Latest / The Financial Exchange Show / Are markets worried about Russia's latest threat?

Transcript

Are markets worried about Russia's latest threat? · The Financial Exchange Show

0:00
Speaker 1: The Financial Exchange is produced by Money Matters Radio and
0:02
is hosted by employees of the Armstrong Advisory Group, a
0:05
registered investment advisor. All opinions expressed are solely those of
0:08
the hosts. Do not reflect the opinions of Armstrong Advisory
0:11
or anyone else. Investments can lose money. This program does
0:14
not offer any specific financial or investment advice. Please consult
0:17
your own financial, tax, and estate planning advisors before making
0:20
any investment decisions. Armstrong Advisory and the advertisers heard on
0:23
this program do not endorse each other or their services.
0:26
Armstrong and Money Matters Radio do not compensate each other
0:28
for referrals and are not affiliated. This is The Financial
0:34
Exchange with Chuck Zada and Mike Armstrong, your exclusive look
0:39
at business and financial news affecting your day, your city,
0:42
your world. Stay informed and up to date about economic
0:46
and market trends plus breaking business news every day. The
0:50
Financial Exchange is a proud partner of the Disabled American
0:53
Veterans Department of Massachusetts. Help us support our great American
0:57
heroes by visiting DAV five K Boston and making a
1:01
donation today. The DAV five K Boston is presented by
1:04
Veterans Development Corporation. This is the Financial Exchange with Chuck
1:09
Zada and Mike Armstrong.
1:14
Speaker 2: I'm Chuck Zada, What.
1:18
Speaker 3: It's Paul, Wayne, Mark Fandetti and Tucker sil Up to
1:23
the show and Tucker Silva here with you on this
1:26
Tuesday edition of the Financial Exchange. Market's opening off in
1:32
rocky territory off of some of the news that we
1:35
had night last night from Vladimir Putin and the Russia
1:40
Ukraine dispute picking up, so we'll definitely talk about that,
1:43
certainly a lot to get into today. We had some
1:46
significant earnings reports from retailers out there as well as
1:50
Nvidia's earnings coming tomorrow. That's going to be a very
1:53
significant report to fall as we look to close out
1:58
the earning season. I believe about ninety three percent of
2:01
the S and P five hundred companies have reported at
2:04
this point. It truly is really largely in Vidia the
2:07
last one that we await. As I mentioned here, the
2:11
markets open up in relatively negative Territo with the dal
2:15
Jones off about five hundred points, and it's largely tied
2:19
to the fact that we had this news come out
2:21
regarding the Russian Ukraine conflict. Specifically, we had Ukrainian forces
2:27
striking on the border region in Russia using Western supplied missiles.
2:32
That was one thing that occurred yesterday evening, as well
2:36
as the note from Vladimir Putin where there was an
2:40
amendment to their nuclear doctrine that was approved by Putin
2:45
that now states that nuclear weapons could be used if
2:49
there was a massive conventional attack on Russian soil. Mark
2:55
your thoughts certainly very concerning geopolitical news, but some thing
3:00
that is from a market perspective, which is our job
3:02
to talk about a wait and see approach other than it.
3:06
And so I think the first thing to say here
3:08
is really concerning just from a worldwide perspective. But what
3:12
our job is. I'm not a political expert or a
3:15
strategist on you know, what goes on in Russian Ukraine.
3:18
So our job is day on as the market impact.
3:20
So I want to say first and foremost that's concerning geopolitically,
3:23
but the market's impact to this obviously it makes marketing magitiary.
3:28
Speaker 4: I mean the only crises of in the modern era,
3:31
of course, the Cuban missile crisis, which was acute but fleeting,
3:35
Thank god, it was what was at thirteen painful days,
3:38
but in the context of the broad sweep of market time.
3:43
At the risk of sounding crass about this, I mean,
3:46
like you said, Paul, our job is not to comment
3:48
on the geopolitics. Our job is to speculate about what
3:53
market impact might be. And I'm reaching for precedent. I'm thinking,
3:58
how close have we come to conflict in the post
4:01
war era? Of course, the Cuban missile crisis, the Eastern
4:04
European invasions of the fifties, of the fifties, and then
4:08
Prague Spring. I don't at that on the tip of
4:10
my tongue have market performance for those events, but they
4:14
were a little more drawn out and they were less
4:16
likely to be to escalate, so I'm going to ignore those.
4:19
In the early nineteen eighties, the Soviets shot down a
4:21
Korean airliner. I think it was KLA seven or something
4:24
like that, if memory serves. I was young, but it
4:27
was something like that. There were NATO exercises able archer.
4:31
I think it was called that the Soviets may have misinterpreted.
4:36
So during the early nineteen eighties there was the evil
4:39
Empire speech to the military build up. We were as
4:43
close to conflict as at any time since the Cuban
4:45
missile crisis, markets generally soared so bad precedent, probably, I
4:50
don't know that there's I guess the point I'm trying
4:51
to make is there's no precedent in this instance, nor
4:56
was there precedent in any of the prior instances. They're
4:59
all a little bit different. And I recognize too that
5:01
this is not the Soviet Union, though we are in
5:05
a proxy war with Russia. The entire West is right
5:08
now over Ukraine. Generally that's good for safe haven assets. Paul, Right,
5:12
So let's tie this back now to where we do
5:14
have some domain expertise. That's asset allocation. It's good for
5:18
high quality bonds, and it's important to make the distinction,
5:21
I think, between government backed bonds, things that have the
5:24
full faith and credit of the US government that typically
5:27
serve as safe harbors in times of turmoil, versus corporate
5:32
or other forms of debt.
5:34
Speaker 3: Yeah, if you take a look at some of the
5:36
early market impacts from some of this news, as we're
5:38
about forty minutes into today's trading session, you've got the
5:42
US ten year treasury falling a bit as a result,
5:45
perhaps to a retreat to a safe haven where it
5:48
now sits at four point three seven percent. That's off about,
5:52
like I said, four basis points or so. Gold's often
5:55
viewed as a safe haven is up about a half percent,
5:58
sitting at twenty six hundred and twenty six dollars an ounce.
6:03
And then just looking at the major indices, as I mentioned,
6:06
the Dow Jones off now about three hundred and fifty
6:08
points er point eight one percent, and the S and
6:10
P five hundreds off about a half percent. But other
6:14
than that, I mean, certainly that is some market volatility.
6:17
You've got the VIX, which is the fear gauge, that
6:20
is up about eight percent.
6:21
Speaker 2: On something, you know.
6:21
Speaker 4: I got to say though, the statements coming out of
6:24
the Kremlin, in particular, they're different than the Soviet leadership
6:29
used to make. Well, you could tell we're in on
6:31
chartered territory. There were rules during the Cold War. Spies
6:35
adhered to them, are diplomats adhered to them? You only
6:39
have to watch movies from that era. Hunt for Red
6:41
October is a good example to get a sense for
6:44
the delicate but still choreographed dance that we did with
6:48
the Soviets. There were rules of engagement. There were grown
6:52
ups able to pull each other back from the brink
6:54
on either side, and there was an understanding between both sides.
6:58
I think that things could go so far, but no further.
7:01
The rhetoric coming out of Russia, high ranking officials threatening
7:06
World War three, that's quite different than the tone, as
7:10
I recall it anyway, of the type of rhetoric used
7:15
by Soviet leaders. So this feels, for what it is
7:19
worth different.
7:22
Speaker 3: And this is what we talk about when you're trying
7:25
to project out markets.
7:27
Speaker 2: There are always these.
7:29
Speaker 3: Geopolitical concerns that loom out there that are unpredictable, and
7:32
you can't really trade off of any of this information
7:36
because you don't know when these things are going to
7:38
crop up. Whether it's tensions between China and Taiwan potentially
7:42
flaring up, that's one that's been out there for a while,
7:44
and this is another good example of one. But really
7:47
ultimately it's just something that, like many other things, you
7:51
just kind of have to wait and see and continue
7:54
to monitor some of those safe hazen assets, but just
7:58
continue to see what the developments.
8:00
Speaker 4: Yeah, it's funny, not funny, but it's odd. Wars, World Wars,
8:05
the two of the last century, World War One and
8:08
then World War Two. I know we're a little bit
8:09
past the century mark wor World War One, but those
8:11
were very good for the US economy. We were the
8:14
arsenal of democracy and both. That's an an acrotism. That was
8:17
a World War Two, not a World War One phrase.
8:19
But don't you know quote me on all this. Those
8:23
were generally good for the US economy. We were pretty
8:25
much unscathed, and we were supplying the allies different groups
8:29
of allies in both cases, but you know what I mean,
8:31
with munitions and everything else they needed to make war
8:34
and extending them credit at the same time. So the
8:36
only experience we have with World War here in the
8:38
US from a market point of view has been favorable,
8:42
as morbid as that sounds, because people died and sacrifices
8:46
were made. There is no precedent for a wider war
8:50
in which maybe we don't come out unscathed.
8:54
Speaker 3: We will see, we will truly see how that fares out,
8:58
and will continue to keep you post it over the
9:00
course of the show if there's any major updates, But
9:02
it seems like that's the most we can really do
9:04
at this point is just cover what's gone on the news.
9:07
There's another piece here coming out of market Watch, which
9:10
I'll touch upon briefly. I really mark a focus of
9:13
mine is not spending really much or any time on
9:17
any of these firms and their targets for the S
9:19
and P five hundred for twenty twenty five, where many
9:21
of them will come out over the course of the
9:23
next month or so, whether it's Goldman Sachs, which is
9:25
this piece here, or Morgan Stanley, all of the research
9:28
departments are they're tasked to do this very unfavorable prediction
9:34
game of trying to set a target for what the
9:36
S and P five hund is going to look at
9:37
lex next year. We've done it internally as a firm,
9:40
just kind of for kicks. It's just so impossible to
9:45
predict this stuff.
9:46
Speaker 4: Well that's it's a contest, so we can make fun
9:47
of each other at the end.
9:48
Speaker 2: Of the year.
9:49
Speaker 4: We don't use this to inform investments.
9:52
Speaker 3: I gotta tell you, twenty four percent this year would
9:54
not have been my guests, or we're sitting pretty close
9:56
to twenty four percent year to deed on the S
9:58
and P five hundred right as a close business. Yes,
10:01
just really challenging to even project, so I don't want
10:04
to spend too much time on that. The one thing
10:05
that was mentioned here that I guess Bearsworth noting is
10:08
that MidCap stocks and small caps the same thing applies here.
10:12
They have traded more cheaply than the S and P
10:14
of five hundred. That's been a trend for a while.
10:16
It hasn't led to outperformance, but that is something that
10:20
is earmarked here that you do have those mid sized
10:24
companies that are trading more favably compared to some of
10:27
their larger peers.
10:28
Speaker 4: Yeah, everything looks attractive relative to large capitalization US companies
10:32
which are dominated by all the household names. And this
10:35
was the case in the late nineties too. Everything looked
10:38
small companies, foreign companies, emerging markets less So they had
10:43
a good period in the late nineties, but every so
10:44
called asset class major investment type paled in comparison to
10:49
large cap growth stocks in the late nineties, much like today.
10:53
And we all know what the next ten years brought.
10:55
A real reversal a fortune, which is why the lesson
10:58
for us as individual investors, and Steward's here at Armstrong
11:03
Advisor group of other people's money is to diversify.
11:06
Speaker 3: Right, We're going to take a quick break here on
11:09
the Financial Exchange. When we come back, we're going to
11:11
be talking a little bit about a market indicator that
11:14
may be flashing a warning sign, as well as talking
11:18
about Jerom Powell's wait and see approach on Trump's policies.
11:22
That's next here on the Financial Exchange.
11:25
Speaker 1: This is your home for the most comprehensive coverage of
11:28
the economy and the trends on Wall Street. This is
11:31
the Financial Exchange Radio Network. If you missed any of
11:35
today's show, catch up whenever you want on our YouTube page.
11:39
Find daily show segments and full shows. Just go to
11:41
YouTube dot com and search for the Financial Exchange. This
11:45
is your home for breaking business and financial news. This
11:48
is the Financial Exchange Radio Network.
11:54
Speaker 5: This segment of The Financial Exchange is brought to you
11:56
in part by the US Virgin Islands Department of Tourism.
12:00
US Virgin Islands are Saint Croix, Saint Thomas, and Saint John.
12:03
With fall in full swing, now's the time to start
12:06
looking at a fabulous holiday vacation, and there's no better
12:09
place than the US Virgin Islands. Enjoy perfect weather, world
12:13
class dining, incredible beaches in a vibrant nightlife. No passport
12:16
is needed and there's no money to exchange. Take your
12:19
next vacation in America's Caribbean paradise the United States Virgin Islands.
12:24
Go to visit USVII dot com to book your trip.
12:26
That's visit USVII dot com.
12:29
Speaker 3: Coming back from the break here, I mentioned head of
12:32
the break that there is a indicator out there, according
12:35
to this marketwash piece that may be flashing a warning sign.
12:38
But here's why they are pushing back as to why
12:41
it matters. And Mark, I'm definitely going to kick this
12:44
to you because I know this is really in your
12:46
wheelhouse of financial valuations and charting and r R squared
12:51
and all pending, doing all the things that you love. Basically,
12:55
what this metric is is, oftentimes on the show, Mark
12:58
and I and other hosts will talk about price to earnings,
13:01
which is a valuation metric to try and gauge if
13:04
stocks are trading at a puremium or a relative discount
13:07
to where they've been historically. The inverse of that, so
13:11
not price to earnings, but rather earnings to price is
13:13
another way that you can calculate what's called an earnings yield,
13:16
So how much are the companies earning the S and
13:18
P five hundred relative to their price? And the piece
13:23
mentions here this warning signal or this metric out there
13:27
that gauges that the US ten yere Treasury, which today
13:31
sits at I believe I said three point sorry, four
13:34
point three eight percent, compared to the earnings yield of
13:39
the S and P five hundred companies. Now we're at
13:42
a point where the earnings yields of the S and
13:44
P five hundred, based on trailing twelve month EPs, is
13:47
at three point nine percent. The US ten year treasury,
13:49
as I allude to, is at four point three eight percent. Historically,
13:53
there's been this notion that if the earnings yield of
13:56
the S and P five hundred is less than that
13:58
of the US ten year treasure, which it is today
14:00
three to nine versus four point thirty eight, that it
14:03
is not a favorable time to own stocks. Conversely, if
14:07
the US tenure treasure is lower than that of the
14:10
earnings yield of the S and P five hundred, it
14:12
is a favorable time to buy stocks. But this piece
14:14
goes into details saying that that is not really the case.
14:18
There's not strong correlation that is a good predictive measure.
14:22
Speaker 4: Yeah, it just doesn't work. It did work for a while,
14:25
but like with a lot of regularities, we use the
14:28
phrase er I sometimes do empirical regularity, which is a
14:33
fancy way of saying something that has happened. It's like
14:35
the NFC team wins the Super Bowl and stocks go up.
14:39
That's an empirical It's a really down to earth example
14:42
of a regularity. It's total bs. There's no causal mechanism
14:47
at work. There's no cause and effect in play here.
14:51
This is kind of similar. People get very excited about
14:54
this approach. It was called it still is, I think
14:56
the FED model. Then a famous investment manager and finance PhD, so,
15:04
a guy with great cred basically in a seminal paper,
15:09
exploded the idea that this thing works. He did this
15:12
in the early two thousands, and since then nobody's really
15:15
taken it seriously because it is deeply flawed and it doesn't.
15:19
The relationship ends up breaking down. So the general lesson
15:24
is beware of simple rules like this. Once discovered, they
15:28
tend to break down if they ever really worked in
15:31
the first place.
15:32
Speaker 3: There's so many of these out there, the two year
15:35
and ten year US travel, the yield curven version. You'll
15:38
hear talked about a lot that that's a predicted a
15:40
predictor of recessions.
15:42
Speaker 4: You know, some rule that Chuck and Mike Armstrong talked
15:45
about a lot. Another regularity that kind of had weak
15:50
had weak fundamentals, like why does it work well? I
15:53
get the spread the ten year treasury minus the two
15:57
year treasury spread or the three month if you prefer,
16:01
as a predictor of economic slowdowns, because that takes into
16:04
account what the feed is doing behind the scenes. There's
16:07
a theoretical there's a strong theoretical underpinning there. I get that.
16:12
Speaker 2: Some of these others, though.
16:13
Speaker 4: It's it's like saying, of my hurts, you know, we're
16:17
gonna have a hurricane or something. That's not actually the case, thankfully,
16:20
but you know what I mean.
16:21
Speaker 2: Santacloust rally probably a good example of that.
16:23
Speaker 4: To me, though, there's the that's plausible people retail sales
16:27
go up, and people are in a good mood, they
16:30
might be optimistic about the coming year. There's more of
16:32
a plausible mechanism there to me, anyway, Others may say
16:35
that's ridiculous. But yeah, that's another thing that's sort of
16:38
a regularity that is on kind of weak or thin
16:42
thin theoretical ice. You always should have a good mechanism
16:46
in mind when you posit a connection like this, the.
16:49
Speaker 3: One that you have found that you had told us
16:51
internally that the the data regarding the month of September,
16:54
which we are now past, and actually exactly it contradicted it.
16:57
This this month, this year's month of September was actually
17:00
quite strong for the markets, but there was some imperial
17:03
evidence that when you read the numbers, that September tends
17:05
to be the weakest stock market month over history. So again,
17:08
for listeners out there, all these are just sort of
17:11
tidbits that you pick up when you're swimming around in
17:13
the financial work.
17:14
Speaker 4: Can we also talk about why it's and I chucks
17:16
out it would disagree with me here, I think, but
17:18
I don't think that you should compare stocks to bonds.
17:21
Speaker 2: Now.
17:21
Speaker 4: Obviously, interest rates, the ten year treasury rate in particular,
17:24
is foundational. It is the basis for pricing assets all
17:28
over the world. But if you're buying stocks, presumably it's
17:31
because you are a long term investor and you need
17:33
the so called premium that they have delivered to investors
17:37
over time. Bonds serve a totally different purpose in a
17:40
well diversified asset allocation. They're there for safety. They're a
17:44
form of insurance.
17:45
Speaker 2: That's an interesting piece to note.
17:48
Speaker 3: I would lean on your side of the argument, Mark,
17:51
but someone would make the counterpoint that you have to
17:54
compare that premium that you're taking to something, and oftentimes
17:57
it's the risk free rate which is used by the
18:00
ten year Treasury is kind of that proxy there.
18:03
Speaker 2: So that is that's the counterpar right.
18:06
Speaker 4: It is, it is the relevant risk free rate. But
18:09
if I'm a long term investor, why would I want
18:12
to bonds or just to drag right right? By long term,
18:15
I mean twenty years plus, I can ride out multiple
18:19
big dips in the market. I'm not going to lose sleep,
18:22
and I need the excess return that stocks have provided
18:25
over time to meet my savings in investment goals.
18:28
Speaker 1: Yeah.
18:29
Speaker 3: Well, we'll continue to monitor markets in terms of what
18:32
we look at these earnings yields and also the price
18:36
to earnings metrics here. But at this point, this is
18:38
another one just file away in the file Cabot. Nothing
18:41
that is overly alarming. Taking a look around at markets,
18:45
we've got the Dow Jones off about four hundred points
18:48
on some of the Ukraine Russia attentions that we alluded
18:51
to earlier in the show, as Ukraine had utilized some
18:54
Western missiles to strike on the Russian border last night,
18:59
and then you had commentary from Vladimir Putin pertaining to
19:03
their nuclear doctrine that have markets a little bit spooked.
19:06
But we'll get some more updates on the markets and
19:10
other information that's going on in Wall Street when we
19:13
come back from our breakup coming here right after this,
19:17
and we'll also have a little bit more on Chairman
19:21
Jerome Powell and how he anticipates his federal reserve policy
19:25
right after this break.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter. At
19:44
TFE show Breaking business news is always first right here
19:48
on the Financial Exchange Radio Network. Time now for Wall Street.
19:54
Watch a complete look at what's moving markets so far
19:57
today right here on the Financial Exchange Radio Network.
20:01
Speaker 5: The markets are starting to claw back some of their
20:04
earlier losses amid the escalation of tensions between Ukraine and
20:09
Russia increase increasing worries across global markets. Wall Streets also
20:13
digesting a new batch of retailer earnings from the likes
20:16
of Walmart and Low's. At the moment, the Dow is
20:19
now down by two hundred and thirty five points, just
20:22
over half a percent lower. S and P five hundred
20:25
is down by eleven points, and the Nasdaq is actually
20:29
up now by twenty three points. Russell two thousand is
20:32
off by a half a percent, ten year Treasure reeled
20:35
down by two basis points at four point three eight percent,
20:39
and crude oil is up nearly two thirds of a
20:41
percent higher, trading at sixty nine dollars fifty six cents
20:45
a barrel. Walmart up by three percent after the retail
20:49
giant post a third quarter results that beat street expectations.
20:52
The company also lifted its guidance as customers buy more
20:56
than groceries like home goods and toys, showing a sign
20:59
that the holiday shopping season is off to a steady start.
21:03
As for Lows, that stock down by three percent after
21:06
the home improvement retailer also beat street expectations on the
21:10
top and bottom lines in the previous quarter. Lows also
21:14
raised its outlook but still expects full year sales to
21:18
decline from the prior year. Meanwhile, the Wall Street Journal
21:21
reported that Google parent company Alphabet is among the tech
21:25
players being targeted by top anti trust officials in a
21:29
last effort from the Biden administration to rain in the industry.
21:34
DOJ anti trust officials are also preparing to ask a
21:37
judge to force Alphabet to sell off its Google Chrome browser.
21:42
Alphabet shares are off by a tenth of a percent. Elsewhere,
21:45
a super micro Computer submitted a plan to allow it
21:48
to continue to trade on the NASDAC and announce BDO
21:51
as its new auditor after Ernst and Young stepped down
21:54
last month. That stock is rallying by twenty seven percent
21:58
and Nvidia shares up by ten two percent ahead of
22:01
the AI chip makers third quarter results do out after
22:04
tomorrow's closing bell, where investors will be paying close attention
22:08
to demand for the company's Blackwell chip. I'm Tucker Silvan.
22:12
Speaker 1: That's Wall Street Watch.
22:14
Speaker 2: Title of an article here from Bloomberg.
22:17
Speaker 3: Powell's wait and see approach on Trump policies as a
22:20
switch from twenty sixteen. So as we prepare for President
22:24
Chump's inauguration come January, Jerome Powell has come out and
22:29
said that there's nothing that they are going to be
22:32
doing to their models right now. This was from his
22:34
November seventh press conference. We don't guess, we don't speculate,
22:38
and we don't assume, which apparently runs contradictory to what
22:42
occurred in twenty twenty six where they were a little
22:44
bit more proactive in some of their commentary. It sounds
22:47
like from a policy perspective standpoint, I certainly am in
22:51
agreement here with him.
22:52
Speaker 2: Mark.
22:53
Speaker 3: There's a lot to be played out and resolved before
22:56
there's any need to drastically change policy. You know, all
22:59
the things that we speak about it on a daily basis,
23:01
whether it be tariffs or some of the other economic
23:04
initiatives that have been suggested by the Trump administration or
23:08
the future administration.
23:10
Speaker 2: It's weight and sea.
23:11
Speaker 3: You know, really there is no reason to hold off
23:15
cutting rates or to cut rates faster when you don't
23:19
have any formal evidence as to what these policies are
23:22
going to look like. So while they do seem to
23:24
mention that, oh, he didn't do this in twenty sixteen,
23:26
I don't really disagree with the approach here of the
23:29
wait and see.
23:31
Speaker 4: Well, the Fed's job. I'll just speak generally, because we
23:35
don't know what exactly the President's budget, the president elex
23:39
budget's going to contain, and what Congress will have an
23:41
appetite for. The Fed's job is to keep unemployment as
23:45
low as is consistent with stable prices. That actually puts
23:49
the way I described it puts a little bit too
23:50
much emphasis on stay. I shouldn't say stable prices. It's
23:53
stable inflation. A little bit of inflation is okay. We
23:57
can talk about reasons why maybe at some other point
24:00
economists disagree, but they generally agree that a little bit
24:02
of inflation is a good thing for the labor market
24:05
and to give the FLED FED flexibility. So the question is,
24:10
if you're the FED and the present in Congress decided
24:15
to stimulate the economy when the economy is already at
24:19
what most people think is full employment about four percent.
24:21
By that, I mean consistent with the economy's productive capacity.
24:26
Anything lower, said differently, yet again, would push prices up more,
24:31
would cause inflation to accelerate. So we're at about two
24:34
percent year over year in the Fed's choice measure today.
24:37
That could push it up. By most core measures of inflation,
24:41
it's actually a little bit higher than that. But anyway,
24:42
So the danger is that Trump and Congress overheat the economy,
24:46
at which point the Fed's got a decision to make,
24:48
like it did in twenty twenty one, when it arguably
24:51
made the wrong decision. Do we accommodate this surgeon prices
24:55
and take the risk that it becomes dug in that
24:57
people start to expect higher inflation demand high wages and
25:01
kick that vicious wage price cycle into motion. Or do
25:06
we push back against expansionary fiscal policy? And there are
25:11
two different levers at work here. There's monetary policy, which
25:14
is controlled by the Fed. They control the money supply
25:16
and indirectly a short term interest rate we call the
25:18
FED funds rate. And there's fiscal policy, which is the
25:21
purview of Congress and the President because he or she
25:23
has to sign the budget. So the Fed hasked to
25:26
decide do we work with fiscal policy or do we
25:28
push back against it. In the early nineties, the Fed
25:33
was relatively loose after staying tight for too long, course
25:36
costing George hw the election. George HW. Bush then loosening
25:41
because Clinton and Congress titaned fiscal policy in the early
25:44
nineteen eighties. Conversely, the Fed had to keep fiscal policy tight.
25:49
Because Reagan's fiscal policy was pretty loose. It had to
25:53
keep monetary policy. I should say the FED did tight,
25:56
so you kind of get the gist of it. They
25:59
have to be the yin to the other branch of
26:01
The FED is not a branch of government, it's creature
26:03
of Congress. But they have to be the yin to
26:05
Congress's yang if Congress is being I won't say profligate.
26:09
Because the economy may need stimulating, the Fed's got to
26:12
decide if we're already close to full employment, which raises
26:15
the question why do we need stimulating, which is a
26:17
legit question in the present environment. By the way, should
26:20
the FED be pushing back against it or should the
26:22
Fed accommodate it. The risk you take, like in early
26:25
twenty twenty one when they accommodated the big stimulus plans
26:29
of both Trump and Biden, is that expectations go up.
26:33
Demand stayed high for longer than anybody thought, supply remained constrained.
26:38
We all know how that ended. It ended in the
26:41
incumbent parties, but getting thrown out of the White House. Nobody,
26:46
at least on the incumbent side, whoever that happens to
26:49
be wants that to happen again. So it's a bit
26:51
of a dilemma.
26:52
Speaker 1: Paul.
26:53
Speaker 3: Taking a look at Congress right now, there is still
26:56
five races to be decided on the House side. However,
26:59
the republic do have the majority with two hundred eighteen
27:02
seats versus two hundred and twelve for the Democrats, and
27:05
they have fifty three of the Senate seats, so there
27:08
is a majority Republican control with five races to be decided.
27:13
So that will also influence the likelihood of some of
27:15
these policies going through. I want to dive underneath the hood.
27:19
Tucker mentioned a little bit on Wall Street Watch. Walmart
27:21
came out with their earnings for the most recent quarter,
27:25
and we're really seeing some strong numbers out of Walmart here.
27:29
They continue to increase their same source s tales sales
27:33
growth of about five percent in Q three, doing one
27:36
hundred and fifteen billion of sales. Just astounding when you
27:41
look at these numbers. Walmart, obviously one of the largest
27:44
retailers in the country, sometimes can be used as a
27:48
good bell weather for where the US consumer sits. This
27:51
is not to say that every retailer will trend in
27:53
the same direction, but as Tucker alluded to, there seems
27:56
to be from Walmart's commentary a lot more focus on
27:59
consumers spending on discretionary items. For a lot of the
28:02
last couple quarters, the main focus from these Walmart earnings
28:06
had been consumers were really focused on just grocery spend
28:09
and there wasn't a whole lot of discretionary spend on
28:12
other things like electronics, clothing, all these other discretionary items.
28:16
But with these numbers here, there was some indication that
28:20
we are seeing larger ticket sizes at Walmart and more visits.
28:24
You also saw a tremendous jump on the e commerce
28:27
side of things for Walmart, with a twenty two percent
28:30
increase on that side of the business. Walmart, I believe
28:34
was up sixty percent year to date. They've just been
28:37
on a tremendous run. The stock is up about another
28:40
four point seventy five percent today. They've invested a ton
28:45
of capital in their technology and to compete with the
28:49
Amazons of the world for easy pickup and delivery, and
28:51
it seems like they're bearing those fruits mark with this
28:54
most craarterly earnings update that came out.
28:56
Speaker 4: Yeah, I guess you always have to ask is this
28:58
specific to something a company is doing, or is it
29:01
representative of the larger state of the US economy? To
29:05
what degree is it? Is it a reliable yardstick for
29:10
the health of the US economy? And if these numbers
29:13
are accurate and I tried to get them from a
29:14
couple different sources, and they're very close about one in
29:16
every ten dollars or ten cents in every dollar, whatever
29:20
you want to think about it. Ten percent of everything
29:22
people spend on average is spent at Walmart. Wow, close
29:25
to it?
29:25
Speaker 2: Close to it.
29:25
Speaker 4: I'm rounding up just a little bit. And again the
29:28
source is not The sources are our private sector third
29:33
party analytics firms, so hopefully they're right. So it probably
29:39
is fair to read into the year over year or
29:43
quarter over quarter numbers as we do and pay close
29:46
attention to their outlook as well. That's something I always
29:49
struggle with. How representative are comments made by or results
29:53
posted by companies as we cover those reports as they
29:57
trickle in.
29:58
Speaker 3: We'll get Target and tag Max some other retailers coming
30:01
out with their earnings later this week as we head
30:04
into the holiday shopping season. I believe I read that
30:07
they're projecting anywhere from nine hundred and eighty billion to
30:10
nine hundred ninety billion of collective spend during the holiday period,
30:13
which would represent about anywhere from a two and a
30:16
half to three and a half percent increase from twenty
30:19
twenty three. So we'll carefully be monitoring that as well
30:22
as more information comes out regarding the holiday shopping season.
30:26
But certainly a really strong quarter for Walmart there, and
30:29
their stock is reacting possibly on that news. We're going
30:32
to take a quick break here on the Finished Exchange.
30:35
When we come back, we're be covering a little bit
30:37
about consumer credit as well as car loans and their
30:41
rising delinquencies. That's right after this break here on the
30:44
Financial Exchange.
30:46
Speaker 1: Miss any of the show. Catch up at your convenience
30:49
by visiting Financial Exchange Show dot com and clicking the
30:52
on demand icon, where you'll find all of our interviews
30:55
and full shows. Banks is your home for the latest
30:58
business and financial news new England and around the country.
31:02
This is the Financial Exchange Radio Network, breaking business and
31:06
financial news first throughout the day, only here on the
31:10
Financial Exchange Radio Network.
31:20
Speaker 2: He's from the Wall Street Journal.
31:21
Speaker 5: Here.
31:22
Speaker 3: Things are quiet in consumer credit to quiet. Credit card
31:26
delinquencies seem to have peaked for now. This was something
31:30
that was earmarked over the course of the last six
31:32
months or so, a little bit of a concern on
31:34
some of the uptick on credit card delinquencies. However, according
31:39
to this most recent Wall Street Journal piece, that has
31:41
tempered a little bit where we're not seeing new delinquencies
31:46
picking up for the first time since twenty twenty one.
31:48
The rate at which new delinquencies are forming declined in
31:51
Q three. According to the New York Fed, it should
31:54
be a very strong time for lenders. Mark is you
31:58
can charge a very high level on credit card debts.
32:02
Some of the average rates are in the twenties at
32:04
this point in time. And we do have a period
32:07
where there was some concern with all the inflationary impact
32:10
that it could really hurt the consumers and you'd see
32:13
a significant uptick in delinquencies. But two things that's important
32:17
to note when you're talking about credit card delinquencies. One,
32:20
the size and scale of it and its relative impact
32:23
the US economy is relatively minor. And the levels that
32:26
we're seeing, though that they had been on the uptick
32:29
since twenty one, were nowhere near you know the levels
32:32
we were seeing in two thousand and eight or two
32:34
thousand and nine.
32:35
Speaker 4: No, they're still pretty low relative to the longer term
32:38
history of the data we have on this. And I'll
32:42
use the Federal Reserve of Saint Louis's database Fred. It's
32:46
easy to access. Anybody can do it. You just google Fred,
32:50
like the name, and then delinquency rate on credit cards.
32:53
It'll take you right too. There are other series two,
32:55
but it'll take.
32:56
Speaker 3: Definitely want to throw in the delinquency rates there just
32:58
Fred will probably send you in a different direction.
33:01
Speaker 2: I don't know where, but.
33:03
Speaker 4: No, you have you have to be cautious. You're right,
33:06
so you will see. I'll briefly comment on it because
33:10
we're talking about it, but you can see it for yourself.
33:12
Rates are quite elevated. They've gone up steeply, quickly and
33:15
relentlessly over the past couple of years. The delinquency rate
33:19
on credit cards for all commercial banks, that's the series
33:21
I'm referring to here, But they remain well below levels
33:26
that were common in the two thousands and in the
33:29
nineteen nineties. It's as far back as this particular series goes.
33:32
So it's possible I'm not going to dismiss it. Savings
33:36
rate has gone down, Although the economic growth rate remains
33:40
quite solid relative to what most people think is economic
33:42
growth potential, unemployment remains low. There are some warning signs,
33:46
and this could be one. Or the rise in the
33:50
delink with the so called delinquency rate could just be
33:53
another normalization following the massive distortions that COVID related shutdowns
34:00
and then the rounds of stimulus, the massive distortions that
34:06
those events created in the economy. I don't know where
34:09
I fall on that personally. We won't know what the
34:13
what the right interpretation of this rise is until we
34:16
see how this market cycle ends up.
34:18
Speaker 5: Isn't it time for you to fall naturally in rhythm
34:21
with America's Caribbean paradise. The United States Virgin Islands are
34:25
Saint Croix, Saint Thomas, and Saint John, and they're the
34:28
perfect spot for your next incredible vacation. Whether it's the
34:32
rich history of Saint Croix, the pristine beaches of Saint Thomas,
34:35
or the peace aint tranquility of Saint John, the US
34:37
Virgin Islands is everything you need to enjoy spectacular holiday.
34:42
Go to visit USVI dot com and check out the
34:44
American Caribbean, where you'll find all the information you'll need
34:48
to book a trip that you'll never forget. Travel to
34:52
and from.
34:52
Speaker 2: New England is simple, and.
34:53
Speaker 5: Your stay will be hassle free because this is the
34:56
American Caribbean. There's no passport required and no money need
35:00
to exchange. Make it a romantic getaway or a week
35:03
long family vacation. The friendly folks of the USVII are
35:07
waiting to welcome you with open arms. So get out
35:10
of the cold and head to America's Caribbean paradise. Go
35:13
to visit USVII dot com and book your trip of
35:16
a lifetime today. That's visit USVII dot com.
35:20
Speaker 2: Wall Street is.
35:21
Speaker 3: Bullish on car loans despite rising delinquency. This is an
35:25
area where we actually are, in fact seeing a little
35:27
bit of uptick in delinquencies. We just touched on credit
35:30
card delinquencies, but on autoland delinquencies. We are seeing a
35:35
three point eight percent rate of delinquencies on auto loans
35:38
as of June. That was the highest level since twenty ten.
35:41
You certainly have a much more punitive interest rate market
35:45
on the auto loan side of things. Certainly not bad
35:48
historically speaking, but in recent history the rates on them
35:51
are a bit higher, and you're seeing a clamoring of
35:54
demand in the investment community to buy some of these
35:57
risky auto loans, where through October they were up about
36:01
eighteen percent the demand for auto loans to sometime borrowers
36:06
out there, according to data from GP Morgan Chase.
36:11
Speaker 4: Yeah, I don't know that I have anything. It's what
36:13
we talked about in the last segment.
36:14
Speaker 2: It's a fragment.
36:14
Speaker 4: Issues are related.
36:16
Speaker 2: It's a smaller, you know, subset of the market.
36:18
Speaker 4: Yeah, to me, there's a To me, there's a cautionary
36:23
a bit of a cautionary tales not the right phrase,
36:25
but be wary of any, say, bond funds that you own.
36:28
If the yield is much higher than the yield on
36:30
the broad bond market, they probably own stuff like securitized
36:36
loans and other riskier forms of credit. So if a
36:41
market is looking a little feverish, like this segment might be,
36:45
I don't know. There are other examples. Make sure that
36:49
the way you get exposure to fixed income is through
36:52
a diversified vehicle. That's a lesson. I that's the kind
36:54
of generic no deep insight, well whatsoever lesson. I always
36:58
take away from stories like.
36:59
Speaker 3: That as someone who's in the car market, and I
37:02
was talking with the guys off air about person in
37:04
new vehicle the monthly price for some of these car
37:08
ins you can understand why the delinquencies are ticking up
37:11
because and this is captain obvious here, but the inflation
37:15
that we've seen on car prices over the last three
37:16
or four years, combined with interest rates that are twice
37:19
what they were at that period of time in twenty
37:22
twenty one or twenty twenty has led to a high
37:26
average car monthly price. Now that has stabilized a bit
37:30
from where we saw the most dramatic increases in twenty
37:33
twenty two on that number, and the pricing on vehicles
37:37
is getting a little bit more reasonable, and certainly consumers
37:41
will reset their expectations. But there still is certainly, at
37:44
least personally speaking, buying a big, big car a sticker
37:49
shock that comes from trying to look into a Chevy suburban.
37:53
Those things, man, are not cheap. Taking a look at markets,
37:58
a lot of the selloff has cooled off a bit.
38:00
We only have the S and P five hundred off
38:02
about three points the Dow Jones off about two ten
38:06
or about a half percent, so it seems to be
38:10
some of those losses are being cut. It's all the
38:12
time that we have for the first hour of the
38:13
second the financial exchange here, but stick with us for
38:15
the second hour of the show right after this