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Weak Jobs Report Leaves the Fed With a Tough Call · The Financial Exchange Show

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  Speaker 1: is The Financial Exchange with Mike Armstrong and Mark Vandetti.
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  Speaker 2: Good morning.
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  Speaker 3: Welcome back to The Financial Exchange. It's my favorite way
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  Speaker 3: to close out a week here on The Financial Exchange
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  Speaker 3: with equity markets up. S & P currently three quarters
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  Speaker 3: of a percent. NASDAQ up about one and a quarter.
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  Speaker 3: Dow 170 points or a third of one percent. All
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  Speaker 3: of those figures a little bit muted compared to where
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  Speaker 3: they were just an hour ago. And we will see
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  Speaker 3: where things go. It is a jobs Friday here on
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  Speaker 3: the Financial Exchange. We got a report from the Bureau
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  Speaker 3: of Labor Statistics this morning.
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  Speaker 2: At 830 a.m.
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  Speaker 3: In that report, we saw, most importantly, the unemployment rate
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  Speaker 3: increasing ever so slightly to a 4.2% rate, which, uh,
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  Speaker 3: as Mark and I were talking about an hour ago
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  Speaker 3: is among the top decile of unemployment rates we've ever
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  Speaker 3: seen in, uh, in this country. Um, in, in terms
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  Speaker 3: of low unemployment rates, that was a weird way to say.
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  Speaker 2: That, uh, bottom decile of rate and best.
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  Speaker 3: Unemployment rates we've seen in quite, you know, throughout our
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  Speaker 3: us history.
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  Speaker 4: You pulled out of that nosedive gracefully.
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  Speaker 2: That was, that was pretty nice. Thank you.
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  Speaker 3: Uh, 20, what was it, 26,000 jobs created, 29,000 jobs.
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  Speaker 2: Created, steep revisions.
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  Speaker 1: Estimated.
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  Speaker 2: Estimated 29,000 jobs created.
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  Speaker 4: I'm not correcting you, just being a pessimist.
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  Speaker 3: Revisions to the previous two months. So all in all,
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  Speaker 3: a jobs report that left you a little bit less
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  Speaker 3: optimistic about the pace of growth, a little bit more
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  Speaker 3: pessimistic about the state of the labor market generally.
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  Speaker 2: And if you're the Federal Reserve.
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  Speaker 3: Mark, you pointed out a more challenging environment to navigate,
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  Speaker 3: but I think not so much pressure as you had
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  Speaker 3: yesterday on the idea of a rate hike at that
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  Speaker 3: next October meeting would be my main takeaway.
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  Speaker 2: You've now had a few things.
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  Speaker 4: It depends on what you think is driving inflation and
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  Speaker 4: how much you wait. Inflation relative to unemployment.
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  Speaker 5: Right.
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  Speaker 4: Depends on those two things.
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  Speaker 2: Yeah. But, I don't know.
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  Speaker 3: Evidence suggests from the speeches that we've gotten from Federal
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  Speaker 3: Reserve members and from Kevin Warsh himself that they are
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  Speaker 3: okay with, you know, waiving their rate hike at this
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  Speaker 3: next meeting would be my guess.
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  Speaker 4: Yeah. One way to think about it is if you're
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  Speaker 4: trying to get in the head of the Fed, everybody
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  Speaker 4: has what a researcher would call an objective function in
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  Speaker 4: their head. And it's like how much you weight things.
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  Speaker 4: And we all have These objective functions. Do I want
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  Speaker 4: to work more? Do I want to enjoy more leisure time,
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  Speaker 4: spend more time with the kids or the grandkids? As
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  Speaker 4: you get older, your priorities change. Your function, which guides
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  Speaker 4: your decisions, changes. Every one of these policies, the Fed
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  Speaker 4: has an objective function by law. It requires that they
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  Speaker 4: weight both inflation and unemployment. It doesn't say by how much.
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  Speaker 4: So each policymaker has their own preferences. More liberal policymakers
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  Speaker 4: think Janet Yellen puts more weight on getting unemployment down
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  Speaker 4: maybe than getting inflation under control. She's no longer on
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  Speaker 4: the FOMC, but you know what I mean. A more
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  Speaker 4: conservative policymaker like Kevin Warsh, who's often called, these people
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  Speaker 4: are often called hawks, and I share this ideology so
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  Speaker 4: I can relate.
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  Speaker 2: I think, I think.
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  Speaker 4: Inflation on the margin is a little more noxious than
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  Speaker 4: a little bit more unemployment. Though, if I myself were unemployed,
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  Speaker 4: I might feel differently. So I can see why people
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  Speaker 4: would weight unemployment higher. Right now, you've got unemployment. Let's
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  Speaker 4: just say it's going up, Mike. I know that's premature.
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  Speaker 4: But job growth has been really soft since the tariff
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  Speaker 4: wars started. I'm going to blame the tariff wars, even
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  Speaker 4: though The trend was coming down a little bit, too.
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  Speaker 4: But it abruptly jumped off a cliff, job growth did,
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  Speaker 4: in March, April 2025. So you've got this sort of
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  Speaker 4: uncomfortable softness in the unemployment market or in the employment market.
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  Speaker 4: And you've got elevated inflation. What do you do? Inflation
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  Speaker 4: could spiral out of control. Probably not to 2021, 2022 levels,
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  Speaker 4: absent a big oil price shock. But you've got uncomfortably
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  Speaker 4: high inflation right now. They keep saying it. Our goal
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  Speaker 4: is two. It's three and a half. Warsh keeps saying
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  Speaker 4: that's unacceptable. Do you tighten more, risking even softer job market,
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  Speaker 4: potentially worse, like a recession?
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  Speaker 2: I don't know. It's been a little while since we've
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  Speaker 2: asked this question.
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  Speaker 3: If you had to choose between the two, would you
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  Speaker 3: take a 1% higher rate of inflation or a 1%
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  Speaker 3: higher unemployment rate 12.
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  Speaker 2: Months from now?
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  Speaker 4: That's a great way to put it.
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  Speaker 2: And I'm genuinely asking. I don't know which one I
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  Speaker 2: would select right now.
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  Speaker 3: I tend to say I'm more comfortable with a 1%
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  Speaker 3: higher rate of inflation because I know what that increase
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  Speaker 3: in unemployment does to so many Americans' long-term financial health.
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  Speaker 2: It is so.
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  Speaker 3: Just devastatingly bad for those people that lose their jobs
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  Speaker 3: to see that uptick for such a long time. That
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  Speaker 3: having been said, the last six years have been defined
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  Speaker 3: by such gargantuan price increases. that I would be pretty
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  Speaker 3: seriously concerned about what a 1% increase in inflation would
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  Speaker 3: do to expectations for the future.
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  Speaker 4: We went from inflation in the ones, really, in the
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  Speaker 4: prior decade, to inflation in the fours. That's a big jump.
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  Speaker 4: That's like from 1951 until 1965-66, we had 1.3% inflation. 65-66,
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  Speaker 4: I forget which, to 1981 or so, 82, we had 7%.
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  Speaker 4: I mean, this is why people were shell-shocked. People now,
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  Speaker 4: to a slightly lesser extent, are shell-shocked by the rapid
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  Speaker 4: increase in the price level. We all remember what a
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  Speaker 4: car costs. This may not be the best example because
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  Speaker 4: car inflation, new car inflation has outpaced the general, the
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  Speaker 4: average price level increase. But we're all still sort of
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  Speaker 4: shocked by the price of living, cost of living changes
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  Speaker 4: in the past, say, decade, which ties into your point
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  Speaker 4: about expecting higher inflation. And when you expect higher inflation,
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  Speaker 4: that makes it harder, more costly in terms of unemployment
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  Speaker 4: for the Fed to get inflation down in the first place.
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  Speaker 2: Two other important factors today. Oil prices off.
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  Speaker 3: They were off about 4.5%, now down 3.6%. So we
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  Speaker 3: have some, again, everything is coming off of their extremes
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  Speaker 3: so far this morning. But that's bringing the West Texas
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  Speaker 3: crude below $ 90 a barrel on that benchmark. The Brent
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  Speaker 3: crude still sitting over $ 100 a barrel, but also down today.
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  Speaker 3: part of this as a G7 announcement that they intend
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  Speaker 3: to release some 100 million.
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  Speaker 2: Barrels out of strategic reserves.
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  Speaker 3: That accounts for about one day of global consumption of oil,
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  Speaker 3: but combined with the additional traffic through the Strait of
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  Speaker 3: Hormuz and other factors, this could be leading to slightly
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  Speaker 3: lower oil prices today.
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  Speaker 2: Mark, you.
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  Speaker 4: Did we recap unemployment?
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  Speaker 3: Yes.
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  Speaker 4: Sorry, I missed that.
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  Speaker 2: You're good.
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  Speaker 4: I'm sure you did well.
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  Speaker 3: Um... and then finally, and what I think is probably
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  Speaker 3: the most interesting move of the day so far, the
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  Speaker 3: U S 10 year treasury yield, which is arguably the
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  Speaker 3: main story that has mattered all of, uh, the last
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  Speaker 3: several weeks really. And mostly because in the month of September,
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  Speaker 3: it climbed by half a percent in the third quarter,
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  Speaker 3: it climbed by eight tenths.
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  Speaker 2: Of a percent. Uh, is now up for the day.
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  Speaker 3: It started the day down after this jobs market report.
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  Speaker 3: We had it sinking down to about 5.17%. It is
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  Speaker 3: now back up where it opened for the day and,
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  Speaker 3: in fact, slightly higher, which I am left asking myself,
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  Speaker 3: what in the hell do you need to do to
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  Speaker 3: bring down long-term interest rates right now? You've got oil down.
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  Speaker 3: You've got a weaker job market. You've got all of
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  Speaker 3: these different things that.
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  Speaker 4: Why should a weaker— it didn't in the 70s. And this
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  Speaker 4: gets to, is inflation supply-driven, demand-driven? Is it expectations-driven? Policymakers
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  Speaker 4: struggled with this in the 70s. It's such a useful
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  Speaker 4: thing to remind oneself what they were thinking at the time,
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  Speaker 4: given what the data showed them at the time. They
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  Speaker 4: overestimated the economy's potential. Is war— as much as I
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  Speaker 4: love Kevin Warsh, is he likely to do that today
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  Speaker 4: because he's too much of an AI enthusiast and keep
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  Speaker 4: policy not restrictive enough or too lax? I mean, the
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  Speaker 4: real Fed funds rate right now, the stated rate, 3.75 roughly,
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  Speaker 4: minus inflation is like close to zero. That's too stimulative.
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  Speaker 4: But you might say, but unemployment's going up. I mean,
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  Speaker 4: demand is not the problem. How do you know what
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  Speaker 4: the non-inflationary rate of unemployment is? The problem in the
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  Speaker 4: 70s is that it was going up because productivity was
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  Speaker 4: going down, because the labor force was changing, and policymakers
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  Speaker 4: didn't realize it. That could be happening again, and that's
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  Speaker 4: what's going to scare the pants off of some of
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  Speaker 4: these folks at the FOMC.
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  Speaker 2: We've got to take a quick break.
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  Speaker 3: When we return, Michael Santoli from CNBC joins us next
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  Speaker 3: to talk about all of this and more.
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  Speaker 3: Joining us now is CNBC's Michael Santoli for a look
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  Speaker 3: around at markets, the economy, and everything that we're seeing
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  Speaker 3: moving today.
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  Speaker 2: Michael, thanks for joining us. Appreciate it.
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  Speaker 6: Oh, glad to do it. Thanks for having me.
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  Speaker 2: There's a lot to.
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  Speaker 3: Talk about and not ever enough time. Today, we've talked
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  Speaker 3: at length about the jobs report and the higher unemployment rate.
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  Speaker 3: We've got oil prices down. We've got stocks up. And
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  Speaker 3: yet the story that has dominated for the last three
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  Speaker 3: months and really since February has held true with rates
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  Speaker 3: on the long end of the curve moving higher today.
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  Speaker 3: Had you given me these factors yesterday, I would have
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  Speaker 3: told you rates down. What has been driving yields higher
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  Speaker 3: and what do you make of the fact that they
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  Speaker 3: are once again climbing, albeit just a little bit today?
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  Speaker 6: No, it's absolutely counterintuitive. And in fact, the first reflex
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  Speaker 6: of the market this morning was down in yield because
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  Speaker 6: of that softer than expected jobs report and oil being down.
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  Speaker 6: So it obviously has a little bit of a life
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  Speaker 6: of its own to sell off in bond. I'm pretty
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  Speaker 6: much willing to embrace the broader factors that are being
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  Speaker 6: cited of Massive, massive demand for capital by public and
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  Speaker 6: private sector and high nominal GDP growth, even though it's
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  Speaker 6: not necessarily creating a huge amount of momentum in job creation.
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  Speaker 6: you do have nominal GDP because of all the spending,
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  Speaker 6: 6% fiscal deficit. Obviously, AI, that whole story around the
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  Speaker 6: world is contributing to this idea that structurally rates ought
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  Speaker 6: to be somewhat higher. What's interesting is the Fed had
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  Speaker 6: multiple officials coming out in the last couple of days
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  Speaker 6: saying no rush to raise rates again in October. That
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  Speaker 6: dropped a lot of expectations for near-term Fed action. But
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  Speaker 6: there seems to be this sense out there that longer-term
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  Speaker 6: neutral rates might be higher than we previously thought. So
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  Speaker 6: we'll see. I mean, it's obviously a new quarter. I
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  Speaker 6: do think there's a little bit of mechanical, tactical unwind
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  Speaker 6: stuff going on in this market. And then yesterday you
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  Speaker 6: had this big drop in U.S. yields when France all
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  Speaker 6: of a sudden is the problem. Child, people have to
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  Speaker 6: sell bonds around the world, and they found their way here.
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  Speaker 6: So it's definitely a hurdle rate for corporate borrowing and
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  Speaker 6: for equity valuations. And I think that explains why the
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  Speaker 6: stock market has basically been sort of sideways for four
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  Speaker 6: or five months.
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  Speaker 3: That is a fair point on the mechanics of a
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  Speaker 3: new quarter that I hadn't really considered. You mentioned AI,
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  Speaker 3: the spender in this economy that seems neither rate nor
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  Speaker 3: energy sensitive, just keeps chugging along. That story has faded
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  Speaker 3: back to the back a little bit, but we may
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  Speaker 3: have the upcoming IPO sometime before the Thanksgiving holiday is
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  Speaker 3: what we're hearing. What do you understand about what Anthropic's
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  Speaker 3: trying to pull off here?
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  Speaker 6: Yeah, I mean, Anthropic, it's absolutely a when, not if.
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  Speaker 6: These companies are of such a scale that they kind
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  Speaker 6: of have to get out and capitalize publicly. And I think,
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  Speaker 6: you know, my instinct is that once we get the
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  Speaker 6: full numbers and the final filing from Anthropic, there might
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  Speaker 6: be a little bit of a cold water effect in
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  Speaker 6: terms of, I mean, their growth rate, everyone kind of
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  Speaker 6: knows it's growing super fast, but just how much... capital
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  Speaker 6: they need to raise because of what they've already committed
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  Speaker 6: in terms of future orders for computing capacity and all
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  Speaker 6: the rest of it. I think it just becomes kind
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  Speaker 6: of this treadmill that's set on a pretty fast setting.
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  Speaker 6: And so we'll see. I mean, I do think it's
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  Speaker 6: interesting how the market narrative has changed from at the
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  Speaker 6: beginning of the year it was oh, no, we have
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  Speaker 6: these three massive IPOs probably coming, SpaceX, Anthropic Open AI.
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  Speaker 6: Can the stock market absorb all that new equity supply?
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  Speaker 6: We got through SpaceX. Obviously, the market sort of hiccuped
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  Speaker 6: a little bit. That was kind of the risk appetite
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  Speaker 6: peak of the market. But we plotted a long stint then.
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  Speaker 6: And now what I find amusing is if you told somebody,
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  Speaker 6: you know what, Anthropic and Open AI might not be
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  Speaker 6: able to get out the door in the next year,
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  Speaker 6: I think it would be considered bearish because the whole
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  Speaker 6: food chain needs Those companies capitalized in a hurry and
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  Speaker 6: they need the market to receive them.
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  Speaker 2: As they are.
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  Speaker 3: I keep hearing a bit of a shift on, not
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  Speaker 3: so much on people's willingness to accept data centers, but
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  Speaker 3: certainly on the companies who are building them, their desire
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  Speaker 3: and willingness to pay people for them. I think we
• 15:03
  Speaker 3: got the news today about Amazon setting up a billion
• 15:06
  Speaker 3: dollar fund. There was the case of the Pennsylvania data
• 15:08
  Speaker 3: center offering, I think, $ 10, 000 per resident.
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  Speaker 2: Do you, I guess the big question, right?
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  Speaker 3: I mean, America needs to spend 9% of its GDP
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  Speaker 3: on artificial intelligence to fulfill the promises that these companies
• 15:23
  Speaker 3: are making on their CapEx.
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  Speaker 2: Is there a path that we get there?
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  Speaker 6: I mean, I suppose there's a potential path that we
• 15:32
  Speaker 6: get there. I do think it really... means you have
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  Speaker 6: to reduce your expectations of what the return ultimately, not societally,
• 15:41
  Speaker 6: but what the return is going to be for the
• 15:43
  Speaker 6: people putting that money in there. And I don't think
• 15:45
  Speaker 6: it's a far-gone conclusion that even the likes of Microsoft, Amazon, Meta, after,
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  Speaker 6: let's say, next year, decide they need or want to
• 15:54
  Speaker 6: continue to invest at that scale. So I think that's
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  Speaker 6: kind of the issue. We've had this massive profit growth
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  Speaker 6: among all the companies that are selling the hardware and
• 16:04
  Speaker 6: building the data centers. But that's front-loaded profit. That cost
• 16:07
  Speaker 6: goes put against it later on. And the market has
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  Speaker 6: shown an unwillingness to extrapolate from the current boom times
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  Speaker 6: well into the future. I still think it's probably positive
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  Speaker 6: to have all of this new. computing supply, new power generation,
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  Speaker 6: all the stuff they think they need to build. And
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  Speaker 6: maybe it ends up being like the internet where it's like, oh,
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  Speaker 6: we built the whole superstructure for mobile computing, even though
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  Speaker 6: a lot of companies, you know, struggle to went bust
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  Speaker 6: along the way. So I don't know. I mean, I
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  Speaker 6: do think it's fascinating. The more that the kind of
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  Speaker 6: old economy or the underlying economy kind of just bumps
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  Speaker 6: along and the demographics aren't great. We don't have a
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  Speaker 6: lot of labor force growth. consumers are okay, but not,
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  Speaker 6: they don't have a lot of momentum. It basically means
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  Speaker 6: AI is that much more of a percentage of incremental
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  Speaker 6: growth than before. So it's kind of got to work.
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  Speaker 6: And I think that's why the bull market is going
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  Speaker 6: to live or die by that sector. Everyone wants to
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  Speaker 6: see the market rebalance and broaden out and have the
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  Speaker 6: equal weighted indexes do better and all the rest of it.
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  Speaker 6: I don't think that's the way bull market works. I
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  Speaker 6: think whatever theme got you there is the thing that
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  Speaker 6: has to carry to the end. We don't want the
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  Speaker 6: rest of the stocks falling out, right, as they have
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  Speaker 6: been for the last six weeks in this case of
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  Speaker 6: higher rates. But I still think that you need that
• 17:23
  Speaker 6: belief that, in fact, they're building something of high sustainable value. Otherwise,
• 17:29
  Speaker 6: it's all been a little bit of an illusion.
• 17:31
  Speaker 3: Mike, we got this jobs report this morning, 4.2% unemployment,
• 17:35
  Speaker 3: revisions to the last two months, weaker than anticipated job creation,
• 17:40
  Speaker 3: markets taking it as good news. Is the Fed this
• 17:43
  Speaker 3: morning taking this report as good news, or is it
• 17:45
  Speaker 3: putting them.
• 17:45
  Speaker 2: In more of a corner?
• 17:47
  Speaker 6: I think the Fed probably takes it as good news.
• 17:50
  Speaker 6: They're basically just an inflation fighting force right now. They're
• 17:53
  Speaker 6: not super concerned about, you know, you have to remember
• 17:56
  Speaker 6: that they're really focused on unemployment rate, not monthly job creation.
• 18:00
  Speaker 6: And the change in the unemployment rate went from 4.1
• 18:02
  Speaker 6: to 4.2. two on a rounded basis. It was like
• 18:05
  Speaker 6: three hundreds of a, it was like a very small
• 18:08
  Speaker 6: actual change statistically if you went out a couple of
• 18:10
  Speaker 6: decimal places. So I don't think that's raising alarms. It
• 18:13
  Speaker 6: definitely does tell you that we are in this low
• 18:17
  Speaker 6: energy labor market. So it might not take a whole
• 18:21
  Speaker 6: lot of disappointment from here. You know, tech employment's way down.
• 18:24
  Speaker 6: So some AI effects are there. But I do think
• 18:28
  Speaker 6: that the Fed's going to take it as, okay, we
• 18:30
  Speaker 6: have a little bit of flexibility, optionality to look at
• 18:33
  Speaker 6: the data over the next several weeks. No rush for October, perhaps,
• 18:36
  Speaker 6: in terms of hiking. But, you know, now the market
• 18:39
  Speaker 6: expects December. So I think it's net OK. We don't
• 18:43
  Speaker 6: need a lot of monthly job growth because of demographics
• 18:45
  Speaker 6: to kind of stay in an expansion. But it's not
• 18:50
  Speaker 6: going to settle too many arguments here because, you know,
• 18:52
  Speaker 6: we got ourselves in the head of the market. The
• 18:55
  Speaker 6: economy has massive momentum. We might even be overheating. And
• 18:58
  Speaker 6: that's why rates have done in part what they've done. And,
• 19:01
  Speaker 6: you know, I think they're going to revise down third
• 19:03
  Speaker 6: quarter GDP expectations on this jobs report and on some
• 19:06
  Speaker 6: of the retail sales numbers that have recently come out.
• 19:10
  Speaker 2: Michael Santoli from CNBC.
• 19:12
  Speaker 3: You can check him out there or check out his
• 19:13
  Speaker 3: Market Memo newsletter, also available on CNBC.
• 19:16
  Speaker 2: Mike, always appreciate you stopping by. Thanks so much, and
• 19:19
  Speaker 2: we'll talk to you again soon.
• 19:21
  Speaker 6: Glad to do it.
• 19:21
  Speaker 1: Anytime.
• 19:22
  Speaker 3: We'll take a quick break here. When we come back,
• 19:24
  Speaker 3: Full Market Update is next for you with Wall Street Watch.
• 19:40
  Speaker 1: Bringing the latest financial news straight to your radio every day.
• 19:44
  Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
• 19:50
  Speaker 2: Time now for.
• 19:51
  Speaker 1: Wall Street Watch. Tracking the stocks, the data, and the
• 19:54
  Speaker 1: headlines driving markets so far today. Right here on the
• 19:57
  Speaker 1: Financial Exchange Radio Network.
• 19:59
  Speaker 5: Well, markets are in rally mode despite a weaker than
• 20:01
  Speaker 5: expected September jobs report where 29,000 jobs were added last month,
• 20:07
  Speaker 5: short of forecasts of 90,000. Right now, the Dow is
• 20:10
  Speaker 5: up about a quarter percent or 140 points up. S
• 20:13
  Speaker 5: & P 500 is up about three quarters of a
• 20:15
  Speaker 5: percent or 54 points higher. NASDAQ up about 1.1 percent
• 20:20
  Speaker 5: or 311 points higher. Russell 2000 is up over nine
• 20:24
  Speaker 5: tenths of a percent. Ten-year Treasury yield is now up
• 20:27
  Speaker 5: one basis point at 5.252 percent. Crude oil down nearly
• 20:30
  Speaker 5: 3 percent, trading at $ 90 a barrel, while Brent is
• 20:32
  Speaker 5: down 1.5 percent, trading at $ 100. Nike seeing its stock
• 20:40
  Speaker 5: tumble further this morning, down 6% after the company said
• 20:43
  Speaker 5: it expects sales to keep declining this fiscal year, citing
• 20:46
  Speaker 5: its struggles in China. Nike also said it plans to
• 20:49
  Speaker 5: shrink its operations, cut jobs, and merge regional businesses. Meanwhile,
• 20:54
  Speaker 5: shares in several memory storage companies are seeing losses after
• 20:57
  Speaker 5: Nikkei reported that Toshiba will double its production capacity for
• 21:01
  Speaker 5: hard disk drives used in data centers. Seagate and Western
• 21:05
  Speaker 5: Digital are now.
• 21:06
  Speaker 2: Down over 14%.
• 21:09
  Speaker 5: On Semiconductor is up 5% following reports that it will
• 21:12
  Speaker 5: acquire Synaptics for $ 123 per share in cash. Synaptics is
• 21:16
  Speaker 5: up 13% and Tesla shares are up over 5% after
• 21:21
  Speaker 5: reporting better than expected vehicle deliveries for the third quarter.
• 21:25
  Speaker 1: I'm Tucker Silva. That is Wall Street Watch.
• 21:28
  Speaker 3: Mark, there's a piece today in Barron's which asks the
• 21:32
  Speaker 3: provocative question, better without bonds, how retirees should think about
• 21:37
  Speaker 3: fixed income right now?
• 21:39
  Speaker 2: The bond market, the U.S.
• 21:41
  Speaker 3: Aggregate bond market defined by Bloomberg now, yeah, Bloomberg aggregate
• 21:45
  Speaker 3: bond index has lost five some odd percent this year,
• 21:49
  Speaker 3: two point something if you factor in the interest that
• 21:52
  Speaker 3: you're receiving, which is kind of the whole reason you
• 21:54
  Speaker 3: own bonds, so have to factor that in, so total
• 21:56
  Speaker 3: returns down.
• 21:58
  Speaker 2: I believe five years trailing the Bloomberg U.S.
• 22:00
  Speaker 3: Aggregate bond index is down for total return over the
• 22:06
  Speaker 3: last five years, and so More and more, I think
• 22:09
  Speaker 3: this is a very reasonable question. Am I better without bonds?
• 22:13
  Speaker 3: Why do I own them? How much do I own them?
• 22:15
  Speaker 3: And why do I need them here if they're just
• 22:17
  Speaker 3: going to lose me money for five, not consecutive years,
• 22:20
  Speaker 3: but in total over the course of five years, I
• 22:24
  Speaker 3: could be doing something seemingly a lot more attractive with
• 22:26
  Speaker 3: that money.
• 22:27
  Speaker 4: In a total portfolio context, and this is a crucial distinction,
• 22:31
  Speaker 4: if you are an investor seeking diversification, specifically diversification of
• 22:37
  Speaker 4: equity market and other risk asset volatility, bonds tend to
• 22:42
  Speaker 4: be imperfectly correlated. They tend to co-move infrequently with stocks.
• 22:48
  Speaker 4: One zigs, the other zags. Not every day. Not even
• 22:51
  Speaker 4: sometimes every month or year, but on average over time. Now,
• 22:54
  Speaker 4: the characteristics that have resulted in that small to at
• 23:00
  Speaker 4: times negative correlation can change. It can flip. Correlations can
• 23:04
  Speaker 4: flip signs from negative to positive at the worst, most
• 23:07
  Speaker 4: unhelpful of times. But on average, bonds help temper overall
• 23:12
  Speaker 4: portfolio volatility. And notice I keep saying portfolio, not for
• 23:16
  Speaker 4: the investor who wants income. That individual has a totally
• 23:20
  Speaker 4: different goal in mind. They just want the coupon. They
• 23:23
  Speaker 4: buy a bond at a face value of just call
• 23:24
  Speaker 4: it 100. They get a 5% coupon. They collect that
• 23:28
  Speaker 4: coupon for the lifetime of the bond. Maybe it's a
• 23:30
  Speaker 4: 10-year treasury bond. currently yielding about 5.25%. If you're okay
• 23:35
  Speaker 4: with that 5.25% yield, that's all you care about, you
• 23:38
  Speaker 4: don't worry about principal fluctuation in the interim. You get it,
• 23:42
  Speaker 4: the bond is redeemed for its face value at the
• 23:44
  Speaker 4: end of the term, and then you roll it. You
• 23:47
  Speaker 4: invest in something else, much like you would a CD.
• 23:49
  Speaker 4: A bond works a lot like a CD in that sense.
• 23:53
  Speaker 3: I think, yeah, if you walked away from the last
• 23:56
  Speaker 3: five years, and I'm sure many retirees are walking away
• 23:59
  Speaker 3: from the last five years and saying, I don't like
• 24:02
  Speaker 3: this part of my portfolio.
• 24:03
  Speaker 2: I don't want it anymore.
• 24:04
  Speaker 3: I don't understand it, and I don't like it. I
• 24:07
  Speaker 3: think they might be doing themselves a pretty big disservice.
• 24:11
  Speaker 3: I do think it's very reasonable to be asking the
• 24:13
  Speaker 3: question of your 401k provider or your investment advisor, if
• 24:19
  Speaker 3: you have one, or yourself if you're doing it on
• 24:20
  Speaker 3: your own, why do I have this amount of this asset? That,
• 24:25
  Speaker 3: to me, is a much more relevant question.
• 24:27
  Speaker 4: In a total portfolio context... Again, I'm talking to the
• 24:31
  Speaker 4: diversified investor here, not someone who needs $ 5, 000 a month.
• 24:36
  Speaker 4: Bonds can be thought of as insurance. Historically, they have
• 24:42
  Speaker 4: tempered total portfolio losses during big periods of equity market turmoil.
• 24:49
  Speaker 4: 2008 is a good example. Treasuries, not corporate bonds, but
• 24:54
  Speaker 4: treasuries were up when stocks were down significantly, I believe.
• 24:58
  Speaker 4: The exact numbers are unimportant, but like one's up 5%,
• 25:02
  Speaker 4: the other's down 30. That helps your total portfolio return
• 25:06
  Speaker 4: a little bit, but it helps smooth out volatility too.
• 25:10
  Speaker 3: And I think importantly, the simplified way that I like
• 25:12
  Speaker 3: to phrase this is when you are retired, you might
• 25:17
  Speaker 3: be worried about the swings and the easing of that
• 25:20
  Speaker 3: overall portfolio return in a down market. But I think
• 25:23
  Speaker 3: also importantly, you need to have something to spend. And ideally,
• 25:28
  Speaker 3: you're not selling a stock when it's down by 40%.
• 25:30
  Speaker 4: Yeah, you could do cash.
• 25:32
  Speaker 2: You could do cash. That would hold its value.
• 25:33
  Speaker 4: And yields are pretty good on cash right now. You
• 25:35
  Speaker 4: get no volatility, so that's an attractive alternative. Look, think
• 25:39
  Speaker 4: of it as insurance is always a drag. Nobody likes
• 25:41
  Speaker 4: to pay for life insurance. Nobody likes to pay for
• 25:43
  Speaker 4: health insurance. It's there for the contingency that you hope
• 25:50
  Speaker 4: is never realized. Bonds are, too, in a way. Look,
• 25:53
  Speaker 4: I can't argue with the fact that a portfolio entirely
• 25:56
  Speaker 4: in equities, which might be totally appropriate for a young
• 25:58
  Speaker 4: investor with high risk tolerance, has outperformed a portfolio in 80-20.
• 26:02
  Speaker 4: 80% equities, 20% fixed income. Well, of course it has.
• 26:05
  Speaker 4: I'm not going to argue with that.
• 26:06
  Speaker 2: And by the way, for most periods, it has.
• 26:09
  Speaker 4: Yeah, like overwhelming number, very rarely. But you own bonds
• 26:13
  Speaker 4: for those rare occasions when stocks perform.
• 26:17
  Speaker 2: The proverbial you-know-what hits the fan.
• 26:18
  Speaker 4: Yeah. Now, will Treasury serve... the role of safe asset
• 26:24
  Speaker 4: in the future? I don't know. If the proverbial you
• 26:26
  Speaker 4: know what hits the fan because people are worried about
• 26:30
  Speaker 4: these reckless deficits and astonishingly high level of debt that
• 26:35
  Speaker 4: we're running, then that could be very bad for treasuries.
• 26:38
  Speaker 4: The only safe haven might be the shortest of short-term treasury,
• 26:42
  Speaker 4: traded treasury debt, which is T-bills.
• 26:45
  Speaker 2: Here's the point.
• 26:46
  Speaker 3: These assets tend to, over a long period of time,
• 26:49
  Speaker 3: be a drag on your performance in your investments. They
• 26:52
  Speaker 3: have over time. They serve a specific purpose. But if
• 26:55
  Speaker 3: that purpose is just there because a 401k told you to,
• 27:01
  Speaker 3: or some investment advisor looked at your age and said,
• 27:05
  Speaker 3: this is the right mix for you, that might not
• 27:07
  Speaker 3: be the appropriate thing for your specific situation. If you
• 27:11
  Speaker 3: have questions about how you're set up today, how it's
• 27:13
  Speaker 3: actually going to work in your favor or not in
• 27:16
  Speaker 3: your favor in the future, please give the folks at
• 27:18
  Speaker 3: Armstrong Advisory Group a call. We start with the understanding
• 27:22
  Speaker 3: of your specific financial situation. We don't start with the investments.
• 27:26
  Speaker 3: We start with your financial plan. How are you going
• 27:28
  Speaker 3: to spend this money? When are you going to spend it?
• 27:29
  Speaker 3: What's your work plan? And from there, we help develop
• 27:33
  Speaker 3: the overall strategy. But it starts with that point, not
• 27:36
  Speaker 3: from the, you know, you don't start at the end
• 27:38
  Speaker 3: and make your way forward. You start at the beginning
• 27:40
  Speaker 3: and build that strategy over time. The phone number is
• 27:43
  Speaker 3: 800- 393-4001. You can check us out or book a
• 27:48
  Speaker 3: time for us to call you at armstrongadvisory.com.
• 27:51
  Speaker 2: But again, 800-393-4001.
• 27:53
  Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
• 27:58
  Speaker 1: registered investment advisor. Nothing in the ad or in any
• 28:00
  Speaker 1: Armstrong guide is specific financial, legal, or tax advice. Consult
• 28:03
  Speaker 1: your own financial, tax, and estate planning advisors before making
• 28:06
  Speaker 1: any investment decisions. Armstrong may contact you to offer investment
• 28:09
  Speaker 1: advisory services.
• 28:10
  Speaker 2: We have got to take a quick break.
• 28:12
  Speaker 3: When we come back, Paul LaMonica from Barron's joins us
• 28:15
  Speaker 3: right after this on the Financial Exchange.
• 28:31
  Speaker 1: Remember, you can watch the show live every day on
• 28:34
  Speaker 1: our YouTube page. We've got market updates and breaking business
• 28:38
  Speaker 1: news all morning long, plus a full archive of all
• 28:41
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• 28:43
  Speaker 1: a button at youtube.com slash the Financial Exchange Show. Ladies
• 28:48
  Speaker 1: and gentlemen, the weekend.
• 28:57
  Speaker 3: Joining us now is Paul LaMonica from Barron's here on
• 29:01
  Speaker 3: his weekly segment. Talk a little bit about the really
• 29:05
  Speaker 3: one earnings call that we got this week from Micron
• 29:08
  Speaker 3: and the surrounding sector.
• 29:09
  Speaker 2: Paul, thanks for joining us. Appreciate it.
• 29:11
  Speaker 7: Thank you very much.
• 29:12
  Speaker 3: So we have seen one of the most successful ETF
• 29:15
  Speaker 3: launches really ever here with the Roundhill Memory ETF that
• 29:22
  Speaker 3: you write about this week. Some $ 26 billion in AUM
• 29:28
  Speaker 3: in six months, which I suppose, of course, an AI-related
• 29:32
  Speaker 3: ETF is this successful. But what's in this thing and
• 29:36
  Speaker 3: what have we seen from it since its launch?
• 29:39
  Speaker 6: Yeah, staggering. success.
• 29:41
  Speaker 7: It has surged since launch. launching, you know, and this
• 29:46
  Speaker 7: has the big winners of the memory chip revolution that's
• 29:52
  Speaker 7: helping to power AI. So Micron, which reported strong results
• 29:56
  Speaker 7: earlier this week, and then the two South Korean giants,
• 29:59
  Speaker 7: SK Hynix, which now has a US listing in addition
• 30:02
  Speaker 7: to their local listing, and then Samsung, which is primarily
• 30:06
  Speaker 7: a stock that you really can't own unless you're buying
• 30:09
  Speaker 7: the South Korea local shares. But having an ETF like
• 30:12
  Speaker 7: this gives people exposure. And DRAM, the ETF has surged
• 30:19
  Speaker 7: since its inception. It's cooled off in recent months, but
• 30:26
  Speaker 7: it is still more than doubled from the April launch,
• 30:30
  Speaker 7: even though it's now about 25% below the all-time high
• 30:33
  Speaker 7: from the summer.
• 30:34
  Speaker 3: So I know a number of your colleagues were covering
• 30:37
  Speaker 3: the Micron earnings themselves and wrote about it this week.
• 30:40
  Speaker 3: From what I recall the day of, fairly solid earnings
• 30:44
  Speaker 3: that just barely budged the stock. Are they falling into
• 30:47
  Speaker 3: that territory now where it really just has to go
• 30:51
  Speaker 3: well above and beyond to impress investors?
• 30:54
  Speaker 7: It seems that way. I mean, I think there are
• 30:56
  Speaker 7: some concerns about whether or not we're getting close to
• 31:01
  Speaker 7: a cyclical peak, whether or not margins can go any
• 31:05
  Speaker 7: higher than they already are. And even though the valuation
• 31:09
  Speaker 7: looks pretty low, that it's a single digit PE, a
• 31:13
  Speaker 7: lot of people in the chip industry point out that
• 31:17
  Speaker 7: You know, when the stocks are looking historically cheap, that's
• 31:21
  Speaker 7: usually a time of a top because the earnings may
• 31:25
  Speaker 7: not grow much more dramatically. That being said, I mean,
• 31:29
  Speaker 7: when you look at just Micron's numbers, you know, it's
• 31:35
  Speaker 7: hard to imagine that there's going to be a massive
• 31:38
  Speaker 7: slowdown in earnings anytime soon. So I think that for
• 31:42
  Speaker 7: the next quarter in 2027, you know, profits can continue
• 31:46
  Speaker 7: to grow, you know, pretty, pretty rapidly. And that could
• 31:50
  Speaker 7: support the stock price. You know, the question is going
• 31:52
  Speaker 7: to be whether or not any of these other ETFs,
• 31:55
  Speaker 7: these kind of copycat memory stock ETFs that have launched
• 32:00
  Speaker 7: in the wake of DRAM, will they be successful now
• 32:02
  Speaker 7: as well? They had maybe bad timing. A lot of
• 32:05
  Speaker 7: them came out in mid-June just as, you know, Micron
• 32:08
  Speaker 7: stock was peaking.
• 32:10
  Speaker 3: Yeah, I doubt there's a lot of long-term Micron investors
• 32:13
  Speaker 3: who are terribly disappointed from this week's performance. The stock's
• 32:16
  Speaker 3: up 488% over the course of the last 12 months.
• 32:20
  Speaker 3: You talked about something, you know, how do we detect
• 32:23
  Speaker 3: the potential peak here? And I don't mean the peak
• 32:25
  Speaker 3: in the stock prices, but what signals could we hypothetically
• 32:30
  Speaker 3: get that the surge in spending can't continue. I mean,
• 32:35
  Speaker 3: I remember over a year ago now talking about some
• 32:38
  Speaker 3: of the private credit stuff that was blowing up and, oh,
• 32:41
  Speaker 3: could this bleed into borrowing rates for the major hyperscalers?
• 32:46
  Speaker 2: Hint, it didn't. We've been looking at the computer and.
• 32:50
  Speaker 3: Infrastructure category and technology category of GDP and seeing that
• 32:55
  Speaker 3: continuing to grow, although slowing, I think, in the most
• 32:58
  Speaker 3: recent quarter. or increasing in the most recent quarter. I mean,
• 33:01
  Speaker 3: what else are people looking at here for the ever
• 33:05
  Speaker 3: important hint of can this spending continue to surge?
• 33:10
  Speaker 7: Yeah, I think there are some legitimate worries about the
• 33:13
  Speaker 7: increased use of debt by some of the hyperscalers to
• 33:18
  Speaker 7: fund these purchases and whether or not that is sustainable.
• 33:21
  Speaker 7: There are questions maybe about Oracle in particular, whether they
• 33:27
  Speaker 7: are able to continue spending as aggressively. But Oracle seems
• 33:33
  Speaker 7: to be the anomaly. When you look at many of
• 33:36
  Speaker 7: the other hyperscalers, Microsoft, Alphabet, Amazon, Meta, their balance sheets
• 33:44
  Speaker 7: are still pretty pristine. And even if they are taking
• 33:47
  Speaker 7: on a little bit of debt, they have so much
• 33:50
  Speaker 7: cash that they are able to probably continue funding from
• 33:53
  Speaker 7: cash flow a lot of their spending on AI. And
• 33:59
  Speaker 7: I think a big tell is going to be when
• 34:02
  Speaker 7: NVIDIA reports its next earnings in a few months, just
• 34:06
  Speaker 7: whether or not these companies are still spending aggressively on chips.
• 34:12
  Speaker 7: So I think for now, the hyperscalers seem to be
• 34:15
  Speaker 7: in a strong enough position that they will want to
• 34:17
  Speaker 7: continue spending on CapEx for AI-related investments.
• 34:23
  Speaker 3: Paul and Monica from Barron's joining us today to talk
• 34:25
  Speaker 3: about micron earnings, the memory sector as a whole.
• 34:30
  Speaker 2: Paul, thanks so much for joining us. Appreciate it. We
• 34:31
  Speaker 2: will talk again soon.
• 34:33
  Speaker 1: Thanks.
• 34:33
  Speaker 6: Have a good weekend, guys.
• 34:34
  Speaker 2: You too.
• 34:36
  Speaker 3: I'm going to try and cover this next story without
• 34:39
  Speaker 3: Tucker needing to bleep me out because it actually makes
• 34:42
  Speaker 3: me furious. Social Security claiming ages may get new names.
• 34:48
  Speaker 2: Congress.
• 34:50
  Speaker 3: the Senate specifically, is working on passing the Claiming Age
• 34:53
  Speaker 3: Clarity Act. It would not fix any of the problems
• 34:56
  Speaker 3: with Social Security. It would not fund it more. It
• 34:58
  Speaker 3: would not raise taxes. It would not decrease benefits in
• 35:00
  Speaker 3: order to shore up the trust fund. Instead, it would
• 35:05
  Speaker 3: rename the different ages at which you can claim Social Security,
• 35:09
  Speaker 3: which I don't know a better way of describing rearranging
• 35:14
  Speaker 3: the chairs on the Titanic.
• 35:17
  Speaker 2: Are you kidding me?
• 35:19
  Speaker 3: This is where Congress is spending its time because they
• 35:22
  Speaker 3: cannot agree on anything. So the full retirement age is
• 35:28
  Speaker 3: what we would refer to for most everybody today. If
• 35:32
  Speaker 3: you're not already retirement age, your full retirement age is
• 35:35
  Speaker 3: 67 years old. They want to change that to the
• 35:37
  Speaker 3: standard full retirement age.
• 35:40
  Speaker 4: It's NRA right now, right? Normal retirement age.
• 35:42
  Speaker 2: Yeah, normal, full, something like that.
• 35:43
  Speaker 4: Which is pretty catchy. NRA is pretty catchy.
• 35:46
  Speaker 3: They want to change it to minimum, standard, and maximum.
• 35:49
  Speaker 3: And this bill would do that. So thank you for
• 35:52
  Speaker 3: clearing that one up, Congress. I'm proud of you for
• 35:56
  Speaker 3: passing such transformative action on Social Security. And let's just
• 36:00
  Speaker 3: keep heading straight towards that iceberg.
• 36:02
  Speaker 4: Are we in the age of superficial Band-Aid type? I
• 36:06
  Speaker 4: know that's redundant. Somebody told the president it would be
• 36:08
  Speaker 4: a good idea to name artificial intelligence, which sounds kind
• 36:10
  Speaker 4: of innocuous. as superintelligence. So throughout the government, this rebranding
• 36:15
  Speaker 4: has taken place. As if that's supposed to allay our fears.
• 36:18
  Speaker 4: Does superintelligence, I'm sorry, different topic. Do you feel better
• 36:21
  Speaker 4: or less about the alleged existential threat?
• 36:23
  Speaker 2: Good question.
• 36:24
  Speaker 4: From superintelligence versus artificial intelligence?
• 36:27
  Speaker 2: I feel a little bit better. Which is more threatening?
• 36:28
  Speaker 3: I feel a little bit better about humanity being wiped
• 36:30
  Speaker 3: out by superintelligence over artificial intelligence.
• 36:33
  Speaker 4: Because they deserve it?
• 36:34
  Speaker 6: Yeah.
• 36:34
  Speaker 4: Because they're super?
• 36:35
  Speaker 2: Yeah, they're super.
• 36:36
  Speaker 4: Which literally means above, right? Super is above.
• 36:38
  Speaker 1: Yeah.
• 36:38
  Speaker 4: So super relative I guess they mean to us I
• 36:41
  Speaker 4: don't feel like that's a less threatening moniker artificial which
• 36:45
  Speaker 4: seems kinda benign like clinical oh yeah well it's not
• 36:48
  Speaker 4: a brace on organic brain it's artificial similar Mike I
• 36:54
  Speaker 4: stagecraft here like theatrics not actually addressing a problem relabeling
• 36:59
  Speaker 4: and hoping we're all stupid enough to think that they're
• 37:02
  Speaker 4: actually taking step.
• 37:03
  Speaker 3: Was from Senator Bill Cassidy Republican from Louisiana The Senate
• 37:08
  Speaker 3: passing the bill is great news for Americans making decisions
• 37:12
  Speaker 3: about their Social Security benefits.
• 37:13
  Speaker 2: You're right.
• 37:14
  Speaker 3: This really solves all the problems here because now I
• 37:18
  Speaker 3: know when claiming my maximum benefit that it will still
• 37:22
  Speaker 3: be cut by 23% five years from now.
• 37:24
  Speaker 2: This Congress, worst.
• 37:25
  Speaker 4: In my lifetime and best in my lifetime with the
• 37:28
  Speaker 4: Gingrich Congresses of the late 90s, cut spending, worked with
• 37:32
  Speaker 4: a Democrat president. We had surpluses for four years. This
• 37:35
  Speaker 4: Congress has... In defiance of the Treasury Secretary, who I
• 37:38
  Speaker 4: believe would love to wave a wand if he could
• 37:40
  Speaker 4: and cut deficits, they've done nothing about spending. They've done
• 37:43
  Speaker 4: nothing about entitlements, which are just future spending. They want
• 37:46
  Speaker 4: interest rates down. They've got a lever to pull. They've
• 37:49
  Speaker 4: done nothing. They're pathetic. They deserve to get thrown out.
• 37:52
  Speaker 4: God help us with what might be coming. These people
• 37:54
  Speaker 4: deserve to lose their seats.
• 37:57
  Speaker 2: I am just disgusted by this.
• 37:58
  Speaker 4: Have a great weekend.
• 37:59
  Speaker 2: Yeah.
• 38:00
  Speaker 3: There's other good news out there. Markets remain in positive territory.
• 38:03
  Speaker 3: We've got the NASDAQ still up over 1%. The S
• 38:06
  Speaker 3: & P up two-thirds.
• 38:08
  Speaker 2: Of a percent.
• 38:08
  Speaker 3: And the Dow Jones Industrial up a third. We will
• 38:11
  Speaker 3: be back at it on Monday. Have a great rest
• 38:13
  Speaker 3: of your weekend, folks. We will see you then.