Latest / The Financial Exchange Show / Strong Jobs Report, Rising Oil Risks, and the Fed’s Next Move

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Strong Jobs Report, Rising Oil Risks, and the Fed’s Next Move · The Financial Exchange Show

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  Speaker 1: and Paul Lane.
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  Speaker 2: Happy Friday. Good Friday here on the Financial Exchange. Many
• 1:13
  Speaker 2: markets are closed today. It's Mike, Paul and Tucker with
• 1:16
  Speaker 2: you on a job's Friday. And while equity markets are closed,
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  Speaker 2: banks are still open, bond markets open, I think half
• 1:23
  Speaker 2: a day of trading here and plenty two still dive
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  Speaker 2: through as the changing narrative on the war in Iran continues.
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  Speaker 2: But first things first. At eight thirty today, we did
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  Speaker 2: get the monthly jobs report for the month of March,
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  Speaker 2: and it's been a bit of a volatile data series
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  Speaker 2: to start the year out. But to frame everything here,
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  Speaker 2: we've been coming down from a very heavy pace of
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  Speaker 2: job creation since twenty since twenty twenty one, when jobs
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  Speaker 2: disappeared at a pretty rapid pace during COVID, and there
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  Speaker 2: have been, you know, millions of jobs created between twenty
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  Speaker 2: twenty one through twenty twenty five. But the pace has
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  Speaker 2: been slowing, and so the question that is on many
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  Speaker 2: minds is will that slowing continue into twenty twenty six,
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  Speaker 2: which would probably mean net job loss, or will we
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  Speaker 2: kind of plateau here and see a stable labor market
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  Speaker 2: as we continue through twenty twenty six. In the year
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  Speaker 2: of twenty twenty five. Something around ten thousand jobs a
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  Speaker 2: month on average were created for all of twenty twenty five,
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  Speaker 2: which is a pretty slow tick, but twenty twenty six
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  Speaker 2: it's been bouncing around. We had heavy job creation in January,
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  Speaker 2: net job loss in February, and now marches out with
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  Speaker 2: again a pretty good clip of job creation here. So
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  Speaker 2: let's contextualize it all here, Paul, and let's start off
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  Speaker 2: with those headline numbers.
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  Speaker 3: Yeah, so we saw one hundred and seventy eight thousand
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  Speaker 3: jobs created for the month of March, a really strong
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  Speaker 3: number if you look back what some of the prior
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  Speaker 3: months were coming in at. We did also have some
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  Speaker 3: revisions to those prior months. We had thirty four thousand
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  Speaker 3: jobs added to the January report, so that came in
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  Speaker 3: at one hundred and sixty thousand of jobs added the
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  Speaker 3: February report, though further downward, revisions were added to that,
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  Speaker 3: so that there was a net job loss of one
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  Speaker 3: hundred thirty three thousand in the month of February. You
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  Speaker 3: take the three month average of that period January, February
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  Speaker 3: and March, you're sitting around sixty eight thousand in terms
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  Speaker 3: of jobs added over those three months, with.
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  Speaker 4: Those across the month cd average, but total across.
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  Speaker 3: The three sorry, yeah, the net aggregate of the three
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  Speaker 3: months there, in particular what we saw with March's one,
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  Speaker 3: this number is slightly inflated by some sort of one
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  Speaker 3: off factors. One of them the reason that February's report
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  Speaker 3: was so weak is because there was a healthcare strike.
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  Speaker 5: It was kinds of.
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  Speaker 4: Permanent permier out of the West Coast.
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  Speaker 3: There was a strike there that impacted some of the
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  Speaker 3: jobs on the decline side of things for the month
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  Speaker 3: of February. Those jobs were added back about thirty five thousand,
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  Speaker 3: of those jobs in offices of physicians. They returned to work.
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  Speaker 3: Of the seventy six thousand jobs that were at in healthcare,
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  Speaker 3: thirty five thousand of those were kind of a reversal
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  Speaker 3: of what that strike impact had meant. We also had
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  Speaker 3: construction adding about twenty six thousand jobs for the month
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  Speaker 3: of March. That was a little bit of a playoff
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  Speaker 3: of February being so bad in terms of its weather,
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  Speaker 3: and those jobs were added back in once some of
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  Speaker 3: the crazy weather that we had in February subsided. So
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  Speaker 3: you step back from all this mic and we did
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  Speaker 3: have i should say the unemployment rate sits at four
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  Speaker 3: point three percent, so.
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  Speaker 4: After getting up to four or four in the last
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  Speaker 4: two months.
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  Speaker 3: So overall you look at this, it's a pretty good report.
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  Speaker 3: I think that some of the numbers that we just
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  Speaker 3: alluded to here boost this a little bit and perhaps
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  Speaker 3: outstate the total underlying number being close to one hundred
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  Speaker 3: and eighty k It sounds a little larger than what
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  Speaker 3: it actually is under the surface. But what a broader
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  Speaker 3: takeaway that you have is continue to have sort of
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  Speaker 3: tepic growth if you step back and look at the
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  Speaker 3: three month period on the labor market, and what continues
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  Speaker 3: to be fascinating to follow is just the participation rate
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  Speaker 3: that we have a sort of plateauing labor market, reflecting
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  Speaker 3: the shift in demographics, which we can get into where
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  Speaker 3: you have a lot of baby boomers that are retiring,
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  Speaker 3: you don't have as many new entrants into the labor
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  Speaker 3: market sort of backfilling that jobs that were filled by
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  Speaker 3: those older workers. The participation rate for United States workers
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  Speaker 3: in kind of that prime age working demographics sits at
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  Speaker 3: about sixty one point nine percent. That is the lowest
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  Speaker 3: since November of twenty twenty one that we see here.
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  Speaker 4: So yeah, all in total.
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  Speaker 2: I was asked this question by Mac Daniel, who hosts
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  Speaker 2: wga n's morning show up in Portland, Maine, this morning,
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  Speaker 2: because we were talking about this right after the report
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  Speaker 2: came out, and he said, you know, Mike, whenever you
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  Speaker 2: tell me about these numbers, you also tell me that
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  Speaker 2: they can get revised dramatically. We see the revisions come
• 6:07
  Speaker 2: through frequently. There's all sorts of those continuous accusations. And
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  Speaker 2: I'm not sure which, you know, which roady was going down,
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  Speaker 2: whether it's you know, the numbers seem fudged, or if
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  Speaker 2: the numbers just get revised, And we landed on that
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  Speaker 2: they just get revised heavily.
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  Speaker 4: So he's asking why should I, you know, what should.
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  Speaker 2: I really care about when I read a report like this,
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  Speaker 2: Like what what actually matters? Given how dramatically things get revised.
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  Speaker 2: And my answer was one, you know, look at these
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  Speaker 2: directionally over a long period of time, like look for
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  Speaker 2: the trend in the numbers, and the trend in the
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  Speaker 2: numbers for the last year plus, and nothing changing here
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  Speaker 2: is that the pace of job creation has slowed pretty dramatically,
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  Speaker 2: which does make a lot of sense. The other piece, though,
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  Speaker 2: the unemployment rate, that part doesn't get revised. So that's
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  Speaker 2: an important clarification. This survey that we talk about once
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  Speaker 2: a month is a combination of two separate surveys. One
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  Speaker 2: is of a bunch of businesses and government organizations. Too
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  Speaker 2: is a bunch of households, And the household survey is
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  Speaker 2: where they get that unemployment rate. The business survey is
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  Speaker 2: where they get the job creation. And what happens very frequently,
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  Speaker 2: especially since COVID, like there's something about COVID dramatically affected
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  Speaker 2: our willingness to fill out surveys for some reason. But
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  Speaker 2: they'll send out these surveys, they won't get a bunch
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  Speaker 2: of them back in time. As time goes on, more
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  Speaker 2: surveys come in, and that's where the revisions come from.
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  Speaker 2: It's not like we screwed up the math. It's simply
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  Speaker 2: a survey was sent out and it didn't come back
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  Speaker 2: in time for us to publish it, and as we
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  Speaker 2: get more data, we revise them. And so my answer
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  Speaker 2: continues to be look at this stuff for directional information.
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  Speaker 2: I refuse to believe unless somebody presents some really compelling
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  Speaker 2: evidence that there is some you know, group within the
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  Speaker 2: Bureau of Labor statistics that's so loyal to Joe Biden
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  Speaker 2: or to President Trump that they're going in there and
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  Speaker 2: you know, fudging the numbers to make things look better.
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  Speaker 2: There's plenty of evidence that at the worst possible time,
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  Speaker 2: these numbers actually look worse for the sitting presidents during
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  Speaker 2: different periods. So I don't believe there's any of that.
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  Speaker 2: There's you know, thousands of career statisticians that have made
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  Speaker 2: it through multiple different presidencies, so you know, don't buy
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  Speaker 2: any of that fudging the number stuff. But look at
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  Speaker 2: this as an overall trend line, and the trend line,
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  Speaker 2: as you mentioned, is pretty clear. The pace of job
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  Speaker 2: creation is low. The churn in the labor market is
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  Speaker 2: also low, and is indicative of an economy that we've
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  Speaker 2: only really seen twice in the last fifteen years. One
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  Speaker 2: was right during peak COVID and two was in the
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  Speaker 2: early twenty tens recovering from the Great Financial Crisis.
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  Speaker 4: And there's you know, some.
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  Speaker 2: Similarities between the economy now and those times, but there's
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  Speaker 2: a lot of differences. And I think the reason we're
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  Speaker 2: seeing this pace of job creation is not because we're
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  Speaker 2: coming right off of a really.
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  Speaker 4: Disastrous financial crisis.
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  Speaker 2: It is much more about demographics, and therefore the outcome
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  Speaker 2: of where things go next is going to change a bit.
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  Speaker 2: But again headline numbers here for the month of March,
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  Speaker 2: which again survey done in the midst of this conflict
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  Speaker 2: in Iran, but.
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  Speaker 4: You know, obviously on the early end of it.
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  Speaker 2: So you know, I think more to find out in
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  Speaker 2: terms of how this data will be interpreted and how
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  Speaker 2: businesses will respond in the coming months given the continued
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  Speaker 2: conflict in war in Iran. But headline numbers one hundred
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  Speaker 2: and seventy eight thousand jobs created, unemployment rate dipping down
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  Speaker 2: to four point three percent after hitting four point four
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  Speaker 2: percent in the previous months, and overall a signal that
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  Speaker 2: the labor market is certainly not in any sort.
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  Speaker 4: Of freefall at the moment.
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  Speaker 2: When we come back, I want to take a look
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  Speaker 2: and think through here just what this means demographically for workers,
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  Speaker 2: for businesses that are facing a very different economy in
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  Speaker 2: twenty twenty six compared to the early twenty ten, and
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  Speaker 2: then what this all also means for the Fed and
• 10:03
  Speaker 2: j Powell as they head into the last Is this
• 10:06
  Speaker 2: the last one or two meetings that Jay will be
• 10:09
  Speaker 2: overseeing until the new pick is installed at the Federal Reserve.
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  Speaker 2: Quick break back with that. Next on the Financial Exchange.
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  Speaker 6: Well, we're doing the uh, the old Money Matters mail
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• 11:32
  Speaker 2: the Jobs Jobs Report, Sorry, Yeah, that's where we're going.
• 11:36
  Speaker 2: Jobs Report came out this morning at eight thirty. Again,
• 11:39
  Speaker 2: if you're just tuning in one hundred and seventy eight
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  Speaker 2: thousand jobs created, unemployment rate down to four three. And
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  Speaker 2: what I think is the important figure here is that
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  Speaker 2: unemployment rate. I don't really think the pace of job
• 11:53
  Speaker 2: creation is terribly relevant unless it fars or passes our expectations.
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  Speaker 2: And I'm wondering about the context for the FED. So
• 12:01
  Speaker 2: a month ago, which was just at the outbreak of
• 12:06
  Speaker 2: war in Iran, So on March third of twenty twenty six,
• 12:11
  Speaker 2: there was a fifteen percent chance according to the CME
• 12:15
  Speaker 2: Futures Chicago Mercantile Exchange, that the FED would cut rates
• 12:18
  Speaker 2: at their next meeting, which is on April twenty ninth,
• 12:24
  Speaker 2: And today there's a zero percent chance. The entire likelihood
• 12:30
  Speaker 2: has moved towards no FED rate cut. It was the
• 12:34
  Speaker 2: same thing yesterday. So this is not all just a
• 12:36
  Speaker 2: reaction to the jobs report, but clearly a lower unemployment
• 12:42
  Speaker 2: rate combined with these higher oil prices sets something up
• 12:46
  Speaker 2: for investors that, again I think could be a pretty
• 12:49
  Speaker 2: big surprise, mainly because when you looked at this stuff
• 12:52
  Speaker 2: a few months ago, pretty much everyone was banking on
• 12:55
  Speaker 2: lower interest rates at.
• 12:56
  Speaker 5: Least two cuts depending on what you looked at.
• 12:58
  Speaker 2: Yeah, that was today as we look out to the
• 13:01
  Speaker 2: end of the year, right, So there's a lot of
• 13:04
  Speaker 2: different betting going on here. But one thing that's important
• 13:07
  Speaker 2: is but by the end of the year, Ja Powell
• 13:09
  Speaker 2: will almost certainly not be leading the FED. That's pretty
• 13:12
  Speaker 2: clear unless things get really really funkyated in terms of confirmations.
• 13:17
  Speaker 2: The most likely outcome right now, according to that same
• 13:20
  Speaker 2: CME tool. By the way, this is a public This
• 13:22
  Speaker 2: is not something that you have to pay for. Just
• 13:24
  Speaker 2: go to CME group and search for the CME FED
• 13:27
  Speaker 2: Watch tool. You can go look at this yourself and
• 13:29
  Speaker 2: see how the likelihoods change. But right now, by December
• 13:32
  Speaker 2: of this year, there's an eighty percent chance that no
• 13:35
  Speaker 2: cuts are priced in at all, nor are any hikes.
• 13:38
  Speaker 2: But again, a month ago, the most likely outcome was
• 13:42
  Speaker 2: by December rates are half a percentage point lower than
• 13:45
  Speaker 2: where they are now, and there was like a seventy
• 13:48
  Speaker 2: percent chance that maybe like two thirds, that it was
• 13:51
  Speaker 2: at least that low, I mean, more rate cuts were
• 13:54
  Speaker 2: possibly priced in. The reality now is there's almost no
• 13:58
  Speaker 2: chance of rate cuts baked in any more. There is
• 14:01
  Speaker 2: a significant risk of some rate hikes later in the year,
• 14:05
  Speaker 2: which I think is probably unlikely, But the FED now
• 14:08
  Speaker 2: just has I think a lot more cover to sit
• 14:11
  Speaker 2: there and say there is no reason for us to
• 14:14
  Speaker 2: change anything in terms of rates. And I just wonder
• 14:19
  Speaker 2: what the message is going to look like from the
• 14:21
  Speaker 2: FED if there's any threat of that rate hike.
• 14:23
  Speaker 4: I think the answers know. As Jay winds up his
• 14:26
  Speaker 4: career at the.
• 14:27
  Speaker 3: FED, yeah, I think he had had some commentary recently
• 14:30
  Speaker 3: where they are not going to bend necessarily to energy
• 14:33
  Speaker 3: supply shocks and abruptly make rate hike decisions. This jobs
• 14:39
  Speaker 3: report that we got probably also reinforces that there isn't
• 14:43
  Speaker 3: this tremendous need for them to act quickly to save
• 14:47
  Speaker 3: the labor market, which that thought process had percolated a
• 14:50
  Speaker 3: little bit towards the end of twenty twenty five. This
• 14:53
  Speaker 3: report that we were just digested earlier this morning, to me,
• 14:56
  Speaker 3: doesn't point to any need for significant action to change
• 15:00
  Speaker 3: course from an interest rate perspective. So if you weigh
• 15:03
  Speaker 3: the to the labor market and some of the inflationary
• 15:06
  Speaker 3: pressure that we're bound to see from all the energy
• 15:08
  Speaker 3: price socks, it does lay the groundwork for me to
• 15:11
  Speaker 3: sort of say, hey, let's let's sit pat where we
• 15:13
  Speaker 3: are and not make any significant change.
• 15:15
  Speaker 2: The question that I have, again, this is not a
• 15:17
  Speaker 2: short term question, but it's one that's been looming for
• 15:19
  Speaker 2: quite some time with our demographics as a nation, which
• 15:22
  Speaker 2: are slowly looking a bit more like countries such as Japan,
• 15:29
  Speaker 2: such as much of Europe. Again, we are in a
• 15:31
  Speaker 2: far better situation there, even with changing migration patterns, like
• 15:37
  Speaker 2: our birth rates are still considerably higher than those places.
• 15:41
  Speaker 2: But we are, you know, heading in that direction of
• 15:44
  Speaker 2: an aging economy without a lot of growth, and I
• 15:49
  Speaker 2: just do wonder what that So much of our societal
• 15:54
  Speaker 2: norms are based on an economy or a population that
• 15:58
  Speaker 2: continues to grow, right, like I'm thinking of many Forget
• 16:01
  Speaker 2: the stock market, forget about the jobs report, but think
• 16:05
  Speaker 2: through social Security. The entire program is predicated on the
• 16:09
  Speaker 2: idea that there will may be more people paying in
• 16:11
  Speaker 2: the future, people who will be whoever left the system.
• 16:17
  Speaker 2: We talked yesterday about how the population of people over
• 16:21
  Speaker 2: the age of eighty is going to double over the
• 16:23
  Speaker 2: next twenty years, and so I just wanted, like, you know,
• 16:26
  Speaker 2: you can't look at Japan and say, oh, what a
• 16:28
  Speaker 2: catastrophe it's been there.
• 16:30
  Speaker 4: It hasn't been.
• 16:31
  Speaker 2: It's still a wealthy country, a well educated country, high
• 16:33
  Speaker 2: standard of living. The only thing you can look at
• 16:36
  Speaker 2: and criticize is that the economy hasn't grown a whole
• 16:38
  Speaker 2: lot over the last two decades. Right, stock market likewise
• 16:42
  Speaker 2: hasn't grown a whole lot over the last two decades.
• 16:44
  Speaker 2: And I don't think that's much of a disaster scenario.
• 16:48
  Speaker 2: But I'm their social programs aren't as much predicated on
• 16:52
  Speaker 2: that same philosophy of Hey, we need to have more
• 16:56
  Speaker 2: people paying in and we have some kind of looming
• 16:58
  Speaker 2: threats here that are going to be exacerbated by the
• 17:03
  Speaker 2: lack of population growth over the next decade if we
• 17:07
  Speaker 2: don't kind of shape reshape that in some way.
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  Speaker 3: Yeah, our ability to add jobs consistently and continue to
• 17:13
  Speaker 3: grow the working population. I feel as if interpreting some
• 17:17
  Speaker 3: of these articles here in The New York Times covers
• 17:19
  Speaker 3: up for lesser need to create economic policies to stimulate
• 17:24
  Speaker 3: retraining of the workforce or continue education. Because you continue
• 17:29
  Speaker 3: to add more people to the population, that creates more
• 17:32
  Speaker 3: demand to consume, and as a result, that creates more
• 17:36
  Speaker 3: hiring needs for employers, and so that sort of continues
• 17:39
  Speaker 3: to drive that flywheel further of the economy growing, and
• 17:44
  Speaker 3: it is fascinating to sort of follow now that we're
• 17:46
  Speaker 3: at this point, you have very limited immigration, you have
• 17:51
  Speaker 3: a lot of maybe because we're in the weeds of it.
• 17:53
  Speaker 3: I really feel it too, because we work with so
• 17:55
  Speaker 3: many clients who are retiring.
• 17:57
  Speaker 5: But statistically this backs it up too.
• 17:59
  Speaker 3: There are a lot of people who are stepping away
• 18:01
  Speaker 3: from the workforce and not a ton of twenty something
• 18:03
  Speaker 3: year old's coming in, so particularly in the healthcare point
• 18:07
  Speaker 3: that you had talked about yesterday, Mike, more people getting older,
• 18:10
  Speaker 3: that's more healthcare services needed. We don't have really the
• 18:13
  Speaker 3: requisite amount of twenty somethings to come in and fill
• 18:17
  Speaker 3: all of that demand. It's just an interesting mix of demographics.
• 18:21
  Speaker 3: How do we sort of resolve that shift? It seems
• 18:26
  Speaker 3: like the easiest way is getting in immigration, legal immigration
• 18:30
  Speaker 3: for more workers.
• 18:31
  Speaker 2: That was going to land there too that you know,
• 18:34
  Speaker 2: perhaps perhaps we're reading too much about this moment, reading
• 18:37
  Speaker 2: too much into this moment being the status quo right
• 18:40
  Speaker 2: for the next decade. I mean, immigration patterns have dramatically
• 18:43
  Speaker 2: changed over the last two years, and perhaps that's what
• 18:48
  Speaker 2: will necessitate a change towards a more logical or economical
• 18:55
  Speaker 2: immigration policy in the US that looks a bit like
• 18:58
  Speaker 2: some other countries where it's Arab based or some other
• 19:01
  Speaker 2: system than the chain migration that the United States has
• 19:04
  Speaker 2: been famous for.
• 19:05
  Speaker 4: It's not a political statement. It's just when you look
• 19:07
  Speaker 4: at the.
• 19:08
  Speaker 2: Realities of certain jobs in this country, like farming, like
• 19:13
  Speaker 2: the care for you know, aging people, and just how
• 19:17
  Speaker 2: dramatic constructions.
• 19:18
  Speaker 4: If that's becoming.
• 19:20
  Speaker 2: The reality is that because of demographics, either we got
• 19:24
  Speaker 2: to pay up or for that and not be competitive
• 19:26
  Speaker 2: globally get non native workers.
• 19:28
  Speaker 4: Yeah, quick break, Wall Street Watches coming up.
• 19:31
  Speaker 5: Yeah, we do. Mike Armstrong.
• 19:41
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:44
  Speaker 1: TFE show. Breaking business news is always first right here
• 19:48
  Speaker 1: on the Financial Exchange Radio Network. Full wool Street Watch, Trekking,
• 19:54
  Speaker 1: the stocks, Thedato, and the headlines driving markets so far
• 19:58
  Speaker 1: today right here on the financi Exchange Radio Network.
• 20:01
  Speaker 6: Well markets are closed and observance of Good Friday. But
• 20:05
  Speaker 6: we did get a jobs report from the month of
• 20:07
  Speaker 6: March from the Labor Department this morning. One hundred and
• 20:10
  Speaker 6: seventy eight thousand jobs were added last month, blowing pass
• 20:14
  Speaker 6: estimates of sixty five thousand the unemployment rate also fell
• 20:18
  Speaker 6: to four point three percent. Bomb markets are open four
• 20:22
  Speaker 6: half the day and the ten year treasure reeled is
• 20:25
  Speaker 6: climbing three basis points at four point three four to
• 20:28
  Speaker 6: seven percent, and as of Thursday's clothes oil trading right
• 20:34
  Speaker 6: around one hundred and eleven dollars per barrel, while the
• 20:37
  Speaker 6: triple A national average gas price sits at four dollars
• 20:41
  Speaker 6: and nine cents. Outside of jobs, Bloomberger is reporting that
• 20:45
  Speaker 6: SpaceX boosted its target IPO valuation above two trillion dollars
• 20:50
  Speaker 6: as the world's most valuable startup gears up to pitch
• 20:53
  Speaker 6: potentially the biggest ever market debut.
• 20:56
  Speaker 5: The company's valuation would.
• 20:58
  Speaker 6: Increase by nearly two thirds in a matter of months
• 21:01
  Speaker 6: and would be bigger than all but five of the
• 21:03
  Speaker 6: companies in the S and P five hundred and Starbucks
• 21:06
  Speaker 6: will expand options to tip baristas and introduce performance bonuses
• 21:10
  Speaker 6: for workers at company owned stores beginning in July. The
• 21:13
  Speaker 6: expanded tipping will include credit card payments for mobile orders.
• 21:17
  Speaker 6: Baristas and shift supervisors who meet the top level of
• 21:21
  Speaker 6: Starbucks internal ratings for their location can earn a three
• 21:25
  Speaker 6: hundred dollars quarterly bonus or twelve hundred dollars for the
• 21:29
  Speaker 6: full year. I'm Tucker Silva and that is Wall Street watch.
• 21:34
  Speaker 4: The state of things in Iran.
• 21:37
  Speaker 2: So yesterday we had what did you say, tender oil
• 21:39
  Speaker 2: price is surging up eleven percent yesterday, Yeah, all on
• 21:43
  Speaker 2: the heels of President Trump's speech House almost twelve Yeah,
• 21:48
  Speaker 2: about the war in Iran. And the relevant commentary here
• 21:51
  Speaker 2: that I think investors were paying attention to yesterday was
• 21:54
  Speaker 2: quote the United States imports almost no oil through the
• 21:57
  Speaker 2: Horn MoU straight and won't be taking any in the future.
• 22:00
  Speaker 2: We don't need it. We haven't needed and we don't
• 22:02
  Speaker 2: need it. He went on to say the country of
• 22:04
  Speaker 2: the world that do receive oil through the Hormon straight
• 22:07
  Speaker 2: must take care of the passage. They must grab it
• 22:09
  Speaker 2: and cherish it. They can do it easily. We will
• 22:11
  Speaker 2: be helpful, but they should take the lead in protecting
• 22:14
  Speaker 2: the oil they so desperately need to depend, desperately depend on.
• 22:19
  Speaker 2: That was taken by people to say that the President's
• 22:22
  Speaker 2: going to attempt to end the war in Iran without
• 22:24
  Speaker 2: reopening the straight of horror moves. This morning on truth
• 22:27
  Speaker 2: Social the President said quote, with a little more time,
• 22:29
  Speaker 2: we can easily open the horn. MOONO straight take the
• 22:31
  Speaker 2: oil and make a fortune. It would be a gusher
• 22:34
  Speaker 2: for the world. Stop listening to the commentary on the
• 22:39
  Speaker 2: war in Iran.
• 22:41
  Speaker 4: I think that's the only solution here that you can
• 22:43
  Speaker 4: think about.
• 22:44
  Speaker 2: When you're trying to be an investor, if you're trying
• 22:47
  Speaker 2: to detrade this thing, good luck. The commentary on what's
• 22:50
  Speaker 2: going to happen and how the US is approaching this
• 22:53
  Speaker 2: stuff is just not going to be useful for the
• 22:57
  Speaker 2: foreseeable future. I think part of that is about obfuscation
• 23:01
  Speaker 2: and redirection. I think part of it is just changing
• 23:04
  Speaker 2: priorities based on what happens in markets on a day
• 23:06
  Speaker 2: to day basis. The thing that matters is, you know,
• 23:11
  Speaker 2: our ships navigating through the strait. I really just don't
• 23:16
  Speaker 2: think there's much to be able to interpret here between
• 23:20
  Speaker 2: comments from the President, comments from media outlets in Iran
• 23:24
  Speaker 2: or Israel. I don't think anybody knows anything. I don't
• 23:27
  Speaker 2: think anybody knows what the true goals are, and so
• 23:31
  Speaker 2: trying to put together some thesis or bidding up energy
• 23:35
  Speaker 2: prices by twelve percent based on one speech from the
• 23:37
  Speaker 2: President just doesn't seem to be a useful exercise, right
• 23:40
  Speaker 2: now and again maybe people feel otherwise that they see
• 23:45
  Speaker 2: what the clear path is here, but I don't think
• 23:48
  Speaker 2: there is one. And oil markets oil features aren't trading today, but.
• 23:53
  Speaker 4: Were they, I expect they would move.
• 23:55
  Speaker 2: Down today based on this new commentary from President Trump.
• 23:58
  Speaker 2: So I don't don't think there's much to read into
• 24:01
  Speaker 2: at this point. I think it is maybe the overstatement
• 24:05
  Speaker 2: of the century to say that we don't need oil
• 24:07
  Speaker 2: following through the straight of horror moves. Yeah, you're right,
• 24:10
  Speaker 2: we don't need it, but oil prices are going to
• 24:12
  Speaker 2: be really elevated so long as it's not flowing through
• 24:15
  Speaker 2: the strait. But I'm not sure that that's really the
• 24:19
  Speaker 2: president's view on things right now, what he said in
• 24:22
  Speaker 2: that speech on Wednesday night.
• 24:25
  Speaker 3: Yeah, and then there's a lot of focus on oil
• 24:28
  Speaker 3: and gas, but also really important to focus on just
• 24:31
  Speaker 3: the amount of other materials that go through that strait,
• 24:35
  Speaker 3: which this piece in the Wall Street Journal sort of
• 24:36
  Speaker 3: touches upon. Not only is it oil and gas, it's
• 24:40
  Speaker 3: twenty one percent of imports from for US nitrogen fertilizers
• 24:45
  Speaker 3: come from the Middle East. You have a significant amount
• 24:49
  Speaker 3: of helium that comes from Katar and helium you think
• 24:53
  Speaker 3: of for the balloons at kid's birthday parties, but actually
• 24:57
  Speaker 3: much more significant in terms of its economic impact, whether
• 25:00
  Speaker 3: it's MRI machines that utilize it to cool things down,
• 25:03
  Speaker 3: as well as semiconductor manufacturing, so the broader point being
• 25:07
  Speaker 3: it has greater significance than just oil and gas. Yes,
• 25:10
  Speaker 3: the United States is a net export of oil and gas,
• 25:14
  Speaker 3: so more immune from some of the issues going on
• 25:17
  Speaker 3: with energy shortages. But like you mentioned, it's a global
• 25:21
  Speaker 3: market and paying these prices for a sustained period of
• 25:24
  Speaker 3: time is tough, just to ask people whose business involved
• 25:27
  Speaker 3: diesel fuel.
• 25:28
  Speaker 2: Yeah, look, I think it is fair to say that
• 25:30
  Speaker 2: the US is more insulated than say, Germany right from
• 25:35
  Speaker 2: the actions in the Strait of Hornbooze, which Germany in
• 25:38
  Speaker 2: turn is probably more insulated from all this than the Philippines.
• 25:45
  Speaker 2: That's not again, that's not a useful context though, Like, yes,
• 25:48
  Speaker 2: the US, if things do not flow through, maybe we
• 25:51
  Speaker 2: are the best performing of global developed economies, but might
• 25:56
  Speaker 2: still be pretty poorly performing. And I think there's not
• 26:00
  Speaker 2: really let me think this through. Actually, is there a
• 26:03
  Speaker 2: path by which the straight remains blocked that gas prices
• 26:08
  Speaker 2: come back down to below four bucks a gallon, And
• 26:11
  Speaker 2: I don't really see it unless unprecedented steps get taken,
• 26:15
  Speaker 2: such as blocking any export of oil outside of.
• 26:18
  Speaker 4: The United States, which I don't think we would do.
• 26:21
  Speaker 2: So, Yeah, to your point about all of this, it's
• 26:25
  Speaker 2: all this sliding scale. And yes, I do think that
• 26:28
  Speaker 2: the US is pretty well insulated.
• 26:30
  Speaker 4: Are we more or less insulated than China?
• 26:34
  Speaker 2: Like, I don't know how to judge that, And so
• 26:36
  Speaker 2: I don't think it's a terribly useful exercise to go
• 26:39
  Speaker 2: through the list and say, would we be dramatically harmed
• 26:43
  Speaker 2: if the.
• 26:43
  Speaker 4: Strait doesn't reopen.
• 26:45
  Speaker 2: The one lesson that I think everyone should have learned
• 26:48
  Speaker 2: over the last six years is that supply chain disruptions
• 26:52
  Speaker 2: anywhere across the globe will affect Americans in some way,
• 26:55
  Speaker 2: shape or form, right right, It doesn't matter if it
• 26:58
  Speaker 2: originates in China, it doesn't matter if it uh over
• 27:01
  Speaker 2: to one country or another South America.
• 27:04
  Speaker 3: It is truly a global economy. And we don't manufacture
• 27:07
  Speaker 3: enough here to resolve all the issues.
• 27:09
  Speaker 1: No.
• 27:10
  Speaker 2: We again, we have rich, diverse, you know, ability to
• 27:15
  Speaker 2: grow different products. We have all sorts of you know,
• 27:18
  Speaker 2: minerals here in the United States. Far more diverse than
• 27:22
  Speaker 2: most countries in the world. That does not mean that
• 27:26
  Speaker 2: a global supply chain crunch will completely avoid the United States.
• 27:31
  Speaker 2: And yeah, I don't think you can really invest on
• 27:35
  Speaker 2: the thesis either. So yeah, that's where things land for
• 27:39
  Speaker 2: me is, Yeah, we're better insulated. We're not going to
• 27:43
  Speaker 2: run out of gas, but likewise, we're not going to
• 27:46
  Speaker 2: be paying less than four bucks at the pump anytime
• 27:48
  Speaker 2: soon unless traffic starts flowing through and the present recognizes that.
• 27:53
  Speaker 2: Let's take a quick break. When we come back, I
• 27:55
  Speaker 2: want to go back to this private credit story. Had
• 27:57
  Speaker 2: a few days to kind of think things through here
• 28:00
  Speaker 2: and one more interesting take on A two in terms
• 28:04
  Speaker 2: of its involvement in four oh one ks. So if
• 28:07
  Speaker 2: you missed it yesterday Blue Oul Capital, massive redemptions being
• 28:10
  Speaker 2: called in private credit will be covered private credit as
• 28:12
  Speaker 2: an industry next on The Financial Exchange.
• 28:15
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• 29:23
  Speaker 2: So, Paul, we covered yesterday Blue Owl, which is a
• 29:27
  Speaker 2: major private credit fund company that runs a bunch of
• 29:31
  Speaker 2: that type of money, again, private credit that lending not
• 29:34
  Speaker 2: via the bond market, to mostly smaller private companies rather
• 29:39
  Speaker 2: than your big, publicly traded ones. And it both permeates
• 29:44
  Speaker 2: all sorts of different areas of the economy. And it's
• 29:46
  Speaker 2: also pretty opaque in terms of who got lent money
• 29:49
  Speaker 2: to and at what rate and for what time period.
• 29:52
  Speaker 2: But what's pretty clear over the last few months has
• 29:54
  Speaker 2: been investors kind of rushing for the door on that
• 29:57
  Speaker 2: private credit space kicked off last.
• 30:00
  Speaker 4: When there were a few very public.
• 30:03
  Speaker 2: Fraud slash bankruptcy cases that are still being worked out
• 30:07
  Speaker 2: in courts. So there was a Tricolor case, which was
• 30:09
  Speaker 2: a subprime auto lender that was, you know, maybe perpetrating
• 30:13
  Speaker 2: some fraud. There was a telecom company whose name I'm forgetting,
• 30:16
  Speaker 2: And then there was First Brands, which was a parts
• 30:20
  Speaker 2: supplier that Again, the First Brand's case was an interesting
• 30:24
  Speaker 2: one where they seem to have borrowed a whole lot
• 30:28
  Speaker 2: more money than anybody realized, but unclear how much of
• 30:31
  Speaker 2: that might have been lying on applications and fraud. But
• 30:34
  Speaker 2: what's clearly happening is that investors are rushing for the exits.
• 30:38
  Speaker 4: Now.
• 30:39
  Speaker 2: The very nature of these products make it so that's
• 30:42
  Speaker 2: not possible. Can you talk through just you know, what
• 30:45
  Speaker 2: happened in the Blue Owl case in the most recent
• 30:49
  Speaker 2: quarter and and just how these things work generally.
• 30:53
  Speaker 3: Yeah, Mike, So yesterday we heard that investors sought to
• 30:57
  Speaker 3: pull five point four billion from a pair of funds
• 31:00
  Speaker 3: from Blue Out. One of them was a technology focus
• 31:04
  Speaker 3: fund that saw a forty one percent redemption request, and
• 31:08
  Speaker 3: then on the other thirty six billion dollar private credit
• 31:13
  Speaker 3: fund that Blue Oul has. There was redemption requests amounting
• 31:17
  Speaker 3: to about twenty two percent of that thirty six billion
• 31:20
  Speaker 3: dollar private credit fund. So again huge numbers that we're
• 31:24
  Speaker 3: seeing in terms of redemption requests from Blue Out Capital
• 31:27
  Speaker 3: and speaking to just the likely individual investor demand to
• 31:33
  Speaker 3: get some of their funds out the problem. Like Mike
• 31:35
  Speaker 3: was mentioning before, there is a backstopping mechanism on these
• 31:38
  Speaker 3: private credit funds where they only enable five percent to
• 31:43
  Speaker 3: be withdrawn from a fund on a given quarter, and
• 31:47
  Speaker 3: as a result of that, if they get withdrawals that
• 31:49
  Speaker 3: exceed that five percent redemption request, what they do is
• 31:52
  Speaker 3: they try and go pro rata through all of the
• 31:55
  Speaker 3: requests for withdrawals, but they do cap it at that
• 31:57
  Speaker 3: five percent, so nobody is going to be able to
• 32:00
  Speaker 3: get more than that out of the fund. The mechanism,
• 32:04
  Speaker 3: the reason it's in place is for a protection for
• 32:08
  Speaker 3: the private credit fund. A lot of these funds, these
• 32:10
  Speaker 3: loans are to middle market companies. There's not a tremendous
• 32:14
  Speaker 3: ount of liquidity like there would be with general corporate
• 32:17
  Speaker 3: debt markets, and so as a result of that, you
• 32:19
  Speaker 3: really have to curb withdrawals. But what you're seeing is
• 32:22
  Speaker 3: this phenomenon that often happens with retail investors, is the
• 32:25
  Speaker 3: goal and gets bad. Everybody sort of piles into the
• 32:29
  Speaker 3: exit doors, and that can become challenging on a sector.
• 32:32
  Speaker 2: And by the way, this isn't incredibly unique, the lack
• 32:35
  Speaker 2: of liquidity, right if you go look at hedge funds,
• 32:37
  Speaker 2: for example, all sorts of parameters out there. Again, just
• 32:42
  Speaker 2: from recently reading the Big Short. You know Michael Burry,
• 32:46
  Speaker 2: the famous guy who you know shorted the subprime mortgage market.
• 32:50
  Speaker 2: He ran a hedge fund to do it, and he
• 32:52
  Speaker 2: was getting all sorts of requests to liquidate his stuff
• 32:55
  Speaker 2: back in oh seven, right before it all blew up,
• 32:58
  Speaker 2: because investors were questioning, like, why are you losing so
• 33:01
  Speaker 2: much money shorting this stuff? And they started trying to
• 33:03
  Speaker 2: get their money out, and he restricted it. He said, no,
• 33:05
  Speaker 2: you're not getting your money out right now because I
• 33:07
  Speaker 2: have the power to restrict it.
• 33:08
  Speaker 4: And so that part's not unique.
• 33:11
  Speaker 2: What is unique is at the same time that they
• 33:14
  Speaker 2: are heavily restricting withdrawals and facing a whole lot of
• 33:17
  Speaker 2: liquidity crunch, these same funds are going to the Department
• 33:23
  Speaker 2: of labor. They've already kind of succeeded there at the
• 33:25
  Speaker 2: Department of Labor, and they're going to four oh one
• 33:27
  Speaker 2: K managers and trying to convince them that, hey, this
• 33:31
  Speaker 2: is a really good investment for you to place into
• 33:33
  Speaker 2: four oh one K plans. And that's got to be
• 33:37
  Speaker 2: one of the most interesting dances that you can do
• 33:40
  Speaker 2: at this moment in time. If you are a salesperson
• 33:43
  Speaker 2: or manager at one of these funds, is hey, look
• 33:46
  Speaker 2: at our track record, look how well we have done.
• 33:49
  Speaker 2: But don't pay attention to the billions of dollars worth
• 33:54
  Speaker 2: of investors who are trying to pull all their money
• 33:56
  Speaker 2: out of this stuff. At the same time, don't worry.
• 34:00
  Speaker 2: This is a stable type of thing that you can
• 34:02
  Speaker 2: put into your four oh one K plan and is
• 34:04
  Speaker 2: appropriate for retail investors.
• 34:06
  Speaker 4: That is a really tricky dance.
• 34:10
  Speaker 2: To do, and I'm not sure how successful they are
• 34:13
  Speaker 2: going to be in it.
• 34:14
  Speaker 5: It's tough to be clear.
• 34:16
  Speaker 3: Private credit is one of the areas of private equity.
• 34:19
  Speaker 3: There can be other private equity approaches that differ from
• 34:23
  Speaker 3: the lending mechanisms used in private credit. There can be
• 34:27
  Speaker 3: all sorts of different funds that are just investors in
• 34:31
  Speaker 3: private equity and taking equity stakes in companies rather than
• 34:33
  Speaker 3: the credit side.
• 34:34
  Speaker 5: So, but you're right.
• 34:35
  Speaker 3: I mean it's the whole private equity, the whole private
• 34:39
  Speaker 3: markets in general, all of a sudden get a lot
• 34:41
  Speaker 3: more screeny put to them at the worst possible time,
• 34:43
  Speaker 3: when they had just made the most significant inroads to
• 34:46
  Speaker 3: a potential gravy train of just trillions of dollars in
• 34:49
  Speaker 3: retirement accounts that you could have access to, and in
• 34:51
  Speaker 3: particular it would most likely be those target date funds
• 34:55
  Speaker 3: that that is where the private equity money would would sit.
• 34:59
  Speaker 3: It is really challenging. If you've ever dealt with some
• 35:02
  Speaker 3: of those private investments, like the hedge funds or like
• 35:05
  Speaker 3: these private credit funds, and I've had some experience doing it,
• 35:08
  Speaker 3: it's the quarterly redemption schedule. Regardless of it being a
• 35:11
  Speaker 3: bad time to withdraw, it's just a pain in the
• 35:14
  Speaker 3: neck to do. In general, when you have clients that
• 35:16
  Speaker 3: pass away and you're looking to transfer ownership, it is
• 35:19
  Speaker 3: it's just a pain. It's really more, far more challenging
• 35:23
  Speaker 3: than having shares of excellent Mobile. Not to say that
• 35:25
  Speaker 3: they're bad investments, but from an administrative perspective, operationally.
• 35:29
  Speaker 4: It's there's a number of.
• 35:30
  Speaker 2: Readings why it is much more of a institutional type
• 35:34
  Speaker 2: of investment for folks.
• 35:37
  Speaker 4: We've talked changing gears here.
• 35:39
  Speaker 2: We've talked a lot about Connecticut and their housing market,
• 35:42
  Speaker 2: and I continue to still just be amazed by Connecticut
• 35:48
  Speaker 2: and have not yet received a satisfying answer as to
• 35:52
  Speaker 2: why their real estate market.
• 35:54
  Speaker 4: Has done what it has done.
• 35:56
  Speaker 2: But what it's done is become one of the hottest
• 36:01
  Speaker 2: real estate markets in the country. And from a pure
• 36:04
  Speaker 2: inventory perspective, I think it is the hottest real estate
• 36:08
  Speaker 2: market in the country. Talk about what's happening in Hartford
• 36:11
  Speaker 2: right now compared to just a few years ago. Right
• 36:15
  Speaker 2: this was the insurance capital of the country post Great
• 36:18
  Speaker 2: Financial Crisis, had just very little going on that was
• 36:23
  Speaker 2: attracting people, and all of a sudden, you know, finds
• 36:26
  Speaker 2: itself overtaking Buffalo and other you know kind of forgotten
• 36:29
  Speaker 2: about real estate markets to become one of the hottest
• 36:32
  Speaker 2: in the country.
• 36:32
  Speaker 4: Yeah.
• 36:32
  Speaker 3: As of February, the typical home value in the Harford
• 36:36
  Speaker 3: metro area was about three hundred and eighty thousand. That's
• 36:39
  Speaker 3: seventy percent higher than it was in twenty nineteen. So
• 36:42
  Speaker 3: think about that over a span of a seven year
• 36:47
  Speaker 3: period from nineteen to twenty twenty six, a seventy percent
• 36:51
  Speaker 3: increase on the typical home value. Your home should not
• 36:54
  Speaker 3: trade like a stock and have that type of meteoric rise. Typically,
• 36:59
  Speaker 3: if you study home appreciations over fifty year, one hundred
• 37:02
  Speaker 3: year period, usually they plod along with inflation. We're talking,
• 37:05
  Speaker 3: you know, two or three percent rises over span of time.
• 37:09
  Speaker 3: To jump seventy percent over a seven year period is
• 37:12
  Speaker 3: just absolutely absurd. And the inventory levels here for the
• 37:17
  Speaker 3: state of Connecticut in general, have been at what forty
• 37:20
  Speaker 3: five percent of pre pandemic levels for a lot of
• 37:23
  Speaker 3: period of time. There's no new construction at all in
• 37:27
  Speaker 3: Hartford that has caused some of this price surge. And
• 37:30
  Speaker 3: you've got people from Boston and New York coming in
• 37:33
  Speaker 3: and you know, bidden this stuff up. So it's just
• 37:35
  Speaker 3: a confluence of factors that leads to them being I guess,
• 37:39
  Speaker 3: the hottest real estate market in town in the country.
• 37:43
  Speaker 2: The current inventory levels according to realtor dot com, which
• 37:47
  Speaker 2: this includes all active listing council could be land, it
• 37:50
  Speaker 2: could be multifamily. The March twenty twenty six levels of
• 37:55
  Speaker 2: inventory are running twenty three percent of the March twenty
• 37:58
  Speaker 2: nineteen levels, less than a quarter of the homes.
• 38:02
  Speaker 4: Available for sale as were for sale in twenty nineteen.
• 38:04
  Speaker 2: It is just incredible what's been going on in Connecticut,
• 38:07
  Speaker 2: and a lack of building is certainly a big contributor.
• 38:10
  Speaker 2: We've got to take a quick break, but a lot
• 38:12
  Speaker 2: more to cover in the second hour of the show.
• 38:13
  Speaker 4: We'll be right back