 2: thirty thousand jobs to be added. The prior month we
14:52
Speaker 2: saw one hundred and seventy seven thousand jobs added. Unemployment
14:56
Speaker 2: expected to stay at four point two percent average hourly
14:59
Speaker 2: earnings to tick up either point two or zero point
15:03
Speaker 2: three percent. Labor force participation rate expected to stay stable
15:07
Speaker 2: at sixty two point six percent. So I made the
15:11
Speaker 2: comment in the last segment that this is kind of
15:13
Speaker 2: a big one because we've gotten a few different data
15:16
Speaker 2: points this week that haven't really been great and the
15:20
Speaker 2: market has just kind of shrugged them off. And I
15:22
Speaker 2: think it's shrugged them off because hey, the data for
15:25
Speaker 2: the last you know, several months has not really shown
15:28
Speaker 2: any meaningful change as a result of tariffs, and so
15:33
Speaker 2: until proven otherwise, this could just be a little bit
15:36
Speaker 2: of a wiggle as opposed to the start of a
15:38
Speaker 2: new trend. And I think that that's a reasonable take
15:40
Speaker 2: for the market to have. The question is, hey, as
15:44
Speaker 2: you get into May, you start to see more and
15:46
Speaker 2: more impacts now that you have, you know, more distance
15:48
Speaker 2: from the imposition of the tariffs, and so we'll have
15:51
Speaker 2: to see if this turns into anything. I don't have
15:54
Speaker 2: a strong feelings to you know, yes or no, this
15:57
Speaker 2: is going to move either particular way, But I I
16:00
Speaker 2: do think if this is a good report, at least
16:03
Speaker 2: you can build the story. Okay, like the bad data
16:06
Speaker 2: that we got earlier, this week isn't really feeding into
16:08
Speaker 2: real activity. Okay, you can you know, buy that. If
16:11
Speaker 2: it's a bad report, you say, hey, maybe there's something
16:13
Speaker 2: that's starting to happen here, and you got to pay
16:15
Speaker 2: closer attention.
16:16
Speaker 3: Yeah, because employment is lagging, it reflects decisions made months ago.
16:21
Speaker 3: I'd be a little surprised if it was wildly you know,
16:24
Speaker 3: at variance with other points of economic data that we've seen,
16:30
Speaker 3: like a really bad employment report. Well, you could argue
16:34
Speaker 3: GDP did contract in the first quarter. I don't want
16:35
Speaker 3: to minimize that. It's not just an accounting It's not
16:39
Speaker 3: just a phantom of the Uh.
16:42
Speaker 2: Isn't it kind of just an accounting thing?
16:44
Speaker 3: Well, I mean there were aspects if consumption was weak,
16:47
Speaker 3: intent weekend slowed, investment slowed. If those had been stronger,
16:51
Speaker 3: it wouldn't have been negative. There was the surgeon imports,
16:54
Speaker 3: but that might reflect a structural change in the economy
16:57
Speaker 3: that's worth paying attention to. I wouldn't I wouldn't dismiss it.
17:00
Speaker 3: It's very easy to in the moment dismiss a bad number.
17:02
Speaker 3: That happens all the time. We all do it. But
17:04
Speaker 3: when you're looking at economic data, you know, historically speaking,
17:08
Speaker 3: you don't you don't excuse bad data away when GDP contracts,
17:15
Speaker 3: it's usually not always, but usually during broader recessions. That
17:19
Speaker 3: doesn't appear to have been the case in the first quarter,
17:21
Speaker 3: as it wasn't the case in the first quarter or
17:23
Speaker 3: second quarter, I forget which because there were revisions of
17:25
Speaker 3: twenty twenty two. So I guess I'd be a little surprised,
17:29
Speaker 3: is what I'm trying to say, if this Friday's report
17:31
Speaker 3: suggested anything other than what we're seeing elsewhere. But after
17:34
Speaker 3: today's ADP number, which is not a great forecaster of
17:38
Speaker 3: the household, derived a statistic that we all that we're
17:44
Speaker 3: all familiar with the unemployment rate, maybe there is something
17:47
Speaker 3: deeper going on.
17:48
Speaker 2: Yeah, you know the high frequency labor indicators that we get,
17:52
Speaker 2: things like weekly claims. The US Treasury also publishes statements
17:57
Speaker 2: as to Social Security tax withholding and stuff like that,
18:02
Speaker 2: and there's nothing there that's indicating a huge shift in trend.
18:07
Speaker 2: Like again, some wiggles that you have, but even you know,
18:11
Speaker 2: points of time last year you have these wiggles up
18:14
Speaker 2: and down as well, and they ultimately, you know, didn't
18:17
Speaker 2: turn into anything last year. So I think I think
18:21
Speaker 2: there's an unless you see a you know, meaningful shift
18:25
Speaker 2: in a few data series over the next month, I
18:28
Speaker 2: think there's a convincing case that it's just gonna you know,
18:31
Speaker 2: if you're of the belief that tariffs are going to
18:34
Speaker 2: impact the economy, you might not see it show up
18:37
Speaker 2: in the data until July, August, September, just because it
18:39
Speaker 2: takes some time to come in.
18:41
Speaker 1: Yeah.
18:41
Speaker 3: I don't think that it's very hard to make the
18:43
Speaker 3: numbers work to get a recession out of tariffs. We've talked,
18:46
Speaker 3: we've done some analysis internally. It's admittedly back of the envelope,
18:50
Speaker 3: but the forecasts are in line with what I've seen elsewhere,
18:53
Speaker 3: even worst case supply chain snarl up type scenarios. If
18:57
Speaker 3: the economy is currently growing a trend, applying simpleconomic rules
19:00
Speaker 3: of thumb, it's very hard to get to negative growth.
19:04
Speaker 3: For example, it'll it'll slow it, but it's hard to
19:07
Speaker 3: envision a big recession.
19:09
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Speaker 1: Radio Network. Time Now for Wall Street. Watch a complete
19:30
Speaker 1: look at what's moving market so far today. Right here,
19:33
Speaker 1: on the Financial Exchange Radio Network.
19:36
Speaker 4: Oh, it's eleven thirty four and your major indices are
19:39
Speaker 4: up right now. Dal Jones is up thirty eight points,
19:42
Speaker 4: or just under a tenth of a percent, the S
19:44
Speaker 4: and B five hundreds up, which is over ten points.
19:47
Speaker 4: We're just under two tenths of a percent, and the
19:49
Speaker 4: Nasdaq is up fifty two points, or point two seven percent.
19:53
Speaker 4: Enterprise software provider Asana is down eighteen percent. First quarter
19:58
Speaker 4: earnings of five cents share excluding items on revenue of
20:01
Speaker 4: one hundred and eighty seven million dollars topped analyst estimates
20:04
Speaker 4: of two cents and one hundred eighty six million dollars.
20:07
Speaker 4: The stock had run up seventeen percent in the past month.
20:11
Speaker 4: Guidewier Software's insurance technology provider, is up eighteen percent after
20:15
Speaker 4: fiscal third or third quarter earnings exceeded Wall Street estimates,
20:20
Speaker 4: coming in at eighty eight cents per share excluding one
20:22
Speaker 4: time items on revenue of two hundred and ninety four
20:25
Speaker 4: million dollars, while analyst surveyed anticipated forty six cents and
20:29
Speaker 4: two hundred and eighty four million dollars, respectively. Wells Fargo
20:32
Speaker 4: is up just under a percent after the federal Reserve
20:35
Speaker 4: removed an asset cap dating back to twenty eighteen on
20:38
Speaker 4: the San Francisco based lender Wells Fargo. The regulatory restriction
20:41
Speaker 4: had limited the bank's growth while it revamped its governance
20:45
Speaker 4: and risk management following several controversies. And finally, Constellation Energy
20:49
Speaker 4: shares are down three percent after City Group downgraded.
20:52
Speaker 2: To neutral from buy.
20:53
Speaker 4: City's call came after Constellation agreed tuesday to sell nuclear
20:58
Speaker 4: generator power to Meta platforms as part of a twenty
21:01
Speaker 4: year contract. I am ben Kitchen and that is Wall
21:05
Speaker 4: Street Watch. Let's pay off a little bit of trivia.
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Speaker 4: Today's question was which state passed the first minimum wage?
21:11
Speaker 4: Your answer Massachusetts. The correct answer was provided by Sean
21:16
Speaker 4: in conquered New Hampshire. Today he has won a Financial
21:18
Speaker 4: Exchange Show t shirt. We play trivia every day here
21:21
Speaker 4: on the Financial Exchange. See complete contest rules at Financial
21:24
Speaker 4: Exchange Show dot com.
21:26
Speaker 2: Quick update, just on the status of the Reconciliation bill
21:30
Speaker 2: making its way through Congress. Having passed the House. What
21:35
Speaker 2: was it about a week, week and a half ago.
21:37
Speaker 2: I can't remember exactly when You've got this bill in
21:41
Speaker 2: front of the Senate where they're gonna craft their own version,
21:43
Speaker 2: and then basically they're gonna have to figure out how
21:45
Speaker 2: to merge these in a way that ends up passing
21:49
Speaker 2: both chambers in the event that the Senate does not
21:51
Speaker 2: take the bill as is from the House, which sounds
21:54
Speaker 2: like they won't. And this is not to say that
21:56
Speaker 2: you're not gonna get a bill passed. I think you
21:58
Speaker 2: ultimately do. But much more. Hey, this is why we
22:01
Speaker 2: don't really get into specifics of bills as they're you know,
22:04
Speaker 2: going through this process, is because oftentimes there are changes
22:08
Speaker 2: that can be fairly substantial as you go from point
22:13
Speaker 2: A to point B. And so if you were all
22:18
Speaker 2: up in arms about oh, like the salt deduction should
22:21
Speaker 2: be this or that, well, there's a decent chance that
22:22
Speaker 2: the final bill it might be different. If you were,
22:26
Speaker 2: you know, talking about you know, potentially buying a new
22:31
Speaker 2: EV this year, and you're like, oh, like, what's the
22:33
Speaker 2: state of play going to be for those credits? Again,
22:35
Speaker 2: we don't know because there's no final bill here. If
22:38
Speaker 2: you're wondering what's going to happen to all the different
22:40
Speaker 2: tax rates, again, no final bill. So I think that
22:44
Speaker 2: this is one that is still going to evolve, probably
22:47
Speaker 2: over the next one to three months. I would be
22:48
Speaker 2: surprised if we're sitting here on Columbus Day without a
22:52
Speaker 2: bill done. But I think probably somewhere between fourth July
22:56
Speaker 2: and Columbus Day is when this thing gets across the
22:58
Speaker 2: finish line, but we don't know the act format it's
23:00
Speaker 2: going to take.
23:02
Speaker 3: Yeah, late fall is not unusual for major pieces of legislation.
23:07
Speaker 3: A bill is always a budget is always a major piece.
23:09
Speaker 3: So this is not a bud evolving major excuse me,
23:11
Speaker 3: tax changes to the tax code. Yeah, I went back
23:16
Speaker 3: at one point and looked at the one Act, which
23:19
Speaker 3: was pretty consequential. That was, if I remember correctly, signed
23:23
Speaker 3: sometime in December or August. The tax changes signed into
23:28
Speaker 3: law during Trump's first term were signed.
23:30
Speaker 2: Very late in the year, if December, IVENK.
23:32
Speaker 3: Yeah, you're absolutely right, So it wouldn't be unusual for
23:35
Speaker 3: this to take more time. I guess it's more important
23:37
Speaker 3: that they get it done right to the extent that
23:40
Speaker 3: that's possible. I think it probably isn't, given what's expected
23:45
Speaker 3: in terms of spending and deficits.
23:47
Speaker 2: Now here's the big thing is, unless you think they
23:50
Speaker 2: are going to be major changes on the tax side
23:54
Speaker 2: and spending side from what is in the original bill,
23:57
Speaker 2: it seems unlikely that this bill is going to alter
24:00
Speaker 2: the deficit trajectory in any meaningful way in either direction.
24:05
Speaker 2: And what I mean by that is basically, right now,
24:09
Speaker 2: this year, we're going to run somewhere between a six
24:12
Speaker 2: and seven percent deficit relative to GDP. Where this bill passes,
24:17
Speaker 2: I don't exactly know, but odds are next year deficit's
24:21
Speaker 2: going to be somewhere between six and seven percent of GDP,
24:24
Speaker 2: you know, unless there's a recession or some other you know,
24:27
Speaker 2: interceding of event, you know, a war, something along those lines.
24:32
Speaker 2: And I think the big place that I've come to
24:34
Speaker 2: on this is, look, ultimately, you're kind of if this
24:39
Speaker 2: passes in any way, shape or form, you're kind of enshrining,
24:42
Speaker 2: you know, six to seven percent deficits in perpetuity.
24:47
Speaker 3: Well, they should grow because healthcare spending is growing. So
24:50
Speaker 3: the deficit should grow faster than the denominator in your ratio,
24:54
Speaker 3: which is GDP, because it's outpacing it. So and I
24:57
Speaker 3: think CBO the Congressional.
25:00
Speaker 2: They get to larger ones, it's like seven, eight, nine
25:02
Speaker 2: years down.
25:03
Speaker 3: Because of that, the components that comprise GDP that can
25:07
Speaker 3: comprise the deficit excuse me, or they are driving it,
25:09
Speaker 3: are growing faster than GDP. That's the definition of unsustainability
25:13
Speaker 3: and that's what has a lot of specialists in this
25:15
Speaker 3: area concerned.
25:17
Speaker 2: And so the questions on there are, Hey, if the
25:20
Speaker 2: US is going to be perpetually borrowing six to seven
25:22
Speaker 2: percent of GDP in good economic times and potentially you know,
25:26
Speaker 2: eight to twelve percent of GDP in bad economic times,
25:30
Speaker 2: what does that mean for the interest rate that you
25:33
Speaker 2: see on bonds, in particular longer term bonds. And to
25:37
Speaker 2: this point, the bond market has shrugged this off better
25:41
Speaker 2: than I thought it would have. And it's not to
25:45
Speaker 2: say that this will or won't become a problem, because
25:48
Speaker 2: markets can shrug things off until it becomes apparent that
25:50
Speaker 2: they no longer can. I remember back in two thousand
25:55
Speaker 2: and seven, I was actually was early two thousand and eight.
26:00
Speaker 2: I was working in New York City at the time,
26:02
Speaker 2: and I was again like, this was January, February March
26:07
Speaker 2: two thousand and eight. Everyone in their grandmother had an
26:10
Speaker 2: opinion on some prime mortgages at the time, and it
26:13
Speaker 2: wasn't yet at the point where Bear Stearns had to
26:16
Speaker 2: be you know, taken out and you know, put to sleep.
26:19
Speaker 2: It was something where okay, maybe we can muddle through this.
26:24
Speaker 2: Bernanki had said subprime was contained. You know, like you're
26:27
Speaker 2: kind of going, was it Bernanki or was a Geitner
26:29
Speaker 2: that said that, I can't remember, not guy paulse New
26:32
Speaker 2: said that. I think it was paulse New said subprime
26:36
Speaker 2: is contained. It was one of the two either.
26:39
Speaker 3: Way Bernanki, Yeah, BERNANKI use some regrettable phrase.
26:43
Speaker 2: It was either him or paulse And I forget who.
26:45
Speaker 2: But they said around the time like subprime is contained
26:48
Speaker 2: and markets traded okay for yeah, the better part of
26:54
Speaker 2: almost two years before the subprime problem actually became, you
26:59
Speaker 2: know what what it was. You had, you know, it
27:02
Speaker 2: was apparent back in two thousand and seven that there
27:05
Speaker 2: was an issue, and markets didn't really fall apart until
27:07
Speaker 2: the fall of eight. So on this US deficit piece
27:12
Speaker 2: and you know, yields on US treasuries, it's perfectly reasonable
27:18
Speaker 2: even if there is a problem that may become apparent
27:20
Speaker 2: that it takes time to actually get there because the
27:23
Speaker 2: tenure Treasury today is actually seeing you know, money flowing
27:27
Speaker 2: into it because of concerns about an economics slowdown, and
27:30
Speaker 2: so it's down to four point three eight three percent.
27:33
Speaker 3: Yeah, there are a couple different views on this. One.
27:35
Speaker 3: Is this sudden stop let just call it view or
27:38
Speaker 3: theory or whatever, which is the phrase suggests means people
27:42
Speaker 3: there's effectively a bond buyer's strike. People no longer believe
27:46
Speaker 3: that you're going to pay back the loans that you've
27:48
Speaker 3: taken out, which is what bonds are. That would suggest
27:53
Speaker 3: if that view of how markets operate is correct, that
27:56
Speaker 3: would suggest a one time, discrete, big jump in yields
28:03
Speaker 3: or equivalently, a decline in bond prices for a big
28:08
Speaker 3: developed economy, particularly one whose debt is viewed as a
28:13
Speaker 3: safe haven or was I don't know if it still
28:15
Speaker 3: is a safe haven asset, that would be unusual. Sudden
28:18
Speaker 3: stops are more common in emerging markets, and we've all
28:22
Speaker 3: witnessed them at one time or another. Think Latin America
28:25
Speaker 3: in the early eighties, think Mexico in the mid nineties.
28:29
Speaker 3: There are currency elements to it too, but we don't
28:31
Speaker 3: need to get into too much detail about that. The
28:34
Speaker 3: other view on how this is going to unfold, and
28:36
Speaker 3: maybe there's some intermediate views that I'm clossing over so
28:39
Speaker 3: I'm oversimplifying, is that this will just take time to
28:42
Speaker 3: put upward pressure on rates, and as the deficits in
28:47
Speaker 3: debt situation deteriorates, you could say, well, isn't it obvious
28:51
Speaker 3: that it's going to Yeah, the writing does appear to
28:54
Speaker 3: be on the wall. There's no political will to rein
28:56
Speaker 3: in the spending that's accounting for most of the growth
29:00
Speaker 3: in the deficit, iesosecurity and more specifically healthcare, Medicare, Medicaid.
29:06
Speaker 3: What does that imply gradually upward moving rates and probably
29:12
Speaker 3: elevated inflation. That seems to be a reasonable baseline scenario,
29:16
Speaker 3: and maybe that's already priced in.
29:17
Speaker 2: We know could be.
29:18
Speaker 3: Maybe rates would be a lot lower were it not
29:20
Speaker 3: for these expected dynamics.
29:23
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29:27
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31:00
Speaker 2: In market Watch today, it's titled young people lack financial literacy,
31:04
Speaker 2: but older folks aren't that much smarter, outs We're all
31:07
Speaker 2: just dumb? Is that the theory mark?
31:11
Speaker 3: It has always been the case that people have struggled
31:14
Speaker 3: with any anything beyond very basic math concepts, So financial
31:20
Speaker 3: literacy is just an extension to that in my view.
31:22
Speaker 2: So big things that we're seeing here. There is a
31:28
Speaker 2: financial literacy test called the PFIN Index. It is twenty
31:33
Speaker 2: eight questions long, and in twenty twenty four adults take
31:38
Speaker 2: this correctly answered about fifty percent of those questions in
31:43
Speaker 2: that PFIN Index. Big things. Most respondents didn't realize that
31:49
Speaker 2: a retirement savings plan with an employer match is better
31:52
Speaker 2: than one without the match, So people didn't realize that
31:56
Speaker 2: that was an employer giving them money just for contributing.
32:01
Speaker 2: Sixty percent or almost sixty percent didn't realize that Social
32:04
Speaker 2: Security benefits last for your entire lifetime after you start
32:10
Speaker 2: claiming them. Only about thirty percent of respondents knew that
32:15
Speaker 2: Medicare covers about two thirds of retirees' health costs. So
32:17
Speaker 2: we're not even getting into, you know, really complex types
32:22
Speaker 2: of financial questions. But more, hey do you know how
32:24
Speaker 2: the programs that are in the United States work, and
32:29
Speaker 2: I'm trying to figure out, like what's the answer to this,
32:33
Speaker 2: like how how do we fix this? And I think
32:37
Speaker 2: what I find most disheartening about this is I go
32:41
Speaker 2: through this math quite often where if you're someone who
32:44
Speaker 2: works a normal eight hour day, you work two thousand
32:50
Speaker 2: hours a year. That's your standard year based on how
32:53
Speaker 2: many working days there are about two hundred and fifty
32:55
Speaker 2: an eight hour days, so two thousand hours a year.
32:58
Speaker 2: If you work from a you know, call it twenty
33:01
Speaker 2: to age sixty five, you're working ninety thousand hours over
33:05
Speaker 2: the course of your career. Ninety thousand hours. That's a
33:09
Speaker 2: lot of hours. Man. If you're working ninety thousand hours
33:14
Speaker 2: or even let's just do this on an annual basis,
33:15
Speaker 2: you work two thousand hours, how do you not take
33:18
Speaker 2: one percent of that time off to your own twenty
33:20
Speaker 2: hours a year about a half hour a month to
33:25
Speaker 2: educate yourself on making sure that you're actually getting the
33:29
Speaker 2: most bang for your buck in terms of the money
33:32
Speaker 2: that you're earning or that you may be entitled to
33:34
Speaker 2: through you know, different programs, because not everyone needs to
33:39
Speaker 2: be an expert on all this stuff, but just saying, hey,
33:42
Speaker 2: can you take a half hour a month to spend,
33:45
Speaker 2: you know, working on your finances. That's all it takes
33:49
Speaker 2: to get to kind of a base level of proficiency.
33:51
Speaker 2: I think, you know, just to understand, Hey, how does
33:55
Speaker 2: medicare actually work? Now? Do you need to understand how
33:58
Speaker 2: medicare works when you're twenty one? No, you can probably
34:01
Speaker 2: save that for you know, a half hour a month
34:04
Speaker 2: when you are or a half hour they say a
34:07
Speaker 2: month or a week whatever it is, you know, half
34:10
Speaker 2: hour a month when you're you know, sixty. You can
34:13
Speaker 2: probably start figuring out medicare at fifty five or something
34:16
Speaker 2: like that. But you know, at twenty, hey, do I
34:19
Speaker 2: understand you know exactly how credit card interest works? Do
34:22
Speaker 2: I understand you know why not to rely on payday
34:26
Speaker 2: loans unless you know there's absolutely no alternative, there's always
34:31
Speaker 2: something more to learn it. All you got to do
34:32
Speaker 2: is spend again, a little bit of time here and there,
34:36
Speaker 2: and I think it can really bring some value to you. Yeah.
34:39
Speaker 3: To me, it's the way it's a failure of those
34:41
Speaker 3: that do financial education. It's never the student's fault. It's
34:44
Speaker 3: always that that that the teacher's fault. We're not communicating it,
34:47
Speaker 3: and I would include those of us in the financial
34:50
Speaker 3: communication industry, which we are for a couple hours a
34:52
Speaker 3: day on this show. We're not either explaining it, not
34:56
Speaker 3: us in particular.
34:58
Speaker 2: We oh, you can say that we don't explain it.
35:00
Speaker 3: I'm just on pointing the finger at everybody here.
35:02
Speaker 2: We're bad at our job. Just say it how it is.
35:04
Speaker 3: We don't demystify sufficiently. We presume or assume that people
35:11
Speaker 3: know too much. We expand on things they're not interested in,
35:15
Speaker 3: don't elaborate on basic concepts that they do need a
35:18
Speaker 3: refresher with respect to. And we all have domains where
35:21
Speaker 3: we're not comfortable. I need my mechanic to explain things
35:25
Speaker 3: to me. Like I'm ten years old and not particularly bright.
35:28
Speaker 2: And there are some things where I don't even want
35:30
Speaker 2: to know them. So you know, it's like I don't
35:32
Speaker 2: need to know how.
35:34
Speaker 3: That's what I'm saying. A good teacher knows what the
35:36
Speaker 3: extraneous stuff is.
35:37
Speaker 2: Let's take a quick break here. When we come back,
35:39
Speaker 2: Stack Roulettes.
35:41
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36:20
Speaker 2: Mark what do you got for me for stack Roulette?
36:22
Speaker 3: Sort of related to our last story about financial literacy
36:25
Speaker 3: or lack thereof, this is a positive spin on that topic. Americans,
36:30
Speaker 3: according to the Wall Street Journal, are finally saving enough
36:33
Speaker 3: to what they're relative to what they're supposed to be
36:35
Speaker 3: saving for retirement. So it says Fidelity. Fidelity is a
36:38
Speaker 3: large record keeper. If you are employed by a large
36:42
Speaker 3: say Fortune five hundred company, your four one case probably
36:45
Speaker 3: record kept by Fidelity, Vanguard, t ro Price.
36:47
Speaker 2: They record keep the American Funds assets.
36:50
Speaker 3: Yeah, I'm just going with the big three who have
36:51
Speaker 3: like an eighty percent market share or something.
36:53
Speaker 2: But you used to be American Funds was one of
36:54
Speaker 2: the big ones there, and that's that's changed in the
36:57
Speaker 2: last couple decades.
36:58
Speaker 3: I'm amazed that they're still in the business there. Well,
37:00
Speaker 3: and we don't have to get into that right now.
37:02
Speaker 3: The point well, only because their funds are really expensive.
37:05
Speaker 3: This is actually tied into it. You know, it can
37:08
Speaker 3: be kept really simple, these points about financial literacy and
37:11
Speaker 3: invest regularly, save as much as you can use low cost,
37:15
Speaker 3: broadly diversified options, and take advantage of your employer match.
37:18
Speaker 3: If everybody did that, financial security would be far more prevalent.
37:23
Speaker 3: It's not that hard, and Fidelity says that people are
37:26
Speaker 3: finally on track. They're saving on average nearly fifteen percent
37:29
Speaker 3: of their pretext income, which is about what's recommended.
37:33
Speaker 2: Good news. If that carries forth, you know, well, it's
37:38
Speaker 2: probably that's the case amongst people that have the accounts
37:41
Speaker 2: open with Fidelity.
37:42
Speaker 3: There are some selection there.
37:43
Speaker 2: You it's what percentage of the workforce doesn't save, you know,
37:47
Speaker 2: into a retirement account and doesn't even get counted there.
37:50
Speaker 2: Then let's take a quick break for the entire rest
37:53
Speaker 2: of the day. We will see you back here tomorrow.
37:56
Speaker 2: We got jobless claims coming out. We'll discuss those and
37:59
Speaker 2: a whole lot more