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Bond Yields Hit 2007 Levels as Mortgage Pressure Builds · The Financial Exchange Show

• 0:00
  Speaker 1: We'll be right back. This is The Financial Exchange with
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  Speaker 1: Chuck Zotta and Mike Armstrong. Your exclusive look at business
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• 1:03
  Speaker 1: with Chuck Zotta and Mike Armstrong.
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  Speaker 2: Chuck, Mike, and Tucker with you here today.
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  Speaker 3: And we kick things off with a little bit more
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  Speaker 3: discussion on what is going on in the bond markets.
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  Speaker 2: Yesterday we saw.
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  Speaker 3: A pretty substantial move up in the treasuries across the board,
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  Speaker 3: whether you're talking one-year yields, five-year, 10, 30, all of
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  Speaker 3: them blowing out to levels that we haven't seen since 2007.
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  Speaker 3: And basically where we sit right now, and just to
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  Speaker 3: give you some broader context on this, if we look
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  Speaker 3: at the 10-year treasury, which is really what you should
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  Speaker 3: be looking at, The 30-year, while it does have higher
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  Speaker 3: rates that sound more interesting, the 10-year is really where
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  Speaker 3: all the action is because no one really, aside from
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  Speaker 3: pension funds and insurance companies, care about the 30-year bond.
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  Speaker 3: No one really buys them in meaningful quantities aside from
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  Speaker 3: those groups.
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  Speaker 4: What was the country that issued the 100-year government bond?
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  Speaker 2: Oh, there's a bunch of them.
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  Speaker 3: There's tons. I mean, Argentina's done it. I think Germany's
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  Speaker 3: got some out there. Switzerland might have. There's a bunch
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  Speaker 3: of them that have done it. But as of yesterday,
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  Speaker 3: the 10-year yield got up to 5.135%, which was the
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  Speaker 3: highest yield that we've seen on the 10-year since July
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  Speaker 3: of 2007. Now, I gave some context yesterday in that
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  Speaker 3: if you wanted to get to 5.25% on the 10-year,
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  Speaker 3: you were there in June of 2007. But if you
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  Speaker 3: want to get to 5.5% on the 10-year, you've got
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  Speaker 3: to go all the way back to 2001.
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  Speaker 1: Hmm.
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  Speaker 3: So 25 years since we've seen yields that high, we
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  Speaker 3: still have not seen yields get to that point, and
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  Speaker 3: I'm not suggesting that they definitively will, but this is
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  Speaker 3: just to give a little bit of context on how
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  Speaker 3: long interest rates have been low. And I want to
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  Speaker 3: make this point, not because I'm saying, hey, this is
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  Speaker 3: great that rates are going up, but I do want
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  Speaker 3: to make the point that, look, if you looked at
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  Speaker 3: the post-World War II period, And again, we only have
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  Speaker 3: data here going back to the data set that I
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  Speaker 3: have goes back to 1961. But I do want to
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  Speaker 3: add some context that basically from 1966 through 2000, we
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  Speaker 3: did not see interest rates on the 10 year below 4%.
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  Speaker 4: So we went through an abnormal period post GFC. I
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  Speaker 4: think that's your point.
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  Speaker 3: Yeah, my point is, look, if you're looking at this
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  Speaker 3: and being like, hey, why isn't the 10-year 3% and
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  Speaker 3: why aren't mortgages 4.5%? My ladies and gentlemen of the
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  Speaker 3: financial exchange, I think that might be a thing of
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  Speaker 3: the past.
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  Speaker 2: Not saying it definitively is.
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  Speaker 3: But I think you have to disabuse yourself of the
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  Speaker 3: notion that rates are just magically going to continue to
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  Speaker 3: land where they did during the 2010s. And.
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  Speaker 3: Maybe they get back there at some point, but if
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  Speaker 3: we look at the 2010s, Mike, the 2010s, how was
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  Speaker 3: it for economic growth?
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  Speaker 4: I can't say the word.
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  Speaker 1: Bad.
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  Speaker 2: Yes, it was.
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  Speaker 4: Dumpster fire? No, it wasn't dumpster fire.
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  Speaker 2: It was... No, Mike, Mike, Mike.
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  Speaker 4: A slow molasses spill.
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  Speaker 3: It was horrible. The 2010s were a horrible economic decade.
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  Speaker 3: I mean, it took until, I think, 2015, 2016 to
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  Speaker 3: get back to normal levels of unemployment.
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  Speaker 1: Yeah.
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  Speaker 2: Long time.
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  Speaker 1: Like.
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  Speaker 2: Bad decade.
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  Speaker 4: Bad decade.
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  Speaker 5: I also think the 2000s was a bad decade, but
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  Speaker 5: it was not bad insofar as a just slow, bad economy.
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  Speaker 5: It was a bad decade in terms of a very
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  Speaker 5: rapid boom-bust cycle for the economy. There were periods that
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  Speaker 5: were fantastic during the 2000s, but they were defined by
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  Speaker 5: some of the worst crashes in history.
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  Speaker 3: The other piece in the 2010s. Michael, is there any
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  Speaker 3: meaningful inflation in the 2010s?
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  Speaker 2: None. There wasn't. Inflation was low, growth was low, and.
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  Speaker 3: Bill Gross and the PIMCO guys came out with the
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  Speaker 3: new normal, that interest rates were never going to go
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  Speaker 3: up again. And I don't know if he said never,
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  Speaker 3: so I might be putting that word in his mouth.
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  Speaker 3: But the new normal was a term that was thrown
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  Speaker 3: around and that, hey, maybe this is how the world's
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  Speaker 3: just going to be, like slow growth, low inflation, like
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  Speaker 3: this could be where it is. Mike, when we look
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  Speaker 3: at today's world from a growth perspective, nominal growth, low
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  Speaker 3: or high?
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  Speaker 4: High.
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  Speaker 3: High.
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  Speaker 4: Where are we? Sixes? Fives?
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  Speaker 3: Year over year, we're in the mid-sixes. The last quarter,
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  Speaker 3: I think, was running close to seven and a half.
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  Speaker 3: And when we look at the inflation rate, lower high,
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  Speaker 3: also high.
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  Speaker 4: High.
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  Speaker 2: So I think we have to.
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  Speaker 3: Remove the 2010s from our memory as it relates to
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  Speaker 3: bonds as like, oh, this is what it should be. Now,
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  Speaker 3: I'm not saying this to be like, hey, everything's fine
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  Speaker 3: in the bond market, this is great, but more just
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  Speaker 3: to say, look, there's a difference between saying, hey, maybe
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  Speaker 3: the 10-year shouldn't move up half a percent in a month,
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  Speaker 3: and rates should be 2% on the 10-year. There is
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  Speaker 3: no conceivable reason why the 10-year at this particular point
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  Speaker 3: in time should be anywhere near 4%.
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  Speaker 5: Yeah, AI investment would need to darn near disappear for
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  Speaker 5: that to be reasonable.
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  Speaker 3: Not just that, but from a deficit perspective, there's a
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  Speaker 3: huge automatic stabilizer built in when you're running 6% annual
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  Speaker 3: deficits anyways.
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  Speaker 1: Yeah.
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  Speaker 5: So a number of contributing factors here. I mean, we
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  Speaker 5: clearly have a pretty resilient economy. In the short term,
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  Speaker 5: we had some pretty strong words from Iran over the.
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  Speaker 4: Course of this week.
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  Speaker 5: There was a weak treasury auction that I want to
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  Speaker 5: get your take on.
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  Speaker 4: The Fed is sounding quite hawkish.
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  Speaker 5: I think any and all of those are likely contributing
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  Speaker 5: to the spike in yields that we saw very recently.
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  Speaker 3: Yeah, there's there's a few possibilities out there. It's I
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  Speaker 3: think that, you know, trying to distill this down to like, oh, like,
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  Speaker 3: here's what happened. And, you know, here's like why this
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  Speaker 3: is going on. Look, it's quite simple in an environment.
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  Speaker 3: I know we can talk about like, you know, Tucker,
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  Speaker 3: what can we talk about?
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  Speaker 2: What are you asking me? I don't... D-E-B-T. Yeah, that's... Oh, oh, oh.
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  Speaker 2: A little slow. No, no, it's fine.
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  Speaker 5: Debt!
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  Speaker 2: Right, we could talk about that.
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  Speaker 3: But, again, that would mean that every time that interest
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  Speaker 3: rates go down, we've suddenly improved the fiscal standing of
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  Speaker 3: the United States. And the fact is, for the last
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  Speaker 3: 25 years, we have not. We've consistently made it worse.
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  Speaker 1: Hey!
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  Speaker 2: Thank you, Chuck.
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  Speaker 3: So I think that it's, you know, let's put that
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  Speaker 3: aside for a little bit. And I come back to, hey,
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  Speaker 3: if you have an environment that is potentially higher growth, nominally,
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  Speaker 3: and potentially higher inflation, bondholders are going to demand a
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  Speaker 3: higher interest rate in order to protect themselves from from
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  Speaker 3: losing too much in that environment and and what i
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  Speaker 3: mean by this and this gets it something you know
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  Speaker 3: the the president i think it was last week talked
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  Speaker 3: about hey like we had this great jobs report and
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  Speaker 3: like why didn't our interest rates go down the reason
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  Speaker 3: why is if you are a bond holder the thing
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  Speaker 3: that scares you is not a slowing economy at least
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  Speaker 3: if you're like a treasury bond holder the thing that
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  Speaker 3: scares you is not a slowing economy because in a
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  Speaker 3: slowing economy You sit there and you say, OK, great.
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  Speaker 3: Inflation is not going to be as high because, you know,
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  Speaker 3: the economy is slowing and growth isn't going to be
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  Speaker 3: as good. So there aren't going to be as many
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  Speaker 3: good investment opportunities. So, yeah, I'm happy to take a
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  Speaker 3: lower rate of return in a slow growth, low inflation
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  Speaker 3: economy because there's not going to be much as much
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  Speaker 3: other opportunity out there in a high growth, high inflation economy.
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  Speaker 3: If you are lending money to someone, like Mike, let's
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  Speaker 3: say that I lend you $ 100.
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  Speaker 2: Yeah.
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  Speaker 3: I'm not going to because I don't trust you, but
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  Speaker 3: let's say that I lend you $ 100. Put it on black, baby.
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  Speaker 2: Thank you. That's why I wouldn't lend you the money.
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  Speaker 3: If inflation were running at 1% and I lent you
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  Speaker 3: that money for 10 years, I would say, well, inflation's
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  Speaker 3: at 1%. I only need 1.5% to feel good because
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  Speaker 3: I'm still coming out ahead.
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  Speaker 2: Mike, I'm going to just pay me $ 1. 50 a year
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  Speaker 2: and it's fine.
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  Speaker 6: Whew.
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  Speaker 1: Deal.
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  Speaker 3: Now, if we've got a world where inflation's running at
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  Speaker 3: three or 4%, am I going to be content just
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  Speaker 3: getting one and a half percent?
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  Speaker 2: I'm going to be like, no, like this isn't how
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  Speaker 2: it works. This isn't, this isn't the plan.
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  Speaker 3: And so I'm going to say, no, I demand a
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  Speaker 3: higher rate of return from you in order to compensate
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  Speaker 3: me because I'm not just going to part with my
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  Speaker 3: money for nothing. If inflation's running hot, I'm going to
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  Speaker 3: have all kinds of other ways that I could make
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  Speaker 3: money other than.
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  Speaker 2: Giving it to you because inflation typically only.
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  Speaker 3: Runs hot in a high nominal growth economy aside from
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  Speaker 3: random weird short-term periods that you get stagflationary things that happen.
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  Speaker 5: So if we take a step away from Chuck lending
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  Speaker 5: Mike money and talk about our government here for a moment,
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  Speaker 5: and I'm a bond investor lending money to this government,
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  Speaker 5: I have a few things that come to mind. One,
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  Speaker 5: I am a little bit worried about inflation. I see
• 10:29
  Speaker 5: no end in sight to conflicts in Russia, Ukraine, and Iran.
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  Speaker 4: So I'm concerned there.
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  Speaker 5: I've seen interest rates increase pretty dramatically over the course
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  Speaker 5: of this year, and I see no indication that one
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  Speaker 5: of the main drivers of economic activity in the United States,
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  Speaker 5: artificial intelligence.
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  Speaker 4: Is slowing.
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  Speaker 5: And then finally, Can anyone point to any single act
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  Speaker 5: that would give me peace of mind that Congress intends
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  Speaker 5: to slow the pace of spending compared to GDP right now?
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  Speaker 1: No.
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  Speaker 4: Anyone?
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  Speaker 5: So why would I offer the U.S. government a lower
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  Speaker 5: interest rate? Why would I be willing to buy that
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  Speaker 5: bond at a rate below 5%? It's pretty tough to
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  Speaker 5: justify that.
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  Speaker 4: Correct.
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  Speaker 3: And part of the reason is also, look, the evidence
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  Speaker 3: that we have in hand is that, hey, if the U.S.
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  Speaker 3: economy slows, Congress is more likely to step in and
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  Speaker 3: be like, hey, throw more money at the problem.
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  Speaker 1: Right.
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  Speaker 2: Not even if it slows.
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  Speaker 3: We talked about the horrible policy yesterday coming out of,
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  Speaker 3: was proposed by.
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  Speaker 2: Tucker, was the senators from Oregon... I forget.
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  Speaker 3: I think it was the Oregon Senators who were trying
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  Speaker 3: to put forward the path to the federal government providing $ 50, 000
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  Speaker 3: in down payment assistance for first-time homebuyers. Oh.
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  Speaker 4: Perfect.
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  Speaker 3: And we made the point, like, hey, if you just
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  Speaker 3: add more money to the pool, you're not going to
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  Speaker 3: actually help on the housing side. But also, oh, we're
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  Speaker 3: just in the habit of giving people more money now.
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  Speaker 3: Are we serious about the debt? No, we've... The reason
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  Speaker 3: why housing is so crazy expensive is because there's so
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  Speaker 3: much demand because there's a ton of money sloshing around
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  Speaker 3: and not enough homes.
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  Speaker 2: It was Oregon, by the way.
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  Speaker 4: Thank you.
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  Speaker 3: Now, the money might not be in, quote, the right hands.
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  Speaker 3: It might not be in the hands of the first-time homebuyers.
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  Speaker 3: But if you give everyone, if you give all first-time
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  Speaker 3: homebuyers an extra $ 50, 000, if I'm selling a house, I'm
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  Speaker 3: going to sit back and say, hey, you just gave
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  Speaker 3: all those people $ 50, 000. I'm going to raise my price
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  Speaker 3: by $ 50, 000 because you can pay that now.
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  Speaker 2: So you're not actually helping things.
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  Speaker 3: But again, in the broader context of bond yields, there's
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  Speaker 3: no evidence that we are remotely serious about trying to
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  Speaker 3: manage the level of either inflation or growth in the U.S.
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  Speaker 3: in a way that would be helpful to bond yields.
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  Speaker 3: Let's take a quick break. When we return, let's talk
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  Speaker 3: a little bit more about bonds because this is a
• 13:03
  Speaker 3: big deal. We'll talk a little bit about, in particular,
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  Speaker 3: the impact on the housing market. We'll talk about what
• 13:07
  Speaker 3: the Treasury Secretary is seeing and also what we're hearing
• 13:11
  Speaker 3: from a Fed president next.
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  Speaker 1: This is your home for the most comprehensive coverage of
• 13:31
  Speaker 1: the economy and the trends on Wall Street. This is
• 13:35
  Speaker 1: the Financial Exchange Radio Network.
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  Speaker 3: All right, let's continue a little bit of a bond discussion. First,
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  Speaker 3: I want to just talk a little bit about what
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  Speaker 3: this means for the places where it seeps into.
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  Speaker 2: Your life.
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  Speaker 3: Higher long-term bond yields, the biggest place where you see it, mortgages. Yesterday,
• 13:58
  Speaker 3: 30-year fixed rate mortgage up 0.09% to 7.26%. Given where
• 14:05
  Speaker 3: we saw the move close yesterday in the 10-year treasury,
• 14:08
  Speaker 3: I suspect we're going to be heading towards 7.3% in
• 14:12
  Speaker 3: the near future. If that's true, it's going to be
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  Speaker 3: the first time that we are over 7.3% since May
• 14:18
  Speaker 3: 29th of 2024. Now, we got up as high. Remember,
• 14:20
  Speaker 3: back in 2023, 30-year fixed rate mortgage got to 8%
• 14:30
  Speaker 3: very briefly in mid-October. We touched it for, I think, one,
• 14:34
  Speaker 3: maybe two days at most. So we still have quite
• 14:37
  Speaker 3: a ways to go to there. But I can tell you,
• 14:40
  Speaker 3: you look at just how the 30-year fixed rate mortgage
• 14:42
  Speaker 3: has moved since late August. You know, August 27th, it
• 14:46
  Speaker 3: was a 675. It's a half a percent move in
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  Speaker 3: a span of three weeks.
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  Speaker 2: Call it four weeks. Four weeks. That's a quick move
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  Speaker 2: for the housing market.
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  Speaker 3: Now, it's happening at a time where You are seeing
• 14:59
  Speaker 3: declining sales as part of the seasonal calendar that we
• 15:03
  Speaker 3: see where the fall and the winter are the slowest
• 15:06
  Speaker 3: parts of the year. So the silver lining, I guess,
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  Speaker 3: is better now than in February.
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  Speaker 1: True.
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  Speaker 3: But it still is not something like, just to give
• 15:15
  Speaker 3: you an example, peak housing season, you typically see about 80,000
• 15:19
  Speaker 3: transactions a week. In the slow season, actually maybe about 90,
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  Speaker 3: slow season, by the time you get to late December,
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  Speaker 3: you're down to 40,000 to 50,000 transactions. So it's not
• 15:32
  Speaker 3: like you go from 100,000 down to 20. It's right
• 15:35
  Speaker 3: now you might be running two-thirds of what the peak is,
• 15:38
  Speaker 3: but those transactions still now have to figure out how
• 15:41
  Speaker 3: to price, how to close. There's a lot that goes
• 15:44
  Speaker 3: into it, and this is just another wrench in the
• 15:46
  Speaker 3: gears for housing.
• 15:48
  Speaker 2: Heading into year end?
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  Speaker 5: In terms of the housing inventory situation that we keep
• 15:52
  Speaker 5: an eye on occasionally, latest data point was August. We
• 15:56
  Speaker 5: were sitting at 1.14 million active listings. I keep going
• 16:01
  Speaker 5: back to 2019 timeframe. August of 19, we were sitting
• 16:05
  Speaker 5: on 1.235 million nationally. So we are, again, within spitting
• 16:10
  Speaker 5: distance of what was already a pretty tight housing market
• 16:13
  Speaker 5: back in 2019. Population has grown. You would expect more
• 16:16
  Speaker 5: houses to be On the market at this stage, they
• 16:19
  Speaker 5: are not. And obviously, this is a national look at things.
• 16:24
  Speaker 5: When you go take a look at some regional situations,
• 16:27
  Speaker 5: such as Connecticut, which has consistently had the worst story
• 16:32
  Speaker 5: for active inventory in the country, you're probably still running
• 16:36
  Speaker 5: less than half of the pre-COVID levels of inventory in
• 16:39
  Speaker 5: that state.
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  Speaker 1: Yep.
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  Speaker 3: So now we got a piece from the New York Times.
• 16:43
  Speaker 3: What's behind Besson's boast about the U.S.
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  Speaker 2: Bond market? And basically iteration.
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  Speaker 1: It is.
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  Speaker 3: It's a good one, too. So, look, for all of
• 16:53
  Speaker 3: the chatter about U.S. bonds, the point that we've made
• 16:55
  Speaker 3: over and over and why I don't think this is
• 16:57
  Speaker 3: about the Tucker, what's it not about?
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  Speaker 2: What's it not about? The debt. That's that's what it's
• 17:04
  Speaker 2: not about. The reason I think it's not about it's
• 17:06
  Speaker 2: the debt.
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  Speaker 3: Yes, it's it's not that specifically because it's not just U.S.
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  Speaker 3: treasuries that have been selling off all year. It's basically
• 17:15
  Speaker 3: treasuries everywhere. If it were just the U.S., then it
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  Speaker 3: would be, you know, oh, like investors are shunning U.S.
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  Speaker 2: Bonds. It's happening in Japan. It's happening in Germany. It's
• 17:25
  Speaker 2: happening in Brazil.
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  Speaker 3: It's happening in like basically everywhere but China because the
• 17:28
  Speaker 3: Chinese economy is so bad that investors are just holding
• 17:31
  Speaker 3: on to the mast saying, please, like, don't let the
• 17:33
  Speaker 3: ship go down. So I think that when you look
• 17:38
  Speaker 3: at what Besant is saying... He's basically saying, yeah, like
• 17:41
  Speaker 3: our bonds have gone down, but not as much as
• 17:43
  Speaker 3: everyone else. And so that means we're actually more trusted.
• 17:47
  Speaker 2: Maybe, maybe not.
• 17:47
  Speaker 3: Maybe it's just a random short term fluctuation. I don't
• 17:51
  Speaker 3: think that you can put a ton of stock in
• 17:53
  Speaker 3: that because, again, as I strongly believe, bonds don't move
• 17:57
  Speaker 3: for any one particular reason. They can move for a
• 17:59
  Speaker 3: whole bunch of different ones. And so maybe there's some
• 18:02
  Speaker 3: juice to that, but I don't know that I fully
• 18:04
  Speaker 3: buy it.
• 18:05
  Speaker 1: Yeah.
• 18:05
  Speaker 5: So we might be the cause behind all the global inflation,
• 18:08
  Speaker 5: but the global inflation is what is driving bond yields,
• 18:11
  Speaker 5: not just some domestic phenomenon.
• 18:13
  Speaker 3: What I do want to put out there, and Mike, again,
• 18:17
  Speaker 3: it hasn't happened yet on the energy side, but we
• 18:20
  Speaker 3: started talking back in early August about the possibility for
• 18:24
  Speaker 3: a diesel export ban being floated by the administration. And
• 18:27
  Speaker 3: it certainly has been floated this week. Nothing's actually happened yet.
• 18:30
  Speaker 3: But it's been floated pretty heavily in some trial balloons.
• 18:33
  Speaker 4: Yep.
• 18:35
  Speaker 2: I want to put out what I think is the next.
• 18:38
  Speaker 3: I'm thinking about, like, Besson talking about, like, hey, I've got,
• 18:41
  Speaker 3: you know, asymmetric information on the bond market.
• 18:43
  Speaker 2: Like, I am the house. Like, he's, you know, he's making, like,
• 18:47
  Speaker 2: these pretty big claims, right?
• 18:48
  Speaker 4: Yeah, he's trying to be a trader when he's the treasurer,
• 18:51
  Speaker 4: but yeah.
• 18:51
  Speaker 3: So I want to put out what I think is
• 18:55
  Speaker 3: something that might be floated in the next couple months.
• 18:58
  Speaker 3: Maybe not by Besson directly, but maybe by... An unnamed
• 19:02
  Speaker 3: source at the Treasury or something like that. Treasury might consider...
• 19:09
  Speaker 3: Suspending the issuance of new 10 and 30 year bonds.
• 19:12
  Speaker 3: I'm not saying they will. But I'm saying look for
• 19:16
  Speaker 3: it to maybe be floated. Because if Besson's move in
• 19:19
  Speaker 3: upping the buybacks... Is to reduce supply by increasing demand... Well,
• 19:25
  Speaker 3: if you get rid of the issuance... Then you reduce
• 19:28
  Speaker 3: supply by reducing supply. Let's discuss this and a little more.
• 19:31
  Speaker 3: We've got Wall Street Watch 2 in just a bit.
• 19:37
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:40
  Speaker 1: TFE Show. Breaking business news is always first, right here
• 19:44
  Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
• 19:49
  Speaker 1: Street Watch. Tracking the stocks, the data, and the headlines
• 19:53
  Speaker 1: driving markets so far today. Right here on the Financial
• 19:56
  Speaker 1: Exchange Radio Network.
• 19:57
  Speaker 6: Well, the bond market remains front and center after the
• 20:00
  Speaker 6: 30-year Treasury yield hit its highest level since 2004. Right now,
• 20:04
  Speaker 6: the Dow is down 0.4% or 207 points lower. S
• 20:05
  Speaker 6: & P 500 is off about 0.25% or 20 points off.
• 20:13
  Speaker 6: NASDAQ down 0.5% or 135 points lower. Russell 2000 is
• 20:18
  Speaker 6: down over a third of a percent. 10-year treasury yield
• 20:21
  Speaker 6: is flat at the moment at 5.112%. Crude oil is
• 20:27
  Speaker 6: up nearly 3% higher, trading at $ 94 a barrel, while
• 20:31
  Speaker 6: Brent is up nearly 3% trading at $ 105 a barrel.
• 20:36
  Speaker 6: Oracle stock is moving 5% lower on the heels of
• 20:39
  Speaker 6: a Bloomberg report that the software company is moving to
• 20:41
  Speaker 6: shield itself from racking up expenses on a massive data
• 20:45
  Speaker 6: center being built in New Mexico. The notice is an
• 20:49
  Speaker 6: attempt to put off payments should the data center, dubbed
• 20:52
  Speaker 6: Project Jupiter, get derailed and fail to come online as planned. Meanwhile,
• 20:58
  Speaker 6: Meta is up 3% after the tech and social media
• 21:01
  Speaker 6: giant announced a new pair of smart glasses and a
• 21:04
  Speaker 6: handheld device that would integrate its Muse AI agent elsewhere.
• 21:09
  Speaker 6: Olive Garden parent company Darden Restaurants reported quarterly earnings in
• 21:13
  Speaker 6: revenue that missed expectations as it saw its same store
• 21:17
  Speaker 6: sales growth slow. Shares are off by 1%. And after
• 21:22
  Speaker 6: today's close, we'll see earnings from Costco. I'm Tucker Silva
• 21:28
  Speaker 6: and that is Wall Street Watch.
• 21:31
  Speaker 3: Do you think Project Jupiter refers to the planet or
• 21:34
  Speaker 3: the Roman god?
• 21:35
  Speaker 1: Or Florida?
• 21:38
  Speaker 4: Definitely Florida.
• 21:39
  Speaker 2: Yeah.
• 21:40
  Speaker 4: That would be my bet, Tucker.
• 21:42
  Speaker 1: Definitely.
• 21:43
  Speaker 6: Or there's a boat named Jupiter.
• 21:46
  Speaker 4: A boat? A boat?
• 21:47
  Speaker 6: Very nice boat, yeah.
• 21:49
  Speaker 5: Is this like your uncle's brother's boat or something?
• 21:51
  Speaker 2: No, my dad used to have a Jupiter.
• 21:53
  Speaker 1: Yeah, it was gorgeous.
• 21:54
  Speaker 2: Oh, it's a brand.
• 21:55
  Speaker 4: I thought it was the name of a boat.
• 21:56
  Speaker 2: You know, a boat.
• 21:59
  Speaker 3: I thought you were referring to the Jupiter.
• 22:01
  Speaker 2: I should know that.
• 22:02
  Speaker 5: Like this boat that goes out of the Quincy Harbor
• 22:05
  Speaker 5: every three weeks.
• 22:06
  Speaker 2: It's a make. Got it, got it. I'm more of
• 22:09
  Speaker 2: a Whaler fan myself, but... Yeah, it's like that.
• 22:11
  Speaker 4: You know, Rex got that boat named Jupiter.
• 22:13
  Speaker 6: Oh, yeah.
• 22:15
  Speaker 3: I thought that was like Jeff Bezos' boat name or
• 22:16
  Speaker 3: something like that. Like, oh, like, Bezos is out on
• 22:19
  Speaker 3: Jupiter again.
• 22:19
  Speaker 2: You know, like, look at that.
• 22:21
  Speaker 3: So, before the break, I had mentioned, hey, maybe, you know,
• 22:27
  Speaker 3: as a possibility, I don't think it would be that
• 22:30
  Speaker 3: surprising if at some point in the next couple months,
• 22:35
  Speaker 3: Scott Besant or someone from the Treasury... might float the
• 22:39
  Speaker 3: idea of, hey, we're not going to issue any more
• 22:43
  Speaker 3: new 10- and 30-year debt. We're going to issue all
• 22:45
  Speaker 3: short-term debt in an effort to reduce supply of those bonds,
• 22:50
  Speaker 3: maintain demand being the same, and in doing so, try
• 22:53
  Speaker 3: to lower long-term bond yields through that. Mike, do you
• 22:55
  Speaker 3: think that that's a possibility? Because this is the first
• 22:58
  Speaker 3: time I've ever mentioned it to you. I suppose anything's
• 23:02
  Speaker 3: on the table. Ceasing issuance entirely, I'd be surprised by.
• 23:05
  Speaker 5: Reducing it would seem more likely to me I don't
• 23:08
  Speaker 5: know how effective it would be. It would certainly drive
• 23:12
  Speaker 5: then up rates on the short end of the curve.
• 23:15
  Speaker 4: And I guess the thinking there.
• 23:18
  Speaker 5: Being people borrow on the long end and save on
• 23:23
  Speaker 5: the short end. So, you know, is it a popular
• 23:27
  Speaker 5: item to run on? But man, that comes with some
• 23:29
  Speaker 5: dangers too. Not everybody's going to be happy about interest
• 23:34
  Speaker 5: rates on the short end of the curve skyrocketing.
• 23:36
  Speaker 2: Here's why I think.
• 23:38
  Speaker 3: Here's why I lean towards the idea of, again, I'm
• 23:44
  Speaker 3: not in favor of this, but here's why I think
• 23:46
  Speaker 3: they may lean towards floating some type of halting of
• 23:50
  Speaker 3: the issuance as opposed to just a reduction. Mike, when
• 23:53
  Speaker 3: they did the increase in the buyback, it didn't really
• 23:58
  Speaker 3: do anything to the Treasury market. In fact, yields have
• 24:01
  Speaker 3: gone up since then, but it was an important signal
• 24:03
  Speaker 3: that they cared about where long-term yields are.
• 24:05
  Speaker 1: Mm-hmm.
• 24:08
  Speaker 3: But it's not a bazooka. You know, it's a water gun.
• 24:12
  Speaker 3: It's like, oh, we're going to spend, like, an extra, like,
• 24:14
  Speaker 3: $ 4 billion in a multi-trillion dollar market. Like, hey, look
• 24:18
  Speaker 3: at us. Like, it's not big. If you reduced long-term
• 24:25
  Speaker 3: debt issuance in favor of issuing more short-term, because remember,
• 24:29
  Speaker 3: Treasury's got to borrow.
• 24:30
  Speaker 2: It's just a matter of how long the borrowing period is. Yes, like,
• 24:35
  Speaker 2: it's okay. Maybe that's something.
• 24:37
  Speaker 3: But saying, hey, we're going to get rid of it,
• 24:39
  Speaker 3: I could see how that is viewed as a bazooka saying, okay,
• 24:44
  Speaker 3: we're going to surprise you by doing this.
• 24:48
  Speaker 2: That's how I get there as a possibility. Will it
• 24:50
  Speaker 2: actually happen?
• 24:51
  Speaker 3: I have no idea. But we know they want long-term
• 24:55
  Speaker 3: borrowing costs down. It's kind of hard to get long-term
• 25:00
  Speaker 3: borrowing costs down unless you want to actually slow the economy,
• 25:04
  Speaker 3: unless you start playing around with stuff like this.
• 25:08
  Speaker 2: So put that out there as just a possibility. I
• 25:11
  Speaker 2: just want it to be considered.
• 25:13
  Speaker 3: Let's talk a little bit about what we're seeing from
• 25:16
  Speaker 3: members of the Fed who are now talking about what
• 25:20
  Speaker 3: they want to do. I believe this qualifies as, dare
• 25:23
  Speaker 3: I say it, forward guidance. But John Williams.
• 25:42
  Speaker 2: John Williams, who is the New York Fed president.
• 25:45
  Speaker 4: Tucker.
• 25:46
  Speaker 3: He's not the composer. He's not actually Darth Vader.
• 25:56
  Speaker 4: He really should go to press conferences with that open music, though.
• 25:59
  Speaker 2: I'm telling you.
• 26:00
  Speaker 4: Yeah.
• 26:01
  Speaker 2: He should. And then Kevin Warsh. Missed opportunity.
• 26:03
  Speaker 3: Kevin Walsh could come out to, like, the Skywalker theme.
• 26:05
  Speaker 3: You know, it could be like, oh, even within the Fed,
• 26:07
  Speaker 3: the force has to be balanced. You know, like, you
• 26:09
  Speaker 3: could workshop it for a little bit. So, John Williams,
• 26:13
  Speaker 3: who was the president of the New York Fed, says, quote,
• 26:17
  Speaker 3: not quote yet, He says market expectations for another interest
• 26:20
  Speaker 3: rate hike by the end of the year are, quote,
• 26:22
  Speaker 3: a reasonable way of thinking about it, but we'll have
• 26:24
  Speaker 3: to see. Mike, for a Fed that, you know, for
• 26:27
  Speaker 3: a Fed chair who wants no forward guidance, which forward guidance, remember,
• 26:31
  Speaker 3: is distinctly, it's not saying here's where we think the
• 26:33
  Speaker 3: economy is, but more here's what we need to do
• 26:35
  Speaker 3: in the future. Gosh, it sure seems like regional Fed
• 26:39
  Speaker 3: President John Williams is okay giving forward guidance.
• 26:42
  Speaker 2: Right.
• 26:42
  Speaker 5: So is this him rebelling against Warsh or doing so
• 26:47
  Speaker 5: with the permission of Warsh?
• 26:49
  Speaker 2: I think the former.
• 26:50
  Speaker 6: Yeah.
• 26:51
  Speaker 3: I think if it were really up to Warsh, he
• 26:53
  Speaker 3: would curtail all of this. And I'm not saying that
• 26:55
  Speaker 3: that's wrong necessarily. I'm just saying Warsh isn't talking about
• 27:00
  Speaker 3: getting rid of forward guidance because he just wants everyone
• 27:03
  Speaker 3: else at the Fed to do forward guidance so he
• 27:05
  Speaker 3: doesn't have to. I.
• 27:07
  Speaker 5: I also don't know what mechanism Warsh has to stop this.
• 27:12
  Speaker 2: Well, you could always change.
• 27:13
  Speaker 3: I mean, again, the Fed's internal rules aren't built by Congress.
• 27:22
  Speaker 3: One of the commissions he puts out there, I think
• 27:24
  Speaker 3: he has a communication, they're not commissions, what are they called?
• 27:27
  Speaker 2: Task forces? One of his task forces is on communication.
• 27:31
  Speaker 3: The communication task force could come out and say, hey,
• 27:34
  Speaker 3: we're extending the blackout period for Fed communications indefinitely. We're
• 27:38
  Speaker 3: not going to allow people in the Open Market Committee
• 27:41
  Speaker 3: to speak.
• 27:44
  Speaker 2: I'm not saying this would be good or bad.
• 27:45
  Speaker 3: I'm just saying they can change that stuff. There's already
• 27:49
  Speaker 3: a blackout leading into Fed meetings on Fed members speaking.
• 27:53
  Speaker 3: They could make it longer. They could make it permanent.
• 27:55
  Speaker 3: They could do all kinds of stuff there if they
• 27:57
  Speaker 3: really wanted to. And I wouldn't be surprised if we
• 28:00
  Speaker 3: see some change in blackout periods and stuff like that
• 28:04
  Speaker 3: when the task forces get their results back, you know,
• 28:08
  Speaker 3: sometime towards the end of Q4.
• 28:10
  Speaker 5: On a more extreme example, can a Fed president terminate
• 28:15
  Speaker 5: a governor for cause? A Fed president terminate a governor
• 28:21
  Speaker 5: for cause? Like, can Walsh terminate Williams for cause, right?
• 28:23
  Speaker 5: If he ignores a blackout. I'm guessing the president can.
• 28:27
  Speaker 5: I don't know if Walsh could.
• 28:30
  Speaker 2: I don't know.
• 28:31
  Speaker 3: This is a question that I've never been asked, and
• 28:33
  Speaker 3: so rather than saying yes or no, I'm just going
• 28:36
  Speaker 3: to pause and say, let me look into that, Michael,
• 28:38
  Speaker 3: and I'll get back to you.
• 28:40
  Speaker 4: Not that they would.
• 28:41
  Speaker 5: It's just, you know, it seems to me like this
• 28:44
  Speaker 5: is Williams just defying what Warsh wants, the direction that
• 28:47
  Speaker 5: he wants to take the Fed's communications, and I just
• 28:50
  Speaker 5: wonder what would happen in an extreme example. But nonetheless,
• 28:53
  Speaker 5: it's purely hypothetical and probably not going to happen. So
• 28:58
  Speaker 5: let's take a break.
• 29:01
  Speaker 2: If you want.
• 29:02
  Speaker 1: Yeah.
• 29:02
  Speaker 4: Let's take a quick break. When we come back, what
• 29:04
  Speaker 4: are we going to talk about, Josh?
• 29:05
  Speaker 2: Oh, hang on. I have the answer, Michael.
• 29:07
  Speaker 4: Oh, okay.
• 29:08
  Speaker 3: The Fed chair does not have any power to remove
• 29:10
  Speaker 3: anyone from the FOMC.
• 29:13
  Speaker 2: And so it is not, it actually, in.
• 29:18
  Speaker 3: Order to remove someone for cause from the Fed board, anyone,
• 29:22
  Speaker 3: like whether it's a governor or a regional president, it
• 29:25
  Speaker 3: takes a board's majority decision.
• 29:28
  Speaker 1: Interesting.
• 29:29
  Speaker 2: At least at this point.
• 29:30
  Speaker 6: So you're saying he couldn't use the force?
• 29:41
  Speaker 4: Quick break more financial exchange after this.
• 29:46
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• 29:49
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• 29:55
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• 30:00
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• 30:04
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• 30:20
  Speaker 2: Peace here from Bloomberg.
• 30:21
  Speaker 3: Titled Trump and Xi by time on trade with neither
• 30:24
  Speaker 3: able to afford a fight, they agreed to maintain a
• 30:26
  Speaker 3: trade truce until early 2027. And so my guess is
• 30:31
  Speaker 3: that this is probably the biggest thing that comes out
• 30:34
  Speaker 3: of these meetings this week, which is just a continuation
• 30:37
  Speaker 3: of the status quo. I'm not optimistic that any meaningful
• 30:40
  Speaker 3: progress is going to be made on the artificial intelligence
• 30:43
  Speaker 3: regulation front. And it's tough for me to see too
• 30:48
  Speaker 3: much happening as it relates to China trying to wield
• 30:50
  Speaker 3: its influence in order to bring the Middle East situation
• 30:54
  Speaker 3: to a prompt closure. So Again, maybe something develops there.
• 30:58
  Speaker 3: I think you're more likely to get something there than
• 31:00
  Speaker 3: on the AI side of things. But this, good news,
• 31:03
  Speaker 3: just in that, okay, you're not going to see any
• 31:06
  Speaker 3: change in the tariff structure right now. Not that I
• 31:09
  Speaker 3: really thought much was on the table.
• 31:11
  Speaker 5: Yeah, this confirms that these talks are probably done before
• 31:18
  Speaker 5: they're really starting now.
• 31:19
  Speaker 4: This is what you get out of it, and... I'm
• 31:21
  Speaker 4: with you.
• 31:22
  Speaker 5: You know, China is almost certainly providing material support to Iran,
• 31:26
  Speaker 5: or at least was when things calmed down enough. I
• 31:29
  Speaker 5: don't know that you're going to have any success in
• 31:30
  Speaker 5: deterring that significantly.
• 31:32
  Speaker 2: No.
• 31:34
  Speaker 6: Leaving your IRA to your children may sound like the
• 31:37
  Speaker 6: obvious choice, but how they receive that money could have
• 31:40
  Speaker 6: important tax consequences. Cushing and Dolan has a new guide
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• 31:55
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  Speaker 6: larger tax bill. That's one reason why your IRA beneficiary
• 32:04
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• 32:07
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• 32:11
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• 32:18
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• 32:23
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• 32:25
  Speaker 6: Or you can request the guide from their website, LegalExchangeShow.com.
• 32:32
  Speaker 1: The proceeding was paid for and the views expressed are
• 32:34
  Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
• 32:37
  Speaker 1: or Armstrong Advisory may contact you offering legal or investment services.
• 32:40
  Speaker 1: Cushing and Armstrong do not endorse each other and are
• 32:42
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• 32:43
  Speaker 2: Mike, also, one other item.
• 32:47
  Speaker 3: Tonight, there's going to be a state dinner between the
• 32:51
  Speaker 3: two delegations. Did you know that state dinners were not
• 32:54
  Speaker 3: really a thing until the FDR administration?
• 33:00
  Speaker 4: Was it so that everyone was sitting?
• 33:03
  Speaker 2: What do you mean?
• 33:05
  Speaker 4: Why were they not a thing until then?
• 33:07
  Speaker 3: My guess, quite honestly, is probably travel times before made
• 33:10
  Speaker 3: it really hard to actually get everyone, like, big groups
• 33:13
  Speaker 3: of people from, like, one capital to another, at least, like,
• 33:16
  Speaker 3: you know, you think about the U.S.
• 33:17
  Speaker 2: And where we are.
• 33:19
  Speaker 6: Or the previous meetings, they all just got hangry and
• 33:21
  Speaker 6: realized it.
• 33:23
  Speaker 3: It could have been, but it really wasn't, like, you
• 33:25
  Speaker 3: go back before FDR, and, again, state dinners before FDR,
• 33:30
  Speaker 3: there were three. Do you know who was the first
• 33:34
  Speaker 3: country hosted... For a state dinner.
• 33:40
  Speaker 4: UK.
• 33:42
  Speaker 2: Tucker, any guesses? Canada.
• 33:44
  Speaker 3: Nope.
• 33:45
  Speaker 2: Hawaii. 1874, Ulysses S.
• 33:50
  Speaker 3: Grant hosted the Hawaiian delegation for the first ever state
• 33:54
  Speaker 3: dinner at the White House.
• 33:56
  Speaker 5: I was kind of joking, but now that I think
• 33:58
  Speaker 5: about it, televising a state dinner under FDR may have
• 34:02
  Speaker 5: intentionally been because he was in a wheelchair. Like, hey,
• 34:07
  Speaker 5: we don't want to have a press conference where these
• 34:09
  Speaker 5: two are standing next to each other.
• 34:11
  Speaker 4: And so we.
• 34:12
  Speaker 2: Want to release something. Well, there wasn't television before that.
• 34:14
  Speaker 5: Photographs, you know, like, hey, we're going to take a
• 34:17
  Speaker 5: lot of photos at the state dinner because we do
• 34:19
  Speaker 5: not want the type of meet and greet that existed before,
• 34:23
  Speaker 5: which was two men walking across the stage and yada, yada, yada.
• 34:27
  Speaker 2: I could see that.
• 34:28
  Speaker 4: I could see that.
• 34:28
  Speaker 3: I wonder which president holds the record for the most
• 34:31
  Speaker 3: state dinners.
• 34:33
  Speaker 1: Taft.
• 34:33
  Speaker 2: Taft. State dinners, not steak dinners, Michael. Oh, boy. That's
• 34:42
  Speaker 2: a low blow for a guy who can't defend himself.
• 34:44
  Speaker 5: Yeah, well, you know, when you have to ship in
• 34:47
  Speaker 5: your own specially made tub for the White House.
• 34:51
  Speaker 6: I've seen it's actually Reagan.
• 34:54
  Speaker 2: I could see that. I was going to guess either
• 34:57
  Speaker 2: Reagan or Nixon.
• 34:58
  Speaker 3: Just like the geopolitical upheaval during both of their tenures
• 35:01
  Speaker 3: was pretty significant.
• 35:02
  Speaker 6: Lyndon B. Johnson hosted 54, and then it says Reagan
• 35:07
  Speaker 6: hosted 52 to 59. I don't know why they can't
• 35:09
  Speaker 6: clarify it. And then Nixon had 42. Is this a
• 35:14
  Speaker 6: lunch or is this a dinner?
• 35:15
  Speaker 1: I don't know.
• 35:15
  Speaker 2: Maybe that's what it was. It's a brunch, you know?
• 35:18
  Speaker 1: Is it supper?
• 35:19
  Speaker 5: Don't the Canadians call lunch dinner and dinner supper? So,
• 35:23
  Speaker 5: you know, it could be confusing here.
• 35:25
  Speaker 6: Late lunch, you know?
• 35:27
  Speaker 2: Is this a dinner? This is a state snack.
• 35:32
  Speaker 4: Goldfish for everybody.
• 35:33
  Speaker 3: We got some peanuts and we got blue chips if
• 35:37
  Speaker 3: you're in economy class. Let's talk a little bit about
• 35:41
  Speaker 3: this piece from the Boston Globe. I have so many
• 35:45
  Speaker 3: different thoughts on this, Mike.
• 35:47
  Speaker 6: Yeah.
• 35:47
  Speaker 3: The headline is, sales approach $ 140 million in first month
• 35:51
  Speaker 3: of online lottery games.
• 35:52
  Speaker 2: In the state of Massachusetts.
• 35:53
  Speaker 5: So first of all, thank you all for filling the
• 35:56
  Speaker 5: budget gap for all of us and voluntarily paying taxes
• 36:00
  Speaker 5: to the state of Massachusetts.
• 36:01
  Speaker 4: I appreciate it.
• 36:02
  Speaker 3: I'm trying to figure this out, though, okay? So there
• 36:07
  Speaker 3: were $ 540 million in August sales at traditional.
• 36:11
  Speaker 3: Lottery retailers. That was down $ 30 million from last August.
• 36:14
  Speaker 3: So if you look at just the total, it's up
• 36:18
  Speaker 3: about $ 110 million from last August.
• 36:21
  Speaker 2: For retailers, the profit decreased by $ 5.
• 36:25
  Speaker 1: 5 million.
• 36:25
  Speaker 2: For the retailers, which are what, gas stations? Yes, a $ 16.
• 36:29
  Speaker 4: 2 million decrease on $ 30 million in lost revenue.
• 36:42
  Speaker 3: But of the $ 139 million in online sales, there's an
• 36:47
  Speaker 3: estimated profit of $ 10. 6 million. So what I'm trying to
• 36:52
  Speaker 3: understand is the retail side of things lost $ 30 million
• 36:58
  Speaker 3: in revenue, and that resulted in a $ 16 million decrease
• 37:01
  Speaker 3: in profits. Like 50% of the lost revenue came in
• 37:05
  Speaker 3: the form of profit eventually. You saw $ 139 million in
• 37:10
  Speaker 3: online sales, but only a profit.
• 37:11
  Speaker 2: Of $ 10. 6 million.
• 37:13
  Speaker 3: What's the discrepancy in profit margin on your lottery sales there?
• 37:18
  Speaker 5: Yeah, are the odds better on online lottery games than
• 37:22
  Speaker 5: they are gas station scratch tickets?
• 37:25
  Speaker 4: I don't know. Either way.
• 37:27
  Speaker 2: Oh, sorry, go ahead.
• 37:28
  Speaker 6: No, I was just going to mention real quick. I
• 37:31
  Speaker 6: noticed on DraftKings they have a Massachusetts lottery section. And
• 37:35
  Speaker 6: if you want to buy like a $ 20 scratch ticket,
• 37:38
  Speaker 6: for instance, it costs like, I think it was like
• 37:40
  Speaker 6: an extra $ 1. 50 just because of, I assume, convenience charges
• 37:43
  Speaker 6: or something like that. I thought that was interesting.
• 37:45
  Speaker 2: Convenience charges, great. They're ticket masters.
• 37:47
  Speaker 6: But it's like, hey, this $ 20 ticket is like $ 22.
• 37:50
  Speaker 4: So open questions that I have.
• 37:51
  Speaker 5: Did we see any significant decrease in online gambling in Massachusetts?
• 37:55
  Speaker 4: My guess is no. I don't think this is offsetting anything.
• 37:58
  Speaker 5: Massachusetts has been not a happy innovation, but the kind
• 38:02
  Speaker 5: of front line of innovation on lottery sales throughout history
• 38:06
  Speaker 5: in the U.S., so I'm not surprised that we're here,
• 38:09
  Speaker 5: but it's kind of dark.
• 38:11
  Speaker 2: Quick break here. We've got Hour 2 coming up in
• 38:13
  Speaker 2: a bit.