Latest / The Financial Exchange Show / The stock market is rotating out of Big Tech. Is this a good thing?

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The stock market is rotating out of Big Tech. Is this a good thing? · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
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Speaker 2: Chuck, Mike and Tucker with you here, kicking off another
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Speaker 2: full week of stuff. And as we kick things off,
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Speaker 2: we've got markets, you know, kind of mixed trying to
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Speaker 2: find their footing after a down day on Friday. But
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Speaker 2: quite honestly, the next eight days a trading days before
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Speaker 2: the Christmas holiday, I think I have the potential to
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Speaker 2: be a little bit unique here in that tomorrow we're
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Speaker 2: going to be getting a jobs report for the month
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Speaker 2: of November, also a partial jobs report for the month
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Speaker 2: of October. We normally get the November jobs report about
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Speaker 2: a week and a half ago, Like if you look
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Speaker 2: at the schedule, it would have come out on Friday
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Speaker 2: the fifth, So this is a as late as we've
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Speaker 2: ever gotten one due to the shutdown, and so markets,
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Speaker 2: I think, to a certain extent, don't quite know what
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Speaker 2: to do with a jobs report that's coming out this
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Speaker 2: late in the month, because normally, like all your bags
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Speaker 2: are packed, you're ready to go heading into the holidays,
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Speaker 2: there's nothing else that's usually that important in markets this
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Speaker 2: late in the year. We're also going to be getting
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Speaker 2: retail sales data on Tuesday as well. That is a
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Speaker 2: delayed report for the month of October, so again kind
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Speaker 2: of just some some weirdness creeping into the calendar. Then
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Speaker 2: on Thursday we get CPI four November we also get
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Speaker 2: weekly jobless claims, and Friday we're going to get existing
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Speaker 2: home sales. So we've got a full calendar this week
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Speaker 2: in terms of economic data that is coming out, and
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Speaker 2: then it's a shortened week next week because of the holiday.
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Speaker 2: On Thursday, you obviously do not have markets open for Christmas,
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Speaker 2: and so it's it's kind of this battle here between hey,
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Speaker 2: is there economic data that can shake things up a
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Speaker 2: little bit, or does the lack of trading sessions available
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Speaker 2: in the next several weeks between the Christmas and New
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Speaker 2: Year's holidays does that bring some calm to market simply
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Speaker 2: because well there's there's an old Flemish saying markets cannot
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Speaker 2: fall on a day where they are closed, and you know,
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Speaker 2: I think that kind of gets us to uh to
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Speaker 2: where we are today.
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Speaker 3: Oh yeah, that's that's definitely very common Flemish saying. Is
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Speaker 3: what would you point to most important here? I'm looking
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Speaker 3: at the jobs report, You've got multiple months of releases.
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Speaker 3: I know it's still quite backwards looking but in terms
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Speaker 3: of potential change to the overall narrative, that's that's the
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Speaker 3: one that I'm looking at. I don't think you can
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Speaker 3: get too surprised from this inflation report.
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Speaker 2: Now, the the inflation data, I don't think it's going
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Speaker 2: to give us, you know, much in any direction. I
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Speaker 2: think it's going to be pretty consistent with what we've seen.
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Speaker 2: But the job's report is interesting to me in that
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Speaker 2: if you look at what's priced in right now, expectations
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Speaker 2: are for twenty five thousand to forty thousand jobs added,
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Speaker 2: the unemployment rate is going to be anywhere between four
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Speaker 2: point four and four point six percent, which is a
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Speaker 2: pretty big range, you know, heading into the day of
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Speaker 2: average hourly earnings expected to grow somewhere around point two percent.
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Speaker 2: And so I think the big thing here, if you
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Speaker 2: think about the two ways that you can be surprised,
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Speaker 2: you know, up or down, it's basically, Hey, if you
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Speaker 2: have another jobs report that has faster payroll growth than
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Speaker 2: people are expecting, Okay, then you've got a case out
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Speaker 2: there where the FED is very likely on hold for
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Speaker 2: the foreseeable future, because if there is no sign of
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Speaker 2: further deterioration in the labor markets. What specifically, as it
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Speaker 2: relates to the unemployment rate, remember that's what they look at.
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Speaker 2: It's going to be something that makes it very hard
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Speaker 2: for the FED to cut at any point in the
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Speaker 2: near future, given that they've already cut another you know,
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Speaker 2: three quarters of a percent this fall. On the other hand,
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Speaker 2: what happens if we get you know, forty thousand jobs
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Speaker 2: lost and the unemployment rate goes to four to six. Oh,
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Speaker 2: that starts to look you know, a little bit dodgy here.
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Speaker 2: FED is probably back on for January then, So I
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Speaker 2: think that there's some uncertainty there.
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Speaker 3: And by the way, is this a good news bad news?
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Speaker 3: Good news is bad news jobs report.
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Speaker 2: It's we're getting close to the territory where historically bad
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Speaker 2: news would start to be bad news. You know, when
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Speaker 2: when you start seeing actually, you know, net job losses
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Speaker 2: and the unemployment rate going up. The FED generally when
5:46
Speaker 2: you get to that point too late, they again, there's
5:51
Speaker 2: a reason why we talk about monetary policy having these lags.
5:54
Speaker 2: It just doesn't kick in quickly enough. And so this
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Speaker 2: is something that bears watching here right now. The prevailing
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Speaker 2: wisdom for the January FED meeting, which is gonna be
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Speaker 2: on January twenty eighth, seventy three percent chance of a
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Speaker 2: rate I'm sorry of no change in rates, twenty six
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Speaker 2: point six percent chance of a quarter percent cut. So yeah,
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Speaker 2: there's you know, a hurdle that has to be you know,
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Speaker 2: gotten over in order to see a cut. A week
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Speaker 2: jobs report, would you know, start to kind of lay
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Speaker 2: the groundwork there, because you would have another one in
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Speaker 2: early January before then, Whereas if this comes in, let's
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Speaker 2: say we get another one hundred and ten thousand jobs
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Speaker 2: added and unemployment stays at four.
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Speaker 4: To four, Yeah, they ain't moving.
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Speaker 2: It's you're you're probably not getting anywhere for that January
6:38
Speaker 2: meeting now.
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Speaker 3: That we're a few months out from it. I know
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Speaker 3: we called this at the time too, but I'm kind
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Speaker 3: of marking the tape back to late October early November,
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Speaker 3: and to me, since that point in time, there has
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Speaker 3: been a shift in the mentality of investors towards artificial
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Speaker 3: intelligence related companies, and I think it's worthy of continuing
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Speaker 3: to bring up. It's what sank markets on Friday last
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Speaker 3: week with Broadcom's earnings. You know, mid October was when
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Speaker 3: Oracle went through their first bout of volatility. Following all
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Speaker 3: their stock market increases in video stock topped out right
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Speaker 3: around late October early November, and since that point in
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Speaker 3: time it has not been a sell off of AI
7:19
Speaker 3: related companies. You know, you could make the argument that no,
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Speaker 3: you just shifted from one company to another, right with
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Speaker 3: Alphabet's release of the new AI tools and the discussion there.
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Speaker 3: But since that point in time, I think the thing
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Speaker 3: that has shifted in my mind at least, has been
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Speaker 3: investors actually expressing skepticism about the spending on artificial intelligence.
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Speaker 3: And so I don't know what exactly it takes to
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Speaker 3: break that trend if we were hoping for a rebound
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Speaker 3: back to where we were in say the summer of
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Speaker 3: last year when it came to these companies, but I'm
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Speaker 3: kind of marking it as that point in time where
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Speaker 3: investors started expressing skepticism about the debt, about the monetization
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Speaker 3: of the products, and just about how long it can
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Speaker 3: continue this way. And so, you know, in light of that,
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Speaker 3: things like broadcome Stellar earnings that came out on Thursday
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Speaker 3: night have not been enough to lift those companies. And
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Speaker 3: so what will be the next leg that will either
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Speaker 3: move that up or down?
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Speaker 4: Is my question?
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Speaker 2: Let's take a quick break here, and when we come back,
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Speaker 2: let's talk exactly. Let's talk about that specific phenomenon, because
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Speaker 2: there's a piece in Barren specifically about this rotation out
8:28
Speaker 2: of tech and into other things. Let's discuss is that good, bad,
8:34
Speaker 2: or ugly? Let's do that.
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Speaker 2: All right. We got a couple different pieces about the
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Speaker 2: stock rotation that's happening right now. One from a good
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Speaker 2: friend of the show, Paul Monica, the stock market is
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Speaker 2: rotating out of big tech a December data deluge triple
10:17
Speaker 2: D might I add could dictate the next move? Another
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Speaker 2: one from market Watch, investors are dumping stock market winners
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Speaker 2: in buying almost everything else. Why that's a good sign?
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Speaker 2: And the question that I will ask Michael, is it
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Speaker 2: a good sign?
10:33
Speaker 4: Well?
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Speaker 3: I don't think that you can say in and of
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Speaker 3: itself that a broadening out of winners in the stock
10:39
Speaker 3: market is a bad thing, right. I mean, when you
10:41
Speaker 3: have a very narrow market, people tend to get a
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Speaker 3: bit apprehensive about it, and Carl call towards things like
10:48
Speaker 3: a bubble. When you have the broadening out effect of
10:51
Speaker 3: you know, companies that have just been kind of ignored
10:54
Speaker 3: getting some attention towards the upside, I think you can
10:58
Speaker 3: call that a good thing. If people are just simply
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Speaker 3: taking their gains and refusing to exit stocks and buying
11:06
Speaker 3: things blindly as you saw. Well, the rust of two
11:09
Speaker 3: thousand move the other day was probably more dictated by
11:12
Speaker 3: interest rate policy than anything else. But that would be
11:15
Speaker 3: the concerning question is are people just saying, hey, you know,
11:19
Speaker 3: I'm dumping my AI stocks and just jumping into anything
11:23
Speaker 3: else blindly. That's of concern. Whereas a general broadening out
11:29
Speaker 3: I don't think is a bad thing.
11:32
Speaker 2: The problem is that for the last two years, anytime
11:35
Speaker 2: we've had a broadening out attempted, it's ended badly for stocks.
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Speaker 4: Give me some examples here.
11:42
Speaker 2: Last July we saw this rotation start happening between tech
11:46
Speaker 2: and small caps and banks and stuff, and it basically
11:50
Speaker 2: broke the markets. And remember we came in on a Monday,
11:53
Speaker 2: and like the yen had like gone haywire and the
11:56
Speaker 2: vis had gone to sixty despite the market barely moving,
11:58
Speaker 2: and everyone's like what happened here? So you literally had
12:02
Speaker 2: markets break last you know, July for about you know,
12:06
Speaker 2: one two week period. We had another attempt at this
12:10
Speaker 2: in the first half of this year. Now, granted there
12:14
Speaker 2: were some other things going on from a tariff related perspective,
12:17
Speaker 2: but the first three months of the year saw a
12:19
Speaker 2: similar rotation and markets really struggled to find a way forward. So, yes,
12:27
Speaker 2: like in theory, you want to see a broadening out.
12:30
Speaker 2: The problem is with the levels of concentration that you've
12:33
Speaker 2: gotten to with these tech names, I'm not really convinced
12:39
Speaker 2: you can have a successful broadening out of this market
12:43
Speaker 2: without experiencing some pain concurrent to that broadening. Yeah, so
12:48
Speaker 2: I think there's maybe a problem there. Now. The other
12:53
Speaker 2: piece is markets have tried this, trying to you know
12:57
Speaker 2: again kind of front run. Hey, here's where we think
12:59
Speaker 2: the economy going to be going, and ultimately the other
13:02
Speaker 2: pieces the economy never went there. And so it's something
13:07
Speaker 2: where oh, like, yes, this is going to broaden out
13:09
Speaker 2: and do this and do that, and here's the thing
13:12
Speaker 2: that I come back to, and any of like the
13:14
Speaker 2: any of the small business owners or any of the
13:16
Speaker 2: people that work for small businesses will tell you this,
13:18
Speaker 2: because this is what I hear almost unanimously is look,
13:24
Speaker 2: if if you pull out the AI companies and look
13:27
Speaker 2: at actual businesses that need to you know, operate in
13:32
Speaker 2: the real world buying and selling things to you know,
13:35
Speaker 2: real humans, they've basically been hanging on for dear life
13:40
Speaker 2: for the last couple of years. Margins have been compressing
13:44
Speaker 2: in a lot of those areas. If you look at
13:47
Speaker 2: you know, the SMP as a whole, X Tech, I'm sorry,
13:49
Speaker 2: x AI. It's basically, hey, margins are holding steady, but
13:54
Speaker 2: companies are having to pull every trick out of their
13:56
Speaker 2: you know bag in order to do so. And so
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Speaker 2: I think that this is the case here, which is
14:05
Speaker 2: real world companies have really been you know, struggling to
14:09
Speaker 2: make you know, headway for the last couple of years.
14:13
Speaker 2: And the only way that I will believe that a
14:16
Speaker 2: broadening out can be successful is if it happens with earnings,
14:23
Speaker 2: not just with stock prices. Because this is the problem
14:26
Speaker 2: is that, aside from big tech, the actual earnings growth
14:31
Speaker 2: has been more muted the last couple of years, and
14:34
Speaker 2: so I am a big believer in what Larry Cudlow
14:38
Speaker 2: always said every single time we talked to him. Profits
14:40
Speaker 2: are the mother's milk of stock prices. Look, if you
14:43
Speaker 2: cannot find a way to consistently generate profit growth, yeah,
14:50
Speaker 2: we're gonna have some some problems with that broadening out
14:53
Speaker 2: actually sticking.
14:54
Speaker 4: Yeah.
14:55
Speaker 3: Yeah, So I mean again, I go back to over
14:58
Speaker 3: and over there. The only forget about the you know,
15:01
Speaker 3: earnings growth numbers, forget about what the profit margins on
15:05
Speaker 3: for non AI related companies. The only real shift that
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Speaker 3: I can detect in the way that people are talking
15:12
Speaker 3: about things is very much renewed skepticism about the breadth
15:17
Speaker 3: and permanence of this AI trade. Since October, I think
15:21
Speaker 3: there's been a marked shift in attitude towards it. And
15:24
Speaker 3: so precisely what is going to bring that back or
15:29
Speaker 3: make it worse?
15:30
Speaker 2: Is?
15:30
Speaker 3: I think really the question that matter is because there's
15:34
Speaker 3: just not enough great stuff going on outside of AI
15:38
Speaker 3: to keep this market excited.
15:40
Speaker 2: I think, yeah, it's it's just something where it's it's
15:45
Speaker 2: challenging in you know, a lot of other areas of
15:50
Speaker 2: the economy to be able to operate. I'm just going
15:52
Speaker 2: to pull the data from a fact set here, who's
15:54
Speaker 2: an aggregator, and let's look at Let's see that that's
16:00
Speaker 2: not that's by a year. I want bi sector. Here
16:02
Speaker 2: we go, S and P five hundred earnings growth calendar
16:05
Speaker 2: year twenty twenty five. Infotech earnings have grown twenty three
16:10
Speaker 2: percent Yahoo, not Yahoo, actually Google, but in any case,
16:17
Speaker 2: twenty three percent. Communication services, which yes it does include
16:22
Speaker 2: you know, AT and T and Verizon and you know
16:26
Speaker 2: those companies, but communication services two biggest companies, Google and
16:30
Speaker 2: Meta Communication Services earnings up seventeen point seven percent this year,
16:35
Speaker 2: mostly on the back of them. Financial is up thirteen percent.
16:39
Speaker 2: A lot more trading m and as picked up, so
16:41
Speaker 2: you'll get it, and you're like, okay, this is good.
16:43
Speaker 2: Healthcare earnings up twelve point four percent. Well so is
16:47
Speaker 2: our you know, renewal for health insurance. Okay, yeah, I
16:50
Speaker 2: get it. And then you get to like the what
16:53
Speaker 2: I call kind of like the real economy, the stuff
16:55
Speaker 2: that makes everything actually tick. Utilities earnings up seven point
16:59
Speaker 2: nine again, like we're feeling this with utility bills and
17:03
Speaker 2: stuff like that, but again a slower growth rate. Industrials
17:06
Speaker 2: earnings up seven point three percent, materials up six point six,
17:10
Speaker 2: consumer discretionary which includes Amazon by the way, up five
17:13
Speaker 2: to five, real estate up three four, consumer staples flat,
17:16
Speaker 2: energy down nine point six. Like you look at that,
17:20
Speaker 2: and everything else is you know, earning's growth is slower
17:23
Speaker 2: than ten percent. And this is kind of the story
17:26
Speaker 2: that I'm getting at, which is, aside from big tech,
17:31
Speaker 2: everything else is you know, just moving more slowly. And
17:34
Speaker 2: it's been a more challenging operating environment, especially on the
17:38
Speaker 2: consumer side, consumer staples and discretionary, Like what people are
17:42
Speaker 2: actually like buying five point five and zero point two percent.
17:46
Speaker 2: That is not strong earnings growth.
17:49
Speaker 3: So bring it back to the same thing we've been saying.
17:52
Speaker 3: This entire market and a good chunk of the economy
17:55
Speaker 3: is heavily reliant on how quickly AI can grow and
18:00
Speaker 3: be monetized.
18:01
Speaker 2: And this is the other problem that we're going to
18:03
Speaker 2: have to sort through. If this AI bubble bursts, how
18:07
Speaker 2: much of our consumer spending is being driven by market strength,
18:12
Speaker 2: and if AI sees a pullback, how much downstream impact
18:17
Speaker 2: is there then to those other sectors.
18:19
Speaker 3: We've covered this few times, but I think we need
18:20
Speaker 3: to thoroughly explain that what Chuck is pointing out is
18:24
Speaker 3: that the traditional things that historically have driven consumer spending,
18:29
Speaker 3: such as income growth and employment growth, have not seemingly
18:33
Speaker 3: been the ones driving spending this time. We theorize that
18:36
Speaker 3: a bigger chunk of spending is now coming from the
18:39
Speaker 3: wealth effect. People feeling wealthier, especially retirees because the value
18:43
Speaker 3: of their investment portfolio. And so, in spite of all
18:47
Speaker 3: the AI talk that we've been having, this economy as
18:50
Speaker 3: a whole is still driven by the consumer. And so,
18:53
Speaker 3: drawing that out a little bit further, if stock prices
18:56
Speaker 3: were to fall in some meaningful way, would consumers bend
19:00
Speaker 3: like they have been? They always pull back a little
19:03
Speaker 3: bit during a stock market crash, But is it different
19:06
Speaker 3: this time when it comes to the waiting of those consumers,
19:09
Speaker 3: the waiting of wealth, the distribution of wealth, insofar as
19:13
Speaker 3: stock prices fall, and especially retired folks, would they pull
19:18
Speaker 3: back on their spending in a dramatic fashion. That's a
19:20
Speaker 3: pretty big question.
19:22
Speaker 2: So, yeah, it's the open question that is out there,
19:26
Speaker 2: and I think it's going to be one that bears
19:30
Speaker 2: watching as we see how this You see how AI
19:36
Speaker 2: spending and revenue evolves over the next couple of years. Again,
19:42
Speaker 2: I understand why Mark Zuckerberg says I'm going to spend
19:45
Speaker 2: two hundred and fifty billion dollars to build out data
19:47
Speaker 2: centers because he sees the upside there. But eventually that
19:52
Speaker 2: upside has to be realized in the form of, Hey,
19:54
Speaker 2: here's the revenue that's going to then pay for those
19:57
Speaker 2: data centers. Right, let's take a quick break. When we
19:59
Speaker 2: come back, we got Wall Street Watch and then why
20:01
Speaker 2: everyone got Trump Trump's tariffs wrong?
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20:29
Speaker 6: After a positive start at the opening bell markets and
20:32
Speaker 6: now in negative territory to begin the week, as Wall
20:35
Speaker 6: Street awaits a flurry of economic data duout, including the
20:40
Speaker 6: November jobs report tomorrow morning, in addition to the October
20:44
Speaker 6: retail sales report, and we also have a Consumer Price
20:47
Speaker 6: Index on Thursday for the month of November. Right now,
20:51
Speaker 6: the Dow is down only nineteen points, SMP five hundred
20:55
Speaker 6: is off a tenth of a percent. NASDAC down just
20:58
Speaker 6: over four tenths of a percent, Center ninety nine points lower.
21:01
Speaker 6: Russell two thousand is off over a third of a percent.
21:06
Speaker 6: A ten year Treasure reeled down three basis points at
21:08
Speaker 6: four point one five nine percent. In crude oil down
21:12
Speaker 6: nearly nine tenths of one percent, trading just below fifty
21:15
Speaker 6: seven dollars a barrel. Well Rumba maker i Robot. I
21:19
Speaker 6: Robot declared bankruptcy over the weekend, sending shares in the
21:23
Speaker 6: company plunging seventy one percent. The Massachusetts based i Robot
21:29
Speaker 6: said its customer service and app functionality will continue normally
21:33
Speaker 6: during the restructuring and if you recall or proposed sale
21:36
Speaker 6: to Amazon fell through back in twenty twenty four due
21:41
Speaker 6: to regulatory concerns. Meanwhile, space linked stocks including rocket Lab,
21:46
Speaker 6: down seven percent, while Ecostar shares are up modestly following
21:50
Speaker 6: reports that SpaceX intends to go public in twenty twenty
21:54
Speaker 6: six after notching an eight hundred billion dollar valuation in
21:57
Speaker 6: its latest funding round. Elsewhere, the US listed shares of
22:01
Speaker 6: Chinese e commerce companies Ali, Baba and Baidu falling over
22:05
Speaker 6: four excuse me three percent after data this morning showed
22:09
Speaker 6: the Chinese economy is weakening. Goldman Sachs upgraded both Las
22:13
Speaker 6: Vegas Sands and Marriott International, sending shares in both of
22:17
Speaker 6: those stocks up about two percent. In Dollar General was
22:21
Speaker 6: upgraded by JP Morgan too Overweight, where the bank also
22:25
Speaker 6: lifted its price target to one hundred and sixty six
22:28
Speaker 6: dollars per share, up from one twenty eight. However, Dollar
22:32
Speaker 6: General shares are down about half percent at the moment.
22:35
Speaker 6: I'm Tucker Soil and that is Wall Street Watch and
22:38
Speaker 6: just a reminder, The Financial Exchange streams every day live
22:42
Speaker 6: on YouTube. Subscribe to our page and follow market activity
22:46
Speaker 6: all morning long only here in the Financial Exchange Radio Network.
22:49
Speaker 6: Just starts the Financial Exchange on YouTube and hit that
22:53
Speaker 6: subscribe button.
22:55
Speaker 2: Piece in the Wall Street Journal why everyone got Trump's
22:58
Speaker 2: tariffs wrong. Predictions of the duties impact on the economy
23:01
Speaker 2: were either buoyant or dire. Here's the reality.
23:05
Speaker 3: So they give the reality. They don't say why everybody
23:08
Speaker 3: got it wrong. So I've got an answer to that part.
23:10
Speaker 3: But they run through all the estimates about employment prices,
23:17
Speaker 3: tariff revenue, and they point out that you know it
23:21
Speaker 3: was on the downside, on the on the bad side,
23:24
Speaker 3: overestimated how bad it would be, and on the positives
23:27
Speaker 3: also overestimated how how good the tariffs would be.
23:31
Speaker 4: But go ahead.
23:34
Speaker 3: I think the article does a fair job of explaining, like, hey,
23:36
Speaker 3: this was the consensus estimate and this is where we
23:38
Speaker 3: actually landed.
23:40
Speaker 2: Let's talk just about some of those areas. So I
23:43
Speaker 2: think if you look at areas where the let let's
23:47
Speaker 2: look at just kind of different areas of impact for
23:49
Speaker 2: the economy, pricing. When we look at inflation, inflation has
23:53
Speaker 2: gone up in the second half of the year relative
23:55
Speaker 2: to where it was in the first half. It's gone
23:58
Speaker 2: up modestly were it's still kind of high twos, low threes,
24:01
Speaker 2: depending on the metric that you look at. And so, yes,
24:05
Speaker 2: you have not seen any significant jump in inflation. It's
24:10
Speaker 2: been a modest move up there. On the labor market
24:14
Speaker 2: side of things, we've seen a continued slowing of the
24:16
Speaker 2: labor market, but it hasn't deviated from the trend it
24:19
Speaker 2: was on prior to April either. It's just been a
24:22
Speaker 2: continuation of a slowing that started in twenty twenty two
24:26
Speaker 2: and is moving at the same pace there. So there's
24:28
Speaker 2: been no acceleration to this point in the deterioration of
24:32
Speaker 2: the labor market. When you look at economic growth, you're
24:37
Speaker 2: basically seeing no meaningful shift. Either it's continuing at the
24:42
Speaker 2: same clip that we were at or roughly the same
24:44
Speaker 2: as before this. And so I think ultimately my takeaway
24:48
Speaker 2: in terms of why everyone got this wrong, quite honestly,
24:53
Speaker 2: I think that the biggest thing is the tariffs have
24:56
Speaker 2: evolved in ways that have made them less impactful than
25:02
Speaker 2: initially people thought they were going to be. The biggest things.
25:06
Speaker 2: Number one, pretty significant exemptions that are out there, whether
25:10
Speaker 2: you're talking about you know, some of the new ones
25:11
Speaker 2: that were just put in place on you know, some
25:14
Speaker 2: imported foods and things like that, or the big one,
25:17
Speaker 2: in my opinion, most technology products are exempted from tariffs.
25:22
Speaker 2: And when you look at what we import, in particular
25:25
Speaker 2: from China, there's a small device that many of you
25:28
Speaker 2: listening have in your pocket on a daily basis. It's
25:32
Speaker 2: called a smartphone, and most of them are made in China.
25:36
Speaker 2: If you are not going to apply a thirty to
25:39
Speaker 2: fifty percent tariff too said smartphone, that's a pretty big exemption.
25:44
Speaker 2: When you look at the dollar value of exports from China.
25:47
Speaker 3: In terms of where we've started and where we've gone.
25:52
Speaker 3: So on liberation day, not knowing what would be exempted
25:56
Speaker 3: or not, the average effect of tariff right was guessed
25:59
Speaker 3: to be around twenty to twenty five percent if all
26:01
Speaker 3: that stuff went into place, and could be a lot
26:03
Speaker 3: higher depending on you know, where did we reach with China,
26:05
Speaker 3: like one hundred and thirty percent teriff rates basically never
26:08
Speaker 3: went into effect effected. Yeah, we've settled now somewhere in
26:13
Speaker 3: the twelve percent range.
26:14
Speaker 2: Yeah, the last month that we had for tariff collection
26:17
Speaker 2: was around eleven and we might creep a little bit higher,
26:20
Speaker 2: but it's not going to be too different from where
26:23
Speaker 2: we are right now.
26:24
Speaker 3: Less than half of the high end concern when it
26:26
Speaker 3: came to teriff rates. So if you're wondering, like why
26:29
Speaker 3: do people get it wrong, Well, because they were basing
26:31
Speaker 3: assumptions on the announcement, which we've now come you know,
26:37
Speaker 3: nine what is it six months later? Seven months later,
26:41
Speaker 3: and the announcement versus what's actually been implemented, they're unrecognizable,
26:47
Speaker 3: the exemption and the other piece too. Right, Like when
26:50
Speaker 3: there have been discovers around items that would dramatically reshape
26:55
Speaker 3: the economy or make things very painful for Americans. That's
26:59
Speaker 3: when the administration is stepped in to say, okay, we're
27:01
Speaker 3: going to create exemptions for those products you mentioned smartphones.
27:04
Speaker 3: There's a bunch of produce items where you know, again,
27:07
Speaker 3: people were making a pretty big deal of how pricey
27:09
Speaker 3: some of this stuff was. They exempted a whole bunch
27:11
Speaker 3: of produce. And so that's the other piece of this.
27:14
Speaker 3: It's not just where the settlements have gone, but it's
27:17
Speaker 3: also been when there are pain points for specific industries, companies,
27:22
Speaker 3: or households, the administration has stepped in and said, okay,
27:26
Speaker 3: we are going to create a work around or an
27:28
Speaker 3: exemption for this type of thing. The auto industry has
27:30
Speaker 3: seen several of these for examples. So yeah, I think
27:35
Speaker 3: the lesson there is take a big step back at
27:39
Speaker 3: the initial announcement and a little bit more of watch
27:43
Speaker 3: what I do, not what I say.
27:45
Speaker 2: Piece from Bloomberg titled Don't Freak Out about a Recession
27:50
Speaker 2: love the title. Here's the thing. I think there's two
27:54
Speaker 2: different ways to look at this. If a recession actually happens,
27:59
Speaker 2: God hosly, most people should kind of freak out because
28:01
Speaker 2: I think we've forgotten how much recessions actually suck. They're
28:04
Speaker 2: awful and they're horrible.
28:06
Speaker 3: Furthermore, the average American is really bad at preparing their
28:09
Speaker 3: personal finances for a recession.
28:12
Speaker 2: If you also want to have a separate title, which is, hey,
28:16
Speaker 2: don't predict one hundred recessions before one actually occurs. Yes,
28:21
Speaker 2: because people have been trying to predict a recession, quite honestly,
28:26
Speaker 2: ever since I got into this business sixteen years ago.
28:29
Speaker 2: It feels like everyone always wants to say that recession
28:32
Speaker 2: is like on the verge of happening. And I don't
28:35
Speaker 2: know if it's always been that way, but it just
28:39
Speaker 2: feels like it's to me. And I remember all the
28:40
Speaker 2: double dip recession fears in twenty eleven and twenty twelve.
28:44
Speaker 2: I remember in twenty fifteen and sixteen when the US
28:46
Speaker 2: shale patch was blowing up. Hey, you know, is this
28:49
Speaker 2: going to cause a recession? I remember in eighteen when
28:52
Speaker 2: stocks were falling into the end of the year. Oh,
28:54
Speaker 2: it is like, there're gonna be a recession here. Every
28:57
Speaker 2: single year since twenty twenty in the pandemic, Oh, is
29:00
Speaker 2: this going to be a recession? Is that going to
29:01
Speaker 2: be a recession does that, and like it's easily.
29:04
Speaker 3: One of the most commonly asked questions I get when
29:07
Speaker 3: talking about an investment portfolio is, well, what are we
29:10
Speaker 3: going to do if we feel like a recession's coming?
29:13
Speaker 3: And the answer is, we felt like there's a recession coming,
29:17
Speaker 3: you know, hundreds of times over the course. We don't
29:20
Speaker 3: rely on feelings. Not a useful thing that if you acted.
29:24
Speaker 4: Upon them, it was a terrible idea.
29:26
Speaker 2: Yes, the economy wiggles on a regular basis. It does.
29:31
Speaker 2: It does this little shimmy like it's just you know,
29:34
Speaker 2: it's it's it's never The economy is not just always
29:37
Speaker 2: moving at one speed. It is on a road that
29:41
Speaker 2: is turning and unpredictable, and so the speed is changing
29:45
Speaker 2: as you go through, navigating that path that you don't
29:49
Speaker 2: have GPS for.
29:50
Speaker 3: Here's the useful thing to do about preparing for a recession.
29:53
Speaker 3: Assume that you will not see it coming, and ask yourself,
29:57
Speaker 3: what would I do if I found myself in one suddenly.
30:01
Speaker 2: No preparation for it?
30:02
Speaker 3: Right, Like, if I can't see it coming, if I
30:04
Speaker 3: acknowledge that they're unpredictable, what happens if I suddenly find
30:11
Speaker 3: that I'm out of a job for nine months and
30:15
Speaker 3: the stock market is down by thirty percent?
30:17
Speaker 4: What does that do to me personally?
30:20
Speaker 2: Yeah, it's the good way to think about it is
30:23
Speaker 2: in terms of what can I do to make my
30:26
Speaker 2: day to day easier and what can I do to
30:29
Speaker 2: make sure that I'm not making dumb portfolio decisions in
30:33
Speaker 2: the middle of a downturn because you can address all
30:37
Speaker 2: these things before the recession actually comes, not that you
30:40
Speaker 2: know when it's going to happen. But again, the reason
30:44
Speaker 2: why an older investor might have a portfolio that's a
30:48
Speaker 2: sixty forty split between stocks and bonds is not because
30:51
Speaker 2: there's a recession every year. It's because you don't know
30:54
Speaker 2: when it's going to occur. And by using that framework,
30:58
Speaker 2: you say, Okay, if one shows up, it's going to
31:01
Speaker 2: minimize my volatility during that recession and I can make
31:06
Speaker 2: it through. You don't say, Hey, I'm gonna hold one
31:10
Speaker 2: hundred percent stocks and when recession starts, I'm gonna move
31:12
Speaker 2: to you know, one hundred percent bonds. Well, if you've
31:16
Speaker 2: got that kind of intuition, then you should be charging someone. Yeah,
31:22
Speaker 2: you should be charging someone if you have that kind
31:24
Speaker 2: of intuition, because I don't and most people don't. But
31:30
Speaker 2: if you can accurately predict recession, you know, like in
31:33
Speaker 2: that way.
31:35
Speaker 4: People pay you a lot of money for that.
31:37
Speaker 2: Yeah, people will pay you lots and lots of money
31:39
Speaker 2: for that. And if they're doing that, then you don't
31:41
Speaker 2: need to worry about your portfolio. True. Let's take a
31:44
Speaker 2: quick break when we come back. Piece in Bloomberg, The
31:48
Speaker 2: bond Market will not be fooled. Well, actually it gets
31:51
Speaker 2: fooled a lot. We'll discuss when we return.
31:54
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31:56
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32:00
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32:02
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32:06
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32:09
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32:13
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32:16
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32:20
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32:39
Speaker 2: Got a piece in Bomberg here It's titled The Bond
32:41
Speaker 2: Market will Not be Fooled Michael. I remember at the
32:43
Speaker 2: beginning of twenty twenty two, the bond market was predicting
32:47
Speaker 2: three interest rate hikes and instead of end up getting
32:50
Speaker 2: like fifteen to eighteen for the I can't remember exactly
32:52
Speaker 2: now how many. It shall not be fooled. So the
32:54
Speaker 2: bond market was fooled. I know people cannot it will
32:57
Speaker 2: not the bond markets. This mott money, the equity guys
33:02
Speaker 2: of the dumb money.
33:05
Speaker 3: It can all be dumb or smart at different times
33:07
Speaker 3: depending on the content.
33:08
Speaker 2: The money's not sentient, true, you know it doesn't think.
33:12
Speaker 2: So what's the crux of this piece here? The bond
33:17
Speaker 2: market will not be fool the ideas that the bond
33:21
Speaker 2: market will look through temporary benefits or drawbacks to the economy,
33:27
Speaker 2: it'll really see through all of that and focus on
33:30
Speaker 2: the longer term trends when it comes to inflation and
33:34
Speaker 2: interest rates.
33:35
Speaker 3: And the answer is very purely that it's not the case. Right, Like,
33:40
Speaker 3: the bond market will interpret what the maybe average viewpoint
33:44
Speaker 3: is on things and may look through a politician's bologney
33:49
Speaker 3: when they talk about the deficits and how they're going
33:51
Speaker 3: to treat them. But again, you gave an example, I'll
33:54
Speaker 3: give another one. Did the bond market appropriately price in
33:59
Speaker 3: that we would be racing nearly nine percent inflation in
34:01
Speaker 3: twenty point two, and the Fed would have to dramatically
34:04
Speaker 3: increase interest rates. No, of course not they nobody did,
34:10
Speaker 3: or you know, very few people rather expected inflation to
34:13
Speaker 3: get up that high and therefore the Fed to have
34:16
Speaker 3: to raise interest rates. By where did we go five
34:18
Speaker 3: percent in a year?
34:20
Speaker 2: Yeah?
34:20
Speaker 3: So No, the bond market does not look through everything.
34:23
Speaker 3: It is not always accurate, and arguably I'm not sure
34:29
Speaker 3: that it does a better job of predicting recession or
34:31
Speaker 3: anything else than many other indicators. Right, We've talked about
34:35
Speaker 3: yield curve, inversion and other bond market phenomenons that have broken,
34:39
Speaker 3: just like everything else of the course, the last few years, well.
34:42
Speaker 6: The holidays roll in in the cold settles over New England,
34:46
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34:49
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34:53
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34:57
Speaker 6: you land. This December through early January, Saint Croix ignites
35:02
Speaker 6: with the Krucian Christmas Festival, a celebration over a century old.
35:06
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35:10
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35:15
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35:18
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35:21
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35:29
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35:33
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35:39
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35:44
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35:47
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35:51
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35:57
Speaker 2: So I gotta talk a little bit about I Robot
36:01
Speaker 2: declaring bankruptcy. First, It's sad that during a time in
36:07
Speaker 2: which you know, we're starting to see the real potential
36:10
Speaker 2: concern of robots taking over the human race, a company
36:14
Speaker 2: named I Robot will not be around to do so.
36:18
Speaker 2: I mean, Isaac Asimov would be a little upset by that.
36:20
Speaker 2: But it's neither here nor there. What I do have
36:24
Speaker 2: to say about this is I Robot tried to get
36:28
Speaker 2: bought a couple of years ago by Amazon, Yes, and
36:31
Speaker 2: the Biden administration said no.
36:34
Speaker 4: No, no, and it didn't actually.
36:36
Speaker 2: Got a court right or maybe didn't even get I
36:38
Speaker 2: don't even think it like got there. They would just
36:40
Speaker 2: like basically signal no, you're not gonna be able to
36:42
Speaker 2: do this. And here's the problem that I have is
36:46
Speaker 2: you also had during the same time, the Biden administration
36:49
Speaker 2: said no to the Spirit Jet Blue merger ye and
36:53
Speaker 2: Spirit Frontier saying no, like this isn't going to work.
36:55
Speaker 2: And now you've got like three of those companies that
36:57
Speaker 2: have since declared bankruptcy because they can't operate in industries
37:01
Speaker 2: that are so concentrated aside from them. And so this
37:06
Speaker 2: is where I have a problem with the selective enforcement
37:10
Speaker 2: of basically anything related to anti trust and that we
37:15
Speaker 2: find these like small companies, we're like, no, we're not
37:17
Speaker 2: gonna allow you to get bought, and then meanwhile it's like, oh,
37:22
Speaker 2: but hey, if Microsoft wants to buy Activision Blizzard, it's
37:24
Speaker 2: absolutely totally cool and no problems. So I just have
37:29
Speaker 2: a real problem here because we continue to allow further
37:34
Speaker 2: and further consolidation of these mega companies. But then for
37:38
Speaker 2: companies that are smaller that might not have the you know,
37:42
Speaker 2: the lobbying efforts of the legal teams to be able
37:44
Speaker 2: to push back on this stuff, they're not allowed to
37:47
Speaker 2: merge and they end up having to go out of business.
37:49
Speaker 2: So I just don't know where we are from an
37:53
Speaker 2: anti trust perspective other than what we're doing is not
37:56
Speaker 2: working because the bigger companies are becoming more and more
37:59
Speaker 2: entrenched and the smaller ones are not able to compete.
38:03
Speaker 4: As a result.
38:04
Speaker 3: Yeah, there's also a bigger story here where Hey, Rumba's
38:08
Speaker 3: biggest competition is coming from Shark Ninja, a Chinese based
38:13
Speaker 3: company that has he ripped off some ip over the years,
38:17
Speaker 3: and all sorts of issues around that too. But again,
38:21
Speaker 3: if you're going to deny an anti trust case and
38:24
Speaker 3: then just allow the company to go bankrupt, then you
38:26
Speaker 3: are furthering the anti competitive industry consolidation.
38:31
Speaker 2: You're not helping. And this is even before we get
38:34
Speaker 2: to the fact that Rumba's or I Robot's bankruptcy plan
38:38
Speaker 2: is to be acquired by their Chinese producer, meaning that
38:42
Speaker 2: now that company will be mapping your house cool great, awesome,
38:47
Speaker 2: Just take a quick break. Hour two coming up in
38:49
Speaker 2: a bit.