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Wall Street expects the market to keep rallying despite high valuations · The Financial Exchange Show

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1:03
Speaker 1: This is the Financial Exchange with Chuck Zada and Mike Armstrong.
1:11
Speaker 2: Hope everyone enjoyed the little cheese of twenty twenty six
1:15
Speaker 2: trading that we got on Friday. This week we kick
1:18
Speaker 2: things off in earnest with the first full week of trading,
1:23
Speaker 2: and we've got a pretty full week on the calendar.
1:28
Speaker 2: This before we even discuss the Venezuel situation, which you know,
1:33
Speaker 2: I don't think anyone really was, you know, thinking, Friday morning, Hey,
1:36
Speaker 2: this is what we're gonna talk about on Monday morning.
1:39
Speaker 2: But here it's something that we're gonna cover. But before
1:42
Speaker 2: we get to that, just a preview of what else
1:44
Speaker 2: is coming this week. First, we've got ism manufacturing that
1:50
Speaker 2: just came out this morning with reading a forty seven
1:53
Speaker 2: to nine, that's down from forty eight to two. We'll
1:55
Speaker 2: dig into that a little bit later and see if
1:58
Speaker 2: there's anything useful in a report that quite honestly hasn't
2:02
Speaker 2: been useful in any way, shape or form for the
2:04
Speaker 2: last five years. Then tomorrow nothing. There's just not anything
2:10
Speaker 2: interesting unless you are curious about the LMI Logistics Managers Index.
2:17
Speaker 3: The Final Services PMI or FED President Tom Barkin.
2:22
Speaker 2: Not really interesting. Again, it's nothing. Wednesday, we kick in
2:26
Speaker 2: high gear, though we've got ADP's employment data. We've got
2:30
Speaker 2: ism services, and we've got the job openings in Labor
2:33
Speaker 2: Turnover Survey, the JOLTS report for November. So that is
2:37
Speaker 2: all on Wednesday. Thursday, we've got weekly jobless claims. Friday,
2:42
Speaker 2: we've got building permits, housing starts, and the jobs report
2:46
Speaker 2: for December. We do so busy week, nothing really on
2:51
Speaker 2: earnings this week. We start to get into some of
2:53
Speaker 2: the banks next week. So it's pretty quiet on that
2:57
Speaker 2: front right now. But I think we have to spend
2:59
Speaker 2: it at least a little bit of time discussing Venezuela
3:04
Speaker 2: at this point, because look, I spend a little bit
3:08
Speaker 2: of time, you know, bopping around the old X platform
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Speaker 2: over the weekend, and I gotta tell you, I had
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Speaker 2: no idea that there were so many Venezuelan oil industry
3:22
Speaker 2: experts out there. I mean everyone, Michael knows everything about oil,
3:29
Speaker 2: and not just oil, but the kind of oil there
3:33
Speaker 2: is in Venezuela, how to get it out of the ground,
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Speaker 2: how it tastes, what recipes you can put it in.
3:40
Speaker 2: Everyone is just a genius when it comes to knowing
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Speaker 2: everything about Venezuela.
3:45
Speaker 3: Now, well, you know, quick quick input into chat GPT
3:49
Speaker 3: and you can suddenly become an expert in darn near anything.
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Speaker 2: So this is a fancy and you know, a little
3:55
Speaker 2: bit sarcastic way of saying, I'm not an oil expert.
3:59
Speaker 2: I'm not a Venezuela expert. I do have a good
4:02
Speaker 2: friend of mine who was from Venezuela originally as it
4:04
Speaker 2: lived there in fifteen twenty years now, but you know,
4:08
Speaker 2: I you know, can chat with him at least about
4:10
Speaker 2: you know, what's going on politically, to have like a
4:13
Speaker 2: you know, thirty percent understanding of what's actually happening there.
4:17
Speaker 2: And you know, my understanding of oil is I put
4:21
Speaker 2: some gas in my car to fill it up this
4:22
Speaker 2: weekend and it goes and that's good. So here's what
4:27
Speaker 2: we know at this point. The United States, obviously, unless
4:31
Speaker 2: you've been living under a rock, has removed Nicholas Maduro
4:34
Speaker 2: from power. At this point, right now, the VP of
4:39
Speaker 2: Venezuela is running the country. It is unclear the exact
4:45
Speaker 2: relationship that she and the US government may or may
4:50
Speaker 2: not have. There were indication indications from the US government
4:55
Speaker 2: that they wanted to basically have her in place and
4:59
Speaker 2: that they had, you know, just discuss things with her
5:01
Speaker 2: in the run up to this. Her only public speech
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Speaker 2: to this point has basically been, hey, get Maduro back
5:08
Speaker 2: in the country, because you took him and he's one
5:10
Speaker 2: of our citizens. So it's unclear exactly what the posturing
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Speaker 2: is on either side and what may or may not
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Speaker 2: have and what's all theater on this. I'm not going
5:19
Speaker 2: to speculate, because I don't know. There are a million possible,
5:22
Speaker 2: you know, different ways that you can look at this,
5:25
Speaker 2: everything from hey, they didn't actually discuss discuss this too.
5:29
Speaker 2: They did, and she's just pretending they didn't so that
5:32
Speaker 2: she can have some legitimacy still like that. There's a
5:34
Speaker 2: ton of different possibilities. What I do know from again
5:39
Speaker 2: my limited understanding of the Venezuelan political situation is no
5:46
Speaker 2: matter how you slice it, this right now internally is
5:49
Speaker 2: not something with a whole lot of stability at this point,
5:53
Speaker 2: and there are at least several factions within the Venezuelan
5:56
Speaker 2: government that are likely to be competing for influence power.
6:00
Speaker 2: There's a power vacuum of Maduro's presence.
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Speaker 3: There's a power vacuum, as you've seen in many different
6:06
Speaker 3: occasions when something along these lines has happened.
6:09
Speaker 4: And so who is going to.
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Speaker 3: Ultimately lead this country a week, a month, or a
6:16
Speaker 3: year from now, I think is really anybody's guess.
6:19
Speaker 2: It's also unclear exactly how involved the Trump administration wants
6:23
Speaker 2: to be involved in the oversight and maintenance and actual
6:29
Speaker 2: you know, governance of Venezuela. I mean, clearly not going
6:32
Speaker 2: to have the US like take over governance entirely, but
6:36
Speaker 2: it was suggested a couple times during press conferences this
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Speaker 2: weekend that hey, you might have the Secretary of State
6:42
Speaker 2: and Secretary of Defense, you know, kind of running things
6:45
Speaker 2: in the interim, right, and that's at odds with what
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Speaker 2: the Venezuelan VP has said to this point. It's also
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Speaker 2: unclear if there will be any kind of US security
6:57
Speaker 2: presence on the ground. It's been suggest that there maybe
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Speaker 2: by the President. It's also been suggested that there's no
7:04
Speaker 2: appetite for it, and so that's not something that's being
7:08
Speaker 2: actively considered right now. So again, I don't think that
7:11
Speaker 2: we know a ton about this, and I don't think
7:14
Speaker 2: it's worth speculating, because what are we going to do?
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Speaker 2: Be like, well, I think they're gonna do this, Well,
7:19
Speaker 2: I think they're going there.
7:20
Speaker 4: Will be playing place as you can go.
7:22
Speaker 3: If you wish to speculate about what might be happening
7:25
Speaker 3: in Venezuela right now, just turn on any social media
7:27
Speaker 3: channel and everyone will tell you what they think is
7:30
Speaker 3: going to happen.
7:31
Speaker 4: We're not going to do that here.
7:32
Speaker 2: You can listen to us while you do that, so
7:34
Speaker 2: you can multitask and get the best of both worlds.
7:37
Speaker 3: What do we I think there are some things that
7:39
Speaker 3: we have a little bit more concrete understanding of, and
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Speaker 3: one would be this state of Venezuelan oil deposits and
7:47
Speaker 3: the oil industry itself.
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Speaker 2: Yes, So here's the thing about Venezuela. They have a
7:53
Speaker 2: metric crapload of oil, which is the technical term in
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Speaker 2: the biz. Three hundred and three billion dollars of proven
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Speaker 2: reserves for Venezuela. That is the largest level of proven
8:06
Speaker 2: reserves for any country in the world.
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Speaker 3: You showed me a chart this morning, and it again,
8:12
Speaker 3: US is the largest oil producer in the world. Yes,
8:16
Speaker 3: getting it out of the ground and selling it into markets,
8:18
Speaker 3: but it absolutely dwarfs the proven oil reserves in the
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Speaker 3: United States, for example.
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Speaker 2: Yeah, if you look at this, just as an example,
8:25
Speaker 2: Venezuela has three hundred and three billion barrels of proven
8:29
Speaker 2: oil reserves. The United States has forty five billions, So
8:32
Speaker 2: Venezuela has more than six times as much oil in
8:35
Speaker 2: the United States. When you talk about you know, big
8:37
Speaker 2: oil producing countries like Saudi Arabia, Saudi Arabia's got two
8:41
Speaker 2: hundred and sixty seven billion barrels of proven reserves, so
8:44
Speaker 2: Venezuela is more than ten percent above them. Iran two
8:48
Speaker 2: hundred and eight billion, Canada one hundred and seventy one billion,
8:52
Speaker 2: Iraq one hundred and forty five billion, Russia eighty billion. Like,
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Speaker 2: just to give you a sense of this, there's a
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Speaker 2: lot of oil in Venice. The issues, as I understand them,
9:03
Speaker 2: are threefold when it comes to actually getting that oil
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Speaker 2: out of the ground. Uh. The first is it's the
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Speaker 2: state of Venezuela and oil production is somewhere between terrible
9:19
Speaker 2: and really really really terrible. At one point within the
9:23
Speaker 2: last couple decades, Venezuela was producing three million barrels a day,
9:26
Speaker 2: which is still less than a quarter of what the
9:28
Speaker 2: US currently produces. The problem is that, through a combination
9:33
Speaker 2: of incompetence, corruption, and general malfeasance, that production has fallen
9:39
Speaker 2: from North of three million barrels a day to seven
9:41
Speaker 2: hundred thousand. No one really knows what kind of shape
9:44
Speaker 2: any of these wells are in. No one really has
9:47
Speaker 2: any idea if any of the equipment is working beyond
9:50
Speaker 2: you know, kind of what's already producing. And so until
9:53
Speaker 2: you actually get in there and look at this stuff
9:55
Speaker 2: in some kind of depth, you don't really know how
9:58
Speaker 2: much money tie an effort is going to be needed
10:01
Speaker 2: in order to get things back up to ship shape.
10:04
Speaker 4: Got it.
10:04
Speaker 2: Number two? There's a There are two. It's kind of
10:08
Speaker 2: a combination of things, but there are two reasons why.
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Speaker 2: These are the other two parts of the three reasons
10:13
Speaker 2: why it's kind of hard to get the oil out
10:16
Speaker 2: of the ground. There most of the oil reserves are
10:21
Speaker 2: in a part of the country that is really mountainous,
10:23
Speaker 2: rough terrain that's hard to navigate and get any kind
10:27
Speaker 2: of heavy equipment and machinery.
10:28
Speaker 4: Through mountaous rainforest.
10:30
Speaker 2: There's a reason why, despite having six times the amount
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Speaker 2: of oil that the US has in reserves, they never
10:38
Speaker 2: produced more than three million barrels a day. It's really
10:41
Speaker 2: hard to do so because of the terrain and the
10:44
Speaker 2: type of oil they have can best be compared to
10:49
Speaker 2: Canada's oil sands, where it is this heavy, thick, messy
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Speaker 2: stuff that just is not easy to extract, be because
11:00
Speaker 2: of quite literally like the weight and consistency of it.
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Speaker 2: It's it's really hard to do that without what I
11:08
Speaker 2: gather from again my understanding as a novice exploring this,
11:14
Speaker 2: you basically need to use like a bunch of high
11:16
Speaker 2: pressure steam to force this stuff to move the way
11:19
Speaker 2: that you want it to, and in this terrain that
11:22
Speaker 2: you have, it's kind of hard to you know, get
11:24
Speaker 2: high pressure steam and quantities into there.
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Speaker 3: So I think the important point about all this is
11:29
Speaker 3: a lot has been made about the ability and efficiency
11:35
Speaker 3: of US oil companies, the infrastructure that they have in
11:37
Speaker 3: their capability of going in here and increasing.
11:40
Speaker 4: Production, which does exist.
11:42
Speaker 3: But I think an important counterpoint it is not merely
11:47
Speaker 3: poor infrastructure, corruption and incompetence that has led Venezuela to
11:51
Speaker 3: not produce quite as much oil as they might be able.
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Speaker 2: To, which leads us to the question of, Okay, what
11:58
Speaker 2: is the actual impact on energy markets as a result
12:02
Speaker 2: of this. We'll talk about that next.
12:05
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Speaker 2: All right. So in the last segment, we talked a
13:16
Speaker 2: little bit about the state of play in Venezuela and
13:19
Speaker 2: how Mike and I don't really know what comes next
13:21
Speaker 2: and we'll just have to see what happens. But the
13:23
Speaker 2: question that's out there is, hey, with all of this
13:27
Speaker 2: oil that's sitting in the ground in Venezuela. Gosh, like,
13:33
Speaker 2: it sure seems like there's going to be something related
13:37
Speaker 2: to that oil happening at some point, especially since the
13:39
Speaker 2: Trump administration has come out and in no ONEX firm
13:43
Speaker 2: said yeah, we want the oil. So it raises the
13:48
Speaker 2: question of what impact this can have on global energy markets.
13:51
Speaker 2: And thus far on Monday, you know, January fifth, of
13:55
Speaker 2: twenty twenty six, the answer is zero, not much. West
13:59
Speaker 2: Texas in or media is up half a percent thirty
14:02
Speaker 2: two today. So there's basically no major movement happening in
14:07
Speaker 2: oil markets. And we talked in the last segment about
14:11
Speaker 2: you know, the reasons why it might take you know,
14:13
Speaker 2: it's it's generally hard to extract oil from Venezuela. And
14:18
Speaker 2: so the question that's out there in my mind is, Okay,
14:22
Speaker 2: what is the actual investment from other you know, from
14:27
Speaker 2: from companies going to be to try to get access
14:32
Speaker 2: to these reserves? And I think there are a whole
14:36
Speaker 2: bunch of things that need to be sorted out before
14:39
Speaker 2: you can even get to that point, the first of
14:42
Speaker 2: which is who am I dealing with? Like, let's say
14:46
Speaker 2: that I run Chuck oil. Okay, and I've got ten
14:52
Speaker 2: billion dollars that I'm looking to invest next year. The
14:57
Speaker 2: first question that I have is, okay, so something happened
15:00
Speaker 2: in Venezuela. Who do I call to see if I
15:04
Speaker 2: can even get access?
15:05
Speaker 4: Ghostbusters?
15:07
Speaker 2: Do I?
15:08
Speaker 3: Whenever somebody says, who do you call that I know?
15:10
Speaker 2: Do I call the current Venezuelan VP? Sure, I don't
15:14
Speaker 2: know what staying power she has? Do I call Marco Rubio?
15:20
Speaker 2: Do I call, you know, a bunch of fark gorillas
15:25
Speaker 2: from Colombia and say, hey, can you help me get
15:27
Speaker 2: in there? Like? These are honest questions about just like
15:32
Speaker 2: what access will I have and who do I talk
15:35
Speaker 2: to on this? The second question that you have on
15:39
Speaker 2: this is okay, let's say that I get the right
15:42
Speaker 2: person to talk to. Well, look, what guarantees do I
15:48
Speaker 2: have that if I make a ten billion dollar investment
15:53
Speaker 2: that A you're going to provide protection so that that
15:57
Speaker 2: investment continues, you know, operating, it isn't sabotaged by other
16:01
Speaker 2: you know, local groups or whatever. And B what guaranteed
16:04
Speaker 2: do I have that ten fifteen years from now, some
16:07
Speaker 2: new Venezuelan government doesn't come in and say, hey, nice,
16:12
Speaker 2: Well you got there. It's ours now. The cost of
16:17
Speaker 2: doing development in Venezuela is almost certainly less on a
16:21
Speaker 2: per barrel basis than the United States, but the expected
16:27
Speaker 2: profit might not be. Like, I don't even know how
16:30
Speaker 2: you run that calculation, just because what probability do you
16:34
Speaker 2: assign to the possibility that, hey, this well might not
16:39
Speaker 2: be yours by the time it's completed, right, Like, these
16:43
Speaker 2: are some of the challenges that I think you have
16:45
Speaker 2: to sort through. So I do suspect that anyone involved
16:51
Speaker 2: in anything related to this is going to be getting
16:53
Speaker 2: a whole bunch of calls from you know, energy companies
16:56
Speaker 2: and interested investors being like, yeah, we like to take
16:59
Speaker 2: a look at it. As far as actual dollar investment
17:03
Speaker 2: in the production of Venezuela and oil, everything I have
17:07
Speaker 2: read has pointed to the fact that there is very
17:10
Speaker 2: likely no meaningful shift in production for at least several years,
17:15
Speaker 2: just because even if you started moving in right now,
17:17
Speaker 2: we would take that long to actually figure out how
17:21
Speaker 2: to ramp the stuff up. And beyond that, Hey, if
17:25
Speaker 2: I'm exon mobile and I can do you know, some
17:29
Speaker 2: drilling in the premium basin and some drilling off the
17:31
Speaker 2: coast of you know, Louisiana versus this, How do I
17:36
Speaker 2: weigh how much risk I want to take with my
17:40
Speaker 2: investor's money in moving it towards venezuel and deposits.
17:45
Speaker 3: Yeah, it comes back to a number of themes that
17:49
Speaker 3: we've talked about at length recently regarding a number of
17:52
Speaker 3: different subjects. But how willing is US government to backstop this,
17:56
Speaker 3: because that's likely what many of these producers would need
17:59
Speaker 3: is some form of garatarantee and backstop by the US
18:01
Speaker 3: government to say, yes, there will be stability here and
18:03
Speaker 3: we will back the loans for the development of all
18:06
Speaker 3: this if it all comes crumbling down. And by the way,
18:09
Speaker 3: with all this, we haven't even bled into any of
18:12
Speaker 3: the global geopolitical side of all this, the ties between
18:15
Speaker 3: Venezuela China. Obviously the China Venezuela ties have weakened over
18:21
Speaker 3: the last decade, but you know, China over the decades
18:23
Speaker 3: has lent or invested in Venezuela tens of billions of dollars.
18:27
Speaker 4: What sort of you know, message do they take by this?
18:32
Speaker 3: There's a whole Taiwan angle that I don't even know
18:34
Speaker 3: that we want to get into today.
18:35
Speaker 2: But there are there's rather there's Iran, Like I think the.
18:39
Speaker 3: Point would be, there are other reasons for the US
18:41
Speaker 3: to have interest in Venezuela beyond its oil very much.
18:45
Speaker 4: So.
18:45
Speaker 2: Yeah, and so I think in terms of where I
18:50
Speaker 2: land on this, the economic impact of this in the
18:54
Speaker 2: short term, I think is pretty likely to be minimble,
18:58
Speaker 2: unless China decides, not specifically on the time want then
19:02
Speaker 2: when lest China sides, hey, we're unhappy that you're cutting
19:04
Speaker 2: off a source of oil for us, and now we're
19:07
Speaker 2: gonna throw the rarer thing back at you again. But
19:11
Speaker 2: you know, we'll kind of have to see how this goes.
19:12
Speaker 2: So I'm not expecting major economic impact from this, and
19:18
Speaker 2: I think the market is responding that way too. Oil
19:21
Speaker 2: prices are not moving a ton. You don't have, you know,
19:24
Speaker 2: huge dislocations and markets happening. Markets are kind of saying, Okay,
19:28
Speaker 2: we'll take a wait and see approach. That's mine as well.
19:32
Speaker 2: Let's take a quick break when we come back. It's
19:33
Speaker 2: Wall Street Watch.
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20:01
Speaker 5: Markets beginning the week in positive territory despite the weekend
20:04
Speaker 5: attack on Venezuela and the capture of its leader. However,
20:08
Speaker 5: there is no major movement in oil prices to this point.
20:11
Speaker 5: All Street's also rating for an on time jobs report
20:15
Speaker 5: slated to come out on Friday morning. Right now, the
20:18
Speaker 5: Dow is up one point four percent, or six hundred
20:20
Speaker 5: and seventy points. SMP five hundred is up eight tenths
20:24
Speaker 5: of a percent or fifty five points higher. NASDAC up
20:27
Speaker 5: about one percent or two hundred and twenty eight points.
20:29
Speaker 5: Russell two thousand also up one percent. Ten Your Treasury
20:33
Speaker 5: reeled down two basis points at four point one sixty
20:36
Speaker 5: seven percent. Crew to Oil up about one percent, trading
20:40
Speaker 5: a fifty seven dollars and eighty nine cents a barrel.
20:43
Speaker 5: Chevron among the big energy winners on the day, as
20:46
Speaker 5: the company is the sole remaining US major oil player
20:49
Speaker 5: in Venezuela. That stock is up four percent. Other energy stocks,
20:53
Speaker 5: including Conoco Phillips, x On Mobile, and Halliburton are also
20:57
Speaker 5: seeing gains on the day. Outside of energy, investors are
21:00
Speaker 5: awaiting the Consumer Electronics Show to kick off later today
21:03
Speaker 5: in Las Vegas, where chief executives are both in Vidia
21:07
Speaker 5: and AMD are slated to speak. Both in Vidia and
21:10
Speaker 5: AMD are up over half a percent. Meanwhile, Comcast shares
21:14
Speaker 5: are up over one percent. As regular trading of the
21:17
Speaker 5: TV network owners Versus spinoff began today, Versus shares by
21:21
Speaker 5: the way down thirteen percent, and Uber downgraded to sell
21:26
Speaker 5: from hold and Milius Research, where the firm said the
21:29
Speaker 5: right hanling company is at risk from increased competition, including
21:33
Speaker 5: from the likes of Waimo and Tesla.
21:35
Speaker 2: Uber down by over.
21:37
Speaker 5: One percent at the moment. I'm Tucker Silvan. That is
21:40
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22:02
Speaker 2: Let's see Wall Street expects the market to keep rallying
22:07
Speaker 2: in twenty twenty six despite lofty valuations. It's a piece
22:11
Speaker 2: in the Wall Street Journal. It's not really a story
22:15
Speaker 2: like I don't know, it isn't.
22:19
Speaker 3: Yeah, you know, if you would like to guess what's
22:22
Speaker 3: going to happen markets in markets next.
22:25
Speaker 2: Your evaluation is not a good timing mechanism. Best predictor
22:29
Speaker 2: is probably what happened most recently. So sure Wall Street expects.
22:34
Speaker 3: By the way, on an annual basis, stocks go up
22:36
Speaker 3: what percent of the time, like sixty plus percent, almost
22:39
Speaker 3: seventy So most of the time stocks do increase in value.
22:44
Speaker 2: And even when they've been expensive before, they've increased in value.
22:48
Speaker 2: Was anyone you know at the start of last year
22:51
Speaker 2: sitting around Mike, do you remember the conversations we had
22:53
Speaker 2: in January of last year being like, man, stocks are
22:56
Speaker 2: so cheap, I can't wait for them to go up
22:59
Speaker 2: right No, No, they were really expensive.
23:01
Speaker 3: And people we're talking about how they were expensive. Yes,
23:03
Speaker 3: there's not new and they still went up.
23:05
Speaker 4: Yeah.
23:06
Speaker 2: Now I'm not saying that they will still go up
23:08
Speaker 2: right now. But what I am saying is something I've
23:10
Speaker 2: repeated quite often, which is when all you talk not all,
23:14
Speaker 2: when you talk about lofty valuations is being an impediment
23:17
Speaker 2: for stocks. It's not lofty valuations. Don't say anything about
23:24
Speaker 2: how high valuations can continue to move. They do tell
23:28
Speaker 2: you if something goes wrong, then there's probably further to fall,
23:35
Speaker 2: but they don't tell you anything about what's going to happen,
23:40
Speaker 2: like whether stocks will or won't go down, And they're
23:43
Speaker 2: not a predictor of what's going to happen in the future.
23:47
Speaker 3: The only thing that you can say that has any
23:50
Speaker 3: sort of predictive nature to it when you talk about
23:54
Speaker 3: lofty valuations has nothing to give.
23:56
Speaker 4: As short term returns in stocks.
23:58
Speaker 3: You can say something that is fairly convincing to me,
24:02
Speaker 3: at least when you look at longer term returns on
24:04
Speaker 3: stocks based on lofty valuations, and the answer is just
24:08
Speaker 3: plainly they're not great when you get over a certain threshold.
24:14
Speaker 3: Just you can chart this out, but you can also
24:18
Speaker 3: take my word for it that the higher the starting
24:20
Speaker 3: point on valuations, the lower the expected ten year return. Yeah,
24:27
Speaker 3: it's got a pretty good correlation, and you've got one
24:30
Speaker 3: hundred plus years worth of data to justify it. And
24:32
Speaker 3: when you get to lofty valuations, it tells you almost
24:35
Speaker 3: nothing about what the next year is going to do,
24:37
Speaker 3: but tells you a little bit of something. When you
24:39
Speaker 3: look at a ten year record after and it doesn't
24:41
Speaker 3: mean negative, by the way, it just means below average.
24:44
Speaker 3: An average let's call, depending on the time series you're
24:48
Speaker 3: looking at, you to take eight to twelve percent, depending
24:51
Speaker 3: on what time period you want to look at. So
24:53
Speaker 3: that's what I'm comfortable saying. And this article doesn't even
24:56
Speaker 3: mention that important piece, So throw it.
25:00
Speaker 2: Out, tosses Okay, let's see modest us hiring to cap
25:04
Speaker 2: a sluggish year for the job market. Does I agree
25:08
Speaker 2: with Yeah, it's I think one of the.
25:11
Speaker 3: I was asked this morning, like what are the expectations
25:13
Speaker 3: Sorry interrupted, Jack, but what are the expectations for twenty
25:17
Speaker 3: twenty six? And and I think this is actually one
25:20
Speaker 3: of them, which is modest and sluggish job market continues
25:25
Speaker 3: in through twenty twenty six.
25:28
Speaker 2: I think the the question that's out there in the
25:32
Speaker 2: labor market because there are three ways that we can
25:34
Speaker 2: go right now, I know there's always three ways that
25:36
Speaker 2: you can go in the labor market, but in particular,
25:39
Speaker 2: like when we talk about a sluggish job market, like
25:44
Speaker 2: let's say that we still want to believe that it's sluggish.
25:48
Speaker 2: By the way, it's just like, isn't it a great word?
25:50
Speaker 2: Like you're like a slug you know, just outstanding.
25:55
Speaker 3: There aren't many living organisms i'd preferred to be compared
25:59
Speaker 3: to less.
26:01
Speaker 2: Why is it sluggish and not slug, Like, I don't know,
26:05
Speaker 2: you know, you never call it. You never call someone snakish. Yeah,
26:09
Speaker 2: you never call someone, you know, elephantish.
26:11
Speaker 4: True.
26:13
Speaker 2: But anyways, a sluggish job market. Does that mean that
26:17
Speaker 2: we continue to just be kind of what we've seen
26:19
Speaker 2: the last few months, hovering around zero net job creation,
26:24
Speaker 2: because that would be considered sluggish. Do we continue just
26:29
Speaker 2: kind of this slow, gradual decline in the pace of
26:32
Speaker 2: hiring that's been going on for almost four years now,
26:37
Speaker 2: in which case, maybe hiring goes net negative by the
26:40
Speaker 2: first half of this year, but doesn't really accelerate down.
26:44
Speaker 2: It's just a continued step down from where we've been.
26:47
Speaker 3: I would also consider that sluggish. Anything that doesn't chart
26:50
Speaker 3: out to look like a spike in the unemployment rate,
26:52
Speaker 3: to me, is fairly sluggish.
26:54
Speaker 2: You think it's to the third possibility for like just bad,
26:57
Speaker 2: which is, yeah, like you get to a point where
27:00
Speaker 2: where historically the unemployment rate starts to spike up, and
27:02
Speaker 2: that's you know, not great.
27:04
Speaker 3: That's not sluggish, that's that's ugly.
27:06
Speaker 2: The question that I have out there and that I
27:09
Speaker 2: think is the reasonable one to ask. And there's a
27:11
Speaker 2: path to this that I'll get to. Hey, what's the
27:13
Speaker 2: path to improvement in the job market? And it's twofold.
27:17
Speaker 2: It's Hey, the big beautiful Bill is going to give
27:20
Speaker 2: people people bigger tax refunds this year and give companies
27:24
Speaker 2: the ability to increase capex and that's going to drive demand,
27:27
Speaker 2: which will in turn drive hiring. That's your way for
27:30
Speaker 2: that's your way that you get to increased hiring this year.
27:33
Speaker 3: Is there a second way?
27:34
Speaker 2: No? Yeah, because remember, ultimately, hiring is typically a function
27:39
Speaker 2: of demand. If I am running an ice cream shop
27:43
Speaker 2: and I don't have enough customers, I say, Jimmy, I
27:48
Speaker 2: don't I don't fire him. First, I say you can't
27:50
Speaker 2: come in for you know, two days this week, and
27:52
Speaker 2: then I fire him. If I'm running the ice cream
27:55
Speaker 2: shop and I can't keep I've got to line out
27:59
Speaker 2: the door, and I'm like, I need to be serving
28:00
Speaker 2: these people faster, I hire someone to help serve them faster.
28:04
Speaker 2: Demand leads hiring and firing decisions. So the way that
28:09
Speaker 2: you see increased job growth would be if those bigger
28:14
Speaker 2: tax refunds and additional capex from the big beautiful Bill
28:19
Speaker 2: translate into more spending, which in turn requires more hiring too,
28:24
Speaker 2: you know, actually service the spending. That's how you get there.
28:28
Speaker 2: And so that's why I continue to think the real weakness,
28:32
Speaker 2: the window of potential weakness for the labor market for
28:36
Speaker 2: you know, something really bad to show up. Feels like
28:40
Speaker 2: it's probably in the next three to five months. Okay,
28:45
Speaker 2: that's kind of where I land.
28:47
Speaker 4: Thanks for one to put a timeframe on it. I
28:48
Speaker 4: like that.
28:49
Speaker 2: You know, if if it doesn't show up, then I
28:51
Speaker 2: don't really think it shows up. In the second half
28:53
Speaker 2: of the year is kind of where I'm I'm act
28:56
Speaker 2: to use the bad English that I love to.
28:58
Speaker 3: Yeah, we don't usually save our tax refunds and then
29:01
Speaker 3: spend them six months ly.
29:02
Speaker 2: Hey hey, I just got one thousand dollars from the irs.
29:05
Speaker 2: What are you gonna do?
29:06
Speaker 3: Put it in a CD for six months and then
29:07
Speaker 3: see what's up?
29:08
Speaker 4: No, it's not.
29:09
Speaker 2: It works, you know, it's more often than not, it's
29:11
Speaker 2: either it's one of two things. Well, it's gonna go
29:13
Speaker 2: pay off the Christmas vacation that we took, or it's
29:16
Speaker 2: gonna go pay for the fourth of July vacation.
29:18
Speaker 3: We're going to take Yeah, I was gonna say, I've
29:20
Speaker 3: already spent it is what happened.
29:22
Speaker 2: Usually yes, more often than not. Let's take a quick break.
29:25
Speaker 2: When we return, we're gonna talk a little bit about
29:28
Speaker 2: productivity in the United States.
29:30
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29:36
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29:50
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30:06
Speaker 2: You've got a piece of Financial Times today. US to
30:08
Speaker 2: extend productivity lead on the back of AI boom, say economists.
30:12
Speaker 2: More than three quarters of US economists expect the US
30:15
Speaker 2: to maintain or widen its productivity lead over the rest
30:17
Speaker 2: of the world because of artificial intelligence, deep capital markets,
30:21
Speaker 2: and relatively low energy cost of Financial Times survey has
30:25
Speaker 2: found your thoughts, Michael.
30:27
Speaker 3: Well, I do find it fascinating that the US. One
30:31
Speaker 3: thing we do know is that the US has expanded
30:33
Speaker 3: its productivity gain over pretty much everywhere else in the.
30:36
Speaker 4: World over the last five six years.
30:39
Speaker 3: Now, really since twenty nineteen in through COVID, And at
30:43
Speaker 3: the same time, we have really the foremost experts on
30:46
Speaker 3: AI saying that there's been no meaningful, visible shift and
30:50
Speaker 3: benefit to companies from their use of artificial intelligence. And
30:55
Speaker 3: so I'm not sure that I'm prepared to say that
30:58
Speaker 3: AI is going to continue some productivity boom. We clearly
31:01
Speaker 3: got a productivity boom in COVID for a number of
31:04
Speaker 3: different factors that were calculable and displayable. But does that yeah,
31:12
Speaker 3: I guess does that continue? And I mean, look, this
31:16
Speaker 3: is the entire promise of artificial intelligence, of really any
31:20
Speaker 3: new technology, but especially with something like AI where it
31:23
Speaker 3: is so intended to be human like, the ideas entirely
31:27
Speaker 3: that you should be able to be more productive on it.
31:29
Speaker 3: And I would argue we might not have seen the
31:31
Speaker 3: gains from that yet. I don't know if we will
31:34
Speaker 3: get them or not, but that is definitely the promise
31:36
Speaker 3: of this technology.
31:37
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32:53
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33:02
Speaker 2: These nineteen states just raised their minimum wages. And again
33:09
Speaker 2: you've got a bunch of these that are moving up
33:12
Speaker 2: this year, in particular for those of our listeners in
33:16
Speaker 2: the New England region, We've got Rhode Island moving up
33:20
Speaker 2: a dollar an hour from fifteen to sixteen an hour.
33:22
Speaker 2: It's also got another one dollar an hour increase scheduled
33:25
Speaker 2: next year. Maine is moving up by forty five cents
33:27
Speaker 2: an hour to fifteen to ten, Vermont up forty one
33:30
Speaker 2: cents an hour to fourteen forty two an hour, in
33:32
Speaker 2: Connecticut by fifty nine cents an hour to sixteen ninety four.
33:36
Speaker 2: Those all from inflation adjustments that are built in there,
33:41
Speaker 2: and the other two New England states, New Hampshire and
33:45
Speaker 2: Massachusetts not seeing any changes to their minimum wage laws
33:49
Speaker 2: for the year.
33:51
Speaker 3: Quickly on Maine, just because I was speaking to somebody
33:53
Speaker 3: from one of the other radio stations and how it
33:57
Speaker 3: actually works there. So you have the main minimum wage
34:00
Speaker 3: which increased to what.
34:01
Speaker 2: Was it, fifteen to ten.
34:02
Speaker 3: In Portland, however, the minimum wage increased to sixteen thirty. Now,
34:09
Speaker 3: Portland's a very small geographical area, and so his point was,
34:13
Speaker 3: if you work in South Portland, you have a different
34:17
Speaker 3: minimum wage than Portland, Portland. I wonder if you actually
34:22
Speaker 3: do in practice, right, I mean, I would think that
34:25
Speaker 3: you have no choice but to match the Portland minimum
34:28
Speaker 3: wage in a circumstance like that. But it is more
34:32
Speaker 3: than a dollar what did you say, fifteen fifteen ten? Yeah,
34:35
Speaker 3: so more than a dollar additional if you are working
34:38
Speaker 3: in Portland compared to South Portland, which is a little
34:41
Speaker 3: bit fascinating to me. Nationally, outside of New England, you
34:44
Speaker 3: saw Arizona increase all the way to fifteen dollars and
34:47
Speaker 3: fifteen cents increased in California to sixteen ninety Colorado.
34:52
Speaker 2: What about the California sixteen? What about fast?
34:54
Speaker 3: Yes, depends on what industry you work in, right, I
34:56
Speaker 3: mean that's probably one hundred dollars an hour now for now,
34:59
Speaker 3: for all I know. No, in Connecticut you're up to
35:02
Speaker 3: sixteen ninety four, as you mentioned, Hawaii up to sixteen bucks,
35:06
Speaker 3: Michigan up to thirteen seventy three, Minnesota eleven forty one,
35:10
Speaker 3: Missouri surprisingly fifteen bucks an hour in Missouri, Montana up
35:14
Speaker 3: to ten eighty five, Nebraska to fifteen dollars, New Jersey
35:17
Speaker 3: to fifteen ninety two. New York has different ones for
35:22
Speaker 3: like every area that you possibly work in, so I'm
35:25
Speaker 3: not going to go there. The remainder of the state
35:27
Speaker 3: is sixteen. But if you are in New York City,
35:30
Speaker 3: Long Island, or Westchester, you're at seventeen bucks an hour
35:32
Speaker 3: in New York, Ohio to eleven. South Dakota to eleven
35:36
Speaker 3: eighty five, Vermont to fourteen forty two, Virginia to twelve
35:38
Speaker 3: seventy seven in Washington to seventy thirteen. I guess just
35:42
Speaker 3: one comment I'll make about this. This is not purely
35:45
Speaker 3: a red or blue state thing anymore, right. I mean,
35:50
Speaker 3: you take a look at politics in South Dakota and
35:52
Speaker 3: Montana and things like that, pretty you know, stay out
35:58
Speaker 3: of my business as politics there, And yet you know,
36:02
Speaker 3: increasing minimum wages and pretty substantial minimum wages in some
36:06
Speaker 3: of those states.
36:07
Speaker 2: So California, I did look it up. The fast food
36:10
Speaker 2: minimum wage is twenty dollars an hour.
36:13
Speaker 4: Okay.
36:14
Speaker 2: What's interesting is that the minimum wage for everyone else
36:16
Speaker 2: went up by forty cents this year, but the fast
36:18
Speaker 2: food one is unchanged, right, which raises the question what
36:23
Speaker 2: are we actually doing here, which is one that we've
36:25
Speaker 2: raised quite a bit. On the fast food minimum wage
36:27
Speaker 2: in California because effectively, like, it just doesn't make sense
36:33
Speaker 2: if we're gonna be honest about it. And again if okay,
36:39
Speaker 2: so you say that you want this higher fast food
36:41
Speaker 2: minimum wage, but it's clearly you're not worried about the
36:45
Speaker 2: difference between regular minimum wage and the fast food one.
36:48
Speaker 2: Otherwise you would have raised the fast food one this
36:50
Speaker 2: year also, which they can do, I think because it's
36:53
Speaker 2: a committee that votes on it. It's not a public
36:55
Speaker 2: measure that you know, is you know, voted on at
36:58
Speaker 2: this point. So I kind of look at it and I'm like,
37:01
Speaker 2: what are you actually trying to do here? Which is
37:04
Speaker 2: an answer that I've been wondering about for several years
37:08
Speaker 2: now and still continue to. So that's what's going on
37:12
Speaker 2: with minimum wage. On a related notes, America is falling
37:15
Speaker 2: out of love with pizza.
37:17
Speaker 4: Speaking of restaurants, I disagree.
37:20
Speaker 3: Does this fall in line with the sushi story that
37:23
Speaker 3: we covered the other day where young kids are becoming
37:26
Speaker 3: infatuated with expensive sushi and devouring very expensive fish.
37:32
Speaker 2: I'm gonna go with no, Okay, what I'm going to
37:35
Speaker 2: go with is historically there's a reason why pizza and
37:39
Speaker 2: Chinese food were the only two delivery options, and it's
37:42
Speaker 2: because they travel well. The pizza gets to your house,
37:45
Speaker 2: it's still pizza. The fried rice gets to your house,
37:48
Speaker 2: it's still fried rice. There's a reason why you don't do,
37:51
Speaker 2: you know, steaks and pasta and stuff like that, because
37:53
Speaker 2: it generally turns into kind of crap by the time
37:55
Speaker 2: it gets to you. However, we're not deterred by that.
37:59
Speaker 2: Indorsh now has all kinds of stuff on there. Pizza
38:02
Speaker 2: places have more competition now, and I think that is
38:05
Speaker 2: why they are facing this, uh, this problem. I say,
38:12
Speaker 2: this is a proud Friday Pizza Club member though, and
38:16
Speaker 2: anything else. Oh yeah, if you're not pizzaing on Friday night,
38:19
Speaker 2: what are you doing? Not living? Let's take a quick break.
38:22
Speaker 2: Our two is coming up in a bit