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Will we get a Santa Claus rally this year? · The Financial Exchange Show

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Speaker 1: and Mike Armstrong.
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Speaker 2: Chuck, Mike and Tucker with you, and I hope you
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Speaker 2: all had a great Thanksgiving. Hope you have worked through
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Speaker 2: all that turkey, not worked off all the turkey, but
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Speaker 2: worked through it. Because generally you get to the Monday
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Speaker 2: after Thanksgiving and hey, even if you had, you know,
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Speaker 2: a nice juicy bird on the table on Thursday, it's
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Speaker 2: usually pretty dried out and not very good today. So
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Speaker 2: hope you made the best of you know, last week,
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Speaker 2: and we're happy to be back in the driver's seat
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Speaker 2: on December first, ready to power through the last month
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Speaker 2: of twenty twenty five.
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Speaker 3: I'm not ready.
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Speaker 2: What are you not ready for? Michael Man?
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Speaker 3: I like it.
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Speaker 4: You always suspect that maybe a too much Thanksgiving, But
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Speaker 4: you know, putting on my pants today compared to Tuesday
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Speaker 4: of last week, they look tight, the same pants and
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Speaker 4: they do not fit the same They don't look like
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Speaker 4: the same pants.
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Speaker 3: They they they look different.
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Speaker 4: And yeah, it was a gluttonous really four days, gluttonous
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Speaker 4: four days for me personally.
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Speaker 2: I'll say this, so I love like, if you actually
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Speaker 2: know how to cook a turkey, fantastic. Okay, most of
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Speaker 2: our problems with turkey come from Americans desire to just, hey,
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Speaker 2: get that thing as overcooked as possible, because we're so
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Speaker 2: nervous about food bor and illnesses that really just aren't
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Speaker 2: present in large quantities or even small quantities in the
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Speaker 2: United States anymore. So if you just don't overcook your bird,
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Speaker 2: you're generally going to be in.
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Speaker 3: A good spot.
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Speaker 4: That said, there is nothing more embarrassing than poisoning twenty people.
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Speaker 2: I can think of a few things more embarrassing. Not many,
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Speaker 2: there's a few. Yeah, But in any case, we digress. December.
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Speaker 2: So what do we have this month? A whole bunch
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Speaker 2: of weirdness, largely related to data coming out from the
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Speaker 2: governments shutdown on delayed. So this Friday we're gonna be
3:03
Speaker 2: getting the core I'm sorry, the PCE price index for September.
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Speaker 3: Wow, that's late.
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Speaker 2: Who cares? Like, shouldn't even be like on the list anymore?
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Speaker 2: It is not influencing anything right now. This is also,
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Speaker 2: by the way, why how bad.
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Speaker 4: Would it need to be to influence anything at all?
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Speaker 4: It need to be like a percentage point higher?
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Speaker 2: Yeah, if core PC, if core PC came into like
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Speaker 2: six percent for the month, it would influence my decision
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Speaker 2: somewhat yeah. This is also why you remember the conversation
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Speaker 2: this summer about like, hey, these revisions are so big,
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Speaker 2: why don't they just wait and release the data longer?
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Speaker 3: You know, later it's useless.
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Speaker 2: It's because it's not useful to anyone if you're releasing
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Speaker 2: the data three months after it comes out the revisions. Again,
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Speaker 2: there's a reason why, like no one pays attention to
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Speaker 2: the revisions is because it's not relevant to what's coming next.
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Speaker 2: And so I think ultimately you need timely data and
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Speaker 2: the fact that we're getting the September PCE on December
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Speaker 2: fifth is kind of evidence of hey, like you can't
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Speaker 2: just wait for the data to be perfect, like publish
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Speaker 2: it and then revise if needed. That's how it should be.
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Speaker 2: Other than that, we got some ISM data coming out
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Speaker 2: today and Wednesday. ISM Manufacturing came out at ten am
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Speaker 2: this morning, reading a forty eight point two compared to
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Speaker 2: expectations of forty eight six to forty eight eight. I
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Speaker 2: have not had a chance to go through the whole
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Speaker 2: thing yet, but new orders declined and employment declined from
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Speaker 2: the prior reading, so those generally are pretty big components.
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Speaker 2: And ISM saying yeah, not great for the month of November.
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Speaker 2: The counter to this, the ISM Manufacturing Report has been
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Speaker 2: essentially useless over the last five years, so I'm not
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Speaker 2: sure that you should care too much about it today. Yeah,
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Speaker 2: it hasn't indicated what it used to. No, it just
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Speaker 2: has not been useful. Then later in the month, Okay,
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Speaker 2: next Tuesday, we're gonna be getting the Jolts Report, the
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Speaker 2: Job Openings Report, about a week delayed from when it
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Speaker 2: would otherwise be. But hey, nice that we're gonna get
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Speaker 2: it at least, and then we should be, you know,
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Speaker 2: come back to a regular cadence on that report. We
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Speaker 2: then have a FED meeting next Wednesday, which is going
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Speaker 2: to be happening without the without a few key pieces
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Speaker 2: of data. The first is UH non farm payrolls. The
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Speaker 2: job support is coming out the following Tuesday, December sixteenth,
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Speaker 2: because it takes a while to spool that back up. Also,
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Speaker 2: the producer price indext for November comes out on the
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Speaker 2: eleventh of December, the day after the FED meeting. Good,
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Speaker 2: and so there's been some chatter, Hey, sha, the FED
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Speaker 2: just push their meeting back a week, which quite honestly,
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Speaker 2: I don't know why they don't. It's not like there
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Speaker 2: is some kind of requirement that the FED meeting has
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Speaker 2: to be held at a certain time and certain date.
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Speaker 2: They choose a regular cadence because of how it works,
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Speaker 2: But it does.
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Speaker 3: Seem rather useless to hold this meeting.
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Speaker 2: What's what's the point of this?
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Speaker 3: You're gonna spend all the time.
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Speaker 2: Answering questions about well, if the data next week shows this,
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Speaker 2: what will you do?
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Speaker 3: Yeah?
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Speaker 2: Instead of delay, you know, like they really should just
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Speaker 2: delay and I'll go even further on this just because
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Speaker 2: I don't know, I think that this would be They
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Speaker 2: won't do this just because it would be too juicy.
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Speaker 2: I think if if they wanted to go this route,
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Speaker 2: but if you really wanted to get, you know, kind
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Speaker 2: of all the data that you wanted in order to
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Speaker 2: make your decision. Retail Sales four November comes out on
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Speaker 2: December seventeenth, and CPI comes out on the eighteenth.
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Speaker 3: So Christmas Day FED meeting?
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Speaker 2: What about a Christmas Eve FED meeting? Michael, Wednesday, December
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Speaker 2: twenty fourth, because they always do Wednesdays. Yea, hey, two pm?
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Speaker 3: Does Jay still sport us purple tie for that?
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Speaker 2: What are you giving us in our stockings?
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Speaker 1: Jay?
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Speaker 2: On Christmas Eve?
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Speaker 3: Yeah?
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Speaker 4: Yeah, Well not going to happen. So let's think about
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Speaker 4: they're probably not going to delay at all. It seems
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Speaker 4: very unlikely. Nobody next Wednesday, the fat is mentioned delaying,
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Speaker 4: and so I don't think it's going to happen. Jay
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Speaker 4: speaking tonight at eight pm, so you can tune in
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Speaker 4: and maybe he'll talk about it then, but probably not.
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Speaker 2: So how sh how does that forget about?
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Speaker 3: How should how does.
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Speaker 4: The Fed approach this rate cutting decision or this rate
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Speaker 4: decision given the complete and utter absence of official data
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Speaker 4: on the economy.
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Speaker 2: Generally, the best predictor of where the economy is going
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Speaker 2: to be tomorrow is where it was yesterday. Sure, because
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Speaker 2: the trend tends to be maintained, given the fact that
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Speaker 2: we have a labor market that has been weakening at
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Speaker 2: a pretty consistent.
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Speaker 4: Rate except for last except for September, where job creation
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Speaker 4: bounced back to be about four x four to five.
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Speaker 2: As even there, like if you look at it on
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Speaker 2: like a three month moving average, like you generally have
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Speaker 2: a this has been something that's been declining for like
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Speaker 2: three years now on a pretty consistent basis. And so
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Speaker 2: given that if the FED was nervous about downside risks
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Speaker 2: to employment in September and October, they should be cutting
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Speaker 2: in December. I've also said I don't think it matters
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Speaker 2: whether or not they cut in December. What's going to
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Speaker 2: matter is, hey, do they end up cutting probably another
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Speaker 2: one to one and a half percent, because the first
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Speaker 2: one and a half percent of rate cuts hasn't done
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Speaker 2: anything to help housing, which is the sector of the
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Speaker 2: economy that typically benefits the most from rate cuts.
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Speaker 4: We usually talk about the FED in terms of this
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Speaker 4: one ubiquitous body, it's not, it's it's several voting eleven
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Speaker 4: voting members.
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Speaker 3: How many voting members twelwelve twelve voting members.
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Speaker 4: The agreement on cutting rates was not unanimous, and in fact,
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Speaker 4: you know.
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Speaker 2: The idea that we had bidirectional descents, Yeah.
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Speaker 4: I mean that, I guess would be My point is,
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Speaker 4: you know, if the FED believed that the economy was
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Speaker 4: weaking at the last meeting, well not all of them did,
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Speaker 4: and in fact you had some descents, and so I
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Speaker 4: don't think it's I think it's very likely that the
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Speaker 4: FED continues to cut rates at this next meeting. But
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Speaker 4: as many of them have been saying out loud of
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Speaker 4: the course, the last several weeks. It is not baked
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Speaker 4: in as a you know, absolute that the FED is
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Speaker 4: going to cut rates. I think it's likely what happens.
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Speaker 4: I tend to agree that it's the right thing to do,
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Speaker 4: but I expect there to be more descents.
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Speaker 2: Let me throw another wrinkle into this, which is, even
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Speaker 2: if the FED does continue cutting beyond December, it might
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Speaker 2: not matter for what matters to the economy. And by
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Speaker 2: that I mean housing doesn't move based on where the
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Speaker 2: FED funds rate is. It moves based on where longer
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Speaker 2: term rates are. Ten year treasury, thirty year treasury, things
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Speaker 2: along those lines. Ten your treasury this morning is up
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Speaker 2: six point two basis points courtesy of Japan. Why Japan cause?
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Speaker 2: Earlier this morning, the Japanese Central Bank signaled that they
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Speaker 2: may end up raising rates at their upcoming December meeting,
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Speaker 2: which in turn has thrown Japanese got them bonds into
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Speaker 2: the next phase of their sell off that's been ongoing
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Speaker 2: for you know, the last eighteen to twenty four months now,
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Speaker 2: and so you've got Japanese bond yields blowing out top side,
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Speaker 2: which are taking global bond yields with them. Because everything
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Speaker 2: kind of moves in lockstep. So the tenure treasury is
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Speaker 2: up six point two basis points today. FED didn't do anything.
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Speaker 2: And quite honestly, if the Japanese Japanese Central Bank decides
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Speaker 2: they need to move in this fashion, which they may,
10:27
Speaker 2: because hey, surprise, inflation's kind of picking up in Japan
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Speaker 2: and continuing to be a problem there, this could be
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Speaker 2: a problem for the rest of the world from a
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Speaker 2: borrowing perspective, and the FED could just be pushing on
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Speaker 2: a string here where they say, yeah, let's keep taking
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Speaker 2: rates down and the long end doesn't move as a
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Speaker 2: result of it.
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Speaker 3: When was the first It was September was the first
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Speaker 3: rate cut? Yes, this year.
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Speaker 4: I don't know the exact day, but according to Mortgage
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Speaker 4: News Daily on September fifth, the average thirty year fixed
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Speaker 4: rate mortgage was six point twenty nine.
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Speaker 3: And today it is six two two.
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Speaker 4: So you've had fifty base points of rate cuts and
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Speaker 4: no move in mortgage rates.
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Speaker 2: No. And so this is where the FED could find
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Speaker 2: themselves in a bit of a pickle here where they
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Speaker 2: could say, yeah, like we want to cut rates. Of
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Speaker 2: course we do, and the market says that's great. It
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Speaker 2: ain't influencing the long end of the curve. Let's take
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Speaker 2: a quick break. When we return, we're going to talk
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Speaker 2: about where the Santa Claus is coming to the end
11:25
Speaker 2: of year rally, and then we're gonna be talking about
11:28
Speaker 2: what we're seeing for early Black Friday and Cyber Monday
11:33
Speaker 2: sales numbers. Were you out and spending money? We'll let
11:37
Speaker 2: you know after this.
11:38
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12:27
Speaker 2: PCE. Here in Yahoo Finance, it's titled quote, I don't
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Speaker 2: know if we'll get that Santa Rally. Why Wall Street
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Speaker 2: says December may break from its usual strength. So basically
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Speaker 2: they're saying, hey, like stocks could go up, but they
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Speaker 2: could go down.
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Speaker 4: Their main argument seems to be that, like, well, September
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Speaker 4: wasn't bad and it usually is, so maybe December Santa
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Speaker 4: Claus Rally is gonna be bad instead of good.
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Speaker 2: And then November was, and you know, October had one
13:03
Speaker 2: bad day in it. So you never know what you're
13:05
Speaker 2: gonna get because the market's like a box of chocolates.
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Speaker 4: So let's describe what the Santa Claus Rally is, because
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Speaker 4: it does not just mean that all of December is wonderful.
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Speaker 4: The Santa Claus Rally itself is actually the last five
13:16
Speaker 4: trading days of the year plus the first two of January.
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Speaker 4: So that's like the actual If you're looking for what
13:24
Speaker 4: people look at as the statistical significance of the Santa
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Speaker 4: Claus Rally, yes, it is not anytime soon.
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Speaker 2: No, it's it's actually Santa Claus coming to town.
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Speaker 4: It also is not hugely I mean, it's not a
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Speaker 4: hugely significant Porsche amount Like the average over I think
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Speaker 4: the last fifty years is somewhere in the one point
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Speaker 4: four percent.
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Speaker 2: One and a half percent, and it happens on average
13:48
Speaker 2: like seventy five to eighty percent of the time, So
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Speaker 2: it's you know again, it's it's statistically significant. Yeah, it happens,
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Speaker 2: and there are reasons why it happens. By the way,
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Speaker 2: Like if you just like look at it, do they
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Speaker 2: have to a Santa Claus kind of if you think
14:03
Speaker 2: that Bill Ackman is Santa Claus. So look here, here's
14:06
Speaker 2: why the Santa Claus rally typically happens. Number One, it
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Speaker 2: is a low volume time of year. The last few
14:12
Speaker 2: basically the last trading week of any year, and then
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Speaker 2: the first couple of the next year. Basically every fund
14:19
Speaker 2: is trying just to finish up its calendar year, and
14:21
Speaker 2: the incentives are for them to chase performance. And if
14:24
Speaker 2: performance has been good, that means that you typically see
14:27
Speaker 2: that performance chase happen. So like there's really clear just
14:32
Speaker 2: mechanical reasons in markets, you know why it would occur.
14:37
Speaker 2: The other stuff that you see around the same time, Hey,
14:40
Speaker 2: stocks that have typically lost heading into the last week
14:42
Speaker 2: of the year tend to lose the last week of
14:44
Speaker 2: the year because people harvest those losses, and then you
14:47
Speaker 2: tend to see a little bit of short term out
14:49
Speaker 2: performance the first couple trading days of next year as
14:52
Speaker 2: new investors, you know that that that selling evaporates and
14:57
Speaker 2: there's a dearth of sellers, and you know, I hate
14:59
Speaker 2: the phrase more buyers than sellers, but it's kind of
15:02
Speaker 2: what you have on you know, the next days. Hey,
15:04
Speaker 2: there are more buyers who are willing to push prices
15:06
Speaker 2: up as opposed to sellers who want to evacuate positions,
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Speaker 2: and so you tend to see that. So I think overall, look,
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Speaker 2: I don't know what this piece is supposed to tell us,
15:21
Speaker 2: because A the Santa Claus rallies not something happens for
15:23
Speaker 2: another three and a half weeks. B it's pretty much
15:28
Speaker 2: someone saying, well, it might not happen this year, which okay,
15:31
Speaker 2: like why is that news? It doesn't happen every year anyways.
15:36
Speaker 2: And well, not quite as annoying as the pieces last
15:38
Speaker 2: year that were like, hey, the first three days of
15:41
Speaker 2: twenty twenty four were bad, does that mean stocks are
15:44
Speaker 2: going to go down this year? It's not at that level.
15:47
Speaker 2: But it's kind of just, Okay, what do I do
15:49
Speaker 2: with this because it's kind of useless.
15:53
Speaker 4: We can agree there chuck, yeah, but I at least
15:56
Speaker 4: understand what the Santa Claus rally is.
15:57
Speaker 3: It does not have anything to do with December.
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Speaker 4: First, I know that all of you are are spotting
16:03
Speaker 4: your elves for the first time of the year today,
16:06
Speaker 4: but that is not what contributes to the stock market rally.
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Speaker 4: Elves on shelves is what I'm referring to here.
16:13
Speaker 2: Next up other things that annoy me. We're not doing
16:16
Speaker 2: festivals today, right, Nope, no go. I should get that
16:19
Speaker 2: on the calendar though, So get a cute up. I've
16:22
Speaker 2: been building my list checking a Twista thank you piece
16:26
Speaker 2: of the New York Times Shoppers drawn by steep discounts
16:28
Speaker 2: power through Black Friday. So I've read a bunch of
16:30
Speaker 2: pieces on Black Friday shopping trends. The good news is
16:34
Speaker 2: basically all of them are like, yeah, they were Black
16:36
Speaker 2: Friday was better than expected. The bad news is that
16:39
Speaker 2: none of them show the same data. I've seen some
16:41
Speaker 2: saying hey, Black Friday sales were up four percent, some
16:45
Speaker 2: saying they were up nine percent, some saying they were
16:47
Speaker 2: up three percent, some saying they were up six Like.
16:49
Speaker 2: I've seen everything, and I just I don't know what
16:54
Speaker 2: to do with this other than to say, basically, everything
16:57
Speaker 2: continues to point towards dis bite, concerns about the labor
17:03
Speaker 2: market and whether it's strong enough to support consumer spending
17:06
Speaker 2: at these levels. Consumer spending still continues at these levels.
17:10
Speaker 4: Which is also very funny because last week all the
17:13
Speaker 4: coverage was about how when Deloitte went and pulled consumers,
17:16
Speaker 4: they all said that they were going to budget this
17:18
Speaker 4: year and spend less than they did last year, and
17:20
Speaker 4: we all called boloney on that one, because we never
17:22
Speaker 4: do that outside of recession. I think, so let's start
17:26
Speaker 4: with the Adobe data because that's the one that's most
17:29
Speaker 4: quoted out there that I've seen, and that's the one
17:31
Speaker 4: that I think even the President, you know, put out
17:33
Speaker 4: there on social media, where there was a nine point
17:36
Speaker 4: one percent increase year over year. They are measuring online
17:39
Speaker 4: sales data estimates for Black Friday, so again that's not
17:44
Speaker 4: what Black Friday is. It's traditionally going into stores. But nonetheless, there.
17:48
Speaker 2: I thought you had to wait to shop online until
17:50
Speaker 2: Cyber Monday. Yeah, I thought it wasn't allowed on Friday.
17:53
Speaker 4: Incorrect, But you know, taking a look at this data,
17:56
Speaker 4: I tried to then compare it to overall holiday shopping data,
18:00
Speaker 4: which I pulled from Visa, and the correlation isn't that significant. Like,
18:04
Speaker 4: you know, when it comes to overall holiday shopping season,
18:07
Speaker 4: it the last several years has increased by like four
18:10
Speaker 4: to five percent, and that's been the norm outside of
18:13
Speaker 4: the pandemic when it surged massively. But for instance, in
18:16
Speaker 4: twenty twenty two, Adobe estimated that Black Friday sales were
18:20
Speaker 4: only up two point two percent compared to twenty twenty one,
18:24
Speaker 4: and yet holiday shopping data came, you know, holiday shopping
18:27
Speaker 4: overall five point eight percent increase. Likewise, the Adobe reported in
18:31
Speaker 4: twenty twenty one that it actually shrank, and yet twenty
18:34
Speaker 4: twenty one holiday shopping season up nearly twelve percent according
18:38
Speaker 4: to Visa. So I don't know that this tells us anything.
18:42
Speaker 2: I maintain that we are in the same place that
18:45
Speaker 2: we were three months ago, six months ago, nine months ago,
18:48
Speaker 2: which is consumer spending is continuing to move up at
18:51
Speaker 2: about a four to six percent.
18:53
Speaker 3: Clip year over year.
18:54
Speaker 2: Three percent of that is inflation, which means there's like
18:57
Speaker 2: one to three percent real spending growth. It's probably being
19:00
Speaker 2: driven more by the high end consumer and until proven otherwise,
19:04
Speaker 2: that trend is going to continue.
19:07
Speaker 4: By the way Visa is forecasting that overall holiday sales
19:09
Speaker 4: will go up four point six percent this year.
19:12
Speaker 3: That compares to four to eight last year.
19:14
Speaker 4: So it seems to line up precisely with what you're
19:17
Speaker 4: with what you're talking about there.
19:18
Speaker 2: So I think when we look at holiday shopping trends,
19:23
Speaker 2: the message that I'll get out there is they're good.
19:28
Speaker 2: They are no real signs of weakness, and that's a
19:32
Speaker 2: good thing. Quick break here Wall Street watches Next.
19:41
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19:43
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19:48
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19:51
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20:21
Speaker 1: Time now for Wall Street. Watch a complete look at
20:25
Speaker 1: what's moving markets so far today right here on the
20:28
Speaker 1: Financial Exchange Radio network.
20:30
Speaker 5: Well traders are returning from the Thanksgiving holiday and turning
20:33
Speaker 5: the calendar to the final month of twenty twenty five,
20:36
Speaker 5: where markets are currently seeing a modest sell off. Right now,
20:40
Speaker 5: the Dow is down by seven tenths of one percent
20:43
Speaker 5: or three hundred and thirty four points, SMP five hundred down,
20:47
Speaker 5: two thirds of a percent or forty three points, NASDAK
20:50
Speaker 5: down by three quarters of a percent or one hundred
20:53
Speaker 5: and seventy eight points lower, Russell two thousands down over
20:56
Speaker 5: eight tenths of one percent. Ten Your treasuryeled rise using
21:00
Speaker 5: six basis points this morning at four point zero eighty
21:03
Speaker 5: three percent. In crude oil up about one and a
21:05
Speaker 5: half percent high treading a fifty nine dollars in thirty
21:09
Speaker 5: eight cents a barrel. Some in Vidia related news to
21:11
Speaker 5: begin with, where Nvidia invested two billion dollars in Synopsis
21:16
Speaker 5: common stock is part of a broad strategic partnership. Shares
21:19
Speaker 5: in the provider of software four chip designers are jumping
21:23
Speaker 5: nearly four percent higher, while in Nvidia stock is rising
21:26
Speaker 5: about one percent. Meanwhile, several crypto based stocks, including Coinbase,
21:30
Speaker 5: seeing losses after bitcoins tumbled further to eighty five thousand dollars.
21:36
Speaker 5: Coinbase shares are down by over five percent. Elsewhere, Eli
21:40
Speaker 5: Lilly announced it is lowering the cash prices of single
21:43
Speaker 5: dose vials of its Blockbuster weight loss drug zep Bound
21:47
Speaker 5: on its direct to consumer platform Lily Direct. Eli stock
21:51
Speaker 5: is down over half a percent. Barreck Mining stock is
21:55
Speaker 5: up nearly three percent following reports that the company is
21:58
Speaker 5: exploring spinning off at North American gold assets into a
22:02
Speaker 5: listed business, separating the operations from golden copper minds in
22:06
Speaker 5: riskier parts of the world. And When Resorts is climbing
22:10
Speaker 5: three percent after Goldman Sachs included When on its Conviction
22:14
Speaker 5: by list, saying the company has a best in class
22:17
Speaker 5: Las Vegas business, while improvement in China's Macau region can
22:21
Speaker 5: drive transformative upside. I'm Tucker Silva and that is Wall Street.
22:25
Speaker 2: Watch Mike, before we go further, this will kind of
22:29
Speaker 2: tie into the fedbage book at some point. I just
22:33
Speaker 2: saw a chiron, you know, go across the screen and
22:37
Speaker 2: it was talking about Black Friday, and it said consumers
22:41
Speaker 2: focused on value and deals. Mike, aside from twenty twenty one,
22:47
Speaker 2: where like we were, you know, three stimulus checks deep.
22:51
Speaker 3: When don't we focus? Has that ever been?
22:53
Speaker 2: Like do you ever remember going into a year end
22:56
Speaker 2: and businesses being like consumers, Well, I think people have
22:59
Speaker 2: a boatload of money, so we're gonna, you know, just
23:02
Speaker 2: not discount much. No, Like, do you ever like, is
23:06
Speaker 2: this the most useless stuff to talk about?
23:08
Speaker 3: Yeah? It is not helpful?
23:12
Speaker 2: Like when do we ever see the headline consumers willing
23:16
Speaker 2: to spend whatever it takes to get alexis under the tree,
23:22
Speaker 2: and boy do they need a big tree.
23:25
Speaker 4: I was I played hockey last night, as I do
23:28
Speaker 4: most Sunday nights, and I was talking to a pair
23:30
Speaker 4: at Poorly Again the Thanksgiving workoff was not going well.
23:34
Speaker 3: But I was in good company. There.
23:36
Speaker 4: There's a pair of brothers who went to a hockey sale.
23:38
Speaker 4: The largest played against sports in the country is in Dedham, Massachusetts,
23:43
Speaker 4: and they had a sale starting at seven am, where
23:48
Speaker 4: if you were in the door between seven and eight
23:50
Speaker 4: am you'd get half off anyone item. They showed up
23:53
Speaker 4: there at five point thirty and said that there were
23:56
Speaker 4: over a thousand people out there. A thousand at again,
24:00
Speaker 4: a very small again, being the biggest played against sports
24:06
Speaker 4: in the country is not does not make it a
24:08
Speaker 4: big store.
24:08
Speaker 2: No, that's like being the largest minnow. Yeah, it is
24:11
Speaker 2: a small store.
24:12
Speaker 4: And they said that there were people pouring in, and
24:14
Speaker 4: I just have to put my hand up and say
24:16
Speaker 4: that I am personally shocked that there were no fistfights
24:19
Speaker 4: at a store that predominantly sells hockey equipment.
24:22
Speaker 2: Right, you would think they'd have like a little like
24:24
Speaker 2: corner where that's expected.
24:26
Speaker 3: Yeah.
24:26
Speaker 2: Yeah, so you reach for the item at the same time.
24:29
Speaker 4: Okay, I mean I get it, Like, you know, a
24:31
Speaker 4: nice pair of hockey skates is going for like fifteen
24:33
Speaker 4: hundred bucks these days, so are you curious?
24:36
Speaker 3: Oh yeah, jesus, Yeah.
24:38
Speaker 2: Like a top of the line hockey skate. I would
24:41
Speaker 2: have figured like five hundred bucks.
24:43
Speaker 3: No, no, no.
24:44
Speaker 2: Fifteen hundred dollars.
24:46
Speaker 3: Yeah. Yeah, I bought mine used for seven hundred pooh. Yeah.
24:50
Speaker 2: Yeah, this is insane, like only equipment, you just really
24:53
Speaker 2: like hockey? Yeah, goally equipment you need to take out
24:56
Speaker 2: a mortgage.
24:56
Speaker 3: Correct, correct? Yeah.
24:59
Speaker 4: So I I don't know what that had to do
25:00
Speaker 4: with anything, but yeah, I do think people were excited.
25:02
Speaker 3: That's what it had to do with. I do think
25:03
Speaker 3: people were.
25:04
Speaker 4: Excited about deals, hence the massive lines outside of a
25:10
Speaker 4: new and used hockey equipment retailer.
25:12
Speaker 2: So I've got a new thing that we got to
25:14
Speaker 2: talk about. Then. So fed's Beage book shows K shaped
25:17
Speaker 2: split deepens amongst consumers. That's the headline from Bloomberg.
25:21
Speaker 4: Okay, how did the fed's Beige book do that? Based
25:23
Speaker 4: on stories that they get from people?
25:25
Speaker 2: Just you know, they hear about this and everything. I
25:28
Speaker 2: am wondering if we have hit peaked K shaped peak
25:32
Speaker 2: K shaped? And the reason I bring this up is
25:36
Speaker 2: because everyone is talking about this right now. It is
25:39
Speaker 2: the most visible discussion in markets and the economy right now.
25:44
Speaker 2: Is this idea of the K shaped economy where the
25:47
Speaker 2: high income earners are doing just fine and everybody else
25:50
Speaker 2: is struggling. And I again, this thing. You can always
25:55
Speaker 2: you know, extrapolate this further and it could always go
25:58
Speaker 2: further than where it is today. But I'm just wondering if, look,
26:02
Speaker 2: once everyone knows about this and is paying attention to it,
26:07
Speaker 2: have we kind of gone to like is it something
26:09
Speaker 2: that's going to be roped in from here?
26:11
Speaker 3: Now?
26:12
Speaker 4: My problem is I don't know how you measure measure it.
26:16
Speaker 4: I don't have a good way to measure it. And
26:18
Speaker 4: also it kind of changed over time. The concept started
26:25
Speaker 4: during COVID, and specifically it was more used to describe
26:31
Speaker 4: workers in some types of industries such as tech and
26:35
Speaker 4: financial services, that largely kept their jobs.
26:37
Speaker 3: During COVID and worked remotely.
26:40
Speaker 4: Versus those in hospitality, retail, and food services who had
26:44
Speaker 4: to go in if they were able to keep the
26:46
Speaker 4: job and otherwise lost their job.
26:48
Speaker 3: And it's now morphed into people who.
26:51
Speaker 4: Are doing all right financially and people who are doing
26:53
Speaker 4: poorly financially and that divergence. And I don't have a
26:57
Speaker 4: I just don't have a good measuring stick to figure
27:00
Speaker 4: out how we would have hit peak badness.
27:04
Speaker 3: I don't know.
27:05
Speaker 2: It just feels like at least it's every other story.
27:10
Speaker 4: Yeah that we agree, Yeah, I would agree that we
27:13
Speaker 4: might have reached peak coverage of the K shaped economy.
27:16
Speaker 4: I have no idea how to measure whether or not
27:18
Speaker 4: the divergence between high income and high wealth consumers versus
27:23
Speaker 4: low income and low wealth consumers.
27:25
Speaker 3: Has reached its peak.
27:27
Speaker 4: But I suspect that, like you do, given the fact
27:31
Speaker 4: that we are covering it every single day on the program.
27:33
Speaker 4: Somebody's writing about the K shaped economy every single day
27:36
Speaker 4: that we've hit that point. I also think that because
27:39
Speaker 4: it's become so popular, it's probably going to be the
27:43
Speaker 4: term itself is going to be taken and applied to
27:45
Speaker 4: other situations down the road.
27:47
Speaker 3: Like we decided, you know.
27:49
Speaker 4: Like we describe every bad part of the economy with
27:53
Speaker 4: the term recession, we're gonna use K shape to describe
27:55
Speaker 4: all sorts.
27:56
Speaker 2: Of kind of like whenever there's a scandal, we just
27:57
Speaker 2: slap gate at the end of it. Yes, precisely, you know. Yes,
28:01
Speaker 2: So this is going to be like what's it going
28:05
Speaker 2: to be?
28:05
Speaker 4: Like there's you know, three terrible teams in the MLB,
28:10
Speaker 4: and they're describing the K shaped Okay, fall season?
28:13
Speaker 2: Yeah, got it? Yeah, you know, Toyota comes out and
28:16
Speaker 2: has three colors of a car. Oh, that one's you know,
28:18
Speaker 2: the bottom of the K. Yeah, you want to be
28:21
Speaker 2: top of the K.
28:22
Speaker 4: You do want to be top of the K if
28:23
Speaker 4: you are a consumer brand like that.
28:27
Speaker 2: Let's take a quick break and when we come back.
28:31
Speaker 2: President Trump says that he has made his choice to
28:33
Speaker 2: leave the Federal Reserve. He hasn't told us who it
28:35
Speaker 2: is yet, but we'll discuss after this.
28:39
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28:46
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29:00
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29:04
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29:18
Speaker 2: President Trump says that he has made his choice to
29:20
Speaker 2: leave the Federal Reserve, but hasn't told us yet who
29:24
Speaker 2: that person is widely expected to be Kevin Hassett, who
29:27
Speaker 2: runs the Council of Economic Advisors. And that's what we know.
29:35
Speaker 4: Yeah, well, let's talk about what else we know about this.
29:38
Speaker 4: Whoever his pick is is undoubtedly going to be on
29:42
Speaker 4: a path to lower interest rates. Now I will buy
29:45
Speaker 4: that once you are in the role, your viewpoints might change.
29:49
Speaker 4: But to be very clear, the only people the President
29:54
Speaker 4: is willing to consider for the role are those who
29:57
Speaker 4: have very publicly come out saying that they believe interest
30:00
Speaker 4: should be substantially lower than where.
30:01
Speaker 3: They are right now.
30:02
Speaker 4: Yes, so I do believe that whoever he puts into
30:04
Speaker 4: this role Hassett or otherwise is going to be leading
30:09
Speaker 4: a charge to lower interest rates. But as we talked
30:12
Speaker 4: about earlier, we talked about the FED frequently as this
30:15
Speaker 4: unanimous body, it is not. It is a group of
30:18
Speaker 4: twelve people who vote on policy decisions surrounding interest rates,
30:22
Speaker 4: and they don't seem to all agree. Furthermore, what the
30:25
Speaker 4: presence seems to be focusing on mostly is, hey, how
30:29
Speaker 4: do I bring down things like mortgage rates which will
30:32
Speaker 4: give things a boost? And as we've seen recently, the
30:35
Speaker 4: FED really has no control over that, and those are
30:38
Speaker 4: going to be much more susceptible to other factors in
30:40
Speaker 4: the economy that is outside the control of at least
30:42
Speaker 4: the Federal Reserve.
30:43
Speaker 2: FED has cut the FED funds rate one and a
30:45
Speaker 2: half percent since the middle of last September. The average
30:49
Speaker 2: thirty year fixed rate mortgage has gone from six point
30:51
Speaker 2: one five to six point two two percent during that time, right, Like,
30:56
Speaker 2: that's that's the whole ballgame. Now, the FED could in
30:59
Speaker 2: the start to try to exert more control over the
31:04
Speaker 2: long end of the yield curve. But remember there is
31:08
Speaker 2: no free lunch anywhere, but especially in financial markets. And
31:14
Speaker 2: so if you say, hey, the Fed's gonna undertake what
31:16
Speaker 2: they call yield curve control, which is not only are
31:19
Speaker 2: they gonna target a rate for the short end, but
31:21
Speaker 2: for the long end. You then have to wonder, Okay,
31:24
Speaker 2: what does that do to everything that depends on that?
31:26
Speaker 2: If the FED says, yeah, we want to get you know,
31:28
Speaker 2: mortgage rates down to five percent, okay, buckle up, because
31:34
Speaker 2: I bet the price of lumber is gonna be going up,
31:36
Speaker 2: and I bet the price of steel and aluminum are
31:39
Speaker 2: gonna be going up, and I bet the price of
31:41
Speaker 2: everything's going up. And that means that inflation's higher, and
31:44
Speaker 2: that's not good for anyone either. So there's no free
31:47
Speaker 2: lunch on all this stuff. There's there's no button that
31:50
Speaker 2: the FED pushes that is that just has like low inflation,
31:54
Speaker 2: high growth, right, Like, that's that's the button that we want.
31:58
Speaker 2: It's the easy button from Staples. But I've had one
32:00
Speaker 2: of those and it doesn't connect to anything and doesn't
32:03
Speaker 2: actually work.
32:04
Speaker 4: A very funny but sort of dangerous prank that a
32:06
Speaker 4: family member of mine pulled is they replaced a first
32:09
Speaker 4: aid kit with just an easy button from Staples.
32:15
Speaker 2: What does that mean?
32:15
Speaker 4: You opened up the first aid kit and there was
32:17
Speaker 4: no first aid materials in there.
32:19
Speaker 3: It was just an easy button.
32:20
Speaker 2: From that seems like something that you could get charged
32:22
Speaker 2: a crime for.
32:23
Speaker 3: I thought it was hilarious.
32:24
Speaker 2: It just wasn't like a public one.
32:25
Speaker 3: Right, this was just inside our home.
32:27
Speaker 2: Okay, yeah, yeah, that seems dangerous. You didn't like that one,
32:34
Speaker 2: just yeah, we took imagined.
32:38
Speaker 4: Well, yeah, child's running up there with a sliced hand
32:41
Speaker 4: and you go for the band aids.
32:43
Speaker 2: It's just empty. Other than a stupid that was easy button. Hey,
32:47
Speaker 2: we're trying to get the AED. Oh look it's just
32:50
Speaker 2: an easy button. It's not good. They were good.
32:55
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34:15
Speaker 2: I'm just trying to think of other variations on the
34:18
Speaker 2: easy button easy button replacement for the first aid kit. Yeah,
34:23
Speaker 2: you could do again. None of these are good ideas,
34:26
Speaker 2: but funny.
34:27
Speaker 5: Don't recommend them.
34:28
Speaker 2: I'm just picturing like someone like going to like use
34:31
Speaker 2: a fire extinguisher and it's just like there's just a
34:34
Speaker 2: fart machine, yeah or something like that, Like yeah, or
34:37
Speaker 2: like you get in a car accident. It's just like
34:38
Speaker 2: instead of an airbag, it's a whoope cushion, Like yeah, yeah.
34:42
Speaker 4: Yeah, that does actually work. Actually, those starts pranks just
34:45
Speaker 4: right up my alley. I feel like you could do
34:48
Speaker 4: a good.
34:48
Speaker 2: Snl skit on this somehow, but I don't know, like exactly.
34:52
Speaker 4: How you Real world appeal not a great idea, but
34:54
Speaker 4: cartoonish like pranks are right up my alley.
34:57
Speaker 2: Boston landlords quote willing to do anything thing as rental
35:00
Speaker 2: market cools.
35:03
Speaker 4: There's not a there's not a group that gets a
35:05
Speaker 4: lot less pity than Boston area landlords made a killing
35:09
Speaker 4: over the last several decades in terms of home price appreciation,
35:14
Speaker 4: and your average asking rent is now three forty three dollars,
35:19
Speaker 4: which is actually down a few bucks compared to the
35:23
Speaker 4: recent ties.
35:24
Speaker 2: So I guess I'm just trying to like think through this.
35:28
Speaker 2: So if you look at, you know, the Boston market
35:30
Speaker 2: for real estate, traditionally it's been a really strong one's
35:34
Speaker 2: it doesn't have the peaks and valleys of what we
35:37
Speaker 2: see in a place like Miami as an example. It
35:40
Speaker 2: tends to be a slower growth, but very consistent growth.
35:43
Speaker 2: Because Boston has historically had a disproportionate share of its
35:50
Speaker 2: income generated from people in the healthcare and education fields,
35:55
Speaker 2: which tend to be more impervious to recession than other It's.
35:59
Speaker 4: It's also one of the more difficult areas of the
36:01
Speaker 4: country to build, the historical city, with very severe restrictions
36:05
Speaker 4: on height of new buildings and all sorts of things
36:08
Speaker 4: like that. Historical preservation is pretty big in that city,
36:11
Speaker 4: and so unlike say Miami, it's more difficult to get
36:14
Speaker 4: approval for new buildings.
36:15
Speaker 3: So all of those things.
36:16
Speaker 2: Have you know, led to pretty honestly, the Nimbia is strong.
36:23
Speaker 3: Yeah, the Nimby is strong. Stone to Boston area.
36:28
Speaker 4: I think what you're seeing right now is a reversal
36:30
Speaker 4: of a few of those trends. Right The exact same
36:32
Speaker 4: things that kept Boston area real estate flying again comparatively
36:39
Speaker 4: high during the Great Financial Crisis, which were again universities
36:43
Speaker 4: still spending money and areas like biotech and healthcare research
36:49
Speaker 4: still getting a lot of funding from the government were
36:52
Speaker 4: what kept things afloat, And those are the exact opposite
36:55
Speaker 4: effects that you are seeing right now. Right there's been
36:58
Speaker 4: government cuts to education spending and research spending, and that's
37:04
Speaker 4: on the margin a lot of what the Boston market
37:06
Speaker 4: relies upon. And so I don't find this immensely surprising. No,
37:11
Speaker 4: if you take it in combination with some concerns about
37:15
Speaker 4: what could be rent control across the entire state of Massachusetts,
37:18
Speaker 4: which again we don't know yet but could be on
37:22
Speaker 4: the ballot for next year, I can see why landlords
37:26
Speaker 4: are more concerned than usual in the Greater Boston area.
37:32
Speaker 2: So here's the piece that I come back to. Then,
37:35
Speaker 2: if they're really that concerned, why are they not selling
37:38
Speaker 2: their units? Yeah, because we're not seeing an uptick in
37:41
Speaker 2: listings for sale for you know, like you're not seeing that.
37:46
Speaker 3: Yeah.
37:47
Speaker 4: I mean my answer would be, this isn't a logical
37:50
Speaker 4: and correct decision to make. But every time I talk
37:53
Speaker 4: to anybody who owns rental property in the Greater Boston area,
37:56
Speaker 4: they're always like, oh God, I can't afford to pay that.
37:59
Speaker 4: I don't want to pay the tax is on that sale,
38:01
Speaker 4: which is a bad reason to hold real estate. But
38:04
Speaker 4: you think about the can to pay the tax, you
38:07
Speaker 4: would have the money from, you just don't want to.
38:10
Speaker 4: And I think, especially when you talk about small landlords,
38:13
Speaker 4: that is a very significant effect and especially when you're
38:18
Speaker 4: factor in now things like the millionaire's tax, which, again,
38:23
Speaker 4: if you're selling a three story unit in the South
38:27
Speaker 4: End that you've owned for two generations, you might be
38:30
Speaker 4: popping into that millionaire's tax threshold. I think there's just
38:32
Speaker 4: an unwillingness to sell in some real estate markets.
38:35
Speaker 2: Let just take a quick break here. When we come back,
38:38
Speaker 2: we've got a whole bunch more coming up an hour
38:40
Speaker 2: or two. Make sure you stick around.