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Why is the stock market afraid of the same high yields it embraced last year? · The Financial Exchange Show

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  Speaker 2: Chuck, Mike and Tucker with you here.
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  Speaker 3: And markets at least equity markets are closed today in
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  Speaker 3: memory of Jimmy Carter. This the last day of his
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  Speaker 3: state funeral, and so the New York Stock Exchange and
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  Speaker 3: Nasdaq both have their equity markets closed. But there are
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  Speaker 3: some sporadic you know, not sporadic, there are some scattered
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  Speaker 3: markets that are open. The bond market has a half day,
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  Speaker 3: I believe, closing at two pm. Agricultural futures Mike is
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  Speaker 3: at one pm or one fifteen that those shut down. Yeah,
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  Speaker 3: something weird like that, something along those lines. So there's
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  Speaker 3: nothing moving in markets except for bonds. I mean, I guess, look,
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  Speaker 3: if Mike, should we do a couple segments on different
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  Speaker 3: agricultural futures.
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  Speaker 2: Yeah?
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  Speaker 4: Sure, I mean I'm always curious about you know, chicken
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  Speaker 4: feed and corn, and yeah, might as well, you know,
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  Speaker 4: really dig in there for the next two hours.
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  Speaker 3: So here's what we have going on right now. Soybeans,
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  Speaker 3: the current contract is down three seventy five per.
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  Speaker 2: What do you think bushel? I hundred bushels? Sure?
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  Speaker 3: Hard to say. Rough rice not to be confused with
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  Speaker 3: smooth rice. That is up twenty eight cents per grain.
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  Speaker 3: Probably not, they'll be fourteen dollars a grain. That'd be
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  Speaker 3: a lot for rice. So in any case, we're obviously
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  Speaker 3: not going to go through you know, two hours that
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  Speaker 3: because listen, there's parts of the country where that is
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  Speaker 3: hugely important, if you like, if you go to the Midwest.
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  Speaker 3: I was talking with Chris Ryan on one of our
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  Speaker 3: stations earlier today, and look, if you go through the Midwest,
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  Speaker 3: they actually are reading cattle and wheat and corn futures
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  Speaker 3: on a regular basis on the radio because a lot
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  Speaker 3: of people make their living selling those things, and so
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  Speaker 3: knowing when to sell is really important for most of
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  Speaker 3: us in the United States, and quite honestly almost all
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  Speaker 3: of us if you lol, like the number of people
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  Speaker 3: who actually earn a living through farming, it's in the
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  Speaker 3: you know, a couple million range, as far as like
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  Speaker 3: those who actually own like the farms and are making
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  Speaker 3: those decisions. For the rest of us, the other three
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  Speaker 3: hundred and twenty eight million, we're just not doing that.
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  Speaker 3: It's not wrong, it's not right, it's just not what
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  Speaker 3: we do. But I do find it interesting that there
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  Speaker 3: are parts of the country where, hey, that is a
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  Speaker 3: more regular update than what the Dow is doing or
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  Speaker 3: what the S and.
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  Speaker 2: P is doing, And I find that kind of cool.
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  Speaker 4: Actually, yeah, and I always I keep looking for this story.
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  Speaker 4: I think it might actually just be like a legendar
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  Speaker 4: myth of the person who was, you know, trading agricultural
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  Speaker 4: futures or oil futures in markets and accidentally ends up
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  Speaker 4: taking delivery of some of these things. Because that's the weird,
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  Speaker 4: weird thing about ag future or oil futures is if
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  Speaker 4: you trade then this doesn't happen. But you are actually
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  Speaker 4: bidding on a contract to own a physical thing rather
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  Speaker 4: than you know, certificate shares of a corporation. And so
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  Speaker 4: there's these urban myths and legends of people that have
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  Speaker 4: no idea what they're doing accidentally taking delivery of you know,
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  Speaker 4: truck fulls of corn, for example. But I've I've been
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  Speaker 4: unable to find a credible story of it actually occurring.
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  Speaker 3: Yes, because here's the thing. When when you're trading you know,
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  Speaker 3: futures and you end up taking delivery, you don't trade
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  Speaker 3: futures of like three corn cops. There are minimum sizes,
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  Speaker 3: and the sizes are large enough that generally if it
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  Speaker 3: happens to an individual, You're probably not going to be
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  Speaker 3: able to take delivery just because you won't have anywhere
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  Speaker 3: to store the quantity that they are shipping you kind
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  Speaker 3: of a problem. So in any case, markets largely closed today,
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  Speaker 3: so nothing going on as far as you know, what's
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  Speaker 3: what's happening today really, But one of the main stories
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  Speaker 3: over the last month or so has been the move
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  Speaker 3: towards higher yields in the bond market, not just domestically,
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  Speaker 3: so to anyone who looks at this, uh, you know
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  Speaker 3: that what's what's going on with US treasury rates right
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  Speaker 3: now and says, hey, like, is is this something that
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  Speaker 3: you know is indicative of what's going on with the
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  Speaker 3: amount of you know, US debt? The answer, in my
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  Speaker 3: opinion is we don't know for sure, but probably not.
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  Speaker 3: And the reason that I say probably not is the
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  Speaker 3: UK tenure treasury over the last month, since December twelfth,
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  Speaker 3: has gone from about four three five up to four
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  Speaker 3: eight six. The let's see this is the Japanese tenure
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  Speaker 3: treasury has gone from one oh four to one one eight,
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  Speaker 3: the French tenure treasury has gone from two nine to
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  Speaker 3: three four, and the US tenure treasury has gone from
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  Speaker 3: about four three and change up to four almost four
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  Speaker 3: to seven.
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  Speaker 4: Yeah, there's more significance in September, by the way, when
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  Speaker 4: we reach lows of about three point six on that
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  Speaker 4: same ten year. So a lot has occurred in the
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  Speaker 4: months surrounding the election. I don't think you can place
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  Speaker 4: it all on the shoulders of that, but big upswings
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  Speaker 4: in yields.
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  Speaker 3: And so I think that in certain cases. We talked
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  Speaker 3: a little bit yesterday about how with the UK, the
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  Speaker 3: UK does have signs of a potential you know, crisis
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  Speaker 3: of confidence in that typically when yields go up, your
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  Speaker 3: currency appreciates as well, because you have people flocking to
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  Speaker 3: you know, they're attracted by the higher yields and they say, oh,
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  Speaker 3: like g yes, now it makes more sense, you know,
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  Speaker 3: to own that currency.
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  Speaker 4: And to be clear about this, the reason that happens
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  Speaker 4: is because foreigners jump in and go want to participate
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  Speaker 4: in these yields, and the only way to do so
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  Speaker 4: is to take their euro and you know, translate it
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  Speaker 4: into pounds and go and buy these bonds domestically.
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  Speaker 3: We talked about this in the summer of last year.
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  Speaker 3: In August, when the yen carry trade broke down. The
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  Speaker 3: premise there was, Hey, you're borrowing in one currency to
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  Speaker 3: go and buy something in another. So this is that
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  Speaker 3: whole principle at work when your currentcy when you have
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  Speaker 3: higher yields than one currency, money tends to flow into that.
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  Speaker 3: The UK is experiencing something right now, same thing it
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  Speaker 3: did during Liz Trust's very short tenure back in twenty
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  Speaker 3: twenty two, where yields are moving up on UK government
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  Speaker 3: bonds the pound is sliding.
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  Speaker 2: That is an indication that you've got an issue.
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  Speaker 3: In the United States right now, yields are moving up.
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  Speaker 3: Dollar has strengthened about ten percent over that time as well.
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  Speaker 3: So it's not something where people are looking at the US.
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  Speaker 3: I know, we get so focused on what we're doing
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  Speaker 3: here that it's like it's the only thing that matters.
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  Speaker 2: But there's a big world out there. It's large, and
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  Speaker 2: we're not the.
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  Speaker 3: Only ones seeing this, And there are countries where you
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  Speaker 3: actually do have potentially signs of a crisis of confidence
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  Speaker 3: in the currency. The US is not one of those
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  Speaker 3: right now. But what to make of these higher yields.
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  Speaker 3: I talked a little bit about it yesterday. Mike, your
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  Speaker 3: thoughts before I go further.
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  Speaker 4: Well, I think there's clearly stronger growth expectations than what
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  Speaker 4: we were seeing previously, and very clearly from the FED
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  Speaker 4: meeting minutes as well, they seem to be taking the
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  Speaker 4: threat of inflation a little bit more seriously. So I
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  Speaker 4: don't necessarily point to just one thing, but I think
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  Speaker 4: the general idea of higher growth, the risk of higher terrists,
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  Speaker 4: and other things that could push both growth and inflation
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  Speaker 4: higher might be contributing here. You have a differing view.
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  Speaker 3: Well, here's the interesting thing is that, you know, while
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  Speaker 3: the thoughts of higher growth may be happening, what we've
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  Speaker 3: actually seen over the last month or so, according to
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  Speaker 3: the data that we've gotten, Atlanta Fed runs their GDP
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  Speaker 3: now now cast and that has seen projections for Q
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  Speaker 3: four GDP growth in the US come in from around
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  Speaker 3: three four to two seven now. So the actual data
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  Speaker 3: that we've been getting has been indicative of lower growth
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  Speaker 3: in the short term. And so you know, hey, why
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  Speaker 3: are these higher yields coming through.
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  Speaker 2: Again?
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  Speaker 3: There's anyone will tell you a million stories, and you
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  Speaker 3: know someone's gonna say, oh, it has to be this
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  Speaker 3: has to be that. There's no one clear picture on it.
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  Speaker 3: But what I can tell you is that the divergence
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  Speaker 3: that we are seeing where US growth right now appears
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  Speaker 3: to be slowing a little bit, you know, modestly over
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  Speaker 3: the last month or so, but yields have been moving up.
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  Speaker 3: That's rarely something that lasts for too long because long
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  Speaker 3: term yields tend to track growth over the long run,
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  Speaker 3: and so something has to give here. Either you do
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  Speaker 3: have to see US growth accelerate, in which case the
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  Speaker 3: long end is probably you know, somewhat justified, or you've
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  Speaker 3: got to see, you know, if US growth continues to slow,
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  Speaker 3: then bond yields are probably too high and you're a
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  Speaker 3: little bit offsides there, and they've got to come in
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  Speaker 3: a little bit. I think that's a fair you know,
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  Speaker 3: approach to this, because you know, all the talk right
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  Speaker 3: now that I've been hearing for the last few weeks
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  Speaker 3: is well, it's because you know, the US deficits too high.
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  Speaker 3: And I go, man, the US deficit's been too high
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  Speaker 3: since I've been alive. You know, every year we get that.
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  Speaker 3: And I'm not saying that like it's not a problem necessarily,
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  Speaker 3: But what I'm saying is a year ago, year and
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  Speaker 3: a half now, in October of twenty three, ten year
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  Speaker 3: treasury touch five percent, and all the talk was, well,
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  Speaker 3: you know, there's there's too much debt. And then over
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  Speaker 3: the next nine months or actually eleven months until September
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  Speaker 3: of this of last year of twenty four, yields on
• 10:34
  Speaker 3: the ten year decline from about five percent to three
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  Speaker 3: point six Mike, did the deficit picture improve meaningfully in.
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  Speaker 2: The US last I sure didn't. No, didn't.
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  Speaker 3: So again, if you're gonna ascribe, hey, it's definitely this
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  Speaker 3: when yields are moving up, well, then how do you
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  Speaker 3: explain what happens when yields moved down for you know,
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  Speaker 3: the better part of an eleven month period.
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  Speaker 4: So your prognosis on it is that something seems off
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  Speaker 4: about the rising yields, right. I think that's kind of
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  Speaker 4: the conclusion temporarily here is either the growth story is
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  Speaker 4: painting a falsely weak picture or the bond market is
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  Speaker 4: painting a overly high interest rate picture.
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  Speaker 2: Yeah.
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  Speaker 3: My other theory look on why yields have moved up
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  Speaker 3: and why it's happened. Globally, there's a lot of uncertainty
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  Speaker 3: about what's gonna happen from a trade perspective once Trump
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  Speaker 3: comes into office, and so if you have uncertainty about
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  Speaker 3: what capital flows are gonna look like across different countries,
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  Speaker 3: don't you kind of demand a little extra premium in
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  Speaker 3: order to hold any bond? Maybe, you know, it's like
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  Speaker 3: you don't know what the picture is necessarily gonna look like.
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  Speaker 3: So it could be I don't know, kind of an
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  Speaker 3: uncertainty premium that's being added. I guess is it fair?
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  Speaker 3: Is it warranted? I don't know, but it's there, Like
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  Speaker 3: it's markets don't care whether or not something's fair or not.
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  Speaker 3: It's it's there, and you've got to deal with it.
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  Speaker 3: So the question is, hey, how can the US economy,
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  Speaker 3: you know, manage these higher rates that are in there
• 12:07
  Speaker 3: right now? Because we are now about thirty days away
• 12:11
  Speaker 3: from the start of the spring housing season Super Bowls
• 12:13
  Speaker 3: February ninth. Yeah, it's basically the kickoff for spring housing
• 12:15
  Speaker 3: season these days. And so if you've still got you know,
• 12:20
  Speaker 3: thirty year fixed rate mortgages floating around seven and a quarter,
• 12:23
  Speaker 3: it's seven to one seven according to Mortgage News Daily
• 12:25
  Speaker 3: right now. Man, that's it's not really the optimistic picture
• 12:29
  Speaker 3: that you wanted heading into the spring. If you're a
• 12:32
  Speaker 3: realtor or a potential home Seller. So we'll see where
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  Speaker 3: it all goes on this. But this is something that
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  Speaker 3: that bears watching, and I do think it's it's gonna
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  Speaker 3: be hard for this divergence between growth and yields to
• 12:45
  Speaker 3: be maintained. We'll just have to see which side ends
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  Speaker 3: up giving. Let's take a quick break. When we come back,
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  Speaker 3: we're talking Federal Reserve after this.
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  Speaker 3: Mike, did we learn anything new from the Federal Reserve
• 13:58
  Speaker 3: with the release of the Fed meeting minutes yesterday?
• 14:01
  Speaker 2: No? Next question.
• 14:04
  Speaker 4: I think there is not a ton new other than
• 14:07
  Speaker 4: confirmation that of a lot of what we've talked about,
• 14:11
  Speaker 4: which is that the Federal Reserve is going to be
• 14:14
  Speaker 4: a lot less willing to lower rates without very compelling
• 14:18
  Speaker 4: data on inflation moving down further cool.
• 14:21
  Speaker 3: I want to talk about this piece from Bloomberg, though,
• 14:23
  Speaker 3: because I got a bone to pick with a certain
• 14:26
  Speaker 3: mister Christopher Waller, who is one of the Fed governors.
• 14:30
  Speaker 4: So to be clear, you didn't find anything terribly useful
• 14:33
  Speaker 4: from the meeting minutes?
• 14:34
  Speaker 2: No, okay, no, no, I'll just leave it at that. Yeah,
• 14:41
  Speaker 2: this Waller.
• 14:42
  Speaker 3: Piece has some meat to it, though. So Waller comes
• 14:45
  Speaker 3: out and yesterday I'll read his quote. Inflation in twenty
• 14:50
  Speaker 3: twenty four has largely been driven by increases in imputed
• 14:53
  Speaker 3: prices such as housing and non market services, which are
• 14:57
  Speaker 3: estimated rather than directly observed, and I consider a less
• 15:01
  Speaker 3: reliable guide to the balance of supplying demand across all
• 15:03
  Speaker 3: goods and services in the economy. So if you're not
• 15:06
  Speaker 3: familiar with how inflation is calculated, whether it's in PCE
• 15:09
  Speaker 3: or CPI or any of these different calculations, there are
• 15:13
  Speaker 3: some places where if you read through the methodology, whether
• 15:17
  Speaker 3: it's the BOS or whoever's doing them, they basically say, yeah,
• 15:21
  Speaker 3: we're not really sure how to measure this, but it exists,
• 15:26
  Speaker 3: and we're gonna give it our best shot, and here's
• 15:28
  Speaker 3: how we tried to do it.
• 15:29
  Speaker 2: And some of them are easier to understand.
• 15:31
  Speaker 3: Others owner equivalent rent and things like that, and how
• 15:35
  Speaker 3: that like, okay, we can see basically how they get
• 15:38
  Speaker 3: to it. Other stuff with like the cost of health insurance,
• 15:42
  Speaker 3: they're like, we have no idea how to do this,
• 15:44
  Speaker 3: and the reason why it's not because they're dumb. But
• 15:46
  Speaker 3: let's let me just give you two people as an example.
• 15:48
  Speaker 3: One person has a monthly premium of one thousand dollars
• 15:51
  Speaker 3: that goes up ten dollars the next year. The next
• 15:55
  Speaker 3: person has a premium of eight hundred dollars that goes
• 15:57
  Speaker 3: down twenty the next year. But the the first person
• 16:02
  Speaker 3: had their deductibles reduced, and so that's part of the
• 16:05
  Speaker 3: reason why their premiums went up while the other person
• 16:08
  Speaker 3: had smaller deductible or larger deductibles, or whatever the heck
• 16:11
  Speaker 3: it is that makes it make sense. So there's so
• 16:13
  Speaker 3: many moving parts that you just you can't accurately measure
• 16:17
  Speaker 3: the cost of health insurance, and so they estimate it
• 16:19
  Speaker 3: just as an example.
• 16:21
  Speaker 2: So it gives you this.
• 16:23
  Speaker 3: If you pull those things out that are estimated, it
• 16:26
  Speaker 3: gives you something called quote market based inflation, the stuff
• 16:31
  Speaker 3: that you can actually measure. And remember when when we
• 16:35
  Speaker 3: say measure, even that is taken with a grain of
• 16:38
  Speaker 3: salt because those are estimates. The feeder, the BLS does
• 16:41
  Speaker 3: not go around to every gas station in the country
• 16:44
  Speaker 3: saying what are your prices? They sample a large number
• 16:47
  Speaker 3: of them and they make their numbers based on that.
• 16:50
  Speaker 3: So even these are estimates, which is part of the
• 16:52
  Speaker 3: reason that I think this is a crappy metric, because
• 16:55
  Speaker 3: there's nothing where we don't have an estimate, Like it's
• 16:57
  Speaker 3: not a census, no, like we're not measure everything every month.
• 17:02
  Speaker 3: Do you know how much you do? You know how
• 17:03
  Speaker 3: big the national deficit would be if you had to
• 17:05
  Speaker 3: do that, my goodness. So you get this market based
• 17:10
  Speaker 3: inflation and what it says is that for the last
• 17:13
  Speaker 3: twelve months, market based PCE or market based core PCE
• 17:18
  Speaker 3: is running at two point four percent while the PCE
• 17:21
  Speaker 3: price index is at two point eight And so Waller says, hey, this,
• 17:26
  Speaker 3: this makes us more encouraged. But here's the thing about
• 17:29
  Speaker 3: market based PCE. The day that I have in this
• 17:32
  Speaker 3: Bloomberg piece. Let me see if I can find anymore.
• 17:35
  Speaker 3: I don't know that you can actually find the long
• 17:39
  Speaker 3: set on this. No you can't, So I have to
• 17:40
  Speaker 3: just rely on this Bloomberg piece. The data going back
• 17:43
  Speaker 3: through twenty nineteen, which again was before inflation was even
• 17:46
  Speaker 3: a twinkle in the economy's eye, it basically always shows
• 17:50
  Speaker 3: market based PCE below PCE.
• 17:54
  Speaker 2: So what does that.
• 17:55
  Speaker 4: Tell us nothing? It's it's what it's doing is cherry
• 17:59
  Speaker 4: pit data to support your pre existing conclusion about inflation.
• 18:04
  Speaker 4: And that's one thing to hear from, frankly, someone like us,
• 18:11
  Speaker 4: which we don't do. But it's one thing to hear
• 18:14
  Speaker 4: it from a news commentator on CNBC or Bloomberg. It's
• 18:17
  Speaker 4: another thing to hear it from someone as involved in
• 18:22
  Speaker 4: Federal Reserve policy.
• 18:23
  Speaker 2: As Christopher Waller.
• 18:24
  Speaker 4: That's very problematic, I think in anyone who takes this
• 18:31
  Speaker 4: stuff seriously viewpoint here, you don't go about cherry picking
• 18:36
  Speaker 4: one data point and saying, well, this supports my conclusion,
• 18:40
  Speaker 4: and therefore it's akin to saying, well, oil prices are down.
• 18:46
  Speaker 4: So I'm not terribly worried about the fact that housing
• 18:49
  Speaker 4: and groceries and egg prices are through the roof because
• 18:52
  Speaker 4: this one data point, in my view, really supports the
• 18:54
  Speaker 4: argument that lower inflation is coming.
• 18:57
  Speaker 3: Now Waller's no dummy. Here's and I think is the
• 19:01
  Speaker 3: part that's kind of troubling, Like he's no dumb. He's
• 19:03
  Speaker 3: got a PhD in economics from Washington State, like the
• 19:06
  Speaker 3: you don't get a PhD in economics unless you really
• 19:08
  Speaker 3: know what you're talking about. And looks he's been on
• 19:13
  Speaker 3: the Federal Reserve Board of Governors since twenty twenty. He
• 19:16
  Speaker 3: was a pointed by Donald Trump then, So don't think
• 19:19
  Speaker 3: that this is like, hey, I'm trying to cover Joe Biden,
• 19:21
  Speaker 3: Like no, this is a Trump appointee. So it's not
• 19:23
  Speaker 3: you know, trying to score political points before you know,
• 19:26
  Speaker 3: Trump comes into office or something like that, but it
• 19:29
  Speaker 3: is something where you go man like, is there any
• 19:32
  Speaker 3: meat there actually to this point, and it's it's hard for.
• 19:35
  Speaker 2: Me to see it, quite honestly.
• 19:37
  Speaker 3: Quick break here Wall Street watches Next.
• 19:45
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:48
  Speaker 1: DFE show. Breaking business news is always first right here
• 19:52
  Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
• 19:58
  Speaker 1: Street Watch a complete look at what's moving markets so
• 20:01
  Speaker 1: far today right here on the Financial Exchange Radio Network.
• 20:05
  Speaker 5: Well, following a vulnerable ride to begin the week, markets
• 20:08
  Speaker 5: yesterday took a breather and closed in mixed territory. US
• 20:13
  Speaker 5: equity markets closed today to honor former and late president
• 20:18
  Speaker 5: Jimmy Carter. However, the bond market, which has guarded much
• 20:21
  Speaker 5: attention from investors this week after hitting four points seven percent,
• 20:25
  Speaker 5: or its highest level since April, is open today and
• 20:29
  Speaker 5: will shutter at I think it's two o'clock today early afternoon. Nonetheless,
• 20:34
  Speaker 5: ten year treasure reeled right now is down by two
• 20:37
  Speaker 5: basis points now at four point six six percent, and
• 20:41
  Speaker 5: crude oil is up about one percent higher, trading just
• 20:44
  Speaker 5: below seventy four dollars a barrel. Meanwhile, some news from
• 20:48
  Speaker 5: Microsoft last night, where the tech giant confirmed to CNBC
• 20:52
  Speaker 5: that it is cutting a small percentage of jobs across
• 20:55
  Speaker 5: departments based on performance. Business Insider previously reported Microsoft plans
• 21:01
  Speaker 5: on Tuesday. According to one person familiar with the matter,
• 21:05
  Speaker 5: the company's job cuts will affect less than one percent
• 21:09
  Speaker 5: of employees, and tomorrow morning, all eyes will turn to
• 21:12
  Speaker 5: the December jobs report, where economists are anticipating about one
• 21:16
  Speaker 5: hundred and fifty three thousand jobs were added last month,
• 21:19
  Speaker 5: which would be a drop from the two hundred and
• 21:21
  Speaker 5: twenty seven thousand jobs added in November. The unemployment rate
• 21:26
  Speaker 5: is expected to remain steady at four point two percent.
• 21:31
  Speaker 5: I'm Tucker Silvan. That's Wall Street Watch, Mike.
• 21:34
  Speaker 2: We had peace in Bloomberg today. It's talking about the firm.
• 21:37
  Speaker 3: Challenger, Gray and Christmas is an employment firm that conducts
• 21:42
  Speaker 3: I don't know surveys of different companies in their hiring plans,
• 21:46
  Speaker 3: and according to them, in twenty twenty four, announced hiring
• 21:51
  Speaker 3: plans were the smallest in the decade since twenty fifteen,
• 21:55
  Speaker 3: seven hundred and sixty nine thousand workers announced to have
• 21:59
  Speaker 3: been and you know, hired by companies. Projected job cuts
• 22:03
  Speaker 3: also picked up, with employers planning to eliminate seven hundred
• 22:05
  Speaker 3: and sixty one thousand positions.
• 22:07
  Speaker 2: But I don't know what to do with this data either, Chuck.
• 22:12
  Speaker 4: I know you're struggling with it because at the end
• 22:15
  Speaker 4: of the day, in twenty twenty four, how many more
• 22:17
  Speaker 4: people are working in jobs than compared to twenty twenty three?
• 22:20
  Speaker 2: About two million? Yeah, well, I guess more. It's even
• 22:23
  Speaker 2: beyond that. No one looks at this.
• 22:28
  Speaker 3: Like, if if this mattered, the Challenger job data release
• 22:32
  Speaker 3: would be an important one each month because guess what, Mike,
• 22:35
  Speaker 3: it is something that was released today, right It showed
• 22:38
  Speaker 3: thirty eight seven and ninety two job cuts announced in December,
• 22:44
  Speaker 3: the estimate was for sixty five thousand. Did I know
• 22:48
  Speaker 3: markets are closed? But even if they were open, no
• 22:50
  Speaker 3: one talks about this, no one. My view on whether
• 22:55
  Speaker 3: or not a a data point matters whether you've ever
• 22:59
  Speaker 3: heard of it. No, it's it's whether the market trades
• 23:02
  Speaker 3: on it. Because for as much as we poo poo
• 23:04
  Speaker 3: the jobs report and inflation like oh, these are manipulated
• 23:07
  Speaker 3: and this and that not saying we do, but like
• 23:10
  Speaker 3: some people do. Ultimately, the people that are allocating billions
• 23:13
  Speaker 3: of dollars in capital trade on those things because they
• 23:18
  Speaker 3: believe they have predictive value to what they own, and
• 23:22
  Speaker 3: so if they didn't, then you'd kind of say, yeah,
• 23:26
  Speaker 3: this this doesn't matter and I'm just going to leave it.
• 23:29
  Speaker 3: I mean, there's tons of reports that get released each
• 23:31
  Speaker 3: day that no one covers. And some of them, look,
• 23:34
  Speaker 3: maybe they are useful and it's just no one knows
• 23:36
  Speaker 3: about them, but the fast majority of them aren't providing
• 23:40
  Speaker 3: useful signal for what markets care about when it comes
• 23:43
  Speaker 3: to the state of the economy.
• 23:45
  Speaker 4: Yeah, here's my two cents on this for what it's worth.
• 23:49
  Speaker 4: As of November, the most recent jobs report data that
• 23:52
  Speaker 4: we have, will get another one tomorrow, but as of November,
• 23:55
  Speaker 4: there were two point two seven four million more people
• 23:59
  Speaker 4: working compared to November of twenty twenty three. So, in
• 24:03
  Speaker 4: spite of this data from Challenger, Gray and Christmas saying
• 24:05
  Speaker 4: that fewer announcements were made, the worst number of announcements
• 24:08
  Speaker 4: of jobs since twenty fifteen, we created somewhere around what's
• 24:13
  Speaker 4: that three x the announcements of jobs. Yes, so, unless
• 24:18
  Speaker 4: you have some other data point that tells me that
• 24:19
  Speaker 4: this is in some way predictive of where things are
• 24:22
  Speaker 4: going to go in twenty twenty five, which Bloomberg does not,
• 24:26
  Speaker 4: to be clear, extrapolate on any of that. Then this
• 24:29
  Speaker 4: is useless and in danger of being misinterpreted by vast
• 24:35
  Speaker 4: numbers of people, because, by the way, that two point
• 24:37
  Speaker 4: twenty seven four million in terms of job creation exceeded
• 24:42
  Speaker 4: anything we saw in the late twenty tens in terms
• 24:45
  Speaker 4: of year over year job creation. Yeah, so let's just
• 24:49
  Speaker 4: leave it right there and not talk about this piece anymore,
• 24:52
  Speaker 4: because again it's in danger of being misinterpreted by people
• 24:55
  Speaker 4: that don't look at this stuff.
• 24:57
  Speaker 2: Every day.
• 24:58
  Speaker 4: You look at this on its own and you say,
• 24:59
  Speaker 4: uh oh, look out, we're heading for a recession because
• 25:03
  Speaker 4: according to this firm that I've never heard of, companies
• 25:07
  Speaker 4: are announcing fewer hiring plans. Well, it didn't translate into
• 25:10
  Speaker 4: a lot fewer jobs created.
• 25:12
  Speaker 2: Good news.
• 25:13
  Speaker 3: When it comes to the ports of the United States,
• 25:17
  Speaker 3: specifically East coast ones, the International Longshoreman's Association reached an
• 25:22
  Speaker 3: agreement tentative has still not yet been ratified by the union,
• 25:27
  Speaker 3: but they reached an agreement with the United States Maritime
• 25:29
  Speaker 3: Alliance for a finalized six year deal, again pending confirmation
• 25:35
  Speaker 3: by the Union. That hammered out some of the issues
• 25:39
  Speaker 3: that still lingered since the October or was it early November,
• 25:43
  Speaker 3: I can't remember, maybe late October resolution to the strike
• 25:48
  Speaker 3: that was going on at the time. Remember at the time,
• 25:51
  Speaker 3: the deal was, Hey, you're going to see more than
• 25:52
  Speaker 3: a sixty percent raise in wages over the six year
• 25:56
  Speaker 3: term of the deal, and we'll figure out some of
• 25:58
  Speaker 3: the other stuff on automation. As we get to the
• 26:00
  Speaker 3: January fifteenth new deadline. They do appear to have reached
• 26:03
  Speaker 3: a tentative deal here, And the sense I get reading
• 26:07
  Speaker 3: through this piece from the New York Times is the
• 26:13
  Speaker 3: dock workers got guarantees from their employers that if they're
• 26:19
  Speaker 3: adding automation, they will also be adding doc worker jobs.
• 26:26
  Speaker 4: That's the only part that's interesting to me. And we
• 26:29
  Speaker 4: don't really know what that means quite yet. The compensation
• 26:32
  Speaker 4: piece kind of whatever, we knew what that was going
• 26:35
  Speaker 4: to look like. There wasn't much disagreement on this. I'm
• 26:38
  Speaker 4: very interested in the legal interpretation of the language around automation,
• 26:43
  Speaker 4: because this piece at least insinuates that the union did
• 26:48
  Speaker 4: not get what they wanted in terms of forbidding automation,
• 26:51
  Speaker 4: which I think most of us agreed was never going
• 26:53
  Speaker 4: to happen in the first place. Instead, they got some
• 26:56
  Speaker 4: form of job guarantee, and I'm guessing it's some sort
• 27:02
  Speaker 4: of ratio of workers per I don't know what, and.
• 27:06
  Speaker 2: I automated crane or something else. Yeah, I don't know.
• 27:09
  Speaker 4: And look, I mean automation does create new jobs, right,
• 27:11
  Speaker 4: If you're going to put in some form of automated crane,
• 27:13
  Speaker 4: you're going to need a new person to repair that crane.
• 27:15
  Speaker 4: And maybe that's the negotiation here, is that person's going
• 27:18
  Speaker 4: to be part of the union and an employee rather
• 27:20
  Speaker 4: than some contractor. But I just can't really imagine or
• 27:24
  Speaker 4: envision in my head what format that takes, so I'll
• 27:29
  Speaker 4: be intrigued to see all that. But look, I mean
• 27:31
  Speaker 4: more automation should hopefully mean you're able to move volume
• 27:35
  Speaker 4: through the ports faster, which would mean you're able to
• 27:37
  Speaker 4: handle more volume, which might mean you need more employees.
• 27:41
  Speaker 3: Could be So that's what's going on with the ports
• 27:44
  Speaker 3: on the East Coast. Good news, we do not have
• 27:46
  Speaker 3: a or at least it appears, assuming that this gets
• 27:48
  Speaker 3: ratified by the union, it appears that we will not
• 27:53
  Speaker 3: have a port strike as something that we need to
• 27:55
  Speaker 3: contend with. As we head through the next month or so.
• 28:00
  Speaker 3: I think that's a good thing. Let's take a quick
• 28:02
  Speaker 3: break here. When we come back, we'll take you out
• 28:04
  Speaker 3: to California. Well, we won't take you there. We're not
• 28:06
  Speaker 3: going anywhere near California right now because you've got some
• 28:09
  Speaker 3: absolutely horrific wildfires that.
• 28:11
  Speaker 2: Are happening there.
• 28:12
  Speaker 3: We'll talk about the impact on the California economy, specifically
• 28:15
  Speaker 3: when it comes to the insurance marketplace out there right
• 28:19
  Speaker 3: after this.
• 28:21
  Speaker 1: This is your home for the most comprehensive coverage of
• 28:23
  Speaker 1: the economy and the trends on Wall Street. This is
• 28:27
  Speaker 1: the Financial Exchange Radio Network. Find daily interviews and full
• 28:31
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• 28:34
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• 28:37
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• 28:41
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• 28:48
  Speaker 2: All right.
• 28:48
  Speaker 3: So, we've got a just an absolute disaster unfolding in
• 28:53
  Speaker 3: the Los Angeles area right now, with multiple fires that
• 28:57
  Speaker 3: have spread throughout the Los Angeles area.
• 29:01
  Speaker 2: This really picked up two nights ago.
• 29:03
  Speaker 3: When you had seventy eighty mile an hour winds that
• 29:07
  Speaker 3: were sweeping through the area. Those were the gusts with
• 29:10
  Speaker 3: like forty mile an hour baseline winds, and pretty much
• 29:14
  Speaker 3: what you had was these winds were picking up embers
• 29:17
  Speaker 3: from old fires and depositing them miles away, starting new
• 29:20
  Speaker 3: ones in a very dry region at the moment. And
• 29:24
  Speaker 3: so the estimates right now are that you've had more
• 29:27
  Speaker 3: than two thousand structures that have been destroyed already, potentially
• 29:31
  Speaker 3: north of eight billion dollars in damage from an insurance perspective,
• 29:36
  Speaker 3: and the total economic impact is expected to be at
• 29:39
  Speaker 3: this point, you know, somewhere in the forty to fifty
• 29:41
  Speaker 3: billion dollar range. And remember these still are not fully
• 29:44
  Speaker 3: contained or done with yet, and so you've got a
• 29:51
  Speaker 3: situation here where the California home insurance market has been
• 29:56
  Speaker 3: broken even before this. But I think this is just
• 30:00
  Speaker 3: fresh evidence of Hey, if you are an insurance company,
• 30:05
  Speaker 3: if you want to cover homes in the California area,
• 30:11
  Speaker 3: it's almost impossible to do so affordably at this point.
• 30:14
  Speaker 4: Mike, Well, it's impossible to do so affordably because regulators
• 30:20
  Speaker 4: are not allowing increases that insurers request. And I think
• 30:24
  Speaker 4: that's an important piece here is this is not a
• 30:25
  Speaker 4: free market. And I'm sure there are insurers, by the way,
• 30:28
  Speaker 4: that would say, even in a free market, we're pulling
• 30:30
  Speaker 4: out here, sure, but when you talk about the likes
• 30:32
  Speaker 4: of State Farm and other major insurers who have decided
• 30:36
  Speaker 4: in the state of California entirely that they are not
• 30:40
  Speaker 4: issuing any new policies. It's not because they don't necessarily
• 30:43
  Speaker 4: know how to price the market. Their comment has been,
• 30:46
  Speaker 4: the state regulator is not willing to approve the rates
• 30:48
  Speaker 4: that we would charge, and so see you later. And
• 30:52
  Speaker 4: so this is if it sounds familiar or a remarkably
• 30:56
  Speaker 4: similar story to what we've seen in Florida. In Florida
• 30:59
  Speaker 4: this fortunately, the hurricanes that were bearing down on the
• 31:02
  Speaker 4: state did not do as much damage as you know
• 31:07
  Speaker 4: was potentially.
• 31:08
  Speaker 2: Modeled as a result of all of that.
• 31:09
  Speaker 4: California, we might be seeing the opposite here where you know,
• 31:13
  Speaker 4: you don't see exactly the forecast from a wildfire like
• 31:16
  Speaker 4: you do a hurricane, but the damage is tremendous right now,
• 31:20
  Speaker 4: over two thousand buildings lost. And you know, very different
• 31:25
  Speaker 4: obviously political views between Florida and California legislatures, but in
• 31:30
  Speaker 4: both cases we've kind of landed in the same solution.
• 31:34
  Speaker 4: In Florida they have the Citizens' Insurance. In California, it's
• 31:38
  Speaker 4: the fair Plan, and in both cases these are state
• 31:41
  Speaker 4: run insurers of last resort, and in this case that
• 31:44
  Speaker 4: fair Plan is taking massive losses this time around, in
• 31:47
  Speaker 4: all likelihood.
• 31:49
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• 32:52
  Speaker 3: Now, Mike, you mentioned that previously the California insurance market.
• 32:57
  Speaker 3: One of the reasons why it's kind of been broken
• 32:59
  Speaker 3: and people have been moving to the state run insurer
• 33:01
  Speaker 3: is that the state regulators have not allowed insurers to
• 33:07
  Speaker 3: increase their policy premiums as much as they've wanted to
• 33:10
  Speaker 3: potentially cover some of these concerns. Generally, there's been a
• 33:14
  Speaker 3: seven percent annual cap in terms of how quickly insurers
• 33:18
  Speaker 3: can raise prices, and so what you do have going
• 33:22
  Speaker 3: on now is late last year, in order to try
• 33:27
  Speaker 3: to stem the tide of insurers that we're leaving the
• 33:31
  Speaker 3: state entirely or just abandoning regions of it, the state
• 33:35
  Speaker 3: of California issued a new rule. And what it does
• 33:38
  Speaker 3: is it basically forces insurers, Hey, if you're writing policies
• 33:42
  Speaker 3: throughout the state, you're going to have to cover these
• 33:44
  Speaker 3: fire prone areas as well. But what we're going to
• 33:48
  Speaker 3: give you is the ability to raise your rates much
• 33:52
  Speaker 3: more quickly. And so just as an example, all state
• 33:57
  Speaker 3: one approval for an average thirty four percent increas for
• 34:00
  Speaker 3: California in home insurance in November, and this is something
• 34:06
  Speaker 3: that you are likely to see from more carriers in
• 34:09
  Speaker 3: the future there. So I think what it points to
• 34:13
  Speaker 3: is the home insurance market in California. It's gonna look
• 34:17
  Speaker 3: a lot like Florida over the next couple of years,
• 34:19
  Speaker 3: or at least a lot like Florida has in the
• 34:20
  Speaker 3: last few Where you talk to anyone whose own property
• 34:23
  Speaker 3: in Florida, their premiums may have doubled or tripled over
• 34:26
  Speaker 3: the last five years. That's probably where you're heading in
• 34:29
  Speaker 3: California as well.
• 34:30
  Speaker 4: I suspect, can I ask you know, we brought this
• 34:33
  Speaker 4: up when it came to Florida, and I want to
• 34:35
  Speaker 4: bring it back home for people that don't have relatives
• 34:38
  Speaker 4: in Florida, live here on the East Coast.
• 34:40
  Speaker 2: Where a lot of our listeners are.
• 34:42
  Speaker 4: And why, you know, other than basic human decency financially,
• 34:46
  Speaker 4: why we should care as Americans when we have at
• 34:49
  Speaker 4: home insurance market.
• 34:50
  Speaker 2: That is.
• 34:52
  Speaker 4: Broken in many ways and a state is covering majority
• 34:57
  Speaker 4: of the policies, Like what is the risk to an
• 35:01
  Speaker 4: American taxpayer in Massachusetts of California dealing with this in
• 35:05
  Speaker 4: this way and and of being especially prone to disaster
• 35:08
  Speaker 4: right now.
• 35:08
  Speaker 3: Well, there's a few different possibilities. The first is if
• 35:11
  Speaker 3: you just say, hey, like regardless, you know, hey, you
• 35:15
  Speaker 3: don't need to have homeowner's insurance, you know at all,
• 35:17
  Speaker 3: the first thing that you'll see is that the mortgage
• 35:19
  Speaker 3: market will completely dry up. And the way you think
• 35:23
  Speaker 3: about this, let's say that you are going out and
• 35:25
  Speaker 3: buying a home in California. It's an expensive market, and
• 35:28
  Speaker 3: you want bank X to lend you a million dollars
• 35:32
  Speaker 3: to go and buy your place. The reason why that
• 35:35
  Speaker 3: lender says no, you need to have insurance is because
• 35:37
  Speaker 3: if the place is destroyed, the lender wants you to
• 35:41
  Speaker 3: be able to rebuild it, even if you're not going
• 35:43
  Speaker 3: to live there again, so that even if you abandon
• 35:45
  Speaker 3: your mortgage, there's money there so that someone can rebuild,
• 35:50
  Speaker 3: and then the lender can sell the property and recoup
• 35:52
  Speaker 3: the mortgage value. If that's not in place, lenders are
• 35:56
  Speaker 3: gonna say no, I'm not going to lend you a
• 35:57
  Speaker 3: million dollars there with no insurance, because if the place
• 36:01
  Speaker 3: burns to the ground, then you abandon your mortgage and
• 36:03
  Speaker 3: I'm stuck with an empty lot that's not going to cover.
• 36:05
  Speaker 2: How much I lent you. So that just doesn't make sense.
• 36:08
  Speaker 3: And people will say, well, you know, then lenders will
• 36:10
  Speaker 3: just have to figure out how to make money there.
• 36:13
  Speaker 3: Guess what, your interest rates probably go up like three
• 36:15
  Speaker 3: to five percent then from where they are today. If
• 36:18
  Speaker 3: you want lenders to take on the risk of an
• 36:21
  Speaker 3: uninsured property, like at least.
• 36:24
  Speaker 2: I mean I thought more.
• 36:25
  Speaker 4: Yeah, I can't imagine what an insurer would want to
• 36:28
  Speaker 4: issue a thirty years insurance like good luck.
• 36:31
  Speaker 3: The way I look at it basically is that then
• 36:33
  Speaker 3: you end up with it. You get the notifications if
• 36:36
  Speaker 3: you ever change your insurance carrier for your homeowner's insurance.
• 36:40
  Speaker 3: If they don't pass the information onto the lender, to
• 36:42
  Speaker 3: the lender, the lender says, hey, we'll buy you insurance
• 36:45
  Speaker 3: at much higher rates. That's basically what would happen. And
• 36:49
  Speaker 3: so like that's one risk. The other is, hey, you've
• 36:52
  Speaker 3: got all these people that are on these state plans. Well,
• 36:56
  Speaker 3: remember the state only has so much money. The state
• 36:58
  Speaker 3: of California cannot print dollar. The United States can, but
• 37:02
  Speaker 3: Florida and California cannot. And so if you ever have
• 37:05
  Speaker 3: a major hurricane or a you know, a firestorm in California,
• 37:10
  Speaker 3: that's that's worse even than what we're seeing right now.
• 37:13
  Speaker 3: You get to a point where, hey, if you've exhausted
• 37:15
  Speaker 3: the money in there, those states might not be able
• 37:18
  Speaker 3: to find the money themselves, and so they might have
• 37:21
  Speaker 3: to go to the federal government and say we need
• 37:23
  Speaker 3: assistance on this. What does that mean more debt from
• 37:27
  Speaker 3: the United States and ultimately either higher taxes or higher
• 37:31
  Speaker 3: borrowing costs likely for the United States as a whole
• 37:35
  Speaker 3: in trying to cover those Yeah, which is why.
• 37:38
  Speaker 2: That's the message is.
• 37:39
  Speaker 4: You know, this is not just a Florida, Colorado, California problem.
• 37:43
  Speaker 4: If these states do not fix themselves up, then it's
• 37:45
  Speaker 4: going to be an US problem.
• 37:47
  Speaker 3: And this is why I again, I know this is
• 37:49
  Speaker 3: not necessarily the most popular thing, but if if your
• 37:53
  Speaker 3: home is destroyed by a natural disaster, be it fire, earthquake,
• 37:59
  Speaker 3: you know, whatever it might be, I'm not sure that
• 38:02
  Speaker 3: the coverage should necessarily mandate replacement in the same same
• 38:06
  Speaker 3: exact location. I think we have to have real conversations
• 38:09
  Speaker 3: about yeah, you want to be covered, but especially like that,
• 38:13
  Speaker 3: there's there's places now that have had, you know, hurricanes
• 38:15
  Speaker 3: that have destroyed homes.
• 38:15
  Speaker 2: Two or three times.
• 38:16
  Speaker 3: Yeah, like you start wondering kind of what we're what
• 38:20
  Speaker 3: we're doing from a large scale there. But I don't
• 38:22
  Speaker 3: have great answers. Quick Break Hour two coming up in
• 38:25
  Speaker 3: just a bit.