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Markets Face a Reality Check as Valuations Rise and Labor Dynamics Shift · The Financial Exchange Show

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  Speaker 1: and Mark Vandetty.
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  Speaker 2: Welcome back to the Financial Exchange. Taking a look around
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  Speaker 2: at markets, the Dow Jones is up nearly three hundred points,
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  Speaker 2: close to a half percent, the S and P five hundred,
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  Speaker 2: slightly in positive territory as investors are largely shaking off
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  Speaker 2: a retail sales report that was rather weak that came
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  Speaker 2: out this morning at eight thirty, where we saw in
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  Speaker 2: the month of December that there was no increase in
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  Speaker 2: retail sales spending, which tries to capture consumer spending for
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  Speaker 2: the country. It was anticipated that we would see an
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  Speaker 2: increase of about point four percent, but the December number
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  Speaker 2: came in flat entirely. And if we look back over
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  Speaker 2: the course of the last year, we saw that from
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  Speaker 2: December's numbers, a about two point four percent increase year
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  Speaker 2: over year on retail sales spending compared to inflation that
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  Speaker 2: was running at two point seven percent, so almost decline
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  Speaker 2: if you adjust for inflation again just one data point.
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  Speaker 2: It's ultimately more more important to focus on the trend
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  Speaker 2: of retail sales report is if they continue to march
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  Speaker 2: down progressively in our week, month by month, and it's
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  Speaker 2: an area of concern, but this could just be an
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  Speaker 2: anomaly because the month of November's report was quite strong.
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  Speaker 2: As a result of that, you do see that the
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  Speaker 2: US tenure Treasury is down a little bit on that
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  Speaker 2: miss from retail sales, sitting at about four point one
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  Speaker 2: four percent off where it started previously, close to about
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  Speaker 2: four point two percent. Really big week here on the
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  Speaker 2: economic front. We are going to get a jobs report
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  Speaker 2: that will come out tomorrow that will break down where
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  Speaker 2: we stand on the employment front, recapping the month of January,
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  Speaker 2: and then on Friday we will get a CPI inflation report.
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  Speaker 2: So a lot of material to digest on the economic
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  Speaker 2: front this week. On the market front, we have had
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  Speaker 2: a looming goal out there that has been mentioned by
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  Speaker 2: many pundits, even though I don't really care about it
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  Speaker 2: that much, is trying to hit seven thousand on the
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  Speaker 2: S and P five hundred. It has been something that
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  Speaker 2: has been eluding markets over the course of the last
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  Speaker 2: several months or so, just briefly eclipsing that seven thousand
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  Speaker 2: mark just once. But a piece here from Bloomberg regarding
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  Speaker 2: the next big target for the S and P five hundred,
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  Speaker 2: and to be fair, the columnist Jonathan Levin does make
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  Speaker 2: the point that ultimately seven thousand or five thousand, or
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  Speaker 2: six thousand, none of those century, none of those thousand
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  Speaker 2: marks are that significant in terms of what it means
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  Speaker 2: for markets. But he did have a point in here
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  Speaker 2: that I want to highlight just briefly, is earnings growth
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  Speaker 2: for the S and P five hundred has been quite strong.
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  Speaker 2: We saw thirteen percent or twelve percent earnings per share
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  Speaker 2: growth this earning season. It is anticipated that earnings going
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  Speaker 2: to grow about thirteen percent this year, and it's going
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  Speaker 2: to be a little bit more widespread. Obviously, the technology
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  Speaker 2: sector drives a lot of the earnings growth, but it
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  Speaker 2: is anticipated that ten out of eleven sectors will see
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  Speaker 2: earnings growth this year. So that piece on the market side,
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  Speaker 2: I could care less. And I'm sure you're probably in
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  Speaker 2: the same camp as to whether the S and P
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  Speaker 2: f I've heard, well, it's seven thousand.
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  Speaker 3: Part of what matters evaluation ratio. Any ratio has two components,
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  Speaker 3: a quote and it's a ratio. What's on top is
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  Speaker 3: the price, that's your seven thousand in this case, what's
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  Speaker 3: in the denominator on the bottom is some measure of
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  Speaker 3: earnings or sales or whatever you're whatever it is you're
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  Speaker 3: trying to value. People could mean a lot of things
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  Speaker 3: when they say stocks are richly valued or cheaply valued,
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  Speaker 3: So you have to ask what do you mean? What
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  Speaker 3: measure are you using. So you pointed out earnings growth,
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  Speaker 3: the E and PDE might average low double digits over
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  Speaker 3: the last few years. The problem, if you think this
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  Speaker 3: is a problem not everybody agrees, is that the P
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  Speaker 3: and PDE been growing faster. The top in the ratio,
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  Speaker 3: the numerator has been growing faster than the denominator. That
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  Speaker 3: means rising valuation ratios. Historically, valuation ratios have been a
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  Speaker 3: pretty good forecaster of long run returns. The higher they
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  Speaker 3: get the more you pay for something, the lower you're
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  Speaker 3: expected return. It's obvious in the case of a bond,
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  Speaker 3: where you pay more for something, your coupon is lower
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  Speaker 3: because the coupon is in the numerator and the prices
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  Speaker 3: in the denominator. You can think about equities the same way.
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  Speaker 3: So equity valuations is measured by PE no matter how
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  Speaker 3: you define the E, and there are lots of different.
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  Speaker 4: Ways to do that too.
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  Speaker 3: They're pretty steep, Paul, As you know, they're at levels
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  Speaker 3: where historically big declines have followed because highpes don't adjust
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  Speaker 3: by the E getting bigger to bring it down. Historically,
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  Speaker 3: they adjust by the P coming down. And that's what's
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  Speaker 3: got some fundamentally oriented people worried. On the other side
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  Speaker 3: of that, you've got AI exuberance, and you've good very
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  Speaker 3: supportive fiscal and arguably monetary policy.
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  Speaker 4: Yeah, the somewhat supportive fiscal policies.
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  Speaker 2: The ratio is, like you mentioned, the price to earnings one.
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  Speaker 2: We've we've chronicled that a ton on the show, the
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  Speaker 2: idea that they we are in a significantly high percentile
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  Speaker 2: in terms of price to earnings. The problem with those
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  Speaker 2: is that they can be lousy short term predictors of
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  Speaker 2: market action, but it is certainly worth noting because they
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  Speaker 2: do these valuations do tend to revert to their mean.
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  Speaker 2: The question is just when they do.
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  Speaker 4: That, Yeah, I mean, well, not perfectly.
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  Speaker 3: Yeah, The question is to what mean the mean of
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  Speaker 3: just I'll just say PE, even though I mean P
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  Speaker 3: relative to some longer term measure of the smoothed like
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  Speaker 3: a like an average inflation adjusted measure that seems to
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  Speaker 3: have gone up. PE seemed to have gone up over time.
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  Speaker 3: There was a break in the way they behaved argue
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  Speaker 3: in the early nineties. So I don't think most people,
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  Speaker 3: I don't think would say, well, we're going to go
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  Speaker 3: back to the average pe the sixty seventies and eighties,
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  Speaker 3: which would be less than half of today's level, which
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  Speaker 3: right a huge drop, a permanent drop by the way
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  Speaker 3: in stocks relative to earning, unless you think peas are
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  Speaker 3: going to climb again. But most people are uncomfortable with
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  Speaker 3: where they are today.
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  Speaker 2: We are going to get that labor market report, as
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  Speaker 2: I mentioned, tomorrow, from the Bureau of Labor Statistics for
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  Speaker 2: the month of January. What also will come with that
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  Speaker 2: report is a revision on the payroll data that we've
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  Speaker 2: seen over the last twelve months from March of twenty
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  Speaker 2: twenty five through March of twenty twenty four. They are
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  Speaker 2: expected to be a pretty significant downward revision. I've read
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  Speaker 2: Bloomberg economists estimating it at about six hundred and fifty
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  Speaker 2: thousand of a downward revision. But I've also seen other
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  Speaker 2: numbers elsewhere for last.
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  Speaker 3: Year for a total for what period Paul, sorry to interrupt,
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  Speaker 3: through March.
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  Speaker 4: Of twenty five, and I believe they it's a twelve month.
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  Speaker 3: Okay, I always forget how they do. Sorry, it's not
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  Speaker 3: a labor you know economist. But so that's going to
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  Speaker 3: be the twelve months through last March.
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  Speaker 2: That's what the Bloomberg Comes estimated. The adjustment I've seen
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  Speaker 2: elsewhere in nine hundred thousand too. If you look back
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  Speaker 2: at that period, there are some significant months of gains
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  Speaker 2: through the December of twenty four where there was three
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  Speaker 2: hundred and twenty three thousand jobs added. So again we'll
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  Speaker 2: be really focused on what the data that we see
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  Speaker 2: that comes out in tomorrow's report.
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  Speaker 4: Of course, we'll get.
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  Speaker 2: An update on the jobs added for the month of January,
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  Speaker 2: where's anticipates seventy thousand jobs are added to the economy.
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  Speaker 2: That would be the highest over the last four months
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  Speaker 2: because we saw December come in around fifty thousand. So
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  Speaker 2: certainly a lot of focus on that labor report tomorrow,
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  Speaker 2: and the unemployment rate two will probably be the biggest,
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  Speaker 2: biggest statistic that we'll be focused on.
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  Speaker 3: Yeah, that that of course won't be affected by the revisions. Right,
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  Speaker 3: so the I suppose unemployment doesn't move, stays at four
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  Speaker 3: point four percent, but a million jobs get wiped out.
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  Speaker 4: That's in the past, backward looking up, So what should
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  Speaker 4: the Fed?
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  Speaker 3: Should the FED do anything? I'm being a little bit
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  Speaker 3: rhetorical here when you keep their goals of low and
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  Speaker 3: stable inflation and maximum employment or minimum unemployment equivalently, those
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  Speaker 3: are there too, the two prongs of their so called mandate,
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  Speaker 3: which are intention. Should it even matter if a million
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  Speaker 3: jobs get wiped out but unemployment doesn't change?
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  Speaker 2: No, I don't think so, because ultimately it's backward looking,
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  Speaker 2: and I don't think it would be a tremendous surprise
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  Speaker 2: too many economists out there that it seems like these
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  Speaker 2: downward resions are going.
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  Speaker 4: To be part of the process.
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  Speaker 2: It will be staggering to see the number, but ultimately
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  Speaker 2: it's something that you just have to And again it's
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  Speaker 2: an impossible job. I wouldn't want it, but you just
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  Speaker 2: have to take what you're getting, the most real time
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  Speaker 2: data that you're getting into.
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  Speaker 3: There'seration, there's nowhere that fits in the models that the
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  Speaker 3: economists of the FED uses. I understand them that revision,
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  Speaker 3: now I could be misspeaking. I understand them in abstract
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  Speaker 3: terms like I've seen them in a book, but I've
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  Speaker 3: never worked with them because I've never been a FED economist.
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  Speaker 3: So it may, but it may also mean nothing. We've
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  Speaker 3: got four point four percent of employment, we've got inflation
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  Speaker 3: that remains above the Fed's goal and could easily tick
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  Speaker 3: up with all the monetary stimulus, the fiscal stimulus that's
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  Speaker 3: being pumped into the economy, coupled with elevated inflation expectations,
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  Speaker 3: which are an important part of the inflation process. It's
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  Speaker 3: just not obvious to me that it should mean anything,
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  Speaker 3: even if it's dramatic.
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  Speaker 2: As you said, Paul, We're gonna take a quick break
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  Speaker 2: here on the Financial Exchange, and when we come back,
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  Speaker 2: we're we talking with Corey Adams from Robert Half specifically
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  Speaker 2: about the labor market. There's been a lot of significant
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  Speaker 2: trends in the labor market. AI certainly is on a
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  Speaker 2: lot of employee's minds. So we're only talking to Corey
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  Speaker 2: Ibms from Robert Half about where the labor market stands
• 11:01
  Speaker 2: and the impact of our official intelligence on some of
• 11:04
  Speaker 2: these desired skills for employees out there. That's right after
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  Speaker 2: this break here on the Financial Exchange. Stick with us.
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  Speaker 1: Radio Network. Text does six one seven three six two
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  Speaker 1: one three eighty five with your comments and questions about
• 11:31
  Speaker 1: today's show. This is the Financial Exchange Radio Network.
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  Speaker 2: As promised, we are joined by Corey Adams from Robert
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  Speaker 2: Haff who conducts surveys on the labor market and in particular,
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  Speaker 2: what we'll be focusing on is the demand for skilled
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  Speaker 2: talent here today, Corey, thanks so much for joining us.
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  Speaker 5: Good morning, Paul.
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  Speaker 4: Greed to be with you Corey.
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  Speaker 2: In the headlines recently, there has been a tremendous amount
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  Speaker 2: of focus and scrutiny on AI and the new programs
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  Speaker 2: coming out that could potentially impact white collar workers in
• 12:15
  Speaker 2: terms of cloud code and all these other software that
• 12:19
  Speaker 2: could be potentially drummed up by all these AI artificial
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  Speaker 2: intelligence models out there. Give me a look at what
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  Speaker 2: employers are saying, just in terms of the labor market
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  Speaker 2: and what they're looking at for twenty twenty six. What
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  Speaker 2: skills are in demand, What are areas that perhaps there's
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  Speaker 2: waning demand for. Just give us a sense for what
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  Speaker 2: you're seeing on the employer front.
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  Speaker 6: Sure, so we'll kick this off the demand for skill, talent,
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  Speaker 6: perfect timing for twenty twenty six. There's a lot of information,
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  Speaker 6: so we'll probably cover a lot this morning, so let's
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  Speaker 6: just start here. For the employers out there, we're seeing
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  Speaker 6: that hiring optimism is remounting in the first half of
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  Speaker 6: twenty twenty six. The research shows that sixty percent of
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  Speaker 6: employers plan to add permanent staff and fifty five percent
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  Speaker 6: expect to see the increase in contract hiring to support
• 13:11
  Speaker 6: their immediate needs. Staying with the employers, they're showing business confidence,
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  Speaker 6: eighty three percent of hiring managers said that they're confident
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  Speaker 6: in their business outlook for twenty twenty six, of which
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  Speaker 6: forty three percent expects strong company growth. Important note both
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  Speaker 6: those numbers are up significantly from the last time we
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  Speaker 6: asked this question around the same time period last year.
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  Speaker 6: To your opening comments, we're also finding that there are
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  Speaker 6: challenges and the hiring process because of AI. Sixty five
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  Speaker 6: percent of managers said that hiring has become harder due
• 13:44
  Speaker 6: to the rise of AI generated applications, and fifty eight
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  Speaker 6: percent reported greater difficulty identifying truly qualified candidates compared to
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  Speaker 6: one year ago. And then finally to close out sort
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  Speaker 6: of our top key findings, businesses are entering twenty twenty
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  Speaker 6: six with widening skills gaps in more complex hiring conditions.
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  Speaker 6: Sixty two percent of hiring managers say the skills gap
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  Speaker 6: has grown just the last year, and I thought this
• 14:08
  Speaker 6: was really important. Only six percent of managers feel like
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  Speaker 6: they are fully resource with both talent and headcount in
• 14:17
  Speaker 6: order to deliver on their current initiatives and projects for
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  Speaker 6: twenty twenty six.
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  Speaker 2: I'm a little surprised to hear that there is some
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  Speaker 2: more hiring optimism because everything you read tends to point
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  Speaker 2: to major employers sort of focusing on kind of keeping
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  Speaker 2: headcount level and can we invest more in artificial intelligence
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  Speaker 2: or technology in general to try and not necessarily to
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  Speaker 2: eliminate roles, but maybe optimize them. So why are employers
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  Speaker 2: feeling more optimistic because it kind of runs counter to
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  Speaker 2: a lot of the discourse that you read on the
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  Speaker 2: labor market.
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  Speaker 5: Sure, well, there's a few things.
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  Speaker 6: So first, you know, as I just said, business confidence
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  Speaker 6: is improving because the economic conditions are stabilizing, and so
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  Speaker 6: that's sort of your baseline. When that happens, it's always
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  Speaker 6: a good start. And the reality is what we're seeing
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  Speaker 6: in our research shows us is that many organizations that
• 15:10
  Speaker 6: pause hiring in twenty twenty five are actually restarting some
• 15:13
  Speaker 6: of those strategic projects. In fact, many started at the
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  Speaker 6: end of last year. And so all of that momentum
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  Speaker 6: is fueling demand for talent, especially in the hard to
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  Speaker 6: hire skill areas.
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  Speaker 5: And listen, let's just talk about AI for.
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  Speaker 6: A minute, because you've brought it up in the impacts,
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  Speaker 6: I mean, generative AI has literally transformed how candidates are
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  Speaker 6: applying for jobs, and by the way, it's not always
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  Speaker 6: for the better. So according to our research, sixty five
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  Speaker 6: percent and I said this, I want to repeat this,
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  Speaker 6: but sixty percent of managers say that finding skill talent
• 15:43
  Speaker 6: has in fact become harder, and fifty eight percent said
• 15:46
  Speaker 6: that the AI generated applications make it more difficult to
• 15:48
  Speaker 6: identify truly qualified candidates. So these AI tools allowed job
• 15:53
  Speaker 6: seekers to produce overly polished and near identical resumes, cover letters,
• 15:58
  Speaker 6: and work samples at scale. And so while that is
• 16:01
  Speaker 6: certainly helpful in many ways for the job seeker, it
• 16:04
  Speaker 6: also means that many hiring teams are spending significantly more
• 16:08
  Speaker 6: time verifying work, validating experience, and ensuring it Canadi's skills
• 16:13
  Speaker 6: actually translates into real world readiness. So the bottom line
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  Speaker 6: is that the world of AI as relates to the
• 16:19
  Speaker 6: job seeking the job employment process is ultimately adding friction
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  Speaker 6: to the hiring process an increasing the risk of misalignment
• 16:26
  Speaker 6: between the actual applicant and the actual job requirements.
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  Speaker 2: Certainly is a fascinating such just quick for you here,
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  Speaker 2: just what are some of the ways that employees could
• 16:36
  Speaker 2: stand out because you mentioned that everybody's kind of just
• 16:39
  Speaker 2: replicating the same resume. Look, what are some ways that
• 16:41
  Speaker 2: they could stand out compared to their peers that they're
• 16:43
  Speaker 2: up against for a new job.
• 16:46
  Speaker 6: Sure, So for the job seekers, first off, I would
• 16:49
  Speaker 6: just say this good news is they're still demand and
• 16:51
  Speaker 6: great opportunity for professionals with specialized and in demand skills
• 16:56
  Speaker 6: both technical and interpersonal. And I tend emphasize that that
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  Speaker 6: second one because it's one thing that you can truly control.
• 17:04
  Speaker 6: So job seekers who combine soft skills like communication and aptability,
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  Speaker 6: which by the way, AI cannot replicate, and you combine
• 17:12
  Speaker 6: that with technical know how with business and applications and
• 17:15
  Speaker 6: solutions from problem solving, adaptability, and cross team communication. I
• 17:19
  Speaker 6: promise you there's one hundred percent chance that you will
• 17:21
  Speaker 6: in fact stand out. And we're also going to suggest
• 17:24
  Speaker 6: that you prioritize job specific upskilling and certifications, as these
• 17:28
  Speaker 6: can be key to differentiating yourself in this market, but
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  Speaker 6: especially for the entry level workers who don't have as
• 17:35
  Speaker 6: much of an opportunity or experience.
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  Speaker 5: To showcase their abilities.
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  Speaker 6: And the last thing I would say around this and
• 17:40
  Speaker 6: not so much a tip, but more of a head
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  Speaker 6: up and more of a heads up and sort of
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  Speaker 6: reference this with the world of AI, but as a
• 17:46
  Speaker 6: job seeker and a candidate, you should one hundred percent
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  Speaker 6: expect a more rigorous assessment and or interview process, as
• 17:54
  Speaker 6: employers right now are looking for ways to truly verify
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  Speaker 6: real capabilities in this AI driven hiring environment that we're
• 18:01
  Speaker 6: all sitting.
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  Speaker 5: In right now.
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  Speaker 4: Corey Adams from Robert haf thanks so much for the time.
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  Speaker 5: Corey, Thanks pall, appreciate the time all.
• 18:08
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• 18:13
  Speaker 7: from the likes of Visa, Airbnb, Coca Cola, et cetera.
• 18:17
  Speaker 7: These companies are some of the official sponsors of the
• 18:20
  Speaker 7: Winter Olympics. The first Olympic sponsor came back in nineteen
• 18:23
  Speaker 7: twenty eight. So our trivia question today, what was the
• 18:27
  Speaker 7: first company to be an official sponsor of the Olympics?
• 18:30
  Speaker 7: Once again, what was the first company to be an
• 18:33
  Speaker 7: official sponsor of the Olympics. Be the fourth person today
• 18:37
  Speaker 7: to text us at six one seven three six two
• 18:39
  Speaker 7: thirteen eighty five with correct answer along with the keyword trivia,
• 18:43
  Speaker 7: and you win a Financial Exchange Show T shirt. Once again,
• 18:46
  Speaker 7: the fourth correct response to textas to the number six
• 18:49
  Speaker 7: one seven three six to two thirteen eighty five with
• 18:52
  Speaker 7: the correct answer along with the keyword trivia, We'll win
• 18:56
  Speaker 7: that T shirt. See complete contest rules at Financial Looks
• 19:00
  Speaker 7: Shane Show dot com.
• 19:02
  Speaker 4: Have you watched any of the Olympics yet? No, I haven't.
• 19:05
  Speaker 5: I was just watching a commercial for them.
• 19:07
  Speaker 4: I've been meaning to check it out a Tucker, have you.
• 19:09
  Speaker 7: Yeah, the Curlings actually been pretty intense, pretty intense, believe
• 19:12
  Speaker 7: it or not.
• 19:13
  Speaker 2: I'm taking some time off, so hopefully on vacation I'll
• 19:16
  Speaker 2: be able to catch up and watch.
• 19:18
  Speaker 4: A little bit. Yeah. The kiddo's Olyptics.
• 19:20
  Speaker 2: Yeah, that'll be fun to show them some of that stuff.
• 19:23
  Speaker 2: It's it's a fun, fun time. We're gonna take a
• 19:26
  Speaker 2: break here on the Financial Exchange. When we come back,
• 19:28
  Speaker 2: we're gonna have the answer to that trivia question about
• 19:30
  Speaker 2: the Olympics and Wallstreet Rotch right after this break.
• 19:40
  Speaker 1: Bringing the latest financial news straight to your radio. Every day,
• 19:45
  Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
• 19:50
  Speaker 1: Time now for Wall Street. Watch a complete look at
• 19:54
  Speaker 1: what's moving market so far today right here on the
• 19:57
  Speaker 1: Financial Exchange Radio Network.
• 20:01
  Speaker 7: The markets are mixed as Walsree reacts to a somewhat
• 20:04
  Speaker 7: underwhelming retail sales report for the month of December to
• 20:07
  Speaker 7: cap off the holiday season, where sales climb zero point
• 20:10
  Speaker 7: four percent, down from zero point six percent in November.
• 20:14
  Speaker 7: Traders also sifting through more earnings from the likes of
• 20:17
  Speaker 7: Coca Cola's, CBS Health and Spotify. Right now, the Dow's
• 20:21
  Speaker 7: up four tenths of a percent, or two hundred and
• 20:23
  Speaker 7: eight points higher, SMP five hundred is flat, NASDAC down
• 20:28
  Speaker 7: twenty one points now. Russell two thousand is up a
• 20:31
  Speaker 7: third of a percent. Tenure Treasur reel down five basis
• 20:35
  Speaker 7: points at four point one three nine percent, and crude
• 20:38
  Speaker 7: oil down about half a percent, trading right at sixty
• 20:41
  Speaker 7: four dollars a barrel. Beverage trying Coca Cola reported earnings
• 20:45
  Speaker 7: and missed revenue expectations for the previous quarter, while it's
• 20:48
  Speaker 7: adjusted earnings beat. The company guided for twenty twenty six
• 20:52
  Speaker 7: organic revenue growth of four to five percent and comparable
• 20:55
  Speaker 7: earnings growth of seven to eight percent. Coke stock is
• 20:58
  Speaker 7: down about two percent. Meanwhile, audio streaming company Spotify is
• 21:03
  Speaker 7: seeing its stock jump fifteen percent after the company saw
• 21:06
  Speaker 7: its monthly active users grow to seven hundred and fifty
• 21:10
  Speaker 7: one million, up eleven percent from the same period a
• 21:14
  Speaker 7: year ago. Elsewhere, Taiwan Semiconductor posted its highest monthly revenue
• 21:19
  Speaker 7: ever to four hundred and one point three billion dollars
• 21:22
  Speaker 7: in January, up thirty seven percent from a year ago.
• 21:25
  Speaker 7: Shares are up over one percent. Sticking with the chip sector,
• 21:28
  Speaker 7: where On Semiconductor saw its sales decline and its two
• 21:32
  Speaker 7: biggest businesses and narrowly missed revenue expectations for the previous quarter.
• 21:38
  Speaker 7: Shares are up over four percent. CBS Health reported fourth
• 21:41
  Speaker 7: quarter earnings and revenue that beat expectations, where the health
• 21:44
  Speaker 7: insurer also held its twenty twenty six profit guidance. That
• 21:48
  Speaker 7: stock is up modestly, and after today's closing bell, we'll
• 21:53
  Speaker 7: see earnings from Ford, Robin Hood and Gilead Sciences. I'm
• 21:58
  Speaker 7: Tucker Silvan. That is Wall Street. Watch the previous segment,
• 22:00
  Speaker 7: we asked you the trivia question what was the first
• 22:04
  Speaker 7: company to be an official sponsor of the Olympics. Well,
• 22:07
  Speaker 7: that would be Coca Cola step on from Wareham, Mass
• 22:11
  Speaker 7: is our winner today taking on a Financial Exchange Show
• 22:13
  Speaker 7: t shirt, and we play trivia every day here in
• 22:16
  Speaker 7: the Financial Exchange See complete contest rules at Financial Exchange
• 22:20
  Speaker 7: Show dot com.
• 22:22
  Speaker 2: What fast foods downturn says about the US economy Here
• 22:26
  Speaker 2: a piece from the Financial Times. We've covered this a
• 22:29
  Speaker 2: bit on the program, where the costs at fast food
• 22:32
  Speaker 2: restaurants has increased significantly and just really not commensurate with
• 22:37
  Speaker 2: wage increases over the course of the last several years,
• 22:39
  Speaker 2: and it's particularly harming lower income consumers. And as a result,
• 22:43
  Speaker 2: you've seen companies like McDonald's come out saying that they
• 22:46
  Speaker 2: are seeing double digit declines percentage wise in their lower
• 22:50
  Speaker 2: income consumers visiting their drive throughs, and so as a result,
• 22:54
  Speaker 2: what you've seen is a lot more value being accreted
• 22:57
  Speaker 2: to kind of those fast casual dining restaurants. Chili's is
• 23:01
  Speaker 2: the most emblematic example of that. Their stock has done
• 23:05
  Speaker 2: tremendously well as they have offered I believe it's two
• 23:09
  Speaker 2: entrees for fifteen dollars or some sort of I think
• 23:13
  Speaker 2: that's the value meal that they've been offering. And so
• 23:15
  Speaker 2: as a result, you've had McDonald's that has had to
• 23:17
  Speaker 2: come back with more emphasis on their five dollars value meal,
• 23:22
  Speaker 2: and it's just been a very difficult go around for
• 23:25
  Speaker 2: fast food. You've got Wendy's closing hundreds of locations across
• 23:30
  Speaker 2: the country with the decline and activity, while on the
• 23:33
  Speaker 2: other hand, fine dining has done quite well. It's been
• 23:36
  Speaker 2: the top pour performing segment in the restaurant segment. So
• 23:40
  Speaker 2: not easy for those fast food operators out there.
• 23:44
  Speaker 3: And maybe this relates to some of the bigger themes
• 23:46
  Speaker 3: that you were talking about earlier in the show. You
• 23:50
  Speaker 3: mentioned some summary of some work that Greg ibb did,
• 23:54
  Speaker 3: and I don't know if you did it himself or
• 23:55
  Speaker 3: if you just summarized other people's work or what in
• 23:57
  Speaker 3: the Wall Street Journal about labor share of income falling.
• 24:01
  Speaker 3: We know inequality has been rising. The impetus of motivating
• 24:08
  Speaker 3: those trends seems to be just technology and its effect
• 24:13
  Speaker 3: on wages of people without a college degree. These trends
• 24:17
  Speaker 3: have been playing out, these themes have been operating for
• 24:20
  Speaker 3: a long time. Unless these trends are are long term.
• 24:24
  Speaker 3: Do you think, because you think a lot about these things,
• 24:27
  Speaker 3: is this related to what we're seeing in terms of
• 24:32
  Speaker 3: a fast food like this big segment of fast food
• 24:36
  Speaker 3: struggling is as simple as that their consumers are struggling.
• 24:39
  Speaker 4: I'm sorry, yeah, I think so.
• 24:41
  Speaker 2: You know, obviously I don't have it with precise certainty.
• 24:44
  Speaker 2: But if you think about and look at just the
• 24:46
  Speaker 2: costs of eating outside the home versus eating just regular
• 24:51
  Speaker 2: grocery store food prices, You've seen a four point one
• 24:54
  Speaker 2: percent increase on menu prices over the last year compared
• 24:58
  Speaker 2: to two point four percent for grocery item costs. So
• 25:02
  Speaker 2: if you do have those lower income consumers that are
• 25:04
  Speaker 2: feeling more pressure from a wage perspective, they're going to
• 25:07
  Speaker 2: gravitate more of their spend to the grocery store than
• 25:11
  Speaker 2: eating out and those typically those fast food restaurants like
• 25:15
  Speaker 2: the McDonald's, like Wendy's would cater to those lower income
• 25:18
  Speaker 2: consumers because of the cheap affordability of food outside the
• 25:23
  Speaker 2: house with ease and convenience, and with some of these prices,
• 25:27
  Speaker 2: they're not really hitting that. And to me, broadly speaking,
• 25:31
  Speaker 2: the gap between the price that you pay at McDonald's
• 25:33
  Speaker 2: for my kids happy meal versus you know, that Chili's
• 25:37
  Speaker 2: or that mid fat tier, you know, fast casual restaurants,
• 25:40
  Speaker 2: it's narrow to a point where you start to question,
• 25:43
  Speaker 2: if I'm going to spend this much, I may as
• 25:45
  Speaker 2: well kind of go up a level if I'm going
• 25:47
  Speaker 2: to actually go out and get something to eat. And
• 25:50
  Speaker 2: it seems like that's sort of playing out over the
• 25:53
  Speaker 2: broader area here.
• 25:54
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• 27:01
  Speaker 2: For the last ten fifteen years, the US stock market
• 27:05
  Speaker 2: has absolutely pummeled international equity markets, and you and I
• 27:08
  Speaker 2: have talked off air that the traditional portfolio construction has
• 27:11
  Speaker 2: often been if you look at a target date fund,
• 27:14
  Speaker 2: let's say, for example, in a four to one K plan,
• 27:16
  Speaker 2: and we'll just look at the target date front for
• 27:19
  Speaker 2: a younger employee, because that is primarily stock for the
• 27:22
  Speaker 2: purposes of this conversation that you'd have a bulk of
• 27:26
  Speaker 2: your money in US equities within this cookie cutter target
• 27:29
  Speaker 2: date fund, but there also would be a slug anywhere
• 27:32
  Speaker 2: from twenty to forty percent depending on who you're looking at,
• 27:36
  Speaker 2: in international equities. And like I mentioned, the trend for
• 27:39
  Speaker 2: the last decade plus has been US markets have just
• 27:42
  Speaker 2: absolutely bludgeoned international markets in terms of their outperformance. But
• 27:46
  Speaker 2: what we've seen over the course of the last year
• 27:48
  Speaker 2: or so, and the momentum has continued into twenty twenty six,
• 27:51
  Speaker 2: is that international markets are performing much stronger than its
• 27:54
  Speaker 2: US counterparts. And some of that is these broad themes
• 27:58
  Speaker 2: and regarding dollar weakening, some optimism are around the European
• 28:03
  Speaker 2: Union spending a little bit more money on defense. What
• 28:07
  Speaker 2: are your thoughts on sort of the international takeoff? And
• 28:09
  Speaker 2: if I was to tell just a layman person who's
• 28:13
  Speaker 2: not a well seasoned investor, are those the broader themes
• 28:17
  Speaker 2: leading to the inflows? It seems like it's not as
• 28:20
  Speaker 2: if there's substantial earnings growth to justify this flock over
• 28:24
  Speaker 2: relative to US peers.
• 28:26
  Speaker 3: Well, first of all, your point about portfolio construction is
• 28:30
  Speaker 3: the key one. A diversified investor, An investor who seeks
• 28:34
  Speaker 3: high returns without unnecessary risk, should all l sequel allocate
• 28:40
  Speaker 3: some of his or her portfolio to their home country
• 28:44
  Speaker 3: and some abroad. And the reason for that is that
• 28:49
  Speaker 3: expected return, the historical returns, despite the big gap that's
• 28:54
  Speaker 3: opened up. And it's a big thing to say despite
• 28:57
  Speaker 3: with respect to but I'm gonna say it anyway, not
• 28:59
  Speaker 3: with standing just a synonym. It feels it feels stupid
• 29:03
  Speaker 3: to say it that way. The big gap. In the
• 29:05
  Speaker 3: past ten to fifteen years, historically foreign markets have offered
• 29:10
  Speaker 3: developed markets, now I'm comparing apples taples, I have offered
• 29:14
  Speaker 3: returns comparable to US markets. So an investor, a prudent
• 29:18
  Speaker 3: investor seeking to mitigate risk, not take unnecessary risk, I mean,
• 29:23
  Speaker 3: would have allocated some of their portfolio abroad. That's just
• 29:26
  Speaker 3: a basic principle of diversification. And a good example of
• 29:29
  Speaker 3: that is, as you point out, so called target date funds,
• 29:32
  Speaker 3: which are managed according to very conventional modern portfolio management practices.
• 29:40
  Speaker 3: Is now a good time well, historically when one or
• 29:44
  Speaker 3: the other us in our case, because from our perspective,
• 29:47
  Speaker 3: that's the home market. When when US stocks have had
• 29:53
  Speaker 3: an exceptional run relative to foreign foreign stocks have I
• 30:00
  Speaker 3: want to say, outperformed or I'm oversimplifying a little bit here,
• 30:03
  Speaker 3: because the valuation gap valuation that concept we talked about earlier,
• 30:06
  Speaker 3: gets pretty wide and foreign stocks become relatively attractive unless
• 30:11
  Speaker 3: you think US growth and therefore company earnings rates will
• 30:15
  Speaker 3: continue to outpace foreign.
• 30:17
  Speaker 4: Yeah, that's that's what's say.
• 30:19
  Speaker 3: There was a lot of gobbledgook. I just meant, you know, diversify,
• 30:22
  Speaker 3: so that means owning a little bit of whatever's available
• 30:25
  Speaker 3: out there.
• 30:25
  Speaker 2: The last ten years, if you look back broad US
• 30:28
  Speaker 2: index I'm using the S and P five hundred here
• 30:31
  Speaker 2: has done about close to fifteen percent where the world
• 30:34
  Speaker 2: indices and there's a bunch you can use, but just
• 30:36
  Speaker 2: broadly speaking, there's been about a two and a half
• 30:39
  Speaker 2: percent gap between the two over the last ten years.
• 30:41
  Speaker 2: But the last five years number has narrowed down a
• 30:45
  Speaker 2: bit just because you've got these world indices, you know,
• 30:49
  Speaker 2: international emerging markets performing a little bit more strong, So
• 30:52
  Speaker 2: it'll be interesting trend to continue to fall. Like you
• 30:56
  Speaker 2: mentioned that the most common sort of portfolio construction has
• 31:00
  Speaker 2: some international in there, but they certainly are seeing a
• 31:02
  Speaker 2: lot more stronger.
• 31:03
  Speaker 3: In the seventies and eighties global international. And again I'm
• 31:07
  Speaker 3: being a little fast and loose here, but beat the
• 31:09
  Speaker 3: snot out of U.
• 31:09
  Speaker 4: Yes.
• 31:10
  Speaker 3: And after that time people realized, starting with institutions like pensions, realize, well,
• 31:15
  Speaker 3: you got to have some international. And then of course
• 31:17
  Speaker 3: US went on a tair during the late nine similar
• 31:20
  Speaker 3: to today's tear.
• 31:21
  Speaker 4: Yeah.
• 31:22
  Speaker 3: And then then international specifically emerging mark gets dominated in
• 31:26
  Speaker 3: the first several years of the two thousands. Everybody loaded
• 31:29
  Speaker 3: up on it and it's subsequently underperformed. By the way,
• 31:32
  Speaker 3: that's not a coincidence. Loading up on it means pushing
• 31:34
  Speaker 3: the price up. Pushing the price up means pushing down
• 31:37
  Speaker 3: future returns. The higher the more you pay for something today,
• 31:40
  Speaker 3: the lower your expected return, all else equal.
• 31:43
  Speaker 2: We're going to take a quick break here on the
• 31:44
  Speaker 2: Financial six Change. When we come back, a little bit
• 31:47
  Speaker 2: of stack Roulette right.
• 31:48
  Speaker 5: Up the time.
• 31:48
  Speaker 1: Daily interviews and full shows of the Financial Exchange on
• 31:51
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• 31:54
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• 33:01
  Speaker 7: That's DAV five K out top Boston. I just kind
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  Speaker 7: of like static from the microphone that hurt.
• 33:07
  Speaker 4: Out guys a fire over there.
• 33:11
  Speaker 7: Literally, that was just a spark off my microphone.
• 33:14
  Speaker 2: That was not fun a hot mic. Literally to time
• 33:19
  Speaker 2: for a little bit of stack roulette. I will kick
• 33:21
  Speaker 2: it off with a little bit more Olympics chatter. Apparently,
• 33:24
  Speaker 2: mark these medals that these athletes have worked their whole
• 33:28
  Speaker 2: lives to try and obtain are falling apart very quickly
• 33:33
  Speaker 2: after they are being gifted to them. They've done an
• 33:36
  Speaker 2: investigation where these Italian officials are promising to scrutinize what
• 33:41
  Speaker 2: has become an epidemic at the Olympic Games here where
• 33:45
  Speaker 2: many recipients of different medals than it could be gold, bronze,
• 33:49
  Speaker 2: or silver, the medals are falling apart. Basically, the medal
• 33:53
  Speaker 2: is detaching from the ribbon around their neck when they celebrate.
• 33:57
  Speaker 2: It doesn't take much to jar them loose. And I
• 34:00
  Speaker 2: can't imagine the amount of hours and prep and time
• 34:03
  Speaker 2: that has gone into them reaching the pinnacle of their
• 34:06
  Speaker 2: career and getting a metal and then having that metal
• 34:09
  Speaker 2: said metal fall apart. Apparently they were put together made
• 34:14
  Speaker 2: by recycled materials recovered from its own production waste. This
• 34:19
  Speaker 2: company it's called ip SE. I'm going to throw them
• 34:22
  Speaker 2: under the bust here. IPZS it was the Statement and
• 34:25
  Speaker 2: Polygraph Institute that's a government owned company that produces the
• 34:29
  Speaker 2: Italian coins, is just not fit the bill here. I
• 34:33
  Speaker 2: can't imagine how much of a bummer. That would be
• 34:35
  Speaker 2: to have my silver metal fall apart when I throw
• 34:38
  Speaker 2: it on my neck. Just not a good look here.
• 34:42
  Speaker 2: I've heard this in a couple times.
• 34:44
  Speaker 4: About Olympic medals.
• 34:45
  Speaker 2: This is not new the thing I had heard previously.
• 34:49
  Speaker 2: This is more a ribbon and metal issue, you know,
• 34:51
  Speaker 2: them becoming detached. But the issue that I've heard for
• 34:54
  Speaker 2: prior Olympics is that the coloring on the gold, you know,
• 34:58
  Speaker 2: very quickly fades and looks you know, quite lousy, and
• 35:02
  Speaker 2: the shine sort of is deteriorates quite fast from it.
• 35:06
  Speaker 2: Other issues that you guys have heard of over the
• 35:08
  Speaker 2: years that I'm neglecting to.
• 35:09
  Speaker 3: Mention held up pretty well. But they're not for like
• 35:13
  Speaker 3: napping or they're not solid gold.
• 35:17
  Speaker 5: Maybe that's obvious, but I had to.
• 35:19
  Speaker 3: I had to look it up.
• 35:20
  Speaker 4: They should be. They're mainly right, yeah, but I can't
• 35:23
  Speaker 4: imagine the expense. Well, we all we know it's.
• 35:26
  Speaker 3: Smaller but gold. Just make them small and put them
• 35:29
  Speaker 3: in the in case them in something. Yeah, something solid
• 35:31
  Speaker 3: gold would be half of them probably wouldn't make it home.
• 35:34
  Speaker 3: But they're not solid gold. They're mostly Stirling silver, like
• 35:37
  Speaker 3: ninety three percent with a minimum. It says here of
• 35:40
  Speaker 3: six grams, which is just gold plating, which gives them
• 35:42
  Speaker 3: the veneer, and.
• 35:44
  Speaker 4: That veneer falls apart really quickly.
• 35:46
  Speaker 3: It's but are the actual metals cracking in chairs they
• 35:50
  Speaker 3: join them, and are they coming a part of the
• 35:52
  Speaker 3: joint or it's just.
• 35:53
  Speaker 4: The ribbon versus the metal the metal falling.
• 35:56
  Speaker 3: Off the ribbon.
• 35:57
  Speaker 4: Yeah, got to be.
• 35:58
  Speaker 3: I mean they're a little they weigh like the several hundred.
• 36:03
  Speaker 4: Oh okay, yeah, the Golden Media.
• 36:05
  Speaker 5: They're not idiots.
• 36:06
  Speaker 3: These are most These are where we're very proud of
• 36:09
  Speaker 3: our American competitors. But you don't dance around with it.
• 36:12
  Speaker 1: You don't.
• 36:13
  Speaker 3: They're complaining because they're dancing, and then it's breaking from
• 36:16
  Speaker 3: the ribbon.
• 36:17
  Speaker 4: Well you clear a little excited. Yeah, they've only spent
• 36:21
  Speaker 4: their whole lives off first.
• 36:22
  Speaker 3: Then you jump around like a moron. Right, obvious it's wrong.
• 36:28
  Speaker 3: It's going to become detached.
• 36:29
  Speaker 4: Strongly disagree.
• 36:30
  Speaker 2: Okay, you you were dreaming of this moment since you
• 36:33
  Speaker 2: were what six or eight years who knows how early
• 36:35
  Speaker 2: they start training six years old?
• 36:37
  Speaker 4: You get that old.
• 36:38
  Speaker 3: Sorry, I take some of that back.
• 36:39
  Speaker 2: You want to wear it around your neck and you
• 36:41
  Speaker 2: don't want to say Hey, I'm gonna here, you know here, coach,
• 36:44
  Speaker 2: you hold it and I'll go dance over here.
• 36:45
  Speaker 4: You you want that around your neck? Yeah? Okay, what's
• 36:50
  Speaker 4: your athletic what's your athletic career? Were you an athlete
• 36:52
  Speaker 4: back then? We're not going to talk about how.
• 36:54
  Speaker 3: Much time you know?
• 36:55
  Speaker 7: I was watching last night and you know you guys
• 36:58
  Speaker 7: know lose right, Yes, it's just like you know the
• 37:01
  Speaker 7: Bob's like, but just like a single person thing.
• 37:04
  Speaker 4: How do you do that?
• 37:05
  Speaker 7: Like, how do you be like, Hey, I'm going to
• 37:07
  Speaker 7: get into this. Let me go down the down the.
• 37:09
  Speaker 4: Street to the lose track slighting enthusiasms.
• 37:13
  Speaker 7: I don't know where you find these loose tracks. They're huge,
• 37:16
  Speaker 7: great and they go like seventy five miles an hour.
• 37:19
  Speaker 4: How do you get into this? I would be very
• 37:21
  Speaker 4: curious what the US scene.
• 37:23
  Speaker 2: It's got to be out west, like Colorado that yeah,
• 37:26
  Speaker 2: attracts these the talent there, because I don't know of
• 37:29
  Speaker 2: anything Island. Yeah, I don't know anything in New England
• 37:33
  Speaker 2: that I've never heard of. Anybody get into loge around area.
• 37:37
  Speaker 7: I think there's a curling situation in Boston.
• 37:40
  Speaker 2: Curling clubs I've heard about before. But I have not
• 37:43
  Speaker 2: heard anyone who is a big, a big loser in
• 37:47
  Speaker 2: the family that that does intend to get a lot
• 37:49
  Speaker 2: of play skiing. We definitely got a lot of around
• 37:52
  Speaker 2: this this area, but I'm the last person to be
• 37:56
  Speaker 2: able to give any sort of insight on winter Olympics sports.
• 38:00
  Speaker 4: I barely have a winter jacket.
• 38:02
  Speaker 2: That's all the time that we have for this episode
• 38:05
  Speaker 2: here of the Financial Exchange, a lot more to cover
• 38:08
  Speaker 2: for the rest of the week, Jobs Report tomorrow, we'll
• 38:10
  Speaker 2: have it for you at ten am.
• 38:12
  Speaker 4: Thanks so much for joining us, guys,