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This Week Could Decide the Entire Market · The Financial Exchange Show

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Speaker 1: donation today. This is the Financial Exchange with Chuck Zada,
1:06
Speaker 1: and Mark Fandetti, Chuck.
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Speaker 2: Mark and Tucker with you. I hope you all had
1:13
Speaker 2: a great weekend. Uh. You know again, it's the birds
1:18
Speaker 2: are chirping, the the sun is shining, and you know,
1:24
Speaker 2: you can feel that that spring is just in the air.
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Speaker 2: The daffodils are blooming, the tulips are blooming. It's it's
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Speaker 2: a wonderful day. But I was sitting at home and
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Speaker 2: as I do on Saturday nights, you know, I've I've
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Speaker 2: got the calendar up for the next week. You know,
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Speaker 2: it's really exciting stuff. It's like, hey, what are we
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Speaker 2: gonna do on Saturday night.
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Speaker 3: I don't know.
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Speaker 2: We're gonna look at the earnings calendar for the next week.
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Speaker 2: And I gotta tell you the calendar for this week.
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Speaker 2: I got so excited when I saw what it was,
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Speaker 2: and I knew it was coming because I had poked
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Speaker 2: around in general last week. It was like, oh, yeah,
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Speaker 2: it looks like there's gonna be like some interesting stuff,
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Speaker 2: like this is cool, this is great fun fun yahoo,
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Speaker 2: rah rah rah this. I gotta tell you that this
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Speaker 2: is going to be a huge week in earnings and
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Speaker 2: in economic news. I know that, Like, listen, those of
2:16
Speaker 2: you who have listened long enough. There are times that
2:18
Speaker 2: you know where I tell you, hey, if you want
2:22
Speaker 2: to tune out this week, go right ahead. You know,
2:25
Speaker 2: like this is not the week for you. I understand,
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Speaker 2: Like fine, Like go do something else. This week is
2:31
Speaker 2: actually the opposite of that. I think that there's gonna
2:34
Speaker 2: be all kinds of fun here, and not just for
2:36
Speaker 2: Ken Griffin, who's you know, the CEO of Citadel is
2:38
Speaker 2: gonna be making all kinds of money on people trying
2:40
Speaker 2: to trade all this stuff. I think that this is
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Speaker 2: a really pivotal week for markets for a number of
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Speaker 2: different reasons. Let's go first down the list of earnings
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Speaker 2: that we have. Who's excited about public storage reporting today?
2:56
Speaker 2: I'm glad that we covered that. No one really is
2:58
Speaker 2: they're gonna report, who knows what they'll say, but what whatever.
3:00
Speaker 2: Tomorrow's where things really start to get fun. We've got
3:03
Speaker 2: Visa reporting tomorrow, which tells us something about you know,
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Speaker 2: the state of consumers and households and what they're spending
3:09
Speaker 2: and how they're spending. It tell me a little bit
3:12
Speaker 2: about what you're seeing in terms of you know, different
3:14
Speaker 2: transaction volumes and stuff. Right like that, Remember Visa itself
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Speaker 2: is not a lender. They just operate the payment network.
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Speaker 2: But that payment network still captures a ton of data
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Speaker 2: that can tell you about what people are spending money
3:27
Speaker 2: on and whether there have been any changes, and whether
3:30
Speaker 2: they're expecting further change. So I think that's particularly interesting.
3:34
Speaker 2: Beyond that, a whole bunch of other, like big name
3:36
Speaker 2: companies that are going to tell us about what's going
3:38
Speaker 2: on in the real economy, not just market economy, but
3:42
Speaker 2: real economy companies. Think companies like booking Holdings, what are
3:45
Speaker 2: they seeing as far as travel changes? Starbucks? What are
3:48
Speaker 2: they seeing as far as high end spending on coffee
3:52
Speaker 2: and stuff like that? General motors, what's going on with
3:55
Speaker 2: their input costs and their ability to source product ups?
3:59
Speaker 2: Are people still buying and ship and stuff? Are they
4:01
Speaker 2: seeing disruptions on the jet fuel side that are causing
4:04
Speaker 2: them to alter their service plans? Sherwin Williams, Waste Management, Corning,
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Speaker 2: Hilton Mandoles. Again, just a really good list of real world,
4:15
Speaker 2: real life companies that matter to you know, our daily
4:19
Speaker 2: lives and what they mean. But this is all just
4:23
Speaker 2: build up for Wednesday, And on Wednesday, the first thing
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Speaker 2: that I'll say is on the data side, of things.
4:30
Speaker 2: We got a FED meeting. Really snuck up on everyone,
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Speaker 2: I gotta tell you, Or maybe it's just snuck up
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Speaker 2: on me because everyone's so focused on what's going on
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Speaker 2: in the Middle East. But we got a FED meeting
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Speaker 2: on Wednesday, So that's gonna be interesting. Nothing's really expected
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Speaker 2: of it, no cuts or hikes. But what's Jay Powell
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Speaker 2: going to say, you know, what's what's the general tenor
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Speaker 2: going to be within the committee? Now that they've gotten
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Speaker 2: more data that has been better on the employment side
4:55
Speaker 2: and worse on the inflation side, do they start to
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Speaker 2: talk about how the bounce of risks may be changing.
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Speaker 2: I don't know, but I think it'll be interesting to hear.
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Speaker 2: But the other thing that's happening on Wednesday is you
5:10
Speaker 2: ever look up in the sky, Tucker and and you
5:14
Speaker 2: see the planets just aligned there, and you feel it
5:18
Speaker 2: in your bones, just that gravitational pull. You're like, ugh,
5:23
Speaker 2: when Jupiter and Saturn are both pulling me in that direction,
5:26
Speaker 2: it means that like something's, something's gonna happen.
5:28
Speaker 3: Never had that sensation I have, I have something else
5:33
Speaker 3: it may have you know, I called my doctor just
5:35
Speaker 3: to check and you know, will.
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Speaker 2: Take care of I'm feeling a pole. But Wednesday, we've
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Speaker 2: got Amazon, Microsoft, Alphabet, and Meta all reporting after hours.
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Speaker 2: I don't know the last time that I've seen all
5:50
Speaker 2: four of these guys in a single day. Normally you
5:52
Speaker 2: get kind of like two here, two there, but you
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Speaker 2: have between these companies. Now you're you're talking, this is
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Speaker 2: insane just to say this. You're talking almost ten trillion
6:05
Speaker 2: dollars in market cap just between those four companies. And
6:08
Speaker 2: this is before you even get into Qualcomm and ADP
6:11
Speaker 2: and General Dynamics and you know, all these other companies.
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Speaker 2: Apples Thursday, Apples Thursday. Then, so break it up.
6:18
Speaker 1: What are we doing?
6:18
Speaker 2: You got all these guys on one day. You got
6:20
Speaker 2: fourteen trillion dollars in companies in two days there surrounding
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Speaker 2: a FED meeting, and specifically, it's companies that are going
6:29
Speaker 2: to tell you a little bit about what's been going
6:32
Speaker 2: on in this semiconductor run for the last eighteen days.
6:35
Speaker 2: Semiconductors as a Friday, eighteen days in a row. I
6:38
Speaker 2: went and checked, or actually someone else who I trust
6:42
Speaker 2: checked this out. The Semiconductor Index has been in existence
6:45
Speaker 2: for you know, twenty five thirty years now, I think
6:47
Speaker 2: it's twenty five thirty years. This is the longest positive
6:52
Speaker 2: run that it has ever seen, eighteen days in a row.
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Speaker 2: The previous I was fifteen that it's set, but eighteen
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Speaker 2: is the the longest run that we have seen on it.
7:03
Speaker 2: And so I think the big things for you know,
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Speaker 2: earnings this week are going to be, hey, tell me
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Speaker 2: a little bit about what you are going to be spending.
7:16
Speaker 2: Like the Kapex thing is going to be front and
7:18
Speaker 2: center again when it comes to semiconductors, because it's predicated
7:23
Speaker 2: this run in semiconductors is predicated on user experience and
7:27
Speaker 2: the re and the idea that hey, you're seeing like
7:30
Speaker 2: throttling by a lot of the big AI names in
7:34
Speaker 2: terms of usage because they don't have enough compute power.
7:38
Speaker 2: And so when you see you know, this move, it's
7:41
Speaker 2: it's based on the idea of, hey, all these you
7:44
Speaker 2: know tech companies are going to be scrambling for more
7:46
Speaker 2: compute power and it's going to show up in CAPEX.
7:50
Speaker 2: We'll see if that's the case. You know, We're going
7:53
Speaker 2: to see if that's the case. The previous again, the
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Speaker 2: prior record for the semiconductor which has been around for
8:01
Speaker 2: thirty two years, sorry, I just had to get it right.
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Speaker 2: Was fifteen up days in a row, and so you
8:08
Speaker 2: got to eighteen today. They're down in early trading, but
8:10
Speaker 2: you know, we'll kind of see how things go. But
8:14
Speaker 2: I think this is a monster week for determining, Hey,
8:17
Speaker 2: is this recent move from semiconductors overblown? And remember semiconductors
8:23
Speaker 2: Semiconductor index is up fifty percent from its March bottom
8:27
Speaker 2: fifty percent a month, which is insane. So is this
8:31
Speaker 2: overblown or is this something that just needs a little
8:34
Speaker 2: bit of consolidation here and then can continue to move
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Speaker 2: because the tech guys are going to be able to
8:39
Speaker 2: spend the money in order to drive demand for more semis.
8:43
Speaker 2: That's that's the question. So really exciting week in my opinion,
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Speaker 2: between the earnings that we have and then the FED
8:52
Speaker 2: and so this is, you know, kind of a pivotal week.
8:55
Speaker 2: The other thing that I will point out that isn't
8:58
Speaker 2: normally on most people radar, but it's on mine this week.
9:04
Speaker 2: Every Wednesday, the EIA, the Energy Information Administration, puts out
9:08
Speaker 2: their report on US energy product stocks. Basically how much
9:13
Speaker 2: crude do we have, how much distillates, how much heating oil, gasoline?
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Speaker 2: You know, all all the stuff that you actually need
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Speaker 2: to operate an economy, and so I think the interesting
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Speaker 2: thing this week is last week was the last week.
9:26
Speaker 2: Last week was basically once the week where you had
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Speaker 2: the last horror move ships heading into Europe and the US.
9:32
Speaker 2: So now you really start getting into onshore product draws.
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Speaker 2: What are you going to see in the US domestically
9:40
Speaker 2: as far as product draws, and how is that going
9:43
Speaker 2: to impact where we look at the situation with oil
9:47
Speaker 2: and energy going forward. We'll talk quite a bit about
9:49
Speaker 2: that as we go through the show, but for now,
9:51
Speaker 2: let's take a quick break and when we come back,
9:54
Speaker 2: we'll talk about what we're seeing in corporate profits after this.
9:57
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10:39
Speaker 2: All right, Before we get to the broader corporate earnings picture,
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Speaker 2: I do want to talk briefly about one company that
10:52
Speaker 2: is very much consumer facing. Specifically, it's called Domino'sah, there
11:02
Speaker 2: are a pizza company, as you would expect with a
11:04
Speaker 2: name like that. And the interesting thing about Dominoes is
11:08
Speaker 2: they opened the year. They were hanging out right around
11:11
Speaker 2: four hundred bucks of share, and the first day of
11:13
Speaker 2: the year they closed four to twenty three. On March ninth,
11:18
Speaker 2: they got back up to around four thirteen, this after
11:22
Speaker 2: you know, some chopping around and stuff like that. But
11:24
Speaker 2: even on the eve of the Middle East war outbreak,
11:29
Speaker 2: they were traded around four hundred and fifteen bucks a
11:32
Speaker 2: share and today they are down about ten ten percent
11:37
Speaker 2: just today, but they're three hundred and thirty bucks a share,
11:40
Speaker 2: So call it, you know, almost a twenty percent drop
11:42
Speaker 2: in the last couple of months here. And the big
11:46
Speaker 2: thing with Dominoes is they had an earnings release this
11:49
Speaker 2: morning and obviously, like as you would expect, there's you know,
11:53
Speaker 2: some some clear problems here. So the question that I
11:56
Speaker 2: think you have on this is, look, is this related
11:59
Speaker 2: to what's going on more broadly with oil? Is the say,
12:02
Speaker 2: domino specific problem? Don't know, But I think this is
12:05
Speaker 2: why it's great that we're getting a ton of earnings
12:07
Speaker 2: this week in you know, other spaces. Other you know,
12:10
Speaker 2: restaurants are gonna be reporting, Other consumer facing companies are
12:13
Speaker 2: gonna be reporting, and so we're for the first time
12:16
Speaker 2: since the outbreak of the Middle East conflict, we're gonna
12:19
Speaker 2: be getting a sense of what we're actually seeing from
12:22
Speaker 2: companies and how it's impacting their earnings. Because the big
12:26
Speaker 2: thing that we are seeing, h if you look at
12:28
Speaker 2: the data from fact Set Earnings Insights, is that corporate
12:34
Speaker 2: earnings are projected to absolutely skyrocket over the course of
12:39
Speaker 2: this year. Mark the expectations for calendar year of twenty
12:42
Speaker 2: six earnings growth of eighteen point six percent and revenue
12:47
Speaker 2: growth of nine point five So you're just talking monster
12:50
Speaker 2: numbers compared to the historical norms. Uh. And you know,
12:55
Speaker 2: fairly well spread out through different sectors as well, not
12:59
Speaker 2: just consolidated all and tech. You've got a few other places,
13:01
Speaker 2: you know, some significant profit growth this year projected this
13:04
Speaker 2: year too.
13:04
Speaker 3: It had better because stocks are pretty richly priced. Their
13:08
Speaker 3: price relative to earnings over the past several years has
13:11
Speaker 3: been bid up. We talk about rising so called valuation
13:14
Speaker 3: ratios p that is, price relative to some definition of E.
13:17
Speaker 3: It could be trailing twelve months, It could be expected
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Speaker 3: twelve months, it could be ten years smooth adjusted for inflation.
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Speaker 3: Lots of different ways to divine your E. No matter
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Speaker 3: how you slice it. P toe has been going up.
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Speaker 3: That means p has been growing faster than EE has
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Speaker 3: got to catch up, Chuck it does.
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Speaker 2: And so I think the question is ultimately going to be, Hey,
13:36
Speaker 2: what sectors you know potentially benefit? I think we know
13:41
Speaker 2: which sector benefits from high oil prices this year. It
13:43
Speaker 2: would be energy, which as of right now is projected
13:47
Speaker 2: to see forty three point two percent profit growth year
13:50
Speaker 2: over year just three weeks ago on March thirty first
13:53
Speaker 2: facts that had them projected at twenty five percent profit
13:56
Speaker 2: growth for the year. Not facts that, but remember facts
13:58
Speaker 2: as and Earnings agri Gator. They aggregate estimates from you know,
14:02
Speaker 2: different analysts. So I think that when we look at
14:06
Speaker 2: the picture, the three sectors that are projected to have
14:09
Speaker 2: the fastest earnings growth this year are energy, tech, and materials.
14:14
Speaker 2: The other ones that are still you know, growing in
14:16
Speaker 2: a decent clip consumer discretionary industrials, financials, utilities, and communication
14:21
Speaker 2: services all between eight and fourteen to a half percent
14:24
Speaker 2: earnings growth this year, which again long term average is
14:27
Speaker 2: you know, seven to eight percent, So I say anything
14:30
Speaker 2: above that is good if you're you know, seeing that
14:33
Speaker 2: kind of move. The ones that are the laggards down there,
14:37
Speaker 2: real estate, consumer staples, and healthcare, those are your only
14:40
Speaker 2: three that are projected to grow more slowly than eight
14:43
Speaker 2: percent this year. And so ultimately the question is going
14:49
Speaker 2: to be, Hey, there are two questions. Number one, how
14:52
Speaker 2: long does the horror moves blockage last? And number two,
14:56
Speaker 2: if it lasts longer than most market part two spence
15:00
Speaker 2: expect which I think we're getting into that territory this week,
15:04
Speaker 2: how does that affect these earnings projections, because quite honestly,
15:08
Speaker 2: it becomes really hard for them to hold up, in
15:10
Speaker 2: my opinion, in a lot of these cases. And I
15:14
Speaker 2: know that, like no one wants to hear this, and
15:17
Speaker 2: I feel like I'm just kind of a broken record
15:18
Speaker 2: on this, but every day there's another twelve and a
15:21
Speaker 2: half million barrels of production shut in that's not being
15:23
Speaker 2: produced in the world for you know, specifically from countries
15:28
Speaker 2: that can't produce it an export through Hormuz right now,
15:31
Speaker 2: and it's showing up around the world today like you
15:34
Speaker 2: talk to anyone in Asia and they're kind of panicked.
15:36
Speaker 2: I mean, I don't know if you guys saw the
15:38
Speaker 2: report from the Japanese news station over the weekend that
15:41
Speaker 2: covered the fact that an oil tanker was coming to
15:43
Speaker 2: Japan like that, That's where we've gotten to is they're
15:47
Speaker 2: literally like covering oil tankers coming to Japan. Now you
15:51
Speaker 2: know again the Australia last week the Prime minister announced
15:55
Speaker 2: they secured a one day supply of diesel. Like these
15:58
Speaker 2: are the announcements that are being made in that part
16:00
Speaker 2: of the world. It's also spilling to Europe where jet
16:03
Speaker 2: fuel is now starting to become a problem and you're
16:06
Speaker 2: seeing flight cancelations. And quite honestly, if you happen to
16:11
Speaker 2: know anyone who lives anyone ever heard of California, You
16:15
Speaker 2: guys know California. They shot that the OC was shot
16:19
Speaker 2: there back in the day couple about twenty years ago.
16:23
Speaker 2: California is now has now seen its jet fuel supplies
16:27
Speaker 2: dropped by twenty five percent in the last three weeks.
16:30
Speaker 2: Because they are unique in terms of how they're refining
16:32
Speaker 2: where they actually get like their oil and gas from.
16:35
Speaker 2: It's part of the reason why California always has crazy
16:38
Speaker 2: high oil prices. Is it's just kind of detached from
16:41
Speaker 2: a refining perspective from the rest of the US. California
16:45
Speaker 2: is probably like within a couple of weeks gonna have
16:47
Speaker 2: some problems with jet fuel as well. And I know
16:51
Speaker 2: no one wants to hear about this because for most
16:53
Speaker 2: of us, our lives haven't really changed. But there's this
16:55
Speaker 2: air pocket that's just been building an energy markets and
16:58
Speaker 2: it's moving from east to west in the world world,
17:00
Speaker 2: and it's it's going to start to become a parent
17:03
Speaker 2: in large portions of the world in the next week
17:06
Speaker 2: or two in very visible ways. And it's going to
17:11
Speaker 2: be a problem if if four Mouse remains closed for
17:15
Speaker 2: more than like another week or so.
17:16
Speaker 3: I think the problem with the bottom up estimates you were,
17:19
Speaker 3: like you said, fact set asks analysts what they expect
17:24
Speaker 3: for a stock or for the market. Yeah, and these
17:26
Speaker 3: analysts are bottom up. They're not looking at the they
17:29
Speaker 3: just assume it's it'd be like asking they they literally
17:32
Speaker 3: don't see the forest for the trees. They assume that
17:35
Speaker 3: weather conditions, continuing with the analogy, will stay stable. Whether
17:39
Speaker 3: in this analogy is the macro stuff is the economy,
17:42
Speaker 3: the global economy. Uh if earnings always look good until
17:46
Speaker 3: they don't. Analysts always think earnings will go up because
17:49
Speaker 3: they assume the climate will the weather climate's too strong
17:52
Speaker 3: a word, yes, will remain favorable. They always get that
17:55
Speaker 3: wrong because nobody gets that right. And that's the hard part.
17:59
Speaker 2: So again, you've got this ticking clock. I've said since
18:02
Speaker 2: the beginning, Cinco Demayo is kind of the deadline here.
18:06
Speaker 2: And I looked over the weekend and I said, oh,
18:10
Speaker 2: Cinco Demayo's next Tuesday, which is again like this, we're
18:13
Speaker 2: eight days away from kind of when I've said, look,
18:17
Speaker 2: this is kind of irreversible at this point. And here's
18:21
Speaker 2: the place that I have landed. The businesses that are
18:25
Speaker 2: going to be able to pay up for this stuff.
18:27
Speaker 2: You know again, semiconductor companies they can pay for the
18:31
Speaker 2: helium because they'll say, hey, it'll just eat into our margins.
18:34
Speaker 2: I don't think you necessarily run into shortages there. There's
18:37
Speaker 2: other areas where either of you ever get an MRI. Yes, sure,
18:43
Speaker 2: there's helium used in MRIs somehow, I don't know how.
18:46
Speaker 2: I don't know what it does in the MRI machines,
18:50
Speaker 2: but they use helium in the MRI machines, not to
18:53
Speaker 2: make you talk funny while you're going through them, but
18:56
Speaker 2: it does something in there because again it's this inert
18:58
Speaker 2: gas and you need this inert as for some reason.
19:01
Speaker 4: Doesn't ease anxiety.
19:02
Speaker 2: I know that in order to make it work. No,
19:04
Speaker 2: it does not. It's that's the uh, close my eyes,
19:07
Speaker 2: that's the the nitris that they give you if if
19:09
Speaker 2: they happen to give you that one. But in any case,
19:12
Speaker 2: like it's okay, Like you're not going to have the
19:16
Speaker 2: shortages show up in semiconductors because they'll just pay up
19:18
Speaker 2: for the stuff because they have customers who are willing
19:20
Speaker 2: to pay for their end product. It's in other areas
19:23
Speaker 2: where you say, okay, what if they're not able to
19:25
Speaker 2: pay for this? What does that due to production of X,
19:27
Speaker 2: Y and Z and I don't know what it looks like.
19:30
Speaker 2: But no one really wants to pay attention to this
19:32
Speaker 2: right now, Let's take a quick break. When we come back,
19:36
Speaker 2: we got Wall Street Watch next.
19:41
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Speaker 1: driving markets so far today. Right here on the fin
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Speaker 1: ninchel Exchange Radio network.
20:01
Speaker 4: Market's mostly quiet to begin this pivotal week where Jerome
20:04
Speaker 4: Powell will hold his final monetary policy meeting as Chairman
20:07
Speaker 4: of the Fed with the decision on rates Wednesday. We
20:10
Speaker 4: also have a massive batch of big tech earnings on
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Speaker 4: tap both on Wednesday and Thursday, from the likes of Alphabet, Microsoft, Amazon, Meta,
20:19
Speaker 4: and Apple. Right now, the DIE is down by twenty
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Speaker 4: seven points, mostly flat, SMP five hundred only down about
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Speaker 4: a tenth of percent, Nasdaq down about a third of
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Speaker 4: a percent, Russell two thousand is up about a tenth
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Speaker 4: of a percent, Tenure Treasure reeled is flat at four
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Speaker 4: point three two percent, and Oil up nearly two percent higher,
20:40
Speaker 4: trading at ninety six dollars. A barrel breaking news from
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Speaker 4: Microsoft and open Ai this morning, after both companies agreed
20:46
Speaker 4: to a new deal that offers open Ai more freedom
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Speaker 4: to partner with Microsoft's rivals and capping the revenue it
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Speaker 4: must share through twenty thirty. Microsoft is flat. Meanwhile, Qualcomm
20:57
Speaker 4: shares a now slightly down after rallying in early year
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Speaker 4: trading following reports that the chip maker is partnering with
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Speaker 4: OpenAI to create smartphone processing chips to advance the AI
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Speaker 4: firms hardware ambitions. Elsewhere, The Wall Street Journal reported that
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Speaker 4: a group of budget airlines, including Frontier, is seeking two
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Speaker 4: and a half billion dollars in government assistants for equity warrants.
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Speaker 4: Domino's Pizza reported a decline in first quarter profit, while
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Speaker 4: its sales outlook also fell short of expectations. Dominoes down
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Speaker 4: nearly ten percent, and Hoverizon stock is up by three
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Speaker 4: percent after the telecommunications company reported higher growth in new
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Speaker 4: customers as well as lower churn. I'm Tucker Silva and
21:39
Speaker 4: that is Wallstreet Watch.
21:41
Speaker 2: All right, Mark, let's talk a little bit about inflation.
21:44
Speaker 2: There's a piece in Barons today. It's titled Inflation Complications.
21:49
Speaker 2: Nice job, rhyming, headline writer. The unusual gap between PCE
21:55
Speaker 2: and cpis widening. So those of you who have listened
21:58
Speaker 2: for a while, you know that there are multiple different
21:59
Speaker 2: measure of inflation.
22:01
Speaker 3: Uh.
22:02
Speaker 2: The one that normally gets talked about the most is CPI,
22:05
Speaker 2: the Consumer Price Index. The Fed's preferred measure of inflation
22:09
Speaker 2: is the PCE, the personal consumption expenditure price Index. What
22:14
Speaker 2: is this gap that is between them right now, and
22:17
Speaker 2: why is it widening?
22:19
Speaker 3: Well, there's always a gap, but it's switched. Typically CPI
22:24
Speaker 3: is greater. The Consumer Price Index, which is based on
22:30
Speaker 3: spending by spending is not is based on consumption patterns
22:35
Speaker 3: by consumers, but resets only annually. PC resets more regularly
22:39
Speaker 3: and is based on reported spending, so they are different.
22:42
Speaker 2: How often does reasonly's monthly?
22:44
Speaker 3: Is it based on surveys of businesses so it better
22:47
Speaker 3: captures changes in spending patterns. If I substitute away happening.
22:52
Speaker 3: If I substitute away from almonds because they're getting more
22:54
Speaker 3: expensive because the war in the Middle East makes them
22:57
Speaker 3: pricier or something, and subtitude into pistachios or something.
23:01
Speaker 2: It may be nice.
23:03
Speaker 3: I don't know. I think it's actually pistachios that come
23:04
Speaker 3: from Iran. But anyway, if I did a substitution like that,
23:08
Speaker 3: PC is going to pick it up more quickly. So
23:10
Speaker 3: the FED prefers PCE because it is superior in that sense.
23:13
Speaker 3: It's a superior measure of what it is we're trying
23:16
Speaker 3: to gauge, which is cost of living, standard of living?
23:20
Speaker 3: Is it increasing decreasing? You need a good measure of
23:24
Speaker 3: price increases to answer that question. So historically there's been
23:27
Speaker 3: a gap, but it's been a favor of CPI past
23:29
Speaker 3: several months though PCE year over year and on average
23:32
Speaker 3: therefore month over month has been a little bit hotter.
23:35
Speaker 3: I'm not sure what the discussion here is about. No
23:39
Speaker 3: one is necessarily better inherently than neither measure, And there's
23:44
Speaker 3: the GDP to flavor, by the way, which we're not
23:45
Speaker 3: even talking about. So there are other measures, like you said,
23:48
Speaker 3: of inflation. But the two biggies of the CPI and
23:50
Speaker 3: the PCE, the Fed likes the latter. Okay, so PC's
23:54
Speaker 3: been running hot and you can decompose the you can
23:59
Speaker 3: do attribution, excuse me, and get at the cause. Well,
24:02
Speaker 3: PCE has a lower weight on shelter. PCE has a
24:06
Speaker 3: higher weight on healthcare, for example, because again of the
24:10
Speaker 3: way it's constructed.
24:13
Speaker 2: Doesn't this mean My conclusion on this is, Look, with
24:19
Speaker 2: any of these measures, none of them are inherently right
24:22
Speaker 2: or wrong, depends on what you're using them for. They're
24:25
Speaker 2: all trying to get at the answer to a general
24:29
Speaker 2: question of hey, how quickly your price is changing? To
24:32
Speaker 2: what degree are price is changing? Is what they're trying
24:35
Speaker 2: to ask. They ask them in slightly different ways, but
24:39
Speaker 2: they're trying to ask that question. Is that Is that
24:41
Speaker 2: a fair statement?
24:42
Speaker 3: They both measure inflation, which is defined as the change
24:45
Speaker 3: in the level of prices or the change in the
24:47
Speaker 3: average price, if you want to think about it that way. Yeah.
24:50
Speaker 2: So the way I think about it is, Hey, when
24:52
Speaker 2: multiple different data sets trying to measure something or telling
24:56
Speaker 2: me the same thing, I have a pretty high degree
24:59
Speaker 2: of confidence. So that that's, you know, in the ballpark
25:02
Speaker 2: of of how things are changing.
25:04
Speaker 3: That's one use for it.
25:05
Speaker 2: When they are diverging, it's useful to say, okay, like
25:10
Speaker 2: where is the divergence happening? Like why is it happening?
25:14
Speaker 2: And do I need to be more humble about my
25:17
Speaker 2: views as a result of it, because I'm not sure
25:21
Speaker 2: which one of these is closer to the truth.
25:23
Speaker 3: Well, here's for example, through February, year over year PC
25:26
Speaker 3: was two point eight, So that's two point eight percent
25:29
Speaker 3: inflation according to the Fed's preferred measure. Again through the
25:32
Speaker 3: end of February, and according to the CPI it was
25:34
Speaker 3: two point four. That's a big, big gap. I didn't
25:38
Speaker 3: look at how often gaps in one direction or another
25:42
Speaker 3: like that, sure emerge, but that's large. You get some
25:47
Speaker 3: large gaps in CPI two though a CPI year over
25:49
Speaker 3: year at the peak of the most recent inflation was
25:52
Speaker 3: seven point two was excuse me? Was it was nine pc?
25:56
Speaker 3: Was seven point two that's like a nearly two percentage.
25:58
Speaker 2: But so that's a huge cap.
26:00
Speaker 3: Nobody was complaining about PCE then. No complaining about it
26:03
Speaker 3: now because it could lead to tighter policy, which people
26:07
Speaker 3: just view as like inherently undesirable.
26:09
Speaker 2: But ultimately I think that even then, so let's go
26:13
Speaker 2: back to June of twenty two when you had that gap.
26:17
Speaker 2: What you could say then without any hesitation, guys, inflation
26:21
Speaker 2: is way too high. Whether it's seven percent or nine
26:25
Speaker 2: percent not really relevant. I don't know exactly how high
26:29
Speaker 2: inflation is, but the FED is behind the curve.
26:32
Speaker 3: But the lower inflation gets, the more important these gaps
26:35
Speaker 3: do become.
26:36
Speaker 2: But so at this point, the question is, hey, there
26:39
Speaker 2: is a difference between inflation being two and a half
26:42
Speaker 2: and three percent. You know if we look at it now, well,
26:45
Speaker 2: actually we don't have the newest PC it's going to
26:47
Speaker 2: come out Thursday. On Thursday. Yeah, we're finally Mark, isn't
26:50
Speaker 2: it exciting We're finally going to be caught up from
26:52
Speaker 2: the government shutdown. All of the data is now going
26:54
Speaker 2: to be properly timed the next one, I know, but
26:57
Speaker 2: I'm just we have to celebrate the yeah, take w
27:01
Speaker 2: we do. So I think at this point it still
27:05
Speaker 2: is something where if you say, and let's look at
27:08
Speaker 2: you know, the core numbers, Okay, core is still running
27:12
Speaker 2: somewhere in the high twos. That's not perfect, but it's
27:17
Speaker 2: also not something where the prescription is, you know, immediately
27:23
Speaker 2: raise rates from where they are. Well, yeah, but right now,
27:28
Speaker 2: not now. But I think it's something where the FED.
27:34
Speaker 2: The FED never tries to front run the inflation side,
27:38
Speaker 2: at least since I've been now, it only tries to
27:40
Speaker 2: front It tries to front run the employment side. It
27:42
Speaker 2: only tries to front run disinflation. Correct. So we've seen
27:45
Speaker 2: this where the FED wants at the first sign of trouble,
27:47
Speaker 2: they want to cut rates. And this is the other
27:50
Speaker 2: thing about the FED is when when you look at
27:52
Speaker 2: how they've behaved again during the time when I've been,
27:55
Speaker 2: you know, able to understand what they do. So call
27:57
Speaker 2: it for the last twenty twenty five years, the FED
28:02
Speaker 2: has never once that I've seen, been like, oh, g
28:08
Speaker 2: inflation's tame right now, but it might get too high.
28:12
Speaker 2: Let's start.
28:12
Speaker 3: Oh sure, it behaved like that routinely in the eighties
28:15
Speaker 3: and nineties. It would preemptively they would preemptively hike.
28:17
Speaker 2: Correct Like the hiking cycles that you've generally seen in
28:21
Speaker 2: the last twenty years have been for like one of
28:23
Speaker 2: two reasons. It's like the one back in twenty eighteen
28:27
Speaker 2: was Okay, we just can't keep rates at zero forever
28:29
Speaker 2: and inflation is low. I'm sorry, unemployment's low right now.
28:34
Speaker 2: Sure we can start to hike gradually. It's not like
28:36
Speaker 2: the FED hiking from zero to one. Book the economy,
28:39
Speaker 2: there were other structural issues with the plumbing, related probably
28:43
Speaker 2: to balance sheet size and things like that that were
28:45
Speaker 2: problematic just from a banking reserve perspective.
28:48
Speaker 3: Some of this has changed in framework, some of it
28:49
Speaker 3: has changed in philosophy. In the eighties and nineties, coming
28:52
Speaker 3: out of the Ninth the Risk Experience in the nineteen seventies,
28:54
Speaker 3: there was a lot more concern about unemployment dropping below
28:58
Speaker 3: the so called natural radar non inflationary rate. When it
29:01
Speaker 3: got low, green Span would hit the panic button, not literally,
29:07
Speaker 3: he was always in control. He was doing it partly
29:09
Speaker 3: to control expectations, but he would raise preemptively. The only
29:12
Speaker 3: time he stopped doing that in the late nineties when
29:15
Speaker 3: he recognized that there was something going on on the
29:17
Speaker 3: supply side, something productivity related, which allowed unemployment to go
29:21
Speaker 3: to levels which previously would have spurred inflation. And since
29:25
Speaker 3: the GIP, since the the financial crisis and Bernanki taking
29:30
Speaker 3: the helm, those two things pretty much coincided. The thinking
29:34
Speaker 3: has been has been sort of asymmetric. This we're going
29:38
Speaker 3: to put the fire out where we're gonna We're gonna
29:41
Speaker 3: let the economy run a little bit hot, but we
29:42
Speaker 3: don't even want to take the risk of it running cold.
29:45
Speaker 3: So it's been partly a change in framework and the
29:47
Speaker 3: way economists think about the way the economy works, and
29:50
Speaker 3: that's ever evolving, not a big deal there, but it's
29:52
Speaker 3: also this sort of change in philosophy. Putting the stock
29:55
Speaker 3: market and well, that's a little bit over I'm overstating
29:58
Speaker 3: in a little bit, but putting financial variables first, sure's
30:01
Speaker 3: that's a change too. Has it worked out, I don't know.
30:03
Speaker 2: Just take a quick break here. When we come back
30:06
Speaker 2: let's turn and talk a little bit about the state
30:08
Speaker 2: of the labor market and more specifically, what do Americans
30:12
Speaker 2: think about the labor market right now? And does it
30:16
Speaker 2: matter what we think?
30:17
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31:25
Speaker 2: I'm going to quote here from this piece in the
31:27
Speaker 2: Wall Street Journal. It's about Americans and their views on
31:33
Speaker 2: the job market and upcoming job losses. Uh, the unemployment
31:37
Speaker 2: rate is low, the stock market is high, consumer spending
31:39
Speaker 2: is healthy. But ask Americans how they feel about the economy,
31:42
Speaker 2: and they sound like there's a recession going on. That
31:45
Speaker 2: matters because that matters first, because when people's perceptions of
31:48
Speaker 2: the economy is sour, their behavior can change and slow
31:51
Speaker 2: the economy. So let's discuss that first. The idea here
31:55
Speaker 2: is that, hey, if you are nervous that you are
31:58
Speaker 2: going to lose a job or that the economies bad,
32:01
Speaker 2: you're not going to spend as much money because you
32:05
Speaker 2: hunkered down a little bit. The fact is that in
32:08
Speaker 2: the last year and a half, since we've started getting
32:12
Speaker 2: you know some of these Actually no, it's probably going
32:15
Speaker 2: back about two years now, that job market perceptions are bad.
32:20
Speaker 2: Since the last two years, there's been no downshift in
32:22
Speaker 2: actual spending by Americans in the aggregate. Again, you might
32:26
Speaker 2: be listening saying, Chuck, I've had to cut spending on
32:29
Speaker 2: this and that, Like I'm not saying you personally, but
32:32
Speaker 2: in the aggregate, we look at spending growth and it's
32:34
Speaker 2: generally running five to six percent year over year, which
32:37
Speaker 2: equates to factoring and inflation, about two to three percent
32:41
Speaker 2: real growth, you know, depending on the exact time period
32:44
Speaker 2: you're looking at, and in some case it's been close
32:46
Speaker 2: to four percent, so very modest real growth. But this
32:48
Speaker 2: is what we've been seeing. So the interesting thing to
32:51
Speaker 2: me is that Americans since the fall of twenty twenty four,
32:57
Speaker 2: really summer of twenty four, have been like, man, this
33:00
Speaker 2: job market is horrible. And normally that's like okay, like
33:05
Speaker 2: kind of a warning sign for consumer spending, but it
33:08
Speaker 2: hasn't been this time. So just sit with that, hold
33:11
Speaker 2: that thought for a second. Second piece of that'll quote
33:14
Speaker 2: here and second because sometimes they are seeing real problems
33:17
Speaker 2: that have yet to show up in the hard data.
33:19
Speaker 2: So the idea is that, you know, anecdotes eventually make
33:23
Speaker 2: their way into actual data when you have enough anecdotes
33:26
Speaker 2: that start happening, and the one person that saw layoffs
33:29
Speaker 2: turns into three, people that saw layoffs turns into five,
33:32
Speaker 2: turns into a thousand, and so on and so forth.
33:35
Speaker 2: So the interesting thing is, again Americans have been saying, yeah, like,
33:41
Speaker 2: the labor market's worstening, and normally when they say that,
33:44
Speaker 2: it tends to reflect a labor market that's actually worsening.
33:48
Speaker 2: It's especially in the last three months, it's unclear if
33:51
Speaker 2: it's worsening or if it's actually getting better. Last year,
33:54
Speaker 2: for the last six months, you could say it was worstening.
33:56
Speaker 2: But all of this is also coming from a perspective
33:59
Speaker 2: of coming with the context of two things that I
34:04
Speaker 2: think you have to factor in. The first is the
34:07
Speaker 2: labor market in twenty twenty one and twenty two was
34:09
Speaker 2: the hottest. That would you say, mark the hottest it's
34:12
Speaker 2: ever been in the United States, since we could measure.
34:14
Speaker 3: It as measured by say on employment or vacancies, you
34:17
Speaker 3: could say.
34:17
Speaker 2: That, So we were coming from the hottest labor market
34:21
Speaker 2: that basically anyone working has ever lived through. It's not
34:25
Speaker 2: the norm to see what we did in twenty one
34:27
Speaker 2: or twenty two. But the question that I think is
34:29
Speaker 2: worth asking is, hey, if people equated that to like
34:33
Speaker 2: what the norms should be and are just comping to
34:35
Speaker 2: that instead of you know, everything else. Historically, maybe just
34:39
Speaker 2: because we all we tend to judge these things, you know,
34:43
Speaker 2: relative to how they've been So I kind of wonder
34:46
Speaker 2: about that a little bit. The other piece here is
34:49
Speaker 2: I do really wonder. I'm trying to think of the
34:54
Speaker 2: nicest way has the Internet broken our brains? Like do
34:58
Speaker 2: we just not assess things? Do we just give responses
35:04
Speaker 2: now that are not in tune with historic norms because
35:09
Speaker 2: historical norms, sorry, that are just not accurate because we're
35:16
Speaker 2: just so emotionally strung out from all the freaking social
35:21
Speaker 2: media and stuff.
35:22
Speaker 3: I think the simplest answer is the average person, which
35:25
Speaker 3: is what this survey isant is meant to elicit the
35:28
Speaker 3: sentiment of is not driving the spending? Mark Zander's the
35:32
Speaker 3: third question. Yes, Mark Xander's done a lot of an
35:34
Speaker 3: economist now Modi's has done a lot of work on this,
35:37
Speaker 3: and it's not uncontroversial. But there seems to be some
35:40
Speaker 3: evidence that it's the top x percent. You could maybe five,
35:43
Speaker 3: maybe it's ten, whatever, top earners are doing most of
35:46
Speaker 3: the spending. This survey is not meant to get at
35:50
Speaker 3: the sentiment of the top earners. That's the simplest explanation.
35:52
Speaker 2: So it gets you to the third piece, which is
35:55
Speaker 2: just the really discouraging thing, which is is the average
36:00
Speaker 2: eric and now so inconsequential from an economic perspective because
36:05
Speaker 2: of the concentration of wealth and income at the top,
36:09
Speaker 2: that they can simultaneously feel terrible about the economy because
36:14
Speaker 2: they're being left behind, but ultimately the people driving the
36:18
Speaker 2: spending and driving the economy are doing just fine.
36:20
Speaker 3: I mean, this were like a math problem and you said,
36:23
Speaker 3: and you asked somebody, like, how do you explain this
36:25
Speaker 3: goes up but that stays the same. You'd say, well,
36:27
Speaker 3: that's an average, but this is being driven by They're
36:29
Speaker 3: they're different, so you wouldn't expect the two necessary they should, yeah,
36:34
Speaker 3: over long periods, but it's it's kind of easily explainable.
36:37
Speaker 2: So yeah, it's it's you get these different things going on,
36:41
Speaker 2: and it's it's messy. But people feel bad about the economy,
36:45
Speaker 2: or people feel bad specifically about the labor market. Normally
36:49
Speaker 2: that's a warning sign for a couple different reasons, but
36:52
Speaker 2: it's not really. It hasn't been an accurate signal for
36:54
Speaker 2: the last two years.
36:55
Speaker 3: But it is weird that they feel they're down on
36:58
Speaker 3: the labor market with unemployment at four point three percent.
37:01
Speaker 3: I mean that is, as you said, that is epically low.
37:05
Speaker 2: It is, it's very low by historical terms, but it's
37:11
Speaker 2: higher than it was a few years ago, and so
37:13
Speaker 2: people may have, you know, just become accustomed to that.
37:15
Speaker 2: Maybe we talk about how people like the danger with
37:18
Speaker 2: inflation expectations as they get embedded, maybe labor expectations.
37:22
Speaker 3: Are will certainly do.
37:23
Speaker 2: But the other piece is, hey, we see the Jolts data.
37:29
Speaker 2: It is a really low hiring environment right now. That
37:32
Speaker 2: is morestent. You know, the hiring environment is more consistent
37:36
Speaker 2: with unemployment rates that have been in the five and
37:39
Speaker 2: a half to six and a half percent range. Okay,
37:43
Speaker 2: I don't know, like it's file all this under economics
37:48
Speaker 2: is not physics, you know, it's just like.
37:52
Speaker 1: No, no.
37:53
Speaker 2: But I think a lot of people think that because.
37:55
Speaker 3: That's just the way the media reports it.
37:57
Speaker 2: A lot of people think that because they're numbers. It's
38:00
Speaker 2: hard studience. Yeah, well we're doing a radio show, so
38:03
Speaker 2: were no media.
38:04
Speaker 3: We're not media. Well you're you're you're you're a financial
38:06
Speaker 3: services professional.
38:07
Speaker 2: Well I know, but we're you know, we're on a
38:10
Speaker 2: yeah for a couple of hours where.
38:12
Speaker 3: We're sometimes stupid, not as consistently stupid, as.
38:15
Speaker 2: The media, the financial exchange occasionally stupid. We'll be back
38:19
Speaker 2: right after this