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Is Central Bank independence a good or bad thing? · The Financial Exchange Show

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Speaker 1: Zada and Mike Armstrong.
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Speaker 2: Hope y'all had a great weekend. It's Chuck, Mike and
1:17
Speaker 2: Tucker with you. And we've got a busy week on
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Speaker 2: tap here as far as a combination of economic data,
1:26
Speaker 2: We've got earning season kicking off as well. Tomorrow, we're
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Speaker 2: going to be getting the CPI data consumer Price Index
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Speaker 2: at eight thirty am. Also new home sales data coming
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Speaker 2: out at ten am. Wednesday, We've got the Producer Price
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Speaker 2: Index at eight thirty am along with retail sales, and
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Speaker 2: then existing home sales come out at ten am. Thursday.
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Speaker 2: We've got weekly jobless claim, so again not you know,
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Speaker 2: not nothing, You've got, you know, some pretty decent stuff
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Speaker 2: that we're going to be looking at this week, and
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Speaker 2: then on the earning side, if they tomorrow, We've got
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Speaker 2: JP Morgan Bank, New York, Mellon and Delta. We've got
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Speaker 2: Bank of America's City Group in Wells Fargo on Wednesday,
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Speaker 2: and then Thursday Morgan Stanley, Goldman, Sachs and Blackrock all reporting.
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Speaker 2: So overall, pretty busy week As we continue into the
2:18
Speaker 2: new year, I do believe it's no longer appropriate to
2:20
Speaker 2: say Happy New Year. Now you can only say it
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Speaker 2: with a question. Now, you know, hey, Mike, Happy New Year.
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Speaker 3: I've been trying to trick people into saying Happy New
2:28
Speaker 3: Year to Tucker on the show every day, but we
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Speaker 3: basically did just say Happy New Year. So I think
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Speaker 3: we got it covered for today. I asked Paul, yes,
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Speaker 3: you know, hey, Paul, have you seen Tucker yet since
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Speaker 3: twenty twenty five? Hattie, do you have anything.
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Speaker 2: To say you seen him?
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Speaker 4: He had not, and he said happy.
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Speaker 2: No, Yeah, well that's great in any case, over the weekend,
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Speaker 2: rather last night, I think it was maybe seven o'clock
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Speaker 2: seven thirty or so. J Powell or not him. I'm
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Speaker 2: sure he doesn't run the Federal Reserves website or x
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Speaker 2: account either one. I'm sure it's not really his thing.
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Speaker 2: But the Federal Reserve put up a video of j. Powell,
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Speaker 2: and here is what Jay had to say.
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Speaker 5: On Friday, the Department of Justice served the Federal Reserve
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Speaker 5: with grand jury subpoenas threatening a criminal indictment related to
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Speaker 5: my testimony before the Senate Banking Committee last June. That
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Speaker 5: testimony concerned, in part, a multi year project to renovate
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Speaker 5: historic Federal Reserve office buildings. I have deep respect for
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Speaker 5: the rule of law and for accountability in our democracy.
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Speaker 5: No one, certainly not the Chair of the Federal Reserve,
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Speaker 5: is above the law. But this unprecedented action should be
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Speaker 5: seen in the broader context of the administration's threats and
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Speaker 5: ongoing pressure. This new threat is not about my testimony
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Speaker 5: last June, or about the renovation of the Federal Reserve buildings.
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Speaker 5: It is not about Congress's oversight rule. The Fed, through
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Speaker 5: testimony and other public disclosures, made every effort to keep
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Speaker 5: Congress informed about the renovation project. Those are pretexts. The
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Speaker 5: threat of criminal charges is a consequence of the Federal
4:12
Speaker 5: Reserve setting interest rates based on our best assessment of
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Speaker 5: what will serve the public, rather than following the preferences
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Speaker 5: of the President. This is about whether the Fed will
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Speaker 5: be able to continue to set interest rates based on
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Speaker 5: evidence and economic conditions, or whether instead monetary policy will
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Speaker 5: be directed by political pressure or intimidation. I have served
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Speaker 5: at the Federal Reserve under four administrations, Republicans and Democrats alike.
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Speaker 5: In every case, I have carried out my duties without
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Speaker 5: political fear or favor, focused solely on our mandate of
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Speaker 5: price stability and maximum employment. Public service sometimes requires standing
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Speaker 5: firm in the face of threats. I will continue to
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Speaker 5: do the job the Senate confirmed me to do with
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Speaker 5: integrity and a commitment to serving the American people.
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Speaker 2: Okay, so J Powell saying, Hey, on Friday, we received,
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Speaker 2: you know, a subpoena from a grand jury requesting information.
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Speaker 2: It is ostensibly related to the renovation project at the FED.
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Speaker 4: And the testimony they gave about it. Yep.
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Speaker 2: And then Jay saying, in no uncertain terms, this is
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Speaker 2: not what this is actually about. This is about the
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Speaker 2: President trying to use this to force me to lower
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Speaker 2: interest rates where the Federal Reserve Committee doesn't believe it's warranted.
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Speaker 2: So my first take on this when I heard it is,
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Speaker 2: y'all ever watch Wolf of Wall Street. Yes, you got
5:45
Speaker 2: Leo standing up there, and you know he's, you know,
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Speaker 2: thinking about stepping down, and then he goes, you know,
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Speaker 2: I'm not effing leaving Like that's that's basically J. Powell
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Speaker 2: doesn't really answer these questions ever, Like, pretty much, whenever
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Speaker 2: asked questions about any of this stuff, he has generally said,
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Speaker 2: that's not for me to say. There's you know, you know,
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Speaker 2: an ongoing project. We're not going to talk about this
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Speaker 2: this is for Congress, this is for the executive branch.
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Speaker 2: Like he basically always defers.
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Speaker 3: You could teach a masterclass in speaking for four hours
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Speaker 3: while not answering any questions.
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Speaker 2: The fact that he came out and said this is
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Speaker 2: not about what it sounds like it is about is
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Speaker 2: about as aggressive as you will get Jay Powell to be.
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Speaker 3: It's a huge departure for him, and frankly any recent
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Speaker 3: leader of the Federal Reserve correct.
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Speaker 2: And so I think it puts Powell and the executive
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Speaker 2: branch on a clear collision course where someone is either
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Speaker 2: going to have to back down on this or it's
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Speaker 2: going to be a very nasty, ugly public fight that
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Speaker 2: I have no idea how it will resolve.
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Speaker 3: Right, And let's be clear, it's not as though Chuck
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Speaker 3: and I have any idea what the grand jury is reviewing.
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Speaker 3: Perhaps there is incredibly damning evidence of j. Powell that
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Speaker 3: is being presented, but if there were, I would have
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Speaker 3: expected to see it by now, I guess is the concern.
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Speaker 4: But nonetheless, this is going to proceed, and.
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Speaker 3: With a lot of these grand juries that have happened
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Speaker 3: recently over the course of the last few as the
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Speaker 3: last year, there's many of them that have not gotten
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Speaker 3: very far at all. They've been tossed out pretty immediately,
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Speaker 3: and so I don't think it's going to take months
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Speaker 3: and years to discover, you know, what it is the
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Speaker 3: White House is attempting to do here and what evidence
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Speaker 3: they have to support their claims.
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Speaker 2: Well, I hope if you're on the grand jury, it
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Speaker 2: doesn't take years, right, you know, you got to get
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Speaker 2: back to work pretty quick. So I think, look, ultimately,
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Speaker 2: we don't know anything about the facts that are being
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Speaker 2: debated by the Grand Jury. I couldn't tell you if
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Speaker 2: there's anything legit in there or not. This is the
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Speaker 2: same thing that we said last summer when this was
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Speaker 2: you know, first being brought up. What I can't tell
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Speaker 2: you is whatever's going on with the rent at the Fed. A.
8:02
Speaker 2: It's being paid for by the Fed. It's not like
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Speaker 2: taxpayer dollars around the hook. B. It's something where it's
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Speaker 2: not you know, impacting positively or negatively. J Powell and
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Speaker 2: the whole rest of the cruis ability to manage interest rates.
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Speaker 2: There have been times in the last you know decades
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Speaker 2: under Powell where I think the Fed's done an admirable
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Speaker 2: job managing things. There are times when I think they've
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Speaker 2: done a remarkably poor job that I think Mark Vandetti
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Speaker 2: would adequately characterize as a what's the world here? That's
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Speaker 2: the one. So I think that when you look at
8:37
Speaker 2: this ultimately, it boils down to one question more than
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Speaker 2: anything else, and that is should there be an independent
8:48
Speaker 2: Federal Reserve? How bright should those lines be? And what
8:53
Speaker 2: are the pros and cons of central bank independence? Because
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Speaker 2: that's the whole ballgame here that we're getting it.
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Speaker 4: Yeah, and by the way, like my personal hope, how
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Speaker 4: do I say this? Right?
9:06
Speaker 3: I wouldn't want to see a corrupt head of the
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Speaker 3: Federal Reserve, but I kind of hope that there is
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Speaker 3: some very clear evidence here because if not, if this
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Speaker 3: is a bullying intimidation aspect here, then it is going
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Speaker 3: to get much uglier and going to be really problematic
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Speaker 3: for the entire future of the FED for a whole
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Speaker 3: bunch of reasons. The biggest one has to do with
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Speaker 3: the fact that it is a committee that very much
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Speaker 3: believes they themselves should be independent. And so I'm kind
9:39
Speaker 3: of sitting here saying, wow, I hope that there is
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Speaker 3: some really damning evidence for J. Powell that causes him
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Speaker 3: to be in some serious.
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Speaker 4: Hot water brigs.
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Speaker 3: If there isn't, then it is pure intimidation and a
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Speaker 3: really dangerous threat to the Federal Reserve and to just
9:56
Speaker 3: kind of generally our financial system.
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Speaker 2: Let's take a quick break when we come back. What's
10:01
Speaker 2: kind of start from the first question that this all
10:05
Speaker 2: resides upon. Is an independent central bank a good or
10:12
Speaker 2: bad thing? We'll discuss right after this.
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10:54
Speaker 2: All right, So we're talking about the idea of central
10:58
Speaker 2: bank independence here, and the question that we need to
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Speaker 2: start from is central bank independence a good or bad thing?
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Speaker 2: And I think even before there, like we have to
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Speaker 2: kind of define what central bank independence actually means. So
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Speaker 2: I don't think anyone is you know, sitting out there suggesting, hey,
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Speaker 2: let's go and just you know, we're not gonna you know,
11:29
Speaker 2: control monetary policy at all. We're just gonna let you know,
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Speaker 2: JP Morgan Chase, whatever they want to do is gonna
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Speaker 2: be you know what monetary policy is.
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Speaker 4: Sure.
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Speaker 3: So I mean prior to what nineteen fifty, the Federal
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Speaker 3: Reserve was basically an arm of Treasury, correct, right, So
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Speaker 3: that's what we're talking about by it.
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Speaker 2: Yes and no, there was something basically called the Fed
11:51
Speaker 2: Treasury Accord where they basically, in order to finance the
11:53
Speaker 2: World War II effort, work together for you know, almost
11:57
Speaker 2: a decade in order to make sure that the US
11:59
Speaker 2: could finance it, and they still almost didn't because it's
12:02
Speaker 2: really hard to finance World War two. The way that
12:05
Speaker 2: it works right now, on the Federal Open Market Committee,
12:08
Speaker 2: there are two distinct groups. There are members of the
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Speaker 2: Federal Reserve Board of Governors and there are members of
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Speaker 2: presidents of the twelve regional Federal Reserve Banks.
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Speaker 4: Ye.
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Speaker 2: The way that this works, the Federal Reserve banks, those
12:26
Speaker 2: twelve regional ones, they are not presidential appointees. They are
12:30
Speaker 2: selected by their regional banks board of directors and their
12:35
Speaker 2: appointment must be approved by the Board of governors, but
12:38
Speaker 2: not by the Senate. So they're not Senate approved and
12:40
Speaker 2: they serve renewable five year terms. They rotate through the FOMC,
12:46
Speaker 2: so five of them are voting in any particular year.
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Speaker 2: The other seven do not. The Federal Reserve Board of Governors,
12:53
Speaker 2: there are seven of them, so majority of voting members
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Speaker 2: in any year are from that Board of Governors.
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Speaker 4: Yep.
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Speaker 2: They have to be nominated by the President of the
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Speaker 2: United States, they have to be confirmed by the US Senate,
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Speaker 2: and terms are fourteen years and they are staggered, you know,
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Speaker 2: for those and the chair and vice chair are picked
13:13
Speaker 2: from the governors and those are Senate confirmed as well
13:16
Speaker 2: for four year leadership terms. So basically what you have
13:21
Speaker 2: is the a slight majority of members of the voting
13:25
Speaker 2: committee at any point in time are confirmed by the
13:29
Speaker 2: US Senate after being proposed by the President. So we're
13:33
Speaker 2: not just saying hey, like, get you know, anyone off
13:35
Speaker 2: the street and run this. It still is something that
13:37
Speaker 2: does have Congressional oversight through who gets voted into the
13:42
Speaker 2: majority of spots on the Federal Reserve Open Market Committee.
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Speaker 4: Okay, yeah, good distinction.
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Speaker 3: It is still influenced by the White House, but given
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Speaker 3: the term length and everything else, it is not as
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Speaker 3: though the current executive can dramatically currently influence interest rates
13:57
Speaker 3: setting policy.
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Speaker 2: And the removal is generally understood to be for cause only,
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Speaker 2: and cause is not you know, hey, J. Powell showed
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Speaker 2: up late to work today. Cause is generally you know,
14:07
Speaker 2: believed to be not even like I'm disagreeing with you
14:11
Speaker 2: on rate policy, but hey, like you did something we
14:17
Speaker 2: all know. It's like how you know, the Supreme Court
14:19
Speaker 2: defines pornography. You know, when you see it, you did
14:21
Speaker 2: something wrong.
14:23
Speaker 3: And by the way, we're about to find that out
14:25
Speaker 3: because one of them is taking one of the Federal
14:28
Speaker 3: Reserve appointees, not the not J. Powell, but one of
14:30
Speaker 3: the Federal Reserve appointees that President Trump attempted to fire,
14:33
Speaker 3: issuing the government to over the removal. And we're gonna
14:36
Speaker 3: find out where that line really is according to the
14:39
Speaker 3: Supreme Court pretty darn soon.
14:40
Speaker 4: Correct.
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Speaker 2: So when we talk about now that we've kind of
14:43
Speaker 2: defined what you know, FED independence is and isn't. Is
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Speaker 2: it a good or bad thing?
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Speaker 4: We both you and I believe good here.
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Speaker 2: Here's look, yes, quite simply, I believe it's a good thing.
14:55
Speaker 2: And here's why, uh, what I want everyone to do
14:58
Speaker 2: right now, unless you're driving, don't close your eyes. But
15:00
Speaker 2: if you're not driving, close your eyes. If you're driving,
15:03
Speaker 2: keep them open. But I want you to picture in
15:05
Speaker 2: your mind's eye the person, the politician that you believe
15:11
Speaker 2: to be least qualified to run monetary policy. It may
15:15
Speaker 2: be a Democrat, it may be a Republican, it may
15:18
Speaker 2: be an independent. It may be a thirty year old,
15:20
Speaker 2: it may be a sixty year old, it may be
15:21
Speaker 2: an eighteen year old. Whoever it might be, I want
15:23
Speaker 2: you to picture that person where you're like, man, those
15:26
Speaker 2: ideas are bad. And now what I want you to
15:29
Speaker 2: imagine is that some at some unforeseen point in time
15:32
Speaker 2: in the future, maybe it's twenty twenty eight, twenty thirty two,
15:34
Speaker 2: twenty thirty six, twenty forty, whenever it may be that
15:37
Speaker 2: there's a presidential election. I want you to imagine that
15:40
Speaker 2: that person comes into the Oval office and says, can't
15:45
Speaker 2: wait to set interest rates. And this is ultimately why
15:50
Speaker 2: you don't want the president, specifically like the president c
15:56
Speaker 2: to be able to decide interest rates, is because there
15:58
Speaker 2: is no president in the history of the United States
16:02
Speaker 2: who would ever sit there and say, hey, you know
16:04
Speaker 2: what we really need. We got to raise the cost
16:07
Speaker 2: of borrowing for businesses and households. That's really gonna get
16:10
Speaker 2: me reelected. Yeah, it's a one way street. Presidents want
16:14
Speaker 2: lower rates always.
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Speaker 3: They tend to influence more business activity. They have a
16:19
Speaker 3: tail risk of higher inflation, but it is a tail
16:21
Speaker 3: risk that usually comes on a fair bit later. And
16:25
Speaker 3: a president's job is get reelected and so correct. You might,
16:29
Speaker 3: I hate saying that out loud, but that that's you know,
16:31
Speaker 3: reality when the first when you're serving first term, that's
16:34
Speaker 3: a big goal of yours is to get re elected
16:36
Speaker 3: to a second term.
16:37
Speaker 4: And so good way to do that.
16:38
Speaker 3: Juice the economy, make sure unemployment stays low, even if
16:41
Speaker 3: there is a tail risk of inflation down the road.
16:43
Speaker 3: We have seen this in many other countries that are,
16:46
Speaker 3: granted the far less stable than the United States is.
16:48
Speaker 3: But go look at Turkey, go look at many other
16:50
Speaker 3: countries that do not have an independent central bank.
16:53
Speaker 4: That's what you get.
16:54
Speaker 2: So the idea of hey, the central bank has you know,
16:58
Speaker 2: presidential appointed, Senate confirmed voting members that are in the
17:02
Speaker 2: majority on that Open Market Committee. What it does is
17:06
Speaker 2: again they cannot be removed except for cause. It allows
17:10
Speaker 2: them to vote, not based on the political whims of
17:12
Speaker 2: any one particular point in time, but rather based on
17:17
Speaker 2: what they believe to be right, and by the way,
17:20
Speaker 2: they're gonna be wrong a decent amount. I want you to,
17:24
Speaker 2: you know, travel with me, Tuck. Can you get the
17:26
Speaker 2: time machine fired up? We don't need too much juice
17:28
Speaker 2: in it. We're just going back four years now. But
17:30
Speaker 2: we're all gonna go back to January of twenty twenty two,
17:34
Speaker 2: and inflation is north of seven percent, on its way
17:36
Speaker 2: to nine percent, and J. Powell and crew are hiking
17:41
Speaker 2: interest rates a quarter percent at a time because they
17:45
Speaker 2: they don't want to break something. They're a little and
17:47
Speaker 2: look like they did a bad job in late twenty
17:52
Speaker 2: one and through all of twenty two in my opinion,
17:54
Speaker 2: like they were wrong, but they weren't wrong because they
17:59
Speaker 2: were sitting there like g like Jay's not sitting there
18:03
Speaker 2: being like, well, I need to get re elected. Like no,
18:05
Speaker 2: like Jay doesn't get elected that way. It doesn't work
18:08
Speaker 2: that way for him. So ultimately I think that when
18:12
Speaker 2: you look at this, it's something where I do believe
18:16
Speaker 2: in central bank independence, because you don't want the power
18:22
Speaker 2: to control the money supply to be held by the
18:25
Speaker 2: same person that is going out campaigning for votes at
18:29
Speaker 2: any particular point in time. And this is before you
18:31
Speaker 2: even get to the qualifications of you know, whoever might
18:34
Speaker 2: come into the office at some point in the future.
18:36
Speaker 2: What if we elect an actual dog to the office.
18:41
Speaker 3: So two things that I want to set up for
18:43
Speaker 3: you talked about on a collision course here. Powell's term
18:48
Speaker 3: as chair is up in May. His terma sitting on
18:51
Speaker 3: the Federal Reserve is not. It's not He could sit
18:53
Speaker 3: on there and basically be a dueling influence for voting
18:57
Speaker 3: members of the FED if he wants to really dig
18:59
Speaker 3: in here. That is ugly if you have that come
19:02
Speaker 3: this year of Kevin versus Jay trying to influence Federal
19:06
Speaker 3: Reserve members. Two which Kevin right, you are now as
19:10
Speaker 3: the new incoming FED going to have to prove to
19:13
Speaker 3: every single Federal Reserve voting member that what you are
19:17
Speaker 3: trying to do is not because of influence from the
19:20
Speaker 3: White House. This is making the next person's job way
19:24
Speaker 3: more difficult and I think is frankly shooting himself in
19:28
Speaker 3: the foot by doing this.
19:30
Speaker 2: And also, by the way, doesn't mean the Jay Powell's
19:33
Speaker 2: necessarily right in doing that. It could call yeah, problems
19:37
Speaker 2: quick break, Wall Street Watches Next.
19:42
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19:55
Speaker 1: Street Watch a complete look at what's moving markets so
19:58
Speaker 1: far today right here on the Financial Exchange Radio Network.
20:02
Speaker 6: Markets beginning of the week slightly in the red as
20:05
Speaker 6: investors ready for a busy week ahead, including a fresh
20:08
Speaker 6: look at inflation tomorrow morning with the Consumer Price Index
20:11
Speaker 6: in addition to retail sales in bank earnings this week.
20:14
Speaker 2: But the big story today.
20:15
Speaker 6: Surrounds the FED, following news that US prosecutors are investigating
20:19
Speaker 6: FED share Jerome Powell over his testimony about the Central
20:23
Speaker 6: Banks building renovation project. Right now, the Dow is off
20:27
Speaker 6: four tenths of a percent or two hundred and ten
20:29
Speaker 6: points lower. S and P five hundred down nearly two
20:33
Speaker 6: tenths of a percent or eleven points lowered, NASDAK down
20:35
Speaker 6: a tenth of a percent or twenty six points lower,
20:38
Speaker 6: RUSS two thousands off nearly half a percent. Tenure Treasure
20:41
Speaker 6: reeled up one basis point at four point one eighty
20:43
Speaker 6: seven percent. DAN crude oil off about four tenths of
20:46
Speaker 6: a percent rating just below fifty nine dollars a barrel.
20:50
Speaker 6: Several bank stock seeing losses on the day after President
20:53
Speaker 6: Trump called for credit card rates to be capped at
20:55
Speaker 6: ten percent.
20:56
Speaker 2: For one year.
20:57
Speaker 6: Trump did not provide additional details on how it would work.
21:01
Speaker 6: JP Morgan, Visa, and MasterCard are down by about two percent. Meanwhile,
21:05
Speaker 6: Walmart stock is up two percent after the Nasdaq said
21:09
Speaker 6: the retail giant will be added to the Nasdaq one
21:11
Speaker 6: hundred index later this month. Elsewhere, Lululemon shares are up
21:15
Speaker 6: one percent after the Athleisure where retailer said it sees
21:19
Speaker 6: its holiday quarter sales to be on the higher end
21:21
Speaker 6: of its guidance, where its revenue was expected to be
21:24
Speaker 6: as much as three point five eighty five billion dollars.
21:28
Speaker 6: In more developments on the Warner Brothers Discovery front, Paramount
21:31
Speaker 6: said this morning it plans to launch a proxy fight
21:33
Speaker 6: for board seats at Warner Brothers Discovery as it continues
21:37
Speaker 6: pushing its hostile bid for the company. Paramount also filed
21:41
Speaker 6: a lawsuit seeking to force Warner to release more information
21:44
Speaker 6: about its merger agreement with Netflix. Warner stock is down
21:48
Speaker 6: by about two percent.
21:50
Speaker 2: I'm Tucker, Silva and that is Wall Street Watch. All right,
21:54
Speaker 2: so let's talk a little bit about the labor market.
21:57
Speaker 2: For everything we talked about in the first you know,
22:00
Speaker 2: a couple of segments regarding you know, J. Powell potentially
22:05
Speaker 2: or not potentially being under a criminal investigation from a
22:09
Speaker 2: grand jury subpoena. Powell said, you know, hey, this is
22:13
Speaker 2: not about you know, the renovation, he said, this is
22:15
Speaker 2: about the president wanting me to lower interest rates. The
22:18
Speaker 2: interesting piece to me, not the interesting piece, but an
22:21
Speaker 2: interesting piece to me is, hey, the labor market is
22:23
Speaker 2: flashing signs that maybe lower interest rates actually could be warranted.
22:27
Speaker 2: So this is something where when we look at the
22:31
Speaker 2: labor market data right now, and again, don't look at
22:35
Speaker 2: any one piece of data, because remember these are all
22:38
Speaker 2: surveys and estimates. Like there's nothing out there that definitively
22:44
Speaker 2: says like this many jobs were created versus that many.
22:48
Speaker 2: It's you know, like estimate. We never will have that. Well,
22:52
Speaker 2: we do have a different data sets from which we
22:53
Speaker 2: can glean what may or may not be happening. Ultimately,
22:57
Speaker 2: the reason why we care about jobs data, and this
23:01
Speaker 2: is kind of a dirty little secret here, it's not
23:06
Speaker 2: because of the jobs. It's because of the spending generated
23:11
Speaker 2: by those jobs.
23:12
Speaker 3: Sure, if you're trying to fast forward and figure out
23:15
Speaker 3: what the economy is going to look like, whether or
23:18
Speaker 3: not people are working is usually a pretty good indicator,
23:22
Speaker 3: given how consumer focused our economy is.
23:25
Speaker 4: We can talk about how that's changed a.
23:27
Speaker 3: Little bit, or we think it might have changed a
23:28
Speaker 3: little bit recently with boomers retiring, but yeah, that's kind
23:32
Speaker 3: of the idea.
23:32
Speaker 2: The reason why it matters is that ultimately demand is
23:36
Speaker 2: based historically on people having jobs that give them income,
23:41
Speaker 2: and if demand goes down, it creates further slack in
23:43
Speaker 2: the labor market, which creates high unemployment, which again high unemployment.
23:49
Speaker 2: Let's be honest, this all boils down to mostly what
23:52
Speaker 2: capital wants. High unemployment not good for capital because if
23:54
Speaker 2: you have a bunch of unemployed people, they tend to
23:57
Speaker 2: get onhappy pretty quickly, and that's not great for capital. Likewise,
24:00
Speaker 2: if you have high inflation because there's too much demand,
24:04
Speaker 2: it's also not great for capital because gee, like that
24:07
Speaker 2: pressure's margins and people get unhappy, and so yeah, that's
24:11
Speaker 2: not really great, which is why again dirty little secret
24:14
Speaker 2: about central banks. They're bankers. They act in service of capital.
24:18
Speaker 2: The reason why they want stable inflation and low unemployment
24:23
Speaker 2: is because those are good conditions for capital. They also
24:26
Speaker 2: tend to be good conditions for labor. But ultimately, the
24:29
Speaker 2: central bank, the Federal Reserve, and any other central bank,
24:33
Speaker 2: they act in service to capital in their respective countries.
24:36
Speaker 2: So where we stand right now is it a dangerous
24:41
Speaker 2: spot that is not guaranteed to go in any particular direction.
24:45
Speaker 2: My favorite metric from the jobs report that I look
24:48
Speaker 2: at every single time is what's called aggregate weekly payrolls.
24:53
Speaker 2: And it's a fancy way of saying, hey, give me
24:56
Speaker 2: the number of people that have jobs, give me the
25:00
Speaker 2: change over any period of time from you know, the
25:02
Speaker 2: previous month or previous year, and then combine that with
25:05
Speaker 2: the change in wages over the same time. So how
25:09
Speaker 2: much did you know jobs go up? How what percentage
25:11
Speaker 2: do we see jobs increase and what percentage did wages increase?
25:15
Speaker 2: And that gives you a good proxy for spending growth
25:19
Speaker 2: if we saw, you know, one percent job growth over
25:22
Speaker 2: the last year and two percent wage growth. Okay, Americans
25:25
Speaker 2: as a whole have about three percent more spending power
25:29
Speaker 2: than a year ago, which means consumer spending can grow
25:31
Speaker 2: that much based on labor now. As Mike said, look,
25:35
Speaker 2: there are a bunch of people not in the labor force.
25:37
Speaker 2: If you're you know, listening to this and you're retired,
25:40
Speaker 2: you don't care what the labor markets do. Like you're
25:42
Speaker 2: not sitting there like basing your spending on your job.
25:45
Speaker 2: You're basing it on your Social Security payment, on your portfolio,
25:49
Speaker 2: maybe a pension if you're still lucky to have one.
25:51
Speaker 3: So which is why I think this still matters. But
25:54
Speaker 3: we've seen a lot of spending. It's been really interesting
25:57
Speaker 3: over the last few years looking at surveys about how
25:59
Speaker 3: people feel about the labor market and the economy, and
26:02
Speaker 3: yet spending hasn't fallen off. And one of the large
26:04
Speaker 3: items that we've pointed to is look at that wealth effect,
26:07
Speaker 3: especially for older Americans. They seem to be the ones
26:10
Speaker 3: supporting this economy right now, and so the labor market
26:13
Speaker 3: might not really influence their decision.
26:15
Speaker 2: But also, aggregate payroll growth has generally been around five
26:18
Speaker 2: percent year over year YEP. And so given that, it's
26:21
Speaker 2: kind of hard for me to see Americans saying no,
26:24
Speaker 2: I'm not going to spend that money because.
26:26
Speaker 4: We always do, we generally do.
26:28
Speaker 2: And then so so here's the thing. As of last
26:31
Speaker 2: Friday's jobs report, aggregate payroll growth for the last twelve
26:34
Speaker 2: months is now decelerated to four point two eight percent.
26:37
Speaker 2: It's the lowest number we've had since January of twenty twenty.
26:41
Speaker 3: And in spite of the fact that you know, there
26:42
Speaker 3: were some good signs from this job's report on Friday,
26:45
Speaker 3: right the unemployment rate dropped from four to six in
26:48
Speaker 3: the previous month that was revised down the previous during
26:51
Speaker 3: month December went down to four to four.
26:53
Speaker 4: So like, there were some positive indications.
26:56
Speaker 3: In spite of a week hiring rate in this jobs
27:00
Speaker 3: but those aggregate payrolls, to your point, can be a
27:04
Speaker 3: very big factor in spending.
27:06
Speaker 2: We can spend a little bit of time just below this,
27:09
Speaker 2: Like if we get into the high threes for a
27:11
Speaker 2: couple of reports in a row, that's fine on year
27:14
Speaker 2: over year aggregate payroll growth, but the event horizon that
27:18
Speaker 2: we've seen again, like we haven't seen many recessions since
27:22
Speaker 2: this metric was available, but you start getting below three
27:25
Speaker 2: and a half and things get problematic, just because think
27:29
Speaker 2: about it from a hiring perspective. Again, I say this
27:31
Speaker 2: a lot demand leads hiring. If I am running. If
27:38
Speaker 2: I'm running a toy store and all of a sudden,
27:42
Speaker 2: I got, you know, all these people coming in and
27:45
Speaker 2: I got lines out the door. Okay, I got to
27:47
Speaker 2: hire some cashiers, some stock boys, like we got to
27:50
Speaker 2: get in business. I gotta hire up for that.
27:52
Speaker 4: Right.
27:53
Speaker 2: If I've hired all those people and then people stop
27:55
Speaker 2: coming in, okay, demand is gone. Bye, I got to
27:58
Speaker 2: get rid of you. That's kind of we see. So
28:01
Speaker 2: the concern that you have is if demand weekends, then
28:05
Speaker 2: hiring weekends further and you get kind of this flywheel
28:07
Speaker 2: effect where in most recessions then you see big job
28:11
Speaker 2: loss quickly. This is just one data point, but the
28:14
Speaker 2: other one that meshes up with this is actually directly
28:19
Speaker 2: from the US Treasury, and specifically it's looking at tax withholding.
28:25
Speaker 2: And the reason why I like this one is like
28:28
Speaker 2: there is no interpolation in like you don't have to
28:32
Speaker 2: interpret it. You don't have to be like, oh, this
28:34
Speaker 2: is just a survey. No, this is how many how
28:37
Speaker 2: many dollars were sent to the US Treasury each day
28:41
Speaker 2: by businesses to pay their payroll taxes. And over the
28:45
Speaker 2: last six months we've seen a slowing in that rate
28:48
Speaker 2: from about seven point four percent year over year growth
28:51
Speaker 2: in June of this year, down to one point seven
28:55
Speaker 2: percent year over year growth in December. End of year
29:00
Speaker 2: always can be a little bit wonky, so we have
29:01
Speaker 2: to see a couple more months to see exactly how
29:03
Speaker 2: this plays out. But this has been in play each
29:06
Speaker 2: of the last five months. It's been a down trend
29:08
Speaker 2: for the entire second half of the year, and so
29:11
Speaker 2: the concerning piece here is again, if you go you know,
29:14
Speaker 2: into negative numbers on this, it suggests that you are
29:17
Speaker 2: shedding not just payroll, but you're shedding spending power of
29:22
Speaker 2: Americans and that makes it really tough for the economy
29:26
Speaker 2: to grow based on how we typically grow it. So
29:30
Speaker 2: it's not to say that you are going to see
29:33
Speaker 2: this continuer. It's going to you know, become a problem.
29:36
Speaker 2: But there's a two or three month period now where
29:38
Speaker 2: we've got to pay pretty close attention to this, and
29:42
Speaker 2: it's ultimately something where I think if there is no
29:45
Speaker 2: weakness that develops in the next two to three months,
29:48
Speaker 2: then I think by March and April you start to
29:50
Speaker 2: get larger tax refunds coming in from last year from
29:53
Speaker 2: you know, no tax on tips and other big beautiful
29:56
Speaker 2: bill provisions that I think can propel the economy forward.
30:00
Speaker 2: But if you see problems show up over the next
30:02
Speaker 2: two to three months, they might start to spiral before
30:06
Speaker 2: those bigger, you know, tax rebate checks can come in
30:09
Speaker 2: to balance things out. So this is kind of what
30:10
Speaker 2: I'm watching in the labor market. It's a dangerous position
30:14
Speaker 2: that it's in. I'm not one hundred percent convinced that
30:17
Speaker 2: it rolls over further from here, but it's the thing
30:20
Speaker 2: to watch in the next couple months. It's take a
30:23
Speaker 2: quick break when we return. Let's see, I had something
30:28
Speaker 2: else I wanted to get to next. What was it?
30:32
Speaker 2: I don't know. We'll talk Max seven after this.
30:34
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30:38
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30:44
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30:46
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31:03
Speaker 2: Piece of the Bloomberg Magnificent seven Stock market dominance shows
31:07
Speaker 2: signs of cracking. Look, I gotta tell you eventually it will.
31:13
Speaker 2: But I've seen this story at least a half dozen
31:16
Speaker 2: times over the last two years, where mag seven stocks
31:20
Speaker 2: underperform for a week a month, even a quarter, even
31:25
Speaker 2: half a year, can I It still is not enough
31:28
Speaker 2: to free the market from that black hole of pull
31:33
Speaker 2: towards me.
31:33
Speaker 3: I want to quote this piece because it's also just inaccurate.
31:37
Speaker 3: All Right, so the article I'm gonna read it. To
31:41
Speaker 3: beat the markets in recent years, many investors applied a
31:44
Speaker 3: simple strategy load up on the biggest US technology stocks.
31:47
Speaker 3: It paid handsomely for a long time. Last year, it didn't.
31:50
Speaker 3: Then they go on to say, the Bloomberg Magnificent seven
31:53
Speaker 3: index rose twenty five percent in twenty twenty five, compared
31:55
Speaker 3: to sixteen percent for the S and P five hundred,
31:58
Speaker 3: So that means how he did it not pay off?
32:00
Speaker 2: It literally paid off, it says, but that was only
32:02
Speaker 2: because of the enormous gains by Convidia. Well, they're in
32:05
Speaker 2: the group, so what are you gonna do? Like, my goodness,
32:09
Speaker 2: it's not like every single one outperforms every year.
32:12
Speaker 3: So here is the point that they're making, is that
32:14
Speaker 3: more of the components of the mag seven underperformed than overperformed.
32:19
Speaker 3: But I would argue that that is irrelevant, sir, and
32:23
Speaker 3: also wrote this person, Yeah doesn't matter beyond them.
32:29
Speaker 2: Yeah, like no, A I wouldn't do that. I would
32:33
Speaker 2: only talk itself up as we've discussed. But look, the
32:39
Speaker 2: fact is at some point that AI gross narrative is
32:44
Speaker 2: going to break hasn't yet though. I don't know if
32:47
Speaker 2: it's going to be this year or in thirty years.
32:49
Speaker 2: It could be either or somewhere in between. It's probably
32:53
Speaker 2: not going to be never.
32:55
Speaker 3: I'd be willing to bet it somewhere in between between
32:58
Speaker 3: this year and thirty years. Yeah, yeah, that seems like
33:00
Speaker 3: an easy bet. Put it on the board talking though, Yeah.
33:03
Speaker 4: But yeah.
33:04
Speaker 3: This is not a useful or frankly even accurately written
33:10
Speaker 3: piece in many fashions.
33:13
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34:22
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34:30
Speaker 2: Wall Street Journal Exclusive GOP lawmakers back stock trading crackdown.
34:35
Speaker 2: House Republicans, including GOP leaders, are lining up behind a
34:38
Speaker 2: stock trading crackdown they think is their best shot at
34:40
Speaker 2: addressing long simmering concerns about lawmakers potentially profiting off insider information.
34:47
Speaker 2: Good Quite honestly, if you are a member of Congress,
34:50
Speaker 2: you should not be allowed to own individual stocks in
34:53
Speaker 2: my opinion.
34:54
Speaker 4: And this doesn't go quite that far.
34:56
Speaker 3: And no, but I do applaud it because it cuts
34:59
Speaker 3: out a lot of stuff. So here's what it doesn't prevent.
35:02
Speaker 3: In February of twenty twenty, a bunch of lawmakers get
35:06
Speaker 3: a bunch of briefings on what's going on in Wuhan, China,
35:09
Speaker 3: and can see the train coming down the track and say,
35:13
Speaker 3: I'm going to sell all of my funds that hold
35:15
Speaker 3: US stocks because I know what's happening here. This doesn't
35:19
Speaker 3: prevent that in any way. You can still go and
35:22
Speaker 3: offload your diversified funds that hold a whole bunch of stocks.
35:26
Speaker 3: But the stuff that's far more common of lawmakers seemingly
35:30
Speaker 3: getting some sort of information about a new regulation or
35:33
Speaker 3: a new court case coming down that's going to dramatically
35:36
Speaker 3: affect one individual company, it does prohibit. It makes it
35:39
Speaker 3: so new purchases of individual companies are out.
35:43
Speaker 4: You can't do it anymore.
35:44
Speaker 3: And if you want to sell something, you must make
35:47
Speaker 3: a public filing at least seven days in advance. So
35:51
Speaker 3: it's a start again. I think this is better than
35:53
Speaker 3: where we are now. It still leaves a lot of
35:56
Speaker 3: opportunity for insider trading that will be difficult to prosecute,
36:01
Speaker 3: but it cuts a fair bit of it out. So yeah,
36:06
Speaker 3: I like the move. I think it's a step in
36:08
Speaker 3: the right direction. And frankly, any action here I would applaud.
36:12
Speaker 4: So yeah, this, this would be.
36:14
Speaker 2: Good counterpoint prediction markets. Hmm.
36:21
Speaker 3: Right, So can I, as a lawmaker gamble on whether
36:23
Speaker 3: or not the House will pass a certain bill today?
36:26
Speaker 4: Today? You can.
36:27
Speaker 2: I'm just saying that would seem to be a little
36:30
Speaker 2: bit problematic.
36:31
Speaker 4: And they didn't really exist a decade ago, so it.
36:33
Speaker 2: Didn't really exist like three years ago we.
36:36
Speaker 4: Pass any uh.
36:37
Speaker 2: Yeah that Look, in a perfect world, you get elected
36:41
Speaker 2: to Congress, great, all of your holdings can go into
36:43
Speaker 2: basically the equivalent of whatever the TSP funds are, you know,
36:46
Speaker 2: the G fund, the C fund, the was it, the ipund.
36:49
Speaker 4: The well again, they can still hold their individual stock
36:51
Speaker 4: as they come in.
36:52
Speaker 2: Ideally, I'm saying, ideally, look, you go into that. You
36:56
Speaker 2: can rebalance it every quarter if you want to, but
36:58
Speaker 2: that's all you can do in my opinion, because if
37:01
Speaker 2: you are elected to serve the people, then go and
37:04
Speaker 2: serve the people. If you want to make money, then
37:07
Speaker 2: then go somewhere else.
37:08
Speaker 3: So get other point here. I don't see anything written
37:11
Speaker 3: about spouses. I would hope that they are covered under this,
37:16
Speaker 3: but if they're not, it's problematic. Yeah, right, Like that's
37:20
Speaker 3: that's been the entire argument over Pelosi. It's not her
37:23
Speaker 3: conducting the trading, it's her husband. Like, there has to
37:26
Speaker 3: be something in here, and I assume there probably is
37:29
Speaker 3: about spouses, but if not, there needs to be immediate
37:33
Speaker 3: family household members is really what this needs to apply to.
37:36
Speaker 2: So again, I'll take a step in the right direction.
37:38
Speaker 2: It's good, but I personally still want uh more in
37:43
Speaker 2: this case. But look steps in the right direction? Fine,
37:46
Speaker 2: Like I won't uh yeah, I won't look at I
37:49
Speaker 2: won't look at gift horse that has not yet been
37:51
Speaker 2: gifted in the mouth. Why would you not look at
37:55
Speaker 2: gift horse in them out? What happens if you do that?
37:57
Speaker 1: Oh?
37:57
Speaker 4: You don't want to know, Chuck.
37:58
Speaker 2: I've never received a gift horse, so I don't know.
38:00
Speaker 4: If you have to ask, you can't afford it.
38:02
Speaker 2: Here's a gift, don't look at it, thanks man, How
38:06
Speaker 2: do I know? If it's good? Then you don't really
38:07
Speaker 2: have a stable. Thanks, you can go into garage. Let
38:12
Speaker 2: me get it up on the lift. See how it does.
38:14
Speaker 4: Get a receipt.
38:18
Speaker 2: It's got a lot of horse power. Take a quick
38:21
Speaker 2: break when we come back. Hour two coming up.