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How government shutdowns affect the US economy · The Financial Exchange Show

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1:10
Speaker 2: Good morning, Welcome back to the Financial Exchange.
1:13
Speaker 3: It's Mike, Paul and Tucker with you on the cusp
1:16
Speaker 3: of a government shutdown in what do we have here
1:19
Speaker 3: fourteen ish hours? If it all goes seemingly according to
1:24
Speaker 3: plan now, it doesn't seem anybody too opposed to a
1:26
Speaker 3: government shutdown right now, So it looks like it's very
1:29
Speaker 3: like that happened. But I'll always say with all of this,
1:32
Speaker 3: just like the fiscal cliffs, like don't bother talking about
1:36
Speaker 3: the likelihood of it until it actually happens, because we've
1:38
Speaker 3: seen plenty of these where an eleventh hour deal gets
1:41
Speaker 3: done and the government doesn't shut down, or it shuts
1:43
Speaker 3: down for six hours, and it's all meaningless to begin with.
1:47
Speaker 3: But we are heading towards one of those shutdowns. We'll
1:50
Speaker 3: talk about the ramifications of that for the economy, for
1:53
Speaker 3: data that we receive for everyday workers out there. But
1:56
Speaker 3: at ten am this morning, we got what could be
1:59
Speaker 3: the last labor market report of the week, because it's
2:02
Speaker 3: been already disclosed that if the government does shut down,
2:07
Speaker 3: Thursday's and Friday's job data will not be released because
2:11
Speaker 3: the people that release it won't have it won't be
2:14
Speaker 3: working and so therefore can't release it. So today we
2:17
Speaker 3: got what's referred to as the JOLTS Report, that's an
2:19
Speaker 3: acronym for the Job Openings and Labor Turnover Survey. Measured
2:23
Speaker 3: things back in August, so you know, slightly outdated here,
2:27
Speaker 3: but it looks at the last day of August to
2:29
Speaker 3: try and measure what was going on with stagnation or
2:34
Speaker 3: turnover in the labor market. As the name of the
2:38
Speaker 3: report suggests. What did we find here, Paul, I mean
2:41
Speaker 3: headline here was that the number of job openings didn't
2:44
Speaker 3: really change much. We were sitting here at seven point
2:46
Speaker 3: two million in August, which is around where we were
2:49
Speaker 3: the previous month.
2:50
Speaker 4: Yeah, that's the headline number. The seven point two million
2:53
Speaker 4: or four point three percent unchanged there. In terms of
2:59
Speaker 4: the quits rate, which is a proxy for labor market
3:03
Speaker 4: mobility we often talk about in twenty twenty one. In
3:06
Speaker 4: twenty twenty two, we saw a really robust growth in
3:10
Speaker 4: this quits rate because the job market was quite strong.
3:13
Speaker 4: It has been quite stagnant over the course of this year,
3:16
Speaker 4: and again for the month of August, we saw that
3:19
Speaker 4: that rate was little changed at three point two percent.
3:23
Speaker 4: I believe it got to levels in twenty one and
3:27
Speaker 4: twenty two that, you know, signfically stronger than that. What
3:31
Speaker 4: was it at that point in time.
3:34
Speaker 2: The peak? Yeah, I don't know the numbers. Ratio.
3:39
Speaker 4: Yeah, but ultimately, if you look across all these different categories,
3:44
Speaker 4: for the most part, we didn't see anything that moved
3:48
Speaker 4: the needle significantly. There was a modest revision to July's
3:52
Speaker 4: reports that was revised upward by about twenty seven thousand,
3:56
Speaker 4: but all in all, very little change across some of
3:59
Speaker 4: these major categories here in this Jolts report.
4:01
Speaker 3: Yeah, at this point, again, you know that ratio that
4:04
Speaker 3: we always talk about, there's approximately seven point four million
4:07
Speaker 3: unemployed people in this economy right now and seven point
4:10
Speaker 3: two million jobs open at this moment. So unlike back
4:14
Speaker 3: in twenty twenty two when employers were scrambling and clamoring
4:18
Speaker 3: for employees, it's now.
4:22
Speaker 2: Approximately equally weighted.
4:24
Speaker 3: Or a little bit more in the employer's favor here,
4:26
Speaker 3: because again, even with all the noise about actual job
4:30
Speaker 3: openings and which companies are really trying to hire, there's
4:33
Speaker 3: only seven point two million job openings right now, and
4:36
Speaker 3: there's seven point four million people looking to fill those jobs.
4:39
Speaker 3: The other piece that this survey does is give us
4:41
Speaker 3: some data every month on the state of hirings and firings,
4:46
Speaker 3: and that stuff has been a little changed here as well,
4:49
Speaker 3: but I do think it's worth going through, especially on
4:51
Speaker 3: the sector stuff. There's a little bit of interesting data here,
4:54
Speaker 3: and so jumping through separations, so total separations, those include quits,
4:59
Speaker 3: lay discharges, So if you left your job for any
5:02
Speaker 3: reason at all, then you're counted in this data. Again,
5:06
Speaker 3: this is surveys. They're not doing a census of every
5:09
Speaker 3: worker out in the country, but they are trying to
5:11
Speaker 3: make a gas based on those that they survey. In August,
5:14
Speaker 3: the number and rate of total separations didn't change much,
5:17
Speaker 3: sitting at five point one million or three point two percent.
5:21
Speaker 3: The quits specifically, we look at because that kind of
5:24
Speaker 3: tells you employee confidence. Right, If you're confident enough to
5:28
Speaker 3: quit your job, it's either because you're retiring and you're
5:32
Speaker 3: done for that reason, or you're confident enough that you
5:35
Speaker 3: can go find another job.
5:37
Speaker 2: Right, those are only two reasons I can think of.
5:39
Speaker 3: I'm sure there are others too, but by and large,
5:41
Speaker 3: that's what they're trying to measure here and that has
5:43
Speaker 3: not been changing much. We sat at three point one million,
5:46
Speaker 3: about one point nine percent of the workforce is quitting
5:50
Speaker 3: right now in a month time.
5:51
Speaker 4: And I did find that peak data. It was November
5:53
Speaker 4: of twenty twenty one, where we saw four and a
5:55
Speaker 4: half million people quit their jobs and the quits rate
5:57
Speaker 4: peaked at three percent. So, just to give context to
6:00
Speaker 4: the number that you just say, I think I misquoted
6:02
Speaker 4: that number earlier two percent quits rate.
6:05
Speaker 3: So we're there now in terms of where that's changing.
6:11
Speaker 3: I think unsurprisingly, the quits rate in construction is pretty high,
6:14
Speaker 3: fifty six thousand people in the most recent month. That
6:17
Speaker 3: does not speak to me people are getting out of construction.
6:20
Speaker 3: To me, it speaks of, Hey, I've been working this
6:23
Speaker 3: construction job and I've got a job offer to do
6:25
Speaker 3: another type of construction out there.
6:27
Speaker 2: Maybe I am working on.
6:29
Speaker 3: Homes and instead I'm going to go work on data
6:30
Speaker 3: centers because I got to raise there, or whatever the
6:33
Speaker 3: change might be. There's some confidence, as you can imagine,
6:36
Speaker 3: in that sector that is facing increased demand because of
6:39
Speaker 3: data center construction, lower demand because of home construction, but
6:44
Speaker 3: pretty dramatically lower supply of labor due to deportations and
6:49
Speaker 3: changes to that industry. Last look that we had at
6:53
Speaker 3: estimates in the construction industry was that roughly half of
6:57
Speaker 3: people there either were undocumented themselves or had immediately immediate
7:02
Speaker 3: family members who are undocumented immigrants. And so you just
7:05
Speaker 3: think about the makeup of the composition of that one
7:07
Speaker 3: labor force, and you know, you can see how it's
7:10
Speaker 3: changed pretty dramatically here in terms of.
7:13
Speaker 2: Declining quits rates.
7:14
Speaker 3: Accommodation and food services saw it a drop in the
7:17
Speaker 3: quits rate. Arts, entertainment, recreation also saw a drop there,
7:21
Speaker 3: and layoffs still just aren't really happening. The number of
7:24
Speaker 3: layoffs and discharges in August sat at one point seven million.
7:28
Speaker 3: The rate has been tremendously low, at one point one
7:31
Speaker 3: percent of the total workforce getting laid off, and where
7:35
Speaker 3: it's happening again isn't really relevant because you're not seeing
7:39
Speaker 3: it really happen much at all. So again, why we're
7:43
Speaker 3: focusing on this labor market report. Hypothetically it could be
7:46
Speaker 3: the last one that you get prior to the next
7:49
Speaker 3: Federal Reserve meeting. The Federal Reserve is not subject to
7:53
Speaker 3: the openings and closings of the government. They are just
7:56
Speaker 3: a kind of quasi government agency that funds themselves. A
8:00
Speaker 3: government shutdown does not affect the FED and the majority
8:02
Speaker 3: of the work that they do, and their next meeting
8:05
Speaker 3: is a pretty far away. It's a full month away
8:07
Speaker 3: at this stage, so it would have to be a
8:09
Speaker 3: fairly long government shutdown for the data to not come
8:13
Speaker 3: out prior to the next meeting. But look, in twenty twelve,
8:16
Speaker 3: we had a sixty one day government shutdown. Is it
8:19
Speaker 3: possible that we get there with this one. Anything's possible. Unlikely,
8:23
Speaker 3: but anything's possible. If that were to happen, then you know,
8:28
Speaker 3: this is the last labor market report hypothetically we could
8:30
Speaker 3: get prior to that October twenty ninth meeting when the
8:34
Speaker 3: FED is very likely to be cutting rates by another
8:36
Speaker 3: quarter of percent. And nothing about this report I think,
8:40
Speaker 3: would contradict the path that the FED has been on.
8:43
Speaker 2: No, no, no, no, it.
8:45
Speaker 3: Doesn't you know, dramatically support big further rate cuts, but
8:49
Speaker 3: does not tell you anything about you know, employee confidence
8:52
Speaker 3: gaining or the labor market further deteriorating through layoffs. It
8:57
Speaker 3: just kind of maintains the status quot, and the status
8:59
Speaker 3: quot has been hey, unemployments. Relatively low labor supply is
9:05
Speaker 3: kind of confusing, but employers are generally holding on to
9:09
Speaker 3: their employees.
9:10
Speaker 2: They're just not hiring at a rapid rate. No, HET's
9:12
Speaker 2: what it is. Confirmed, No hire, no fire. That's basically
9:15
Speaker 2: been it. Let's take a quick break.
9:16
Speaker 3: When we come back, Let's talk a bit about this
9:19
Speaker 3: looming government shut down. What typically happens during them, How
9:22
Speaker 3: long do they oftentimes last? What happens to the economy,
9:25
Speaker 3: the markets during them? That's all next here on the
9:27
Speaker 3: Financial Exchange.
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Speaker 3: Well, we seem to be heading towards a government shut
10:32
Speaker 3: down here, Paul. And while normally, you know, normally Democrats
10:37
Speaker 3: are the ones trying to avert something like this based
10:40
Speaker 3: on their views of how government should work, they seem
10:43
Speaker 3: more than willing this time to let it shut down
10:46
Speaker 3: over this. I think there's a fair bit of politics
10:48
Speaker 3: at play here, with their base feeling like they have
10:51
Speaker 3: done nothing over the course of the last You don't
10:53
Speaker 3: see you're so that are pushing them to go this direction.
10:56
Speaker 3: But politics aside here it seems fairly likely. You never
11:00
Speaker 3: know until you actually see the shutdown. But what sort
11:03
Speaker 3: of effects should we expect? And maybe we start with
11:06
Speaker 3: the easiest, which is the stock market. And I would
11:09
Speaker 3: take all of this with a grain of salt. Whenever
11:11
Speaker 3: you hear somebody quote, hey, what happens to the stock
11:16
Speaker 3: market during a government shutdown? They're going to give you
11:19
Speaker 3: an answer, and the answer is generally going to be
11:21
Speaker 3: a measurement of averages. And the problem when you do
11:25
Speaker 3: that is, one, we don't have a government shutdown every year.
11:27
Speaker 3: These are reasonably rare, and so you have to look
11:31
Speaker 3: at your sample size because right if you're saying, hey,
11:34
Speaker 3: there's been seventeen government shutdowns, let's measure what happened on
11:40
Speaker 3: average with stocks, well, that's a really small sample size
11:42
Speaker 3: and it doesn't textualize what's going on. The other piece
11:45
Speaker 3: here is whenever you're talking about, oh, what did stocks do,
11:49
Speaker 3: did they go up or down during this period of time,
11:51
Speaker 3: Remember that stocks usually go up, and the longer you measure,
11:55
Speaker 3: the more likely they are to have gone up during
11:57
Speaker 3: that period of time. And so you can't just say, oh,
12:01
Speaker 3: it's a coin toss. It's not a coin to us.
12:02
Speaker 3: Stocks usually do go up and so therefore important measure.
12:05
Speaker 3: But according to Morgan Stanley, government shutdowns have had a
12:08
Speaker 3: pretty minimal negative impact on the stock market. The S
12:11
Speaker 3: and P five hundred index gained an average of four
12:14
Speaker 3: point four percent during such events. But taking a look
12:20
Speaker 3: at other areas, they do point out that sometimes defense
12:22
Speaker 3: and healthcare sectors can struggle during this period of time
12:25
Speaker 3: because they're heavily reliant on government payments and contracts, and
12:29
Speaker 3: so that can take a bit of a hit. Since
12:31
Speaker 3: ninety five, the defense sector gained five point two percent,
12:34
Speaker 3: so again didn't really affect their healthcare sector gained two
12:39
Speaker 3: point three compare percent. So again I don't really see
12:44
Speaker 3: much of a trend to play here in the stock market.
12:46
Speaker 3: On average, stocks go up most of the time when
12:49
Speaker 3: the government shut its down. That's not much of an exception.
12:52
Speaker 3: What else should we think about when it comes to
12:54
Speaker 3: the shutdown and it comes to the economy, financial markets,
12:58
Speaker 3: or just you know, folks that are out there, they're working.
13:00
Speaker 4: Yeah, like you said, stock market, I wouldn't really worry
13:03
Speaker 4: about it too much. There was a quote in that
13:05
Speaker 4: same Morgan Stanley piece on some evans. Since nineteen seventy six,
13:10
Speaker 4: the US tenure treasury has fallen aboutero point six percent
13:15
Speaker 4: during shutdowns. Again, i'll echo Mike's point on small sample
13:19
Speaker 4: size here. I had read fourteen shutdowns since nineteen eighty one.
13:23
Speaker 4: I think you had said seventeen, So there's not many
13:25
Speaker 4: of these days out there. The ten year treasury. Just
13:28
Speaker 4: for listeners out there, is the benchmark on the lending market,
13:31
Speaker 4: particularly for longer term loans such as mortgages and things
13:36
Speaker 4: of that nature. You've already had the US tenure treasury
13:39
Speaker 4: come down quite a bit over the course of the
13:41
Speaker 4: last few months or so. We now sit at they
13:45
Speaker 4: give me the bund yield for Germany. That's not really
13:47
Speaker 4: going to help me too much here.
13:49
Speaker 2: Jimy C's been doing that recently, don't failing.
13:52
Speaker 4: I don't need the German ten year bun for my tenure.
13:56
Speaker 4: It's at four point one two percent. But when I
13:59
Speaker 4: went over to a C see they seem to default
14:01
Speaker 4: to the German tenure, which doesn't really help us for
14:03
Speaker 4: the financial change here in the United States.
14:06
Speaker 2: It is buggy though.
14:07
Speaker 4: Yeah, So anyway, it's at four point one point one.
14:11
Speaker 4: We were as high as four seven five back at
14:14
Speaker 4: the beginning of the year here. So that has a
14:17
Speaker 4: trickle down impact to mortgage rates that we've seen come down.
14:20
Speaker 4: And we've talked about this idea of perhaps getting below
14:23
Speaker 4: that six percent threshold as a a maybe perhaps a
14:26
Speaker 4: catalyst for.
14:27
Speaker 2: The real estate market.
14:28
Speaker 4: So those two things, again I would take with massive
14:31
Speaker 4: grains of solid these this government shutdown could be so
14:34
Speaker 4: short in nature that these statistics could be just completely
14:39
Speaker 4: wasted by by tomorrow or Friday, depending on how things go.
14:42
Speaker 2: But I would say.
14:43
Speaker 4: From just a general day to day for listeners out there,
14:48
Speaker 4: TSA is something that would certainly be impacted. So if
14:51
Speaker 4: you're you're traveling out there, TSA will continue to work without.
14:56
Speaker 2: Pay, but they just won't get paid. Yeah, they won't
14:58
Speaker 2: get paid. And we did tend to call out when
15:00
Speaker 2: that happens exactly.
15:01
Speaker 4: We did see an uptick in absences for the twenty
15:05
Speaker 4: eighteen twenty nineteen shutdown that TSA workers called out of work,
15:09
Speaker 4: and then for our show most importantly for all the
15:11
Speaker 4: listeners out there, if we don't have as much economic data,
15:14
Speaker 4: that makes Tucker's job harder, so so sympathize with that
15:18
Speaker 4: as well.
15:19
Speaker 3: In terms of the most recent shutdown, that was twenty eighteen,
15:22
Speaker 3: twenty nineteen, only three hundred thirty oh yeah, only three
15:26
Speaker 3: hundred forty thousand employees were furloughed during that period of time.
15:29
Speaker 3: But that was only a partial government shutdown. Congress had
15:32
Speaker 3: actually passed some spending bills which kept parts of the
15:35
Speaker 3: government open, which is a kind of weird one if
15:37
Speaker 3: you go back twelve years ago, eight hundred thousand employees
15:39
Speaker 3: were furloughed.
15:40
Speaker 4: And that's what we would be more on the line
15:42
Speaker 4: this time around for that amount of furloughing for government employee.
15:46
Speaker 3: Big questions that I don't know what to do with.
15:47
Speaker 3: The Trump administration has talked about mass firings if funding lapses.
15:53
Speaker 3: I guess maybe I have no idea how to process
15:55
Speaker 3: something like that or estimate what could happen with it.
15:58
Speaker 3: We talked about data that might slow down or not
16:01
Speaker 3: be released. Let's private business, right, So if you are
16:07
Speaker 3: a defense contractor, you know, might you be affected by this?
16:12
Speaker 3: Well we have some precedent for that too. Back in
16:14
Speaker 3: twenty thirteen, Lockheed Martin for a load three thousand employees
16:17
Speaker 3: who worked in government facilities. You know, some have measured
16:22
Speaker 3: that the government shutdowns in the past have ultimately affected
16:26
Speaker 3: job growth overall in the economy, because look, the federal
16:30
Speaker 3: government is a big employer.
16:32
Speaker 2: And there are a whole lot of.
16:35
Speaker 3: I guess attached industries to that that don't get paid
16:38
Speaker 3: during a shutdown. I mean, think about COVID right, Like,
16:40
Speaker 3: when you don't have a whole bunch of people going
16:42
Speaker 3: into the office, there are all sorts of businesses that
16:45
Speaker 3: tag along to that, food services businesses, cleaning businesses that
16:48
Speaker 3: also further their employees. The longer something like this lasts.
16:52
Speaker 3: In terms of its effect on economic growth, candid affect GDP.
16:58
Speaker 3: Sure will GDP if it's a six hour government shutdown. No,
17:02
Speaker 3: So I'm not sure exactly how to measure all of that.
17:06
Speaker 3: In the likelihood of it being a problem, I will say, Okay, Look,
17:13
Speaker 3: if this doesn't last long, it's not a big deal.
17:15
Speaker 3: If it lasts quite some time, and by quite some time,
17:19
Speaker 3: I'm thinking thirty to sixty days, the biggest thing that
17:22
Speaker 3: I can think of that really starts to matter other
17:25
Speaker 3: than the individual's lives who are not getting paid and
17:29
Speaker 3: are facing a pretty tough job market to go and
17:31
Speaker 3: quit into. I really think about the fog of war
17:37
Speaker 3: moment that the FED is facing right now. That was
17:40
Speaker 3: a lot of f's, a lot of the literation. They're
17:42
Speaker 3: sorry about that, But the FED has been looking at
17:45
Speaker 3: this economy, this labor market, and really admitting that they
17:49
Speaker 3: are struggling to figure out what is going on. They're
17:52
Speaker 3: talking about the supply of labor due to deportations, the
17:56
Speaker 3: supply of labor due to retirement of baby boomers, thinking
18:00
Speaker 3: through job growth and AI and it's all of these
18:04
Speaker 3: different effects on the state of the labor market. And
18:07
Speaker 3: then on the other side, trying to figure out what
18:10
Speaker 3: exactly is happening with tariffs, what could happen in the
18:12
Speaker 3: future with tariffs, you know, the court cases that are
18:16
Speaker 3: looming on them, and what that impact is on inflation.
18:19
Speaker 3: And so look, does a small government shut down inject
18:23
Speaker 3: a whole lot of additional uncertainty into their No, but
18:27
Speaker 3: any higher degree of uncertainty is going to make it
18:30
Speaker 3: more difficult for the FED to do their job.
18:33
Speaker 2: And so you know, if otherwise.
18:35
Speaker 3: The data would have really been screaming cut interest rates
18:38
Speaker 3: more or pause on your interest rate setting path, they're
18:42
Speaker 3: probably not going to have that data. In the event
18:44
Speaker 3: of a shutdown, They're going to be less likely to
18:46
Speaker 3: take that action. So I think what this, what a
18:49
Speaker 3: shutdown does, is locks them into a path that they're on. So,
18:54
Speaker 3: for instance, if the government shuts down for you know,
18:57
Speaker 3: thirty days, I think it is an almost definite fact
19:00
Speaker 3: that the FED is going to cut rates by twenty
19:01
Speaker 3: five basis points at the next meeting, and they would
19:04
Speaker 3: not be willing to move in one direction or another.
19:06
Speaker 4: Yeah, because you'll have no evidence to the contrary. So
19:08
Speaker 4: they'll continue to be basically walking around with the lights off,
19:12
Speaker 4: trying to figure out what's going on in an are
19:14
Speaker 4: a difficult situation. They'll be like me last night at
19:16
Speaker 4: one in the morning, trying to get my infant daughter
19:19
Speaker 4: back to sleep and not be able to find that
19:21
Speaker 4: go for you couldn't find her binkie lights off.
19:23
Speaker 2: Same situation for the FED. Yeah, same thing.
19:26
Speaker 3: Jay's looking for his banking quick break Wall Street watches Next.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
19:44
Speaker 1: TFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:53
Speaker 1: Street Watch a complete look at what's moving market so
19:57
Speaker 1: far today right here on the Financial Exchange Radio Network.
20:00
Speaker 5: Markets dipping into negative territory, with all signs pointing toward
20:04
Speaker 5: a government shutdown, penning a last minute deal. A shutdown
20:07
Speaker 5: would delay the jobs before coming this Friday, while a
20:10
Speaker 5: prolonged shutdown could also delay the Consumer Price index due
20:14
Speaker 5: in mid October. Investors are also assessing the latest job
20:19
Speaker 5: opening's data posted just a short time ago, which came
20:22
Speaker 5: mostly in line with estimates. Right now, The Dow is
20:26
Speaker 5: down by a quarter of a percent, or one hundred
20:28
Speaker 5: and seventy eighteen points lower. S and P five hundred
20:31
Speaker 5: is down a tenth of a percent or ten points lower.
20:34
Speaker 5: NASDAK down nearly two tenths of one percent, or thirty
20:37
Speaker 5: nine points lower. RUSS two thousand is down by a
20:40
Speaker 5: third of a percent. Tenure Treasury yield down two basis
20:43
Speaker 5: points at four point one one five percent. In crude
20:47
Speaker 5: oiled down nearly one and a half percent, trading at
20:50
Speaker 5: sixty two dollars and fifty six cents a barrel. Some
20:53
Speaker 5: breaking news this hour after The Wall Street Journal reported
20:56
Speaker 5: the White House is planning to unveil a direct to
20:59
Speaker 5: consumer website for Americans to buy drugs dubbed trump ur X,
21:04
Speaker 5: as well as announced that Pfizer plans to lower prices
21:07
Speaker 5: on several of its medications in the US. Pfizer shares
21:11
Speaker 5: are climbing four percent. Meanwhile, Spotify's Daniel x stepping down
21:15
Speaker 5: from his role as CEO after founding the company nearly
21:18
Speaker 5: two decades ago. Ck will be succeeded by new co
21:22
Speaker 5: CEOs and will serve as executive chairman. Spotify shares are
21:26
Speaker 5: falling nearly five percent, Elsewhere Core We've jumping fourteen percent
21:31
Speaker 5: after the company agreed to a multi year deal with Meta,
21:34
Speaker 5: where Core We've will provide Meta with fourteen point two
21:38
Speaker 5: billion dollars of aiicloud infrastructure Investment Bank Jefferies posted stronger
21:44
Speaker 5: than expected earnings in a jump in quarterly revenue, where
21:47
Speaker 5: M and A advisory revenue hit a record high, pointing
21:49
Speaker 5: to a deal making revival. On Wall Street, shares are
21:53
Speaker 5: down by two percent. Ski operator Veil Resorts down about
21:56
Speaker 5: two percent after the company reported a wider than expected
21:59
Speaker 5: loss for the previous quarter. Past product sales for the
22:03
Speaker 5: coming season also declined. And after today's closing bell, we'll
22:07
Speaker 5: see earnings from Nike. I'm Tucker Silva and that is
22:10
Speaker 5: Wall Street watch.
22:13
Speaker 2: Paul and Tyler.
22:13
Speaker 3: The other day I was driving on the highway and
22:15
Speaker 3: I missed my exit and I accidentally reverse. I accidentally,
22:19
Speaker 3: and I recommend you do that in West Roxbury. Okay,
22:23
Speaker 3: I understand how that happens. How does one become an
22:25
Speaker 3: accidental landlord? This is not making a ton of sense
22:29
Speaker 3: to me. It seems like a multi step process that
22:32
Speaker 3: one would need to take to allow tenants into their
22:35
Speaker 3: home and start receiving payments from them. So I'm just
22:38
Speaker 3: a bit confused by the term. But Paul, what is
22:40
Speaker 3: an accidental landlord? According to the Wall Street Journal.
22:42
Speaker 4: According to the Wall Street Journal and Mike, accidental landlord
22:46
Speaker 4: is someone who just has people walk into their house
22:49
Speaker 4: all all of a sudden and I and start giving
22:53
Speaker 4: them checks and eating their food. No, that sounds like
22:56
Speaker 4: probably someone's college age student coming back in after graduating.
23:01
Speaker 4: What it actually is is people who have listed their
23:03
Speaker 4: homes for sale but had no luck selling them, and
23:06
Speaker 4: instead they pivot to renting out the property as they
23:09
Speaker 4: wait to list their home again.
23:12
Speaker 3: Okay, so I had no long term intentions of being
23:14
Speaker 3: a landlord, but don't want to sell right now, so
23:17
Speaker 3: I took a number of steps to rent it out instead.
23:19
Speaker 2: I can understand that exactly.
23:22
Speaker 4: Instead, where we've seen uptick of these rentals or accidental
23:27
Speaker 4: landlords occurring is in probably the parts of the country
23:31
Speaker 4: that you'd imagine if you listen to our show that
23:33
Speaker 4: are a little bit oversupplied in terms of inventory. Places
23:37
Speaker 4: like Atlanta, Dallas, Phoenix, Houston, Tampa, and Charlotte are areas
23:42
Speaker 4: where there is a lot more inventory than there are buyers.
23:47
Speaker 4: Some of that is kind of the tailwind from the pandemic,
23:51
Speaker 4: or initially what was the tailwind to build a lot
23:54
Speaker 4: of supply that now there is not the aggregate demand for.
23:57
Speaker 3: So I have a client who almost wound up in
24:00
Speaker 3: this situation several months ago, and I'm just confused as
24:07
Speaker 3: to how people don't really seemingly do the math on
24:09
Speaker 3: this stuff. But here was her situation. She bought a
24:12
Speaker 3: new place to live because the old one just wasn't
24:16
Speaker 3: exactly what they were looking for, moved in and you know,
24:21
Speaker 3: had the flexibility in her finances to be able to
24:23
Speaker 3: own both properties at the same time. And when she
24:26
Speaker 3: went to sell the old property was not quite finding
24:29
Speaker 3: that the price that her realtor had initially suggested, the
24:32
Speaker 3: price that she initially paid for it was.
24:35
Speaker 2: Not really getting the demand that she needed.
24:39
Speaker 3: So she turned to, hey, might I consider renting this
24:42
Speaker 3: out for a period of time and did the math,
24:44
Speaker 3: and effectively, what we did is we calculated a cap rate.
24:48
Speaker 3: And if you're not familiar with the cap rate, it's
24:51
Speaker 3: the same thing as a dividend yield on a stock.
24:53
Speaker 3: It's basically just effectively, what is your net operating income
24:57
Speaker 3: off the property, divided by the property's value. Were you
25:01
Speaker 3: to sell it and walk away with something, and you can,
25:03
Speaker 3: you know, take all three sorts of things into consideration here,
25:07
Speaker 3: but your net operating income would basically be your rent
25:10
Speaker 3: minus your property taxes and HOA fee if that exists,
25:13
Speaker 3: your insurance, you know, all those expenses that count for that,
25:17
Speaker 3: divided by your property value. And for me, I tend
25:21
Speaker 3: to look at the net property value after you pay
25:24
Speaker 3: your realtor and attorneys all that stuff to list the property.
25:27
Speaker 2: And get it done.
25:28
Speaker 3: But however you want to look at it, you come
25:30
Speaker 3: up with this rate, and to me, that should be
25:34
Speaker 3: the only real defining factor when considering do I rent
25:37
Speaker 3: out of property or sell it? Like if I'm faced
25:39
Speaker 3: with this situation, obviously there's taxes, there's other considerations, But
25:43
Speaker 3: how much am I comfortable generating off of this property?
25:47
Speaker 3: That's the number you care about it. It's not just
25:49
Speaker 3: the income that you might produce on an annual basis.
25:52
Speaker 3: You have to compare it to something because otherwise you're
25:54
Speaker 3: not taking into account opportunity cost. And in her case
25:58
Speaker 3: what we found is, yeah, for the rent that she
26:00
Speaker 3: could get compared to the sky high insurance costs, there
26:05
Speaker 3: had just been bunch of damage from the hurricane that
26:08
Speaker 3: swept through, plus the HOA fees. She was sitting on
26:11
Speaker 3: a cap rate of about one percent. Wow, And I said, why,
26:14
Speaker 3: I mean, lower the lower the price. What are we
26:17
Speaker 3: doing here? There's no sense in renting this out. You're
26:19
Speaker 3: gonna deal with the headache of a landlord, the uncertainty
26:22
Speaker 3: of how long it would take to get that person
26:24
Speaker 3: in there and keep them, compared to just taking a
26:27
Speaker 3: slightly lower price on the sale. Just go sell this thing?
26:30
Speaker 2: Got it?
26:30
Speaker 3: And I just don't see I think with real estate
26:35
Speaker 3: in particular, because there is not a public market where
26:39
Speaker 3: you go and mark your your condo to the market
26:42
Speaker 3: every day. There's also just some there's emotions, emotions that
26:47
Speaker 3: come into this.
26:48
Speaker 2: Yeah, more so than I think.
26:49
Speaker 4: You said that this was kind of a recent person.
26:51
Speaker 4: So she's trying to break even or something.
26:53
Speaker 2: Or precisely, Yeah, moved down the drink code. I don't
26:57
Speaker 2: want to sell for less than I paid. You don't
26:58
Speaker 2: want to sell for less I paid for you.
27:00
Speaker 3: All of those things come into play, and I think
27:02
Speaker 3: that's why you end up in this situation where there
27:04
Speaker 3: are suddenly more people renting out their properties or just
27:08
Speaker 3: leaving them vacant because they're not quite getting the price
27:10
Speaker 3: that they want.
27:11
Speaker 2: On the property. And I always just go back to
27:13
Speaker 2: what a missed opportunity costs there.
27:15
Speaker 4: Sure, and what doesn't get talked about enough with real estate.
27:18
Speaker 4: There are plenty of people who have been incredibly successful
27:21
Speaker 4: from developing a lot of properties. So I'm not against
27:24
Speaker 4: at all, but whenever gets discussed like it does with
27:27
Speaker 4: the stock market, you have anyone you talk to, they
27:30
Speaker 4: have their stories of oh I got bludgeoned in two
27:32
Speaker 4: thousand and eight, and that's true. But real estate doesn't
27:36
Speaker 4: always work out in your favor, and people don't talk
27:38
Speaker 4: about times where they don't make a substantial profit from
27:42
Speaker 4: particular sales. But this is just something that is just
27:47
Speaker 4: a to be clear, it's a small percentage of the market.
27:50
Speaker 4: I mean, we're talking about two to three percent of
27:52
Speaker 4: homes that are listed that are falling into this camp.
27:56
Speaker 4: It's not so abundant that it's it's all over the
27:58
Speaker 4: es hey.
27:59
Speaker 3: I mean the opportunity cost piece that I talked to
28:00
Speaker 3: her about was Okay, look, not that you were considering
28:03
Speaker 3: doing this, but you can generate one percent a year
28:06
Speaker 3: in rent net rent off of this property with more headaches,
28:10
Speaker 3: with more headaches, or you could go buy a CD
28:13
Speaker 3: for four percent, right. I think it was closer to
28:15
Speaker 3: five percent at the time. Yeah, And that's not a
28:18
Speaker 3: fair comparison because the CD has no possibility of appreciating,
28:21
Speaker 3: whereas hypothetically the piece of real estate does.
28:24
Speaker 2: But man, what I mean?
28:26
Speaker 3: You know, I do think there are a lot of
28:28
Speaker 3: people in that same situation, because guess what, when those
28:31
Speaker 3: landlords go and rent and you know, find the tenant
28:34
Speaker 3: for that rental, those prices aren't looking great in a
28:37
Speaker 3: lot of cases, and especially when you factor in all
28:39
Speaker 3: the carrying costs on some of these properties, between insurance,
28:42
Speaker 3: which guess what, you need better insurance if you're renting,
28:45
Speaker 3: and all of the other costs associated with rising costs
28:48
Speaker 3: in places like Florida. I think there's a lot of
28:50
Speaker 3: people that are in that lady situation of oh yeah,
28:54
Speaker 3: I really can't generate a whole lot on this What
28:56
Speaker 3: am I? What am I really looking for here? Let's
28:58
Speaker 3: take quick break when we come back Exxon looking at
29:02
Speaker 3: some stiff job cuts here. We'll be covering that next
29:05
Speaker 3: on the Financial Exchange.
29:07
Speaker 1: The financial Exchange is now available on your Alexis smart
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29:12
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29:28
Speaker 1: This is the Financial Exchange Radio.
29:30
Speaker 2: Network, Paul.
29:41
Speaker 3: The energy sector has been kind of struggling this year.
29:45
Speaker 3: I mean, you have seen very little movement on oil prices.
29:48
Speaker 3: We started the year on West Texas Cruise sitting at
29:52
Speaker 3: let me pull the exact price level. We're sitting at
29:55
Speaker 3: seventy one, seventy two on January thirty or December thirty first,
29:59
Speaker 3: we're now sitting at six two five. You had some
30:01
Speaker 3: dips there, a little bit of a spike back in June,
30:04
Speaker 3: but generally speaking, we haven't seen much movement on oil.
30:07
Speaker 3: Companies are making money at those prices, like Exxon has
30:10
Speaker 3: plenty of profit at sixty dollars a barrel oil, but
30:13
Speaker 3: they're not exactly making big investments. And the announcement today
30:17
Speaker 3: is that they're going to be cutting two thousand workers
30:19
Speaker 3: as the job losses in that area just continue to
30:24
Speaker 3: mount here on I don't know, kind of lackluster oil
30:28
Speaker 3: pricing and profit margins.
30:30
Speaker 2: It's a really difficult business. It's just so boomer bust.
30:33
Speaker 4: If you look at the sector performance year by year
30:35
Speaker 4: on the energy sector in twenty one and twenty two,
30:38
Speaker 4: best performing sector was energy and we all recall how
30:41
Speaker 4: high gas prices got in July of twenty two. I
30:44
Speaker 4: think they hit their peak. But since then, like you mentioned,
30:47
Speaker 4: there has been just a lot less demand or for
30:51
Speaker 4: good fortune, you know, prices have stayed relatively stable. What
30:55
Speaker 4: energy companies have learned over the last ten to fifteen
30:57
Speaker 4: years through these boomer bus cycles is efficiency is critical,
31:01
Speaker 4: and the mistakes that they made back in I think
31:04
Speaker 4: it was twenty twelve twenty thirteen that area where energy
31:07
Speaker 4: companies struggled was they put too much capex or too
31:10
Speaker 4: many resources towards drilling, and ultimately when prices came down
31:14
Speaker 4: or demand suffered, they were left hole in the bag
31:17
Speaker 4: a bit. So what you'll see is these constant announcements
31:20
Speaker 4: on really focusing on profits and efficiency as as you
31:24
Speaker 4: mentioned it, like that sixty dollars barrel. Chevron is doing
31:27
Speaker 4: a similar move. They're cutting fifteen to twenty percent of
31:30
Speaker 4: their workflow reshifting their headquarters. So this seems to be
31:34
Speaker 4: something that is a trend across the energy sector. And
31:38
Speaker 4: it only becomes problematic when you know you don't have
31:42
Speaker 4: the domestic production. But domestic production has been rising even
31:45
Speaker 4: though headcount has suffered.
31:47
Speaker 3: Paul, it's the last day to get a copy of
31:49
Speaker 3: the new guide from the Armstrong Advisory Group, and it's
31:53
Speaker 3: all about inflation and financial plans, and I think this
31:55
Speaker 3: one is especially relevant right now. Again, we're not dealing
31:58
Speaker 3: with twenty twenty two like inflation, nineteen seventies like inflation.
32:01
Speaker 3: But if there's one risk of the Fed's current path,
32:05
Speaker 3: and to be clear, the fed's current path is cutting
32:07
Speaker 3: rates out of concern for the labor market, the risk
32:10
Speaker 3: would be that they're misreading the situation and inflation is
32:13
Speaker 3: actually the piece that's about to take off. And so
32:16
Speaker 3: when we talk about inflation and when you talk about
32:18
Speaker 3: it with your clients, Paul, specifically, here's what I focus on.
32:23
Speaker 3: For a married couple approaching retirement at age sixty five,
32:28
Speaker 3: the likelihood that at least one of them lives until
32:31
Speaker 3: ninety is really high. It's over a coin flip at
32:35
Speaker 3: this stage that at least one of these people lives
32:38
Speaker 3: until ninety years old. That is a length of retirement
32:42
Speaker 3: that our parents and grandparents did not plan for and
32:45
Speaker 3: didn't need to plan for, And suddenly, you know, with
32:48
Speaker 3: where we are today, it's realistic for people to be
32:51
Speaker 3: facing twenty five thirty years of retirement. How do you
32:54
Speaker 3: prepare for inflation in a scenario like.
32:56
Speaker 4: That, It's really important to do thorough planning on There's
32:59
Speaker 4: another state study that had read Allons did a retirement
33:02
Speaker 4: study where sixty four percent of people surveyed were more
33:05
Speaker 4: concerned about outliving their money than death, which is pretty
33:09
Speaker 4: stark to hear that in a survey. So as a
33:13
Speaker 4: result of that, you have to make sure that your
33:14
Speaker 4: portfolio's position as best as possible to whether inflation in
33:19
Speaker 4: the future. The problem can en lie that if you
33:21
Speaker 4: just sit in cash and pick up what now is
33:24
Speaker 4: available three or four percent, if inflation runs at two
33:29
Speaker 4: three percent, it erodes away your return. So at least
33:32
Speaker 4: having those conversations is not to say that you can
33:34
Speaker 4: predict where inflation is going to go, but being as
33:37
Speaker 4: thorough as possible from a planning perspective with your allocation is.
33:40
Speaker 2: The best you can do with it.
33:41
Speaker 3: I don't know about you, Paul, but in my experience,
33:44
Speaker 3: folks that I work with that are heading to retirement
33:47
Speaker 3: are far more concerned about a market crash than they
33:50
Speaker 3: are inflation, and their portfolios reflect to that. And for
33:54
Speaker 3: most of them, they're focused on the wrong risk. They're
33:58
Speaker 3: scared of the market crash, but for most of them,
34:00
Speaker 3: that's not the thing that's going to derail their financial plan.
34:03
Speaker 3: What's going to derail their financial plan is unanticipated inflation.
34:06
Speaker 3: And it could come in the way of health care costs,
34:08
Speaker 3: it could come in the way of tax inflation. But
34:11
Speaker 3: those are the real risks that I think most people
34:14
Speaker 3: underestimate and need to prepare better for. If you are
34:19
Speaker 3: concerned about inflation in your financial plan, I mean it
34:21
Speaker 3: takes all forms this twenty twenty six, for instance, So
34:24
Speaker 3: security recipients are expecting about a two zero point seven
34:28
Speaker 3: percent cost of living adjustments. Guess what medicare costs going
34:31
Speaker 3: up over eleven percent. It's going to erode that cost
34:33
Speaker 3: of living adjustment that people rely upon. If you're looking
34:37
Speaker 3: for strategies to combat inflation in your retirement, call the
34:41
Speaker 3: Armstrong Advisory Group. Get a copy of our brand new
34:44
Speaker 3: guide Inflation and your Retirement Plan. You can get it
34:47
Speaker 3: by calling eight hundred three nine three four zero zero one.
34:52
Speaker 3: Guess what it's September thirtieth. It's the last day of
34:54
Speaker 3: the month. Your last opportunity to get a copy of
34:56
Speaker 3: this guide the number eight hundred three nine three four
35:00
Speaker 3: zero zero one, or you can request it online at
35:03
Speaker 3: Armstrong Advisory dot com.
35:05
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
35:08
Speaker 1: registered investment advisor. Nothing in the ad or in any
35:10
Speaker 1: Armstrong guide a specific financial, legal, or tax advice. Consult
35:13
Speaker 1: your own financial, tax into state planning advisors before making
35:16
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
35:19
Speaker 1: advisory services.
35:21
Speaker 3: If you are a member of gen X and you're
35:23
Speaker 3: listening to this program right now, I have a question
35:25
Speaker 3: for you. When did you get so old? The oldest
35:31
Speaker 3: members of gen X are turning sixty this year.
35:33
Speaker 2: How is that possible?
35:35
Speaker 3: Means that I'm getting old too, But dear God, sixty
35:38
Speaker 3: years old gen X members are now turning this year
35:43
Speaker 3: and are suddenly I mean, I feel like they're still
35:46
Speaker 3: talking about college funding and owning homes and all of
35:50
Speaker 3: the complexities there. But realistically, this is a generation that's
35:53
Speaker 3: now more focused on probably so security planning than they
35:56
Speaker 3: are about college funding and the other big stages of
36:00
Speaker 3: life that I tend to think of when I again,
36:03
Speaker 3: you just associate these things with different generations based on
36:06
Speaker 3: your work experience.
36:07
Speaker 2: And things like that.
36:08
Speaker 3: And when I think of Gen X, I think about, Okay,
36:10
Speaker 3: I gotta develop a college plan for them. I got
36:12
Speaker 3: to figure out a mortgage payoff plan. No, we're talking
36:15
Speaker 3: about social security planning now.
36:16
Speaker 2: For this generation, I feel like they're the most forgotten generation.
36:19
Speaker 3: They get the least pressure, Nobody hates them, nobody loves them.
36:22
Speaker 4: There just for Millennials and Baby Boomers were talked about frequently.
36:26
Speaker 4: Millennials get beat, were the punching bag, but now less so.
36:29
Speaker 4: I think Generation Z has taken that mantle. And Baby
36:32
Speaker 4: Boomers get a lot of press because they were the
36:34
Speaker 4: biggest ones out there, but you forget about Gen X.
36:37
Speaker 4: Social security is something that is a concern if you
36:40
Speaker 4: talk to a lot of these folks. I'm sure Mike
36:42
Speaker 4: you hear it. But probably the most common question I
36:44
Speaker 4: get asked from people in this age range is is
36:46
Speaker 4: it going to be there for me? What's your answer.
36:49
Speaker 2: I don't know.
36:51
Speaker 4: I hope so twenty thirty three is when it's set
36:54
Speaker 4: to to deplete on that, not that it's going to
37:00
Speaker 4: don't quote me on that, cuote me on I don't know,
37:03
Speaker 4: but certainly you'd think that the government would take steps.
37:05
Speaker 4: But I can guarantee you that they'll do similar things
37:08
Speaker 4: to the government shutdown. It will probably not be resolved
37:10
Speaker 4: until later than it should be.
37:13
Speaker 3: More than any other generation, this one is going to
37:15
Speaker 3: face probably the most angst about that funding question. Right
37:18
Speaker 3: for baby boomers, it was far off enough that you
37:21
Speaker 3: could kind of ignore it a little bit. I mean
37:23
Speaker 3: not if you're the youngest generation of Baby Boomers, because
37:25
Speaker 3: then you're still in this deciding stage. But for the
37:29
Speaker 3: Gen xers it's going to be the biggest looming issue
37:32
Speaker 3: when it comes to Social Security is how will they
37:35
Speaker 3: fund the program to ensure that my benefits continue my
37:38
Speaker 3: personal belief they will, And so don't base your decision
37:42
Speaker 3: on that, or at least not entirely on that factor.
37:46
Speaker 3: But look, you know, we talk about this all the time.
37:50
Speaker 3: The most important thing with social Security is that once
37:53
Speaker 3: you go and file it, except for some very rare circumstances,
37:56
Speaker 3: you can't change your mind, so no matter what you do,
37:58
Speaker 3: just educate yourself on it before you make a decision
38:01
Speaker 3: that can't be reversed when it happens to be with
38:04
Speaker 3: Social Security quick Break A lot more to cover in
38:07
Speaker 3: the second hour. We're going to be joined by Jessica
38:08
Speaker 3: Caldwell from Edmunds, Todd Lutsky from Christikan Dolan.
38:11
Speaker 2: Stay tuned. Lot more to go here on the Financial Exchange,