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What does AI think about the unreleased jobs report? · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
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Speaker 1: Zada and Mike Armstraw.
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Speaker 2: Chuck, Mike and been here with you today on a
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Speaker 2: job's Friday. The only difference is we don't have a
1:17
Speaker 2: job report because of the government shutdown. The estimates that
1:23
Speaker 2: were out there and I guess still are out there,
1:26
Speaker 2: were that non farm payrolls would see a fifty thousand
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Speaker 2: person rise, the unemployment rate would stay at four point
1:34
Speaker 2: three percent, average hourly earnings would be ap point three
1:38
Speaker 2: percent for the month, three point seven percent year over
1:41
Speaker 2: year labor force participation rate was expected to stay at
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Speaker 2: sixty two point three percent, and the U six underemployment
1:50
Speaker 2: rate expected to remain at eight point one percent. So
1:55
Speaker 2: that's what the expectations were heading into today. And obviously,
1:59
Speaker 2: as we say it here right now, there is no
2:02
Speaker 2: BOLS government jobs report in front of us. But Mike
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Speaker 2: and I didn't let that stop us. No. Instead, Mike
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Speaker 2: and I did what any enterprising young person does these days.
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Speaker 2: It turned on they turned down their AI and said, hey,
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Speaker 2: what do you think is gonna happen? So here's uh,
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Speaker 2: we're doing this. We're actually doing this just because again
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Speaker 2: we have no jobs report. And so Mike, here's here's
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Speaker 2: the prompt that I gave chat GPT. Okay, create me
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Speaker 2: data for the jobs report do from the BOLS that
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Speaker 2: will not be released because of the government shutdown estimate
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Speaker 2: based on prior trends. That's it. That's that's what I
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Speaker 2: put in. Would you like would like my prompt?
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Speaker 3: I would using data from the ADP Employment Report found here.
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Speaker 3: I provided the link, and uh the Revellio Employment Report
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Speaker 3: found here. Again provided the link. Please run an analysis
2:58
Speaker 3: using that your data says compared their correlation to the
3:00
Speaker 3: monthly jobs report from the BLS, and then based on that,
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Speaker 3: please put together prediction for the September jobs report. I'd
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Speaker 3: like to know how many jobs you predict were created
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Speaker 3: or lost in September, along with the unemployment rate. So
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Speaker 3: I didn't ask for wages. I just asked for rate
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Speaker 3: and jobs created or lost.
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Speaker 2: I didn't ask for anything else. But I got a
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Speaker 2: whole bunch of stuff in here that it gave me. So, Mike,
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Speaker 2: what was the payroll number that your AI spit out.
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Speaker 2: It spat out twenty three thousand jobs created, So total
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Speaker 2: payroll change of plus twenty three thousand in the non
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Speaker 2: farm payroll numbers, I got plus fifteen. So pretty closest
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Speaker 2: in the margin era. Yeah, okay, so pretty close there
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Speaker 2: below the estimate of fifty thousand. But I guess our
3:45
Speaker 2: ais are just a little bit pessimistic today. Yep, did
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Speaker 2: yours do private payrolls? Did it split that out or no? Nope,
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Speaker 2: just headline. Okay, mine did split out private payrolls, which
3:56
Speaker 2: actually had private payrolls declining by twenty five thousand, but
3:59
Speaker 2: government up four forty thousand because of new hiring for
4:03
Speaker 2: state and local governments heading into the start of school season.
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Speaker 2: I don't know that this necessarily incorporates good seasonal adjustments
4:12
Speaker 2: because typically that stuff is not picked up this time
4:15
Speaker 2: of year. But the rationale, it did provide its rationale.
4:19
Speaker 2: It said, look, ADP showed a private drop, and so
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Speaker 2: we're gonna go with that. So it explained how it
4:24
Speaker 2: got there.
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Speaker 3: Yeah, reasonable, And yeah, the ADP showed that, and so
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Speaker 3: I can see how the AI got there.
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Speaker 2: Unemployment rate Mike came in at four point three percent.
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Speaker 2: The reasoning it said that the Chicago FEDS real time
4:37
Speaker 2: now cast, which they just released about a month ago,
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Speaker 2: shows steady unemployment, so it did not pick up any
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Speaker 2: jump in unemployment.
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Speaker 3: Yeah, I got four point four percent, and quite honestly,
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Speaker 3: it didn't give me a whole lot of rational than
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Speaker 3: twenty three thousand payroll gains is pretty small relative to population,
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Speaker 3: and therefore, looking at an uptick in unemployment rate labor.
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Speaker 2: Force participation, I got flat at sixty two to three.
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Speaker 2: Same with employment to population ratio, flat at fifty nine six.
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Speaker 2: Net revisions to July and August thirty thousand negative was
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Speaker 2: what this said. Based on the recent softening trend and
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Speaker 2: downside revisions suggests a potential for a small net negative
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Speaker 2: revision here as well. That'd be pretty bad. So that
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Speaker 2: was in there. Other things that we had in here.
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Speaker 2: It did talk about ADP, It talked about jolts, YadA YadA. Yeah,
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Speaker 2: that's basically it. It did say, look, there's a pretty
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Speaker 2: good chance that this could be off by seventy five
5:39
Speaker 2: thousand in either direction. And so understand that you know
5:42
Speaker 2: this estimate is not perfect. But ultimately we don't have
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Speaker 2: a job report today. And so the reason that Mike
5:48
Speaker 2: and I asked this is not because we think that
5:50
Speaker 2: these numbers are right. They're not. They're not based on
5:55
Speaker 2: any survey. They are fundamentally wrong. But what they are
5:58
Speaker 2: based on is the data that is out there from
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Speaker 2: other data sources that suggests where this report could come
6:07
Speaker 2: in based on you know, historical relationships and things along
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Speaker 2: those lines. And so that's I think the reason why
6:14
Speaker 2: we wanted to do this was not because we think
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Speaker 2: this proves anything about AI, Like, I don't know if
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Speaker 2: this is you know, correct, It never will be correct
6:22
Speaker 2: because there isn't going to be a September jobs report,
6:24
Speaker 2: it will not exist. What I think this does help
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Speaker 2: us to do is use something other than our own
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Speaker 2: brains to say, hey, is there anything that you know
6:35
Speaker 2: we might be looking at it that needs to be incorporated.
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Speaker 2: And this is how economists and the FED, by the way,
6:40
Speaker 2: are going to go about trying to piece together what
6:43
Speaker 2: they think is going on in the jobs market through
6:45
Speaker 2: their own models and own you know, assessments. They're gonna
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Speaker 2: pull from these other sources to try to figure out
6:52
Speaker 2: what may or may not be happening in the absence
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Speaker 2: of this job report. So that was really the purpose
6:58
Speaker 2: of this was just to show how you can kind
7:01
Speaker 2: of look at this and pull together what you know
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Speaker 2: could be a projection or set of projections for a
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Speaker 2: job's report in the absence of one that's actually being delivered. Chuck.
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Speaker 3: That's a very nice way of explaining that you and
7:13
Speaker 3: I were both having jobs report withdrawals, and our hands
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Speaker 3: were shaking until we could report something about jobs.
7:19
Speaker 2: I mean, look, here's the thing. At eight thirty this morning,
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Speaker 2: I'm sitting there on the BLS website just clicking refresh, Refresh, refresh, and.
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Speaker 3: One small tier dripped down into Chuck's beard as he
7:30
Speaker 3: was hitting refresh at eight thirty one, and nothing was coming.
7:33
Speaker 2: So this is where we stand right now with regards
7:36
Speaker 2: to the government's shutdown. Still no signs of any breaking
7:41
Speaker 2: of the deadlock. And someone asked me this morning, Mike,
7:46
Speaker 2: how long do you think this puppy's gonna go? In
7:48
Speaker 2: my understandials, I got no freaking clue. Like, I have
7:51
Speaker 2: no idea. It could be over early next week, it
7:54
Speaker 2: could be over in six years. It probably won't be
7:58
Speaker 2: six years, but like reasonably, when we look at this,
8:02
Speaker 2: the online betting markets that are out there right now
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Speaker 2: are betting on somewhere in the ballpark of like fifteen days.
8:07
Speaker 2: That's kind of what we're up to. Remember, the last
8:10
Speaker 2: shutdown that we had at the end of twenty eighteen,
8:12
Speaker 2: was the longest one that we've ever had. It was
8:14
Speaker 2: thirty four days. And the thing that eventually broke that
8:19
Speaker 2: government shut down and you know, kind of got everything
8:22
Speaker 2: moving again was the fact that remember, government workers, even
8:27
Speaker 2: the ones that are you know, doing their jobs, they're not, like,
8:30
Speaker 2: you're not getting paychecks. And so ultimately it was the
8:35
Speaker 2: combination of air traffic controllers and TSA agents that pretty
8:40
Speaker 2: much said, look like, we got to call up because
8:42
Speaker 2: we have to go do something else in order to
8:44
Speaker 2: pay the bills because there's no money coming in. And
8:47
Speaker 2: once you get something visible like that showing up where
8:51
Speaker 2: you have you know, more aircraft being delayed and you know,
8:55
Speaker 2: things along those lines, that's where you start to see
8:58
Speaker 2: a break if this goes longer term. So the the
9:03
Speaker 2: two landmarks that I have in my head are October fifteenth,
9:08
Speaker 2: because that's gonna be the first government payroll after the shutdown,
9:12
Speaker 2: and then start of start of not February, start of November,
9:18
Speaker 2: since that is when you will now have two missed
9:21
Speaker 2: pay periods that you're looking at for government workers. And
9:25
Speaker 2: so I think those are my two landmarks as far
9:28
Speaker 2: as how long this could go. If it's you know,
9:32
Speaker 2: could there be a resolution sooner. Yeah, there could be
9:34
Speaker 2: one next week. Like, I have no idea, But right
9:37
Speaker 2: now you basically have you know, everyone in Congress and
9:41
Speaker 2: related to government, like trading memes on you know, social
9:44
Speaker 2: media about you know this that, and everything related to
9:47
Speaker 2: the shutdown. It doesn't seem like there's much progress being
9:50
Speaker 2: made right now. Sure doesn't.
9:51
Speaker 3: Yeah, and it doesn't seem like there's a lot of
9:53
Speaker 3: pressure from constituents to get something done right now.
9:56
Speaker 2: No, And again, the estimates each week you probably see
9:59
Speaker 2: about a onero point one percent reduction in GDP for
10:05
Speaker 2: as long as the shutdown goes on. So again, if
10:07
Speaker 2: it's three four days, it's in, it's negligible. Even if
10:11
Speaker 2: it goes for a week, basically no impact. You start
10:15
Speaker 2: getting into like three four weeks, it's like, okay, like
10:17
Speaker 2: there's there's a meaningful impact to GDP that happens then.
10:21
Speaker 2: But we're in day three of this puppy, So let's
10:23
Speaker 2: not you know, let's not assume this thing is going
10:26
Speaker 2: to go that long. I think that we'll just have
10:29
Speaker 2: to take it as it comes and see what the
10:31
Speaker 2: potential economic impacts are. Let's take a quick break here,
10:36
Speaker 2: and when we come back. We've had some weakness in
10:39
Speaker 2: jobs over the last few months, but are there signs
10:44
Speaker 2: that increased productivity is making up for that when it
10:47
Speaker 2: comes to economic growth. We'll discuss when we return.
10:51
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10:58
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11:24
Speaker 2: We got a piece from the Wall Street Journal. Today's
11:29
Speaker 2: title is behind job Weakness, Our hints of a productivity
11:33
Speaker 2: revival is ai the reason? What's the case made in
11:37
Speaker 2: this piece?
11:37
Speaker 3: Mic GDP is going up and employment is, as far
11:42
Speaker 3: as we know, not moving up terribly quickly, or perhaps
11:45
Speaker 3: even moving down. So if you've got the economy growing
11:48
Speaker 3: at the same time as you have fewer hours being worked,
11:52
Speaker 3: that leads you to really only one conclusion.
11:55
Speaker 2: Right then employees are being more productive. Yeah, that's what
11:59
Speaker 2: I'm getting net. So when we look at this, the
12:03
Speaker 2: basically the case that is being made here is, Hey,
12:07
Speaker 2: you had you know, the second quarter the GDP growth
12:11
Speaker 2: that we saw was you know, stronger than a lot
12:15
Speaker 2: of people anticipated, even though payroll growth was pretty muted.
12:19
Speaker 2: And so it's basically saying, look, if that's something that continues,
12:23
Speaker 2: then you are going to see you know, productivity be
12:27
Speaker 2: what fills the gap. And because of all this spending
12:29
Speaker 2: on AI, is it reasonable then to assume that this
12:32
Speaker 2: is happening because of you know AI. It is AI
12:37
Speaker 2: driving that productivity boost.
12:39
Speaker 3: Is technological advancement making all of us more efficient.
12:43
Speaker 2: And it's it's a reasonable theory. I think you need
12:48
Speaker 2: more than a quarter of economic data to be able
12:51
Speaker 2: to prove it.
12:52
Speaker 3: Well, so can we walk through and I don't have
12:55
Speaker 3: the answer here, but Chuck, what would be the alternative
12:57
Speaker 3: alternative explanations to GDP going up at the same time
13:01
Speaker 3: that employment is moving the other direction?
13:03
Speaker 2: Not unheard of, No, the things that you could see.
13:05
Speaker 2: It could be related to changes in inventories, imports, and exports,
13:09
Speaker 2: which call me crazy, but I think we've seen some
13:12
Speaker 2: pretty sizable shifts on those fronts this year. Yeah. Yeah,
13:15
Speaker 2: there's been some terror stuff going on, so it could
13:18
Speaker 2: be just related to that and how that impacts you know,
13:21
Speaker 2: the GDP data that we get. Other things that you
13:25
Speaker 2: could be seeing. It could be an increase in productivity
13:29
Speaker 2: due to economies of scale that you get from what
13:34
Speaker 2: you're doing in the economy. The example I would give
13:36
Speaker 2: right now, Hey, Mike, is it more productive to build
13:39
Speaker 2: a really small data center or a really big one?
13:42
Speaker 2: A really big one because you get all kinds of
13:44
Speaker 2: economies of scale, which is why you build giant data
13:47
Speaker 2: centers and not small ones. And we're building a lot
13:49
Speaker 2: of big ones right now, and we've even shown the
13:52
Speaker 2: impact that that's had on overall GDP because the shift
13:56
Speaker 2: in data center construction is big enough that you can
13:59
Speaker 2: measure it in terms of GDP growth.
14:01
Speaker 3: Now, I'd also be willing to bet that if you
14:03
Speaker 3: are building a giant data center, you are more efficient
14:08
Speaker 3: on a dollar by dollar basis than say, building a house.
14:12
Speaker 2: Sure, so I think curves, fancy roof lines. No, it's
14:17
Speaker 2: just big rectangles, not cubes. What's what's the what's the
14:22
Speaker 2: three D version of a rectangle? Mike? Do we have
14:26
Speaker 2: a word for that? I don't know. Do we have
14:29
Speaker 2: to make this up again? Three D version of rectangle? Name?
14:35
Speaker 3: You can't use a cube to describe that as a
14:37
Speaker 3: cube definitively just a square.
14:40
Speaker 2: A cube is definitively.
14:41
Speaker 4: Like rectangular prism, also known as a cuboid.
14:46
Speaker 2: Cuboid. I like cuboid. You're a cuboid. Yeah sounds like
14:50
Speaker 2: a boy band name, right, it does. Uh So in
14:53
Speaker 2: any case, I think that this is a theory that
14:56
Speaker 2: we can, you know, keep out there and say, hey,
14:59
Speaker 2: let's see how this evolves over the next I think
15:03
Speaker 2: twenty four months. I think like, if you have a
15:05
Speaker 2: couple of years of this, then we can point to it.
15:07
Speaker 2: If it's a few quarters, I'm not sure there's anything there. Yeah,
15:12
Speaker 2: But I mean, look, this is this is why people
15:15
Speaker 2: are interested in AI. This is the make us more productive.
15:18
Speaker 2: This is the only promise that AI has is.
15:21
Speaker 3: Yeah, it does cool things, and there's all these sorts
15:23
Speaker 3: of dreams. But if you're looking to you know, boil
15:26
Speaker 3: it all down to one point, it's will this technology
15:30
Speaker 3: make us more efficient at the work that we do?
15:34
Speaker 3: And if so, then that's the holy grail which is
15:38
Speaker 3: possibly worth the investment, right, which which, by the way,
15:40
Speaker 3: is the whole thing with any kind of technological advancement
15:44
Speaker 3: is can I do more with less?
15:47
Speaker 2: Right? If you look at construction and the introduction of
15:50
Speaker 2: power tools, the answer was yes, I can do a
15:53
Speaker 2: lot more with less. So this for you know, people
15:57
Speaker 2: who sit in front of a computer screen, whether it's coding, writing, handling,
16:04
Speaker 2: you know, numbers, this that, whatever it might be, can
16:07
Speaker 2: it allow you to do more than you would previously
16:12
Speaker 2: have done such that costs come down and either those
16:15
Speaker 2: cost savings can be passed on in the form of
16:18
Speaker 2: higher living standards to everyone else, or profit margins expand
16:22
Speaker 2: and those additional profits then can be reinvested into additional
16:27
Speaker 2: technological growth or distributed out to shareholders in the form
16:31
Speaker 2: of additional wealth. Right, that's what you're looking for out
16:35
Speaker 2: of this. It's to this point, Mike, I would say,
16:38
Speaker 2: based on the overall data that we have, I don't
16:42
Speaker 2: think there are any conclusive facts and evidence that point
16:45
Speaker 2: to AI having a meaningful higher productivity impact that we
16:49
Speaker 2: can ascertain in the broad economy. We can certainly point
16:53
Speaker 2: to individual jobs and uses. I don't think that we
16:57
Speaker 2: have anything conclusive that says, yes, this is showing up
17:00
Speaker 2: broadly in the economic data yet. Yeah. I can agree
17:03
Speaker 2: with you there it may, but we're not there yet.
17:07
Speaker 2: Let's see great piece from Barons, actually why the stock
17:10
Speaker 2: market keeps going up even during a government shutdown, Mike.
17:13
Speaker 2: The best example that I've seen of this is if
17:16
Speaker 2: you have a sports team that you like, specifically, like
17:22
Speaker 2: you're an NFL fan, Sure, if you've got questions about
17:26
Speaker 2: how your team's doing, they've been on like a recent
17:27
Speaker 2: losing streak, kind of like the jobs reports have been
17:30
Speaker 2: weak recently. Yeah, the National Football League got it. Guess
17:33
Speaker 2: what you can't lose on a bye week. If there's
17:37
Speaker 2: no news that's being published, what do you trade on? Like?
17:40
Speaker 2: What what do you sell on? Because ultimately, the reason
17:45
Speaker 2: for investors to make any investing decision is because of
17:47
Speaker 2: a story that they tell themselves. It could be a
17:49
Speaker 2: story about valuation, a story about a founder, a story
17:52
Speaker 2: about economic data, whatever it might be. You tell yourself
17:56
Speaker 2: a story as to why you're gonna do that. If
17:59
Speaker 2: there is there's no news that is being released, what,
18:05
Speaker 2: like you, you can't trade on that, it doesn't exist.
18:09
Speaker 2: And so in the absence of bad news being released,
18:13
Speaker 2: generally people invest in the market for one reason, and
18:16
Speaker 2: that is to make money.
18:18
Speaker 3: I guess it helps me fight against that old phrase
18:22
Speaker 3: that markets hate uncertainty, not really.
18:26
Speaker 2: A resolution of uncertainly. We're getting a big dose of uncertainty.
18:29
Speaker 3: Right now, we don't know how many jobs were created
18:31
Speaker 3: for the month of September, we don't know the unemployment
18:34
Speaker 3: rate currently, we don't know when a government shutdown will.
18:38
Speaker 2: End, and markets are doing just fine. So yeah, I'm
18:43
Speaker 2: with you.
18:43
Speaker 3: They don't like when that uncertainty resolves into something that
18:47
Speaker 3: is pretty ugly for the markets and the economy.
18:49
Speaker 2: But the uncertainty itself, right, if the uncertainty can't resolve,
18:56
Speaker 2: why would you do anything, right? I think that's kind
18:59
Speaker 2: of where you end up getting to when when it's
19:02
Speaker 2: all said and done on this. So that is again,
19:06
Speaker 2: I thought this was I thought this was a really
19:08
Speaker 2: good piece by Barons there when we look at it.
19:12
Speaker 2: Let's take a quick break here and when we return,
19:17
Speaker 2: I want to talk about this piece from the Bloomy
19:21
Speaker 2: Berg and it's by Bill Dudley. Hugh used to be
19:24
Speaker 2: the president of the New York Fed. It's titled maybe
19:29
Speaker 2: the Fed shouldn't be cutting interest rates. We'll discuss when
19:32
Speaker 2: we're back.
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19:54
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19:57
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20:01
Speaker 4: Well, it's day three of the government shutdown and markets
20:04
Speaker 4: are on the rise. The Dow Jones is up over
20:06
Speaker 4: four hundred points or point eight seven percent. The S
20:09
Speaker 4: and P five hundreds up over twenty four points, a
20:12
Speaker 4: little over three tens of a percent in the Nasdaq
20:15
Speaker 4: just barely positive, up six one hundreds of a percent.
20:19
Speaker 4: Russell two thousand is also up over a percent. Rare
20:23
Speaker 4: Earth Minor USA Rare Earth is up twenty two percent
20:26
Speaker 4: after CEO Barbara Humpton told CNBC that the company is
20:30
Speaker 4: in quote close communication with the White House. Game Stop
20:34
Speaker 4: shares are down three percent after the company said in
20:36
Speaker 4: a filing it's selling a combination of assets ranging from
20:39
Speaker 4: common stock to debt for an undisclosed amount. Applied Material
20:43
Speaker 4: shares are off two and a half percent after the
20:46
Speaker 4: company acknowledged in a regulatory filing that new US export
20:50
Speaker 4: restrictions will hurt revenue. Applied Materials said the restrictions will
20:53
Speaker 4: lower fourth quarter revenue by about one hundred and ten
20:55
Speaker 4: million dollars and its fiscal year twenty twenty six revenue
20:59
Speaker 4: by around six one hundred million dollars. Uranium Energy is
21:03
Speaker 4: down three and a half percent after planning a secondary
21:05
Speaker 4: offering of fifteen point five million shares. Goldman Sachs is
21:09
Speaker 4: the sole underwriter of that Entergy shares are up two
21:13
Speaker 4: point four percent after announcing plans to provide power for
21:16
Speaker 4: Google's plan technology investment worth around four billion dollars in Arkansas.
21:21
Speaker 4: As part of the investment, Google will develop a new
21:23
Speaker 4: data center in West Memphis, Arkansas. The companies first in
21:27
Speaker 4: the state, and finally, Gordon Haskett Research Advisors upgraded Zillo
21:31
Speaker 4: to buy from hold sending the real estate platform up
21:34
Speaker 4: three point eight percent. The Wall Street researcher said the
21:37
Speaker 4: recent selloff is overdone, creating an attractive buying opportunity. Zillow
21:41
Speaker 4: has declined seventeen percent over the past two weeks on
21:44
Speaker 4: concerns regarding competitive encroachment and legal fees. I am Ben Kitchen,
21:49
Speaker 4: and that was Wallstreet Watch.
21:51
Speaker 2: Mike. We got a piece here from Bill Dudley, former
21:55
Speaker 2: president of the Federal Reserve Bank of New York, and
22:01
Speaker 2: I'll just read his opening paragraph because it basically spells
22:05
Speaker 2: out the whole thing. Should the US Federal Reserve keep
22:07
Speaker 2: cutting interest rates? Market certainly think it will. Futures prices
22:10
Speaker 2: suggest the federal funds rate will fall to about three
22:12
Speaker 2: percent by the end of twenty twenty six from just
22:14
Speaker 2: about just above four percent. Now, I'm not so sure
22:19
Speaker 2: that would be a good idea any outlines. Look, there
22:22
Speaker 2: are three reasons why the Fed would be cutting right now.
22:26
Speaker 2: Risk management. Hey, we think that we might just be
22:28
Speaker 2: a little too restrictive, so let's reduce rates to get
22:31
Speaker 2: into a more comfortable spot. Anticipation. We don't want to
22:35
Speaker 2: wait to see further deterioration in the labor market because
22:38
Speaker 2: if we do, it's already too late. And what we
22:41
Speaker 2: call estimation error. Hey, maybe we're wrong about where the
22:45
Speaker 2: neutral rate is and we need to revise where we
22:49
Speaker 2: think that is. So those are the three reasons that
22:50
Speaker 2: you talk about for cutting. What Dudley outlines in terms
22:56
Speaker 2: of hey, why would you not be cutting at this
23:01
Speaker 2: point pretty much boils down to one thing as far
23:06
Speaker 2: as I can tell, which is, Hey, inflation is still
23:09
Speaker 2: about a percentage point above the two percent target the
23:12
Speaker 2: Fed's had for recent history. If you're cutting right now
23:16
Speaker 2: with signs that inflation may already be rebounding, because second,
23:19
Speaker 2: the economy actually starts to kick into higher gear. Your
23:22
Speaker 2: risk inflation becoming a larger problem, and you've got to
23:25
Speaker 2: reverse that policy in short order. Is that the argument
23:28
Speaker 2: that he makes, that's the theory. Yeah, I mean, look
23:30
Speaker 2: a lot easier to.
23:33
Speaker 3: I guess vocalize that theory when you're not sitting in
23:36
Speaker 3: the chair of a voting sitting in the chair of
23:38
Speaker 3: a voting member. I think, obviously we see a lot
23:41
Speaker 3: more of these pieces from former FED governors than we
23:43
Speaker 3: do anything from a sitting one. So do I buy
23:47
Speaker 3: the argument, Yeah, I just I really have no idea
23:53
Speaker 3: right now which the bigger risk is. I think though
23:57
Speaker 3: that it's employment. I think the bigger risk right now
24:01
Speaker 3: is the jobs market. I think that's being confirmed by
24:03
Speaker 3: some of the private payroll data we keep getting, as
24:06
Speaker 3: well as the general attitude.
24:08
Speaker 2: Of employers right now. I tend to agree. I mean, again,
24:15
Speaker 2: could be wrong.
24:17
Speaker 3: Not saying that that justifies you know, two percentage point
24:20
Speaker 3: rate cuts, two percentage points and rate cuts. I just
24:23
Speaker 3: think that the FED is very likely at this next meeting,
24:27
Speaker 3: I think, regardless of whether or not they have CPI
24:31
Speaker 3: and this September jobs report, to keep ongoing here with
24:36
Speaker 3: lower rates until they get to about a percentage point
24:38
Speaker 3: lower than where we were this summer.
24:40
Speaker 2: And I guess where I were, Like the further we
24:43
Speaker 2: go this fall, you know that I had made a
24:47
Speaker 2: statement back in I think it was June. It was
24:50
Speaker 2: when we were starting to see like an uptick in
24:53
Speaker 2: initial unemployment claims and or no in continuing claims. I'm sorry, yeah,
24:57
Speaker 2: And I said, look, if this continues, the case for
25:00
Speaker 2: the FED is pretty ironclad to start cutting right now
25:03
Speaker 2: in that you don't want, you know, labor market weakness
25:07
Speaker 2: to become larger, because if it does, you probably don't
25:10
Speaker 2: end up having much in the way of inflation anyways, then,
25:13
Speaker 2: because recessions typically take out any inflationary impulse. If people
25:16
Speaker 2: aren't buying stuff, there's generally not much inflation that continuing
25:20
Speaker 2: claims data reversed in pretty short order, within the span
25:23
Speaker 2: of a few weeks. And I said, look, like, I
25:25
Speaker 2: don't know you need to do anything. The data for
25:28
Speaker 2: the last six weeks or so not on claims. Claims
25:31
Speaker 2: are actually completely fine right now. But the day that
25:35
Speaker 2: we've been getting the combination of ADP indeed paychecks jolts
25:40
Speaker 2: the Chicago Fed's new tracker. That's out there. It's all
25:43
Speaker 2: kind of pointing in the same direction, and that is
25:46
Speaker 2: the labor market continuing to soften and worsen. And I
25:52
Speaker 2: guess where I end up on this is, Hey, if
25:57
Speaker 2: you're worried about inflation becoming a problem nine months from now,
26:03
Speaker 2: while you have the labor market becoming a problem today,
26:09
Speaker 2: that's kind of like being like, well, it's mid May
26:13
Speaker 2: right now and pretty warm. Better put on a jacket
26:15
Speaker 2: in case it gets cold in December. Yeah.
26:19
Speaker 3: The example I give is, you know, a patient coming
26:22
Speaker 3: in with a gunshot wound and you're trying to treat
26:24
Speaker 3: their cancer, Like.
26:26
Speaker 2: They're both problems, but we need to share it. The
26:28
Speaker 2: first one. Yeah, it's it's just I think that there
26:33
Speaker 2: is a higher urgency on the jobs front right now
26:39
Speaker 2: because we're kind of on the precipice of the labor
26:44
Speaker 2: market going into a nasty place and we still may
26:47
Speaker 2: not end up going there. Like that's that's totally possible.
26:51
Speaker 2: But I'm trying to think of the last time that
26:53
Speaker 2: I looked at, you know, a piece of labor market
26:55
Speaker 2: data and was aside from weekly claims, which, again, if
26:59
Speaker 2: you're in a low high high low fire environment like
27:01
Speaker 2: weekly claims aren't gonna show a ton But aside from
27:04
Speaker 2: weekly claims, when's the last time you looked at a
27:07
Speaker 2: labor market indicator? And we're like, that is unambiguously good news.
27:11
Speaker 2: It's been a bit, right, But here's what I will say.
27:17
Speaker 3: It rings really similar to what we were dealing with
27:21
Speaker 3: last year, not to this extent, not to that that's
27:24
Speaker 3: the difference, well to yes, to this extent on the
27:28
Speaker 3: unemployment rate, right like, we did see a bigger upswing
27:32
Speaker 3: in a shorter period of time on the rate of unemployment.
27:36
Speaker 3: And I'm willing to excuse that because again we were
27:39
Speaker 3: at such an abnormally low unemployment rate back then, but correct,
27:43
Speaker 3: we did see that uptick a lot faster than we
27:45
Speaker 3: have here.
27:46
Speaker 2: And so.
27:48
Speaker 3: I guess my point would be we saw something that
27:51
Speaker 3: we have never seen in modern history last year when
27:53
Speaker 3: it comes to the unemployment rate going up by more
27:56
Speaker 3: than half percent, and then pausing, maybe we're seeing something
28:01
Speaker 3: that we haven't seen in quite some time.
28:03
Speaker 2: With the labor market now possible and again but by
28:07
Speaker 2: the end of I've said by November, but you know,
28:10
Speaker 2: by Thanksgiving, we'll know. I don't know if that's gonna
28:12
Speaker 2: be the case, given what we may or may not
28:14
Speaker 2: get for economic data over the next month. Now, so
28:17
Speaker 2: I now revise that to hey, by the end of
28:19
Speaker 2: the year, we'll know. But you got to start seeing
28:22
Speaker 2: some green shoots on the job side of things, and
28:27
Speaker 2: we're just not seeing those yet. Like there hasn't been
28:30
Speaker 2: an inflection point that we've reached there. It still is
28:34
Speaker 2: something where what you can say, the weakness in the
28:37
Speaker 2: labor market is not affecting the broader economy at all.
28:42
Speaker 2: Retail sales just fine. You look at what's going on
28:46
Speaker 2: with you know, the AI boom, it's cranking right along.
28:51
Speaker 2: The housing market is weak. With the housing market, it's
28:53
Speaker 2: been weak for the last two years. And this is
28:55
Speaker 2: not a new phenomenon. So I don't think that you
28:58
Speaker 2: can point to what's going on labor market and say
29:01
Speaker 2: this is causing problems X, Y, and z in the
29:03
Speaker 2: economy because it's not showing up anywhere else yet. Which
29:07
Speaker 2: gets back to the conversation we had yesterday of hey,
29:10
Speaker 2: are we less dependent on labor income to drive the
29:13
Speaker 2: economy now than at any other point in history? And
29:16
Speaker 2: the answer there could very well be maybe, which then
29:20
Speaker 2: raises the question should the FED be cutting if this
29:23
Speaker 2: doesn't matter.
29:24
Speaker 3: As much, Yeah, let's take a break, and then I
29:27
Speaker 3: want to come back with that because ultimately we're worried
29:30
Speaker 3: about a recession of what that does to the entire
29:32
Speaker 3: economy and are we actually seeing signs of that. That's
29:36
Speaker 3: next year on the Financial Exchange.
29:39
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30:41
Speaker 2: Mike. Last segment, we were talking about, Hey, the labor
30:44
Speaker 2: market's showing some real signs of weakness. But then raise
30:47
Speaker 2: the question, hey, if it's not showing up in the
30:50
Speaker 2: broader economic data. And the main reason that historically you
30:57
Speaker 2: want to try to maintain full employment. I guess there's two,
31:00
Speaker 2: depending on you know, which perspective you're looking at. A
31:02
Speaker 2: you don't want, you know, in generally, you just don't
31:05
Speaker 2: want a bunch of people to be unemployed. It creates
31:07
Speaker 2: problems for their families and for you know, larger society
31:10
Speaker 2: as a whole. But also the reason that the FED
31:12
Speaker 2: cares about is it generally causes you know, recession. And
31:16
Speaker 2: so I guess the question is, hey, if if lower
31:19
Speaker 2: employment growth no longer necessarily is that direct path to recession?
31:25
Speaker 2: Which is a big If we're still not convinced that,
31:28
Speaker 2: then is there the case that maybe the FED doesn't
31:31
Speaker 2: need to be doing anything right now?
31:32
Speaker 3: Yeah, so that's a really complicated question, and I'm with you,
31:36
Speaker 3: I don't buy it, I know, But what we can
31:39
Speaker 3: say is that higher unemployment is not usually what leads
31:45
Speaker 3: us into a recession.
31:46
Speaker 2: No, it usually comes last. It's a lagging indicator. The
31:50
Speaker 2: reason being you don't stop hiring because you're nervous about
31:53
Speaker 2: a recession. You stop hiring because demand slows down for you,
31:58
Speaker 2: and you say, I don't need as many people. So
32:00
Speaker 2: and is what leads labor.
32:02
Speaker 3: Right, And so in some ways, I guess I look
32:06
Speaker 3: at this period of time and say, Okay, you know,
32:08
Speaker 3: it could just be a slowdown that again finds a
32:11
Speaker 3: new normal, in which case does the FED need to
32:13
Speaker 3: be cutting rates here?
32:16
Speaker 2: Yeah?
32:17
Speaker 3: It is really tough to look at and say, oh, yeah,
32:20
Speaker 3: the FED needs to be dramatically lower.
32:22
Speaker 2: With their interest rates setting policy right now. Because the
32:25
Speaker 2: thing is, if you look at demand and where it's
32:27
Speaker 2: coming from now. On the consumer side, retail sales are fine,
32:32
Speaker 2: haven't cracked at all. If you look at kind of
32:37
Speaker 2: the business investment side, is AI demand weakening at all
32:41
Speaker 2: in terms of you know, construction, no, no strengthening Still housing, Yeah,
32:46
Speaker 2: you can make a case that, you know, housing investment
32:48
Speaker 2: continues to be weak, but it's been weak for a
32:50
Speaker 2: couple of years now. Like this is a story dating
32:52
Speaker 2: back to twenty twenty three, even late twenty two, like,
32:55
Speaker 2: that's nothing new. So I guess I look at it
32:59
Speaker 2: and I say, if you're not seeing signs of demand cracking,
33:04
Speaker 2: do you need to end up cutting because you're not
33:10
Speaker 2: necessarily likely to see unemployment rise then. And part of
33:13
Speaker 2: this also is it then gets at the complicated thing
33:16
Speaker 2: of hey, we've got lower labor supply now because of
33:19
Speaker 2: boomers retiring and more deportations. If labor supply is lower
33:25
Speaker 2: and the unemployment rate doesn't rise as a result, what's
33:27
Speaker 2: the point of cutting anyways. Yeah, So it's all to say,
33:31
Speaker 2: this is a very unique, very messy situation that the
33:34
Speaker 2: Fed's dealing with, and we're all just trying to understand,
33:38
Speaker 2: you know, how this is moving because it's something that
33:40
Speaker 2: we haven't seen in recent history in this fashion.
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34:44
Speaker 2: Mike. Do we want to talk asset based investing, subprime
34:47
Speaker 2: credit troubles or LA's entertainment industry. It's got entertainment, Chuck.
34:53
Speaker 2: This is kind of an undercovered story in that the
34:56
Speaker 2: LA economy is is kind of a mess. Now, California
35:01
Speaker 2: in general, I mean, look, so California's basically three things.
35:04
Speaker 2: When you look at its economy. It is entertainment, it's tech.
35:09
Speaker 2: Those are the things people often think of, but agriculture
35:12
Speaker 2: is a huge part also. You know, like you get
35:13
Speaker 2: out of the major cities, and I mean California, it's
35:17
Speaker 2: not the bread basket of America, but it's absolutely the
35:19
Speaker 2: fruit and nut basket of America. There you go. You know,
35:22
Speaker 2: it's like you talk whether you're talking you know, almonds,
35:25
Speaker 2: you're talking tomatoes, watermelon, like this is where the stuff
35:29
Speaker 2: comes from. Grapes for my by the way, or just
35:35
Speaker 2: eating them. I was about to say that the grapes
35:37
Speaker 2: the last month or so have been fantastic. I don't
35:40
Speaker 2: know if you're a big grape guy, but they've been
35:42
Speaker 2: nice and firm, really good.
35:44
Speaker 4: But what about the California raisins.
35:47
Speaker 2: I'm not a raisin fan personally, I don't enjoy raisins.
35:51
Speaker 2: It's just me la. Hollywood slowing down not great. A
35:56
Speaker 2: couple things that are potentially contributing to this in terms
36:00
Speaker 2: of you know why this could be happening. The first
36:03
Speaker 2: is overall between streaming and movies into theaters, budgets are
36:10
Speaker 2: way down because everyone's trying to figure out how to
36:12
Speaker 2: make money in a different world where making money on
36:16
Speaker 2: those items has been challenging in recent years. So according
36:20
Speaker 2: to the data from a prod pro nearly thirty percent
36:23
Speaker 2: fewer movies and TV shows with budgets of at least
36:25
Speaker 2: forty million dollars began shooting last year compared to two
36:29
Speaker 2: years prior. So you've got a real reduction in the
36:33
Speaker 2: dollars that are flowing in that direction. Other things that
36:37
Speaker 2: you are seeing out there in terms of questions about,
36:44
Speaker 2: you know, artificial intelligence and how that might be used
36:48
Speaker 2: in filmmaking in the future, there are certainly questions about
36:51
Speaker 2: that as well. You have questions as to hey, when
36:56
Speaker 2: you look at the types of movies that have you know,
36:59
Speaker 2: brought people to theaters before, you know, for the last
37:02
Speaker 2: decade it's been superhero movies and Star Wars and all
37:06
Speaker 2: those big budget things. Do people still have the same
37:08
Speaker 2: demand for that? We're not seeing it in the ticket sales.
37:12
Speaker 2: So overall you end up in a situation where the
37:15
Speaker 2: entertainment industry, which is the lifeblood of LA is really
37:20
Speaker 2: a kind of dodgy spot.
37:21
Speaker 3: Right now, did you see the story of Marvel moving
37:23
Speaker 3: from Georgia to the UK? No, So there again reportedly
37:28
Speaker 3: Marvel Studios moving to the UK, and a whole lot's
37:32
Speaker 3: been written about it, a lot of political stuff. But
37:34
Speaker 3: one of the reasons citing was, you know, obviously cost
37:37
Speaker 3: and tax incentives. Georgia has a massive tax incentive out there,
37:41
Speaker 3: and so that was part of reason why they were
37:43
Speaker 3: there in the first place. But one thing they specifically
37:46
Speaker 3: cited was much lower healthcare and just general costs with
37:51
Speaker 3: filming in the United Kingdom and being located in the UK,
37:54
Speaker 3: which I found.
37:56
Speaker 2: Very interesting, very very interesting.
37:59
Speaker 3: Yeah, it was a it was a case about you know,
38:01
Speaker 3: universal healthcare in the UK and the cost of carrying
38:04
Speaker 3: healthcare in the United States.
38:06
Speaker 2: Hmmm, interesting, I did. I didn't see that. I have
38:08
Speaker 2: to poke around for it. Let's take a quick break here.
38:11
Speaker 2: We still got a whole nother hour to go on
38:13
Speaker 2: the financial exchange. Back in just a bit.