Latest / The Financial Exchange Show / Bond Yields, Jobs Data, and AI’s Big Money Question

Transcript

Bond Yields, Jobs Data, and AI’s Big Money Question · The Financial Exchange Show

0:00
Speaker 1: The Financial Exchange is produced by Money Matters Radio and
0:02
Speaker 1: is hosted by employees of the Armstrong Advisory Group, a
0:05
Speaker 1: registered investment advisor. All opinions expressed are solely those of
0:08
Speaker 1: the hosts. Do not reflect the opinions of Armstrong Advisory
0:11
Speaker 1: or anyone else. Investments can lose money. This program does
0:14
Speaker 1: not offer any specific financial or investment advice. Please consult
0:17
Speaker 1: your own financial tax and estate planning advisors before making
0:20
Speaker 1: any investment decisions. Armstrong Advisory and the advertisers heard on
0:23
Speaker 1: this program do not endorse each other or their services.
0:25
Speaker 1: Armstrong and Money Matters Radio do not compensate each other
0:28
Speaker 1: for referrals and are not affiliated. This is The Financial
0:34
Speaker 1: Exchange with Mike Armstrong and Mark Vandetti. Your exclusive look
0:39
Speaker 1: at business and financial news affecting your day, your city,
0:43
Speaker 1: your world. Stay informed and up to date about economic
0:46
Speaker 1: and market trends, plus breaking business news every day. The
0:50
Speaker 1: Financial Exchange is a proud partner of the Disabled American
0:54
Speaker 1: Veterans Department of Massachusetts. Help us support our great American
0:58
Speaker 1: heroes by visiting dav5k. boston and making a donation today. This
1:03
Speaker 1: is The Financial Exchange with Mike Armstrong and Mark Vandetti.
1:11
Speaker 2: Good morning, happy Tuesday, and welcome back to the Financial Exchange.
1:16
Speaker 2: It is Mike, Mark, and Tucker with you on a
1:19
Speaker 2: jobs week, a jobs Tuesday with the 10 a.m.
1:22
Speaker 3: Jolts report out just six minutes ago.
1:24
Speaker 2: We've got bond yields rising, oil prices continuing their slow
1:28
Speaker 2: march upwards, stocks falling, a new CEO at Apple. We've
1:33
Speaker 2: got a busy day here on the Financial Exchange. I'm
1:37
Speaker 2: All of that stuff, though, also coincides with one of
1:41
Speaker 2: my favorite days of the year here locally. It's a
1:43
Speaker 2: day generally full of what we call schadenfreude, the glee
1:50
Speaker 2: that you might get from somebody else's mistakes or pain.
1:55
Speaker 2: For those listening outside of the Boston area, they might
1:58
Speaker 2: not be aware of this. So I want to give
2:00
Speaker 2: a quick lesson on September 1st in the Boston area. One,
2:05
Speaker 2: if you are listening and you're not familiar, try just
2:08
Speaker 2: not to go to Boston or Cambridge or any of
2:11
Speaker 2: the surrounding towns today, because every September 1st in the
2:16
Speaker 2: Boston area, for some reason, all of the leases for
2:20
Speaker 2: apartments tend to turn over on this very day. And
2:23
Speaker 2: so One, there's just a whole bunch of traffic. If
2:26
Speaker 2: you did not already rent a U-Haul for today six
2:29
Speaker 2: months ago, then just forget about it. You will be
2:31
Speaker 2: moving in your Honda Civic today. But there's this fun
2:35
Speaker 2: thing in Boston where we have this really important road
2:39
Speaker 2: called Sturro Drive. And Sturro Drive connects the western parts
2:44
Speaker 2: of Boston to the eastern parts of Boston and It
2:48
Speaker 2: also is the main drive that you will take to
2:50
Speaker 2: get over a bridge over the Charles River in order
2:52
Speaker 2: to get into Cambridge or Somerville, because often you're moving
2:56
Speaker 2: from Boston to one of those towns. And it has
2:59
Speaker 2: this unique feature where parts of Sturro Drive have height
3:04
Speaker 2: clearances as low as 9 or 10 feet. And so
3:07
Speaker 2: every year on September 1st, we get to report on
3:10
Speaker 2: the at least one genius driving a U-Haul pickup truck.
3:14
Speaker 2: that leaves half of it on the bridges of Sturrow
3:17
Speaker 2: Drive that cross over it. And I, for one, am
3:20
Speaker 2: here for it. It's become so famous, in fact, that
3:22
Speaker 2: one of my favorite breweries, Trillium, out of Canton now? Yeah,
3:27
Speaker 2: out of Canton, named a beer after the day for
3:31
Speaker 2: cars getting stuck on Sturrow Drive. So if you are
3:35
Speaker 2: dropping your kids off at one of our prestigious universities
3:38
Speaker 2: here in the Boston area and driving around, please beware.
3:42
Speaker 2: There are signs everywhere saying, But nonetheless, almost always do
3:47
Speaker 2: we have one or two U-Haul trucks or more crashing
3:51
Speaker 2: on Sturro Drive into one of the bridges. And unfortunately
3:54
Speaker 2: for those drivers, the bridges are built pretty solidly. You
3:59
Speaker 2: end up losing your entire truck and paying a.
4:01
Speaker 3: Big old bill.
4:02
Speaker 2: So we will, I'm sure, interrupt the program at some
4:05
Speaker 2: point in the next two hours to update you on
4:09
Speaker 2: which person left part of their vehicle on Sturro Drive.
4:12
Speaker 3: There we go.
4:12
Speaker 2: Thank you, Tucker. And I, for one, am here for it.
4:15
Speaker 2: I hope they never change the bridges on Sturrow Drive.
4:18
Speaker 2: I love this feature. So, yeah, I'll get you back
4:22
Speaker 2: up there. I don't know if either of you have
4:23
Speaker 2: anything to add about it, but it is kind of funny.
4:27
Speaker 3: There are signs everywhere.
4:29
Speaker 4: It's more funny that they just can't figure out how
4:31
Speaker 4: to avoid this, ever.
4:33
Speaker 3: Like the city of Boston. The city of Boston, yeah.
4:35
Speaker 2: Well, I mean, you've got to think that raising bridges
4:38
Speaker 2: or lowering the road level would be.
4:41
Speaker 3: Millions of dollars.
4:42
Speaker 4: Just like more.
4:43
Speaker 3: I don't know.
4:44
Speaker 4: Signage or something?
4:45
Speaker 1: I don't know.
4:46
Speaker 3: There can't be more signage.
4:47
Speaker 2: For anyone that has driven on Sturro Drive or near
4:51
Speaker 2: Sturro Drive from August to October, or they are flashing
4:55
Speaker 2: lights and signs everywhere warning you.
4:59
Speaker 3: To not drive your tall vehicle on this road.
5:01
Speaker 4: Or contact Google Maps and be like, hey, if somebody
5:04
Speaker 4: puts in this address and has to take Sturro Drive
5:08
Speaker 4: on September 1st, Give them a warning.
5:11
Speaker 3: Give them a warning.
5:12
Speaker 2: Yeah, you already managed to change Lake Ontario to Lake America.
5:15
Speaker 3: You can put a warning.
5:16
Speaker 2: On Sturro Drive on Google Maps.
5:18
Speaker 3: It's been going on for years.
5:20
Speaker 2: But anyway, for those that are outside, I just wanted
5:23
Speaker 2: to share one of the fun features of the city
5:25
Speaker 2: of Boston that you might not be aware of and
5:28
Speaker 2: a little trivia for you if you end up visiting
5:30
Speaker 2: someday in the future. So that's That's Sturrow Day here
5:34
Speaker 2: on the Financial Exchange. Down to business. We've got stocks
5:38
Speaker 2: selling off. We've got bond yields moving up. I mean,
5:41
Speaker 2: bonds selling off. And I want to focus on this phenomenon, Mark,
5:47
Speaker 2: because it has attracted the attention.
5:50
Speaker 3: Of a lot of folks talking about the U.S. debt market.
5:53
Speaker 2: But hopefully you can inform me a little bit about
5:56
Speaker 2: what is going on globally, because this is, in fact,
5:59
Speaker 2: not really a U.S.
6:00
Speaker 3: Phenomenon.
6:01
Speaker 2: And over the last few years, we have seen yields
6:04
Speaker 2: rise precipitously across most developed markets here. And I guess, importantly,
6:12
Speaker 2: the questions are in this order. Why is it happening?
6:17
Speaker 2: And what will be the effects on other types of assets?
6:19
Speaker 5: Hard to answer both of those questions. Because if you'd
6:23
Speaker 5: given your answer six months ago, you might have been wrong.
6:27
Speaker 5: If you were pressed to predict... both the direction and
6:30
Speaker 5: the cause. With respect to the global nature of it,
6:36
Speaker 5: it is true there are common factors that could be
6:38
Speaker 5: driving it. Longer term rates do tend to share a
6:41
Speaker 5: time trend across developed economies. So when rates are rising here,
6:47
Speaker 5: they tend to, though not always, rise in other advanced economies.
6:52
Speaker 5: That's because there's a global market for borrowing. I could
6:56
Speaker 5: buy a German 10-year bond. I can buy a U.S.
6:59
Speaker 2: One.
7:00
Speaker 5: So it could be that U.S. rates are in part–
7:03
Speaker 5: suppose– let me put it to you this way. Suppose
7:06
Speaker 5: the debt doomsayers, of which I'm one, of which I
7:08
Speaker 5: think anybody with a brain is one, it's going to
7:10
Speaker 5: matter eventually. Suppose they're right and it is the prospect
7:15
Speaker 5: of increased deficits and thus debt. growing without bound until
7:20
Speaker 5: it does come to a sudden stop.
7:21
Speaker 3: A common refrain for bond vigilantes.
7:23
Speaker 5: Very common. It's always the culprit.
7:25
Speaker 3: Every time interest rates increase.
7:26
Speaker 5: When you don't know, you guess. Well, of course, it's
7:28
Speaker 5: supply and demand. It doesn't really say much. The demand
7:31
Speaker 5: side is freaking out. Well, yeah, you have to peel
7:35
Speaker 5: back another layer and ask why now. There are good reasons.
7:38
Speaker 5: Suppose that's right. It could be that U.S. rates are
7:41
Speaker 5: pulling up other rates because they do share common characteristics.
7:46
Speaker 5: I'll just leave it at that.
7:48
Speaker 2: A Japanese 30-year government bond isn't that much different from
7:51
Speaker 2: a U.S. 30-year government bond.
7:52
Speaker 5: Well, the government, I shouldn't put it that way because
7:55
Speaker 5: the U.S. Treasuries, let me back up again and say U.S.
7:59
Speaker 5: Treasuries are the world's safe asset, or at least they were.
8:02
Speaker 5: There's evidence that it's no longer the case. And what
8:05
Speaker 5: I mean by that is other central banks and governments
8:09
Speaker 5: and investors around the world, they see them to be
8:12
Speaker 5: as good as cash. You know, you want to be
8:14
Speaker 5: holding U.S. treasuries, excuse me, or did anyway in a crisis.
8:18
Speaker 5: There's some evidence that that so-called convenience yield or safety
8:22
Speaker 5: yield that researchers like to refer to, has evaporated. But
8:27
Speaker 5: we can't get into that. It's too esoteric, and we
8:29
Speaker 5: can't test it. And we don't know why, exactly why
8:32
Speaker 5: things are moving up over the past, call it six weeks.
8:35
Speaker 5: Maybe it's debt jitters. It's probably a combination of debt jitters.
8:38
Speaker 5: And by the way, it's not just us being fiscally reckless. Other, well,
8:42
Speaker 5: Germany and other Western countries are being forced to spend,
8:45
Speaker 5: rightly so, arguably, on defense. They've got to borrow more.
8:48
Speaker 5: That competes for capital. Also, you've got oil going up.
8:51
Speaker 5: That affects everybody's inflation rate. That'll push up longer-term interest rates.
8:56
Speaker 5: So there are a number of plausible factors that could
8:58
Speaker 5: be driving rates up. The big question is, is this
9:01
Speaker 5: a reversal of the trend that the long, so to speak,
9:05
Speaker 5: secular decline in rates that started in 1982 appears to
9:09
Speaker 5: have stopped in 2022? By appears to have stopped, I
9:13
Speaker 5: mean rates here and around the world have pretty much spiked,
9:15
Speaker 5: longer-term rates in particular.
9:18
Speaker 3: Are we.
9:19
Speaker 5: in a new rate regime. We've spent 40 years in
9:23
Speaker 5: the old one. It's going to take some getting used to.
9:25
Speaker 5: I've got as many questions as anybody else does. I
9:28
Speaker 5: don't have good answers, but there are a number of
9:29
Speaker 5: plausible reasons, Mike, for longer-term yields going up here and
9:33
Speaker 5: around the world.
9:34
Speaker 2: If we are in a different rate regime, there's some
9:36
Speaker 2: things I'm comfortable saying and some things I'm not. Long-term,
9:39
Speaker 2: what it means for stock prices and other things, really
9:42
Speaker 2: tough to point out and guess at. But if we
9:46
Speaker 2: are in a different rate regime where rates are going
9:48
Speaker 2: to remain higher for longer and maybe even increase because
9:53
Speaker 2: of these culmination of different things that you just discussed,
9:56
Speaker 2: oil prices, shocks to the system, rising deficits. rising inflation,
10:02
Speaker 2: all of these different effects. If you do buy that
10:05
Speaker 2: that's the case, a few things are true. One, it
10:09
Speaker 2: means higher interest rates for borrowing across the board. And
10:11
Speaker 2: that could mean for buyers of new homes. It could
10:15
Speaker 2: mean for hyperscalers trying to build out their AI data centers.
10:19
Speaker 2: it could mean higher rates of interest for governments trying
10:22
Speaker 2: to borrow money to fund their deficits.
10:24
Speaker 3: So that would be true.
10:26
Speaker 5: Which in turn pushes rates up.
10:28
Speaker 2: Which in turn pushes rates up higher, which could become
10:30
Speaker 2: this kind of vicious cycle.
10:34
Speaker 3: The other just general comment that I'll make is it
10:38
Speaker 3: is tougher. Let me put this the right way.
10:43
Speaker 2: When you are looking at the value of future money
10:49
Speaker 2: that you might make or that a company might make
10:54
Speaker 2: and trying to determine what that is worth in today's dollars,
10:58
Speaker 2: that is heavily dependent on interest rates and inflation expectations.
11:02
Speaker 2: And if those are moving up, then naturally you would
11:06
Speaker 2: be taking a more critical look at what you are
11:08
Speaker 2: willing to pay for something today based on what you
11:11
Speaker 2: think it's going to do in the future.
11:12
Speaker 5: Yeah, that's why there are implications for equities. They're long durations,
11:15
Speaker 5: so to speak. And one way to value a stock
11:19
Speaker 5: is using the discounted cash flow method. If you've heard
11:22
Speaker 5: of Graham and Dodd, if you haven't, you've heard of
11:24
Speaker 5: Warren Buffett. He was tutored by Graham, I think. Anyway,
11:29
Speaker 5: so when interest rates go up, the future value of, say,
11:34
Speaker 5: the value of a dividend you expect to get five,
11:35
Speaker 5: ten years from now comes down. That's just mechanics.
11:38
Speaker 2: Yep.
11:38
Speaker 5: So it does have implications for risk assets. If you
11:41
Speaker 5: believe that dividend is going to grow faster as a
11:43
Speaker 5: result of the borrowing that's pushing those interest rates up,
11:46
Speaker 5: It becomes a little more complicated and interesting.
11:49
Speaker 2: Let's take a quick break. When we come back, a
11:51
Speaker 2: jobs report out this morning. We will get a few
11:54
Speaker 2: more jobs reports later this week, all of which have
11:56
Speaker 2: implications for Kevin Warsh and the Fed. We'll be talking
11:59
Speaker 2: about both next.
12:00
Speaker 1: Breaking business and financial news first throughout the day. Only
12:05
Speaker 1: here on the Financial Exchange Radio Network. Subscribe now to
12:09
Speaker 1: our YouTube page where you'll find daily interviews and full
12:12
Speaker 1: shows of the Financial Exchange. We'll get you caught up
12:15
Speaker 1: on anything and everything you might have missed right here
12:18
Speaker 1: on the Financial Exchange.
12:35
Speaker 2: All right, Mark, it is a heavy jobs week here
12:37
Speaker 2: at the Financial Exchange, and we've gotten a few, just
12:43
Speaker 2: one real jobs report so far. Tomorrow we will be
12:46
Speaker 2: getting the ADP employment report, followed by Friday where we
12:50
Speaker 2: get the monthly jobs report, which arguably in this jobs
12:55
Speaker 2: market I think is going to be the most important
12:57
Speaker 2: indicator for the Fed of jobs. Well, certainly of the
13:02
Speaker 2: ADP versus the monthly JOLTS report.
13:04
Speaker 5: Well, it's the one they use in there. I mean,
13:05
Speaker 5: they don't just lay it all out like we do
13:07
Speaker 5: and talk about them.
13:08
Speaker 2: Sure.
13:08
Speaker 3: They actually have models.
13:09
Speaker 5: They have an input, and it's like, what's the best forecaster?
13:13
Speaker 5: They might use an ensemble, but it's the unemployment rate
13:18
Speaker 5: that they're paying attention to.
13:19
Speaker 2: And that's been the focus for the past Federal Reserve,
13:22
Speaker 2: and presumably this one for the last few years. I
13:25
Speaker 2: think during 2022, you could argue they were looking more
13:28
Speaker 2: heavily at JOLTS reports. Not more heavily than the unemployment rate,
13:32
Speaker 2: but more heavily than they previously did.
13:33
Speaker 5: I shouldn't be dismissive. It might inform their judgment a
13:36
Speaker 5: little bit when they're sitting around the table deciding what
13:39
Speaker 5: us plebs are going to have to pay for interest.
13:42
Speaker 5: But for the most part, the big input is the
13:45
Speaker 5: unemployment rate, like we talked about.
13:47
Speaker 2: So we got the JOLTS report out this morning. What
13:50
Speaker 2: this does is measure the total number of job openings, separations.
13:54
Speaker 2: It's trying to measure turnover. And turnover is important because...
13:58
Speaker 2: It can help you get an indication of which direction
14:00
Speaker 2: the labor market is heading, how much tightness there is
14:03
Speaker 2: in that labor market. If you recall back in the
14:07
Speaker 2: early part of this decade, we were experiencing a labor
14:10
Speaker 2: market that was extraordinarily tight, lending to signing bonuses and
14:14
Speaker 2: all sorts of things that we hadn't seen in certain
14:16
Speaker 2: areas of the labor market for quite some time. We
14:20
Speaker 2: have talked about this labor market quite a bit in
14:23
Speaker 2: the context of equilibrium, and I don't think anything about
14:26
Speaker 2: this report would contradict that. The total job openings did
14:31
Speaker 2: not change much. They came in at about 7.3 million.
14:36
Speaker 2: That was compared to 7.27 million that was anticipated. Hires
14:43
Speaker 2: and separations both didn't change a whole lot for the month.
14:46
Speaker 2: And Same goes for the individual components of that. They
14:50
Speaker 2: break it down between quits, layoffs, discharges, all pretty steady here.
14:54
Speaker 2: And so I think when we put this in the
14:59
Speaker 2: context of Warsh and the meeting that they will have
15:04
Speaker 2: in about two weeks here, it's on the 16th as
15:07
Speaker 2: their press conference meeting starts on the 15th, they're, well,
15:11
Speaker 2: I'll give you my take and then Mark, yours may
15:14
Speaker 2: differ a little bit, but Warsh has given three speeches
15:17
Speaker 2: to this point The first one, he came in as
15:20
Speaker 2: the new Fed chair and really said all the right things.
15:24
Speaker 2: We're serious about bringing inflation down. Inflation is too high,
15:27
Speaker 2: and we're going to handle it. The second meeting occurs then,
15:33
Speaker 2: and there was some anticipation of a rate hike that
15:36
Speaker 2: did not happen. And the general interpretation, including mine, was
15:41
Speaker 2: that his speech itself was a bit bumbly here and
15:46
Speaker 2: there and did not really have a straightforward message. Since then,
15:52
Speaker 2: inflation has not given up. The labor market has remained
15:55
Speaker 2: pretty steady. And after the press conference in Jackson Hole,
16:01
Speaker 2: even more people are anticipating a rate hike at this
16:04
Speaker 2: next meeting.
16:05
Speaker 3: And so.
16:07
Speaker 2: He, to me, in terms of the three speeches that
16:09
Speaker 2: he has given so far, has had Good, bad, good,
16:14
Speaker 2: if I'm just going to qualify them.
16:16
Speaker 5: I don't remember what he said in every speech. All
16:17
Speaker 5: I can tell you, the Fed's job is to balance
16:19
Speaker 5: inflation and unemployment. There are forces that work to push
16:23
Speaker 5: those things in opposite directions in the short term. The
16:25
Speaker 5: Fed tries to heavily influence spending. We measure that by GDP,
16:33
Speaker 5: nominal GDP, not the one we quote every quarter. And
16:36
Speaker 5: that's spending on behalf of? CIG plus net, C, consumers, I, investment, G, government,
16:42
Speaker 5: net exports. Those are the, like, that's the first thing
16:44
Speaker 5: you learn. Yeah, it's spending by everybody. So the Fed
16:49
Speaker 5: can heavily influence that. We all kind of know that.
16:51
Speaker 5: They can print money. They blow it into the, you know,
16:53
Speaker 5: speaking crudely. scatter it into the economy.
16:56
Speaker 3: Yeah, they have a big fan, and they drop it
16:58
Speaker 3: from airplanes.
16:59
Speaker 5: It's not clear that that would work less well, but yeah.
17:02
Speaker 5: So the question on the Fed's mind is always, do
17:05
Speaker 5: we need to print more money and get growth going,
17:08
Speaker 5: or do we need to print it at the same
17:11
Speaker 5: clip we've been printing it? Are we comfortable where the
17:13
Speaker 5: economy is, the growth rate and the inflation rate, or
17:16
Speaker 5: do we need to curtail the supply of money? And
17:19
Speaker 5: they do that now through their policy tool, which is
17:21
Speaker 5: the short-term interest rate, the Fed funds rate. So that's
17:23
Speaker 5: the question they're always asking. Right now, I'd like to
17:28
Speaker 5: say it's a little more confusing than usual, maybe because
17:30
Speaker 5: we're at war and that's pushing up inflation, and the
17:32
Speaker 5: short term could work its way to inflation expectations and
17:36
Speaker 5: become embedded.
17:37
Speaker 2: Other reasons it's more confusing than normal is because we
17:39
Speaker 2: have a new person that is heading the committee who
17:41
Speaker 2: has a different style of communication than the previous three chairs.
17:45
Speaker 5: We've become really reliant on communication personality and other esoteric
17:51
Speaker 5: factors and other tough-to-define factors, I should say. And I
17:55
Speaker 5: guess that's fair because the personality of the central banker,
17:59
Speaker 5: the person that runs the Fed in our case, but
18:00
Speaker 5: central bank just means generically the entity that controls the
18:04
Speaker 5: supply of money in a country. It is important. They
18:06
Speaker 5: have to have credibility as an inflation fighter.
18:08
Speaker 1: It matters.
18:09
Speaker 5: It makes it easier to bring inflation down when the
18:11
Speaker 5: time comes because we believe it and we set expectations accordingly.
18:16
Speaker 5: It just makes it less painful. So Warsh's personality is
18:20
Speaker 5: how he's predisposed to uh... with respect to the inflation
18:23
Speaker 5: unemployment trade off those things are important they're not just
18:27
Speaker 5: fodder for the media so i get the whole what
18:29
Speaker 5: did he say was he clear was he not clear
18:31
Speaker 5: the overriding point i think is that he is a
18:34
Speaker 5: hard money guy which is an old-fashioned way of saying
18:37
Speaker 5: he prioritizes inflation above fine-tuning the unemployment rate, and I'm
18:43
Speaker 5: very sympathetic with that, so I like the guy. We'll see.
18:47
Speaker 5: The rubber's got to meet the road.
18:48
Speaker 2: Yeah, and where the rubber, you know, short-term could meet
18:51
Speaker 2: the road here is this JOLTS report does not signify
18:54
Speaker 2: any real changes to the labor market, and more importantly,
18:56
Speaker 2: we will get the Friday jobs report. If that one
18:58
Speaker 2: does the same and signifies, hey, labor market's still pretty steady,
19:02
Speaker 2: and then if we get a CPI report later this
19:04
Speaker 2: month that indicates still harder-than-comfortable inflation... The rubber starts hitting
19:11
Speaker 2: the road at that September 16th meeting and whether or
19:14
Speaker 2: not the committee chooses to raise interest rates, because what
19:18
Speaker 2: we have talked about, the risk to the Fed for
19:21
Speaker 2: the last few years has been a credibility risk. And
19:24
Speaker 2: that's what people are asking questions about. And yeah, in
19:28
Speaker 2: a little bit over two weeks, we will see if
19:29
Speaker 2: that credibility gets further tested.
19:31
Speaker 3: Quick break. Market Update is next with Wall Street Watch.
19:39
Speaker 1: Like us on Facebook and follow us on Twitter at TFEShow.
19:43
Speaker 1: Breaking business news is always first, right here on the
19:46
Speaker 1: Financial Exchange Radio Network. Time now for Wall Street Watch.
19:52
Speaker 1: Tracking the stocks, the data, and the headlines driving markets
19:55
Speaker 1: so far today, right here on the Financial Exchange Radio Network.
19:59
Speaker 4: Global bond sell-off is putting Wall Street on edge this
20:02
Speaker 4: morning over inflation concerns and increased expectations of an upcoming
20:06
Speaker 4: interest rate hike. Right now the Dow is down 33 points.
20:12
Speaker 4: Not really much movement there. S & P 500 down
20:14
Speaker 4: about a third of a percent or 25 points lower.
20:17
Speaker 4: NASDAQ is down seven-tenths of one percent or 185 points lower.
20:22
Speaker 4: Rust 2000 also down seven-tenths of one percent. Ten-year treasury
20:27
Speaker 4: yield is flat at 4.75 percent.
20:28
Speaker 1: And oil....
20:31
Speaker 4: Jumping 2% higher again today, trading at $ 87 a barrel.
20:36
Speaker 4: Chinese fast fashion giant Shein made its stock market debut
20:41
Speaker 4: in Hong Kong that's somewhat disappointed, where shares fell by
20:44
Speaker 4: as much as 10% before rebounding to close around the
20:47
Speaker 4: IPO price, leaving the company with a valuation of $ 26 billion.
20:51
Speaker 4: Shein's valuation is down from its 2022 peak of $ 100 billion. Meanwhile,
21:00
Speaker 4: today marks the first day for new Apple CEO John Ternes,
21:03
Speaker 4: following Tim Cook's 15-year run as the tech giant's chief executive.
21:08
Speaker 4: Apple shares are up 2% today. Elsewhere, shares in GoPro
21:12
Speaker 4: rocketing nearly 80% higher after Bloomberg reported that popular YouTuber
21:17
Speaker 4: Mark Fischbach had accumulated an 8.5% stake in the action
21:22
Speaker 4: camera company. And after today's closing bell, We'll see earnings
21:26
Speaker 4: from Dell Technologies and Palo Alto Networks. I'm Tucker Silva.
21:31
Speaker 4: That is Wall Street Watch.
21:34
Speaker 2: Axios reports that big earnings failed to answer the big
21:37
Speaker 2: AI questions. This article then goes on for three pages
21:41
Speaker 2: to not list out what the big AI questions are.
21:43
Speaker 3: So I guess they are.
21:44
Speaker 2: Leaving it up to us to determine what those big
21:47
Speaker 2: AI questions are.
21:48
Speaker 3: I figured you hadn't.
21:50
Speaker 2: Is that what this stack is?
21:54
Speaker 3: I believe what– well, what are the big AI questions, Mark?
21:58
Speaker 5: Is it going to make– there's only one question.
22:00
Speaker 3: Okay, good.
22:01
Speaker 5: Almost dropped an expletive. There's only one question.
22:05
Speaker 3: Do we get like one a year? Is this like
22:07
Speaker 3: a PG-13 movie, Tucker, where we're allowed one?
22:09
Speaker 5: FCC's not enforcing these things anymore, right? They're busy with
22:12
Speaker 5: The View and other.
22:14
Speaker 3: Tucker?
22:14
Speaker 1: What?
22:15
Speaker 3: Do we get one swear, like one F word a
22:17
Speaker 3: year or something like that? No, not at all.
22:19
Speaker 2: Are you sure?
22:19
Speaker 1: No.
22:20
Speaker 3: Why do PG-13 movies get that? That seems like.
22:24
Speaker 4: A bunch of baloney. As far as I'm concerned, we
22:27
Speaker 4: should be able to say S. Like, no question about it.
22:30
Speaker 4: Because they say it on TV in London and Europe
22:32
Speaker 4: and all that.
22:33
Speaker 3: Like, it was nothing.
22:34
Speaker 5: Sorry, continue.
22:35
Speaker 4: Right.
22:36
Speaker 5: There's only one question. Is it going to make money
22:38
Speaker 5: and when? Are revenues eventually going to rise to meet
22:42
Speaker 5: the capital outlay required to keep those revenues coming? I mean,
22:47
Speaker 5: this is the like it's the eternal question that you
22:50
Speaker 5: put to any. Am I going to outlay capital today?
22:54
Speaker 5: If so, what rate am I comfortable borrowing? And that
22:57
Speaker 5: in turn depends on what I think the revenues were.
23:00
Speaker 5: Every business person goes through this calculation.
23:04
Speaker 2: I'd also like to know if AI is going to
23:05
Speaker 2: end humanity as we know it, but that's kind.
23:07
Speaker 3: Of a different question.
23:08
Speaker 5: Well, those are incidental, philosophical, highly... That's only slightly more speculative,
23:12
Speaker 5: by the way.
23:13
Speaker 2: I'm guessing for most people the will it ever make
23:16
Speaker 2: money question is more of the side question than the
23:20
Speaker 2: will it end humanity question, but yeah, I take your point.
23:23
Speaker 3: Yeah.
23:23
Speaker 5: I mean, for us on this show, if you're Joe
23:26
Speaker 5: Rogan or something, you wax philosophical about more abstract issues
23:31
Speaker 5: maybe or whatever. None of those people know what they're
23:33
Speaker 5: talking about. Nobody does when it comes to AI's potential.
23:37
Speaker 5: Experts seem to think, for what they're two cents is worth,
23:39
Speaker 5: that it will contribute to productivity and growth. How much
23:43
Speaker 5: is hard to say. Estimates run the gamut from a
23:47
Speaker 5: couple tenths of a percentage point, which is not, by
23:49
Speaker 5: the way, anything to sneeze at. Cumulatively, the effect could
23:52
Speaker 5: be huge, to much, much bigger effects. Nobody knows. Nobody
23:56
Speaker 5: knows who the winners will be. And nobody knows whether
23:59
Speaker 5: or not these investments will pay off quickly enough To
24:02
Speaker 5: placate shareholders and lenders. So, like, I bundled all that
24:11
Speaker 5: into one big question, which I put very crudely, is
24:14
Speaker 5: when are they going to make money? But I think
24:16
Speaker 5: it does come down to something like that if you had.
24:19
Speaker 3: To distill it. When's put up or shut up time?
24:21
Speaker 5: You could. If we're going to bumper sticker this, yeah,
24:24
Speaker 5: something like that might be a little catchier.
24:26
Speaker 2: But that is my question. When is put up or
24:28
Speaker 2: shut up time? When do investors care about whether or
24:30
Speaker 2: not these companies can make money? Who was it last week, Tucker?
24:34
Speaker 2: We covered a piece. I don't remember who wrote it.
24:37
Speaker 2: I believe it was a former Fed governor. Basically predicting that, hey,
24:41
Speaker 2: by end of 2027, we'll know. Investors will.
24:46
Speaker 3: Sounds about right, doesn't it?
24:48
Speaker 2: I would be interested in that time frame because by
24:50
Speaker 2: end of 2027, my guess, and this is a guess,
24:53
Speaker 2: would be that the pace of increase in spending would
24:55
Speaker 2: have had to slow by then. Right now, we are
24:58
Speaker 2: in the huge comparable increase in spending. It's tough for
25:03
Speaker 2: me to believe that Alphabet, for example, is going to
25:05
Speaker 2: be able to go from spending $ 20 billion... two years
25:10
Speaker 2: ago to $ 200 billion this year to $ 400 billion next year.
25:15
Speaker 2: So I think it's as good a guess as anybody.
25:18
Speaker 2: But on the other hand, there's this piece in Barron's
25:20
Speaker 2: by Al Root today that, no, don't worry about it
25:23
Speaker 2: right now.
25:24
Speaker 3: It's nowhere near a problem.
25:26
Speaker 5: Nowhere near, forgive me, I may not have read that.
25:29
Speaker 5: Nowhere near a problem because the hyperscalers are generating like
25:32
Speaker 5: $ 700 billion in cash a year, additional incremental cash a year.
25:36
Speaker 5: So they can finance this spending regardless of what happens
25:39
Speaker 5: to interest rates, and what happens to the economy more
25:42
Speaker 5: broadly indefinitely?
25:43
Speaker 3: Is that sort of the thesis?
25:44
Speaker 2: Here is his claim, which I just have no means
25:47
Speaker 2: of verifying in any real way. Quote, while the AI
25:51
Speaker 2: CapEx explosion is almost certainly going to end badly, so
25:54
Speaker 2: he does acknowledge that piece, is that he doesn't think
25:56
Speaker 2: it's going to end well for market investors, the chances
26:00
Speaker 2: of it ending badly now are low. Again, this is
26:03
Speaker 2: from a Barron's piece today. He goes on to talk
26:06
Speaker 2: about the previous... technological expansion bubbles over America's 250-year history
26:12
Speaker 2: and when they have become problems. And his theory is
26:16
Speaker 2: that spending on transformation technology equivalent to about 25% of
26:20
Speaker 2: economic output, that's the level at which things become really hairy.
26:26
Speaker 2: And he says we're nowhere near that right now.
26:29
Speaker 5: Jeez, I almost dropped another expletive. Give me. Excuse me.
26:33
Speaker 2: Does he not?
26:34
Speaker 5: We have a 30... five-ish trillion dollar economies. He's saying
26:38
Speaker 5: that we have to wait until spending gets to $ 8 trillion?
26:44
Speaker 3: Yeah. That's his benchmark for where it's going to be.
26:48
Speaker 3: Cumulatively or a year? Great questions.
26:51
Speaker 2: And this is why I say this is impossible for
26:53
Speaker 2: me to back up and justify. But he goes and
26:57
Speaker 2: says that over boom and bust cycles like the railroad
27:01
Speaker 2: expansion of the 1860s, the electric He must mean cumulative then.
27:06
Speaker 2: The dot-com and housing bubbles of the 90s and 2000s. Yeah,
27:09
Speaker 2: he's trying.
27:10
Speaker 5: To get at some measure of saturation. Like when all
27:13
Speaker 5: the capital sunk into AI is a quarter of one
27:17
Speaker 5: year's GDP, you're saturated, you've got overinvestment, it leads to
27:21
Speaker 5: ruinous competition, in turn leads to bankruptcies, in turn leads
27:24
Speaker 5: to a dearth of investment, which has historically been the
27:28
Speaker 5: big driver in business cycles. Yeah, I can see those
27:32
Speaker 5: links happening. when I sort of try to put them
27:35
Speaker 5: together that way. He's right. It is going to happen.
27:39
Speaker 5: We are seeing probably overinvestment. There will be too much supply.
27:47
Speaker 5: That will push down prices.
27:49
Speaker 2: The other claim he makes that I tend to think
27:50
Speaker 2: is probably right, it's usually some external force that disrupts
27:54
Speaker 2: it rather than some natural cycle just naturally dying.
27:57
Speaker 3: I don't know if I agree with that at all.
27:59
Speaker 3: I mean, dot-com boom.
28:02
Speaker 1: What?
28:02
Speaker 2: Rising interest rates, 9-11, things that might have.
28:06
Speaker 5: 9-11 was way later. The recession had already started before 9-11.
28:09
Speaker 5: We were already two quarters into it. I disagree with
28:11
Speaker 5: that completely. A change in sentiment, a change in people's
28:15
Speaker 5: perception of AI prospects is what's going to do it.
28:18
Speaker 5: At that point, everything just sort of falls apart. We'll
28:20
Speaker 5: still have a lot of great infrastructure. Imagine what that's
28:24
Speaker 5: going to do to the push to put a data
28:26
Speaker 5: center in everybody's backyard. People are already, to say the least,
28:30
Speaker 5: apprehensive about that. I mean, it's going to be a
28:33
Speaker 5: question of will politics even allow this stuff to be
28:37
Speaker 5: built out beyond a point?
28:39
Speaker 2: This might be the least loved technology since like the Luddites.
28:43
Speaker 5: Because we're not used, unlike the internet, which helped me
28:46
Speaker 5: every year do my job better. Like with every upgrade of,
28:50
Speaker 5: I'm going to confuse some things here, but every time
28:52
Speaker 5: a new version of Microsoft Office came out, you know,
28:55
Speaker 5: when Clippy started jumping off your screen telling you how
28:57
Speaker 5: to format stuff, it was exciting. Made you more productive.
29:00
Speaker 5: It was more interesting to be at work. That's not
29:03
Speaker 5: the case here yet. It just isn't. We don't feel
29:05
Speaker 5: it yet. We're not experiencing it for the most part.
29:08
Speaker 5: Here and there, like, co-pilot's cool. It'll proof your documents.
29:12
Speaker 3: I just... Granted, none of.
29:15
Speaker 2: No human alive has lived through any of these other
29:18
Speaker 2: technological moves other than the internet. But the feeling of, like, shame...
29:26
Speaker 2: I guess it's shame from using the technology that I
29:29
Speaker 2: see amongst people, right?
29:31
Speaker 3: We had.
29:32
Speaker 2: Somebody write a piece the other week that was largely
29:35
Speaker 2: written by A.I. Druckenmiller did that and he had to
29:39
Speaker 2: talk about it publicly and was facing a bunch of criticism.
29:42
Speaker 2: The degree to which people are ashamed of using this technology,
29:46
Speaker 2: I find to be a bit unique in terms of.
29:50
Speaker 1: Only when they get caught, though.
29:53
Speaker 3: Well, yeah, I mean, I'm not saying that they won't
29:56
Speaker 3: do it.
29:56
Speaker 5: Shame stops you from doing it in the first place.
29:59
Speaker 5: That's like, ooh, how do I quickly salvage my public image?
30:02
Speaker 3: Yeah, yeah.
30:04
Speaker 5: What's the shame in using it to proof a document?
30:06
Speaker 5: I do it all the time.
30:07
Speaker 3: Yeah, I'm right there with you.
30:11
Speaker 2: But I do sense this degree of reluctance and shame
30:15
Speaker 2: in spite of, What did you report this morning, that
30:18
Speaker 2: according to surveys, what, two-thirds of workers are using it
30:21
Speaker 2: in the workforce?
30:21
Speaker 5: We're at about 40% now, according to the latest. They
30:24
Speaker 5: are using it at work, and a small fraction of
30:25
Speaker 5: those says they save time.
30:27
Speaker 2: Yeah, it just seems to me to be one of
30:30
Speaker 2: the most hated technological booms that we've ever seen. Nobody
30:34
Speaker 2: wants the data centers in their backyard. Nobody's happy about
30:36
Speaker 2: the environmental impact. And generally speaking, nobody really likes the
30:41
Speaker 2: creative stuff that it is producing, but everyone does admit
30:44
Speaker 2: that it has the significant possibility of creating a whole
30:47
Speaker 2: bunch of productivity.
30:48
Speaker 5: The AI overlords have been talking for the past 10
30:50
Speaker 5: years about how it's going to eliminate everybody's job and
30:53
Speaker 5: turn us all into batteries out of the matrix.
30:55
Speaker 3: Yeah, that might be why. Let's take a quick break.
30:58
Speaker 2: When we return, I want to talk about the SEC
31:04
Speaker 2: and asking some tough questions of some investment firms out there.
31:08
Speaker 2: That's next on the Financial Exchange.
31:10
Speaker 1: Find daily interviews and full shows of The Financial Exchange
31:13
Speaker 1: on our YouTube page. Subscribe to our page and get
31:16
Speaker 1: caught up on anything and everything you might have missed.
31:19
Speaker 1: This is The Financial Exchange Radio Network. From Fed decisions
31:24
Speaker 1: to market moves, watch The Financial Exchange live on X.
31:28
Speaker 1: This is The Financial Exchange.
31:47
Speaker 2: This next story is one that I didn't really see
31:50
Speaker 2: much exposure to until very recently with the SpaceX IPO.
31:54
Speaker 2: But increasingly, there has been growing interest in private markets
32:00
Speaker 2: over the course of, frankly, the last quarter century, I
32:03
Speaker 2: think I have to go back to.
32:04
Speaker 5: Yeah, it started about 2000.
32:06
Speaker 3: Yeah.
32:06
Speaker 2: So fewer companies as a portion of the total of
32:11
Speaker 2: total companies in the United States are publicly listed today.
32:15
Speaker 3: There's a number of theories about why.
32:17
Speaker 2: Part of it probably has to do with the costs
32:19
Speaker 2: of being a publicly held company. Part of it probably
32:22
Speaker 2: has to do with the amount of funding available for
32:24
Speaker 2: privately held companies. You didn't used to have trillion-dollar privately
32:28
Speaker 2: held companies because you couldn't find the cash to fund
32:30
Speaker 2: yourselves outside of public markets.
32:33
Speaker 3: Now you can.
32:34
Speaker 2: In any case, that has led to growing interest in
32:37
Speaker 2: privately held companies, and a number of different investment firms
32:41
Speaker 2: have been popping up giving people access to those privately
32:46
Speaker 2: held companies, or at least claiming that they have the
32:50
Speaker 2: ability to do so. And for what I deem to
32:53
Speaker 2: be pretty good reason, the SEC has some questions about that.
32:57
Speaker 2: We covered a piece from, I believe it was the journal,
33:00
Speaker 2: right around the time of the SpaceX IPO, where this
33:03
Speaker 2: investment firm was advertising to folks that, oh, we have
33:07
Speaker 2: shares of, you know, this privately held SpaceX firm. And
33:11
Speaker 2: in addition to others, and you can get early access
33:14
Speaker 2: to it by investing here, a number of people did
33:18
Speaker 2: receive confirmation from the investment firm that they, you know,
33:22
Speaker 2: had ownership in this fund, which then owned some SpaceX,
33:26
Speaker 2: only to find out after the IPO occurred that, oh, yeah,
33:30
Speaker 2: we kind of sold our shares ahead of the IPO.
33:33
Speaker 2: And so you don't actually own what you thought you did.
33:37
Speaker 2: I have no real idea if they properly or improperly
33:40
Speaker 2: disclosed all of that to their investors, but increasingly this
33:43
Speaker 2: stuff is out there and the SEC is asking questions,
33:47
Speaker 2: I think for good reason.
33:49
Speaker 3: I guess the.
33:50
Speaker 2: Major message here would be you need to know what
33:55
Speaker 2: you're doing when you're investing in anything. There are some
33:59
Speaker 2: degree of protections available to you when you're doing so
34:02
Speaker 2: in public markets, but you still need to understand what
34:05
Speaker 2: it is that you are doing it is a lot
34:08
Speaker 2: tougher to understand what you're doing and get good information
34:11
Speaker 2: on privately held securities. That's why they have all sorts
34:14
Speaker 2: of rules on who's allowed to invest in them, what
34:17
Speaker 2: sort of net worth or income or investment knowledge you
34:19
Speaker 2: need to have.
34:21
Speaker 3: And buyer beware.
34:23
Speaker 2: I think, is kind of the message when it comes
34:24
Speaker 2: to private markets generally, because it can be the a
34:30
Speaker 2: bit of that nature in those private markets with these
34:33
Speaker 2: investigations that I don't even know if they're considered as investigations.
34:36
Speaker 5: So they're looking into a registered, what we call a
34:39
Speaker 5: registered investment advisor or ETF managers.
34:41
Speaker 3: I think they're ETF investment managers. Excuse me. Okay.
34:44
Speaker 1: Yeah. Yeah.
34:46
Speaker 5: Some of them have contracted out for the expertise. They
34:49
Speaker 5: go to a big institutional consultant who's been advising pension
34:52
Speaker 5: funds for 30 years on private equity. Others may be
34:55
Speaker 5: trying to do it themselves, which is fraught with danger
34:59
Speaker 5: because you need expertise and diligence in investigating investment prospects
35:05
Speaker 5: in that area. It's really very, very specialized.
35:10
Speaker 4: Leaving your IRA to your children may sound like the
35:13
Speaker 4: obvious choice, but how they receive that money could have
35:18
Speaker 4: important tax consequences. Cushing and Dolan has a new guide,
35:22
Speaker 4: Why Name Your Estate an IRA Beneficiary. Under current rules,
35:26
Speaker 4: most adult children who inherit an IRA must withdraw the
35:30
Speaker 4: money within 10 years. That could mean taking retirement distributions
35:35
Speaker 4: while they're still working and earning income, potentially creating a
35:39
Speaker 4: larger tax bill. That's one reason why your IRA beneficiary
35:44
Speaker 4: should be part of your overall estate plan. Who receives
35:47
Speaker 4: the account, how they receive it, and the tax consequences
35:51
Speaker 4: that may follow all deserve careful consideration. Get Cushing and
35:56
Speaker 4: Dolan's new guide called Why Name Your Estate? An IRA
36:00
Speaker 4: beneficiary by calling 866-848-5699. That's 866-848-5699. Or you can request
36:02
Speaker 4: the guide from their website, LegalExchangeShow.com.
36:15
Speaker 1: The proceeding was paid for and the views expressed are
36:17
Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
36:19
Speaker 1: or Armstrong Advisory may contact you offering legal or investment services.
36:23
Speaker 1: Cushing and Armstrong do not endorse each other and are
36:25
Speaker 1: not affiliated.
36:25
Speaker 3: Mark, I actually want to stay on this previous subject
36:27
Speaker 3: for a moment.
36:28
Speaker 2: Not necessarily on those companies that are selling access to
36:31
Speaker 2: privately held funds. Am I wrong in my view of
36:38
Speaker 2: public markets today that they have become immensely, the investment
36:42
Speaker 2: tools that investors have access today have become immensely more
36:46
Speaker 2: complicated than they were.
36:47
Speaker 3: A quarter century ago?
36:48
Speaker 5: By tools, you mean?
36:49
Speaker 3: ETFs, funds.
36:51
Speaker 5: Well, there's certainly more of them.
36:52
Speaker 2: Yeah.
36:52
Speaker 5: More ETFs than actual stocks, as you know.
36:55
Speaker 3: Yeah.
36:55
Speaker 5: So yeah, in the sense that there are way more choices.
36:58
Speaker 5: If you were doing a search for a vehicle, you
37:00
Speaker 5: wanted to buy a large company stock fund. If you
37:03
Speaker 5: were doing this 25 years ago, you were probably only
37:06
Speaker 5: looking at mutual funds. Not necessarily. There were ETFs, obviously,
37:10
Speaker 5: but they were brand new for the most part, and
37:11
Speaker 5: they were used entirely in retail accounts, never institutional like
37:17
Speaker 5: a 401k. And it was just easier to do due
37:20
Speaker 5: diligence back in the day. There were fewer of everything.
37:23
Speaker 5: So you had fewer. There were plenty of low-cost options.
37:27
Speaker 5: There are far more today. all the major investment ingredients
37:31
Speaker 5: were there. Arguably all you needed to be successful in
37:34
Speaker 5: investing was out there 40 years ago, right? In relatively
37:37
Speaker 5: cheap rapper form.
37:40
Speaker 2: I think the danger here that I see is, and
37:43
Speaker 2: maybe it's not there because so many people do the
37:45
Speaker 2: majority of their investing in their 401k and that's where
37:47
Speaker 2: they learn a lot of their lessons. And you might
37:51
Speaker 2: hate this, but the nice thing about the 401k is
37:53
Speaker 2: your options are limited there. You can only screw up
37:55
Speaker 2: so much given how much they limit the options generally.
37:59
Speaker 3: Um, My worry would be.
38:02
Speaker 2: The lessons that investors are learning today have to do
38:04
Speaker 2: with such a litany of different choices.
38:06
Speaker 3: We should talk more about this. Yeah, people are starting
38:09
Speaker 3: to confuse.
38:10
Speaker 2: Investing versus gambling, I think.
38:12
Speaker 3: And that's the danger that I worry about for markets.
38:14
Speaker 2: Let's take a quick break. A lot more to cover
38:16
Speaker 2: in the second hour of The Financial Exchange. As you
38:18
Speaker 2: can probably tell, we'll be right back.