Latest / The Financial Exchange Show / Why did everyone predicting a hard landing get it so wrong?

Transcript

Why did everyone predicting a hard landing get it so wrong? · The Financial Exchange Show

0:00
Speaker 1: The Financial Exchange is produced by Money Matters Radio and
0:02
is hosted by employees of the Armstrong Advisory Group, a
0:05
registered investment advisor. All opinions expressed are solely those of
0:08
the hosts. Do not reflect the opinions of Armstrong Advisory
0:11
or anyone else. Investments can lose money. This program does
0:14
not offer any specific financial or investment advice. Please consult
0:17
your own financial, tax, and estate planning advisors before making
0:20
any investment decisions. Armstrong Advisory and the advertisers heard on
0:23
this program do not endorse each other or their services.
0:25
Armstrong and Money Matters Radio do not compensate each other
0:28
for referrals and are not affiliated. This is The Financial
0:34
Exchange with Chuck Zada and Mike Armstrong, your exclusive look
0:39
at business and financial news affecting your day, your city,
0:42
your world. Stay informed and up to date about economic
0:46
and market trends plus breaking business news every day. The
0:50
Financial Exchange is a proud partner of the Disabled American
0:53
Veterans Department of Massachusetts. Help us support our great American
0:57
heroes by visiting DAV five KMUS and making a donation today.
1:02
The DAV five K Boston is presented by Veterans Development Corporation.
1:06
This is the Financial Exchange with Chuck ZATDA and Mike Armstrong.
1:13
Speaker 2: Chuck, Mike and Tucker with you.
1:15
Speaker 3: We are a day out from the September jobs report,
1:19
but continuing to get other economic data coming in. This
1:23
morning at eight thirty am, we got the latest round
1:26
of initial jobless claims. Slight uptick from two hundred and
1:29
nineteen thousand two hundred and twenty five thousand, not notable
1:34
in any way, shape or form. It's not a big jump.
1:37
It is the first one in a couple weeks, and
1:40
it's just not something that is caused for concern there
1:45
in any way, shape or form.
1:47
Speaker 2: At the moment.
1:47
Speaker 3: Continuing jobless claims decreased from one point eight to seven million. Sorry, yes,
1:53
one point eight two to seven million, down to one
1:55
point eight to six million. So no change at all
1:59
on that front. So jobless claims still telling us, hey,
2:03
there's nothing that's really a.
2:04
Speaker 2: Problem in the labor market.
2:06
Speaker 3: About an hour and a half later, ten AM, Institute
2:09
for Supply Management the ISM comes out with their Services
2:12
Sector Purchasing Managers Index and it was cooking, I gotta
2:18
tell you. Came in at fifty four point nine versus
2:21
fifty one point five previously in expectations of fifty one
2:25
to seven. Business activity went from fifty three to three
2:29
up to fifty nine to nine, new orders from fifty
2:32
three up to fifty nine to four, but employment from
2:35
fifty point two down to forty eight point one. So
2:39
there's this this battle that's brewing between the data right now,
2:44
and it has to resolve in the next three months
2:46
because you just can't see the data continue to stretch
2:50
in this fashion without something breaking. On one hand, you
2:54
have things like this ism data, the retail sales data,
3:00
housing starts and permits, things like that that are you know,
3:03
trending up actually and starting to show some signs of life.
3:06
Speaker 2: GITDP even just you know, just big picture items like
3:09
the state of the overall economic growth scenario getting revised
3:12
upwards and looking pretty good.
3:14
Speaker 3: On the other side, you've got the job openings report,
3:17
which continues to be rather downbeat despite and upticking the
3:20
number of openings. The hiring rate continues to decline, the
3:23
quits rate continues to decline. You've got the unemployment rate
3:26
that has been ticking up aside from last month where
3:29
it came down basically because of rounding uh. And so ultimately,
3:34
when you look at this, there's this divergence that's happening
3:38
in the data, and it's not clear which side is
3:41
going to win right now. I'll positive you as well
3:44
that we actually won't know until January.
3:48
Speaker 2: December or January at the early January. Yeah, so the
3:52
the it's possible some stuff you get an indication of
3:55
in early December. But yeah, next month think about it.
3:58
Thinking about it like we're this week going through all
4:01
the jobs data. We will next month be getting ism,
4:04
manufacturing data, I some services data, weekly jobless claims, unemployment jolts,
4:10
all these data points that we regularly talk about on
4:12
the show. When measuring in September, yeah, that's relevant. Boeing
4:17
might have been on strike, but rather than that, there
4:19
wasn't a whole lot of stuff going on. One we
4:22
get these data points in early November. Measuring in October,
4:24
we're going to have the dock workers strike, We're going
4:26
to have the still raging impact of Hurricane Helene. We're
4:30
going to have the Boeing strike. We're going to have
4:33
oil prices which who knows where they are due to
4:35
war in the Middle East. What am I missing there's
4:38
so much garbage getting thrown into the data for October
4:43
that it's not going to actually tell you anything. And so, yeah,
4:46
you're probably right. You don't actually know what the state
4:49
of everything is until January.
4:50
Speaker 3: No, because what's gonna happen to the October jobs data.
4:54
It's going to be bad, Like there's a decent chance
4:56
it's negative, and it's just because of how the data
4:59
is collected, when it's collected, and does Mike outline the
5:01
impacts that.
5:02
Speaker 2: We're seeing right now?
5:04
Speaker 3: So the October data comes out in early November, Okay,
5:07
you can't tell anything from that because it's just going
5:09
to be a mess. November data comes out in early December. Okay, great,
5:14
Now you've got one month of data after a one
5:16
month pause. How much can we extrapolate between all that?
5:21
Don't really know? Then you finally get the December data,
5:24
But that's not until it's going to be January before
5:29
you get a conclusive read on this size.
5:31
Speaker 2: I guess, unless with one caveat, if things are taking off,
5:36
you'll have a pretty good indication of that. Right things
5:39
are accelerating dramatically, you might be able to tell because
5:43
you could get an October jobs report that's still positive
5:46
in spite of everything going on, and then you can
5:48
get a November one that's ripping if we're just stabilizing, right,
5:52
if the unemployment rates coming in at four to two
5:54
and not moving much, you just won't know until probably
5:57
you're right January, so we'll see where that go.
6:00
Speaker 3: But this is still an economy where the thing that
6:04
matters most right now is growth, and is that growth
6:08
there The data that we've been getting on inflation, it's
6:12
just fine. It's not something that has caused for concern
6:16
with the way prices are changing right now, and so
6:19
the growth oriented data is going to be important to
6:23
figuring out what's going on. And look, there are still
6:26
some other things that you can get in the interim, like, yes,
6:28
we might not get a jobs report, you're still gonna
6:30
get retail sales data, which, hey, look it might be disrupted,
6:34
but that disruption is still real. It's still something that's
6:37
happening and you know, going to hit profits that's going
6:40
to correct. You're still going to be getting these other
6:43
data sets. You're still gonna get housing starts and permits.
6:46
You're still going to be getting factory orders and industrial
6:50
production like You're still gonna have other sets coming in,
6:53
but the jobs one is the big one that we
6:55
need to resolve because that's where that monthly jobs report,
6:58
in the Jolts report, that's where the weakness is showing
7:01
up right now. And so those are gonna look all
7:05
kinds of weird in the next couple data sets, just
7:09
because hey, there's a ton of disruption to labor domestically
7:14
right now, and there's short term disruptions that will resolve,
7:18
you know, Like, you're not gonna have a port strike.
7:20
Speaker 2: That goes on for a year. That would be tough
7:24
to believe. Michael.
7:24
Speaker 3: You're not going now, Michael. You will not have a
7:27
port strike that goes on for a year. You will
7:31
not have new hurricanes hitting in December because hurricane season
7:36
is over, Like the water's not warm enough for you.
7:38
So this stuff will resolve, but it's gonna be messy
7:41
in the interim, and the impacts are gonna be felt.
7:44
Speaker 2: So I'll bring up a kind of a weekly spiel
7:47
we do. But you know, the subject of inflation I
7:50
think will be discussed a little bit more because we
7:52
might see some inflation in October and November, depending on
7:55
this port strike depending on we're in the Middle East,
7:58
oil prices, all these sorts of things. When we say
8:01
that inflation in spite of whatever happens over the next
8:04
sixty days isn't a market problem. What we mean by
8:09
that is it's any inflation that we might see or
8:12
are still seeing at this point is incredibly unlikely to
8:16
change the path that the Federal Reserve is on. If
8:19
the fedci's oil prices ticking up, you know, this next
8:22
month because of war in the Middle East, if they
8:25
see grocery prices ticking up because of you know, a
8:27
labor strike, they're not going to turn around and say, oh,
8:31
let's hike interest rates back up in the other direction.
8:34
That's not gonna happen. No, So when we talk about this,
8:37
like again, recognize we might see some more inflation. We
8:39
might see oil prices, gas prices up, we might see
8:41
grocery prices up because of shortages. That matters for all
8:45
of us, right, It matters for how we vote, it
8:47
matters for how we feel about the economy. It doesn't
8:49
matter for what the Federal Reserve is going to do next.
8:52
And that's frankly, what markets. How long do we have
8:54
to give that disclosure for I'm only I was. I
8:59
was done with it, but with the new potential inflation
9:02
that I think we could see in October, I wanted
9:05
to reiterate it.
9:06
Speaker 3: And oil prices always go up and down, like you know,
9:09
no one was talking back in like twenty fourteen and
9:12
twenty fifteen when oil prices were moving up then oh gee,
9:15
like you know, is this gonna fect? No, Like the
9:17
economy sucked, and so we didn't, like we didn't even
9:20
talk about it as a thing like a probably the
9:23
next couple decades would be my We just got to
9:25
move on, like the inflation data is good. Now, I'm sorry,
9:28
the inflation data is good, Like we can talk about
9:32
all these problems when they're actually there, but the inflation
9:34
data is good, and we need to kind of move
9:38
on from talking about it, like it's still this ongoing
9:42
thing that needs to worry us about the economy. If
9:46
it comes back, great, we can talk about it then,
9:48
but again, let's I.
9:51
Speaker 2: Just don't want people to be tricked into thinking, oh,
9:54
I saw a bad inflation report. You know, come November
9:58
whatever date that comes out out and get and conclude
10:01
like I'll be tricked if it's bad we'll talk about
10:03
it and say it's bad. Right, Oh, Federal Reserve is
10:05
going to start hiking rates because we have bad inflation. No,
10:08
that's just not going to happen until sometime next year
10:12
if inflation gets really bad. Let's take a quick break here.
10:15
Speaker 3: When we come back, let's talk about this piece from
10:19
Bill Dudley, former head of the New York Federal Reserve.
10:24
He's got a great piece here, actually, how my hard
10:27
economic landing forecast went wrong. I wish we would see
10:31
more of these pieces published. We'll cover that when we return.
10:35
Speaker 1: The Financial Exchange streams live on YouTube. Like our page
10:39
and stay up to date on breaking business news all
10:42
morning long. This is the Financial Exchange Radio Network. Miss
10:46
any of the show. The Financial Exchange Show podcast is
10:49
available on Apple, Spotify, and iHeartRadio. Hit the subscribe button
10:54
and leave us a five star review. This is the
10:57
Financial Exchange Radio Network.
11:08
Speaker 4: The Financial Exchange is a proud partner of the Disabled
11:11
American Veterans Department of Massachusetts. This year's race is Saturday,
11:15
November ninth at Fort Independence on Castle Island. Spots are
11:19
filling up fast, so registered today at dav fivek dot
11:23
Boston to help usupport these great American heroes. Your gifts
11:26
will support a wide variety of initiatives like the DAV
11:30
Transportation Program, which takes disabled vets to important medical appointments
11:34
that supply both the physical and mental care they need.
11:37
For more information in order to make a donation, visit
11:39
DAV FIVEK dot Boston. The DAV five K Boston is
11:43
presented by Veterans Development Corporation.
11:46
Speaker 3: Peace from Bill Dudley. Bill led the New York FED
11:50
from twenty nine to twenty eighteen. So Bill's not a
11:53
dumb guy. This is proof that even smart guys do
11:58
get it wrong sometimes, even when you know, kind of
12:00
right in their wheelhouse talking about things that they know
12:04
a lot about as it relates to the economy.
12:06
Speaker 2: And like any intelligent academic should, he's taken a month
12:10
to step back and say, hey, these were my assumptions
12:13
and this is why I was wrong, and that is
12:16
rather refreshing.
12:18
Speaker 3: It is so the piece that he wrote, it's titled
12:21
how my hard economic landing Forecast went Wrong, and first
12:26
line he gets it right out there. He says, look,
12:27
I've been too pessimistic about the risks of a so
12:29
called hard landing in the US economy for the last
12:31
few years.
12:32
Speaker 2: Here's why.
12:34
Speaker 3: First, I think that the FED would keep monetary policy
12:38
too loose for too long, which happened.
12:41
Speaker 2: Which happened.
12:42
Speaker 3: After doing so, the labor market would become too tight
12:43
in the economy would overheat.
12:45
Speaker 2: Happened. The Fed wel then have to tighten a lot
12:47
in order to make policy restrictive. Happened.
12:49
Speaker 3: Unemployment would then rise at least half a percent, triggering
12:52
the some rule denoting that a recession is started.
12:55
Speaker 2: Happened other than the recession starting, Except the recession hasn't started.
12:59
So this is the thing.
13:00
Speaker 3: The entire path of what Dudley thought would happen played
13:04
out up until two months ago. Except there has not
13:09
been any data out there suggesting that the US economy
13:13
is conclusively in recession right now. Yes, we have economic
13:17
data that's weakening, we see that, But when we talk
13:21
about a recession, we're talking about a broad based and
13:24
large scale decline in you know, basically, economic output hasn't
13:29
happened this year, hasn't happened. Closest we came actually was
13:33
the first half of twenty twenty two, where at the
13:37
time we had two negative quarters of economic growth I
13:39
don't know if anyone noticed the last it was either
13:42
last week or the week before, the upward revisions to
13:46
economic growth from the last few years. Because remember the
13:50
groups that look at this stuff, they always are, you know,
13:53
trying to improve their data. Those two quarters are now
13:56
no longer both negative. I forget which one, but I
13:59
think the second one in twenty twenty two now is
14:03
actually positive GDP after they've you know, gone back and
14:06
looked at more data. So file this under the Just
14:09
while we're on this topic of you know, revised economic data,
14:12
you remember a couple of weeks ago, actually it's probably
14:15
a month ago now, the revised jobs numbers that came
14:18
out for the last year because the BLS. The BLS
14:20
goes out and they say, okay, you know, now that
14:22
we have all these jobless claims from the last year,
14:24
let's go back and revise our you know, jobs numbers
14:28
for the month. And we said there were eight hundred
14:29
thousand fewer jobs created than before. And the whole thing was, oh,
14:33
they were hiding the numbers, like see, the job growth
14:35
was actually weaker. But when GDP is revised by the
14:38
Census Bureau and it's revised up do you say, well, no,
14:41
now they're making it up because it's stronger. It can't
14:44
be both, like you have to pick one. They can't
14:46
like both be evidence of the conspiracy to make the
14:49
numbers something. I'm just covering that while we go through it.
14:53
So Dudley basically comes out and is like, look, here's
14:57
why I was wrong, And there's one one paragraph in
15:00
here that gets at it. Third, the SAM rule may
15:03
not be as ironclad as historical experience suggests. Most important
15:07
is to realize that the half percentage point threshold was
15:10
determined empirically from the US experience since nineteen sixty. That's
15:13
not a large number of business cycle observations. As FED
15:17
chair J. Powell noted in a recent press conference, the
15:19
SAM role is a quote, statistical regularity, not an economic law.
15:23
Maybe the actual threshold is higher this time because of
15:26
how fast the labor force has grown. And in that case,
15:29
if the FED ease is fast enough to avoid a breach,
15:32
the self reinforcing dynamics that lead to a recession could
15:35
be averted. Like that to me is like the beat
15:38
of everything, which is we always pooh poop people for
15:42
saying this time it's different.
15:45
Speaker 2: But every time it's different.
15:47
Speaker 3: Well, generally no, because usually the mistakes that lead to
15:52
recession are the same, which is too much leverage, too
15:54
much expansion, and then the leverage blows up in YadA YadA.
15:58
But this business cycle is different because it's not a
16:01
business cycle. I know, I know, like you got to
16:06
really think about that, man, Like, it's not a business cycle,
16:10
but what is it? It's not anything that happened organically.
16:15
It wasn't caused by you know, where we are right
16:17
now is not because households borrowed too much, or companies
16:24
borrowed too much, or traders borrowed too much, or bet
16:27
on the wrong thing or this and that. Where we
16:29
are right now is because we had a forced, hard
16:34
shutdown of large parts of the economy in twenty twenty
16:38
and then we tried to push a button and get
16:40
everything going again, which is not something that has ever
16:44
happened before, Like we've never lived through anything like this.
16:50
And Mike and I have talked a lot about how
16:53
a lot of economic indicators that you know, indicated certain
16:56
things in previous cycles, they already broke before this, Like
16:59
the eye in manufacturing index it starts printing forty seven.
17:03
Speaker 2: Forty eight.
17:04
Speaker 3: It's like you were hooked out below like you're dead,
17:08
and it started printing that in twenty twenty two and
17:11
basically never got above even like treading water, and there
17:16
was no recession. Right, there are other things that you
17:18
can look at where hey, typically once you start to
17:22
see a downward trend in temporary workers, a recession is
17:26
shortly behind.
17:27
Speaker 2: That hasn't happened.
17:28
Speaker 3: Temporary workers started trending down two years ago and you
17:32
still haven't seen it.
17:33
Speaker 2: Here's the bigger conclusion that I think every day people
17:37
can use with a piece like this, Bill Dudley. I mean,
17:42
I can think of few Americans that are closer to
17:48
the state of the economy and being able to forecast
17:51
what's going. I thought you were going to say few
17:52
Americans that know his name, but I can also think
17:54
of few Americans that know his name. But like you know,
17:56
the list of people who you would say, oh, this
17:58
person's got a better pulse on the state of the
18:00
economy and where it's going to be going, it's a
18:02
short list.
18:03
Speaker 3: He's not like, make no mistake, Bill's not a genius.
18:05
He's just spent his whole life studying this.
18:08
Speaker 2: And so my conclusion be if somebody like this can
18:11
get it wrong and come out here and say like, yeah,
18:13
I was wrong, Like I had all the right assumptions,
18:16
I predicted everything that was going to happen, but the
18:18
result was incorrect. I would just use this as a
18:23
you know, refreshing reminder of the idea that nobody out
18:29
there can build a model that accurately predicts the future.
18:32
And so why is that important? Well, because frequently there
18:36
will be investment managers, sales consultants, business managers, forecasters out
18:42
there whose entire selling point about their strategy. The whole
18:46
stick is I'm going to call the top, I'm going
18:49
to call the bottom. I'm going to tell you where
18:51
gold prices are going, unemployment's going, where your business is going,
18:54
because I know it. And if someone like Bill Dudley,
18:59
who is closer to the data than anybody out there,
19:03
gets it this wrong and again he was close, you
19:06
just got the results wrong, then your ability to do
19:09
so on your own, or your money manager's ability to
19:11
do so on his or her own, it's just not
19:15
going to happen. You'd hope to be right fifty five
19:18
percent of the time. So you know, beware those that
19:21
you know tell you what the future holds, because even
19:24
the best informed frequently get it wrong. Quick break here.
19:28
Wall Street Watch is next.
19:40
Speaker 1: Like us on Facebook and follow us on Twitter at
19:42
TFE show. Breaking business news is always first right here
19:47
on the Financial Exchange Radio Network. Time now for Wall
19:52
Street Watch. A complete look at what's moving markets so
19:55
far today right here on the Financial Exchange Radio Network.
19:59
Speaker 2: Market a mixed territories.
20:01
Speaker 4: Wall Street readies for a big September job support due
20:04
out tomorrow morning, where economists are estimating about one hundred
20:07
and forty thousand jobs were added last month. Right now,
20:10
the Dow is down by one hundred and eighty one points,
20:14
SMP five hundred off by only six points in the
20:17
Nasdaq edging two points higher, Russell two thousands off by
20:20
nearly half a percent or ten points. Ten year Treasure
20:25
reeled up by four basis points at three point eight
20:28
two percent, and crude oil up four percent today trading
20:32
just below seventy three dollars a barrel. Levi shares down
20:36
by seven percent after the deni maker cut its full
20:39
year revenue guidance and posted fiscal third quarter revenue that
20:43
missed analysts expectations. The company is also weighing a possible
20:48
sale of its underperforming Dockers business. Meanwhile, shares and Hymns
20:52
and Hers down by fourteen percent after the FDA yesterday
20:56
said there were no longer shortages of Eli Lilly's popler
21:00
zep bound in Manjaro drugs. Hymns and Hers had been
21:03
taking advantage of the short supply to sell compound versions.
21:07
In Nvidia up by three percent after CEO Jensen Huang
21:12
said in an interview with CNBC that he's seeing insane
21:16
demand for its next generation of AI graphics processor, known
21:20
as Blackwell, which is expected to ship in the fourth quarter. Separately,
21:25
the Wall Street Journal is reporting that the chip maker
21:27
was investing about one hundred million dollars in chat GPT
21:31
developer open Ai and the parent company of the beers,
21:34
including Modello and Pacifico. Constellation Brands posted adjusted quarterly earnings
21:40
that beat street expectations that stock up by four percent.
21:45
On Tucker Silvan, that's Wallstreet Watch.
21:47
Speaker 2: The Financial Exchange is hitting the road. Chuck and I
21:50
will be heading out to Springfield on October eighth. We'll
21:53
be doing a live broadcast of the show from the
21:56
MGM Hotel in Springfield. Tuesday, October eighth, will be broadcasting
22:00
from the hotel which is connected to the casino Free
22:03
Parking and you can come check out a live broadcast
22:06
at the Financial Exchange. After that, we'll be doing a
22:10
complementary lunch and kind of like a luncheon learn style thing.
22:14
We'll be doing a seminar from the Armstrong Advisory Group
22:18
complementary lunch after the show, starting right at noon, discussing
22:22
the upcoming election status and markets, everything going on from
22:26
the Middle East to the dock workers strikes and the
22:28
potential impacts and overall effects when it comes to the
22:32
markets and your retirement. If you'd like to register for
22:35
our events or get more information, again, space is limited
22:39
for these things and you do need to register ahead
22:41
of time. You can go to Armstrong Advisory dot com
22:45
slash events. Again. The live broadcast is going to be
22:49
on October eighth from the MGM Springfield. You can register
22:52
by going to Armstrong Advisory dot com slash events or
22:55
given us a call at eight hundred three nine three
22:58
four zero zero one.
23:00
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
23:02
registered investment advisor. Nothing in the ad or in any
23:05
Armstrong guide a specific financial, legal, or tax advice. Consult
23:08
your own financial, tax, and estate planning advisors before making
23:11
any investment decisions. Armstrong may contact you to offer investment
23:14
advisory services.
23:15
Speaker 3: Piece in the bloomy Berg. Today, mortgage rates near six
23:18
are enough to start up a refinancing wave. And yeah, look,
23:21
here's what we're seeing is that about twenty five percent
23:24
of mortgages right now have a rate at five percent
23:29
or above. And so any of those, if you're looking
23:32
to do a cash out REFI have the potential to
23:36
get a rate back into the fives, you know, if
23:38
you just you know, pay a little bit in terms
23:40
of points or something along those lines. And so you've
23:43
got a quarter of mortgages outstanding that can now consider refinancing. Whereas, hey,
23:48
two years ago, when mortgage rates were north of seven,
23:51
only about you know, I think was six or seven
23:53
percent of mortgage holders had a rate even above six, right,
23:58
And so it was something where there was just much
24:00
less volume, and that's why mortgage demand and refinance demand
24:03
fell off the table. So you've seen an uptick in
24:06
refined demand, which is up over one hundred percent year
24:09
over year, but still at you know, very low overall levels,
24:12
but starting to make a comeback. The thing that you're
24:15
still not seeing is any meaningful uptick in mortgage origination
24:19
for purchases. And you know, you're a couple percentage points
24:23
above last year, which is not really much of anything.
24:27
And so yes, there is some some refi action that's happening,
24:31
and that potentially unlocks one of two things, either a
24:35
lower monthly payments for a household, which means great, you've
24:38
got more spending power or cash, or unlocking equity by
24:42
pulling equity out, in which case, hey, you've got more
24:44
spending power from that as well, So that that is
24:46
a good thing. But ultimately, the biggest driver of economic
24:53
activity is not going to be someone pulling fifty thousand
24:56
dollars in equity out of their home in order to
24:59
do whatever with it. It's going to be someone buying
25:02
a four hundred thousand dollars home and all the stuff
25:06
that happens along with that transaction.
25:08
Speaker 2: Yeah, no doubt. I was personally a little bit surprised
25:10
to hear that twenty five percent of mortgage rates are
25:13
up over five percent. I don't feel as though I
25:16
see that many of them up there, but certainly a
25:19
lot of mortgage rates. Yeah, I mean I just for
25:21
their mortgage statement. Yeah, frequently. Yeah, it's like the first
25:24
thing I Hi, Mike arm Starting, Nice to meet you.
25:26
What's your mortgage rate? I'm not a very pleasant person
25:29
to be a dinner partners. You can. No, we don't
25:30
invite you many persons. But I was surprised to hear
25:33
that figure. And it does, you know, potentially unlock a
25:36
fair bit of equity. The question, to your point, the
25:39
more important question other than for you know, Jim Horgan,
25:42
who was interviewed for this article and owns a mortgage
25:44
refive business from the same town that we're broadcasting this show,
25:47
is what portion of those mortgage holders up over five
25:52
percent might consider selling their home now?
25:55
Speaker 1: What?
25:55
Speaker 2: And and and all the people who have been out
25:58
of the market, will they re enter next spring if
26:02
they can get a mortgage for you know, thirty year
26:06
at six percent? Is that good enough to incentivize them?
26:09
Speaker 3: So I have some interesting data on this very point. Actually,
26:13
this is from Rick Pelasio's junior who is the director
26:15
of research at john Burn's Research in Consulting, basically one
26:19
of the big firms that does like nationwide real estate
26:22
statistics and studies, and they asked people twelve hundred and
26:27
forty seven US homeowners and renters. They said, look, what
26:30
is the highest mortgage rate you would take on for
26:33
buying a home?
26:34
Speaker 2: Interesting, good question to add, bet it's pretty low.
26:37
Speaker 3: One hundred percent of people said if rates were under
26:39
three percent, they'd be good to go. Ninety five percent
26:42
of people said between three and three and a half.
26:45
So there were five percent of people that said no,
26:47
I wouldn't even consider doing that.
26:49
Speaker 2: Interesting.
26:49
Speaker 3: Eighty five percent of respondent said between three and a
26:52
half and three nine nine. Seventy one percent said between
26:56
four and four and a half. Fifty seven said between
26:58
four and a half and five forty seven percent, So
27:01
this is kind of the breakpoint of Like half and
27:04
half said that mortgage rates would have to be between
27:06
five and five and a half. At today's mortgage rate
27:09
of six point two, twenty one percent said that they
27:12
would be comfortable buying a home with a mortgage rate there.
27:16
So this tells you like kind of where that market
27:20
needs to go. It's still a strong bias force. It's
27:24
not far, but if you will it's just inertia. Yep,
27:27
you know, like mortgage rates and how we think about them.
27:31
Gas prices change monthly because of how quickly they like,
27:36
Our thoughts on gas prices change in a month because
27:38
of how quickly they update, you know, like we go
27:41
from like.
27:41
Speaker 2: Oh, three fifties bad to three fifties good.
27:44
Speaker 1: Like that.
27:45
Speaker 2: With mortgages, you don't fill up your mortgage tank every week. Yeah,
27:49
you've got a generation of people who have their their
27:53
mindset stuck on three percent mortgage rate.
27:55
Speaker 3: You buy a home and you're like, I'm good for
27:57
ten years. I don't need to do this again, and
28:00
so you kind of get stuck on these numbers for longer.
28:03
But ultimately, what this tells me is, hey, if you
28:07
really want to energize mortgage activity and home buying activity,
28:11
we don't have too much farther to go. It's like
28:13
two thirds of a percent from here is where you
28:16
need to go. The problem is that in order to
28:19
get that two thirds of a percent down, the economy
28:24
might need to.
28:25
Speaker 2: Like throw up, Yeah, got it.
28:29
Speaker 3: That's kind of where we're at, I think, And like
28:32
you're seeing it in the data today that we've gotten
28:34
so far. Okay, you get some better economic data that
28:37
is just showing you know, stability and consistency in the
28:41
US economy. Ten, your treasury is up five basis points
28:44
to three point eight three, like it's not moving down
28:46
on this. Yes, I guess here's another question I have, Chuck.
28:50
Were you looking to buy a home in the spring
28:54
market right you're gearing up for next year's spring market.
28:57
When would you go get that pre approval?
29:03
Speaker 2: What I'm just trying to understand, I rent right now,
29:06
and or I own a home right now, but I know, hey,
29:09
you know I want to be in a new home,
29:11
and I know that most inventory is not going to
29:14
come on in this area until post Super Bowl Sunday.
29:18
Sure am I preparing right now for that? Or am
29:21
I saying yah, screw it, I'll wait until January to
29:24
get my pre approvals in order, I mean personal there's.
29:26
Speaker 3: No benefit to doing it now, Like pre approvals are
29:28
typically only good for ninety days. I think, so like
29:31
late January is kind of when you do that right
29:33
and the moment.
29:34
Speaker 2: That's my point is that might be it might take
29:36
that long before we see the tell of what the
29:38
spring housing market's going to look like.
29:40
Speaker 3: The other thing that you have to remember is that ultimately,
29:44
when you do get that pre approval and finally decide
29:46
not even the pre approval, but when you say okay,
29:48
I'm buying this place, you then also have the opportunity
29:51
to lock that mortgage rate in and that's when that
29:54
actually happens.
29:55
Speaker 2: So like it.
29:56
Speaker 3: It's it's tough with them where they are right now.
29:58
But yeah, we we just don't know enough about what
30:02
the spring market's gonna look like because so much can
30:05
change on rates in the next four months. There's a
30:08
convincing case either way. I could have a convincing case
30:12
that rates are at five and a quarter or seven
30:14
in a quarter by March.
30:18
Speaker 2: Yeah, bye, March fair and seven and.
30:21
Speaker 3: A quarter maybe high, but like six and three quarters, Yeah,
30:23
I could see another half percent up from here. It's
30:27
oki possible you get two more quarters of three percent.
30:29
GDP growth rates aren't going down, they're moving back up.
30:34
Not this short term Fed funds rate, but long term
30:36
ten year treasury, thirty year mortgage. Like that's what I'm
30:38
talking about there, quick break here, when we return, we'll
30:42
talk about this really good piece. Sometimes we call out
30:45
like pieces for being hot garbage.
30:47
Speaker 2: Hot garbage.
30:48
Speaker 3: These are like cold delicacies that were being delivered today,
30:53
really good piece from the New York Times about why
30:55
the Iran Israel conflict hasn't caused oil prices to go
30:59
up dramatic yet.
31:02
Speaker 1: Thanks to US six one seven, three six two thirteen
31:05
eighty five with your comments and questions about today's show,
31:09
and let us know what you think about the stories
31:11
we are covering. This is the Financial Exchange Radio Network,
31:15
breaking business and financial news first throughout the day, only
31:20
here on the Financial Exchange Radio Network.
31:24
Speaker 4: This segment of The Financial Exchange is brought to you
31:27
in part by the US Virgin Islands Department of Tourism.
31:29
The US Virgin Islands are Saint Croix, Saint Thomas, and
31:32
Saint John. Summer is over, so now's the time to
31:35
start looking at a fabulous holiday vacation. And there's no
31:38
better place than the US Virgin Islands. Enjoy perfect weather,
31:42
world class dining, incredible beaches and a vibrant nightlife. No
31:46
passport is needed, and then there's no money to exchange.
31:48
Take your next vacation in America's Caribbean paradise the United
31:52
States of Virgin Islands. Go to visit USVII dot com
31:55
to book your trip. That's visit USVII dot Com.
32:00
Speaker 3: So in the last week or so, given the escalations
32:04
in the Middle East between Israel and Iran, West Texas
32:09
intermediate oil has moved up from give me just a second,
32:13
I want to have the exact number for you here.
32:17
On the twenty sixth of September, it was at sixty
32:22
seven sixty seven. Today it's as seventy two ninety three six,
32:26
maybe a seven percent move. When you look at Brent crude,
32:30
the kind of largest best known international benchmark over the
32:36
same time period, it closed on the twenty sixth at
32:40
seventy one sixty it's it's seventy six fifty eight right
32:42
now again six seven percent upward move. These are not
32:47
huge moves.
32:48
Speaker 2: By any means.
32:49
Speaker 3: Yes, it is, you know, a short term upward trend
32:51
that you've seen. But just as a point of comparison,
32:54
when Russia invaded Ukraine, the price of oil spiked from
32:59
ninety five dollars up to over one hundred and twenty.
33:01
It's a thirty percent move in the span of you know,
33:04
a week or two, rather than you know, a seven
33:07
percent move.
33:07
Speaker 2: And I mean Iran while their oil is you know,
33:12
not sold on the global market in the same way.
33:14
I mean that they're two percent of the world's global
33:16
supply of oil. The surrounding countries account for a hell
33:19
of a lot more than that.
33:20
Speaker 3: They still get their stuff out, and you know, like
33:22
it's something where the potential for disruption is significant, especially
33:26
given you know, Israel directly talking about, hey, we might
33:31
target Iran's oil facilities as part of our response to
33:35
them lobbing one hundred and eighty missiles out US. So
33:39
this piece of the New York Times says, look, why
33:41
has this been the case where despite this conflict that
33:45
you know now is pretty direct in terms of you know,
33:48
it's not just proxies anymore between the two countries, why
33:52
has the price of oil not moved up higher?
33:57
Speaker 2: Your thoughts, I don't have a answer, especially with the
34:01
most recent activity in Russian Ukraine. But I mean, I'll
34:04
offer a few theories here. One, we are pretty used
34:09
to war in the Middle East and disruptions in the
34:12
places is a big piece, and so I think there's
34:16
likely a lot of traders who are saying, we've been
34:19
burnt on fears over you know, over conflict in the
34:23
Middle East before, oil prices have not moved on it.
34:26
So I'll wait and see that the disruption actually comes
34:30
to play and things get knocked offline. That could be
34:35
a big piece of it is just yeah, hey, we're
34:37
complacent to We've seen this type of stuff. That war
34:40
in Israel has been going on for a year now,
34:42
and we haven't seen oil supplies disrupted yet, So why
34:45
would we now Compared to the nineteen seventies, for example,
34:48
the big argument would be, well, you know, the United
34:50
States is now the largest oil producer in the world,
34:53
and so you still will have that supply going on
34:55
regardless of what happens in the Middle East. And then
34:58
there is also the China impact that I think continues
35:01
to play a role in all of this, which again
35:04
we've talked about this one quite a bit, but China's
35:07
economy has been a bit of a dumpster fire. You've
35:10
seen some support and some improvement very recently, but without
35:14
that massive growth engine, Oil's still just been trying to
35:19
find it's you know, it's its balance point here for
35:22
a while now, and depending on what happens with China,
35:25
you might have a big buyer continuing to slow down.
35:28
Speaker 3: I want to talk about a story from the Washington
35:32
Post this morning. Do you remember last week we covered
35:36
that Microsoft has contracted with Constellation to attempt to reopen
35:41
one of the reactors at three Mile Island, right, Not
35:43
not the one that you know, kind of melted down
35:46
back in the seventies, but yeah, the one, the other one,
35:48
the good one, you know, little things in any case,
35:56
so that they're trying to, you know, spend one points
36:00
billion dollars in order to do this. And the Washington
36:04
Post has a piece today that the Constellation has submitted
36:09
a loan guarantee request to the US Energy Department, And
36:14
basically what this means if the federal guarantee goes into
36:18
effect is, hey, if we spend all of this money
36:22
and can't get it working, or Microsoft backs out and
36:25
we can't sell the power whatever it might be, US
36:28
taxpayers around the hook for the deal then And this
36:32
to me strikes me as something that is really quite dumb,
36:36
because this is not a case of Constellation saying, hey,
36:40
we want to build a power plant in order to
36:43
provide power for the New York you know, the Tri
36:46
state region or something like that.
36:48
Speaker 2: In that case, there's a.
36:49
Speaker 3: Huge risk where, hey, if you don't get that power generated,
36:53
people die because they don't have power for their refrigerators,
36:56
for hospitals, for this that whatever it is. This is
36:59
Mike saying we want to build empower an AI data
37:04
center with this power.
37:06
Speaker 2: And we want the US government to subsidize it.
37:09
Speaker 3: Hell no, would be my answer, like that, it is
37:11
a private transaction between two parties with no impact on
37:15
the broader economy or the health and safety of the populace.
37:19
Speaker 2: Right. If you want it to apply for the federal backing,
37:23
then go for it. But this power goes to the
37:25
grid and Microsoft can bid on that power on the
37:28
public market.
37:30
Speaker 3: On top of this, remember constellations as provisioned in the
37:34
Inflation Reduction Act in the past and twenty twenty two.
37:38
Because they would be producing a whole bunch more clean
37:41
power through the use of nuclear power, they're already going
37:43
to be receiving two hundred million dollars annually for the
37:47
production of that power as a tax credit.
37:50
Speaker 2: Yeah, this makes absolutely no sense, which.
37:52
Speaker 3: I have no problem with. I want more nuclear power.
37:54
I'm happy, like great, like, let's do that. But no, like,
37:58
you don't get a loan gearant in order to provide
38:02
nuclear power to one customer who's building a data center
38:06
I'm sorry.
38:08
Speaker 2: Microsoft can back the loan, Michael Correct, have them underwrite it.
38:12
They got enough money, better credit rating than the US government.
38:14
Speaker 3: Anyway, Go get Steve Balmer to do something on stage
38:17
and it'll all be fine. Developers, developers, quick break for
38:22
the developers here. We're back with our two in a bit.