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Why Inflation Fears Are Rising Again · The Financial Exchange Show

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  Speaker 2: Good morning, Happy Friday, Welcome back to the Financial Exchange.
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  Speaker 2: I hope all of you made it to your destination
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  Speaker 2: for the long weekend safely last night. I know you
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  Speaker 2: were doing it last night because it took me an
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  Speaker 2: hour to go, like, you know, six miles down the highway.
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  Speaker 2: So I know this is the post COVID trend as
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  Speaker 2: we all, you know, leave a day early for our
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  Speaker 2: vacations because our employers don't.
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  Speaker 1: Seem to a Thursday Friday.
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  Speaker 2: No, Thursday is Friday now. There are a few accidents
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  Speaker 2: too that didn't help it. Road nearby me and Dedim
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  Speaker 2: was closed down for like twelve hours. I'm guessing it
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  Speaker 2: was not a good accident. But glad you all got
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  Speaker 2: to where you're going. Hope everybody has some big plans
• 1:49
  Speaker 2: for the terrible weather here in the Northeast for the
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  Speaker 2: for the long weekend. We'll be off on Monday for
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  Speaker 2: the Moral Day holiday and back at it on on
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  Speaker 2: Tuesday for another busy week. But it has been a
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  Speaker 2: quite honestly a busier than anticipated week here with AI drama,
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  Speaker 2: IPO filing drama. Did we I don't see anything in
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  Speaker 2: the stack today Tucker, but there were rumors that open
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  Speaker 2: AI may file their s one as soon as to day,
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  Speaker 2: and I haven't seen any follow ups on that, so
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  Speaker 2: we'll keep an eye on that one as well, and
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  Speaker 2: continued maybe negotiations with Iran. I have to be honest
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  Speaker 2: at this stage, I'm just surprised that commentary coming out
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  Speaker 2: of the White House about negotiations is still moving markets
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  Speaker 2: as much as it has been.
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  Speaker 3: But it is.
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  Speaker 4: They've been very effective and keeping oil prices lower than
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  Speaker 4: they otherwise could have been in markets up. So all
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  Speaker 4: the jaw boning, I don't know if it's working viewed
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  Speaker 4: as effective because they might just be containing pressures that
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  Speaker 4: ultimately have to emerge in Iran.
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  Speaker 5: Of course, there worse than the Soviets.
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  Speaker 4: You don't know they speak out of multiple sides of
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  Speaker 4: their mouths, if that were possible. So it's a strange dynamic.
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  Speaker 3: In any case.
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  Speaker 2: This morning, as we open things up, we've got West
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  Speaker 2: Texas crud sitting at just shy of ninety eight dollars
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  Speaker 2: a barrel.
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  Speaker 3: It's up a little bit today, but was as high
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  Speaker 3: as hold on a moment.
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  Speaker 2: Was as high as one hundred and eight dollars a barrel.
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  Speaker 3: Earlier this week.
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  Speaker 2: I believe that was on Monday or Tuesday, with the
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  Speaker 2: hint of negotiations ongoing, Rubio speaking about it, the President's
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  Speaker 2: speaking about it, although Rubio kind of said you should
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  Speaker 2: temper your expectations. We saw those oil prices fall, we
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  Speaker 2: saw interest rates fall a little bit earlier this week,
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  Speaker 2: and even taking a look at this new bet that
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  Speaker 2: I've been following on poly Market, which is traffic through
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  Speaker 2: the Strait of hor moves and when it will return
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  Speaker 2: to normal. Earlier this week, we were sitting at odds
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  Speaker 2: of traffic returning to normal, sitting at thirty one percent,
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  Speaker 2: and we're now as of this morning, sitting at thirty
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  Speaker 2: seven percent odds according to that polymarket bet, which by
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  Speaker 2: the way, is you know, normal by their definition is
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  Speaker 2: a seven day moving average with transit calls above sixty.
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  Speaker 2: So it's a pretty significant normalcy. But nonetheless, people buying
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  Speaker 2: in at least this week that maybe something is happening
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  Speaker 2: there in spite of frankly, this same comment over and
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  Speaker 2: over again, and I think where I've heard other pundits,
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  Speaker 2: you know, come in on this, and where I'm starting
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  Speaker 2: to land on it is quite frankly, it does not
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  Speaker 2: appear that the US or Iran have experience quite enough
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  Speaker 2: discomfort and pain to make something happen here. You know,
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  Speaker 2: the world's food supply is in a far better place
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  Speaker 2: than it was, say in twenty twenty two, when we
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  Speaker 2: were dealing with the outbreak of the Ukraine War, and
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  Speaker 2: oil prices, while problematic, have not been it's not been
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  Speaker 2: so disruptive that you're talking about lines at the gas.
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  Speaker 3: Station in the United States.
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  Speaker 2: And you know, the Republicans haven't really faced immense political
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  Speaker 2: pressure to do something. And so as I sit here today,
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  Speaker 2: I don't look at all this and say, oh, yeah,
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  Speaker 2: Americans are cheering on war in Iran and they want
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  Speaker 2: the regime to fall at any cost. But in the
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  Speaker 2: same regard, I'm not sure that the administration should feel
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  Speaker 2: any strong pressure to wrap things up here, based on
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  Speaker 2: what the stock market's doing, based on what energy markets
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  Speaker 2: are doing, and even based on where consumers are paying
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  Speaker 2: for gas at the pump at four dollars and fifty
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  Speaker 2: cents a gallon.
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  Speaker 3: While this uncomfortable is not all time high level.
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  Speaker 4: Well it chucks out. Has done a great job laying
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  Speaker 4: out exactly when you hit these critical junctures.
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  Speaker 3: Sure when our.
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  Speaker 4: Infrastructure, our processing infrastructure, stops operating.
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  Speaker 5: And we're somewhere between.
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  Speaker 4: Six and nine or ten weeks from that right point
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  Speaker 4: where there will be I won't use the word shortages
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  Speaker 4: because we currently don't cap prices, but those prices.
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  Speaker 3: Will just spice skyrocket.
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  Speaker 2: Yeah, So maybe that's the discomfort that's needed.
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  Speaker 3: I don't know.
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  Speaker 4: And as far as the so that's the feedback, you're right.
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  Speaker 4: The stock market is not imposing any discipline, is not
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  Speaker 4: the right word, is not imposing a penalty so far
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  Speaker 4: on the US government.
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  Speaker 2: And let's be clear here, I mean this White House
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  Speaker 2: for writers wrong, whether you like it or not, has
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  Speaker 2: been incredibly responsive to actions in both the stock market
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  Speaker 2: and the bond market when it has inflicted real pressure.
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  Speaker 3: I mean, arguably, sorry, sorry, no, you're good.
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  Speaker 2: Arguably back in March of twenty twenty five, when the
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  Speaker 2: terf announcements were made, the piece that pushed the administration
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  Speaker 2: over the edge to change course was very abrupt moves
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  Speaker 2: in the ten year treasury market that you nearly caught
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  Speaker 2: a bunch of traders off side.
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  Speaker 1: Right.
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  Speaker 4: So this spike in the current spike in treasury yields,
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  Speaker 4: and it has been a spike. They're up what fifty sixty,
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  Speaker 4: you know, seventy one point seven, seven tenths of a
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  Speaker 4: I'm trying to put this in plain English, sorry, everybody,
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  Speaker 4: seven tenths of a percent, So from yeah, the seventy
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  Speaker 4: so called basis points, where basis point we should explain
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  Speaker 4: is one one hundredth of a percent, So one hundred
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  Speaker 4: basis points would be one hundred one hundredths or one
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  Speaker 4: percentage point. Sorry for the jargon, it's just the way
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  Speaker 4: people in finance explain things. So rates have gone up
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  Speaker 4: by a lot thirty year mortgages, which move more or
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  Speaker 4: less a little more than one for one on average,
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  Speaker 4: with a ten year treasury, which is the equivalent instrument
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  Speaker 4: in terms of life expectancy of the instrument duration more
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  Speaker 4: technically anyway. So a little bit of jargon, but you
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  Speaker 4: have to use dragon when you talk about bonds, right,
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  Speaker 4: They're just a different, different animal entirely from stocks. So
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  Speaker 4: the rise in rates has been dramatic. It's probably it's
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  Speaker 4: it's it's hard to say what fraction is. Due to
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  Speaker 4: inflation expectations, and they have which have gone up. We'll
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  Speaker 4: talk about that, I assume at some point this morning
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  Speaker 4: and what fraction is due to anticipated higher government deficits
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  Speaker 4: for whatever reason. That's the perennial excuse, of course, but
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  Speaker 4: it has been dramatic, Mike.
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  Speaker 2: So what is different then about this time? Because the
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  Speaker 2: last time around, when rates spiked back in March of
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  Speaker 2: twenty twenty five, it did cause a bunch of seemingly
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  Speaker 2: caused a bunch of you know, hedge funds nearly blow up.
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  Speaker 2: Is it just been you know, the action has been
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  Speaker 2: different the equity market reaction, I think, I think.
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  Speaker 4: That's probably the defining characters. Als been a bit more
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  Speaker 4: refferentiating that we saw, yeah.
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  Speaker 2: Massive spiking rates in a week back in March of
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  Speaker 2: twenty twenty five, whereas this has been this slow slog
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  Speaker 2: upwards since end of February on interest rates and then
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  Speaker 2: some you know slight volatility and equity markets, but honestly
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  Speaker 2: not that much.
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  Speaker 4: And the president's conviction I think has been different. Here
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  Speaker 4: do you can disagree with his decision and disagree with
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  Speaker 4: him doing it without congressional approval?
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  Speaker 5: Those are arguments.
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  Speaker 4: My sense is an amateur observer, you know, armchair real
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  Speaker 4: armchair commentator, I guess in this case is he seems
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  Speaker 4: to believe this needs to be done, and he's not.
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  Speaker 4: Whereas tariffs are kind of optional, he doesn't. I've never
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  Speaker 4: sensed that the President thought that the trade deficit was
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  Speaker 4: like an existential threat.
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  Speaker 5: It isn't.
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  Speaker 4: That would be absurd, but I never sensed that he
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  Speaker 4: felt that way. He seems to, even though he hasn't
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  Speaker 4: explained it particularly well. I don't think he seems to
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  Speaker 4: think that this crisis is a threat to our Iran
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  Speaker 4: possessing whatever nukes is a threat to even though that
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  Speaker 4: itself is debatable. Let's suppose it isn't. He seems to
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  Speaker 4: think that that's a threat to our existence, and that
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  Speaker 4: he's not gonna budge no matter what the he said this,
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  Speaker 4: Actually you don't have to infer this. He doesn't care
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  Speaker 4: about the economic pain in the short term. I actually
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  Speaker 4: thought that was I don't agree with the policy for
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  Speaker 4: what my two senses worth, but who cares what I think?
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  Speaker 5: I thought that was refreshing.
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  Speaker 4: He seems to be acting solely on conviction here cum
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  Speaker 4: Heller high Water. Maybe that's another reason, Mike, is what
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  Speaker 4: I'm trying to get to here.
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  Speaker 3: So we will see.
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  Speaker 2: I agree, the conviction has seemed pretty strong on that
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  Speaker 2: point when pressure starts to mount, which again the point
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  Speaker 2: that I would make is, I don't think pressure has
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  Speaker 2: mounted all that significantly here, in spite of higher gas prices,
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  Speaker 2: higher interest rates, higher mortgage rates, slightly more volatile stocks
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  Speaker 2: over the past. Where are we now, thirteen weeks into
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  Speaker 2: this event, somewhere in that general range. I don't think
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  Speaker 2: that the pressure has mounted all that much for the
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  Speaker 2: White House to make a deal here, but we might
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  Speaker 2: get there over the course of the summer, and so
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  Speaker 2: time will tell here. But I do find it interesting
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  Speaker 2: that's still to this point, comments like hey, we're getting
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  Speaker 2: close to a negotiation with Iran are still sending oil
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  Speaker 2: markets down as much as they are, given how many
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  Speaker 2: times we've heard that artist.
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  Speaker 4: One of these days, he's not going to be crying wolf.
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  Speaker 4: It is amazing the market keeps falling for it. Yeah,
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  Speaker 4: because he said some very on we're very close. A
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  Speaker 4: deal is almost here. They really want to do a deal.
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  Speaker 4: They're begging me for a deal every three days. Since
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  Speaker 4: this conflict or whatever you want to call it, has started.
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  Speaker 4: He said that it brings oil prices down, pushes equity
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  Speaker 4: prices up. You can't afford to not take that seriously,
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  Speaker 4: if you're trading.
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  Speaker 3: Let's take a quick break here.
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  Speaker 2: When we come back, obviously, all this tying into inflation
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  Speaker 2: forecasts and expectations, want to talk a little bit about
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  Speaker 2: that as the new FED share will be confirmed in
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  Speaker 2: forty five minutes, Stucker, if that's if I'm not mistaken,
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  Speaker 2: So we'll talk about inflation next here on the Financial Exchange.
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  Speaker 3: So Mark.
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  Speaker 2: Unsurprisingly, here economists are bumping up their inflation forecast. It's
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  Speaker 2: now where did we land with the latest PCE and
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  Speaker 2: CPI reading.
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  Speaker 3: I mean it's looking more and more like.
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  Speaker 4: Three plus year they were PC I think was a
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  Speaker 4: little below three year over year, which is just year
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  Speaker 4: over year. Yeah, they've both been creeping up obviously, well
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  Speaker 4: spiked is the better verb.
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  Speaker 2: And it's it's pretty difficult to see without a you know,
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  Speaker 2: without a US recession, at least in my mind, either
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  Speaker 2: of these coming below three by end of year this year,
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  Speaker 2: and I think more likely some of them approaching four
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  Speaker 2: percent by end of year. When So last week, as
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  Speaker 2: you know, Professor Ball from Johns Hopkins was on the
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  Speaker 2: program and we spoke a lot about specifically inflation expectations. Yeah,
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  Speaker 2: and you know whether or not the combined actions of
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  Speaker 2: the last My question to him was, hey, look, we
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  Speaker 2: started off with COVID shutdowns, COVID related inflation in.
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  Speaker 3: Twenty twenty two.
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  Speaker 2: Then we by the way COVID and massive stimulus programs.
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  Speaker 3: I don't want to ignore that.
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  Speaker 2: Then we had the tariff related inflation of twenty twenty five.
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  Speaker 2: Now we're seeing an oil price shock in twenty twenty six.
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  Speaker 2: And the question that I had was how is this,
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  Speaker 2: in your mind impacting expectations for future inflation? And his
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  Speaker 2: conclusion was not all that dramatically. Actually, he didn't see
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  Speaker 2: it dramatically affecting expectations so far, but that is the risk.
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  Speaker 2: Can we talk about those inflation expectations and why that
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  Speaker 2: may be arguably a more important factor to consider when
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  Speaker 2: looking at the current status than just where we are
• 14:12
  Speaker 2: first having.
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  Speaker 4: Why they matter. They're an important part of the inflation
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  Speaker 4: process because people, based on what they think prices will do,
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  Speaker 4: may change their wage demands, firms may change their pricing.
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  Speaker 4: This was an insight that came out of the nineteen seventies.
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  Speaker 4: It was previously thought Ball may have pointed this out
• 14:29
  Speaker 4: because he is one of the world's foremost researchers in
• 14:32
  Speaker 4: this area, that it was previously thought you could, by
• 14:37
  Speaker 4: gradually ratcheting up the rate of inflation, stay ahead of
• 14:41
  Speaker 4: wages and prices and keep demand and keep effectively growing
• 14:46
  Speaker 4: the economy. Freedman, Milton Friedman, and a guy named Phelps
• 14:49
  Speaker 4: who just recently passed away this past week was they
• 14:52
  Speaker 4: were the first to point out that no, no, you
• 14:55
  Speaker 4: can't fool everybody forever. People will eventually start to incorporate
• 15:00
  Speaker 4: what they think inflation will do into their expectations. They
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  Speaker 4: don't set them based on say, past inflation. They don't
• 15:07
  Speaker 4: just adapt, they look ahead. And that's when this notion
• 15:11
  Speaker 4: of expectations made its way into thinking about the inflation
• 15:15
  Speaker 4: process and lots of different economic ideas. So expectations are
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  Speaker 4: critical not just for inflation, but for other things that
• 15:23
  Speaker 4: policymakers may try to do as well. And I put
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  Speaker 4: it that way because policymakers at the FED control the
• 15:30
  Speaker 4: long term rate of inflation, not the short term rate
• 15:33
  Speaker 4: that can move all around in response to food, energy
• 15:35
  Speaker 4: and stuff like that.
• 15:36
  Speaker 2: So I can comprehend the fact that the theory is
• 15:40
  Speaker 2: that expectations matter. Practically, can you talk about the mechanics
• 15:44
  Speaker 2: there for a moment, Like why, practically, if I think
• 15:48
  Speaker 2: inflation is going to be five percent next year, does
• 15:51
  Speaker 2: that actually compound current inflation?
• 15:53
  Speaker 4: The mechanism is basically what I said earlier, which is
• 15:58
  Speaker 4: people will start to demand higher greater increases in wages.
• 16:04
  Speaker 4: Firms will anticipate greater increases in the overall price level
• 16:09
  Speaker 4: inflation and build that into prices, which in turn drives
• 16:13
  Speaker 4: more inflation. So that's the mechanism, and it is sort
• 16:17
  Speaker 4: of theoretical. You can't prove that expectations are driving the
• 16:22
  Speaker 4: inflation process.
• 16:23
  Speaker 5: But without that, you.
• 16:28
  Speaker 4: Lack any explanation for why it is that out of
• 16:34
  Speaker 4: control monitor that gradually increasing the money supply year over
• 16:40
  Speaker 4: year doesn't make its way into demand. It eventually makes
• 16:43
  Speaker 4: its way just into prices, and it's through expectations.
• 16:46
  Speaker 2: So, okay, we're all paying four fifty plus for gas.
• 16:49
  Speaker 2: Now we're all seeing that we've all got a little
• 16:53
  Speaker 2: bit of scar tissue from the last few years of
• 16:57
  Speaker 2: inflation that has you know, I can't have conversations with
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  Speaker 2: people about groceries and things like that without them commenting
• 17:04
  Speaker 2: on how much more expensive they are than ten years ago.
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  Speaker 2: Where does this all come into I mean, like I
• 17:10
  Speaker 2: said prior to the break, Kevin worsh will be taking
• 17:13
  Speaker 2: his chair at the Federal Reserve today. We'll hear the
• 17:16
  Speaker 2: first press conference from him in a little bit less
• 17:20
  Speaker 2: than a month. What sort of I can't imagine a
• 17:25
  Speaker 2: more difficult environment to necessarily walk into where you've got
• 17:29
  Speaker 2: inflation and growth increasing again. You just got done talking
• 17:32
  Speaker 2: about how you want to reshake things up at the
• 17:36
  Speaker 2: FED and think about things differently. What exactly do you
• 17:41
  Speaker 2: suppose is going to be the approach of the Federal
• 17:43
  Speaker 2: Reserve in this type of environment. Is it just hold
• 17:46
  Speaker 2: pat until the price the oil shock is done.
• 17:49
  Speaker 3: Is it some other approach here?
• 17:53
  Speaker 4: The risk the FED takes in hoping this passes is
• 17:58
  Speaker 4: that it becomes inflation becomes embedded via that expectations mechanism.
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  Speaker 4: Ball it sounds like he does not think that inflation
• 18:09
  Speaker 4: expectations have become unanchored. And that's the way researchers in
• 18:14
  Speaker 4: that area refer to the process. When people start to
• 18:18
  Speaker 4: expect higher inflation than the fed's two percent goal, the
• 18:22
  Speaker 4: conclusion is expectations have become unanchored. The Fed's in trouble
• 18:24
  Speaker 4: at that point. Ball may not feel that expectations have
• 18:27
  Speaker 4: become un anchored because market based measures of inflation don't
• 18:30
  Speaker 4: look bad right now, you're using the ten year tips
• 18:34
  Speaker 4: or forward rates or something like that. There are researchers
• 18:37
  Speaker 4: who think expectations became unanchored during COVID. There's plenty of
• 18:41
  Speaker 4: evidence that expectations are and what un anchor just means
• 18:44
  Speaker 4: different than the fed's goal. People have lost confidence in
• 18:47
  Speaker 4: the Fed's ability over the long term to bring inflation
• 18:50
  Speaker 4: back to two percent.
• 18:51
  Speaker 2: Yeah, certainly, when you look at some of the sentiment
• 18:53
  Speaker 2: surveys and ask about inflation. They seem unanchored from two percent.
• 18:56
  Speaker 2: My problem was just a four percent read over five
• 18:59
  Speaker 2: years today. My problem with all of those is when
• 19:02
  Speaker 2: you dive in and break them in, break them down
• 19:06
  Speaker 2: by political party, they are so ridiculously out of touch
• 19:11
  Speaker 2: with each other and so dramatically flip flop once their
• 19:15
  Speaker 2: person is out of office that I just I'm unsure
• 19:17
  Speaker 2: of what to do with those for now, But I
• 19:20
  Speaker 2: am with you.
• 19:21
  Speaker 3: I was surprised by the professor's answer to.
• 19:23
  Speaker 2: That, and I am concerned about those expectations moving up here.
• 19:28
  Speaker 2: We do have to take a quick break when we
• 19:29
  Speaker 2: come back. Full market recap with Wall Street Watch is next.
• 19:41
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:44
  Speaker 1: TFFE show. Breaking business news is always first right here
• 19:48
  Speaker 1: on the Financial Exchange Radio Network. Don't know full Wall
• 19:53
  Speaker 1: Street Watch, treking the stocks, FANDATO, and the headlines driving
• 19:57
  Speaker 1: markets so far today right here on the Financial Exchange
• 20:00
  Speaker 1: Radio Network.
• 20:01
  Speaker 6: Markets in positive territories, investors, I have potential progress toward
• 20:05
  Speaker 6: a peace deal with Iran. Kevin Warsh will also be
• 20:07
  Speaker 6: sworn in as a new Federal Reserve chairman this morning
• 20:11
  Speaker 6: right around eleven o'clock right now, the Dow is up
• 20:15
  Speaker 6: about two thirds of a percent, SMP five hundred up
• 20:18
  Speaker 6: four tenths of a percent, NASDAC up just over a
• 20:21
  Speaker 6: third of a percent, or ninety three points higher, RUSS
• 20:24
  Speaker 6: two thousands up two thirds of a percent, ten Youre
• 20:26
  Speaker 6: treasureeled down one basis point at four point five seven percent,
• 20:31
  Speaker 6: and Oil up about one and a half percent, rating
• 20:34
  Speaker 6: right around ninety seven dollars a barrel. According to the
• 20:37
  Speaker 6: Wall Street Journal, premium movie theater Imax is exploring a
• 20:41
  Speaker 6: sale and has approached entertainment companies as potential buyers. Imax
• 20:45
  Speaker 6: shares are up by fourteen percent on that report. Meanwhile,
• 20:50
  Speaker 6: Workday shares are climbing four percent. There for, the finance
• 20:53
  Speaker 6: and HR software company reported stronger than expective results and
• 20:56
  Speaker 6: raised its full year margin outlook. Elsewhere, Zoom is rallying
• 21:01
  Speaker 6: twelve percent after the video conferencing company reported better than
• 21:05
  Speaker 6: expected earnings and revenue in the previous quarter. The company
• 21:09
  Speaker 6: also increase its stock repurchase authorization by one billion dollars
• 21:13
  Speaker 6: in s Day, Lauder and Puigue have said they have
• 21:16
  Speaker 6: terminated discussions of a potential merger. Stay Lauder said it
• 21:20
  Speaker 6: will instead remain focused on its ongoing turnaround. Stay latder
• 21:25
  Speaker 6: Stock is rallying eleven percent on that news. I'm Tucker Silva,
• 21:31
  Speaker 6: and that is Wall Street.
• 21:32
  Speaker 1: Watch.
• 21:33
  Speaker 3: Well.
• 21:33
  Speaker 2: The governor of the most populated state in the country,
• 21:36
  Speaker 2: Gavin Newsom, has signed an executive order basically to do
• 21:43
  Speaker 2: a research project on AI impacts. And I'll get into
• 21:47
  Speaker 2: what this is. I personally think that it's going to
• 21:49
  Speaker 2: be about as useful as Michael Scott declaring bankruptcy in
• 21:52
  Speaker 2: the show Office, which is not terribly useful. I don't
• 21:57
  Speaker 2: know if you remember that episode, but he's bankrupt and
• 21:59
  Speaker 2: he just starts walking around the office declaring bankruptcy.
• 22:02
  Speaker 5: Ouse ready for that reference.
• 22:05
  Speaker 2: So what he's doing, after being warned time and time
• 22:08
  Speaker 2: again by executives in the AI space that AI is
• 22:11
  Speaker 2: going to completely upend the labor market and eliminate entire
• 22:15
  Speaker 2: job categories, is calling on all sorts of people in
• 22:22
  Speaker 2: his administration to research expansion of job training programs, software developed
• 22:28
  Speaker 2: for customer service representative software developers some of the most
• 22:31
  Speaker 2: highly impacted areas of the market. An expansion or an
• 22:36
  Speaker 2: examination of universal basic capital, which sounds to me like
• 22:41
  Speaker 2: universal basic income, except giving all residents stake and assets
• 22:45
  Speaker 2: like corporate stocks, bonds, or wealth funds of the companies
• 22:48
  Speaker 2: that are apparently going to disrupt all these jobs, and
• 22:52
  Speaker 2: basically saying that he doesn't think that. Yeah, so effect again,
• 22:56
  Speaker 2: socialize the stock of the companies who are disrupt all
• 23:00
  Speaker 2: of these jobs, which I have no idea how you
• 23:03
  Speaker 2: manage that one.
• 23:05
  Speaker 4: Wait on, sorry, here's a pink slip and here's a
• 23:09
  Speaker 4: stock certificate for one hundred years in a company that's firing.
• 23:13
  Speaker 2: Yeah, that's I think the idea. Yes, thanks, so one.
• 23:18
  Speaker 2: Like I said, I think that this is probably silly
• 23:22
  Speaker 2: and useless, and I think it's incredibly difficult to predict
• 23:28
  Speaker 2: which direction any of this stuff goes. I remain unconvinced
• 23:31
  Speaker 2: that this is going to be such a labor market
• 23:33
  Speaker 2: disruptor as some have expressed fears of. At the same time,
• 23:38
  Speaker 2: it does feel like to me we are expanding artificial
• 23:43
  Speaker 2: intelligence without any sort of guardrails around how it operates,
• 23:48
  Speaker 2: what it does, what systems it touches, and any of that.
• 23:52
  Speaker 2: So I do think that there could be some common
• 23:55
  Speaker 2: sense regulation to, for instance, not allow some of this
• 24:02
  Speaker 2: stuff into government systems that touch private data that could
• 24:05
  Speaker 2: then be exploited to not allow this access to information
• 24:12
  Speaker 2: about children and all sorts of things that are not
• 24:15
  Speaker 2: happening today. But exploring what are going to be the
• 24:19
  Speaker 2: government solutions If it's so disruptive that millions of people
• 24:23
  Speaker 2: are out of work and unemployment shoots to ten percent,
• 24:26
  Speaker 2: just seems like you're doing a bunch of expensive, hypothetical
• 24:29
  Speaker 2: work on something that you can't possibly know.
• 24:32
  Speaker 4: I think just keep in mind that any new technology
• 24:37
  Speaker 4: is sort of like trade. It pushes out the frontier
• 24:39
  Speaker 4: of what we can all enjoy, but the impacts are
• 24:45
  Speaker 4: unevenly distributed, so there will be pockets of disruption associated
• 24:51
  Speaker 4: with I assume.
• 24:52
  Speaker 5: AI, although that's a very general term, just like there.
• 24:56
  Speaker 4: Are associated they were associated with trade liberalization. How the
• 25:01
  Speaker 4: long term effect depends on how good we are at
• 25:03
  Speaker 4: helping people reposition, and to the extent that state governments
• 25:06
  Speaker 4: are focused on helping people to get reposition, learning new skills,
• 25:11
  Speaker 4: and supporting them with unemployment insurance as we generally do
• 25:15
  Speaker 4: in the interim, it'll it'll help to cushion the blow.
• 25:19
  Speaker 4: But it's the introduction of new technology, whether it's AI
• 25:22
  Speaker 4: or or something else, and adverse effects on some pockets
• 25:27
  Speaker 4: of employment.
• 25:28
  Speaker 5: Those are unavoidable.
• 25:29
  Speaker 2: I'm not enough of a history buff to know, like
• 25:33
  Speaker 2: when you look at the dot com bubble, for instance,
• 25:35
  Speaker 2: in the invention of the Internet, I really don't think
• 25:37
  Speaker 2: you can argue that it was such a disruptive technology
• 25:40
  Speaker 2: that it's shot overall unemployment rate up.
• 25:43
  Speaker 3: It just didn't.
• 25:44
  Speaker 4: And look look at the unemployment rate in any I mean,
• 25:47
  Speaker 4: there's no trend in the unemployment rate. And in the
• 25:50
  Speaker 4: nineteen nineties, the unemployment rate it hit lows that we
• 25:53
  Speaker 4: hadn't witnessed since the late nineteen mid to late nineteen sixties.
• 25:57
  Speaker 2: So now I'm trying to think My point is, I'm
• 25:59
  Speaker 2: trying kind of think through and maybe somebody that's more
• 26:03
  Speaker 2: of a history buff can tell me, has there actually
• 26:06
  Speaker 2: been a period of time where the technological shift was
• 26:09
  Speaker 2: so dramatically quick that it created societal unemployment disruptions?
• 26:14
  Speaker 3: I mean, to my mind goes my mind goes to the.
• 26:17
  Speaker 2: Industrial Revolution and like the Blood Heights of the early
• 26:20
  Speaker 2: nineteenth century. But I only think that because we call
• 26:24
  Speaker 2: them Blood Heights and there were this giant protests that
• 26:26
  Speaker 2: made a lot of press, and I don't even know
• 26:28
  Speaker 2: if it was that.
• 26:29
  Speaker 4: There'll always be some area in which labor has a
• 26:32
  Speaker 4: comparative advantage over machines. I think, unless AI is as
• 26:36
  Speaker 4: different as some people, there are plenty of smart people
• 26:41
  Speaker 4: who embrace more pessimistic sort of visions of the future
• 26:49
  Speaker 4: of labor as AI becomes more pervasive. But historically technology
• 26:56
  Speaker 4: is complemented on average labor.
• 27:00
  Speaker 5: Yes, so it keeps on it.
• 27:02
  Speaker 4: Overall, unemployment has been low because economic growth has been high.
• 27:06
  Speaker 4: And going back to my original little statement, there's always
• 27:10
  Speaker 4: something labor can do better than a machine. So it's
• 27:13
  Speaker 4: not like there, well, there couldn't be nothing for anybody
• 27:16
  Speaker 4: to do.
• 27:18
  Speaker 3: I guess I doesn't make anything. I don't mean that.
• 27:20
  Speaker 2: What I mean is, has there ever been a technological
• 27:24
  Speaker 2: period of disruption so significant that the unemployment rates shot up.
• 27:28
  Speaker 3: Even if it was for a short period of I
• 27:29
  Speaker 3: don't know what happened. I don't know what happened.
• 27:31
  Speaker 4: It's done in like Samaria, when when somebody came along
• 27:34
  Speaker 4: and said, oh, look I found a wheel next door
• 27:37
  Speaker 4: in you know, whatever the other error, whatever the other
• 27:40
  Speaker 4: civilization was. I mean, I don't know, but I do
• 27:43
  Speaker 4: know in the modern era, which i'll characterize loosely is
• 27:48
  Speaker 4: like seventeen fifty to today, no, there been, there have
• 27:52
  Speaker 4: been disruptions.
• 27:53
  Speaker 5: Don't get me.
• 27:53
  Speaker 4: I don't want to minimize the impact on small, local
• 27:57
  Speaker 4: sort of populations in communities. I grew up in Rhode
• 28:00
  Speaker 4: Island and the jewelry industry at one time there was
• 28:04
  Speaker 4: a behemoth and it was decimated ultimately by cheaper goods
• 28:11
  Speaker 4: from Asia and Mexico. So Rhode Island is no longer
• 28:15
  Speaker 4: like the jewelry capital manufacturing, not sales of wherever. That's
• 28:20
  Speaker 4: because of cheap imports. But nobody complained about economic growth
• 28:24
  Speaker 4: in the nineteen eighties and even the nineteen nineties when
• 28:27
  Speaker 4: this was happening.
• 28:28
  Speaker 2: Yeah, I think I would acknowledge one thing, which is
• 28:33
  Speaker 2: we have not been great about retraining some of those
• 28:36
  Speaker 2: people historically in the US after they do lose their
• 28:39
  Speaker 2: jewelry making job to cheap imports or their manufacturing job
• 28:44
  Speaker 2: through the Rust belt.
• 28:45
  Speaker 4: For shoot, the Merrimack River Vale wasn't low like the
• 28:48
  Speaker 4: shoe capital of the world or something. Massachusetts transitioned Ohio,
• 28:53
  Speaker 4: no offense, did not, and since the nineteen sixties they've
• 28:57
  Speaker 4: this happened earlier in the ninety sixties in the case
• 28:59
  Speaker 4: of mass But Massachusetts is in California, too. It's the
• 29:03
  Speaker 4: case of a dynamic economy that transitioned to services, states
• 29:08
  Speaker 4: that weren't able to economies that weren't able to or
• 29:10
  Speaker 4: willing to have suffered.
• 29:13
  Speaker 5: A different fate.
• 29:14
  Speaker 3: Let's take a quick break.
• 29:15
  Speaker 2: When we come back, I want to talk about the
• 29:18
  Speaker 2: real estate market because, as we mentioned at the beginning
• 29:21
  Speaker 2: of the show, mortgage rates this.
• 29:22
  Speaker 3: Week hit a nine month high. Bond yields are up.
• 29:26
  Speaker 2: What does that mean for investors, real estate owners, potential buyers.
• 29:29
  Speaker 3: That's all next on the Financial Exchange.
• 29:32
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• 29:35
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• 29:38
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• 29:58
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• 30:07
  Speaker 2: So Mark, As we talked about, bond yields have shot
• 30:11
  Speaker 2: up this year, a move of about seven tenths percent
• 30:15
  Speaker 2: seventy basis points on the ten year Treasury.
• 30:18
  Speaker 3: Mortgage rates have followed.
• 30:20
  Speaker 2: I want to talk about this from a number of
• 30:21
  Speaker 2: different perspectives, but let's start with the individual investor who
• 30:25
  Speaker 2: owns bonds, who might be feeling some of the scar
• 30:27
  Speaker 2: tissues of twenty twenty two when even what they consider
• 30:32
  Speaker 2: to be that safe portion, that conservative portion of their
• 30:36
  Speaker 2: portfolio moved down in value by some fifteen percent by
• 30:41
  Speaker 2: September of twenty twenty two due to inflation and the
• 30:44
  Speaker 2: Federal Reserve and everything else. So talk to me about
• 30:47
  Speaker 2: the mechanics there, Because bond investors have probably lost some
• 30:49
  Speaker 2: money on average this year, depending on when they when
• 30:52
  Speaker 2: they got into their holdings. What should should should investor
• 30:58
  Speaker 2: be concerned about a repeat of twenty twenty two, I
• 31:00
  Speaker 2: guess would be the question.
• 31:01
  Speaker 4: I should correct myself and say that that point seven percentage,
• 31:05
  Speaker 4: that seventy socle basis point rises since the start of
• 31:08
  Speaker 4: the conflict, since the beginning of the year.
• 31:10
  Speaker 5: So sorry about that.
• 31:13
  Speaker 4: Yeah, that's probably disappointing when you lose money on what's
• 31:17
  Speaker 4: supposed to be the safe.
• 31:18
  Speaker 5: Part of your portfolio.
• 31:19
  Speaker 4: But you would also expect, because it's not perfectly correlated,
• 31:25
  Speaker 4: doesn't move in lockstep with equities. The reason you won't
• 31:28
  Speaker 4: in the first place, you might also expect that in
• 31:30
  Speaker 4: periods of buoyant equity market performance, bonds wouldn't necessarily go
• 31:36
  Speaker 4: up in price and therefore down and yield as well.
• 31:39
  Speaker 5: So were you getting it?
• 31:40
  Speaker 1: Like?
• 31:41
  Speaker 5: Why does that happen? What are the mechanics of a fall?
• 31:43
  Speaker 3: Yeah, I guess. Let's start the.
• 31:44
  Speaker 4: UN's price and what's the relationship. Okay, I think just
• 31:48
  Speaker 4: to some of a to just get to the conclusion,
• 31:50
  Speaker 4: A bond's price and it's yield, it's it's interest rate
• 31:54
  Speaker 4: are inversely or negatively related. When a bond's price goes up,
• 32:01
  Speaker 4: think of the bonds price as the think of the
• 32:04
  Speaker 4: bonds yield is sitting in the it's this affraction now,
• 32:07
  Speaker 4: picture of fraction. So you got something on top, something
• 32:09
  Speaker 4: in the bottom. You get coupon payment on top, and
• 32:12
  Speaker 4: you've got a bond price in the bottom. That coupon
• 32:15
  Speaker 4: payment is set when the bond is issued. I'm oversimplifying
• 32:17
  Speaker 4: here a little bit. When the bond's price goes up,
• 32:21
  Speaker 4: the yield, because the thing's sitting on top, which is
• 32:23
  Speaker 4: the coupon payment in my little fraction here, that stays still.
• 32:26
  Speaker 4: So the denominators going up, the numerator top of the
• 32:30
  Speaker 4: fraction is not going anywhere.
• 32:32
  Speaker 5: Fraction gets smaller. Yep, right, and that's effectively.
• 32:36
  Speaker 4: That effectively illustrates the inverse relationship, and outstanding bonds have
• 32:40
  Speaker 4: to compete with newly issued bonds, thus the inverse I
• 32:43
  Speaker 4: should add that, thus the inverse relationship.
• 32:45
  Speaker 2: The question would be obviously, do you expect rates to
• 32:49
  Speaker 2: move as much as they did in twenty twenty two?
• 32:51
  Speaker 3: And I would argue most, most do not. Most do
• 32:54
  Speaker 3: not think.
• 32:55
  Speaker 5: FED was raising rates aggressively.
• 32:57
  Speaker 2: Aggressively in twenty twenty two, And I don't think we're
• 33:00
  Speaker 2: turn about this year. That this year, but that that
• 33:02
  Speaker 2: would be the most dramatic example.
• 33:05
  Speaker 4: But you could make a case, Mike, that that's gonna
• 33:07
  Speaker 4: have to step on the break again. Maybe not as
• 33:11
  Speaker 4: dramatically because we're starting from a higher point. FED funds
• 33:13
  Speaker 4: with zero then it's three point five.
• 33:15
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• 33:16
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• 33:19
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• 34:17
  Speaker 1: The proceeding was paid for and the views expressed are
• 34:19
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• 34:28
  Speaker 2: Tucker, did we have any housing market predictions going into
• 34:31
  Speaker 2: this year? I know we'd like to talk about the
• 34:34
  Speaker 2: subject quite a bit. I don't know if we had any. No,
• 34:36
  Speaker 2: I'm not seeing any. I think they're too old. I'll
• 34:39
  Speaker 2: be the first to admit that I had higher expectations
• 34:44
  Speaker 2: for the housing this market this year than what we
• 34:46
  Speaker 2: are currently seeing. As of April of twenty twenty six,
• 34:49
  Speaker 2: according to realtor dot com, there's just over a million
• 34:54
  Speaker 2: homes for sale that includes multifamily listings and single families.
• 34:59
  Speaker 2: That that number is a very small rise to a
• 35:02
  Speaker 2: year ago. It's up four and a half percent compared
• 35:05
  Speaker 2: to last year, still below pre COVID levels of inventory here,
• 35:12
  Speaker 2: and I think the reason for that is no real
• 35:16
  Speaker 2: mystery we are now sitting here.
• 35:18
  Speaker 3: It's come back a little bit. But earlier this week.
• 35:21
  Speaker 2: On that thirty year fixed rate mortgage, we hit a
• 35:25
  Speaker 2: cycle high of six point seventy five percent on that number.
• 35:30
  Speaker 2: The last time we saw rates quite as high as that,
• 35:32
  Speaker 2: you have to go back to July of twenty twenty five.
• 35:38
  Speaker 2: July thirty first of twenty twenty five was the last
• 35:40
  Speaker 2: time we had reached that level. We've come back down
• 35:43
  Speaker 2: a little bit. We're sitting at six six' five as of.
• 35:45
  Speaker 2: Yesterday bond YIELDS i think are moving down again, today
• 35:49
  Speaker 2: so we might get a little bit lower. There but
• 35:52
  Speaker 2: when you remove that much buying power from the market
• 35:56
  Speaker 2: with those higher, rates plus the psychological just. DAMAGE i
• 36:00
  Speaker 2: think of people thinking about a six versus a five
• 36:02
  Speaker 2: percent mortgage, rate because remember these were these had a
• 36:05
  Speaker 2: five handle on. Them the average mortgage rate had a
• 36:07
  Speaker 2: five handle on it prior to the war In. IRAN
• 36:11
  Speaker 2: i think that you have to sit here, now you,
• 36:14
  Speaker 2: know Approaching Memorial, day when the spring housing season in
• 36:17
  Speaker 2: many parts of the country is nearly, over and just
• 36:20
  Speaker 2: unfortunately admitt, hey it's just not likely to be a
• 36:23
  Speaker 2: great housing market housing sales season this year with everything
• 36:27
  Speaker 2: else going.
• 36:28
  Speaker 4: On the one, hand job mark has been, stable all,
• 36:31
  Speaker 4: characterized it is. Stable unemployment is, low first time claims
• 36:36
  Speaker 4: have been, Steady payroll growth has resumed after flatlining last.
• 36:42
  Speaker 4: Year on the other and also on the on the
• 36:46
  Speaker 4: sort of pro side of the, ledger economic growth appears
• 36:50
  Speaker 4: to be holding. Up not the breakneck above trend pace
• 36:54
  Speaker 4: that we saw in coming out OF covid and then
• 36:57
  Speaker 4: in twenty twenty, three twenty twenty, four If i've slowed
• 37:00
  Speaker 4: a little, bit but probably at or slightly above or around.
• 37:05
  Speaker 4: Trend on the other, hand real wage growth has gone,
• 37:08
  Speaker 4: negative AND i don't know how much credence to put
• 37:12
  Speaker 4: in consumer. Sentiment very hard to compare today's readings to past.
• 37:16
  Speaker 4: Readings BUT i don't think you can conclude from the
• 37:18
  Speaker 4: consumer sentiment reading we got today that people are feeling
• 37:22
  Speaker 4: better than they were six months. Ago maybe that's the
• 37:24
  Speaker 4: safest thing to. Conclude SO i don't. Know I'm i'm
• 37:27
  Speaker 4: looking at the macro economic backdrop here and asking is
• 37:30
  Speaker 4: it supportive of or is it likely to retard you, know,
• 37:34
  Speaker 4: housing and IT'S i think there's an argument.
• 37:39
  Speaker 3: For it's like stuck in. Neutral it's kind of WHERE
• 37:42
  Speaker 3: i land.
• 37:42
  Speaker 2: Over there's enough growth to stoke, demand but with rates,
• 37:46
  Speaker 2: high there's just not a lot of. INVENTORY i Know
• 37:49
  Speaker 2: i've brought this up, before BUT i have to. Again my,
• 37:51
  Speaker 2: brother you, know lives In New york and has been
• 37:55
  Speaker 2: thinking about moving To connecticut for quite some time, now
• 37:59
  Speaker 2: AND i wish somebody could explain to me what happened
• 38:01
  Speaker 2: To connecticut's real estate market because PRE covid there were
• 38:04
  Speaker 2: fifteen thousand plus units for sale In april of twenty,
• 38:08
  Speaker 2: nineteen and they still are only at thirty eight.
• 38:11
  Speaker 4: Hundred.
• 38:11
  Speaker 3: NOW i have no idea what's happened to that.
• 38:14
  Speaker 2: Market we've got to take quick, break but a lot
• 38:16
  Speaker 2: more to come in the second hour of The Financial.
• 38:18
  Speaker 3: Exchange stay, tuned we'll be right.
• 38:20
  Speaker 1: Back