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Why are markets falling on good jobs data? · The Financial Exchange Show

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Speaker 1: making a donation today. This is the Financial Exchange with
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Speaker 1: Chuck Zada and Mike Armstrong.
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Speaker 2: Jobs Friday here on the Financial Exchange, and you gotta
1:15
Speaker 2: tell you we got a squatcher today. Not in terms
1:20
Speaker 2: of the temperature outside our studio, which is better than
1:24
Speaker 2: the last couple of days, but not great. But when
1:27
Speaker 2: we look at the employment situation report published by the
1:32
Speaker 2: Bureau of Labor Statistics, which is nested nicely within the
1:36
Speaker 2: Department of Labor, it's just you know, the series of
1:39
Speaker 2: US agency nesting dolls that you have there. Indeed, two
1:43
Speaker 2: hundred and fifty six thousand jobs created in December, better
1:47
Speaker 2: than the expectations of one hundred and sixty to two
1:49
Speaker 2: hundred thousand. The October numbers revised up by seven thousand,
1:52
Speaker 2: November revised down by fifteen thousand, so net net basically
1:56
Speaker 2: the same. Like an eight thousand job difference over two
1:58
Speaker 2: months is nothing. Uh And the unemployment rate also dropping
2:03
Speaker 2: from four point two down to four point one percent.
2:07
Speaker 2: But chuck, this all sounds like good news. Why are
2:10
Speaker 2: markets selling off by two percent? Uh So, in terms
2:13
Speaker 2: of what we are seeing in markets, couple things. First,
2:17
Speaker 2: bond market says, oh, gee, fed, you're not gonna be
2:19
Speaker 2: able to cut if we get more numbers like this,
2:21
Speaker 2: and so yields moving on up ten year Treasury up
2:25
Speaker 2: seven basis points to four point seventy five percent, Ladies
2:28
Speaker 2: and gentlemen, on the eve of the start of the
2:31
Speaker 2: spring housing season. I mean, we are less than a
2:33
Speaker 2: month away from Super Bowl Sunday now, So buckle up
2:37
Speaker 2: because right now, based on where these rates are, Mortgage
2:41
Speaker 2: News Daily has the last national average for the thirty
2:45
Speaker 2: year fixed rate at seven point one seven percent. You're
2:48
Speaker 2: you're heading to seven and a quarter maybe seven to
2:50
Speaker 2: three could bee, That's that's where you're going. So this
2:54
Speaker 2: is the kind of thing where, ultimately, I think, if
2:57
Speaker 2: you look at it, the very economic strength that has
3:01
Speaker 2: led to yields moving up over the last couple of
3:04
Speaker 2: months is also going to be tempered by higher rates,
3:08
Speaker 2: simply because if you're going out and trying to buy
3:11
Speaker 2: a home and you're like, hey, honey, look rates are
3:13
Speaker 2: down around like six percent in you know, September. We'll
3:17
Speaker 2: wait till the spring and maybe they'll be lower because
3:19
Speaker 2: the Fed's cutting. Sorry, you're gonna be up about one
3:21
Speaker 2: to quarter percent on the thirty year fixed rate mortgage.
3:23
Speaker 2: From there.
3:24
Speaker 3: That's a painful pill to swall.
3:26
Speaker 2: It is and this is why Mike, you and I
3:30
Speaker 2: were saying this back in September. If you're just you know, waiting, waiting, saying, Oh,
3:34
Speaker 2: the Fed's gonna cut rates and then it'll be cheaper
3:36
Speaker 2: to buy a home right now, that's not the case.
3:38
Speaker 2: In fact, has moved in the exact opposite direction there,
3:41
Speaker 2: it has. So let's dig into this job's report and
3:45
Speaker 2: talk about the good, bad, and the ugly so good.
3:48
Speaker 2: Unemployment down to four point one percent. Why, according to
3:51
Speaker 2: the household survey, four hundred and seventy eight thousand jobs
3:54
Speaker 2: out of there. Remember there's two different surveys. Yep. We
3:56
Speaker 2: don't quote the household Job Survey number for you know,
4:00
Speaker 2: jobs created because statistically it's been more unreliable in the past,
4:03
Speaker 2: so normally we don't talk about it. But why does
4:05
Speaker 2: the unemployment rate move? More jobs created there and two
4:10
Speaker 2: hundred and thirty five thousand people off unemployment not being
4:13
Speaker 2: reported as unemployed. So the combination of more jobs and
4:16
Speaker 2: few are unemployed, that tends to do it.
4:18
Speaker 4: So sometimes you see the unemployment rate go down because
4:20
Speaker 4: a whole bunch of people leave the jobs market, and
4:23
Speaker 4: not exactly what we're seeing.
4:24
Speaker 2: According to the survey, labor force grew in this month
4:27
Speaker 2: by two hundred and forty three thousand. So even with
4:29
Speaker 2: that labor force growth, not seeing any negative effects there.
4:34
Speaker 2: When we talk about the duration of unemployment, those longer
4:37
Speaker 2: than twenty seven weeks, those unemployed longer than twenty seven
4:40
Speaker 2: weeks drop from one point sixty five four million to
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Speaker 2: one point five to five to one, So long term
4:45
Speaker 2: unemployment dropping here. That doesn't really match up with a
4:48
Speaker 2: lot of the other data that we're getting from things
4:50
Speaker 2: like the Jolts reporting things like that. So it's one
4:54
Speaker 2: where I say, oh, like, that's nice, but it's a
4:56
Speaker 2: trend of one, and overall that series is still up
4:59
Speaker 2: about twenty five percent over the last year in terms
5:03
Speaker 2: of the number of people that are unemployed for twenty
5:05
Speaker 2: seven weeks or longer. So sure, it's great that you
5:10
Speaker 2: saw that, but you see that big of a change
5:12
Speaker 2: in a series where it's been moving up for the
5:14
Speaker 2: last year. I kind of look at that and go,
5:18
Speaker 2: it's gotta get proven out over the next little bit
5:21
Speaker 2: for me to really buy that one. Other things, when
5:24
Speaker 2: we talk about where the jobs are being created, what
5:27
Speaker 2: industries are actually producing them, So mining and logging, which remember,
5:32
Speaker 2: is not really a big industry in the United States.
5:35
Speaker 2: How many loggers do you know, Mike, I don't know
5:37
Speaker 2: any loggers personally. I know a couple. They sit right
5:40
Speaker 2: next to the pilsners in my you know, refrigerator.
5:45
Speaker 3: You got the car wreck.
5:46
Speaker 2: I thought that was fantastic.
5:48
Speaker 3: I thought that was actually that was a great dad joke.
5:52
Speaker 2: I thought that was good. Constructions though, Mining and logging
5:55
Speaker 2: down three thousand for the month, again, not not a
5:58
Speaker 2: real problem. Construction eight thousand jobs added, same as November.
6:02
Speaker 2: There's a slow down in construction job growth that is
6:05
Speaker 2: going on right now. The last twelve months, you've been
6:08
Speaker 2: seeing you know, kind of around two hundred thousand, you
6:11
Speaker 2: do eight thousand a month, though you're talking about a
6:13
Speaker 2: deceleration of about fifty percent. So there's something going on there,
6:16
Speaker 2: and obviously higher interest rates could hurt construction further. Manufacturing
6:21
Speaker 2: down thirteen thousand for the month. That obviously is not
6:26
Speaker 2: great the last three months as a whole. When you
6:29
Speaker 2: look at it again, any one month can show you,
6:32
Speaker 2: you know, different things. The last three months down forty
6:36
Speaker 2: thousand for manufacturing. So even though we have all this
6:39
Speaker 2: manufacturing construction going on right now, actual manufacturing employment kind
6:46
Speaker 2: of not great. Where were the jobs actually created. Big
6:51
Speaker 2: jump in private education and health services up by eighty
6:54
Speaker 2: thousand for the month, Leisure and hospitality up by forty
6:57
Speaker 2: three thousand on the back of fifty two thousand added
7:00
Speaker 2: in that sector in November, and then retail trade bouncing
7:05
Speaker 2: back from November where you had down twenty nine thousand
7:08
Speaker 2: to up forty three thousand here, so retail, leisure and
7:12
Speaker 2: hospitality making up a decent sized chunk here.
7:16
Speaker 4: Overall, government jobs still continuing to do catch up work here.
7:21
Speaker 4: In the year of twenty twenty four, in average of
7:24
Speaker 4: thirty seven thousand government jobs were added per month. In
7:28
Speaker 4: December we saw thirty three thousand, so slight deceleration, but
7:32
Speaker 4: continuing there. And that's basically all at the state level.
7:35
Speaker 2: By the way, it's not the federal government where you're
7:38
Speaker 2: seeing that expansion. It is very much state and local
7:42
Speaker 2: governments where you're seeing that happening. Other data points that
7:46
Speaker 2: we have average work week stayed the same at thirty
7:48
Speaker 2: four point three hours. Wages up point three percent month
7:52
Speaker 2: over months, so no change on that front. Aggregate payrolls,
7:55
Speaker 2: which is how much are wages going up combined with
7:58
Speaker 2: how much are is employment growing? Aggregate payrolls up four
8:03
Speaker 2: point nine percent year over year, we've settled nicely into
8:07
Speaker 2: that high four to low five range, which is just
8:10
Speaker 2: where we were pre pandemic. And this is why, in
8:14
Speaker 2: my opinion, my very humble opinion, sometimes not so humble,
8:21
Speaker 2: the move that we're seeing in yields. Yes, it's moved up,
8:24
Speaker 2: but there's a limit as to how far it can go,
8:26
Speaker 2: simply because when we talk about inflation, there are two
8:29
Speaker 2: components to it. The first is, hey, is there a
8:32
Speaker 2: you know, shortage in supply of anything? But the other is, hey,
8:35
Speaker 2: do you have you know, an excess demand? Excess aggregate
8:39
Speaker 2: demand can only happen when you have you know, faster
8:43
Speaker 2: growth of money coming in, not money coming into the system,
8:47
Speaker 2: but basically more spending power overall for people or corporations.
8:51
Speaker 2: And if wages and an employment growth are combining to
8:56
Speaker 2: work out to around a five percent annualized growth rate,
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Speaker 2: you don't end up in situations where you can have
9:02
Speaker 2: sustainable long term inflation. It's just not something that concerns
9:07
Speaker 2: me on that front. Sure, I get nervous that maybe
9:10
Speaker 2: inflation bottoms, you know, and since you know, two and
9:13
Speaker 2: a half to three and a half, somewhere in that
9:15
Speaker 2: range for a while. But that's different from hey, am
9:18
Speaker 2: I nervous that inflation is going to be, you know,
9:20
Speaker 2: perpetually stuck north of four things like that.
9:23
Speaker 3: Yeah, that's fair bit different.
9:24
Speaker 4: So what's very evident at this stage about equity markets
9:28
Speaker 4: is we have re entered that bad news is good
9:31
Speaker 4: news and good news is bad news. Market, at least temporarily.
9:34
Speaker 2: Start to this year is a lot like twenty twenty
9:35
Speaker 2: two so far.
9:36
Speaker 4: Yeah, this summer, this most recent summer, bad news was
9:40
Speaker 4: bad news. People were worried about recession. When you got
9:42
Speaker 4: a bad jobs report, markets were selling off because we
9:44
Speaker 4: were worried about the solemn rule. We were worried about
9:46
Speaker 4: an economic slowdown. That is clearly not on investors' minds
9:51
Speaker 4: today is a big economic slowdown with maybe some of
9:56
Speaker 4: the growth concerns there from GDP now and things like that,
9:59
Speaker 4: but buying law. What investors are worried about right now
10:02
Speaker 4: is rates going higher and staying there for longer. And
10:04
Speaker 4: this job's report indicates that that's what should happen.
10:08
Speaker 2: And the other thing when we talked about equity markets,
10:11
Speaker 2: we've been saying for you know, the last few months. Now, Hey, Like,
10:14
Speaker 2: it's great that there's all this optimism and equity markets,
10:17
Speaker 2: but it also means the second something very small goes wrong,
10:21
Speaker 2: it can have an outsize impact. This kind of jobs report,
10:26
Speaker 2: if it were in a more cheaply priced market, wouldn't
10:30
Speaker 2: be moving equity markets this way.
10:32
Speaker 3: The perfection, and so you get this type of reaction.
10:35
Speaker 2: And so I think investors need to be prepared for. Hey,
10:38
Speaker 2: depending on how this year goes, there's probably going to
10:41
Speaker 2: be more volatility than last year, because last year historically
10:46
Speaker 2: was one of the calmest years in history for the
10:48
Speaker 2: S and P five hundred in terms of overall volatility. Yes,
10:52
Speaker 2: it was moving up, but there was very little chop.
10:54
Speaker 2: Aside from that August freak out about you know, the
10:59
Speaker 2: Yen Carrie rade and stuff like that. We we didn't
11:02
Speaker 2: really have much volatility all year. Let's take a quick
11:05
Speaker 2: break here when we come back, anything else that we
11:09
Speaker 2: want to talk about from a jobs report perspective.
11:13
Speaker 3: No, I think we can move.
11:15
Speaker 2: To pretty straightforward quite honestly.
11:17
Speaker 4: Yeah, I mean, like we said, this market has very
11:19
Speaker 4: much turned to a bad news is good news, good
11:21
Speaker 4: news is bad news market, and that's exactly what we're
11:24
Speaker 4: getting today. It's reflected by the way in every piece
11:26
Speaker 4: that we had from Tucker thank you, that was printed
11:30
Speaker 4: prior to the jobs report coming out, it was all
11:32
Speaker 4: these reports of, oh, well, we sure hope we get
11:34
Speaker 4: a bad jobs report because then you will see markets
11:37
Speaker 4: do fine. And that is the opposite of what we
11:39
Speaker 4: got this morning.
11:39
Speaker 3: So let's move along quick break. We'll be right back
11:44
Speaker 3: after this.
11:45
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Speaker 2: Mike, I get a piece in Bloomberg Opinion Today's title,
12:59
Speaker 2: who's a's rate of rising treasury yields not stocks now today?
13:03
Speaker 2: Kind of threw that into question.
13:04
Speaker 4: But he, Mike, here's what's the point he's making here,
13:06
Speaker 4: because he then goes on to argue that stock investors
13:08
Speaker 4: have been watching the run up in US treasury yields
13:11
Speaker 4: with considerable alarm of late.
13:13
Speaker 2: Well, here's the other thing. So look, I know that
13:16
Speaker 2: when we first got this job, support treasury sold off
13:18
Speaker 2: pretty significantly. The tenure was down I think eleven basis points.
13:22
Speaker 2: As we're sitting here talking right now, the ten years
13:24
Speaker 2: I'm sorry, it was up eleven basis points. As we
13:27
Speaker 2: see yield on the tenure, the yield was up eleven
13:29
Speaker 2: as we sit here right now, it's only up four,
13:31
Speaker 2: so reversing pretty strongly over the course of the morning.
13:37
Speaker 2: But despite that, stocks remain pretty heavily negative. So I
13:41
Speaker 2: think ultimately, you know, in looking at this and trying
13:45
Speaker 2: to figure out where equities go and what's important to them. Sure,
13:50
Speaker 2: rising yields, we've seen this in twenty twenty two. They
13:53
Speaker 2: can't impact equities, sure, pretty significantly. And in twenty twenty
13:57
Speaker 2: two they did. We had a bear market in the
14:00
Speaker 2: S and P five hundred and basically every the major
14:02
Speaker 2: US index. But ultimately, what is going to continue to
14:07
Speaker 2: be the major driver of equity performance is going to be, Hey,
14:12
Speaker 2: can the great earnings growth that you've seen from the
14:14
Speaker 2: last twelve months or so, can that continue? Because that's
14:18
Speaker 2: what's priced in here, and the risk that higher yields
14:21
Speaker 2: put you know, puts on equities is Hey, that could
14:24
Speaker 2: be something that slows that earnings growth. But it's not
14:27
Speaker 2: the only thing that's out there. It's one thing in
14:30
Speaker 2: the matrix that you have to consider, but it's it's
14:32
Speaker 2: not the only thing. That's that's important there.
14:35
Speaker 4: So his is his conclusion then that in the intermediate
14:39
Speaker 4: term stocks don't really care about yields, because in the
14:43
Speaker 4: short term they very obviously can and they are right now.
14:46
Speaker 4: But I would generally conclude with him that, yeah, over
14:49
Speaker 4: the longer term, what matter is more for the long
14:52
Speaker 4: term and media intermediate term direction of stocks is earnings.
14:56
Speaker 2: Yeah, it's It's totally true, and what's going and part
15:00
Speaker 2: of the reason if you look at you know why
15:02
Speaker 2: this happens in the short term and twenty twenty two,
15:04
Speaker 2: just as an example, when when yields kept moving up
15:07
Speaker 2: and up and up and stocks kept moving down and
15:09
Speaker 2: down and down. Yes, there was some weakness in the
15:13
Speaker 2: companies and in what they were seeing that year. We
15:16
Speaker 2: talked about that at length. But ultimately a big part
15:20
Speaker 2: of the concern is, hey, Fed keeps raising rates, they're
15:23
Speaker 2: going to break something and send us into recession, and
15:25
Speaker 2: that means that earnings are going to go down over
15:27
Speaker 2: the next couple of years. That was the big concern
15:30
Speaker 2: that's out there for really all of the last three years. Yes,
15:34
Speaker 2: So the interesting thing to me right now about today's
15:36
Speaker 2: market is it's kind of thrown that to the side.
15:41
Speaker 2: The projections for earnings growth in twenty twenty five is
15:43
Speaker 2: like fifteen percent according to factset.
15:45
Speaker 4: Right, So the threat to markets right now does not
15:49
Speaker 4: appear to be investors worried about FED throwing us into recession,
15:52
Speaker 4: but rather needing to play catch up again on inflation
15:55
Speaker 4: and hold yields where they are.
15:58
Speaker 2: So I think it's just kind of an interesting way
16:00
Speaker 2: to look at Hey, why why do yields matter? And
16:04
Speaker 2: when do they not matter to markets? Uh More? FED
16:10
Speaker 2: officials talking here in this next story. So Alberto Musalam,
16:14
Speaker 2: who's the president of the Federal Reserve Bank of Saint Louis,
16:19
Speaker 2: did an interview yesterday.
16:21
Speaker 3: Is he even a voting member.
16:23
Speaker 2: Don't know, not sure. The day before, Christopher Waller, who
16:30
Speaker 2: is from what what? What branches? The governor of I forget,
16:33
Speaker 2: but we we covered the story about how he was
16:36
Speaker 2: looking at this alternative measure of inflation, the market inflation.
16:42
Speaker 2: He's just on the board of governors? What what? What board?
16:45
Speaker 2: Is he part of the governors? In any case? Yesterday
16:52
Speaker 2: we covered how Waller was basically saying, hey, we can
16:55
Speaker 2: afford to cut because some of this stuff looks fine today.
17:00
Speaker 2: Psalm's like no, we probably don't need to be cutting
17:03
Speaker 2: because the data has been stronger recently.
17:05
Speaker 3: Now I have a lot.
17:06
Speaker 4: Less to fight about this guy with than I do
17:08
Speaker 4: with Waller's obscure inflation targets that he pointed out as
17:13
Speaker 4: looking good right now.
17:14
Speaker 2: My point is we don't need so much FED talk.
17:18
Speaker 2: And look, if you're really really into it, if you
17:20
Speaker 2: wake up each morning you're like, man, I can't wait
17:23
Speaker 2: to hear what you know. Waller says, find more power
17:27
Speaker 2: to you. But otherwise you kind of sit in here
17:30
Speaker 2: and go, well, why is one member telling me this
17:31
Speaker 2: and the other that the real answers. They're kind of
17:33
Speaker 2: giving you the triangulation of hey, here's where everyone is,
17:37
Speaker 2: so that you can, you know, kind of scout out,
17:39
Speaker 2: you know, the the most extreme positions on the hawkish
17:43
Speaker 2: or dubbish side. Who is the guy who for years
17:46
Speaker 2: he's not on the the voting committee anymore, he's not
17:49
Speaker 2: even with the FED anymore. It was the guy from
17:52
Speaker 2: Saint Louis board board for the longest time, he had
17:56
Speaker 2: a great role on the FED. To be fair, what
18:00
Speaker 2: ever Bullard said, you knew that was the most hawkish
18:02
Speaker 2: thing that anyone on the FED was saying at any
18:04
Speaker 2: particular point in time, but we don't need all of
18:09
Speaker 2: these FED people speaking as frequently as they do. I mean,
18:14
Speaker 2: yesterday Mike Markets were closed, the New York Stock Exchange
18:18
Speaker 2: and NASDAK decided to close because they said, hey, there's
18:23
Speaker 2: a funeral of a former president going on and we
18:27
Speaker 2: don't need to be open.
18:28
Speaker 4: And as that happened, you had one, two, three, five speeches,
18:34
Speaker 4: five speeches from FED fish.
18:35
Speaker 2: Five speeches have a little respect, five of them, Like, what.
18:41
Speaker 3: Are we doing here?
18:42
Speaker 2: Why do we need five a day? Unless you think
18:44
Speaker 2: that that's just well, maybe that's just when they were all,
18:47
Speaker 2: you know, stacked up in this and that. Here's the
18:49
Speaker 2: schedule for FED speakers next week Tuesday, Schmid and Williams. Wednesday, Barkin, Kashgari, Williams, Goolsby.
19:01
Speaker 2: Let's see, I'm just going down the list. Oh, Thursday,
19:03
Speaker 2: we get a day off. No FED speakers on Thursday Friday. Wow,
19:08
Speaker 2: two days. Oh it's blackout period because the meeting's coming
19:11
Speaker 2: up in two weeks after that. So that's why you
19:13
Speaker 2: have no FED speakers. So in any case, it's not
19:17
Speaker 2: just a one day thing. It's we're consistently getting eight
19:22
Speaker 2: to fifteen FED speeches a week, and it's too many.
19:26
Speaker 2: Let's take a quick break here. When we come back,
19:28
Speaker 2: it's Wall Street Watch.
19:42
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Speaker 1: TFE show. Breaking business news is always first right here
19:49
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19:55
Speaker 1: Street Watch a complete look at what's moving markets so
19:58
Speaker 1: far today right here on the Financial Exchange Radio Network.
20:02
Speaker 5: Markets are selling off as Wallstree reacts to the December
20:05
Speaker 5: jobs report posted this morning, where two hundred and fifty
20:08
Speaker 5: six thousand jobs were added last month, much stronger than
20:12
Speaker 5: expectations of one hundred and sixty five thousand. The unemployment
20:16
Speaker 5: rate ticks lower to four point one percent from four
20:19
Speaker 5: point two percent, Treasure yields jumping higher on the news
20:23
Speaker 5: so far. At the moment, the Dow is down over
20:25
Speaker 5: one percent to four hundred and ninety one points, SMP
20:28
Speaker 5: five hundred is down one and a quarter percent or
20:31
Speaker 5: seventy four points, and the Nasdaq down just over one
20:34
Speaker 5: and a half percent lower or three hundred and one points.
20:37
Speaker 5: Russell two thousand selling off by over two percent. Ten
20:40
Speaker 5: year treasure Field up five basis points now at four
20:43
Speaker 5: point seven to three percent, and crude oil up nearly
20:47
Speaker 5: four percent higher on the day, trading at seventy six
20:49
Speaker 5: dollars and seventy cents a barrel ahead of the open.
20:52
Speaker 5: This morning, Delta Airlines posted a record quarterly revenue in
20:55
Speaker 5: the fourth quarter and also offered strong guidance, sending that
20:58
Speaker 5: stock up by a eleven percent. Meanwhile, Walgreens also posted
21:03
Speaker 5: quarterly results, beating earnings and revenue expectations. Where a drug
21:07
Speaker 5: store chain had cost cutting initiatives, including shuttering stores, Walgreens
21:11
Speaker 5: also maintained its fiscal twenty twenty five adjusted earnings guidance.
21:15
Speaker 5: Walgreen shares jumping by twenty five percent so far today.
21:20
Speaker 5: Elsewhere shares and Constellation Energy up by twenty one percent
21:24
Speaker 5: after the company struck a twenty six point six billion
21:27
Speaker 5: dollar cash and stock deal to buy Calpine, combining two
21:31
Speaker 5: of the US industry's players. Amid surging demand for electricity
21:36
Speaker 5: and breaking news in the media space this morning, where
21:38
Speaker 5: Disney Fox and Warner Brothers Discovery called off plans to
21:42
Speaker 5: launch their venue sports streaming service. In a joint statement,
21:46
Speaker 5: the companies said quote they determined that it was best
21:50
Speaker 5: to meet the evolving demands of sports fans by focusing
21:54
Speaker 5: on existing products and distribution channels. Disney shares down by
21:59
Speaker 5: over one and a half percent, sent Warner Brothers down
22:01
Speaker 5: by five percent, and Fox shares are down by about
22:04
Speaker 5: two percent. Today, I'm Tucker Silva and that's Wall Street.
22:07
Speaker 2: Watch, Mike. Another data set that we got this morning.
22:11
Speaker 2: University of Michigan comes out once a month with consumer
22:16
Speaker 2: confidence data, and as as part of that, they also
22:21
Speaker 2: survey people and they ask them, hey, what do you
22:26
Speaker 2: think inflation is going to be over the next one,
22:28
Speaker 2: three and five years? And the one year estimate ticked
22:31
Speaker 2: up from two point eight percent to three point three percent.
22:35
Speaker 2: That's not really the interesting part of it. The interesting
22:38
Speaker 2: part of it is, again, this is for December that
22:42
Speaker 2: we got this data, so it's the first reading in
22:45
Speaker 2: a full month after the election. Democrats their inflation expectations
22:52
Speaker 2: move from around two percent to four point two percent
22:55
Speaker 2: in this report. Now, nothing has actually changed it. The
22:59
Speaker 2: new administration hasn't even come in, but Democrats saying, yes,
23:01
Speaker 2: inflation is gonna be so much worse.
23:03
Speaker 4: Double, it's gonna be double their prior expectations. Yes, independence
23:08
Speaker 4: not much movement.
23:09
Speaker 2: They went from like three to three point two Okay, fine, reasonable,
23:13
Speaker 2: Like you know, it's been fluctuating. Whatever Republicans went from
23:17
Speaker 2: expecting four percent inflation two point one percent inflation if now,
23:25
Speaker 2: this is something that happens every time I see a
23:27
Speaker 2: president change office. But I do want to just put
23:29
Speaker 2: some context into that last number. If you look at
23:34
Speaker 2: the historical data set for CPI and look for the
23:39
Speaker 2: last three times that we have had inflation annually zero
23:45
Speaker 2: point one percent or lower, here are the numbers twenty fifteen.
23:50
Speaker 2: And this was caused basically by Russia flooding the world
23:53
Speaker 2: with a bunch of cheap crude oil, and so oil
23:56
Speaker 2: prices plunged, and US equity markets in twenty fifteen had
23:59
Speaker 2: a nice little hiccup during that year as well. So
24:03
Speaker 2: you came in below zero actually in twenty fifteen or
24:06
Speaker 2: parts of it. Two thousand and nine, not really a
24:11
Speaker 2: great economy. And the third time that that's happened recently
24:17
Speaker 2: is nineteen fifty five.
24:19
Speaker 4: Got it so unlikely for inflation to come in at
24:22
Speaker 4: zero point one percent?
24:23
Speaker 3: Be your conclusion.
24:24
Speaker 2: There's a reasonable there's a case to be made. And
24:26
Speaker 2: again I'm not saying it's right or wrong. Hey, I
24:28
Speaker 2: think the new incoming administration may have a different approach
24:31
Speaker 2: on inflation that improves it reasonable to have a prediction of, Hey,
24:37
Speaker 2: inflation is going to be zero for the next year,
24:41
Speaker 2: unreasonable outside of recession.
24:43
Speaker 4: We talk about this folks all the time, and I
24:47
Speaker 4: guess my main conclusion here is you really need to
24:51
Speaker 4: check your emotional baggage at the door when investing. Yes,
24:54
Speaker 4: I don't know that the way that people respond to
24:57
Speaker 4: you Michigan sentiment surveys translate to how somebody invests. I
25:02
Speaker 4: don't know that with certainty. But if you're listening right
25:05
Speaker 4: now and you've said something along the lines of I
25:09
Speaker 4: trust this new administration, I'm getting heavier into stocks, or
25:13
Speaker 4: I'm terrified of this incoming administration, I think inflation is
25:16
Speaker 4: going to take off. I'm buying tips. Neither of those
25:19
Speaker 4: are neither way to do rational considerations to what's going
25:23
Speaker 4: on right now, and you need to check that stuff
25:26
Speaker 4: out the door because historically it has been a terrible
25:29
Speaker 4: way to invest. There is no guarantee that an incoming
25:32
Speaker 4: Trump administration is going to reduce inflation or produce heavy
25:37
Speaker 4: equity market returns.
25:39
Speaker 2: Yeah, it's it's something where there's a lot more happening
25:45
Speaker 2: in the world than just what goes on at sixteen
25:47
Speaker 2: hundred Pennsylvania Avenue, which is the address of the White House.
25:50
Speaker 3: That might be the worst investment strategy that.
25:52
Speaker 4: I can think of, actually, And by the way, we
25:55
Speaker 4: bring it up only because we hear so many people
25:58
Speaker 4: that employ it. How many people have you heard of
26:00
Speaker 4: the last several years have said I'm not investing in
26:03
Speaker 4: the stock market so long as Biden is our president
26:05
Speaker 4: or Obama is our president.
26:07
Speaker 2: And now you get people from the other side saying
26:10
Speaker 2: I want to buy stocks and I can't do this
26:11
Speaker 2: as Trump's president. Well, how'd that work out for you
26:14
Speaker 2: during his first term?
26:14
Speaker 3: And how did it work out for you during Biden's term?
26:17
Speaker 2: Right, Like, let's let's be.
26:20
Speaker 3: It's okay to have political viewpoints.
26:21
Speaker 4: That's not what I'm saying, obviously, Like we all have
26:24
Speaker 4: differing views on which direction this country should go from
26:27
Speaker 4: a political perspective. Just be really, really careful when you
26:31
Speaker 4: take all of that and say, and therefore the stock
26:34
Speaker 4: market will do X.
26:35
Speaker 2: Yeah, because there's right. You could you could be completely
26:38
Speaker 2: right about your political viewpoints and still have the exact
26:42
Speaker 2: wrong intuition about how that will end up impacting markets.
26:45
Speaker 2: That's the point that we're trying to make.
26:46
Speaker 3: Yeah, so I think we've driven that home. Well, let's
26:49
Speaker 3: move on.
26:49
Speaker 2: Let's talk about artificial intelligence AI replaced your job.
26:53
Speaker 4: Well, watch out, because Microsoft is cutting thousands of jobs,
27:00
Speaker 4: maybe less than one percent of their workforce, so probably
27:03
Speaker 4: not related to a massive AI increase in productivity.
27:06
Speaker 2: No, but I do think there's something interesting and also
27:09
Speaker 2: very dystopian about the fact that workers at Microsoft could
27:13
Speaker 2: be building their replacement.
27:14
Speaker 3: Yeah, I do too. It's kind of.
27:17
Speaker 4: Funny on the surface and sadder underneath a little bit.
27:21
Speaker 3: But the answer to me is could be.
27:24
Speaker 4: And in my opinion, we have no evidence yet that
27:28
Speaker 4: AI is legitimately replacing or slowing down the hiring of
27:33
Speaker 4: any real employees today.
27:34
Speaker 3: Yeah, I just I don't.
27:36
Speaker 4: I don't see the evidence yet other than on a
27:38
Speaker 4: firm by firm level like we're talking about here. You
27:41
Speaker 4: can't find any data in the big picture numbers when
27:46
Speaker 4: we talk about the state of the labor market. Maybe
27:49
Speaker 4: we will in the future, but today it's all just conjecture.
27:53
Speaker 3: And by the.
27:54
Speaker 4: Way, you know Microsoft's headcount over the course of the
27:58
Speaker 4: last couple of years here we went from two hundred
28:01
Speaker 4: twenty one thousand employees the previous year up to two
28:04
Speaker 4: hundred twenty eight thousand today. Now, part of that's because
28:07
Speaker 4: they acquired Blizzard Activision actually Blizzard. Yeah, so that was
28:11
Speaker 4: some of the additions. But you know, they've been talking
28:13
Speaker 4: about job cuts throughout the last couple of years, and
28:15
Speaker 4: they have seven thousand more employees than they did a
28:17
Speaker 4: couple years ago.
28:18
Speaker 2: And part of this, though, is as part of that acquisition,
28:20
Speaker 2: they're talking about cutting some of the employees that are
28:24
Speaker 2: duplicative in terms of roles that used to be at
28:27
Speaker 2: Activision Blizzard that are now under Microsoft umbrella.
28:30
Speaker 3: So again probably not AI related.
28:33
Speaker 2: Related story, though Wall Street job losses may top two
28:36
Speaker 2: hundred thousand as AI replaces roles. This according to a
28:41
Speaker 2: Bloomberg Intelligence study that says, look, we think that well,
28:48
Speaker 2: it was a survey also basically saying, hey, chief technology
28:52
Speaker 2: officers surveyed said they expect a net three percent of
28:55
Speaker 2: their workforce to be cut and replaced with AI over
28:59
Speaker 2: the next three to five years. Now, this is something
29:02
Speaker 2: where again that two hundred thousand number gets like a
29:04
Speaker 2: lot of eyeballs, But then you look at this and
29:06
Speaker 2: you say, okay, net three percent that doesn't sound like
29:09
Speaker 2: AI is making some huge push where it's going to
29:12
Speaker 2: be replacing large numbers of those workers over any short
29:16
Speaker 2: to intermediate term timeframe.
29:18
Speaker 3: Right.
29:19
Speaker 4: I suppose if you had the perspective that the global
29:22
Speaker 4: banks were going to be able to cost, you know,
29:24
Speaker 4: cut two hundred thousand jobs on their investment banking and
29:27
Speaker 4: research teams, then you could get to some serious savings here.
29:31
Speaker 4: But at this stage, I think what people are referring
29:35
Speaker 4: to when they talk about AI cutting jobs out would
29:38
Speaker 4: be an entry level investment banker putting together a slide
29:42
Speaker 4: deck and a customer service representative answering questions on behalf
29:45
Speaker 4: of a customer. So those are not big cost savings
29:48
Speaker 4: for you.
29:48
Speaker 2: No. The other one here that I find to be
29:52
Speaker 2: laughable given what we know about AI. So it says,
29:54
Speaker 2: you know customer services could see changes as bots managed
29:57
Speaker 2: client functions. Okay, see how that ingratiates you to your clients.
30:00
Speaker 2: Good luck with that, while know your customer duties would
30:03
Speaker 2: also be vulnerable. So when we talk about know your
30:05
Speaker 2: customer KYC is how it's referred to in the biz.
30:09
Speaker 2: Know your customer is basically, hey, make sure that the
30:13
Speaker 2: people you are taking money from are real people and
30:18
Speaker 2: not on some kind of terrorist watch list. Is the
30:21
Speaker 2: short version of it. If there's one thing I know
30:25
Speaker 2: about generative AI, if you give it something fake, it
30:29
Speaker 2: doesn't know it's fake.
30:31
Speaker 3: Well.
30:32
Speaker 4: Furthermore, the name of the rule is know your customer,
30:35
Speaker 4: So you outsourcing that to a robot does not fulfill
30:38
Speaker 4: the obligation.
30:40
Speaker 2: This is if you were asking me, as if I
30:44
Speaker 2: were someone running a compliance division at an investment bank, Hey,
30:48
Speaker 2: can I use AI to replace my know your customer people?
30:51
Speaker 3: That'd be like the last on the list.
30:53
Speaker 2: I'd be like, no, Like, don't even consider that once
30:56
Speaker 2: you know, well, my goodness, what are we talking about here?
31:00
Speaker 2: You're literally talking about not knowing your customer? Oh boy,
31:04
Speaker 2: So I found out to be kind of humorous as
31:05
Speaker 2: we As I read through that, I was like, Oh,
31:08
Speaker 2: wouldn't do that if I were you. Let's take a
31:11
Speaker 2: quick break here. When we come back, we'll talk about
31:13
Speaker 2: economists starving in the wilderness, not literally but metaphorically speaking.
31:20
Speaker 2: What's going on with economists and why have they lost
31:22
Speaker 2: their way? We'll discuss after this.
31:26
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31:54
Speaker 2: Mike. Starting this year, the Secure Act two point zero
31:56
Speaker 2: allows for employees age sixty to sixty three to do
32:01
Speaker 2: what's called a super ketchup contribution. Regular ketchup contribution is
32:05
Speaker 2: seventy five hundred dollars for workers fifty or over, but
32:08
Speaker 2: if you're in that sixty to sixty three band, you
32:10
Speaker 2: can do an extra eleven thousand, two fifty into your
32:12
Speaker 2: four oh one K plan in theory, taking total employee
32:16
Speaker 2: contributions from twenty three to five up to thirty four
32:19
Speaker 2: seven fifty for people in that group.
32:22
Speaker 4: Chuck, We oftentimes leave these things kind of open ended
32:24
Speaker 4: in terms of what people do. I'm going to try
32:26
Speaker 4: and make this brief and concise. If you are working
32:30
Speaker 4: for a company that has a four oh one K
32:31
Speaker 4: and you are between the ages of sixty to sixty three,
32:34
Speaker 4: you need to pay attention to this and you can
32:37
Speaker 4: call us to learn more. The second one would be
32:40
Speaker 4: if you maxed out your four oh one K contribution
32:43
Speaker 4: prior to December thirty first of last year. Then you
32:47
Speaker 4: also again have some homework to do. You need to
32:49
Speaker 4: learn about whether or not your four oh one K
32:51
Speaker 4: offers a true up.
32:52
Speaker 3: Not all of them do.
32:54
Speaker 4: Maybe you might be a missing out on some of
32:56
Speaker 4: your employer match.
32:58
Speaker 3: Two only two there is here right one.
33:01
Speaker 4: If you're sixty to sixty three, you have some additional
33:03
Speaker 4: opportunity if you're maxing out your four oh one K
33:06
Speaker 4: and doing so prior to year end, you need to
33:08
Speaker 4: learn more about how your four oh one K functions.
33:11
Speaker 4: Issues that Armstrong Advisor Group helps our clients with all
33:13
Speaker 4: the time. If you have questions, if you fall into
33:16
Speaker 4: one of those two categories, give us a ring so
33:18
Speaker 4: we can help guide you through next steps to take
33:21
Speaker 4: on your own end and ultimately save more for your
33:23
Speaker 4: financial future. The numbers eight hundred three nine three four
33:27
Speaker 4: zero zero one. Again that's the Armstrong Advisory Group. The
33:30
Speaker 4: number to give us a ring and answer questions about
33:33
Speaker 4: this subject eight hundred three nine three four zero zero one.
33:37
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
33:40
Speaker 1: registered investment advisor. Nothing in the ad or in any
33:42
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
33:46
Speaker 1: your own financial tax into state planning advisors before making
33:48
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
33:51
Speaker 1: advisory services.
33:53
Speaker 2: Economists are in the wilderness. How can they find a
33:59
Speaker 2: way back to influence? That's the headline in the New
34:02
Speaker 2: York Times? Is this New York Times? Yes, Yeah, Castleman's
34:05
Speaker 2: New York Times. And basically what it's talking about is that, Hey,
34:10
Speaker 2: over the last decade or so, economists have kind of
34:16
Speaker 2: been looked at as not people to rely on when
34:22
Speaker 2: you are trying to actually do anything related to the.
34:25
Speaker 4: Economy or at least public policy when it comes to
34:28
Speaker 4: the economy from a policy perspective, They're just kind of
34:31
Speaker 4: shunned at the moment a little bit. And I think
34:33
Speaker 4: there's a few specifics that you can point to here
34:37
Speaker 4: and show it with the political results that we're seeing. One,
34:41
Speaker 4: it is pretty close to universally agreed upon by trained
34:45
Speaker 4: economists that free trade is the way to go, and
34:47
Speaker 4: both Democrats and Republicans at this point are pushing back
34:50
Speaker 4: hard on free trade.
34:51
Speaker 2: Yeah.
34:52
Speaker 4: In other words, more minor one economists generally speaking, and
34:56
Speaker 4: this is more just on the Democrats side, that if
34:59
Speaker 4: you want want to address climate change through policy in
35:03
Speaker 4: one way, shape or form, then one of the best
35:05
Speaker 4: ways to do it is through a carbon tax. It's
35:07
Speaker 4: been a pretty well established economic viewpoint among trade economists
35:11
Speaker 4: that hey, you want to get companies and individuals to
35:16
Speaker 4: send less crappy stuff into the atmosphere, use a carbon tax.
35:20
Speaker 4: It'll cause them to do less. The Biden administration wholeheartedly
35:24
Speaker 4: rejected that and went with a whole bunch of subsidies
35:28
Speaker 4: for certain industries instead. Those are two pretty big losses
35:33
Speaker 4: of influence in my view on again, pretty universally agreed
35:38
Speaker 4: upon perspectives about the economy from PhD economists.
35:43
Speaker 2: And there's some stuff in this piece about like what
35:46
Speaker 2: the issue is, And there's really one thing that I
35:49
Speaker 2: think is at the crux of the issue, which is
35:53
Speaker 2: that economists have struggled to communicate their ideas in simple,
36:00
Speaker 2: concise ways that normal people who aren't trained on all
36:04
Speaker 2: of the lingo and everything can understand.
36:07
Speaker 3: Yeah.
36:08
Speaker 2: Now there's also the idea that you know, folks around
36:10
Speaker 2: about like, hey, economists, you're like they're wrong all the time.
36:13
Speaker 2: They're just like whether people well, look, yeah, economists aren't
36:16
Speaker 2: going to be right all the time.
36:17
Speaker 4: Well, I think there's also perhaps we've talked about this
36:22
Speaker 4: on the show. Economics is described as a science, and
36:25
Speaker 4: it's just not. It's it's much not exhaustible science. No,
36:29
Speaker 4: in the way the chemistry or physics are.
36:31
Speaker 2: No.
36:31
Speaker 4: And I think far too often we assume that it
36:34
Speaker 4: will be, and so you get economists saying you should
36:37
Speaker 4: cut taxes and this will be the result, and you
36:39
Speaker 4: get completely different results because it's not physics and it's
36:42
Speaker 4: not chemistry.
36:43
Speaker 2: Like most things in life, there's probably a healthy balance
36:45
Speaker 2: where you say, Okay, i'm gonna take what people who
36:48
Speaker 2: have studied this, you know, their entire lives with, and
36:51
Speaker 2: i'm gonna, you know, look at that, and i'm gonna
36:52
Speaker 2: balance it with my own experience and go from there.
36:56
Speaker 2: At some points we probably skewed a little bit too
36:58
Speaker 2: far towards Hey, these people study this all the time
37:02
Speaker 2: and they The free trade example is one of them,
37:05
Speaker 2: just as an example where yeah, like if you look
37:08
Speaker 2: at it from a pure economic standpoint, there is basically
37:12
Speaker 2: no argument against free trade in that situation, but in
37:15
Speaker 2: terms of how it actually works on a societal level
37:18
Speaker 2: and with actual you know, actors in place around the
37:22
Speaker 2: world that don't necessarily share the same idealistic view. It
37:27
Speaker 2: starts to break down. So there's there's something where we can,
37:30
Speaker 2: you know, look at a balance and say, yes, I
37:33
Speaker 2: understand what you are saying. Here are some of the
37:36
Speaker 2: concerns I have. How do we meet in the middle
37:38
Speaker 2: in order to address this, because it's very rare that
37:41
Speaker 2: the answer is to go either all in one direction
37:43
Speaker 2: or another.
37:43
Speaker 4: I'm also not convinced this is relegated to just economists.
37:47
Speaker 4: There's a general distrust of trust of experts that we
37:51
Speaker 4: have seen across multiple places, whether it's doctors, scientists, across
37:56
Speaker 4: the board, there's been a shift away from trusting experts
38:00
Speaker 4: in their field. And it may be a little bit
38:02
Speaker 4: more pronounced in economists, but I think it's pretty universal.
38:06
Speaker 2: I would agree. Let's take a quick break. We still
38:09
Speaker 2: got another hour to come here on the financial exchange
38:13
Speaker 2: stick around. More coming up.