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Is the Russell 2000 flashing clear warning signs for the economy? · The Financial Exchange Show

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Speaker 2: Friday here on the Financial Exchange, wrapping up what has
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Speaker 2: been just a well, quite honestly until this morning at least,
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Speaker 2: a rather bad week in markets, and we continue to
1:21
Speaker 2: get more data on the US economy. We continue to
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Speaker 2: you know, kind of see how things are evolving. That
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Speaker 2: will also continue next week where we'll be getting retail
1:31
Speaker 2: sales data for the month of February coming out on Monday.
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Speaker 2: On Tuesday, we're gonna be getting building permits and housing starts.
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Speaker 2: We are on Wednesday, Paul, do you know we have
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Speaker 2: a FED meeting next Wednesday, March nineteenth. Yes, I came
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Speaker 2: up fast though, right, It's like, oh, like you know here,
1:48
Speaker 2: here's the FED. Lake have another FED meeting? Why don't
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Speaker 2: you So? We've got FED meeting and that will also
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Speaker 2: include their summary of economic projections their step. This will
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Speaker 2: be the first step that they are doing under the
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Speaker 2: new Trump administration, so it'll be interesting to see how
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Speaker 2: they may be viewing where growth and inflation and interest
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Speaker 2: rates are going over the rest of the year, given
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Speaker 2: some of the changes that we've seen over the last
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Speaker 2: six to seven weeks. Thursday, we're going to be getting
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Speaker 2: jobless claims again, and existing home sales data, and then
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Speaker 2: we wrap up the week on Friday with nothing. So
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Speaker 2: there's that so a lot of stuff to get to
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Speaker 2: next week. But I think it's important to look at
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Speaker 2: what we're seeing this week here, just because it has
2:32
Speaker 2: been again, I think, an important week in markets in
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Speaker 2: that Paul, for much of the last you know, for
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Speaker 2: much of January, in the first half of February, the
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Speaker 2: story that we were saying, or at least that I
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Speaker 2: was saying, was, look, this is a range bound market.
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Speaker 2: It hasn't really been able to get above sixty one
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Speaker 2: hundred on the upside. For the S and P five hundred,
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Speaker 2: it hasn't really gotten under fifty eight hundred to side
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Speaker 2: from one day on the downside, and so you had
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Speaker 2: kind of this five to six percent range that the
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Speaker 2: market was trading in. This week, we broke through that
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Speaker 2: pretty conclusively. We got down as low as fifty five
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Speaker 2: oh four yesterday during kind of the worst of the selloff.
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Speaker 2: The SMP is still closed yesterday in correction, Territory down
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Speaker 2: more than ten percent. What else have we seen in
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Speaker 2: markets as far as how they've moved, Whether we're looking
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Speaker 2: at the SMP, the Russell what's out there.
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Speaker 3: Well, the Russell, as you were mentioning, it's down about
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Speaker 3: eighteen percent from its most recent peak back in November
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Speaker 3: late November of twenty twenty four. The Nasdaq has also
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Speaker 3: been off I believe, close to in that correction territory
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Speaker 3: as well, upwards of fifteen or twenty percent. I was
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Speaker 3: trying to pull up the exact numbers here, but the
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Speaker 3: tech sector is obviously heavily weighted in the Nasdaq sector.
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Speaker 3: That has taken it on the chin quite a bit
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Speaker 3: this year. That's responsible for some of the decline that
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Speaker 3: we've seen on the Nasdaq and the Russell, like I
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Speaker 3: alluded to earlier, also beat up. On the interest rate front,
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Speaker 3: we had seen the US tenure Treasury over the course
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Speaker 3: of the last four to six weeks or so in
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Speaker 3: this kind of choppy period, come down quite a bit.
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Speaker 3: That's helped out bonds. Now it is it's sort of
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Speaker 3: pat towing around this four point three percent area, but
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Speaker 3: we were as high as four point eight percent at
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Speaker 3: the beginning of this year in mid January.
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Speaker 2: Here, Chuck, I think what's interesting to me is that
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Speaker 2: for some reason, and well I know why, Like we're
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Speaker 2: human beings, love to try to find patterns in nothingness.
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Speaker 2: You know, we don't all sit staring at our TV
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Speaker 2: and seeing if something shows up in the static. We
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Speaker 2: don't all watch our washing machine to see if the
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Speaker 2: red sox going around, you know, makes a certain you know,
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Speaker 2: certain pattern or something like that. Maybe that's just me
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Speaker 2: who does that, but we do love to pick up
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Speaker 2: on patterns. And so the headline from the New York
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Speaker 2: Times here, this stock market index is flashing a clear
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Speaker 2: warning about the economy, and it implies.
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Speaker 4: That anyone cares about granted in two thousand.
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Speaker 2: Well, yes, first implies that anyone even knows what the
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Speaker 2: Russell two thousand is. Because I bet if you pulled,
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Speaker 2: if you just asked, like, do you know what these
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Speaker 2: indices are? Obviously, I would say what percentage of Americans
5:18
Speaker 2: do you think know what the Tao?
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Speaker 1: Like?
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Speaker 2: Do just that the Tao exists? If who have heard
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Speaker 2: of it? Oh the Tao? Okay, that would probably be
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Speaker 2: seventy seventy five percent.
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Speaker 4: I'd say more than that.
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Speaker 5: I think a lot of people know the DOW. I
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Speaker 5: would say, I'll say this that we're a lot a
5:33
Speaker 5: lot of people put too much emphasis on the DOE.
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Speaker 3: Definitely yeah, I would say a little bit lower because
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Speaker 3: I think we're assuming a higher percentage just because we're
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Speaker 3: so in it.
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Speaker 4: But maybe sixty to seventy.
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Speaker 2: Let's let's call it. Tucker's probably at ninety. I'm at
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Speaker 2: like seventy five. Paul's like sixty five. That's five. So
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Speaker 2: like there the s and p five hundred half Americans. Tucker,
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Speaker 2: I don't know if it's that high. There's a lot
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Speaker 2: of people that don't really pay attention to this sixty
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Speaker 2: In any case, the Russell two thousand, you better.
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Speaker 3: Hope you get you better hope you get a finance
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Speaker 3: person in that one hundred people that you survey or
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Speaker 3: however many.
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Speaker 4: Definitely five percent. Yeah, I agree with right, Like one.
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Speaker 2: In twenty Americans is familiar with the Russell two thousand.
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Speaker 2: So the idea that you know, the Russell's you know
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Speaker 2: saying anything to begin with, is something that I think
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Speaker 2: you have to be like, well, does it you know,
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Speaker 2: does it actually you know? Is it well known enough
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Speaker 2: for it to matter in the first place? The other
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Speaker 2: piece is this idea and look, a lot of times
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Speaker 2: the stock market can be forward looking. But as an example,
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Speaker 2: the Russell two thousand back in twenty twenty three. Remember
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Speaker 2: we had some recession fears towards the end of twenty three.
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Speaker 2: It fell nearly twenty percent during that time, from a
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Speaker 2: peak in early August down to its bottom in late
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Speaker 2: October early November. And despite that, the US economy did
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Speaker 2: not enter into recession, and in fact, the Russell two
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Speaker 2: thousand rebounded to new highs, new fifty two week highs
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Speaker 2: in the subsequent two months because the recession didn't materialize,
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Speaker 2: and it was like, oh, there's no recession, I guess
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Speaker 2: I better make up all of those gains and more
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Speaker 2: or all of those losses and more by the start
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Speaker 2: of twenty twenty four, which it did. It was a
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Speaker 2: two month like twenty five percent rally that you saw
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Speaker 2: in the Russell two thousand at the end of twenty
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Speaker 2: twenty three. So I think that sometimes we get a
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Speaker 2: little a little bit ahead of ourselves by saying, oh,
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Speaker 2: this index knows something or this means something like it might,
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Speaker 2: but it's also just pricing in what's there right now,
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Speaker 2: and you don't know, there's still a great deal of
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Speaker 2: uncertainty about the future. So when I see quotes here, uh,
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Speaker 2: if you want one clear signal that the market is
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Speaker 2: worried about recession more than anything else. Look at the Russell.
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Speaker 2: Sure you can say it's it's worried about recession, but
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Speaker 2: it's it's not. It's something that indicates it's actually going
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Speaker 2: to materialize, just because even in the last two years
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Speaker 2: we've seen an instance of this pretty much exact same
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Speaker 2: action as far as the magnitude and scale of change
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Speaker 2: and recession did not develop.
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Speaker 3: Yeah, it's a volatile index. It's not something that had
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Speaker 3: a lot of people focus on it. I think you
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Speaker 3: hit it well.
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Speaker 2: So the S and P five hundred. I don't know
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Speaker 2: if I mentioned this in our open, but it's it
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Speaker 2: did enter into correction territory yesterday. Being a stock market
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Speaker 2: correction is defined by the index falling ten percent or more,
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Speaker 2: and it did close down more than ten percent from
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Speaker 2: its high yesterday. And so I think that in looking
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Speaker 2: at you know, where this goes from here, it's going
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Speaker 2: to be somewhat data dependent in terms of what we
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Speaker 2: actually get over the next four to eight weeks, because
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Speaker 2: to this point, the economic data we got jobless claims
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Speaker 2: yesterday didn't really budge nothing, you know, too fast there,
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Speaker 2: So the hard data is continuing to come in pretty fine.
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Speaker 2: You know, we got the jobs report last Friday. It
9:07
Speaker 2: was fine. A couple things under the surface where we said, yeah,
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Speaker 2: you've got to watch these because they're potential issues, But
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Speaker 2: it wasn't something where you said, hey, like, this is
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Speaker 2: a recessionary jobs report. You can't say that with one
9:18
Speaker 2: hundred and seventy one thousand jobs created. I think next week,
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Speaker 2: looking at some of those things that we start to
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Speaker 2: get retail sales, do we see, you know, further declines
9:27
Speaker 2: in February building permits and housing starts. Are builders getting
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Speaker 2: nervous and is it showing up in how they're Well,
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Speaker 2: we know builders are getting nervous, they've told us in
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Speaker 2: the surveys, But is it showing up in actually what
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Speaker 2: they're doing From a construction perspective. We've got existing home
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Speaker 2: sales data for February that's not really going to be
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Speaker 2: as useful because while permits and starts for February are
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Speaker 2: because they tell you about what's coming in the future,
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Speaker 2: someone who bought a home in February started that process
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Speaker 2: in December, yep. Doesn't reflect anything about what's going on
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Speaker 2: right now. So I think we're going to learn more
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Speaker 2: over the next four to eight weeks. And again, if
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Speaker 2: you want to talk about soft data that continues to
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Speaker 2: come in bad, we got University of Michigan consumer sentiment
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Speaker 2: data today came in into reading a fifty seven point nine.
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Speaker 2: That's the lowest we've had since twenty twenty two. So
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Speaker 2: it is indicating that households in the aggregator saying, gee,
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Speaker 2: we're a little bit, you know, troubled by where the
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Speaker 2: economy could be going. We're not quite sure what to
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Speaker 2: expect here, and that's being reflected. Does the soft data
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Speaker 2: turn into hard data is the question, and the reason
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Speaker 2: why it matters is, Paul, We've had quite a bit
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Speaker 2: of soft data in the last couple of years that
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Speaker 2: hasn't been very good. The ism manufacturing. We've talked about
10:37
Speaker 2: how that's been bad. We've talked about how even consumer
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Speaker 2: sentiment hasn't really been great the last couple of years, like, yeah,
10:43
Speaker 2: better than twenty twenty two. But that's not saying much.
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Speaker 2: So just because the soft data is showing, hey, people
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Speaker 2: aren't optimistic about the economy, it doesn't necessarily end up
10:54
Speaker 2: reflecting in the hard data. The hard data has to
10:57
Speaker 2: actually print in order for a happen. And this is
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Speaker 2: why I continue to kind of give the message. Look,
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Speaker 2: a recession may or may not happen. I don't know.
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Speaker 2: But the all the talk the last week or two,
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Speaker 2: oh like, are we already in recession? No hard stop.
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Speaker 4: That's how I would summarize it.
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Speaker 3: I had someone reach out to me yesterday concerned about
11:19
Speaker 3: the market, and that's how I would summarize it. It's
11:22
Speaker 3: you have two different sides of the coin sentiment, which
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Speaker 3: is all the soft auta stuff that you just spoke about, yeah,
11:27
Speaker 3: versus hard, hard numbers, the sentiment versus numbers.
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Speaker 4: We've got the sentiment.
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Speaker 3: The next couple weeks are going to dictate do we
11:34
Speaker 3: have the numbers to back that the economy is slowing?
11:37
Speaker 3: We can't say that yet without some numbers coming in, So.
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Speaker 2: Take a quick break. When we come back, we'll fill
11:42
Speaker 2: you in on the latest as to whether or not
11:45
Speaker 2: the US federal government is going to end up being
11:47
Speaker 2: shut down tonight.
11:51
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Speaker 2: Paul, before we go forward to talk a little bit
12:53
Speaker 2: about the the status of government funding, I wanted to
12:59
Speaker 2: give a couple other details on the University Michigan consumer
13:03
Speaker 2: sentiment data that we got this morning, if that's cool
13:05
Speaker 2: with you, absolutely so. Last month we kind of gave
13:09
Speaker 2: a little bit of an eye roll to the fact that,
13:12
Speaker 2: look that this is obviously a highly politicized, you know,
13:15
Speaker 2: response environment at this point. It always has been, but
13:17
Speaker 2: like now more so than ever. One of the components
13:20
Speaker 2: that gets asked about is, hey, what are your inflation
13:23
Speaker 2: expectations over the next year, and this the previous one
13:27
Speaker 2: for the first month where President Trump was in office,
13:31
Speaker 2: Republican respondents to the survey said they expected no inflation
13:35
Speaker 2: over the next year, which we looked back at the
13:36
Speaker 2: data and basically outside of one brief period in twenty
13:40
Speaker 2: fifteen where Russia pretty much, you know, pumped a bunch
13:43
Speaker 2: of oil and put a bunch of US shale producers
13:45
Speaker 2: out of business, you've never had US inflation at or
13:49
Speaker 2: below zero unless there's a recession. So like clearly like
13:53
Speaker 2: not realistic, and we were like, guys, this isn't gonna happen. Today,
13:57
Speaker 2: we have some hilarity from the other side of the
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Speaker 2: isle where Democrat respondents to the Michigan Consumer Sentiment Survey
14:05
Speaker 2: are suggesting that the economy right now is worse than
14:09
Speaker 2: during the Great Financial Crisis.
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Speaker 4: Wow.
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Speaker 2: So this also, i think does raise like a really
14:15
Speaker 2: interesting question, which is what do we actually get from
14:18
Speaker 2: these surveys now, Like, if if Republicans are saying there's
14:21
Speaker 2: gonna be no inflation this year and Democrats are saying
14:24
Speaker 2: it's already worse than the Great Financial Crisis for the economy,
14:28
Speaker 2: what do we what do we actually make of this data,
14:32
Speaker 2: like is it useful in any way, shape or form,
14:35
Speaker 2: I guess is the question that I'm asking what.
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Speaker 3: You just would hope that the averages would bring it
14:41
Speaker 3: down to a reasonable median agape, Like, but then why
14:46
Speaker 3: maybe you can find some people who are non affiliated
14:49
Speaker 3: in that mix too?
14:49
Speaker 2: Is like is it all democrat republic? They do independence
14:52
Speaker 2: as well? Okay, and so they are those people doing
14:55
Speaker 2: independence right now? I don't have the long term the
14:58
Speaker 2: data that I'm looking at on it only go back
15:00
Speaker 2: to like twenty fifteen, and they're basically right now kind
15:05
Speaker 2: of back to like twenty twenty two early twenty twenty
15:08
Speaker 2: three levels, okay, is where they are. So again, I
15:13
Speaker 2: don't know what to make of all this other than look,
15:18
Speaker 2: even if you have concerns about where the economy may
15:21
Speaker 2: be going, to suggest right now it's anywhere near what
15:25
Speaker 2: it was during the Great Financial Crisis, when quite honestly,
15:28
Speaker 2: we were like a hair's breadth away from the world
15:33
Speaker 2: financial system fully imploding. It just doesn't seem to be
15:38
Speaker 2: an apt comparison to me. That's just me. That's just me.
15:42
Speaker 2: Let's talk about what we're seeing in terms of politicians
15:45
Speaker 2: trying to do something or not do something, or who
15:48
Speaker 2: knows what they're trying to do, but it does appear
15:50
Speaker 2: we're not going to have a government shutdown. And this
15:52
Speaker 2: is part of the reason why we didn't really talk
15:54
Speaker 2: about it this week, is because more often than not,
15:57
Speaker 2: you get up to the edge on this stuff and
15:59
Speaker 2: it's like, Okay, no one really wants to shut down,
16:01
Speaker 2: and so you don't usually end up getting them, and
16:03
Speaker 2: if you do, they usually last like two days. The
16:06
Speaker 2: longest one ever, I think was like thirty one or
16:07
Speaker 2: thirty two days. And so it looks like the Continuing
16:11
Speaker 2: Resolution funding Bill is going to end up moving forward.
16:15
Speaker 2: This will fund the government through the end of fiscal
16:18
Speaker 2: twenty twenty is it fiscal twenty five or twenty four.
16:21
Speaker 2: I don't even know which one it's technically called. I
16:23
Speaker 2: think it's twenty five. And so it's going to fund
16:26
Speaker 2: the government basically for the next six months through the
16:28
Speaker 2: remainder of the fiscal year in September. So you can
16:32
Speaker 2: throw this one off to the side and say, hey,
16:35
Speaker 2: not something that you need to worry about as far
16:37
Speaker 2: as impacting markets or anything else at this point, which
16:41
Speaker 2: is why we didn't talk about it, because we like,
16:43
Speaker 2: this is what usually happens, right, anything else to add, Paul.
16:46
Speaker 3: No, I mean this is typical. You get to the
16:49
Speaker 3: cliff and then usually almost all the time it is resolved.
16:53
Speaker 3: So nothing more to add there.
16:55
Speaker 2: So yeah, no one wants to you know, end up
16:57
Speaker 2: seeing you know, some kind of big shutdown round anything
17:00
Speaker 2: like that. And so that's what we've got here. Let's
17:03
Speaker 2: talk a little bit about the Fed. I mentioned that
17:04
Speaker 2: we have a FED meeting that is next week. The
17:08
Speaker 2: expectations right now are pretty much that you are not
17:13
Speaker 2: going to see any shift in the FED funds rate. Effectively,
17:20
Speaker 2: what we're seeing here when you look at where things stand,
17:23
Speaker 2: ninety nine percent chance that the Fed does not cut
17:25
Speaker 2: interest rates next week, which which seems to be responsible.
17:30
Speaker 2: As we've talked about the economic data still as strong
17:33
Speaker 2: in the aggregate, there's some signs of weakness, and inflation
17:36
Speaker 2: still a question mark. The reports this week we're a
17:38
Speaker 2: little better on the surface, some of the stuff under
17:40
Speaker 2: the surface, you know, had some questions about where it
17:43
Speaker 2: actually is, but overall, no change and so you wouldn't
17:46
Speaker 2: expect the FED to change either way either. The main
17:49
Speaker 2: meeting we start to get some questions. It's gonna be
17:51
Speaker 2: on May seventh. Remember there every six weeks, and so
17:54
Speaker 2: May right now is basically a twenty five percent chance
17:57
Speaker 2: that you see a cut, then with a seventy five
17:59
Speaker 2: percent ants that you don't. The real meat is going
18:02
Speaker 2: to be, you know, towards the end of the year,
18:03
Speaker 2: which if you look right now where we stand and
18:06
Speaker 2: you know, trying to sort through what things look like
18:09
Speaker 2: by the end of the year, right now, you're basically
18:12
Speaker 2: somewhere between like two and three rate cuts depending on
18:16
Speaker 2: exactly how things play out here. But obviously we know
18:19
Speaker 2: that the projections at the beginning of the year aren't
18:22
Speaker 2: really the most accurate as to what the Fed ends
18:24
Speaker 2: up doing over the course of the year. We've covered
18:26
Speaker 2: that pretty extensively for the last couple of years.
18:28
Speaker 3: Paul, No, you can really only look out at maybe
18:31
Speaker 3: a meani or two ahead of time to try and
18:33
Speaker 3: get a sense for what projections are, and they can
18:36
Speaker 3: change on a dime. So it really is something that
18:39
Speaker 3: use as context, but not something that is concrete evidence
18:42
Speaker 3: that you know policy is going to change one way
18:44
Speaker 3: or another based on we often look at the CME
18:48
Speaker 3: Group Future Probabilities Market. It does seem like obviously they'll
18:52
Speaker 3: stay the course next week. The question will be what
18:54
Speaker 3: it looks like in May or June if we perhaps
18:57
Speaker 3: see a rate cut. They just to backtron for listeners
19:01
Speaker 3: out there. They've cut a full percent from the peak
19:04
Speaker 3: where interest rates were that began, I believe in September.
19:08
Speaker 4: Of last year was the first cut.
19:09
Speaker 3: Chuck through the end of twenty twenty four and since
19:12
Speaker 3: have paused the breaks since then.
19:16
Speaker 2: Yeah, and we've talked about this, like, I think the
19:19
Speaker 2: FED for the last probably like almost eighteen to twenty
19:23
Speaker 2: four months now has been fine. Yep, before that not
19:26
Speaker 2: so fine. But I'm going to give them credit where
19:29
Speaker 2: credits due is Take a quick break. We got Wall
19:31
Speaker 2: Street Watch coming up next.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
19:43
Speaker 1: TFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:53
Speaker 1: Street Watch. A complete look at what's moving markets so
19:56
Speaker 1: far today right here on the Financial Exchange Radio Network.
20:01
Speaker 5: More volatility on Wall Street, with stocks rebounding from yesterday's
20:05
Speaker 5: losses today as Wallstree reacts favorably to a government shutdown
20:09
Speaker 5: seemingly being avoided. Investors also to continue to sift through
20:14
Speaker 5: more tariff developments. At the moment, the Dow is up
20:18
Speaker 5: by about eight tenths of a percent, or three hundred
20:20
Speaker 5: and twenty four points, SMP five hundred up over one
20:24
Speaker 5: percent or sixty one points. The Nasdaq is up by
20:27
Speaker 5: over one and a third percent or two hundred and
20:30
Speaker 5: thirty eight points. Rusted two thousand bouncing back by over
20:33
Speaker 5: one percent so far today. Tenure Treasure reeled up by
20:38
Speaker 5: two basis points at four point three zero percent, and
20:42
Speaker 5: crude oil up about a quarter percent higher today, trading
20:46
Speaker 5: at sixty six dollars and seventy three cents a barrel.
20:49
Speaker 5: Tesla up by about a quarter percent following news that
20:52
Speaker 5: the electric vehicle maker is developing a lower cost model
20:56
Speaker 5: y SUV that will debut in China. Sticking with the
21:01
Speaker 5: auto sector, where US listed shares of Chinese ev maker
21:05
Speaker 5: Lee Auto are dipping into negative territory after the company
21:09
Speaker 5: posted a decline in its fourth quarter net profit. The
21:13
Speaker 5: company's deliveries climb twenty percent in the previous quarter, reflecting
21:17
Speaker 5: the impact of price cuts on its overall revenue. Meanwhile,
21:22
Speaker 5: DocuSign logged higher than expected quarterly profit and revenue, lifted
21:26
Speaker 5: by its new AI enabled Products, sending Shares in the
21:30
Speaker 5: E signature company up over fifteen percent today. Elsewhere, All
21:36
Speaker 5: To Beauty shares up by nine percent after the cosmetics
21:39
Speaker 5: retailer posted stronger than expected quarterly earnings and revenue. Chipotle
21:44
Speaker 5: upgraded to buy from hold at Loop Capital, where the
21:48
Speaker 5: firm believes the restaurant chains recent pullback has created an
21:52
Speaker 5: attractive buying opportunity for investors and said that the name
21:56
Speaker 5: is good for managing risk related to President Trump's tariffs.
21:59
Speaker 5: Chipotle up by one percent on that news, and shares
22:02
Speaker 5: in data management company Rubrics jumping by over twenty six
22:06
Speaker 5: percent after a Beach Street forecast in terms of adjusted
22:10
Speaker 5: earnings and revenue for the previous quarter. I'm Tucker Silvan.
22:14
Speaker 5: That's Wall Street Watch, Paul.
22:16
Speaker 2: You ever earned any income?
22:18
Speaker 4: Sometimes occasionally piece and barons.
22:21
Speaker 2: Today it's titled income inequality is Accelerating Inflation, which is
22:29
Speaker 2: something like again, just like you say it, I'm going
22:32
Speaker 2: to say it one more time, just for anyone listening,
22:34
Speaker 2: because the first time I read it, I was like,
22:35
Speaker 2: what does that mean? Actually, income inequality is accelerating inflation.
22:43
Speaker 2: So it's saying that the unequal distribution of income in
22:47
Speaker 2: the United States is making inflation go up faster than
22:51
Speaker 2: it otherwise would Is that? Is that? Am I phrasing
22:56
Speaker 2: that correct correctly?
22:57
Speaker 4: Paul, Yes on that aspect of it.
23:01
Speaker 2: What's the data that they lay out?
23:03
Speaker 3: Basically, I actually really did enjoy this piece regardless of
23:06
Speaker 3: the inflationary impact. There's other issues that I think are
23:11
Speaker 3: worth discussing here. It Basically the crux of this argument
23:15
Speaker 3: here is that recent study by Moody's Analytics indicated that
23:19
Speaker 3: ten percent of Americans that are earning two hundred and
23:22
Speaker 3: fifty thousand dollars or more are accounting for basically half
23:26
Speaker 3: of the consumer spending throughout this country. This figure is
23:29
Speaker 3: its highest share on records since about nineteen eighty nine,
23:33
Speaker 3: and what I thought was interesting, So to further the
23:36
Speaker 3: inflation point. Basically, what they're stating is because half of
23:40
Speaker 3: the consumption from a spending from a consumer spending perspective,
23:43
Speaker 3: is coming from those top ten percent of Americans, It's
23:46
Speaker 3: resulted in some of these more scarce items such as
23:49
Speaker 3: houses and luxury items like vehicles, as well as airline
23:53
Speaker 3: travel that are typically reserved for a little bit higher
23:56
Speaker 3: earning consumers out there are higher earning Americans out there,
24:00
Speaker 3: it's allowed for pricing increases to occur on those specific
24:05
Speaker 3: luxury items, thus sort of increasing inflation because the huge
24:11
Speaker 3: spread between the higher income earners in this country versus
24:15
Speaker 3: the lower income earners. Basically, some other stats that they
24:18
Speaker 3: threw in here is that over the last four years,
24:21
Speaker 3: those people earning that higher tier of income have increased
24:25
Speaker 3: their expenses by fifty eight percent versus the lower and
24:28
Speaker 3: middle income folks who have spent twenty five percent more
24:32
Speaker 3: over the last four years, just slightly over inflation.
24:34
Speaker 2: There. The other piece that I've found interesting on this
24:38
Speaker 2: was that, Okay, because of that additional spending that is,
24:42
Speaker 2: you know, potentially driving inflation, the FED obviously responds in
24:45
Speaker 2: predictable ways, and the main way that they do is
24:48
Speaker 2: through raising the cost of borrowing, which more prohibitively impacts
24:53
Speaker 2: those that need to borrow in order to buy a
24:56
Speaker 2: vehicle or buy groceries. Even you know, we've talked about
24:59
Speaker 2: credit card debt rising, and it's predominantly you know, rising
25:03
Speaker 2: amongst those who are being forced to use credit cards
25:07
Speaker 2: and carry balances on credit cards in order to pay
25:10
Speaker 2: for necessities. So it's kind of an interesting piece here,
25:14
Speaker 2: and not something that I really thought about prior to it.
25:18
Speaker 2: I still am trying to internalize whether or not I
25:21
Speaker 2: fully buy it as you know, a mechanism that's actually
25:25
Speaker 2: in place here, and whether it's something that's happening. But
25:27
Speaker 2: it's it's just an interesting look that I hadn't considered
25:30
Speaker 2: in terms of how the distribution of income impacts, you know,
25:35
Speaker 2: potential inflationary pressures depending on where they're showing up in
25:38
Speaker 2: the economy.
25:39
Speaker 4: Here's another thing that I took from a Chuck.
25:40
Speaker 3: I agree with you, same sort of piece where it
25:42
Speaker 3: had me just thinking about things that I wasn't.
25:44
Speaker 4: Really privy to previously.
25:46
Speaker 3: Where if you look at the economy over the last
25:50
Speaker 3: couple of years, many of us can argue that the
25:53
Speaker 3: consumer has really been extremely resilient and that has what
25:56
Speaker 3: that's what's been propping the economy up is consumer spending.
25:59
Speaker 3: If you only have ten percent of the population accounting
26:02
Speaker 3: for fifty percent of consumer spending, that leaves it very flat,
26:06
Speaker 3: fragile to fluctuations. And so if you assume that those
26:09
Speaker 3: higher income earners are probably more subject to stock market
26:12
Speaker 3: performance certainly than the lower tier ones where they have
26:15
Speaker 3: a lot of disposable savings there if we were to
26:18
Speaker 3: see a week er market for a substantial period of time.
26:21
Speaker 3: I'm not just talking about a ten percent sell off
26:23
Speaker 3: that we've seen here. That's kind of nothing relative to
26:25
Speaker 3: the performance we've seen the prior to years. It could
26:28
Speaker 3: leave it very sensitive to spending pullbacks. And it'll be
26:32
Speaker 3: interesting to see what we get from retail sales and
26:34
Speaker 3: some of those other economic reports that we've talked about
26:37
Speaker 3: out there. Because the feedback has been from retailers and
26:40
Speaker 3: airliners over the last week or so, is that leisure
26:43
Speaker 3: travel and some of these other items are pulling back?
26:46
Speaker 3: And I wonder if we're overly sensitized to that because
26:49
Speaker 3: ten percent of the population is so much of the
26:51
Speaker 3: spending side.
26:53
Speaker 2: And the other piece is you look at it in
26:55
Speaker 2: terms of that you know how the market may affect it.
26:57
Speaker 2: And we've touched on this a little bit too. There's
27:00
Speaker 2: a larger percentage of retire reason the country right now
27:03
Speaker 2: than we've ever seen before. Like there's a bigger percentage
27:05
Speaker 2: of the population that is currently retired than we've ever
27:08
Speaker 2: seen before. And yes, while a large number of them
27:11
Speaker 2: only you know, have their social security and no portfolio
27:14
Speaker 2: to speak of, there still is a big swath of
27:17
Speaker 2: people who are retired that make spending decisions based on
27:22
Speaker 2: the value of their portfolio. And it's a bigger proportion
27:24
Speaker 2: also than we've seen previously. So point yeah, it's you know,
27:28
Speaker 2: how much of the spending is based on changes in
27:30
Speaker 2: income versus changes in asset valuations for liquid assets. It's
27:35
Speaker 2: a really interesting question and one where you know, maybe
27:39
Speaker 2: there's like some reflexivity here where you know, the market declining.
27:43
Speaker 2: We've talked about the wealth effect. I mean, it's something
27:45
Speaker 2: that exists, but is there more of it now because
27:49
Speaker 2: more of our spending power is tied to the market
27:52
Speaker 2: than in prior cycles and years? And maybe also the
27:55
Speaker 2: other interesting piece there is, Hey, is that a reason
27:58
Speaker 2: why the FEDS interest rate policy might not have caused
28:02
Speaker 2: the recession that everyone expected is because not as much
28:05
Speaker 2: of it is based on income and you know, floating
28:08
Speaker 2: rate loans and this and that, and more of it's
28:09
Speaker 2: based on wealth and things like social security. Maybe that's
28:13
Speaker 2: why FED policy isn't quite as effective as it used
28:18
Speaker 2: to be. It's just something to consider.
28:20
Speaker 3: Yeah, and I was wondering if this is it a problem?
28:22
Speaker 3: You know, is this something that they should aim to
28:23
Speaker 3: fix going forward, and there is no real easy fix
28:26
Speaker 3: to it. I mean, you can talk about progressive tax
28:28
Speaker 3: taxes and things like that, you know, taxing the wealth
28:31
Speaker 3: there more, But it's just a lot of interesting questions
28:34
Speaker 3: that stem from this piece.
28:36
Speaker 4: Very well done in barons here.
28:38
Speaker 2: Let's take a bit quick break right now. When we return, Paul,
28:42
Speaker 2: I want to talk eggs with you Cockclock, and then
28:44
Speaker 2: we're gonna talk wine as well. I don't know what
28:47
Speaker 2: sounded great makes, but we'll look that up and we'll
28:50
Speaker 2: discuss next.
28:52
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29:23
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29:36
Speaker 2: Paul, you big egg fan. Oh yes, what's your favorite
29:40
Speaker 2: way to cookouggs, scrambled cheese.
29:43
Speaker 4: No, no, no.
29:45
Speaker 5: Cheese and scrambled eggs. What little lactos come on a
29:48
Speaker 5: little sprinkle.
29:49
Speaker 2: Hey, No, that's that's fine. I get it. You know,
29:51
Speaker 2: I've I've got family members with some lactose issues, So
29:54
Speaker 2: I'm okay, there, I understand you. Meanwhile, Tucker's like, eat
29:59
Speaker 2: the cheese, come on sacrifice In any case, price of
30:03
Speaker 2: eggs falling over the course of March so far, according
30:09
Speaker 2: to the USDA, the cost of large white shell eggs,
30:12
Speaker 2: remember we have to define them as shell eggs, not
30:15
Speaker 2: like the eggs that are actually going to go become
30:17
Speaker 2: baby chicks. They declined a six eighty five per dozen
30:21
Speaker 2: on average. That's down from eight to five on average
30:25
Speaker 2: on the previous report on February twenty eighth. So it
30:28
Speaker 2: appears that the big thing that they state here there
30:32
Speaker 2: have been no significant new outbreaks of highly pathogenetic, pathogenic
30:36
Speaker 2: avian influenza in nearly two weeks, and this respite, combined
30:40
Speaker 2: with reduced demand, has helped to bring egg prices down
30:44
Speaker 2: a little bit, though they still remain one hundred and
30:46
Speaker 2: seventy percent higher than a year ago.
30:50
Speaker 3: There was Joe Maxwell who's the president of the Farm
30:53
Speaker 3: Action Fund, suggesting that the drop was because of the
30:57
Speaker 3: administration of the Department of Justice, specifically investigating companies for
31:01
Speaker 3: possible antitrust violations. So that's something we had sort of
31:04
Speaker 3: debated a prior show Mark and I where it seems
31:08
Speaker 3: like with eggs, I know that it's consolidated amongst a
31:11
Speaker 3: couple producers, but the idea that there is price inclusion there,
31:15
Speaker 3: we were a little skeptical of that. So that's something
31:17
Speaker 3: that will bear out, I guess over the next six
31:20
Speaker 3: to twelve months here as that goes through the Department
31:22
Speaker 3: of Justice.
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32:37
Speaker 2: Paul's talk a little bit about wine. Yesterday morning, President
32:40
Speaker 2: Trump announced that he was intending to place a two
32:43
Speaker 2: hundred percent tariff on all wine and liquor imports from
32:48
Speaker 2: the EU. This in response to the EU placing fifty
32:53
Speaker 2: percent tariffs on American whiskey and several other products earlier
32:57
Speaker 2: in the day. And so the question here is, Okay,
33:02
Speaker 2: would this actually be a net positive for the US
33:06
Speaker 2: wine industry? And again I don't know the ins and
33:11
Speaker 2: outs of the wine business, but what I can tell
33:15
Speaker 2: you is that John Williams is someone who's quoted in
33:18
Speaker 2: this New York Times piece. He runs Frog's Leap, which
33:22
Speaker 2: is a wine producer in Napa Valley, and here's the
33:25
Speaker 2: quote from him. On the surface, it might look like
33:28
Speaker 2: a boom, but if you look underneath, I think you
33:30
Speaker 2: realize it's really damaging to our industry at a time
33:32
Speaker 2: when we don't really need this. And the question is, okay,
33:34
Speaker 2: why would that be the case? And this they go
33:37
Speaker 2: to a wine retailer, Chris Leon, who says, I don't
33:42
Speaker 2: think people realize how much the wine infrastructure relies on
33:45
Speaker 2: European sales. If you deplete those funds from the equation,
33:49
Speaker 2: then you reduce the opportunity to buy wines from other places.
33:52
Speaker 2: You're not just hurting European wines, You're hurting the chances
33:55
Speaker 2: of Americans to buy American wines as well. And basically
34:00
Speaker 2: the case that I think he's making here is, look,
34:03
Speaker 2: because you can get more of a premium on European
34:05
Speaker 2: wines that helps to fund more purchases of American wines.
34:09
Speaker 2: If those premiums go away, you might not be able
34:12
Speaker 2: to actually make it up with similar volume and in fact,
34:15
Speaker 2: you might end up with issues buying American wines because
34:18
Speaker 2: now you don't have that premium that you get from
34:21
Speaker 2: the selling of European wines.
34:24
Speaker 3: Interesting, it's an industry that's been beaten up, you know,
34:27
Speaker 3: it doesn't really need this pressure. On top of you've
34:30
Speaker 3: seen alcohol consumption across wine and beer declining, Sales volume
34:34
Speaker 3: in both of those sectors of business have been down,
34:38
Speaker 3: and then also you combat that on the wind side
34:40
Speaker 3: of things, with all of the wildfires and different other
34:45
Speaker 3: issues from a weather perspective that you're dealing with. It
34:49
Speaker 3: just leads to a very difficult spot that they find
34:52
Speaker 3: themselves in. In a two hundred percent tariff would just
34:55
Speaker 3: be so punitive that they indicate here that they would
34:58
Speaker 3: just pause shipping European wines entirely at that point, at
35:02
Speaker 3: that level.
35:02
Speaker 2: The other thing that you run into on this, and
35:04
Speaker 2: this is the kind of the non tariff stuff, just
35:06
Speaker 2: the buying decisions that people make. We've we've talked about
35:09
Speaker 2: how in in Canada right now there's developed this you know,
35:12
Speaker 2: sentiment of hey, not wanting to buy American products. I'll
35:16
Speaker 2: quote here again from Williams again, who runs you know,
35:20
Speaker 2: a vineyard Ontario was our largest trading partner. They've canceled
35:24
Speaker 2: all orders, including bottles that had already been specific specially
35:27
Speaker 2: labeled for the province. We've been waiting for the next
35:30
Speaker 2: natural disaster. I see this as an unnatural disaster. So
35:32
Speaker 2: this is something where again remember that like Ontario, the
35:37
Speaker 2: province doesn't just say hey, like we're gonna buy the
35:39
Speaker 2: wine for you. It's more like all of like the
35:42
Speaker 2: liquor stores and distributors, or the distributors in Ontario were saying, no,
35:46
Speaker 2: we're just not going to buy this either because a
35:48
Speaker 2: we don't want to be we can't move it off
35:50
Speaker 2: the shelves because our customers aren't buying American wine right now.
35:54
Speaker 2: So this is something where yeah, it's it might be
35:57
Speaker 2: a response to the tariffs that have been imposed, but
35:59
Speaker 2: it's a non tariff impact of just buying decisions being changed.
36:03
Speaker 2: And so these are things that play into the equation
36:07
Speaker 2: as well. And it's gonna take time to see how
36:09
Speaker 2: this all plays out, depending on how long these tariffs
36:11
Speaker 2: are in place, whether they end up being reduced, whether
36:14
Speaker 2: there are more exceptions and exemptions that end up on them.
36:17
Speaker 2: It's it's just something where we don't really know, and
36:20
Speaker 2: it's going to take a couple of months to understand
36:24
Speaker 2: what this is actually doing in the impacts that it's
36:26
Speaker 2: having anything else on that Paul.
36:29
Speaker 4: No, I think that covers it.
36:30
Speaker 2: You big wine fan, are more of like a beer
36:32
Speaker 2: whiskey something else, guy, More of a beer tatonic something
36:35
Speaker 2: else guy.
36:36
Speaker 3: Yeah, of aka soda something if I had to go
36:39
Speaker 3: for a cocktail out there. But wine in our house,
36:41
Speaker 3: the problem is a bottle. You know, We'll drink a
36:44
Speaker 3: glass of it and then it just sits there and
36:46
Speaker 3: goes bad. I do like a glass of red every
36:48
Speaker 3: once in a while, but it's just not enough consumption
36:51
Speaker 3: in our house, how about your household?
36:53
Speaker 2: So I've moved more over towards wine in the last
36:56
Speaker 2: five or six years, partly because beer just leaves me
36:59
Speaker 2: a little bit bloated these days, if I may, And
37:04
Speaker 2: you know, like you're not always looking for, you know,
37:07
Speaker 2: a whiskey sometimes you need something a little bit more mellow,
37:10
Speaker 2: and so win wines kind of fit the bill in
37:12
Speaker 2: our household, and so we've kind of moved in that
37:15
Speaker 2: direction a little bit. So again, it remains to be
37:19
Speaker 2: seen how this is all going to play out. But
37:22
Speaker 2: I think for these businesses, what they're telling you is, look,
37:24
Speaker 2: the uncertainty of how this is going to play out
37:27
Speaker 2: is causing real impacts to them right now. And I
37:32
Speaker 2: think part of this is just like, hey, give us
37:33
Speaker 2: some certainties to how long this is going to be
37:35
Speaker 2: in place and what we're looking for, and then we
37:37
Speaker 2: can move on with our businesses. And they're still trying
37:40
Speaker 2: to figure out, you know, is there a chance that
37:42
Speaker 2: this is removed a week from now? And even if
37:44
Speaker 2: it is, do Canadians still say, no, we're not going
37:47
Speaker 2: to be buying American products as a result. Are you you're.
37:50
Speaker 4: A European wine guy, are you going to be impacted
37:52
Speaker 4: by this?
37:53
Speaker 2: So I generally find in a lot of cases you
37:55
Speaker 2: actually get better bang for your buck on European Like
37:59
Speaker 2: my I tend to sit kind of in like that
38:01
Speaker 2: twelve to fifteen dollars a bottle price range, Like that's
38:04
Speaker 2: where I would say like ninety five percent of what
38:06
Speaker 2: I buy tends to be. And I think that the
38:09
Speaker 2: comparison as you get a little bit higher, you know, quality,
38:11
Speaker 2: there us winds in rhder to get similar. You're probably
38:14
Speaker 2: like eighteen to twenty is kind of what I've I've found,
38:17
Speaker 2: but your miles may vary. I find some great stuff
38:19
Speaker 2: from you know, out of Napo in the West coast,
38:21
Speaker 2: that is right in that range. Too. Quick break here,
38:24
Speaker 2: hour two, just a bit