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Is the job market weaker than it appears? · The Financial Exchange Show

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  Speaker 1: Armstrong and Mark Vandetty.
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  Speaker 2: Good morning, Happy Friday, Welcome back to the Financial Exchange.
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  Speaker 2: Is Mike Armstrong, Mark Fandetti and Tucker Silva with you
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  Speaker 2: on a job's Friday. We have the jobs report to digest,
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  Speaker 2: yesterday's Amazon earnings that came out, and finally we had
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  Speaker 2: a Michigan consumer sentiment survey, which normally we wouldn't put
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  Speaker 2: in that first segment, but there was some interesting stuff
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  Speaker 2: on inflation expectations there. So let's start off with the
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  Speaker 2: jobs report received this morning at eight thirty a m.
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  Speaker 2: Mark highlights for you what was important, what was unimportant.
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  Speaker 2: This was also accompanied by a year's worth of revision,
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  Speaker 2: so it's a lot to muddle through.
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  Speaker 3: The headline is unemployment remains very low by historical standards.
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  Speaker 3: Labor market remains quite strong. Whether you look at the
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  Speaker 3: unemployment rate, which is just the number of unemployed people
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  Speaker 3: divided by the labor force, it follows from that that
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  Speaker 3: the number of people who found jobs grew by more
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  Speaker 3: than the labor force did, obviously a positive development. In
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  Speaker 3: a separate survey, business is reported adding one hundred forty
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  Speaker 3: three thousand jobs last month. That seems a little tepid
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  Speaker 3: relative to the pace of say early last year, or
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  Speaker 3: what do you.
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  Speaker 4: Think our twelve month average was for twenty twenty four, It.
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  Speaker 3: Was one sixty eight thousand.
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  Speaker 2: One sixty eight was the month later. Okay, so we're
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  Speaker 2: at one forty three. That's not a huge miss.
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  Speaker 3: Not alarming, more than enough to provide new jobs for
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  Speaker 3: you entrance into the workforce, which is obviously a key point.
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  Speaker 2: So earlier last year we saw the unemployment rate ticking
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  Speaker 2: up to that four point three percent range. This was
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  Speaker 2: back in I think June or July of last year.
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  Speaker 2: There was everything written about the sum rule, which indicates
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  Speaker 2: that unemployment it's just a look in turn terms of
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  Speaker 2: recession indicators, which says, hey, if unemployment rises by more
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  Speaker 2: than half a percent on a rolling average basis over
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  Speaker 2: a short period of time, that there could be a
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  Speaker 2: recession or very likely would be a recession in the
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  Speaker 2: near future. That's now gone because the unemployment rate went
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  Speaker 2: up to that four to three level, now back down
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  Speaker 2: to four and according to the revisions, might not have
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  Speaker 2: even ever gotten to that too.
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  Speaker 3: To the credit of this show, you and Chuck Zada
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  Speaker 3: talked about it a lot at the time, empirical regularities,
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  Speaker 3: as researchers like to call things that have just happened
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  Speaker 3: without any strong theoretical basis. They're made to be broken,
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  Speaker 3: and it was broken.
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  Speaker 2: It was the main gains in this job's report that
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  Speaker 2: we saw so again headline number one hundred and forty
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  Speaker 2: three thousand jobs created in the month of January, where
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  Speaker 2: we saw those jobs created healthcare continuing to be a
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  Speaker 2: major major contribution to the overall jobs numbers. Forty four thousand.
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  Speaker 2: Healthcare jobs created in the month of January averaged fifty
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  Speaker 2: seven thousand jobs per month in twenty twenty four. Retail
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  Speaker 2: trade added thirty four thousand jobs. There's been really little
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  Speaker 2: net change in twenty twenty four. Social assistance jobs twenty
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  Speaker 2: two k to the upside. Government jobs up thirty two
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  Speaker 2: thousand in January. Healthcare government continue to be one of
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  Speaker 2: the key contributors to job gains over the course of
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  Speaker 2: the last twelve months and really speaks to I think
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  Speaker 2: there's some questions being asked us to what exactly does
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  Speaker 2: that mean, And what it means to me is that
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  Speaker 2: you just couldn't find enough people in these jobs during
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  Speaker 2: COVID and there's still been a long makeup process to
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  Speaker 2: get people back into jobs like teaching, like local government
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  Speaker 2: and healthcare workers in a lot of places.
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  Speaker 3: Yeah, to me, I try not to look too closely.
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  Speaker 3: This is going to sound odd, but I try not
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  Speaker 3: to look too closely underneath the hood at the composition
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  Speaker 3: of these things. I just focus up, maybe because it's
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  Speaker 3: I'm a generalist. I'm looking just at the unemployment rate
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  Speaker 3: doorically has been associated with, and this will tie into
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  Speaker 3: one of our early lead stories today. I think historically
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  Speaker 3: has been associated with upward pressure on prices. So this
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  Speaker 3: relates directly to unemployment, which will learn more to inflation
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  Speaker 3: excuse me, which will learn more about next week. Because
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  Speaker 3: in the short term these two things, these two variables
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  Speaker 3: are in perfect tension. Low unemployment and low inflation are
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  Speaker 3: historically speaking and for good theoretical reason, not really compatible.
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  Speaker 4: We will get to the inflation impact shortly.
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  Speaker 2: But I do want to jump to this piece from
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  Speaker 2: Connor Sen because it speaks to exactly what you're saying.
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  Speaker 2: And my first thought was, oh, good, Mark's going to
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  Speaker 2: tear this piece apart from our good friend Connor over
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  Speaker 2: at Bloomberg.
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  Speaker 3: Couldn't get through the first v aiography.
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  Speaker 2: Sorry, point that he makes in this article is that
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  Speaker 2: the job market is actually weaker than it looks, which
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  Speaker 2: is a crazy thing to say when the unemployment rate
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  Speaker 2: is sitting at four percent. Here goes his argument over
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  Speaker 2: the last well, sorry, over the course of twenty twenty four,
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  Speaker 2: there were two point two million million jobs added to
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  Speaker 2: the labor market. I'm sure those numbers have changed with
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  Speaker 2: the revisions out today, but this was his point. Two
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  Speaker 2: point two million jobs created. One point four million were
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  Speaker 2: in the areas of education, healthcare, or government. In the
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  Speaker 2: twenty tens, for example, the contribution from those industries was
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  Speaker 2: closer to seven hundred thousand jobs per seven hundred thousand
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  Speaker 2: positions per year. And so his argument as well, what
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  Speaker 2: if those jobs start stop growing at such a fast pace,
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  Speaker 2: and then goes on to provide no evidence that they
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  Speaker 2: might stop growing at such a pace. I think the
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  Speaker 2: underlying tone of the article as well, Hey, we have
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  Speaker 2: a Trump administration in place here that is talking about
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  Speaker 2: attempting to cut employment in government work pretty substantially. But
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  Speaker 2: I think it does a fairly good job of ignoring
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  Speaker 2: the fact that most of the government jobs that have
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  Speaker 2: been added over the course of the last year and
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  Speaker 2: several years, have not been at the federal level. They've
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  Speaker 2: not been at the IRS, they've not been at the
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  Speaker 2: FBI or Department of Homeland Security. They've primarily been in
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  Speaker 2: local government jobs, working for your town, working for your city,
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  Speaker 2: your state, and you know, educators, things along those lines.
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  Speaker 2: And so I think sometimes we get a little bit
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  Speaker 2: lost in the weeds of these pieces. And I'm not
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  Speaker 2: going to state here, sit here and stay that every
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  Speaker 2: area of the labor market is perfect. But when we
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  Speaker 2: start getting fear pieces like, oh, watch out, the labor
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  Speaker 2: market's not that strong. Even though unemployment it's at four percent,
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  Speaker 2: I have a tough time buying.
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  Speaker 3: It's it's Friday. So I won't mince words and waste
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  Speaker 3: anybody's time. He doesn't know what he's talking about. I mean,
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  Speaker 3: I'm not a labor market economist either, but I'll start
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  Speaker 3: every comment about the labor market with that statement. So
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  Speaker 3: take anything I'd say with a grain of salt. Though
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  Speaker 3: maybe I know, just by virtue of training, I've come
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  Speaker 3: across a little bit more than the average analyst in
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  Speaker 3: this area. He doesn't know what he's talking about. We don't.
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  Speaker 3: A job is a job, and particularly for purposes of
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  Speaker 3: forecasting inflation and forecasting future job growth. The composition doesn't
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  Speaker 3: really matter now. Personally, I don't like adding more government
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  Speaker 3: sure private sector jobs what sane person would, But that's
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  Speaker 3: no reason to diminish the obvious strength. Frankly, of now,
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  Speaker 3: he may end up being right, by the way, I'm
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  Speaker 3: sorry interrupting myself mid sentence. He may end up being right.
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  Speaker 3: The tide may turn, and the manufacturing and other components
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  Speaker 3: may not step in to pick up the slack.
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  Speaker 2: But that's the problem with an argument like that is
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  Speaker 2: that it assumes, you know, spells it out. They're like, hey,
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  Speaker 2: if this if this type of hiring slows down, I
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  Speaker 2: think the obvious corollary there is, oh, well, you know,
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  Speaker 2: the Trump administration is talking about intentionally slowing down this
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  Speaker 2: type of hiring, and that is all true.
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  Speaker 4: But then it assumes that all else is equal. And
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  Speaker 4: there's a few things that.
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  Speaker 2: We know aren't going to be equal compared to the
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  Speaker 2: last few years. Immigration is probably not going to look
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  Speaker 2: equal to what we saw in twenty twenty three and
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  Speaker 2: twenty twenty four. The state of other areas of the economy.
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  Speaker 2: Manufacturing could change, other places of employment could change, and
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  Speaker 2: so What I hate about these types of arguments is
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  Speaker 2: it seems to run and intentionally contradict what we are
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  Speaker 2: seeing in terms of the facts on the ground about
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  Speaker 2: the state of the labor market. And yes, we two
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  Speaker 2: talk about the sectors, and yes I would prefer to
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  Speaker 2: see a lot more robust manufacturing and technology hiring than
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  Speaker 2: government employee hiring. But the fact of the matter is
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  Speaker 2: all of them still contribute to the state of the
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  Speaker 2: labor market. How many people are still looking for work,
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  Speaker 2: and the reason that some people might not have been
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  Speaker 2: hired in retail might be because they were instead offered
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  Speaker 2: jobs at government.
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  Speaker 3: I mean nobody ever, we all remember the nineteen eighties
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  Speaker 3: quite fondly. Government employment and military spending specifically exploded during
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  Speaker 3: that decade, made a huge contribution. Nobody thinks that detracts
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  Speaker 3: from the economic miracle relative to the mess of the
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  Speaker 3: late seventies that the nineteen eighties were.
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  Speaker 2: Right, Let's take a quick break. When we come back,
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  Speaker 2: I want to shift over to inflation. To your point, Mark,
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  Speaker 2: we had a sentiment survey that came out today, we
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  Speaker 2: have this jobs report. What might this all mean for
• 9:58
  Speaker 2: the federal Reserve? And how are we seeing markets reacting
• 10:00
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  Speaker 2: So before we move on from the jobs report, as
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  Speaker 2: we mentioned, one hundred six no, one hundred and forty
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  Speaker 2: three thousand jobs created in the month of January, unemployment
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  Speaker 2: rate dropping to four percent. We had talked leading up
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  Speaker 2: to this about the revisions. They'd do these once a
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  Speaker 2: year revisions, and basically they take all the survey data
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  Speaker 2: that came in later and revise the numbers. So previously,
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  Speaker 2: before today, what we understood about the labor market in
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  Speaker 2: twenty twenty four was that there was an average of
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  Speaker 2: one hundred eighty six thousand jobs created per month. With
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  Speaker 2: the new data that is now being displayed, we're now
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  Speaker 2: showing only one hundred sixty six thousand jobs created per
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  Speaker 2: month in twenty twenty four, which is not a huge drop.
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  Speaker 2: Twenty thousand jobs a month is pretty pretty reasonable in
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  Speaker 2: terms of where the data came in. The expectations were
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  Speaker 2: for a potentially much larger swing.
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  Speaker 4: And all of that.
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  Speaker 2: It did revise down the unemployment rate numbers as well,
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  Speaker 2: so overall, not a massive revision, and I don't think
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  Speaker 2: really much to speak of there but you know, definitely
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  Speaker 2: interesting to know that the expectation now or the understanding
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  Speaker 2: of the labor market last year was for slightly fewer
• 12:27
  Speaker 2: jobs created per month on average in twenty twenty four.
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  Speaker 3: Yeah, it doesn't change the story.
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  Speaker 4: It doesn't change the story.
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  Speaker 2: It's still a good labor market creating jobs at pace
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  Speaker 2: or faster than the number of people entering the labor market.
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  Speaker 4: So still a relatively good story here.
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  Speaker 2: Want to shift over to inflation expectations because a few
• 12:46
  Speaker 2: things are happening today. One, in the bond market, we've
• 12:49
  Speaker 2: got the ten year treasury up about seven basis points
• 12:53
  Speaker 2: to four point five zero five percent. And you also
• 12:56
  Speaker 2: did have the early release of the University of Michigan
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  Speaker 2: consumer sentiment data today. I'm not even sure what time,
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  Speaker 2: but today it was ten yes am, Yes, Eastern time.
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  Speaker 4: Yes, got it, and andred this data gives us a
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  Speaker 4: few points.
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  Speaker 2: One, it does just give you an index that you
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  Speaker 2: can go back to the nineteen sixties and look at
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  Speaker 2: in terms of how people are generally feeling about the economy.
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  Speaker 2: But I think importantly for this discussion, gives you some
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  Speaker 2: numbers in terms of inflation expectations and what we saw
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  Speaker 2: here was, in fact consumer sentiment coming down in early
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  Speaker 2: February to what is a seven month low now, and
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  Speaker 2: most of that had nothing to do with job prospects
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  Speaker 2: or you know, anything along those lines. Most of that
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  Speaker 2: drop in sentiment had to do with expectations around tariffs
• 13:53
  Speaker 2: and inflation. What do you read into this is this?
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  Speaker 2: I always say to take these what I call soft
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  Speaker 2: data points with a grain of salt because they are talking.
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  Speaker 4: It's not a measurement. It is a survey.
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  Speaker 2: You're asking somebody how they feel about something, rather than
• 14:11
  Speaker 2: a binary yes or no type question. So the jobs numbers,
• 14:15
  Speaker 2: for instance, are you working yes?
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  Speaker 3: No?
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  Speaker 2: This is much more how do you think things are
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  Speaker 2: going to develop? And people are oftentimes wrong. But what
• 14:24
  Speaker 2: does this data mean to you? Mark if there's anything
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  Speaker 2: significant from it.
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  Speaker 3: It's a big jump. It does get your attention. It's
• 14:31
  Speaker 3: consistent with what we've seen in financial market.
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  Speaker 4: It's a big jump to start a one.
• 14:35
  Speaker 3: Percentage point increase in year ahead inflation expectations reported by
• 14:40
  Speaker 3: this survey.
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  Speaker 2: So last month, when asked, consumers expected prices to rise
• 14:46
  Speaker 2: at an annual rate of three point three percent over
• 14:50
  Speaker 2: the course of the next year. Now consumers are expecting
• 14:53
  Speaker 2: them to rise an annual rate of four point three percent.
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  Speaker 3: So we pay attention to expectations because of the experience
• 14:58
  Speaker 3: of the nineteen seventies and because of the insight of
• 15:01
  Speaker 3: I know, you've heard the name, and I've got to
• 15:03
  Speaker 3: bring it up every time I think I'm on the show,
• 15:04
  Speaker 3: because the insight of Milton Friedman and one other guy
• 15:06
  Speaker 3: had phelps, but Friedman gets the credit. He recognized that
• 15:10
  Speaker 3: you can't keep fooling people by printing an increasing amount
• 15:13
  Speaker 3: of money and driving up inflation. Eventually people figure it
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  Speaker 3: out and start to front run it with wage requests,
• 15:20
  Speaker 3: and then you end up in the vicious cycle that
• 15:22
  Speaker 3: we had during the nineteen seventies. You could sum that
• 15:25
  Speaker 3: up by saying Freedman had the insight that you can't
• 15:28
  Speaker 3: fool people indefinitely. They eventually figure out that the money
• 15:31
  Speaker 3: supplies growing too fast. They request greater or they demand
• 15:35
  Speaker 3: greater wages to keep up with it, and this is
• 15:37
  Speaker 3: how you get the type of persistent breakout inflation. There
• 15:41
  Speaker 3: were other culprits in the seventies, but the underlying inflation
• 15:43
  Speaker 3: component was attributable too much money supply, too much demand. Okay,
• 15:47
  Speaker 3: with that background, inflation expectations have ever since been watched
• 15:50
  Speaker 3: very closely, sure, because they are part we recognize now
• 15:53
  Speaker 3: of the inflation process.
• 15:55
  Speaker 4: A self fulfilling prophecy.
• 15:57
  Speaker 3: That's a that's a great way to put it.
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  Speaker 2: If you think prices are going to go up in
• 16:00
  Speaker 2: the future, Yeah, then why would you hold off on
• 16:02
  Speaker 2: a pressures. If I'm thinking about replacing my car twelve
• 16:05
  Speaker 2: months from now, and I think it's going to cost
• 16:07
  Speaker 2: two thousand dollars more than it does today, then I'll
• 16:09
  Speaker 2: just do it now.
• 16:10
  Speaker 3: Yeah, that's a part of it too. There are other
• 16:13
  Speaker 3: measures of inflation expectations. You've said that surveys are soft,
• 16:16
  Speaker 3: and you're right in that they are. They meant, they're
• 16:19
  Speaker 3: meant to elicit somebody's opinion. We also have financial market measures.
• 16:23
  Speaker 3: There are lots of them. Probably the best known is
• 16:25
  Speaker 3: the break even, uh, the ten year inflation break even,
• 16:29
  Speaker 3: which can be derived from the yield on the ten
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  Speaker 3: year treasury, which, as you pointed out earlier, is about
• 16:34
  Speaker 3: four point five percent and the yield on the ten
• 16:37
  Speaker 3: year inflation index treasury. We haven'ten able to do that
• 16:40
  Speaker 3: for very long well, it's like thirty years now, but
• 16:42
  Speaker 3: since the late nineties. The Treasury is issued inflation protected securities.
• 16:46
  Speaker 3: If you take the difference, and their yield is therefore real.
• 16:50
  Speaker 3: What you see quoted is what you get, regardless of
• 16:52
  Speaker 3: what inflation is. One of the great things about inflation
• 16:55
  Speaker 3: index treasuries is that they allow us to ascertain what
• 16:58
  Speaker 3: the market thinks inflation will be over the next ten years.
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  Speaker 3: That number is about two point four percent. It's been
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  Speaker 3: ticking up though, is the larger point over the past
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  Speaker 3: few months, and it's probably all related to Mike. I
• 17:11
  Speaker 3: think you've already pointed this out tariffs, right. It's been
• 17:14
  Speaker 3: well publicized that tariffs are tax in are taxes on goods,
• 17:18
  Speaker 3: and that they push up prices, at least in the
• 17:20
  Speaker 3: short term.
• 17:21
  Speaker 2: So again, this this Michigan consumer Sentiment survey contains a
• 17:24
  Speaker 2: lot of different data points. The one to me that
• 17:26
  Speaker 2: matters that is significant is that when you asked people
• 17:30
  Speaker 2: back in January what they thought inflation would be over
• 17:33
  Speaker 2: the course of twelve months, on average, they said three
• 17:35
  Speaker 2: point three percent. In February they said four point three percent.
• 17:38
  Speaker 2: That is a significant Energy.
• 17:39
  Speaker 3: Prices have been coming down, so normally the culprit's gas, right,
• 17:42
  Speaker 3: but that's not a suspect in this case because gas
• 17:45
  Speaker 3: and energy have been.
• 17:47
  Speaker 4: This to me is a tariff story.
• 17:49
  Speaker 2: And I guess my question is when we go get
• 17:52
  Speaker 2: this data a month from now, if we assume that
• 17:54
  Speaker 2: there are not tariffs on Canada and Mexico, which big assumption.
• 17:57
  Speaker 4: Don't know that that's gonna be the case, erect nos.
• 18:00
  Speaker 2: Well, these inflation expectations drop again now that we because
• 18:03
  Speaker 2: as of Monday, we were all sure that there were
• 18:05
  Speaker 2: be tariffs on Canada and Mexico, apparently, and now we
• 18:08
  Speaker 2: don't think so. I'm guessing this survey was conducted, you know,
• 18:12
  Speaker 2: alongside those expectations, and so maybe those inflation expectations have
• 18:16
  Speaker 2: fallen a little bit. We'll have to wait and see
• 18:18
  Speaker 2: the other piece that are by them.
• 18:20
  Speaker 3: Can I just ask I didn't think people were paying
• 18:21
  Speaker 3: that close attention to this stuff, but apparently.
• 18:25
  Speaker 4: I absolutely think.
• 18:26
  Speaker 1: So.
• 18:26
  Speaker 3: Okay, you talk to a lot of clients and a
• 18:29
  Speaker 3: lot of problems.
• 18:29
  Speaker 2: I think when you talk about tariffs on Mexico and Canada,
• 18:33
  Speaker 2: there is a very different mentality to it than when
• 18:35
  Speaker 2: you talk about tariffs on China.
• 18:37
  Speaker 4: How many people do you.
• 18:38
  Speaker 2: Know that is the family or friends that live in
• 18:42
  Speaker 2: closeness family. I think it has a lot to do
• 18:45
  Speaker 2: with how many people know somebody who works for an automaker,
• 18:49
  Speaker 2: for example, that you know it does a lot of
• 18:51
  Speaker 2: trade with UH, with UH, with Canada. You go to
• 18:55
  Speaker 2: the grocery store and you just know that a lot
• 18:57
  Speaker 2: of your products are imported from Mexico. So there's just
• 19:00
  Speaker 2: a closeness between those two things that don't quite apply
• 19:03
  Speaker 2: to China, even though we do import a ton of
• 19:05
  Speaker 2: stuff from there. The last piece of this is that
• 19:08
  Speaker 2: sentiment among Republicans had been increasing since August. This was
• 19:12
  Speaker 2: the first time it declined since then, and so this
• 19:15
  Speaker 2: is not necessarily just Democrats crying about everything, which they are.
• 19:19
  Speaker 2: It's their sentiment deterior to the Lewess and twenty twenty,
• 19:22
  Speaker 2: but Republicans two taking a step back into of their expectations.
• 19:25
  Speaker 2: We're gonna take quick break when we come back. Full
• 19:28
  Speaker 2: market update from Tucker with Wall Street.
• 19:30
  Speaker 1: Watch Like us on Facebook and follow us on Twitter
• 19:42
  Speaker 1: at TFE show. Breaking business news is always first right
• 19:47
  Speaker 1: here on the Financial Exchange Radio Network. Time now for
• 19:52
  Speaker 1: Wall Street. Watch a complete look and what's moving market
• 19:55
  Speaker 1: so far today right here on the Financial Exchange Radio
• 19:58
  Speaker 1: Network gets.
• 20:00
  Speaker 5: Are trading modestly lower at this point as investors react
• 20:03
  Speaker 5: to the January jobs report posted earlier this morning, where
• 20:07
  Speaker 5: one hundred and forty three thousand jobs were added last month,
• 20:10
  Speaker 5: lighter than expectations of one hundred and seventy five thousand
• 20:13
  Speaker 5: jobs added. However, markets did turn negative after the Michigan
• 20:19
  Speaker 5: consumer survey showed higher inflation expectations. Right now, the Dow
• 20:25
  Speaker 5: is off by ninety nine points, nearly a quarter of
• 20:28
  Speaker 5: a percent. S and P five hundred is off by
• 20:30
  Speaker 5: about a third of a percent, or eighteen points, and
• 20:32
  Speaker 5: the Nasdaq is down by two thirds of a percent
• 20:35
  Speaker 5: or one hundred and twenty eight points. Russell two thousands
• 20:38
  Speaker 5: off just over half a percent. Ten You're Treasure reeled
• 20:41
  Speaker 5: up by six basis points now a four point five
• 20:44
  Speaker 5: zero percent, and crude oil is up just over three
• 20:48
  Speaker 5: quarters of a percent, trading just above seventy one dollars
• 20:52
  Speaker 5: a barrel. Amazon off by over three percent after the
• 20:56
  Speaker 5: tech giant beat fourth quarter earnings and revenue forecasts. However,
• 21:00
  Speaker 5: the company projected lower than expected sales and operating income
• 21:04
  Speaker 5: instead of plans to allocate a record amount to capital
• 21:07
  Speaker 5: expenditure this year. For AI, Meanwhile, Tesla Tesla sales geez
• 21:13
  Speaker 5: in China fell eleven point five percent last month amid
• 21:17
  Speaker 5: greater competition from Chinese rivals. Tesla shares are down by
• 21:20
  Speaker 5: about a third of a percent. Elsewhere, Payment company a
• 21:24
  Speaker 5: firm Holdings handlely beat earnings in revenue expectations, reporting eight
• 21:29
  Speaker 5: hundred and sixty six million dollars in revenue for its quarter,
• 21:32
  Speaker 5: well above forecasts of eight hundred and seven million. Firm's
• 21:37
  Speaker 5: gross merchandise volume, or the total value of transactions on
• 21:41
  Speaker 5: its platform, topped ten billion dollars for the first time.
• 21:44
  Speaker 5: That stock up by twenty one percent. Pinterest up by
• 21:49
  Speaker 5: eighteen percent after the social media platform posted strong quarterly
• 21:53
  Speaker 5: results where its revenue jumped eighteen percent year over year.
• 21:56
  Speaker 5: It's monthly active users also climbed eleven percent from a
• 22:00
  Speaker 5: year ago. Elf Beauty stock is down by over nineteen
• 22:04
  Speaker 5: percent after the cosmetics company cut its guidance for the
• 22:07
  Speaker 5: fiscal year. Bill shares down by thirty two percent after
• 22:11
  Speaker 5: the billing software companies quarterly revenue guidance disappointed investors, and
• 22:16
  Speaker 5: shares in video game maker Take two Interactive jumping by
• 22:20
  Speaker 5: fourteen percent after the company's quarterly loss was narrower than expected.
• 22:25
  Speaker 5: Its CEO also said this year is shaping up to
• 22:28
  Speaker 5: be one of its strongest, with grand theft Auto do
• 22:31
  Speaker 5: out this fall. I'm Tucker Silvan. That's Wall Street Watch.
• 22:35
  Speaker 2: So Tucker mentioned markets selling off today, and I think
• 22:38
  Speaker 2: stays in the category for me at least of good
• 22:42
  Speaker 2: news being bad news. The labor market report was fairly
• 22:45
  Speaker 2: solid this morning. Unemployment rate remains low, but this inflation
• 22:50
  Speaker 2: expectation survey out of the University of Michigan speaks to
• 22:54
  Speaker 2: what that actually means for people when they think about
• 22:57
  Speaker 2: where prices are going, and so what we're seeing in
• 23:00
  Speaker 2: bond markets I think responds to this. You've got the
• 23:03
  Speaker 2: yield on the ten year, like I said, up to
• 23:05
  Speaker 2: four over four point five percent. US equities largely off,
• 23:08
  Speaker 2: and those expectations for a rate cut at the next
• 23:11
  Speaker 2: Federal Reserve meeting coming down as well. Yesterday there is
• 23:15
  Speaker 2: only a sixteen percent chance of a rate cut at
• 23:19
  Speaker 2: the next meeting on March nineteenth.
• 23:20
  Speaker 4: For the Federal Reserve.
• 23:22
  Speaker 2: That's now down to eight and a half percent, basically
• 23:24
  Speaker 2: cut in half. No chance of a rate cut unless
• 23:26
  Speaker 2: the economy turns south between now and.
• 23:28
  Speaker 3: Then anyone's still asking that is asking the wrong question.
• 23:31
  Speaker 3: The right question is probably are they gonna have to hunt?
• 23:34
  Speaker 3: And I know Chuck has asked this. He's been a
• 23:35
  Speaker 3: little bit mischievous, but I think he's I think the
• 23:38
  Speaker 3: question is fair. It should always be asked. Sometimes the
• 23:40
  Speaker 3: answer is no, stupid. Sometimes the answer is Ooh, I
• 23:43
  Speaker 3: don't know.
• 23:44
  Speaker 4: Start with the question the Fed?
• 23:46
  Speaker 3: Yeah, oh did I did? I not actually ask the question?
• 23:49
  Speaker 3: Has the FED loosened too much in the past several months?
• 23:54
  Speaker 2: Remember the cut rates by a full percentage point in
• 23:57
  Speaker 2: the second half of last year.
• 23:58
  Speaker 3: So their job is to keep the car going. If
• 24:01
  Speaker 3: the economy is a car, you want to keep it
• 24:03
  Speaker 3: going at a constant speed. You're watching your tachometer. You
• 24:05
  Speaker 3: don't want to go into the red zone. The red
• 24:07
  Speaker 3: zone means you've printed too much. You've supplied the economy
• 24:11
  Speaker 3: with too much money. You've hit the throttle a bit
• 24:13
  Speaker 3: too much. That pushes the economy beyond its productive capacity.
• 24:17
  Speaker 3: The result is inflation. Now I'm leaving out a so
• 24:21
  Speaker 3: called supply shocks because they're unpredictable. I'm thinking just about
• 24:24
  Speaker 3: the core component of inflation. That's the Fed's job is
• 24:27
  Speaker 3: to keep the core component of inflation at about two percent.
• 24:31
  Speaker 3: I'm not talking about ex food and energy core that
• 24:33
  Speaker 3: we often report. I'm talking about underlying inflation, the part
• 24:36
  Speaker 3: that the Fed can control. They're always trying to keep
• 24:39
  Speaker 3: that tachometer, the needle on their tachometer, out of the
• 24:42
  Speaker 3: red zone. It's their perennial task, and that job I
• 24:46
  Speaker 3: think got a lot harder. I mean a lot this
• 24:49
  Speaker 3: morning with this hot employment report, not overly hot, but
• 24:54
  Speaker 3: nothing that suggests weakness.
• 24:55
  Speaker 4: I mean, for with un unemployment.
• 24:56
  Speaker 3: Rightly, we've only seen that a few times in the
• 25:00
  Speaker 3: past sixty years. It's hard to impress how unusually strong
• 25:05
  Speaker 3: a labor market is. An alarming and I don't think
• 25:08
  Speaker 3: that's overstating it. Jump in inflation expectations, which you're a
• 25:12
  Speaker 3: key part of the inflation process, I think the FEDS
• 25:14
  Speaker 3: probably on the edge of its seat, if not outright
• 25:18
  Speaker 3: standing up this morning.
• 25:19
  Speaker 2: So Chuck and I last week we're talking about just
• 25:21
  Speaker 2: what would need to happen for rates to come down
• 25:24
  Speaker 2: anytime soon at the Federal Reserve, because they very much
• 25:26
  Speaker 2: seem locked into where we are today. And his conclusion
• 25:30
  Speaker 2: was unemployment at four and a half. I was saying
• 25:32
  Speaker 2: maybe they start talking about it at four three, but
• 25:35
  Speaker 2: that seems off the table today. Where do things need
• 25:37
  Speaker 2: to get to in your mind? For remember not you
• 25:40
  Speaker 2: remember for this federal Reserve? Where do you think things need.
• 25:43
  Speaker 3: To get Referring to the same models, not as sophisticated,
• 25:46
  Speaker 3: but I have the same mental picture as anybody trained
• 25:49
  Speaker 3: in economics does. You're always thinking about the so called
• 25:51
  Speaker 3: Phillips curve, this relationship. But you've all heard it. If
• 25:55
  Speaker 3: you took a macro economics course, you were introduced to
• 25:58
  Speaker 3: the Phillips curve. It's the relations or not queen inflation. Yeah,
• 26:02
  Speaker 3: damn it so like it's the relationship between these two things.
• 26:05
  Speaker 3: They all think in these terms. Certainly the economists preparing
• 26:10
  Speaker 3: data for them think in these terms. And it would
• 26:15
  Speaker 3: unemployment above four point five percent trigger further easing? I
• 26:19
  Speaker 3: don't know. It depends on what inflation of doing. What
• 26:20
  Speaker 3: if the so called natural rate of unemployment, and there
• 26:23
  Speaker 3: is such a thing, even if we can't measure it,
• 26:25
  Speaker 3: what if it's going up now for different reasons? It
• 26:28
  Speaker 3: does fluctuate. This is another challenge the FED has to
• 26:31
  Speaker 3: deal with. You can't view the unemployment rate out of
• 26:35
  Speaker 3: the present outside of the present context. Say compare it
• 26:38
  Speaker 3: to the eighties or nineties or twenty tens and say, well,
• 26:41
  Speaker 3: it was fine at for then, it should be fine
• 26:43
  Speaker 3: it for now. Now the structure of the economy is
• 26:45
  Speaker 3: constantly changing. Another challenge that the FED faces might go.
• 26:48
  Speaker 2: So when it comes to all of this, I think
• 26:50
  Speaker 2: again grounding it in terms of what it means for you,
• 26:53
  Speaker 2: and inflation is very obvious. What it means for you
• 26:56
  Speaker 2: is that prices could go higher if consumers are correct
• 27:00
  Speaker 2: in the way they responded to surveys recently. What it
• 27:03
  Speaker 2: means for equity markets I want to hone in there
• 27:06
  Speaker 2: for a moment too, And ultimately that's unknowable. But I
• 27:10
  Speaker 2: think there's a few things that are true. One, the
• 27:14
  Speaker 2: overall sentiment over the course of the last year was that, hey,
• 27:17
  Speaker 2: the worst of inflation is behind us, and interest rates
• 27:21
  Speaker 2: can slowly start coming down now because the worst of
• 27:24
  Speaker 2: inflation is behind us. If that turns out to not
• 27:27
  Speaker 2: be true, that we have prices, which again as of
• 27:31
  Speaker 2: the last reading on CPI, they are not surging. They're
• 27:34
  Speaker 2: up to two point nine percent year over year. That
• 27:36
  Speaker 2: is not something to be worried about. But if we
• 27:39
  Speaker 2: get a reversal of that, which again today very obviously
• 27:43
  Speaker 2: is what markets are concerned about. They're not worried about recession,
• 27:45
  Speaker 2: they're not worried about Amazon's earnings, they're not worried about
• 27:49
  Speaker 2: different But if you reverse that narrative and suddenly this
• 27:54
  Speaker 2: becomes a market where you're saying, oh, yeah, inflation's back
• 27:57
  Speaker 2: up and maybe the FED needs to pivot to rate hikes,
• 28:01
  Speaker 2: that is a very different market. That is a completely
• 28:04
  Speaker 2: about face compared to what we were dealing with a
• 28:06
  Speaker 2: year ago. And that's what I think about when I
• 28:09
  Speaker 2: consider what does this data mean for the average person, Well,
• 28:12
  Speaker 2: it starts to shift the narrative of where we were
• 28:15
  Speaker 2: six twelve months ago.
• 28:17
  Speaker 3: Today's data should jolt the FED. It's not jolting equity markets.
• 28:21
  Speaker 3: It's jolting bond markets, as evidenced in rising interest rates
• 28:25
  Speaker 3: on longer term government bonds. To me, it does change
• 28:31
  Speaker 3: the balance of risks if you will clearly labor markets
• 28:36
  Speaker 3: not slowing down. That's historically asso Now. I just said
• 28:40
  Speaker 3: earlier that the natural rate changes. Just because inflation started
• 28:44
  Speaker 3: to accelerate at four percent in one decade doesn't mean
• 28:47
  Speaker 3: it will right now. But with core or underlying I
• 28:51
  Speaker 3: should say inflation. I'll use those two terms synonymously sometimes
• 28:55
  Speaker 3: somewhere in the high twos, maybe threes, well above the
• 28:59
  Speaker 3: Fed's gole way below where it was in the extreme
• 29:05
  Speaker 3: aftermath of COVID, and will probably appsent a so called
• 29:08
  Speaker 3: supply shock, a big jump in energy prices or something.
• 29:11
  Speaker 3: Not get back to eight nine percent, but could be
• 29:13
  Speaker 3: uncomfortably I for the foreseeable future if the FED doesn't
• 29:18
  Speaker 3: change its posture or at least its rhetoric to bring
• 29:21
  Speaker 3: in these inflation expectations. Four plus percent inflation expectations are
• 29:25
  Speaker 3: absolutely unacceptable. The Fed's got to start jawboning those down.
• 29:29
  Speaker 2: Let's take a quick break when we come back. There
• 29:32
  Speaker 2: have been a lot of volatility in terms of interest
• 29:35
  Speaker 2: rates with the Fed's rate cuts the increase in the
• 29:37
  Speaker 2: ten year Wail Street Journal has a piece out today.
• 29:40
  Speaker 2: Three places to get the best returns on your cash.
• 29:43
  Speaker 2: Will be cover that next here on the Financial Exchange.
• 29:46
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• 29:49
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• 29:55
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• 29:58
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• 30:02
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• 30:28
  Speaker 4: Mark a year ago.
• 30:30
  Speaker 2: Tools like money markets and things like that, we're paying
• 30:32
  Speaker 2: up over five percent. This was prior to the Fed
• 30:36
  Speaker 2: embarking on their rate cutting cycle most recently where they
• 30:40
  Speaker 2: did bring down rates by a full percentage point, and
• 30:43
  Speaker 2: there's been more than enough written about the impact on
• 30:46
  Speaker 2: that to mortgage rates and things like that. So I
• 30:48
  Speaker 2: won't focus on why this happened. But you saw short
• 30:51
  Speaker 2: term rates like what you get on a CD or
• 30:53
  Speaker 2: a money market come down by a full percentage point.
• 30:56
  Speaker 2: Mortgage rates, on the other hand, go up by a
• 30:58
  Speaker 2: full percentage point, and so most people didn't really get
• 31:03
  Speaker 2: a great effect from lowering rates at the Federal Reserve.
• 31:06
  Speaker 1: You know.
• 31:06
  Speaker 2: Mainly this you know, benefited some consumers who or rather
• 31:11
  Speaker 2: benefited some investors who saw rates coming down and lowered
• 31:15
  Speaker 2: yields on low you know, short end deposits, but by
• 31:17
  Speaker 2: and large not a huge effect for most people and
• 31:20
  Speaker 2: starts to I'm getting more and more questions. I guess about, Hey,
• 31:25
  Speaker 2: you know, the rates on my savings account came down,
• 31:29
  Speaker 2: came down further than the full percentage point in a
• 31:31
  Speaker 2: lot of cases, or maybe they were only at four
• 31:33
  Speaker 2: and a half to begin with, and now it's down
• 31:35
  Speaker 2: to three and a half percent and a lot more
• 31:37
  Speaker 2: people saying, now it was really easy getting five percent
• 31:40
  Speaker 2: of my cash. Now I need to think about something else,
• 31:42
  Speaker 2: so weallster droone brings up a few different things here
• 31:45
  Speaker 2: to talk about, and the first they bring up is
• 31:49
  Speaker 2: just a high yield savings account, you know, like I
• 31:52
  Speaker 2: talked about, that's what people are already seeing, is those
• 31:55
  Speaker 2: rates coming down into the mid fores, low fours, even
• 31:59
  Speaker 2: threes in a lot of cases, depending on which bank
• 32:01
  Speaker 2: you're talking about. There's obviously, you know, certificates of deposits
• 32:04
  Speaker 2: to look at, and you know, then there's money market
• 32:07
  Speaker 2: mutual funds as another option that's out there. I think
• 32:10
  Speaker 2: one of the key things that I would focus on
• 32:12
  Speaker 2: would be, look, we just got done talking about where
• 32:16
  Speaker 2: rates could go, and hypothetically are rates going to go
• 32:19
  Speaker 2: even higher? I would still say that most market participants
• 32:24
  Speaker 2: at least think that while they might not come down quickly,
• 32:27
  Speaker 2: rates are probably more likely to come down over the
• 32:29
  Speaker 2: course of the next year than up over the next.
• 32:32
  Speaker 3: Short term though rates the rates rate exerts heavy case.
• 32:36
  Speaker 2: Exactly, and therefore the rates that people receive and cash savings,
• 32:40
  Speaker 2: I'm not sure that that's going to be.
• 32:41
  Speaker 3: Yeah, particularly a lot of today's data. I think it
• 32:43
  Speaker 3: pokes some holes in that that thesis, so to speak.
• 32:46
  Speaker 2: I think it does as well. But there's another somewhat
• 32:49
  Speaker 2: you know, little known fact about these things that I
• 32:51
  Speaker 2: think is worth considering too. And the Wall Street Journal
• 32:54
  Speaker 2: artically actually doesn't talk really about treasury bonds, which for
• 32:58
  Speaker 2: people unfamiliar. You can go and buy a treasury of
• 33:03
  Speaker 2: a one year maturity, of a six month maturity, really
• 33:05
  Speaker 2: any maturity that you want, and the rates that you
• 33:07
  Speaker 2: see on those tend to follow similar types of tools
• 33:11
  Speaker 2: like CDs. One of the big differences, though, when you
• 33:14
  Speaker 2: go loan your money to the bank in the form
• 33:16
  Speaker 2: of a certificate deposit, you pay both federal and state
• 33:20
  Speaker 2: income taxes on that interest. When you loan the money
• 33:23
  Speaker 2: to the United States government or one of its agencies,
• 33:27
  Speaker 2: you do still face federal taxes. On that interest, but
• 33:30
  Speaker 2: you avoid the state income taxes. Doesn't matter if you
• 33:33
  Speaker 2: live in New Hampshire, but assuming you live in one
• 33:35
  Speaker 2: of the other New England states or all but I
• 33:38
  Speaker 2: think fifteen states across the country that don't have an
• 33:41
  Speaker 2: income tax, it can actually make a meaningful difference in
• 33:44
  Speaker 2: your after tax return. The main message that I've been
• 33:47
  Speaker 2: delivering to my clients at least has been, look, we
• 33:50
  Speaker 2: don't know where rates will go over the course of
• 33:52
  Speaker 2: the next few years. Six months ago, I would have
• 33:54
  Speaker 2: told you very much likely down, but we just don't know.
• 33:58
  Speaker 2: What Looking at things like CDs, like treasuries and other
• 34:01
  Speaker 2: tools like that allows you to do is at least
• 34:03
  Speaker 2: create some certainty with what's.
• 34:05
  Speaker 4: Going to happen with your money in the short term.
• 34:07
  Speaker 2: If you're sitting on cash, and I know that a
• 34:11
  Speaker 2: number of people this isn't even a possibility for you know,
• 34:15
  Speaker 2: the amount of credit card debt and things like that
• 34:17
  Speaker 2: that's out there is enormous. But if you're sitting there saying, hey,
• 34:21
  Speaker 2: I've accumulated this bucket of cash. Maybe it was an inheritance,
• 34:23
  Speaker 2: maybe it was just additional savings of the course the
• 34:26
  Speaker 2: last few years, and I've seen my rate of return
• 34:29
  Speaker 2: come down on that, and now I'm in this position
• 34:31
  Speaker 2: where I just don't know what to do.
• 34:33
  Speaker 4: We'd love to talk to you about.
• 34:34
  Speaker 2: What those alternatives look like, and it's usually a combination
• 34:38
  Speaker 2: of a number of different tools. But it is one
• 34:41
  Speaker 2: of the trickier questions to deal with because you know,
• 34:45
  Speaker 2: you were sitting on this thing that for years was
• 34:47
  Speaker 2: paying nothing, suddenly started paying a lot more and that
• 34:51
  Speaker 2: rate is in the midst of a pretty significant change.
• 34:53
  Speaker 2: If you want to learn more about the tax implications
• 34:56
  Speaker 2: of what you have your cash sitting in and alternatives
• 34:59
  Speaker 2: that might be out there for you, give the folks
• 35:01
  Speaker 2: at Armstrong Advisory Group a call. Let us educate you
• 35:03
  Speaker 2: on how the tax scenarios that we all face, depending
• 35:07
  Speaker 2: on what state we live in, affect how much return
• 35:10
  Speaker 2: we're able to generate once those taxes are paid. The
• 35:13
  Speaker 2: number for the Armstrong Advisory Group is eight hundred three
• 35:16
  Speaker 2: nine three for zero zero one. Again, that's eight hundred
• 35:20
  Speaker 2: three nine three for zero zero one.
• 35:23
  Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
• 35:26
  Speaker 1: registered investment advisor. Nothing in the ad or in any
• 35:29
  Speaker 1: Armstrong guide a specific financial, legal, or tax advice consult
• 35:32
  Speaker 1: your own financial tax into state planning advisors before making
• 35:34
  Speaker 1: any investment decisions. Armstrong may contact you to offer investment
• 35:37
  Speaker 1: advisory services.
• 35:39
  Speaker 2: Just yesterday, we were speaking about the looming deadline on
• 35:43
  Speaker 2: the federal buyout offer for workers that was sent to
• 35:46
  Speaker 2: all I think two million workers out there, and a
• 35:50
  Speaker 2: federal judge in Massachusetts has paused that deadline from yesterday
• 35:54
  Speaker 2: to I think what was it like a week from now,
• 35:57
  Speaker 2: something along those lines for this to go into place.
• 36:01
  Speaker 2: As of yesterday, some forty thousand government workers had agreed
• 36:05
  Speaker 2: to resign ahead of that deadline. The White House said
• 36:09
  Speaker 2: it was expecting between five and ten percent of the
• 36:12
  Speaker 2: federal employees to take the deal, which would have been
• 36:15
  Speaker 2: closer to one hundred to two hundred thousand employees.
• 36:18
  Speaker 3: And many of those who did take it may have
• 36:19
  Speaker 3: been planning on retiring. You had a couple of examples
• 36:21
  Speaker 3: of this yesterday from the real world experience, Mike, we
• 36:24
  Speaker 3: have been planning to retire anyway.
• 36:25
  Speaker 2: Yeah, we don't know with any degree of certainty, but
• 36:27
  Speaker 2: I certainly would be willing to bet that in that
• 36:30
  Speaker 2: forty thousand is a high concentration of people that were
• 36:33
  Speaker 2: looking at retirement.
• 36:34
  Speaker 4: In twenty twenty five.
• 36:35
  Speaker 3: Anyway, well, Bloomberg reported that sixty some odd roughly sixty
• 36:38
  Speaker 3: five thousand retire in any given years. So, as you
• 36:41
  Speaker 3: point out, I think yesterday, if you're planning on retiring
• 36:43
  Speaker 3: anytime through the end of this period during which you
• 36:47
  Speaker 3: can continue to collect your salary under the Musk scheme,
• 36:51
  Speaker 3: you would have to you'd be an idiot, forgive me,
• 36:53
  Speaker 3: but an idiot not to retire today.
• 36:55
  Speaker 2: Yeah, So we will see where this plays out. I
• 36:58
  Speaker 2: think in all likelihood, I don't know. I've read a
• 37:01
  Speaker 2: fair bit about this and heard a lot of commentary.
• 37:03
  Speaker 2: There's not a whole lot of question as to whether
• 37:05
  Speaker 2: or not the White House has the ability to do this.
• 37:07
  Speaker 2: So I suspect that it will still go through in
• 37:10
  Speaker 2: some way, shape or form, but being delayed at least temporarily,
• 37:15
  Speaker 2: which you know, good case if you're one of those
• 37:16
  Speaker 2: federal employees, a few extra days to consider your options
• 37:19
  Speaker 2: when it comes to this potential buyout.
• 37:22
  Speaker 4: But I once.
• 37:24
  Speaker 2: Again, we'll just call into question time after time we
• 37:28
  Speaker 2: see these promises coming from the Department of Government Efficiency
• 37:31
  Speaker 2: around how big the sweeping changes are going to be.
• 37:34
  Speaker 2: They come out with these giant numbers and then once
• 37:36
  Speaker 2: again they get walked back pretty substantially in terms of
• 37:40
  Speaker 2: what we actually see, So.
• 37:42
  Speaker 3: They really blew credibility in record time. I mean, it
• 37:45
  Speaker 3: speaks to setting achievable goals in the short term in
• 37:48
  Speaker 3: any walk of life, but you don't go to your
• 37:50
  Speaker 3: manager and say I'm in a double sales nextreme.
• 37:52
  Speaker 2: So we will see where this all plays out, but
• 37:54
  Speaker 2: for the time being, at least the promise on the
• 38:00
  Speaker 2: the biout of federal workers has been put on put
• 38:02
  Speaker 2: on ice by a federal judge in Massachusetts. Quick break,
• 38:06
  Speaker 2: But a lot more to cover in the second hour,
• 38:09
  Speaker 2: including more tariff talk where we're talking about and specifically
• 38:13
  Speaker 2: in the insurance industry. That's next here on the Financial Exchange.