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Has the Dow Jones become useless? · The Financial Exchange Show

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1:11
Speaker 2: Kicking off the second hour of the Financial Exchange here
1:14
Speaker 2: taking a look at markets all in negative territory. Granted,
1:18
Speaker 2: not as large of a sell off as we saw
1:20
Speaker 2: early this morning when the market opened. It's all largely
1:24
Speaker 2: tied to the January CPI inflation report that we received
1:27
Speaker 2: this morning at eight thirty am, which was much hotter
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Speaker 2: than anticipated and slightly startling in terms of what you
1:35
Speaker 2: typically see from these reports. What we saw is a
1:38
Speaker 2: half percent month over month increase in CPI or just
1:43
Speaker 2: a basket of goods that they track for an inflationary basis.
1:47
Speaker 2: It's now running inflation at three percent year over year.
1:50
Speaker 2: We were in and around two and a half percent
1:52
Speaker 2: to two point seven percent in the late summer to
1:55
Speaker 2: early fall, so we certainly have seen over the course
1:58
Speaker 2: of the last couple months inflation picking up a reasonable amount.
2:02
Speaker 2: Some of the major contributors to the inflation report increases
2:05
Speaker 2: that we saw in the month of January were food
2:08
Speaker 2: costs as well as energy prices. On the food side
2:12
Speaker 2: of things, we've covered a lot on this show. Egg
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Speaker 2: prices have served fifteen percent month over month, the largest
2:18
Speaker 2: increase we've seen since twenty fifteen. And now egg prices
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Speaker 2: stand up over fifty percent from last year. We saw
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Speaker 2: food prices in general increase about close to a half
2:29
Speaker 2: percent month over month, and energy prices were up one
2:32
Speaker 2: percent as well. Even stripping out the impacts of energy
2:36
Speaker 2: and food, which can be a little bit noisy on
2:38
Speaker 2: a month to month basis, inflation was up across many
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Speaker 2: other different metrics out there, whether you look at shelter
2:45
Speaker 2: costs or some other areas out there. So it begs
2:49
Speaker 2: the question that we talked about in the first hour
2:51
Speaker 2: is you know, what is the federal reserves pass from
2:53
Speaker 2: here and likely what you see from the CMA futures,
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Speaker 2: a pause in ray cuts certainly will continue to be
3:00
Speaker 2: there mantra heading into the next six months or so.
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Speaker 3: Here, Yeah, just to review, the FED controls the money
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Speaker 3: supply and it uses that to give banks money, which
3:09
Speaker 3: intern allows banks to lower the rates they charge to
3:12
Speaker 3: each other and to people. That's how the FED more
3:15
Speaker 3: or less controls the short term interestrate we call the
3:17
Speaker 3: Federal funds rate. That target has come down in the
3:21
Speaker 3: past several months from five and a quarter to foreign
3:23
Speaker 3: a quarter. The Fed has brought it down because I
3:25
Speaker 3: thought the economy would slow more, it was worried about that.
3:28
Speaker 3: The FED in the short term tries to balance unemployment
3:31
Speaker 3: and inflation when it sees the economy getting too hot.
3:33
Speaker 3: In the words of a FED chairman from the fifties
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Speaker 3: and sixties, its job is to pull the punch bowl
3:38
Speaker 3: away right, put a damper on the party, which is
3:41
Speaker 3: usually my job. But when the FED does it, it
3:44
Speaker 3: does it by raising interest rates, so in a way,
3:46
Speaker 3: the FED controls economy wide demand. Sorry for the recap,
3:50
Speaker 3: but this I have to get myself into this frame
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Speaker 3: of mind and think about where the heck are we
3:54
Speaker 3: What is this bewildering array of data actually mean, and
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Speaker 3: are we in trouble or aren't really? I think that's
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Speaker 3: where what it comes down to. For most people, Hey,
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Speaker 3: am I screwed? Do I need to worry about this?
4:05
Speaker 3: And the answer this morning is, honestly, I'm a lot
4:07
Speaker 3: more worried about it than I was a little concerned
4:09
Speaker 3: last month when the month over month print was elevated.
4:11
Speaker 3: Everybody dismissed that and core was subdued. There are other
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Speaker 3: measures of underlying inflation, though, of what's really going on.
4:21
Speaker 3: It's the same reason we look at underlying inflation applies
4:25
Speaker 3: to why you don't weigh yourself just at night or
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Speaker 3: just in the morning and declare mission accomplished. You take
4:30
Speaker 3: an at I know I use this analogy a lot,
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Speaker 3: but it applies perfectly because we've all done it. We've
4:35
Speaker 3: all wanted to lose five or ten pounds, or maybe
4:37
Speaker 3: you needed to put on weight or something, and you
4:38
Speaker 3: know you need to take an average over several days.
4:41
Speaker 3: It's the same reason why we look at different measures
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Speaker 3: of underlying inflation. What is really going on with inflation? Well, core,
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Speaker 3: as you pointed out, Paul, was elevated, but that's just
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Speaker 3: stripping out food and energy. What about insurance, what about
4:52
Speaker 3: cell phone bills, what about any number of transportation related costs.
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Speaker 3: There are other measures that try to get it underlying.
5:00
Speaker 3: There's the media in the one in the middle that's
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Speaker 3: been going up at a three and change percent rate
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Speaker 3: over the past several months. If you annualize it, that's
5:08
Speaker 3: that's a problem for the FED and for us. There
5:11
Speaker 3: are other measures of outlier trimming that that employ outlier
5:16
Speaker 3: trimming methods and they all point to the same thing, Paul, inflation,
5:19
Speaker 3: that's a lot higher underlying inflation. That is the thing
5:23
Speaker 3: that the FED can control. It's a lot higher than
5:25
Speaker 3: the Fed's goal. And this is why talk of tariffs
5:30
Speaker 3: increased inflation expectations. We saw two reports in the past
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Speaker 3: few days, which is showing them tick up, one a
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Speaker 3: lot more dramatically than the other, but nonetheless both pointing
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Speaker 3: in the same direction. These are problems for the FED.
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Speaker 3: And now we've got stimulative fiscal policy coming down the
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Speaker 3: pike with tax reductions potentially and more spending. I would
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Speaker 3: not want to be a FED policy maker today.
5:51
Speaker 2: Oh no, I would never want to be one. Horror,
5:54
Speaker 2: It's nothing I'm qualifying, it's it's a missible. It's an
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Speaker 2: incredibly difficult job. I would almost make it akin to
6:01
Speaker 2: being a referee, where you kind of get very you
6:03
Speaker 2: get you get very little credit, and you get a
6:05
Speaker 2: whole lot of blame when you screw things up, and
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Speaker 2: it's just not a good position to be in. You know,
6:10
Speaker 2: it's funny you mentioned the Hey, where are we taking
6:13
Speaker 2: stock of where we are from an economic perspective? Are
6:15
Speaker 2: we screwed? My brother in law, who runs a tree
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Speaker 2: company down the cave, will often just text me every
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Speaker 2: six months or so just say, are we headed into
6:22
Speaker 2: a recession? And he had one to me a couple
6:24
Speaker 2: of weeks ago that's same text, Are we head into recession?
6:27
Speaker 2: I said, no, not yet, and he've responded back, well when.
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Speaker 2: And the short answer to what we're covering this morning is,
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Speaker 2: to my brother in law, if he's listening, we're not
6:36
Speaker 2: there yet. We're in fact worrying about something else. We're
6:39
Speaker 2: worrying about the other side of the coin, that the
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Speaker 2: economy is running too hot. So I always think of that,
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Speaker 2: you know, are we screwed? That's basically my brother in
6:46
Speaker 2: law's check in text, which is just are we in recession?
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Speaker 3: And the short answer is known that could have to
6:51
Speaker 3: again think of the FED as ultimately controlling demand. Do
6:55
Speaker 3: you throw more money into the economy, people are gonna
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Speaker 3: spend it? Ultimately, that to us, you can't fool all
7:01
Speaker 3: the people all the time. It causes inflation, but in
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Speaker 3: the short term it can be very stimulative. Historically, the
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Speaker 3: FED has had to induce recessions to bring down inflation.
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Speaker 3: They've tried to walk that tightrope and so far they
7:14
Speaker 3: have successfully. But this morning's report, coupled with last months
7:17
Speaker 3: and those underlying measures of inflation that I mentioned, they
7:21
Speaker 3: suggest that we may not be out of the woods,
7:24
Speaker 3: and this we thought we were in remission is a
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Speaker 3: different way to put it. And the disease and inflation
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Speaker 3: is absolutely a disease. It seems to still be with us.
7:35
Speaker 3: And it's a bit of a gut punch.
7:37
Speaker 2: No question piece here in the Wall Street Journal. Economic
7:41
Speaker 2: optimism is rising, but it's not converting to hiring yet.
7:45
Speaker 2: That's from a Randstand CEO who runs one of the
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Speaker 2: largest employment agencies by revenue, where there's just this disconnect
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Speaker 2: between sentiment and reality is basically the piece that he
7:55
Speaker 2: puts out here. Where there is a lot of optimism
7:58
Speaker 2: about the US economy. We do have an unemployment rate
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Speaker 2: that sits at four percent, historically extremely low. We have
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Speaker 2: continued to see job creation month over month in the
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Speaker 2: US upwards of one hundred thousand. Granted that's off of
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Speaker 2: the peak levels that we were seeing where it was,
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Speaker 2: you know, over two hundred thousand, but all in all,
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Speaker 2: the labor market has been quite resilient. There's arguments to
8:20
Speaker 2: be made, Yes, it's not as hot as it once was.
8:23
Speaker 2: You're not seeing as active of a quits rate. People
8:26
Speaker 2: you know, jumping from job to job to get a
8:28
Speaker 2: higher pay increase, but we are seeing wage increases for
8:32
Speaker 2: those people still in their jobs, and while might not
8:34
Speaker 2: be as much robust hiring of new employees, it still
8:38
Speaker 2: is in a really good place. And so to answer
8:40
Speaker 2: his question, it's just the pattern that we see from
8:43
Speaker 2: employers is that staying with the status quo, not hiring people,
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Speaker 2: but not really letting too many people go.
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Speaker 3: Part of me asks when I read stories like this,
8:51
Speaker 3: what planet do these people live on that they think
8:53
Speaker 3: four percent unemployment can be improved upon? Yep, and some
8:56
Speaker 3: Treasury secretary bessent or percent I'm sorry, I don't know
8:59
Speaker 3: how it's pronounced. Is targeting three percent GDP growth, which
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Speaker 3: is where we've been for the past two years. So
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Speaker 3: it's really not that ambitious a.
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Speaker 2: Target, but okay, better than China saying five percent just blindly.
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Speaker 3: Well, China can do it because they're still catching up
9:12
Speaker 3: so right, and they're they're they're demographics allowed for that,
9:15
Speaker 3: Like the United States could have done that when it
9:17
Speaker 3: was an emerging economy for a big economy with very
9:21
Speaker 3: low labor force growth, it ain't gonna happen. So it
9:23
Speaker 3: makes me when people look for more employment growth or
9:26
Speaker 3: faster GDP growth. We can improve on inflation, certainly, but
9:30
Speaker 3: not without the GDP trade off that we talked about earlier.
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Speaker 3: I asked myself, have they ever read anything about economic history?
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Speaker 3: And what the hell planet do they forgive me? But
9:38
Speaker 3: what planet do you live on? It doesn't get any
9:41
Speaker 3: better than this in a statistical sense. I'm not saying
9:44
Speaker 3: everybody's doing great. I don't want to diminish the severity
9:49
Speaker 3: of anybody's individual lived experience. But overall, Paul, this is
9:53
Speaker 3: as good. This is late nineties good.
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Speaker 2: Yeah. So uh doesn't end up the same way it
9:59
Speaker 2: did with the late nine.
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Speaker 3: Oh yeah, you're right, maybe a bad analogy. We're gonna
10:02
Speaker 3: take a quick wasn't a bad recession.
10:06
Speaker 2: I didn't live it as much. We're gonna take a
10:07
Speaker 2: quick break here, but when we come back, we're gonna
10:09
Speaker 2: be going over the S and P five hundred earnings
10:12
Speaker 2: in Corporate America's profit projections, as well as talking about
10:15
Speaker 2: the Magnificent seven being quote unquote so last year. That's
10:20
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12:24
Speaker 2: Coming back from break here, we've got a piece here
12:27
Speaker 2: in Bloomberg Corporate America beats profit projections, but investors don't care.
12:32
Speaker 2: And so basically the gist of this piece is that
12:36
Speaker 2: what we've seen from the S and P five hundred
12:38
Speaker 2: companies that have reported is a twelve and a half
12:41
Speaker 2: percent increase on earnings per share above estimates of seven
12:44
Speaker 2: point three percent. But stocks, at least it's argued in
12:48
Speaker 2: this piece, haven't moved really that much. And ultimately what
12:51
Speaker 2: it comes down to is mark We've covered this a lot.
12:55
Speaker 2: There are very lofty valuations for the market out there.
12:58
Speaker 2: It is priced to perfection, trading at a very high multiple.
13:02
Speaker 2: The thing with earnings estimates here is that they're constantly
13:05
Speaker 2: the analysts are constantly moving the bar up and down.
13:07
Speaker 2: So in this instance, you had analysts lowering expectations ahead
13:11
Speaker 2: of this most recent earnings data, and we've seen companies
13:15
Speaker 2: beat it across the board. But ultimately, what we want
13:18
Speaker 2: to see from a market perspective, if you're looking at valuations,
13:21
Speaker 2: we want to see earnings grow, but we don't want
13:23
Speaker 2: to see valuations expand that's the that's one of the
13:26
Speaker 2: better ways that we can get it to be at
13:28
Speaker 2: least more recently priced to abate this issue of hey,
13:31
Speaker 2: this is a really richly trading.
13:32
Speaker 3: Yeah, I'm going to ask the question I asked in
13:34
Speaker 3: the last segment, What planet do you live on? Stocks are?
13:37
Speaker 3: What do you want? Exactly? Out of equities? You what
13:40
Speaker 3: do you want fifty percent a year? Like stocks were
13:42
Speaker 3: up twenty percent over the last two years, they're up your.
13:46
Speaker 2: Days to three percent.
13:48
Speaker 3: So these returns are spectacular by any historical yardstick. What
13:54
Speaker 3: do you want? You made the critical point I think
13:57
Speaker 3: about stocks sponse to to above lowered expectation earnings, which
14:06
Speaker 3: was kind of a big yawn. Of course, they already priced,
14:10
Speaker 3: so to speak, abnormally high earnings in out to infinity.
14:16
Speaker 3: They're not gonna They're not gonna go up forever. Again,
14:19
Speaker 3: I gotta ask, Paul, what planet do you live on? Alternatively,
14:22
Speaker 3: if you think that question is a little too rude
14:23
Speaker 3: and direct, like what more do you want? Stock performance
14:27
Speaker 3: has been absolutely spectacular, a little alarmingly so if you
14:32
Speaker 3: look at the pattern of stocks after unusually good performance,
14:36
Speaker 3: wigh in excess of earnings growth, all this stuff seems
14:39
Speaker 3: to be as you said, Paul Lane priced in Chuck.
14:42
Speaker 2: Chuck and I were doing the same thing. Where the
14:44
Speaker 2: market I misspoke. It's actually up over three and a
14:46
Speaker 2: quarter percent a year to date, excluding any of the
14:49
Speaker 2: movements that we're seeing today. And we did this segment
14:51
Speaker 2: where it's what else do you want? You know, all
14:53
Speaker 2: these pieces that we cover in the publications that we
14:57
Speaker 2: read for the show that put out a lot of
14:58
Speaker 2: good content are questioning the volatility and markets, you know, stagnating.
15:04
Speaker 2: It's up over three percent year to day. To your point,
15:06
Speaker 2: coming off the heels of two years of twenty plus
15:09
Speaker 2: percent rates of return, you can't complain. So everyone needs
15:12
Speaker 2: to chill out. Chill out with.
15:14
Speaker 3: Respect to economic growth, on employment, stock market returns, it
15:17
Speaker 3: doesn't get any better. It's not going to get any better.
15:20
Speaker 3: I'd wager whatever I can afford to them, no big shot,
15:23
Speaker 3: but I know it's not going to get any better.
15:25
Speaker 3: It's almost if there were laws of economics like we
15:28
Speaker 3: have in other domains, I would invoke them, but there aren't.
15:31
Speaker 3: All just invoke historical experience and sort of common sense,
15:34
Speaker 3: even though I hate the term because a lot of
15:35
Speaker 3: people are saying it lately and coming to very bad conclusions.
15:38
Speaker 3: So maybe I should just stick with historical experience. It's
15:41
Speaker 3: not going to get any better than three percent real
15:44
Speaker 3: GDP growth, four percent on employment growth within a couple ticks, maybe,
15:47
Speaker 3: But we ain't going to five on GDP, we ain't
15:50
Speaker 3: going to two on unemployment. Stocks are not going to
15:52
Speaker 3: continue to return twenty five percent a year for the
15:54
Speaker 3: next ten years. I don't think anybody in this audience
15:57
Speaker 3: anyway is expecting anything.
15:58
Speaker 2: No, definitely not the magnific since seven are so last year.
16:01
Speaker 2: Cash cows are the new king. This is a piece
16:04
Speaker 2: out of the Wall Street Journal, where value investing in
16:08
Speaker 2: general has significantly underperformed. Whether it be the S and
16:11
Speaker 2: P five hundred, which is kind of a blended approach
16:13
Speaker 2: at it or large cap growth. The companies that have
16:16
Speaker 2: powered a lot of the stock market returns over the
16:18
Speaker 2: last couple of years are those magnificent seven that we
16:21
Speaker 2: talk about so frequently on the show Google, Apple, Amazon, Tesla, Nvidia,
16:26
Speaker 2: Microsoft and Tesla. I believe I was the one that
16:30
Speaker 2: I left out there, but instead value companies have not
16:34
Speaker 2: fared as well. This piece here makes the argument that
16:37
Speaker 2: rather than looking at just large cap value indices out there,
16:41
Speaker 2: like the Russell one thousand is a pretty popular one,
16:44
Speaker 2: there's another approach. And I almost think this guy's on
16:46
Speaker 2: the payroll for this fund. I'm not going to mention
16:48
Speaker 2: the fund that he continues to cite the journalist here
16:51
Speaker 2: because it's almost like he's trying to sell their ETF.
16:53
Speaker 2: But this ETF or investment strategy focuses more on free
16:57
Speaker 2: cash flow generation, So how much cash is a company
17:00
Speaker 2: generating rather than just what is it trading at? What
17:03
Speaker 2: is it price out? From a book value perspective. That's
17:06
Speaker 2: very much the school that sort of Buffett came up
17:08
Speaker 2: in with Ben Graham, looking at the value of a
17:12
Speaker 2: company and if it's fairly priced or not to generate returns.
17:15
Speaker 2: A little tweak on that approach, not to say that
17:17
Speaker 2: Buffett doesn't know or isn't aware of this approach, but
17:21
Speaker 2: focusing more my mark on free cash flow here.
17:24
Speaker 3: Yeah, it's one way to invest. I tend to think
17:26
Speaker 3: that's just a variation on value investing. There are only
17:29
Speaker 3: a few factors out there. Factors are like elemental forces.
17:35
Speaker 3: There's the stock market. But then if you open the hood,
17:37
Speaker 3: what's really going on. It's like if you, like, I
17:39
Speaker 3: don't know physics or something, you crack open an atom,
17:41
Speaker 3: you get protons, neutrons, and I guess electrons. This isn't
17:44
Speaker 3: a great analogy, but at some point somebody discovered, oh,
17:47
Speaker 3: those are not elemental. They are these things called quarks.
17:49
Speaker 3: I sound like Chuck Now I'm talking about science and
17:51
Speaker 3: I should not. I should not, I should not. I
17:54
Speaker 3: don't know. I think I hold on the edge of
17:55
Speaker 3: my street channel or something. I'm trying to make drawn
17:58
Speaker 3: analogy for something that has something else going on that's
18:01
Speaker 3: more fundamental, but you don't see it on the surface,
18:04
Speaker 3: and it's really interesting. So what's underneath that, what's really
18:07
Speaker 3: going on with the S and P five hundred, for example,
18:09
Speaker 3: a total market index. While there are value and growth forces,
18:13
Speaker 3: there are also size forces and momentum forces, and so
18:17
Speaker 3: call quality qualities a little newer, but there's evidence that
18:19
Speaker 3: it drives returns. So what's really going on underneath the
18:22
Speaker 3: hood of the stock market is this tug of war
18:24
Speaker 3: between growth and value, large and small, quality and momentum
18:28
Speaker 3: and profitability. These are elemental forces, and there are ETFs
18:32
Speaker 3: that allow you to play elemental forces. The problem there's
18:36
Speaker 3: moment You all know this. You could look at momentumtfs,
18:39
Speaker 3: quality ETFs, value ETFs, growth ETFs, size ETFs large, mid, small.
18:43
Speaker 3: Do you want to do that though, or do you
18:45
Speaker 3: just want to buy the whole package. It's really hard
18:47
Speaker 3: over time to beat the whole package, i e. In
18:50
Speaker 3: S and P five hundred index.
18:52
Speaker 2: Taking a look at markets as we head into halfway
18:56
Speaker 2: through the hour and two hours into trading, we've got
18:58
Speaker 2: the markets off about tweight percent on the S and
19:01
Speaker 2: P five hundred, The Dow Jones is off over four
19:04
Speaker 2: hundred and fifty points, and the Nasdaq is off over
19:07
Speaker 2: one hundred points or negative point six percent. Here, and
19:12
Speaker 2: we also have the US tenure Treasury spiking up quite
19:14
Speaker 2: a bit and continuing to hold those levels. With the
19:17
Speaker 2: US tenure Treasury right now sitting at four point sixty
19:20
Speaker 2: five percent, that is up about eleven basis points. We're
19:24
Speaker 2: gonna take a quick break here, but when we come
19:26
Speaker 2: back from break, we're gonna have the answer to our
19:28
Speaker 2: trivia question, and I'm gonna tell you why the Dow
19:31
Speaker 2: Jones is a useless index right after this break.
19:34
Speaker 4: Okay.
19:40
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19:45
Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
19:51
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19:57
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20:20
Speaker 3: All right.
20:20
Speaker 4: Trivia question today was what was Josh Broland's character's name
20:23
Speaker 4: in the Goonies They'll Be Brand? Brand was the lead
20:27
Speaker 4: character's older brother. Apparently winner today of the Financial ex
20:32
Speaker 4: Shane Show t shirt? Where was Jason and Kingston, New Hampshire.
20:35
Speaker 4: Congrats to Jason and we played trivia every day here
20:38
Speaker 4: on the Financial Exchange. See complete contest rules at Financial
20:43
Speaker 4: Exchange Show dot com.
20:45
Speaker 2: One of the things that sort of grinds my gears
20:48
Speaker 2: a little bit when you're out and about mark and
20:50
Speaker 2: you tell people what job you do, or they just
20:52
Speaker 2: happen to know that you are connected to the market
20:55
Speaker 2: in terms of what your day to day responsibilities are.
20:58
Speaker 2: They'll say to me something the fact that I do
21:01
Speaker 2: the day to day on the market.
21:02
Speaker 3: You sam a sheepherder or something.
21:05
Speaker 2: Oh, no, that your job's different than that the sheep herder.
21:11
Speaker 2: Just kidding anyway. They will say to me, oh, jeez, Paul,
21:16
Speaker 2: you know the Dow is off four hundred points today.
21:18
Speaker 2: The Dow is off six hundred points today. And not
21:21
Speaker 2: to go against the Dow, there's nothing wrong with it.
21:23
Speaker 2: But the real person who follows the markets knows that
21:26
Speaker 2: the doo is is useless. I would make it akin
21:29
Speaker 2: to In the scoreboards throughout the Major League Baseball all
21:33
Speaker 2: of them are digitized, except for Wrigley Field and Fenway
21:36
Speaker 2: Park their manual scoreboards, which is cool. It is something
21:39
Speaker 2: that historically it's really fun to see the old you know,
21:42
Speaker 2: Fenway scoreboard be changed manually, but it's something that has
21:45
Speaker 2: no practical use today. It's not the most efficient way
21:47
Speaker 2: to keep up with the score. The same thing applies
21:50
Speaker 2: for the Dow Jones it's got a lot of history
21:52
Speaker 2: behind it, and it's something that is, you know, synonymous
21:55
Speaker 2: with markets, but it's not something that any real economist
21:59
Speaker 2: or someone who studies the markets really tracks its performance.
22:02
Speaker 2: And there's two reasons for that. One is, it's only
22:06
Speaker 2: made up of thirty companies, so it's a very narrow
22:08
Speaker 2: swath of companies when you're looking at the US stock market.
22:11
Speaker 2: And the second most influential reason why it's just not
22:14
Speaker 2: that important is because it's price weighted. So a stock
22:18
Speaker 2: like Goldman Sachs is trading at close to six hundred
22:20
Speaker 2: and fifty bucks versus a stock like Cisco is trading
22:24
Speaker 2: at you know, sixty two dollars. By those metrics, Goldman
22:29
Speaker 2: Sacks has a much heavier weighting and impact on the
22:32
Speaker 2: Dow Jones than Cisco does. It is a heavier portion
22:36
Speaker 2: of it. And we all know, or everyone should know
22:39
Speaker 2: that the stock price that you see that can be
22:43
Speaker 2: easily manipulated by stock splits and other different metrics out there.
22:46
Speaker 2: It's really not a true sense of what a company
22:49
Speaker 2: is worth. Just because Goldman Sachs is at six hundred
22:52
Speaker 2: and fifty bucks doesn't mean it's you know, ten times
22:54
Speaker 2: more valuable than Cisco. So anyway, I covered my rant. Yeah,
22:57
Speaker 2: you can't the Dow.
23:00
Speaker 3: It doesn't allow to answer the question what did the
23:02
Speaker 3: market do? Because of that price weighted versus market cap
23:06
Speaker 3: or total share value, which is what market gap weighted means.
23:11
Speaker 3: Distinction said differently, everybody could own a little slice of
23:15
Speaker 3: the S and P five hundred, everybody in the world.
23:18
Speaker 3: Everybody in the world cannot because it's not market cap weighted.
23:21
Speaker 3: You could prove this, just take my word for it.
23:24
Speaker 3: Cannot own a little slice of the Dow. So it's
23:27
Speaker 3: not a good representative of the market. And as index
23:31
Speaker 3: funds became more popular, that's why you don't have a
23:33
Speaker 3: Dow Jones index fund in your four to one KSE.
23:35
Speaker 3: You have an S and P five hundred, or you
23:37
Speaker 3: have a Russell three thousand or something else. But if
23:40
Speaker 3: generally speaking, if it's called an index fund, it is
23:43
Speaker 3: market cap weighted. That's not always the case. Some use
23:46
Speaker 3: the term in a slippery way. There's nothing wrong with it,
23:49
Speaker 3: but it's not entirely correct. So, yeah, the S and
23:52
Speaker 3: P has allowed us to answer the question what did
23:55
Speaker 3: the market do? In a truly representative sense.
23:58
Speaker 2: It covers eleven sectors and it has you know, over
24:01
Speaker 2: five hundred companies a part of it. So a better
24:03
Speaker 2: diversified approach to look at the markets rather than thirty.
24:06
Speaker 3: And if you like modern portfolio theory, some of you
24:09
Speaker 3: came across that termin of finance. Course, it's efficient and
24:12
Speaker 3: it needs to be cap weighted, so to speak, to
24:15
Speaker 3: be well. It's not an expression, it's a think needs
24:18
Speaker 3: to be cap weighted to be efficient in a modern
24:20
Speaker 3: portfolio theory, which is what all of finance is based on.
24:24
Speaker 3: All those target date funds you have in your four
24:26
Speaker 3: to one K and the work that professionals do for you,
24:28
Speaker 3: they all use so called modern portfolio theory. You really
24:31
Speaker 3: can't implement it without index funds or at least something
24:34
Speaker 3: broadly diversified.
24:35
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25:38
Speaker 2: Audi manufacturers have had a really difficult couple weeks or
25:42
Speaker 2: even a couple months. If you talk to the CEOs
25:44
Speaker 2: of Ford or GM, they both have been highly critical
25:48
Speaker 2: of the on and off nature of potentially mentioned tariffs
25:53
Speaker 2: between Mexico and Canada. A lot of Ford and GM
25:58
Speaker 2: and Stillantis utilize Mexico and Canada as a critical part
26:02
Speaker 2: of their supply chain. So you had CEO for Jim
26:06
Speaker 2: Farley coming out yesterday saying, and I quote, a twenty
26:08
Speaker 2: five percent tariff across the Mexico and Canadian border will
26:12
Speaker 2: blow a hole in the US industry that we have
26:15
Speaker 2: never seen. It gives free reign to South Korean and
26:18
Speaker 2: Japanese and European companies that are bringing one and a
26:22
Speaker 2: half to two million vehicles into the US that wouldn't
26:24
Speaker 2: be subject to these tariffs for Mexico in Canada. And
26:28
Speaker 2: this is something that would put a lot of inflationary
26:31
Speaker 2: pressure on vehicles for these US auto manufacturers and poses
26:36
Speaker 2: an economic risk for these businesses out there.
26:39
Speaker 3: Mark Yeah. The estimate of manufacturing jobs lost because inputs
26:44
Speaker 3: get more expensive two jobs gained due to more domestic
26:48
Speaker 3: production of safe steel is like seventy five to and
26:51
Speaker 3: I'm not exaggerating, it's seventy five to one to. All
26:55
Speaker 3: the empirical work done on this subject has come to
26:57
Speaker 3: the conclusion that jobs losses that are not as conspicuous.
27:04
Speaker 3: You know, you put the tariffs on, they're gonna they're
27:06
Speaker 3: gonna bring their The news crews will go to Pittsburgh
27:09
Speaker 3: and they'll talk to steel workers union officials and others,
27:12
Speaker 3: and they'll say the tariffs are great. We love Bush,
27:15
Speaker 3: did it? You know Bush Bush? Two, I should say
27:17
Speaker 3: not not Hwu. Virtually every president since Clinton has imposed
27:21
Speaker 3: I think every president since Clinton has imposed steel taffs,
27:24
Speaker 3: So this is not new. But the job losses far
27:27
Speaker 3: outnumber the job gains, and that's partly what Farley's talking about.
27:31
Speaker 3: They're gonna have to idle lines, slow production, and as
27:35
Speaker 3: you say, there's an inflation.
27:36
Speaker 2: So that bears mentioning again because it is such a
27:38
Speaker 2: great point that you make. The empirical evidence has said
27:40
Speaker 2: that for every increase from a tariff perspective, you've lost
27:45
Speaker 2: seventy five jobs.
27:46
Speaker 3: Versus another in related industries, industries that you use steel
27:49
Speaker 3: and aluminum in this case as inputs.
27:52
Speaker 2: That is really really staggering. So we'll see, you know
27:56
Speaker 2: what those tariffs will look like. We have until March first,
27:59
Speaker 2: I guess, but things can always change on that front
28:01
Speaker 2: in terms of when we get more clarity as to
28:04
Speaker 2: what that would look like. GM has also mentioned that
28:07
Speaker 2: they've been in talks to try and mitigate fifty percent
28:10
Speaker 2: of these North American tariffs through utilizing different ways to
28:15
Speaker 2: manufacture and deploy capital in different ways. We're going to
28:19
Speaker 2: take a quick break here on the Financial Exchange when
28:22
Speaker 2: we come back a little bit of stack Roulette right
28:24
Speaker 2: after this break.
28:26
Speaker 1: This is your home for the most comprehensive coverage of
28:29
Speaker 1: the economy and the trends on Wall Street. Face is
28:32
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28:44
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28:54
Speaker 2: All right. Time for a little bit of stack Roulette.
28:58
Speaker 2: I will kick us off. Dave's Hot Chicken, which is
29:02
Speaker 2: a hot Chicken restaurant based out of California, or that's
29:07
Speaker 2: why they have over a quarter of their stores made
29:09
Speaker 2: some interesting changes as a result of the rising labor
29:12
Speaker 2: costs in California. What we saw with California as there
29:16
Speaker 2: was an increase on the minimum wage for fast food
29:18
Speaker 2: workers to twenty dollars an hour. That's now the highest
29:21
Speaker 2: in the US for restaurant jobs, and it could be
29:23
Speaker 2: even higher this year. And I think it's a good
29:27
Speaker 2: piece mark that illustrates sort of the unintended consequences of
29:32
Speaker 2: some of these legislative changes or tariffs could kind of
29:35
Speaker 2: fall in this bucket as well, where they increase minimum
29:39
Speaker 2: wage and businesses start to scrutinize on their expenses, and
29:42
Speaker 2: rather than perhaps hiring more employees or it being enriching
29:47
Speaker 2: to the fast food workers out there, companies like Dave's
29:50
Speaker 2: Hot Chicken have found ways to try and become more
29:53
Speaker 2: efficient through the use of getting rid of dishwashers and
29:57
Speaker 2: having an automated dishwasher system, or having more chios ordered
30:02
Speaker 2: for their restaurants and cutting down on headcount because they're
30:05
Speaker 2: utilizing these kios, which costs about five thousand bucks per
30:09
Speaker 2: location and one hundred and fifty bucks in terms of
30:12
Speaker 2: maintenance costs. Rather than actually benefiting the labor force, companies
30:17
Speaker 2: just find a way to sort of work around it
30:18
Speaker 2: to maintain their margins. And it's just it's important to
30:21
Speaker 2: note that, Yeah.
30:22
Speaker 3: For a long time, that was textbook economics. If you
30:25
Speaker 3: raise the price of an input, whether it be capital
30:27
Speaker 3: or labor, someone's going to substitute away from it if
30:29
Speaker 3: they can. So maybe if you make capital more expensive
30:32
Speaker 3: by taxing it or putting a tariff on it, they
30:35
Speaker 3: might instead substitute two workers for every automated machine, just
30:38
Speaker 3: as an example. Similarly, you make workers more expensive, they
30:41
Speaker 3: will try to automate to the extent that it makes sense.
30:45
Speaker 3: That is up to a point for our long time,
30:47
Speaker 3: that was textbook. Then there were some studies done in
30:48
Speaker 3: the early nineties that suggested, hey, maybe you can raise
30:51
Speaker 3: the minimum wage and it doesn't adversely impact employment. So
30:54
Speaker 3: now you'll get these kind of nuanced ancers from labor researchers.
30:58
Speaker 3: But I tend to think it's on balance it's not
31:00
Speaker 3: good for lower wage workers.
31:02
Speaker 2: No, it's an interesting point that you make to tie
31:04
Speaker 2: into the auto manufacturing piece. If you had these long
31:07
Speaker 2: standing tariffs, what you know goes against FORD or GM
31:11
Speaker 2: to scrutinize their domestic operations and rather than paying the
31:14
Speaker 2: higher wages that are associated with union workers in the
31:17
Speaker 2: United States, find other areas of their supply chain to
31:21
Speaker 2: automate so that they're cutting out employees. Yeah, so it
31:23
Speaker 2: can have unintended consequences. I think that bears mentioning. I've
31:27
Speaker 2: never had Dave's hot Chicken. I know there's one by
31:29
Speaker 2: one of our offices and movement. Is it good?
31:31
Speaker 4: Yeah, real good. We've gotten it here for a lounch.
31:35
Speaker 4: Maybe you've missed it every single time we've gotten We've
31:37
Speaker 4: got it like three or four times out.
31:39
Speaker 2: What in terms of Chick fil A, how would you
31:42
Speaker 2: compare it to Chick fil A?
31:44
Speaker 4: Obviously, I mean I would put it in different categories.
31:48
Speaker 4: I kind of put Dave's Hot Chicken in like the
31:49
Speaker 4: Chipotle category, where it's like a fresher sort of thing,
31:52
Speaker 4: not that Chick fil A is like the worst, but
31:54
Speaker 4: like Chick fil A is like flat out fast food,
31:57
Speaker 4: right yep, whereas Dave's Hot Chicken is You're a fast
32:00
Speaker 4: casual sort of place.
32:02
Speaker 3: But the Chickens it's in the double bypass category as
32:04
Speaker 3: opposed to the a quadruple yes bypass cat. That's how
32:07
Speaker 3: I like to rate past.
32:08
Speaker 4: There's what's like four different levels of spices, and like
32:11
Speaker 4: the reaper one is the top one. Yeah, I think
32:15
Speaker 4: that's what it's called. But uh no, it's fantastic. Have
32:18
Speaker 4: you you've had here.
32:20
Speaker 3: I've had, We've gotten a hair. I don't know, I
32:22
Speaker 3: don't know. I don't ask me. He's so my figure.
32:28
Speaker 2: You can make sure I'm saying I.
32:30
Speaker 3: Don't have a discerning palette. If you told me you
32:33
Speaker 3: could put a MC chicken and a Dave's Ot Chicken
32:35
Speaker 3: in front of me, blind bowled me. And I'm not sure.
32:37
Speaker 2: I'm the same. What do you what do you got?
32:39
Speaker 3: First mark story from CNN, chocolate prices are up twenty
32:42
Speaker 3: percent this Valentine's Day, I guess over last, and CNN
32:45
Speaker 3: points out that that's a record that sounds extreme, and
32:50
Speaker 3: I guess outrageous until you look at the year over
32:53
Speaker 3: year change in coca prices. And this is where I
32:55
Speaker 3: start to get confused. There's the coca bean, which goes
32:59
Speaker 3: into making chalcol which comes from a tree that in
33:01
Speaker 3: turn has a different name. It's called the coco tree.
33:04
Speaker 3: So the first thing I guess, if I had what
33:06
Speaker 3: a little wish list here would be, can Trump just
33:08
Speaker 3: come in and rename all this stuff? He's not a
33:10
Speaker 3: renaming kick. Can we just call all this stuff chocolate? Please?
33:13
Speaker 3: So you've got coca beans up one hundred and fifty percent. Wow,
33:17
Speaker 3: year over year. Their prices were stable for the longest time,
33:21
Speaker 3: like the length of the little series I'm looking at here,
33:24
Speaker 3: which goes back decades, with the exception of a couple
33:26
Speaker 3: of blips that I'm pretty sure nobody remembers. It's not
33:29
Speaker 3: that volidle commodity, but it's gone berserk, like so many
33:34
Speaker 3: things have. I was going to say since COVID, but
33:37
Speaker 3: I'm not quite sure the timing works out there. Really
33:39
Speaker 3: started in twenty twenty three increase Coca prices and up
33:42
Speaker 3: again one hundred fifty percent year over a date, which
33:44
Speaker 3: translates only into a twenty percent increase in say Valentine's
33:48
Speaker 3: Date chocolates, although the category is a little broader in
33:51
Speaker 3: this CNN piece, I don't get that. I'm sorry for posing,
33:54
Speaker 3: for not having anything definitive to close this loop with.
33:59
Speaker 3: But Coca, the prices are up by twenty percent. They
34:01
Speaker 3: could be a by a lot. Chocolate prices, excuse me,
34:03
Speaker 3: up twenty percent year over a year, But Coca prices
34:05
Speaker 3: are up one hundred and fifty, So I guess it
34:07
Speaker 3: could be worse.
34:08
Speaker 2: Only Mark could turn a story about Valante chocolate too
34:11
Speaker 2: and bust out charts and data. And yeah, I know.
34:14
Speaker 3: You don't think they's a generous gift, but I have
34:16
Speaker 3: to remind it, sweet heart, that the price of coca
34:19
Speaker 3: is of one hundred fifty percent. I got a tremendous
34:21
Speaker 3: deal on this Russell Stovers. I know, I know, I know.
34:24
Speaker 3: I hope that touches you like it touches me.
34:26
Speaker 2: Text us at six one seven three six two one
34:29
Speaker 2: three eighty five if any of the listeners out there
34:30
Speaker 2: get chocolates for their significant others for Valentine's Day, because
34:33
Speaker 2: I think other than maybe once or twice in my history,
34:38
Speaker 2: have I ever splurged for chocolates for a loved one
34:41
Speaker 2: around Valentine's Day. Flowers is definitely a lock that I've
34:46
Speaker 2: succumbed to purchasing many times around this time of year
34:50
Speaker 2: for this very pointless holiday.
34:52
Speaker 4: But I can't stand Valentine's Day. I can't stand it.
34:55
Speaker 4: It's just like you go to any store and you
34:58
Speaker 4: just see another guy in line at the market with
35:02
Speaker 4: a bouquet of flowers. They are all just like robots.
35:04
Speaker 3: Like coming flowers.
35:06
Speaker 2: We have this Valentine's Day right, It's just like, oh God,
35:10
Speaker 2: the pageantry with it, the restaurants, the way they do it.
35:13
Speaker 2: I talked about this off air. My wife and I
35:15
Speaker 2: went out once on Valentine's Day and they do these
35:17
Speaker 2: prepackaged menus. They rush you out of there, They're trying
35:20
Speaker 2: to turn over the table. It's one of the worst
35:22
Speaker 2: dining experiences.
35:23
Speaker 4: You'll ever have.
35:24
Speaker 2: It's so bad. It was a one and done for
35:26
Speaker 2: us where they just not joy not enjoyable. This is
35:29
Speaker 2: not relaxing.
35:30
Speaker 3: We're just okay, sorry I brought it up. That's why
35:33
Speaker 3: I took the inflation angle.
35:36
Speaker 2: It's just, uh, it's just not a good time. There's
35:38
Speaker 2: better better.
35:39
Speaker 4: Servers are miserable and I don't blame them because it's
35:42
Speaker 4: a crap holiday and it's just like everybody's forced to
35:46
Speaker 4: celebrate it.
35:46
Speaker 2: It's just no love from the Financial Exchange crew, no
35:50
Speaker 2: love for Valentine's Day. Here at the desk. Man in
35:53
Speaker 2: search of lost bitcoin fortune wants to buy the landfill
35:56
Speaker 2: where he swears. So this story, Tucker and I we're
36:00
Speaker 2: talking about this. It has probably been going on at
36:03
Speaker 2: least as long as I've been doing the show, which
36:04
Speaker 2: is the last four or five years, maybe even longer.
36:08
Speaker 2: James Howell, who is a British IT worker, had a
36:11
Speaker 2: substantial amount of cryptocurrency on a hard drive that he
36:14
Speaker 2: threw away I guess five ten years ago. Who knows
36:17
Speaker 2: how long it's been at this point, over five years.
36:19
Speaker 2: The guy just keeps getting pressed. It's absolutely insane the
36:22
Speaker 2: amount of coverage that this story has had. It first
36:25
Speaker 2: made headlines in twenty thirteen. Okay, so when he revealed
36:29
Speaker 2: to the public. So we're now talking about over a decade,
36:31
Speaker 2: this poor sap is still looking for his hard drive
36:34
Speaker 2: that has all this bitcoin.
36:37
Speaker 3: A billion dollars.
36:38
Speaker 2: At one point it was worth seven million, but I
36:41
Speaker 2: believe now we're talking about upwards levels of even more
36:46
Speaker 2: than that. Some that he continues to now it's it's
36:50
Speaker 2: supposed to be seven hundred million in terms of bitcoin
36:54
Speaker 2: that it actually has. He's looking now to purchase the
36:57
Speaker 2: landfill where it's buried. He is these guys at the
37:01
Speaker 2: landfill probably hate his guts so much, Why.
37:03
Speaker 3: Wouldn't they look for it.
37:04
Speaker 4: They probably haven't. I'm sure maybe one of them has it.
37:08
Speaker 4: Who knows, although he has your password, right. Yeah, that's
37:11
Speaker 4: the issue.
37:12
Speaker 2: Is that he if he can't go to the dump,
37:15
Speaker 2: he's saying he's gonna get robotic dogs to go after
37:20
Speaker 2: this thing to dig for it for him. The amount
37:22
Speaker 2: of money.
37:22
Speaker 3: That I'm sorry, robotic dogs, yeah.
37:24
Speaker 2: From Bossy locally. Oh, he's gonna have to source them
37:29
Speaker 2: to help out. He's put eleven million dollars of a
37:32
Speaker 2: business pland together which he proposed to spend three years
37:36
Speaker 2: excavating this landfill to find his hard drive.
37:39
Speaker 4: Imagine you better have the right landfill.
37:41
Speaker 2: That's why I was just gonna imagine if this was different.
37:45
Speaker 3: Is a huge waste. This is the tragedy of crypto.
37:48
Speaker 3: It engenders this rent seeking type behavior where people are
37:51
Speaker 3: just looking to accumulate tokens.
37:54
Speaker 2: How long would you how long would you guys chase
37:57
Speaker 2: this stream? I wouldn't be at twelve years if he
37:58
Speaker 2: said that this is twenty.
38:00
Speaker 3: Camp out there, don't get me wrong. For a billion dollars,
38:02
Speaker 3: Oh yeah, I'd be doing the same thing probably.
38:05
Speaker 2: At some point. Is it even in that landfill? I
38:07
Speaker 2: guess we'll let you know ten years from now. That's
38:10
Speaker 2: all the time that we have for this edition of
38:11
Speaker 2: the Financial Exchange, but we'll be right back at it
38:14
Speaker 2: tomorrow morning at ten am. Thanks so much for joining us.