Latest / The Financial Exchange Show / Jobs report comes in lower than expected. How will this impact Fed's rate cut?

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Jobs report comes in lower than expected. How will this impact Fed's rate cut? · The Financial Exchange Show

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Speaker 2: Chuck, Mike and Tucker with you here on a jobs Friday.
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At eight thirty am this morning, Eastern time. The Bureau
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of Labor Statistics, or the Bulls as they are commonly
1:25
referred to.
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Speaker 3: No, they're not. They're not.
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Speaker 2: They're referred to as the BLS more often. Yes, they
1:30
put out the Employment Situation Report, and what it showed
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was that non farm payroll employment increased by one hundred
1:37
and forty two thousand jobs in August, and the unemployment
1:41
rate ticked down slightly to four point two percent from
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four point three percent.
1:46
Speaker 3: A little bit of context.
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Speaker 4: Anybody remember about a month ago when markets sold off
1:50
by six percent in two days. Yes, that was the
1:52
last time this report came out, So it was an
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important one this morning.
1:56
Speaker 3: At a lot of eyes on this report.
1:57
Speaker 2: Yes, certain death was coming for us, is what I
2:00
had heard. Uh, And so what we saw here were
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numbers that were again at first blush you say, okay,
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expectations were for one hundred and sixty thousand jobs created,
2:10
one forty two but then spitting distance pretty close, especially
2:13
since the average error on this once they finally go
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and revise them. You know, down the road is seventy
2:19
eight thousand jobs, so it's well within the marginal varia. Say, okay,
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like it's you know who again, like if you had
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printed like one fifty nine or one sixty one. Like, honestly,
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we don't even know if this is statistically meaningful. Four
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point two percent of tick down in the unemployment rate.
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Nice to see, but let's talk a little bit about
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what's actually going on here, because the headline numbers are
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not they're not the telling this matters.
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Speaker 3: They don't hear.
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Speaker 2: First, the previous two employment reports had significant downward revisions.
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June revised down by sixty one thousand from one hundred
2:53
and seventy nine thousand to one hundred and eighteen thousand.
2:55
July revised down by twenty five thousand from one hundred
2:59
and fourteen thousand eighty nine thousand. So both of those
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meaningfully worse than we previously thought.
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Speaker 4: Again, I'm just going to remind people here and put
3:08
this out here. The reason these get revised is because
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these are surveys and they get more data. You send
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a bunch of surveys out to a bunch of businesses,
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a bunch of them, don't send the information back in
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time to publish the data. Right, if you were surveyed
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by the Bureau of Labor Statistics and you got the
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data back to them today, you weren't included in the data.
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Speaker 3: But no, you will be when they go and revise
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these numbers a month later.
3:30
Speaker 2: So that's why you see those downward revisions. Downward revisions
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in past months typically a pretty bearish sign. Historically there
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has been a strong correlation with a weakening labor market
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and downward revisions of previous reports. So that's something that
3:47
I think is notable. There other things that we saw
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when we talk about what is going on with the
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unemployment rate. The biggest thing that is pointed to in
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this piece, not this piece, in this report as the
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reason for it. Temporary layoffs declined by one hundred and
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ninety thousand to eight hundred and seventy two thousand, So
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we were a little over a million. We went down
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to eight hundred and seventy two thousand. By and large,
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I predominantly attribute that to you had a bunch of
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temporary layoffs in July because of Hurricane Barrel in the
4:22
Gulf and those have since passed. They said that, look,
4:26
we weren't sure if they didn't think there was anything
4:28
meaningful with hurricane Barrel for the July numbers, but this
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is one area where it probably was in that the
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temporary layoff numbers came back down here. So I think
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that's how I would square that circle and try to
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make sense of what is going on there. Other things
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that we saw here, average hourly earnings ticked up at
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a point four percent monthly rate, a little bit hotter
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than expected. But there's basically no other inflationary evidence anywhere
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in really me any reports, basically any report that I've
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seen for the last couple of months, and so the
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fact that you had average hourly earnings come into touch
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hot this month, I don't know that it necessarily means anything.
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And overall aggregate payroll growth over the last twelve months,
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meaning the combination of jobs added and wage gains running
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four point nine percent, which is right in the pre
5:20
pandemic range that you were twenty seventeen to twenty nineteen.
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And so there's nothing out of character there or something
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that you need to worry about in terms of a
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rebound in inflation.
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Speaker 3: As a result of this report.
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Speaker 4: Here my general conclusion it seems to be the same
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one that markets are having, which is, I'm not entirely
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sure how to interpret this report.
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Speaker 3: There are parts of it that are I'm one hundred
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percent sure you are. There are parts of.
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Speaker 4: It that are pretty relieving to me because you didn't
5:44
see that unemployment route rate shoot up, but it does
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not contradict the other data about a slowly weakening job market.
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Speaker 2: This is a bad jobs report that's not as bad
5:55
as last month. You agree, this is like a dus
6:00
in last month was probably a d Yeah, you know,
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that's kind of how you look at this. The redeeming
6:06
factors here are that the unemployment rate did not tick
6:09
back up, and I guess you could also say, look,
6:14
construction jobs ticked up, which you know construction jobs are
6:16
a big leading indicator, and so those ticked up, But
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you lost manufacturing jobs down twenty four thousand. Manufacturing had
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been an area of growth over the last couple of years,
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so that's not a great sign on that front there.
6:29
You look at what we are seeing in terms of
6:33
the labor force participation rate holden steady, So there's nothing bad,
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nothing good it's a sixty two seven. The employment to
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population ratio, you know, remains high, which is good to see,
6:43
but it also puts you in a place where there's
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a threat that it worsens from there. And so especially
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given the downward revisions to the last two, which are
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meaningful data points, as well as the fact that look
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a couple weeks ago, remember we got the big annual
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revisions to the jobs reports, and what those showed were that, hey,
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you had, you know, sixty seventy thousand jobs a month.
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Few were created in that twenty twenty three period than
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we thought there were. And I know that you can't
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necessarily extrapolate that one to one to where we are today,
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but they're using the same methodology today that they were
7:24
last year, and they had a drastic overestimation of the
7:27
number of jobs created.
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Speaker 3: Even if you cut that in half and.
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Speaker 2: Say, look it's a modest overestimation, the Jew numbers instead
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of one hundred and eighteen thousand now look like you know,
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eighty thousand, and the July numbers instead of ninety thousand,
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look like sixty thousand jobs created. So you're approaching stall
7:44
speed on the economy from a job's perspective there, and
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I don't think there's much that's reassuring in here other
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than here's what I will say, given this data, we
7:56
got to punt out the recession at least another month,
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because there is not a recession report. I said, you know,
8:03
prior to you know, call it. I've been saying for
8:07
the last six weeks that hey, by the end of September,
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you'll have a pretty good sense of you know, you
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should be able to know whether the economy is heading
8:13
into recession or not. Don't believe that anymore. I don't
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think this report clears the economy because it's one report,
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and the other economic data in you know, for labor,
8:23
is continuing to deteriorate, and this isn't strong enough to
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offset that. It couldn't be as just one data point anyways,
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and so I think ultimately it's okay. I don't think
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that you're necessarily going to know by the end of
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September whether you have an all clear or not. Now
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you probably have to start waiting till, you know, end
8:41
of October, end of November. But the data is weakening,
8:46
and this doesn't really do anything to conclusively say no,
8:50
it isn't it's just not weakening as badly as it
8:53
was in the previous report in my opinion.
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Speaker 4: So early trading here, we've got the NASDA go off
8:57
more than one percent, s and P off by a
8:59
half down basically flat for the day, and the yield
9:01
on the ten year treasury basically flat, which is a.
9:04
Speaker 2: Big reversal by the way, from where we opened. Yeah,
9:07
SMP opened and moved up half almost half a percent
9:10
positive territory on the open and now it's almost a
9:13
one percent intra day reversal that we've seen.
9:15
Speaker 4: So how about should we take a quick break both
9:19
strap on our purple ties and put ourselves in J.
9:22
Powell shoes in terms of the next FED meeting and
9:24
what comes next.
9:24
Speaker 3: Yeah, that sounds fun. Let's take quick break. We'll do
9:26
that next. On the Financial Exchange.
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10:27
Speaker 3: Mike, So, J Powell and the gang.
10:30
Speaker 2: They are about to enter their quiet period prior to
10:34
the fed's meeting a week and a half from now.
10:38
And so the last speaker that we have scheduled is Waller,
10:43
who I believe is going at eleven am. Yeah, he's
10:47
speaking at eleven am and probably is going to give
10:52
us a pretty good sense of what they're going to do.
10:55
Speaker 3: Now. But you're J.
10:57
Speaker 2: Powell, You're Christopher Waller at this job's report and the
11:03
situation as a whole.
11:05
Speaker 3: What's your read?
11:06
Speaker 4: Oh, I think it's important to acknowledge all the data
11:09
that has come in between now, between this meeting and
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the last meeting. The last meet was July thirty first,
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meaning they didn't even have the July jobs report at
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that point in time when they had their last meeting.
11:21
We've heard from feder Reserve officials since then, but they
11:24
did not have their rate setting meeting with that data
11:27
in hand.
11:27
Speaker 3: So what do you have?
11:29
Speaker 4: You have a labor market that has clearly weakened since
11:32
the last meeting, So first things first, you have all
11:37
the ammunition needed for a twenty five basis point rate
11:41
decrease at this next meeting. The whole question, there's no
11:45
question that you are cutting rates at this next meeting.
11:47
You've already forecasted it, and that was just based on
11:51
the data you had before this morning's jobs report, which,
11:54
like we said, wasn't a disaster but was nothing great.
11:59
I personally, if I'm strapping on the purple tie, I
12:03
don't see the call for a fifty bases point hike because,
12:05
like we said, this report that we got this morning
12:08
did not prove out recession.
12:10
Speaker 2: Here's the call for fifty BIPs in my opinion, and
12:13
I'm I'm not giving my opinion on whether or not
12:16
I think it's good. But here here's the case for
12:18
fifty BIPs the measures of the labor market that we have.
12:24
And again, you don't just look at one like Ja
12:26
Powell doesn't just look at the jobs and it's like, wow,
12:27
one hundred and forty two thousand jobs, because.
12:30
Speaker 3: That's what Jay Powell sounds like.
12:31
Speaker 2: Also, uh, you know, he doesn't go, wow, one hundred
12:34
and forty two thousand jobs created. I guess we don't
12:37
need to call it fifty bases points. We could just
12:39
do twenty five. Now, it's totally not.
12:42
Speaker 3: What he sounds like. It's fine, Like it's fine, let's
12:47
just go with it. Yep.
12:48
Speaker 2: Instead, he says, Okay, I have a bunch of different
12:52
things that are pointing in kind of scary directions for me. First,
12:58
I have a job opening's number that relative to the
13:01
number of unemployed people is coming.
13:04
Speaker 3: Down really quickly.
13:05
Speaker 2: Yeah, and is at the same place it was in
13:08
twenty seventeen, twenty eighteen, but it's on a pace where
13:11
if it continues to move in this fashion for the
13:15
next eight months or so, it's gonna end up back
13:19
where it was in twenty fifteen or twenty sixteen, which
13:22
was kind of where the economy started to become good
13:24
again after the Great Recession, but the economy was still
13:29
dodgy around the I mean, you look at twenty sixteen.
13:31
Unemployment rate was still four point nine percent at the
13:35
start of twenty sixteen, and in twenty fifteen it was
13:38
still above five which again historically those are fine numbers,
13:43
but you still don't want to be like, Okay, we're
13:46
heading to five percent unemployment from three point four. That's
13:48
not a great feeling.
13:50
Speaker 3: The trend is more important than the single data point.
13:53
Speaker 2: Other things that we are seeing when we look out there,
13:57
we have temporary help serve says continuing to show declines.
14:01
That's a big leading indicator for economic activity because the
14:05
first places that companies cut are the temp workers because
14:08
they don't want to fire their permanent people, and those
14:10
are continuing to decline as well. Also, even within this report,
14:14
even though the unemployment rate ticked down, the underemployment rate
14:17
the U six, which shows people that are underemployed, Hey,
14:20
I want more hours or more of this or more that.
14:23
Really it's hours, uh, because it's labor that ticked up
14:27
by point one percent from seven point eight to seven
14:29
point nine. So the underemployment rate moved in the opposite
14:32
direction of the employment rate. You also have, you know,
14:36
when you look at some of these the softer data.
14:40
The Conference Board on a monthly basis does a survey
14:43
and ask people, hey, our jobs easy to find or
14:45
hard to find? And the ratio that you have of
14:48
easy to find the hard to find right now again
14:51
back to twenty seventeen twenty eighteen levels, but weakening quickly.
14:55
And you don't want to end up back in twenty
14:57
fourteen or something like that, because that was not a
15:00
good labor market.
15:02
Speaker 3: So the case.
15:03
Speaker 2: For Powell going fifty at the next meeting is labor
15:09
markets are convex in nature in that when when you
15:14
reach a tipping point in them, the acceleration to the
15:18
upside on unemployment moves much faster than it did earlier
15:22
in the cycle. And so you want to try to
15:26
catch the labor market before it gets to that tipping point.
15:30
So the case for fifty, if I'm J. Powell, is hey,
15:34
right now, I got a bunch of things that are
15:37
kind of yelling at me and saying, hey, these are
15:41
you know, brightly flashing yellow lights to in some cases
15:44
red lights, saying the labor market is entering a danger zone.
15:48
Speaker 3: Yeah, the sound rules of red light.
15:49
Speaker 2: And I want to get there first before the labor
15:53
market gets to that danger zone.
15:55
Speaker 4: So I've got to move fifty. Pretty tough, Pretty tough
15:58
to do without alarming people. The kiss challenge, Well, I know,
16:02
you say, like, they don't have to worry about that,
16:04
but they do, because, in my opinion, at least half
16:07
of the fed's influence has nothing to do with where
16:10
rates lands.
16:10
Speaker 3: True, It's easily.
16:13
Speaker 4: Half has to do with how they guide what they
16:15
tell the general public and the confidence with which they
16:18
speak about the economy.
16:19
Speaker 3: It is true. So that's the case for fifty.
16:22
Speaker 2: The case for twenty five is, hey, the labor market
16:26
is slowly getting worse. We still haven't seen any job
16:30
loss on a net basis. The unemployment rate is ticked
16:33
up purely because population growth is outstripped job growth, and
16:39
that's not normally what you see immediately before things get
16:42
really bad, Like you look at previous cutting cycles and
16:45
you've had job loss before they started. Yep, we haven't
16:49
even seen net job loss yet and we're talking about
16:54
cutting fifty g That seems pretty aggressive.
16:56
Speaker 4: Final point there would be, you know, in spite of
16:59
all the data about a weakening labor market, not much
17:02
on the unemployment claims.
17:03
Speaker 3: So we've talked about why that might be.
17:04
Speaker 4: But that's the only one data point that I can
17:07
look at on the labor market and say this might
17:10
not be as bad as we are seeing elsewhere.
17:13
Speaker 3: Yeah, so where do they end up going? Now? Like
17:17
this is the question, and it's a dumb question.
17:20
Speaker 4: Doesn't really matter. It doesn't matter whether they go twenty
17:22
five or fifty at this meeting, although the messaging matters.
17:25
The messaging does. But here's the other great thing about
17:28
this meeting. By the way, this is one of the
17:30
four meetings a year that we get from the FED
17:32
where they give us their summary of economic projections, where
17:35
they have to tell us what they think unemployment's gonna be,
17:37
GDP inflation. I gotta say, this is a spaghetti meeting.
17:44
Speaker 2: You just put that in the pot, get it nice
17:47
and warm, and throw it at the wall because you
17:50
have no idea it's gonna be all freaking over.
17:54
Speaker 4: There is anyone else wondering what Chuck was meeting by
17:56
a spaghetti meeting.
17:57
Speaker 3: It's a spaghetti meeting.
17:59
Speaker 2: Like again, it's they have no idea where this economy
18:03
is going to go, because no one does.
18:05
Speaker 1: Well.
18:05
Speaker 2: I think there's we're telling you conclusively that we've escaped
18:08
recession or we're definitely going in. I think it's being disingenuous, right,
18:11
I think there's one ray that they know this economy
18:14
is not going it's not reflating again, right, not yet.
18:18
That's the one thing that can say with confidence.
18:20
Speaker 4: And so again to play devil's advocate of my own
18:22
argument here, if you are quite confident about that, then
18:28
why not go fifty and explain that's your reasoning. Go
18:31
fifty and explain, Hey, we're not doing this because we
18:34
think we are imminently in recession. We are not doing
18:36
this because we think we are, you know, trying to
18:39
catch a falling knife here. The labor market is not imploding,
18:42
but we are so confident that inflation is behind us
18:44
that we're willing to cut by fifty basis points.
18:46
Speaker 1: Here.
18:47
Speaker 2: The other thing, so the market right now, Chicago Marke
18:51
no exchange. Their fed watch tool is pricing in a
18:55
forty three percent chance of a fifty basis point cut
19:00
fifty chance of a twenty five basis has been all
19:02
over the place this morning, but it has.
19:04
Speaker 3: It's it's been.
19:05
Speaker 2: It's a coin flip, because again, no one knows anything.
19:09
Everyone's Tony soprano right now. Nobody knows anything. Where's Paulie.
19:13
Nobody knows anything, Pollie talking to the Feds. Nobody knows anything.
19:20
Speaker 3: Right now.
19:21
Speaker 2: The one thing that I would point to in this cycle,
19:26
fed's almost always taking the Dubvish way out, or wanted
19:29
to at least quick break here Wall Street watches Next.
19:40
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19:53
Watch a complete look and what's moving markets so far
19:56
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20:00
Speaker 5: A little bit of a bumpy ride on Wall Street
20:02
as investors sift through the August Jaws report posted this morning,
20:06
which revealed one hundred and forty two thousand jobs were
20:09
added last month, just below forecasts of about one hundred
20:12
and sixty five thousand, while the unemployment rate ticked lower
20:15
to four point two percent. The Labor Department also revised
20:19
down its estimates for June and July job growth by
20:21
combined eighty six thousand jobs. Right now, the Dow is
20:25
off by over a third of a percent, or one
20:27
hundred and fifty four points, SMP five hundred down by
20:31
one percent, and the Nasdaq down by over one and
20:34
a half percent as well. Russell two thousand is off
20:37
by half a percent. Ten year treasure yield is down
20:40
by three basis points a three point six y nine percent,
20:43
and crude oil up about half a percent, Trading at
20:46
sixty nine dollars in forty five cents a barrel. Broadcom
20:49
shares down by nine percent despite the chip maker beating
20:53
quarterly estimates on the top and bottom lines. However, the
20:56
company's revenue guidance fell short of street expect Sticking with
21:01
the chip sector, where super micro Computer was downgraded by
21:04
JP Morgan to neutral from overweight, with a bank noted
21:07
there is no rationale to buy shares while uncertainty exists
21:11
around the company regaining compliance. Shares in super micro Computer
21:15
today down by five percent and shares in smart Sheet
21:19
are up by eight percent. After the work management software
21:23
company beat second quarter earnings and revenue expectations. Yesterday, Reuters
21:27
reported that Vista and Blackstone were in talks to buy Smartsheet.
21:32
I'm Tucker Silvan. That's Wall Street Watch, Mike.
21:35
Speaker 2: There's a piece of New York Times today. It's titled
21:37
the Downside of Falling Interest Rates, and a couple different
21:42
things on this that you can think of. Look, if
21:44
you are someone who is you know, trying to borrow,
21:47
that's obviously a situation where falling interest rates potentially can
21:50
be good for you. Sure if you are a saver
21:53
who for the last two two and a half years
21:55
has said, man, it's great that I've finally been able
21:58
to get you know, five five percent on a CD
22:01
or hey, I've been able to you know, get five
22:03
percent on a money market.
22:06
Speaker 3: You're ready.
22:07
Speaker 2: It's it's looking like that's not going to be the case.
22:09
I'll already tell you when you look out at you know,
22:12
the bond marketer, CD market beyond a year, it's not
22:14
the case. Already You're seeing rates back into the threeson
22:17
a lot of those cases.
22:18
Speaker 4: Now, yeah, pieces like this are sometimes I know why
22:23
the Times is doing this and pointing this out, but
22:26
whether rates are high or low. Somebody's writing a complaint
22:29
article about how it doesn't work for them, and yes,
22:32
the reality is that there is no perfect interest rate
22:35
because if you are a saver, low rates are bad
22:38
for you. If you are a borrower, then uh, low
22:41
rates are great for you. And anybody that had we
22:44
financed a mortgage over the last few years is well
22:46
aware of that story.
22:48
Speaker 3: But here's where it does matter.
22:50
Speaker 4: We've spent the last two years on this program, Chuck
22:53
talking about how people you know have a ton of
22:56
money sitting in bank accounts, oftentimes in and checking accounts
23:01
without a high interest rate, and for the last two
23:03
three years, there's been, like you mentioned, great opportunities to
23:08
go and improve their return on that money. Right now,
23:11
I'm on bank Rates, I'm on bank Rate's website, and
23:14
I'm seeing two different banks at the moment that are
23:17
offering five point three percent apy on high yield savings accounts.
23:21
Speaker 3: Yep.
23:22
Speaker 4: Week and a half from now. My guess is that's
23:23
going to not exist anymore. The problem with this type
23:27
of thing is that right now the best rate you
23:30
can get is on something like this, and the most
23:34
likely to change is something like this. That is the
23:37
really challenging part that I think people struggle to understand
23:40
at the moment, which is, yeah, I'm not getting paid
23:42
quite as much on a nine month CD or an
23:44
eighteen month CD or a three year treasury bond, but
23:48
at least I know what I'm getting over the next
23:50
eighteen months. When I go and do that, I know
23:53
there are a lot of folks listening that probably have
23:56
still a lot of money in cash of one sort
23:58
or another. And it has been good to you if
24:00
you've made those moves over the last few years. I
24:03
hope that you are also going in eyes wide open
24:06
about the fact that that situation's about to change. It
24:09
already has in a lot of cases. You know, how
24:12
long ago was it that you could get a ten
24:13
year treasury bond well over four percent.
24:16
Speaker 2: It was like, Mike, you get a tenure treasury bond
24:18
at five last October.
24:21
Speaker 4: Now that's looking pretty good because now it's now below
24:23
four and when.
24:25
Speaker 2: Everyone last October is going on the federal debt's too high,
24:27
no one's going to buy all the Hey, when the
24:29
economy gets dodgy, people buy it, yep.
24:33
Speaker 4: And so this is the trade off you have. But
24:35
my point here would be if you're sitting on a
24:37
bunch of cash you're not sure what to do about it.
24:40
You recognize that the Federal Reserve is about to embark
24:42
on what looks like a rate cutting cycle. That's what
24:45
it looks like to me. Could be wrong, but that's
24:48
what it certainly looks like. There will be advantages to
24:50
be had. Car Loan rates mortgages are have already come
24:53
down a bit, and they could come down further in
24:55
the event of a recession and economic downturn. But so
24:59
will those rates on those cash investments over time. And
25:03
so if you're trying to figure out what is the
25:05
right plan for my cash, how do I address this
25:09
problem that I'm likely to face over the next few years,
25:11
Please give the folks at Armstrong Advisory Group a call
25:14
help you evaluate what the options are, what it looks like,
25:17
and how to best stabilize principle at a time when
25:21
you know there's a lot of concern about things like
25:23
recession and falling rates. The phone number for the Armstrong
25:26
Advisory Group is eight hundred three nine three four zero
25:29
zero one. We have offices throughout New England and clients
25:32
throughout the country that we work with to develop their
25:34
financial plans and investment strategies for the long term. Give
25:38
us a call once again. That phone number for the
25:40
Armstrong Advisory Group eight hundred three nine three four zero
25:44
zero one.
25:45
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
25:48
registered investment advisor. Nothing in the ad or in any
25:50
Armstrong guide a specific financial, legal or tax advice. Consult
25:53
your own financial tax into state planning advisors before making
25:56
any investment decisions. Armstrong make contact you to offer investment
25:59
Advisoryerviss Mike.
26:01
Speaker 2: There's a piece in the Wall Street Journal today. It's
26:03
titled what Lies behind the Market's jitters? The answer is
26:06
people and the subheadline, though, kind of gives me a
26:13
little bit that feeling, and it says stocks and bonds
26:20
are far more sensitive to economic indicators than they have
26:23
been in the past because investors are aware of just
26:25
how much rests on a soft landing. And I kind
26:30
of poo pooh that quite honestly, because you can look
26:36
back at history as a lesson.
26:39
Speaker 3: In this respect.
26:40
Speaker 2: In that look, we've had other times where the economic
26:43
data is turned and markets have as well, and you
26:47
see bouts of volatility on a regular basis. So I'm
26:51
not really buying that this market is more volatile than
26:55
it's been in the past. In fact, the previous eight
26:59
months were remarked we calm. It was one of the
27:01
calmest eight month periods that we had seen in the
27:03
S and P five hundred.
27:04
Speaker 3: Yeah.
27:05
Speaker 4: I mean, if you want to make the argument that
27:08
right now stocks are more sensitive to these jitters because
27:11
people are finally opening their eyes about the risk of recession. Sure,
27:17
and we haven't really had much of that for the
27:20
last fifteen years. So that's all true, right, you know,
27:24
we haven't had much in the way of risk of recession.
27:27
There was risk of recession, but it popped out of
27:29
nowhere in early March, and we were through it by
27:32
you know, mid April, so you're talking last of twenty
27:35
twenty rather so like there wasn't time for people to
27:39
be jittery about the economic.
27:41
Speaker 2: Even recently, Like twenty twenty two was a horrible year
27:45
in markets, and like people were concerned about recession. Then
27:48
in the stock market fell more than twenty percent on
27:51
the S and P five hundred twenty twenty three, y'all.
27:54
Speaker 3: Remember Silicon Valley Bank. I do, I do.
27:57
Speaker 2: People got pretty nervous about that. And then don't you
28:00
remember last August, Last August and September, we're a puke
28:04
fest as well. The S and P fell almost ten percent,
28:06
I think actually a little bit more than ten percent,
28:09
And it wasn't because the economy actually went into recession.
28:14
It was people were nervous about the possibility of it.
28:17
Speaker 4: So we've now accumulated more recession indicators than we had
28:21
at anytime in the next last two years. So we've
28:23
accumulated more of these things that indicate that we could
28:26
be heading for a recession. Investors should be aware of
28:29
that and be paying attention to these signals if they
28:32
are again worried about and paying attention to their portfolio.
28:36
So this isn't surprising, But I don't know that you
28:38
can make much of an argument that we're paying closer
28:41
attention to it. We're paying closer attention to some signals.
28:44
I'm more paying attention to the jobs report right now
28:47
than I was in twenty twenty two.
28:50
Speaker 2: I do have to say, when you say that we've
28:51
accumulated more recession signals, I.
28:54
Speaker 3: Just have a picture of me like scooping them up,
28:55
and now.
28:56
Speaker 2: I'm picturing thanoscribbing Infinity Stones and just snapping his fingers
29:02
and half the market cap of stocking disease. Like that's
29:07
you know that that would be the Marvel movie for
29:09
like Recession man, Recession man. You know, it would be
29:13
like someone, I'm accumulating all of the recession indicators and
29:17
I'm gonna snap my fingers and destroy this wealth. It
29:21
doesn't sound so bad when you say that, but then
29:23
you realized it's horrible actually, kind of like Dan's destroying
29:26
half the people.
29:27
Speaker 3: Yeah.
29:27
Speaker 4: Yeah, but there are lots of people that have been
29:29
the fanos of this economy of the last few years.
29:32
Speaker 2: Shooting for recession and and like, guys, trust me, when
29:35
it gets here, it's gonna suck.
29:37
Speaker 3: You're gonna wish you didn't root for it. Yeah. Yeah,
29:40
recessions not great.
29:42
Speaker 2: So there's that we can pitch that movie to Marvel
29:45
and see that they haven't had a great run recently,
29:48
but they bounced back with something this year, right Deadpool?
29:53
Speaker 4: Deadpool? Yeah, yeah, killing best R rated movie ever.
29:59
Speaker 3: Yes, I believe.
29:59
Speaker 2: So it was definitely the best opening. I don't know
30:02
if it's gotten too best totally yet, but I'll look
30:05
that up. During the break which we're gonna take right now,
30:07
and then when we come back, let's see. Do you
30:10
want to talk about Broadcom, the least known seven hundred
30:13
billion dollar company in the world.
30:14
Speaker 3: Sure, let's do that. When we return.
30:17
Speaker 1: Business and financial news affecting the markets and your wallet.
30:21
We've got it all straight from Wall Street right here
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30:41
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Boston is presented by Veterans Development Corporation Broadcom.
31:18
Speaker 2: Most people like pay absolutely no attention to this company
31:23
because they like, for some reason, we don't talk about
31:25
it as a major tech company. And I don't really
31:28
know why, because prior to today its market cap was
31:31
north of seven hundred billion dollars that's billion with a B,
31:36
so like almost a trillion dollar company, and like for
31:39
some reason we don't talk about it as part of
31:41
the Magnificent seven or.
31:42
Speaker 3: Anything like that.
31:43
Speaker 2: Even though the trailing three year return on it is
31:47
two hundred and thirty one percent, the trailing one year
31:49
return is seventy eight percent. So like the thing's been holland,
31:53
it's been, it's been cranking. It's been good today, or
31:57
rather yesterday after the bell they reported earnings and earnings
32:00
were fine, like they beat on both revenue and profit.
32:04
The guidance was a little bit down beat. And so
32:09
when you're priced as they are, and again we talk
32:11
about this a lot, like expectations and what's priced in,
32:14
they matter. When you're trading twenty nine times forward earnings
32:20
and fourteen and a half times forward sales, you better
32:24
do more than just a week guidance. And snow broad
32:27
Calm down almost ten percent today on that news.
32:30
Speaker 4: Which is actually similar to what we saw from Nvidia
32:32
after their earnings very much. So, Yeah, expectations matter, obviously,
32:36
and when you have been absolutely blowing those expectations out
32:40
of the water and then suddenly failed to do so
32:43
in the same way, it can hit your stock price.
32:46
I do look at this and wonder how much of
32:47
this is what I will briefly call the Intel effect
32:50
of if you aren't selling the latest and greatest AI chips,
32:57
then you don't have much of a business right now,
32:59
because demand for other types of semiconductors are just falling
33:02
off a cliff.
33:03
Speaker 3: And Broadcom in a lot of cases.
33:05
Speaker 4: Is selling the latest and greatest AI chips, but they're
33:08
you know, some of their core businesses. No, it's we're
33:11
selling these legacy ones that go into all sorts of
33:13
other things, whether it's TVs cars, you know, just kind
33:17
of baseline semiconductors, and sales of those aren't going great,
33:20
and so uh that that is at least part of
33:24
the story here as well.
33:26
Speaker 2: So broad Coom again, I don't think there's I don't
33:31
think you can extrapolate this to the broader economy. But
33:34
much more like as Mike said, Hey, sales growth is
33:36
still there. They're still hugely profitable. I mean, this is
33:39
not something where you look at this company and you're like, gee,
33:41
how are they going to make it? They're free cash
33:43
flow over the last twelve twelve months is eighteen billion dollars.
33:46
Their net incomes ten billion dollars. They have ten billion
33:50
dollars in cash and short term investments on hand. The
33:54
company like, this is not a going out of business sale.
33:56
This is just Hey, when when you're priced nuttly yours
34:01
your earnings have to be nutty too.
34:03
Speaker 3: And they just weren't nutty enough, right, not enough nuts.
34:07
Speaker 2: It's the problem there. Let's see in Vidia, do we
34:10
want to talk about how their chips are cheaper to
34:12
rent in China than the United States.
34:14
Speaker 3: Yeah.
34:14
Speaker 4: So, first off, I think we have to understand what
34:16
the hell this means by renting AI chips. For a
34:21
moment here, when you talk about cloud computing. If you
34:26
work for a company right now that stores, for instance,
34:29
their their data on the Microsoft Cloud, that's what they're
34:33
describing here is renting the space in that cloud storage
34:37
for you know, something very basic. Now, you know, take
34:40
a step back. When you are utilizing some form of
34:43
artificial intelligence, cloud computing like chat GPT. You know, open
34:49
Ai is ultimately renting that cloud space from Nvidia in
34:52
some way, shape or form, And that's what we're referring
34:55
to here, is it's cheaper to do so in China
34:57
in spite of what was supposed to be some pretty
34:59
real bust restrictions on how Chinese companies get access to
35:03
these semiconductors and are able to market them to their customers.
35:07
Speaker 2: So ultimately, again, I think that when we're when we're
35:12
trying to figure out where this market is it is going,
35:18
there are signs now in my opinion, that like it's
35:21
it's starting to get a little bit toppy on this stuff.
35:24
And it's not to say that again, these businesses are
35:27
not going to fall apart. They're making billions of dollars,
35:30
but you're seeing some signs of, hey, we've got excess
35:34
supply here and excess demand here, and we're trying to
35:36
match them up and there's dislocations.
35:39
Speaker 3: Yeah, it's.
35:41
Speaker 2: It's not as robust in terms of the growth picture
35:45
as it was a year ago. Obviously, because you can't
35:47
double your you can't triple your profit and double your
35:51
revenue every year forever.
35:54
Speaker 4: The case that's being made in this piece here about
35:57
you know, the divergence in cost between Like if we
36:01
start seeing the cost in you know, in these large
36:05
scale cloud computing models come down across the board, then
36:09
that's a pretty good indication of a lack of demand
36:11
and problems for these companies. What we're talking about here
36:13
is not that we're talking about a difference in price
36:15
between what it costs in China versus what it costs
36:18
in the United States. And I think that's a difference.
36:20
I think that's a problem with demand.
36:22
Speaker 2: And I know they can't send the same chips and
36:24
YadA YadA, but ultimately, if you can, if you're not
36:29
getting consistent demand everywhere, even for slightly different chips, doesn't
36:34
it show that hey, outside of like this market where
36:37
it's there, well great, now that we've saturated that market,
36:41
where are we going to sell to next?
36:42
Speaker 3: Right?
36:45
Speaker 2: And again I'm not saying that they're gonna like run
36:46
out of sales. That's not where I'm going. Where I'm
36:49
going with this is might.
36:52
Speaker 3: Not continue at one hundred and twenty percent year over year.
36:54
Speaker 2: And they're priced like they're going to And that's the Again,
36:59
it's you can still have a great company that just
37:02
has to have its valuation. Come back to Norm normal
37:06
whatever the words show.
37:07
Speaker 3: Norm McDonald rest in peace. Yeah. Norm was one of
37:12
the best, wasn't he.
37:14
Speaker 2: Nobody Nobody cared less about being invited back to a show.
37:20
Speaker 4: Yeah, and no comedian is willing to just leave an
37:23
audience out there for as long as Norm McDonald.
37:26
Speaker 3: He loved people being uncomfortable. Yeah, like he did.
37:29
Speaker 2: You could see his face just light up when when
37:31
when like he said something that he knew he shouldn't
37:34
and he's just like I did it.
37:36
Speaker 4: Some of the some of his favorite bits that I
37:38
know of are just the worst jokes that you can
37:41
pot like, just the dumbest jokes that have no good punchline,
37:45
but that drag on for a good seven or eight minutes.
37:47
Speaker 3: He crushed it at that.
37:49
Speaker 5: He and Letterman also had like the biggest bromance going
37:51
go back and watch old clips of.
37:52
Speaker 3: Those two they did. Oh yeah, such a bromance they
37:56
really did. It's uh, I don't know how how did
37:59
we get here from normal? Norm?
38:01
Speaker 4: Yeah? Yeah, Okay, Well it's a Friday.
38:06
Speaker 2: We're going to take a normal break now, and when
38:09
we return, we got our two of the financial exchange
38:12
coming up for you,