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Something stinks in the auto market · The Financial Exchange Show

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Speaker 1: and Mike Armstrong.
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Speaker 2: Chuck, Mike and Tucker with you.
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Speaker 3: And it's a little stinky out there in markets today,
1:14
Speaker 3: just kind of your nose gets all turned up with
1:18
Speaker 3: what you're seeing as we you know, continue to see
1:21
Speaker 3: stocks selling off modestly. Three days that we've seen now
1:25
Speaker 3: stocks in the red. Obviously we'll have to see if
1:27
Speaker 3: that continues over the course of the day here, but again,
1:33
Speaker 3: just kind of a little bit of a gnarly start
1:35
Speaker 3: to the day. Stocks were covering a little bit now,
1:37
Speaker 3: and you know, we'll keep an eye on them. But
1:40
Speaker 3: obviously we have yet to see any kind of protracted,
1:45
Speaker 3: you know, downturn in stocks. The longest that we've gone
1:49
Speaker 3: has been you know, maybe like four or five days.
1:51
Speaker 3: Occasionally in the last you know, four or five months,
1:54
Speaker 3: where yeah, it looked like things were getting dodgy and
1:57
Speaker 3: the S and P fell you know, two, three, four percent,
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Speaker 3: and then things bounced right back. We have not even
2:01
Speaker 3: had a five percent dip inequities since April, so I.
2:05
Speaker 4: Was gonna ask that I was guessing we haven't seen
2:07
Speaker 4: one since the tariff announcements.
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Speaker 2: No, we haven't.
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Speaker 3: The the last time that we saw a five percent dip,
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Speaker 3: was it was that kind of secondary bottom on April
2:15
Speaker 3: twenty first that we got, and other than that, it's
2:19
Speaker 3: just been these little two three Oh we're a little
2:21
Speaker 3: nervous for a couple of days, and then you know,
2:23
Speaker 3: we kind of bounced right back. So we'll see what
2:25
Speaker 3: we get with this one. But at this point stock's
2:29
Speaker 3: under a little bit of pressure, and you know, we'll
2:31
Speaker 3: just kind of have to see how it goes. We
2:33
Speaker 3: did get a bunch of economic data this morning. I'd
2:37
Speaker 3: like to start with the jobbles claims data, if that's
2:39
Speaker 3: cool with you, Michael, A fantastic two weeks ago, we
2:43
Speaker 3: flagged that jobbles claims weekly new ones new initial ones
2:47
Speaker 3: were elevated, and we specifically pointed out, hey, a lot
2:50
Speaker 3: of this looks like it's due to some kind of
2:51
Speaker 3: anomaly in Texas. We don't really expect it to repeat,
2:54
Speaker 3: but claims have generally been climbing, you know, for a
2:57
Speaker 3: few weeks, and so let's see what happens. But we
2:59
Speaker 3: don't think this is going to turn into anything. The
3:02
Speaker 3: subsequent two weeks, including today's report, have pretty much confirmed
3:05
Speaker 3: that on the initial jobbles claims front, a further decline
3:09
Speaker 3: in initial jobles claims to two hundred and eighteen thousand,
3:12
Speaker 3: and so we continue to be in a situation where, hey,
3:16
Speaker 3: even though there are some concerns about the slow pace
3:19
Speaker 3: of hiring, there is nothing out there that suggests any
3:23
Speaker 3: pickup in firings or layoffs right now, Mike, And that's
3:27
Speaker 3: good news for the labor market.
3:29
Speaker 2: It is.
3:29
Speaker 4: And I have to try and wonder and contextualize, Like,
3:34
Speaker 4: I can be concerned about the pace of hiring, but
3:39
Speaker 4: I have a very difficult time having a perspective like
3:43
Speaker 4: the feed is taking right now of grave concern about
3:45
Speaker 4: I wouldn't say grave concern, but legitimate concern about the
3:48
Speaker 4: labor market when you're just not seeing the layoffs right Like,
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Speaker 4: I just don't know if that is really an indication, Hey,
3:56
Speaker 4: week hiring for what are we on now, three or
3:59
Speaker 4: four month is genuinely an indication that the labor market
4:02
Speaker 4: is so weak that the FED should be doing what
4:04
Speaker 4: they're doing right now. Obviously they feel that it is,
4:07
Speaker 4: but without corresponding upticks in these jobless claims, these folks
4:11
Speaker 4: filing for unemployment, I just remain unconvinced that we have
4:15
Speaker 4: a really weak labor market right now.
4:17
Speaker 3: So I think the case that the FED will make,
4:20
Speaker 3: And this is the case I would make at the FED.
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Speaker 3: And by the way, I don't think they're off base
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Speaker 3: in you know, starting a cutting cycle here just to see,
4:27
Speaker 3: you know, kind of how things develop. I don't think
4:28
Speaker 3: there's a problem with what they did last week. I
4:32
Speaker 3: think the case that they will make is number one.
4:37
Speaker 3: Labor is typically a lagging indicator. Yeah, it's not something like.
4:42
Speaker 3: We have never had a recession where everything's just been
4:46
Speaker 3: humming along and then companies say, you know what, let's
4:49
Speaker 3: lay a bunch of people off and that triggers the recession.
4:53
Speaker 3: We've never had that layoffs are an ancillary effect because
4:57
Speaker 3: ultimately what we see is consumption leads employment. And what
5:01
Speaker 3: I mean by that is, let's say that you are
5:03
Speaker 3: a Mike You you are, you know, a business. I'm
5:06
Speaker 3: you are going to, you know, transform yourself into a company.
5:09
Speaker 2: You're like, whole hole.
5:10
Speaker 4: Hole.
5:10
Speaker 2: Here I go.
5:11
Speaker 4: So I'm not the president of a company. I just
5:13
Speaker 4: am now a business.
5:14
Speaker 2: You are Mike Armstrong Incorporated. Got it, okay, And you're
5:18
Speaker 2: walking around going whole whole whole business. Good whole hole.
5:21
Speaker 2: Because that's what sound ll season. You know, corporations make.
5:24
Speaker 3: Sound a lot like Santa Okay, I bet he has
5:27
Speaker 3: a corporation. You know, someone's got to pay the elves
5:29
Speaker 3: to make the toys. So ultimately, what happens is you
5:33
Speaker 3: see an uptick in your business and instead of needing
5:36
Speaker 3: to make one hundred widgets for the month, you have
5:39
Speaker 3: to make one hundred and ten. That extra demand that
5:42
Speaker 3: you see causes you to go out and say I
5:44
Speaker 3: need to go and hire people. The converse of that is, hey,
5:48
Speaker 3: you're selling one hundred widgets a month, and you don't
5:51
Speaker 3: suddenly just say no, I'm going to get rid of
5:53
Speaker 3: people because you know I'm not making enough money. What
5:55
Speaker 3: you say is, gee, now I only have demand for
5:58
Speaker 3: ninety widgets a month. I don't need all my staff
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Speaker 3: because of that decrease in consumption, I'm gonna go layoff
6:04
Speaker 3: you know, X number of people. And so this is
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Speaker 3: why labor tends to be a lagging indicator, whereas consumption
6:11
Speaker 3: and you know, housing tend to be forward to looking indicators.
6:14
Speaker 3: They're leading indicators because ultimately, it is the demand that
6:19
Speaker 3: historically has you know, led to either hirings or firings,
6:23
Speaker 3: you know, rising and changing at any particular point in time.
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Speaker 3: So I think the case that the FED would make
6:30
Speaker 3: is yes, like it's it's true that there's nothing huge
6:34
Speaker 3: that we're seeing in terms of layoffs right now, Like
6:36
Speaker 3: there's there's no meaningful uptick quite honestly in layoffs. The
6:41
Speaker 3: case that the FED will make is, hey, we can
6:43
Speaker 3: tell the labor market is weakening though, because unemployment's moving up.
6:47
Speaker 3: And usually when it starts to move up, aside from
6:50
Speaker 3: a couple instances, one of which was last year, by
6:52
Speaker 3: the way, yeah, it doesn't usually just have this spontaneous,
6:56
Speaker 3: you know stop that It goes through where it's like now, gee,
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Speaker 3: we're we're okay, we've laid off enough people and now
7:01
Speaker 3: let's continue on. It usually keeps rising until additional demand intercedes.
7:07
Speaker 3: And that's what the FED tries to do through cutting rates,
7:09
Speaker 3: is produce additional demand.
7:13
Speaker 4: So I think that's amas it's a reasonable perspective. And
7:15
Speaker 4: you know, as business, in this example, you're right, you
7:21
Speaker 4: are pretty hesitant. I would say, you're more hesitant to
7:24
Speaker 4: lay off that person than you are to hire that
7:27
Speaker 4: new one. In most cases, that propensity to fire that
7:31
Speaker 4: person and deal with all the implications of it, deal
7:33
Speaker 4: with all the risk of it, deal with the benefits
7:36
Speaker 4: that you need to pay. It's complicated. It's also just,
7:39
Speaker 4: you know, from a human perspective, frustrating and disappointing and
7:43
Speaker 4: sad sometimes and so yes, that propensity to do layoff
7:46
Speaker 4: does come last in the business cycle.
7:48
Speaker 2: And so.
7:50
Speaker 4: You know, a good jobless claims reading like we're getting
7:53
Speaker 4: this morning does not necessarily indicate a strong labor market.
7:56
Speaker 4: I can see what you're saying.
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Speaker 3: The other thing that's kind of interesting, just that I
7:59
Speaker 3: think about as it relates to the labor market, is
8:02
Speaker 3: I wonder how much of this is being influenced by
8:05
Speaker 3: what we went through in the last five years with labor,
8:07
Speaker 3: where like you could see this the case being made
8:10
Speaker 3: on both sides. Where in your twenty twenty one and
8:13
Speaker 3: twenty two when unemployment was just pummeting and it would
8:16
Speaker 3: remember a heart, it was like, how much of an
8:18
Speaker 3: employees or a job seeker's.
8:20
Speaker 4: Market was Walmart was offering six figure truck driver jobs.
8:23
Speaker 4: McDonald's was offering, you know, thousand dollars signing bonuses. You
8:28
Speaker 4: had a very unique labor market that we haven't seen
8:30
Speaker 4: in a long time.
8:31
Speaker 3: So I think, in two different respects, I think companies
8:34
Speaker 3: today might say, man, it was really hard to hire
8:37
Speaker 3: people the last few years. I'm gonna hold on to
8:41
Speaker 3: my employees as long as I can because I don't
8:43
Speaker 3: want to go through that again, because that's their recent
8:45
Speaker 3: experience hiring has been. Man, this is really hard, right yep.
8:50
Speaker 3: The other piece is there are a lot of companies
8:54
Speaker 3: that did admittedly hire too many people because they thought
8:58
Speaker 3: that the demand and growth from twenty one to twenty
9:01
Speaker 3: two was just going to continue forever. And so there
9:05
Speaker 3: are other companies out there that are like, I hired
9:07
Speaker 3: way too many people in twenty one and twenty two.
9:11
Speaker 3: I don't want to go and hire more people now
9:13
Speaker 3: unless I absolutely have to, because I don't want to
9:17
Speaker 3: go through that again, that over hiring. And so I
9:19
Speaker 3: think you can make a case that some of the
9:21
Speaker 3: stagnation in the labor market could be because companies are
9:24
Speaker 3: looking at what happened two three years ago and they're like,
9:27
Speaker 3: not going to make the same mistake I made.
9:28
Speaker 4: Yeah, But I think generally speaking, when you look at
9:32
Speaker 4: the aggregation of all the data, you can come up
9:34
Speaker 4: with a compelling argument that, yeah, businesses are in a
9:37
Speaker 4: contraction type stage right now, and that is taking the
9:41
Speaker 4: form out of hiring, freezing new hiring, maybe reducing hours
9:47
Speaker 4: here and there, but not quite to the point of
9:49
Speaker 4: pain where they say we are laying people off. That
9:52
Speaker 4: that seems pretty definitive. And you know, they're trying to
9:55
Speaker 4: read this labor market right now, and I think it's
9:58
Speaker 4: a very different labor market depending on what sector you
10:00
Speaker 4: are hiring in. If you're looking for that new entry
10:05
Speaker 4: level investment banker, it might be pretty easy to find them,
10:09
Speaker 4: whereas if you are looking for the trades person to
10:12
Speaker 4: go help you build a new data center, good luck.
10:16
Speaker 2: Now.
10:17
Speaker 3: The other piece here is even though the initial claims
10:19
Speaker 3: data continues to be fine, like there's no sign of
10:23
Speaker 3: stress in there at all, the continuing claims data is
10:26
Speaker 3: still problematic, but not really worsening.
10:29
Speaker 2: It's just this steady eddy hey.
10:31
Speaker 3: Continuing claims are rising five to six percent year over year,
10:36
Speaker 3: which isn't good. Like that's the evidence of the labor
10:39
Speaker 3: market weakness that you have, is that continuing claims continue
10:42
Speaker 3: to move up on a year over year basis at
10:44
Speaker 3: a pretty decent clip. But they're not accelerating to that
10:48
Speaker 3: ten percent plus where you start to really get nervous,
10:51
Speaker 3: nor are they showing any signs of improvement. So you're
10:53
Speaker 3: kind of like, yeah, no one's one's getting fired here,
10:57
Speaker 3: not no one, But you know, firings are low, hirings
11:00
Speaker 3: are low, and hirings are low enough that continuing claims
11:03
Speaker 3: continue to move up. And that's the problematic piece that
11:06
Speaker 3: the Fed's trying to get ahead of.
11:07
Speaker 2: I think yep.
11:09
Speaker 3: So we've covered weekly job as claims. To take a
11:11
Speaker 3: quick break. When we come back, let's talk GDP and
11:17
Speaker 3: existing home sales. That's the other one. We'll talk those
11:19
Speaker 3: data points when we return.
11:22
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11:28
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11:50
Speaker 2: A couple other data points from this morning. We got
11:53
Speaker 2: a third.
11:54
Speaker 3: Update on Q two GDP and we got existing home
11:58
Speaker 3: sales data for August one.
12:00
Speaker 2: Would you like to continue with Michael?
12:02
Speaker 4: The GDP was I guess a little bit more surprising
12:05
Speaker 4: than the existing home sales I think, so you want
12:08
Speaker 4: to jump right in there. We saw inflation adjusted GDP
12:13
Speaker 4: coming in at a revised three point eight percent annualized pace. Again,
12:17
Speaker 4: this isn't massively surprising. The last reading was at three
12:21
Speaker 4: point three percent. But that's a fairly significant uptick if
12:24
Speaker 4: you're talking about a half percent annualized uptick in GDP
12:27
Speaker 4: and coming off of the previous quarter, which was defined
12:30
Speaker 4: by a lot of tariff related rushing of activity. What's
12:35
Speaker 4: your overall read check on this surprise to the upside, Yeah.
12:39
Speaker 3: The big jump seems to be in consumer spending that
12:42
Speaker 3: came in stronger than previously reported, jumping from one point
12:46
Speaker 3: six percent growth in the quarter to two point five
12:49
Speaker 3: So that seems to be like the main driver of it.
12:52
Speaker 2: It's obviously good news.
12:53
Speaker 3: It doesn't affect anything that's going on in markets or
12:57
Speaker 3: the economy today. Again, this is three months backward looking
13:00
Speaker 3: at this point, which is why no one really gets
13:03
Speaker 3: too excited about this. But it is something where look
13:07
Speaker 3: if if you are looking for questions as to Fed policy, Hey,
13:12
Speaker 3: if you have consumer spending that's stronger than you previously
13:15
Speaker 3: thought it was. Again, remember consumption leads employment and things
13:19
Speaker 3: like that, Hey, it makes the Fed's case weaker in
13:23
Speaker 3: this case that they should be, you know, cutting significantly
13:26
Speaker 3: if consumer spending is still moving along at that kind
13:28
Speaker 3: of clip. Yeah, it is really really tough to digest
13:33
Speaker 3: all of this right on the Fed side, on the
13:36
Speaker 3: White House side, you seem to have a real push
13:38
Speaker 3: to lower interest rates, certainly on the White House side,
13:41
Speaker 3: certainly on Steven Meyern, the new appointee to the Fed,
13:44
Speaker 3: calling for I think it's now like one hundred bases
13:46
Speaker 3: points of cuts between now and year end to readjust
13:49
Speaker 3: things to normal. And you can get that because you
13:54
Speaker 3: see how weak the hiring was in this quarter the
13:58
Speaker 3: GDP is reporting on on the April May June quarter
14:00
Speaker 3: we had, was it May, June July hiring that was
14:02
Speaker 3: really bad, chuck, June, July, August, June July August was
14:06
Speaker 3: particularly weak. Okay, So I guess we don't have a
14:10
Speaker 3: real solid sense of where consumer spending came in after
14:12
Speaker 3: the fact. But look, you know, even at a time
14:15
Speaker 3: when people were reportedly concerned about the state of the economy,
14:19
Speaker 3: reportedly concerned about what tariffs we're going to do to prices,
14:22
Speaker 3: they were still buying stuff at a pretty hefty clip. Now,
14:25
Speaker 3: maybe the argument is just they're trying to front run
14:27
Speaker 3: the tariff still, but I don't know. The more time
14:31
Speaker 3: that goes on that consumer spending keeps up, I have
14:35
Speaker 3: a tough time calling it as hey, this is.
14:38
Speaker 4: Going to be the leader into a recession.
14:40
Speaker 2: Yeah.
14:40
Speaker 3: And if you look just at where we are in
14:42
Speaker 3: Q three right now, the estimates that I've seen on
14:44
Speaker 3: Q three GDP are anywhere between like two two and
14:48
Speaker 3: three five. So like take the midpoint of that, it's okay,
14:51
Speaker 3: we're probably coming in you know, high twos for GDP growth.
14:54
Speaker 3: That's better than expected as well. A lot of people
14:56
Speaker 3: were thinking that you'd be somewhere in the range of
15:00
Speaker 3: know hw to mid ones, and so it looks like
15:03
Speaker 3: Q three GDP is going to be coming in stronger
15:06
Speaker 3: as well. Based on the data that we have so far,
15:09
Speaker 3: we're still waiting on you know, quite a bit of
15:11
Speaker 3: we don't have any data for September yet, so we
15:13
Speaker 3: don't know how things have evolved through the last.
15:16
Speaker 2: Three four weeks.
15:18
Speaker 3: And one of the interesting questions that we do have
15:20
Speaker 3: to watch for is, hey, if there is a government shutdown,
15:24
Speaker 3: we're not going to get a whole lot of economic
15:26
Speaker 3: data during that time because the agencies that are responsible
15:30
Speaker 3: for it are generally deemed non essential, and so you
15:32
Speaker 3: might not get a jobs report next week if there
15:35
Speaker 3: is a shutdown, so we might not know how the
15:38
Speaker 3: economy is evolving during that time necessarily right.
15:41
Speaker 4: One other piece about not the immediate future, but the
15:44
Speaker 4: not so distant future that I'll be interested to see.
15:47
Speaker 4: I don't really get the sense that many people have
15:50
Speaker 4: digested what the One Big Beautiful Bill Act actually means
15:54
Speaker 4: for their tax situation. I talked to retirees over the
15:58
Speaker 4: age of sixty five almost everything. Very few of them
16:01
Speaker 4: have really put together how that is going to work
16:03
Speaker 4: out on their tax refund I speak a little bit
16:07
Speaker 4: less frequently to people that are affected by the tips
16:10
Speaker 4: the tax on tips piece, But both of these things
16:13
Speaker 4: I think are going to be a pretty legitimate surprise
16:15
Speaker 4: to the upside in terms of tax refunds next year.
16:18
Speaker 4: And that's just going to be another big jolt I think,
16:22
Speaker 4: especially on the senior side, you know, those over sixty
16:24
Speaker 4: five years old who aren't reliant on the labor market
16:28
Speaker 4: to really drive their spending in the first place. I'll
16:31
Speaker 4: interest say where that comes in, because a whole lot
16:34
Speaker 4: of people are going to be saving a boatload of
16:36
Speaker 4: taxes when they go to file in April of next year.
16:39
Speaker 3: And the other piece that you have to watch on
16:41
Speaker 3: that is also you know, you've got the bonus appreciation
16:44
Speaker 3: that kicks in for businesses that is going to allow
16:48
Speaker 3: them to you know, expense a larger portion of you know,
16:52
Speaker 3: any capex next year as well. And so that's something
16:55
Speaker 3: where you sit there and you say, as businesses are
16:56
Speaker 3: getting their twenty twenty six plans in order, are they know,
17:00
Speaker 3: planning for additional expansion next year? That could drive additional
17:04
Speaker 3: economic activity too. So there's there's quite a bit out
17:07
Speaker 3: there when you look at it. That in my mind
17:10
Speaker 3: that like the window for you know, any kind of
17:13
Speaker 3: economics slow down to take hold probably like again, it's
17:19
Speaker 3: it's it's really short now, you know, it's maybe the
17:21
Speaker 3: next three to five months or something like that.
17:24
Speaker 2: You get through that and you kind of.
17:25
Speaker 3: Look at the situation and you go, there's not really
17:29
Speaker 3: you know, just because the fiscal side is going to
17:32
Speaker 3: be stimulative once you start getting into you know, late
17:34
Speaker 3: Q one of next year, and so it's it's tough
17:37
Speaker 3: to see a situation where even if there is a
17:40
Speaker 3: recession or downturn, it's unclear that it lasts very long
17:43
Speaker 3: in my opinion.
17:44
Speaker 4: Right, Yeah, I'm with I'm with you.
17:46
Speaker 3: So that's what we're seeing for the GDP numbers. Uh,
17:49
Speaker 3: the one number that continues to just not really be great.
17:52
Speaker 3: Existing home sales came in at a four million annualized clip.
17:56
Speaker 3: We've just been hovering around that four million number for
17:58
Speaker 3: quite a while.
17:59
Speaker 2: And it's it.
18:00
Speaker 3: The story is really simple. It's people can't afford houses
18:03
Speaker 3: the way they are currently priced by the market. And
18:05
Speaker 3: the interesting thing, Mike, the inventory that's out there. We've
18:08
Speaker 3: been seeing in the last few months an uptick in
18:11
Speaker 3: the number of units that are being withdrawn from the
18:15
Speaker 3: market rather than seeing price cuts. Yeah, and I saw
18:18
Speaker 3: an interesting piece on this. I forget who put it
18:21
Speaker 3: out today, so I have no source on it. But
18:24
Speaker 3: apparently the big reason for those with drawn sales, a
18:29
Speaker 3: large chunk of them are properties that were purchased in
18:32
Speaker 3: the last couple of years. And because of that, especially
18:35
Speaker 3: if you're talking places like Florida and Texas and you
18:38
Speaker 3: know that Sun Belt area, prices have been falling there,
18:41
Speaker 3: people might not have the equity to be able to
18:44
Speaker 3: sell at lower prices than what they're trying to sell
18:47
Speaker 3: at today.
18:48
Speaker 4: Yeah, it'd be surprising to be talking about underwater homes,
18:52
Speaker 4: but yes, in some parts of the country that is
18:54
Speaker 4: a legitimate possibility.
18:56
Speaker 3: So that's something I think that bears watching. But I
18:59
Speaker 3: can tell you, yeah, we were talking about this on
19:01
Speaker 3: the show yesterday.
19:03
Speaker 2: It's tough to see.
19:04
Speaker 3: A bounce in housing unless mortgage rates get down into
19:07
Speaker 3: the mid fives, especially since again the FETs started cutting
19:12
Speaker 3: interest rates. You know last week. Hey, quarter percent down, Great,
19:15
Speaker 3: this will help the housing market. Not so fast, you know,
19:18
Speaker 3: it's you're a situation now. The thirty year fixed rate
19:22
Speaker 3: mortgage nationally, according to Mortgage News Daily, up a full
19:25
Speaker 3: quarter percent since this time last week. Quick break here
19:29
Speaker 3: Wall Street watches Next.
19:40
Speaker 1: Like us on Facebook and follow us on Twitter at
19:42
Speaker 1: TFE show. Breaking business news is always first right here
19:47
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall Street.
19:53
Speaker 1: Watch a complete look at what's moving market so far
19:56
Speaker 1: today right here on the Financial Exchange Radio Network.
20:00
Speaker 5: Are on the red at the moment, as Wall Street
20:02
Speaker 5: digests a new batch of economic data points, including better
20:05
Speaker 5: than expected jobless claims in an upperly revised second quarter
20:09
Speaker 5: GDP reading. We also have existing home sales streaming in
20:13
Speaker 5: about half an hour ago. Right now, the Dow is
20:16
Speaker 5: down by nearly a tenth of a percent, or thirty
20:19
Speaker 5: six points lower. S P five hundred is down four
20:22
Speaker 5: tenths of one percent. NASDAK down about a half a
20:25
Speaker 5: percent lower one hundred and five points, Rusted thousands down
20:29
Speaker 5: over nine tenths one percent. Tenure Treasure reeled up three
20:33
Speaker 5: basis points this morning at four point one eight three percent.
20:37
Speaker 5: DAN Crude Oil down over one percent lower, trading right
20:40
Speaker 5: around sixty four dollars a barrel. Shares in Starbucks dipping
20:45
Speaker 5: modestly after the coffee chain announced a one billion dollars
20:48
Speaker 5: restructuring plan that involves closing some of its North American stores. Furthermore,
20:54
Speaker 5: about nine hundred non retail employees will also be laid off,
20:59
Speaker 5: marking CEO O'Brien Nicol's second round of layoffs since he
21:03
Speaker 5: took over. Meanwhile, Oracle shares are slumping another four percent
21:06
Speaker 5: today as worries around the AI trade continue to pressure
21:09
Speaker 5: the stocks. Separately, Rothstrial and co Redburn initiated coverage of
21:14
Speaker 5: Oracle with Accelerating, seeing the market is materially overestimating Oracle's
21:19
Speaker 5: cloud revenues. Sticking with tech where Bloomberg reported that Intel
21:24
Speaker 5: has approached Apple about investing in the chip maker. However,
21:27
Speaker 5: the report notes that talks are in the early stages.
21:31
Speaker 5: Earlier this month, and Video said it would invest five
21:33
Speaker 5: billion dollars in Intel. Intel shares are up five percent now,
21:38
Speaker 5: while Apple shares are up over half a percent. A
21:41
Speaker 5: CarMax sinking twenty four percent lower at the moment, after
21:45
Speaker 5: the used car retailer saw its quarterly results come in
21:50
Speaker 5: below estimates. I'm Tucker Silva and that is Wall Street Watch.
21:54
Speaker 2: Mike. Can we take a.
21:55
Speaker 4: Quick detour, Let's do it, Chuck, where are we going? Argentina?
22:00
Speaker 2: Oh? Okay, autos Argentina lovely, it's it's springtime.
22:05
Speaker 4: Yeah.
22:06
Speaker 2: So I want to talk.
22:08
Speaker 3: About what's going on in the auto sector because something stinks.
22:14
Speaker 4: Is it diesel?
22:16
Speaker 3: There's a problem there and it's Look, the auto sector
22:22
Speaker 3: is not the size of housing. It's about a tenth
22:24
Speaker 3: of the size. So like, you can never have an
22:26
Speaker 3: auto bubble that looks anything like the housing bubble did
22:29
Speaker 3: for you know a whole number of reasons.
22:32
Speaker 2: But I gotta tell you, you.
22:35
Speaker 3: Know you had this bankruptcy of Tricolor. When was that
22:38
Speaker 3: like a month ago? Two three weeks ago.
22:42
Speaker 4: I think I missed that was I maybe I was
22:45
Speaker 4: on vacation. What's Tricolor?
22:47
Speaker 2: Oh?
22:47
Speaker 3: You so Tricolor is a they're a huge subprime auto lender.
22:52
Speaker 3: They so they they ended up going belly up. I'm
22:56
Speaker 3: trying to see when it was. This was yeah, early September.
22:59
Speaker 3: They are break mostly out of the Southeast and through Texas,
23:03
Speaker 3: and basically they do.
23:06
Speaker 2: A ton of subprime auto financing.
23:08
Speaker 3: And it turns out that, you know, a lot of
23:11
Speaker 3: banks were holding loans that they had initiated. Just as
23:13
Speaker 3: an example, Fifth Third Bank Corp. Declared a two hundred
23:17
Speaker 3: million dollar loss from a quote alleged fraudulent activity in
23:20
Speaker 3: an unnamed commercial Barwards probably Tricolor got it. But they
23:24
Speaker 3: they filed for Chapter seven bankruptcy, not Chapter eleven, which
23:27
Speaker 3: means they're doing a full liquidation. Everything must go. They
23:30
Speaker 3: can't restructure the company. It's just no, like get everything out.
23:35
Speaker 3: And so I look at that and I say, okay,
23:38
Speaker 3: like there's a problem that's you know that that happened
23:40
Speaker 3: there is it?
23:41
Speaker 2: Is it isolated? You know?
23:42
Speaker 3: Ones kind of okay, like see what's happening. You start
23:45
Speaker 3: see a couple other signs popping up and you go, Okay,
23:48
Speaker 3: maybe there's more here. So this CarMax thing I look
23:51
Speaker 3: at today and I'm like, oh, that doesn't really feel
23:54
Speaker 3: great either. You've got the story yesterday about Ford saying, hey,
23:59
Speaker 3: we're gonna, so you know, start trying to offer you know,
24:02
Speaker 3: less qualified barrow wers lower interest rates in order to
24:06
Speaker 3: move F one fifties good car. And I kind of
24:10
Speaker 3: just look at, you know, what's going on in the
24:12
Speaker 3: news flow out of the auto sector, and something stinks.
24:18
Speaker 2: And I don't know.
24:19
Speaker 4: My question is why now, right, I mean, because we've
24:22
Speaker 4: been talking about subprime and extended auto loans out for
24:27
Speaker 4: seven eight years for quite some time now. The I
24:32
Speaker 4: guess the answer in terms of what's different is that
24:35
Speaker 4: we're now three years into those interest rates being a
24:38
Speaker 4: lot higher than they previously were, and and that could
24:41
Speaker 4: explain some real problems going on in the sector because right, like,
24:45
Speaker 4: I think a lot of these same issues probably existed
24:47
Speaker 4: back in twenty nineteen, but you were still getting auto
24:51
Speaker 4: loan rate even if you were subprime in the six
24:55
Speaker 4: or seven percent range, which is now like twelve percent.
24:58
Speaker 2: And trycar.
24:59
Speaker 3: They allo operated a set of dealers as well, so
25:04
Speaker 3: it wasn't just you know, an auto loan company like that,
25:06
Speaker 3: they operated dealers too, And so I guess, like, I'm
25:11
Speaker 3: just looking at this here, and it feels like something
25:16
Speaker 3: ugly is happening with the auto sector, right but I
25:21
Speaker 3: don't know where it goes, and I don't know how
25:23
Speaker 3: big it is, but like, something stinks here, and and
25:28
Speaker 3: you don't get two stories like this in two weeks
25:30
Speaker 3: where you've got the Tricolor thing and now CarMax, you know,
25:34
Speaker 3: with with what's going on there. These are not isolated
25:38
Speaker 3: incidents in my opinion, like something stinks in the auto
25:42
Speaker 3: sector and I don't know what it is.
25:44
Speaker 4: The counterpoint would be that the the underlying collateral is
25:48
Speaker 4: not bad, right, Like just thinking that through for a
25:51
Speaker 4: minute here, Like we're sitting on cars that are still
25:55
Speaker 4: holding their value fairly. I mean, look, every car loses
25:59
Speaker 4: value pretty cool quickly, but these are not exactly having
26:03
Speaker 4: a tough time reselling F one fifties right now.
26:07
Speaker 3: So the counterpoint to that is the repos for like again,
26:13
Speaker 3: because you're looking at this right now, and again, if
26:14
Speaker 3: you've got a liquidation event going on here, you've got
26:17
Speaker 3: a whole bunch of repos that need to go into
26:19
Speaker 3: action in order to you know, start making creditors whole.
26:22
Speaker 2: Sure what happens when that inventory hits the market.
26:29
Speaker 3: Like, I'm just thinking through this here, and I don't
26:34
Speaker 3: know what the situation looks like on it right so
26:38
Speaker 3: I just think there's something weird that's happening with the
26:42
Speaker 3: auto sector right now.
26:43
Speaker 2: I don't know what it is. I don't know how
26:45
Speaker 2: big it is.
26:46
Speaker 3: But like it it feels like there's something there. Like
26:48
Speaker 3: you you don't get a random bankruptcy that comes out
26:51
Speaker 3: of nowhere and you know, just say okay, like everything's
26:55
Speaker 3: you know, hunky dory. And then again you've got you know,
27:00
Speaker 3: Carmack's coming out and being like, yeah, you know, things
27:02
Speaker 3: were really not good, you know, in our earnings. These
27:07
Speaker 3: things fit together, like there's a story that's developing there
27:11
Speaker 3: and it seems like it's going to cause some problems here.
27:14
Speaker 4: Yeah, so well, yeah, I mean, it's been immensely unhealthy
27:17
Speaker 4: for quite some time. But like, I mean, let's just
27:22
Speaker 4: compare it to something that will not have the same impact.
27:26
Speaker 4: But this was the entire threat that the economy was
27:29
Speaker 4: under and that the housing market was under leading up
27:31
Speaker 4: to the subprime mortgage crisis. Yes, it's all the banks
27:34
Speaker 4: suddenly realized, hey, we're holding all this debt, and if
27:37
Speaker 4: the interest on that debt starts increasing, then nobody can
27:41
Speaker 4: afford the payments anymore. And so what is the actual
27:43
Speaker 4: value of these things? Again, the auto loan space does
27:47
Speaker 4: not have the ability to sink the economy in the
27:49
Speaker 4: way that the sub prime mortgage crisis does. But it's
27:54
Speaker 4: we're talking about the same things.
27:56
Speaker 3: It's it's just a problem, just a it's again you're
27:59
Speaker 3: talking about something that a tenth of the size and
28:01
Speaker 3: relative terms.
28:02
Speaker 4: So then the curious question about all that is who
28:04
Speaker 4: actually owns this garbage?
28:07
Speaker 2: No idea?
28:07
Speaker 4: Right, like some some banks, probably some private credit companies.
28:11
Speaker 4: Undoubtedly it's probably all over the place. But yeah, you
28:19
Speaker 4: could have more banks and other financial institutions talking about
28:22
Speaker 4: these loans going going sour over the next few months.
28:24
Speaker 3: You know, like I've seen there was something else. There's
28:26
Speaker 3: a parts manufacturer that said that they were going through
28:29
Speaker 3: something as well. So it's like, I'll see if I
28:32
Speaker 3: can pull up the name of them. But there's again
28:35
Speaker 3: there's a few things here that just look dodgy. I'll
28:38
Speaker 3: see if I can get the name of that parts manufacturering,
28:40
Speaker 3: what's going on? Government shutdown? Good news Wednesday of next week.
28:44
Speaker 3: Wednesday of next week, and I'd say the odds on
28:48
Speaker 3: this are pretty likely at this point.
28:52
Speaker 4: I always hesitate to say, but yeah, the way that
28:54
Speaker 4: things are being talked about, it seems quite possible.
28:56
Speaker 2: How long does it last? You know? Is this something
28:58
Speaker 2: that lasts ten minutes or ten days? Who knows?
29:01
Speaker 3: I mean, these never last forever. The big questions are
29:04
Speaker 3: going to be how long does it last? If there
29:07
Speaker 3: is one? And the second piece, which is an interesting wrinkle,
29:11
Speaker 3: is that the Office of Management and Budget is advising
29:16
Speaker 3: agencies to potentially look to permanently reduce any or portions
29:24
Speaker 3: of workforce that are furloughed during any potential shutdown. So
29:30
Speaker 3: basically saying, look, if you have people that are gonna
29:32
Speaker 3: be furloughed during the shutdown, draw procedures so that you
29:36
Speaker 3: can make those furloughs into permanent layoffs, because we could
29:40
Speaker 3: use this as a chance to reduce headcount within the
29:43
Speaker 3: federal government.
29:44
Speaker 4: Right, So we'll see if that actually yeah, I just
29:48
Speaker 4: don't know if that's a bunch of bluster or if
29:50
Speaker 4: that is a legitimate threat.
29:52
Speaker 2: Yeah, it's again.
29:54
Speaker 3: We're gonna have to see how this develops over the
29:55
Speaker 3: next week or so, but these are just the things
29:57
Speaker 3: that are being talked about as it relates to a
30:00
Speaker 3: potential shutdown. Here, take a quick break. When we come back,
30:03
Speaker 3: we'll talk H one B visas after this.
30:07
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30:34
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31:06
Speaker 3: Mike, I found the uh, the autoparts story that I
31:09
Speaker 3: wanted to cover as well, because again, this is this
31:12
Speaker 3: is all dovetailing just into my general unease with what's
31:16
Speaker 3: going on in the auto sector.
31:18
Speaker 2: Please.
31:19
Speaker 3: Three days ago, there was a report out that First
31:22
Speaker 3: Brands Group, who no one has ever heard of, because
31:26
Speaker 3: does anyone know, like any major autoparts manufacturers.
31:30
Speaker 2: No, you don't.
31:32
Speaker 3: First Brands Group, they're a big autoparts manufacturer. And there was,
31:36
Speaker 3: you know, rumors at the beginning of this week that
31:38
Speaker 3: they may you know, have to declare Chapter eleven bankruptcy,
31:41
Speaker 3: which would be a restructuring.
31:42
Speaker 2: Today.
31:43
Speaker 3: This reported three hours ago by the Financial Times. I'll
31:48
Speaker 3: read from it because it does a great job.
31:50
Speaker 2: Here.
31:51
Speaker 3: Edy's tied to First Brands Group and his founder Patrick
31:53
Speaker 3: James have filed for bankruptcy protection in the US, compounding
31:56
Speaker 3: issues at the car parts supply, so not the company itself,
31:59
Speaker 3: but entered these tied to it. Carnabie Capital Holdings and
32:02
Speaker 3: several entities that raised debt linked to First Brands filed
32:06
Speaker 3: for Chapter eleven proceedings on Wednesday, raising the likelihood that
32:10
Speaker 3: the business itself is on the brink of bankruptcy. First Brands,
32:14
Speaker 3: a US maker of windshield wipers and fuel pumps, has
32:17
Speaker 3: come under intense scrutiny for its use of off balance sheet
32:20
Speaker 3: debt tied to invoice as in inventory. Some lenders fear
32:24
Speaker 3: this financing was poorly disclosed, making it difficult for creditors
32:27
Speaker 3: to know how much debt it had In total. Certain
32:29
Speaker 3: creditors estimate that First Brands raised as much as ten
32:32
Speaker 3: billion in debt and off balance sheet financing.
32:36
Speaker 2: And here's the.
32:36
Speaker 3: Other part that I want to hop forward to. The
32:40
Speaker 3: group's unraveling could lead to soul searching in the booming
32:43
Speaker 3: private credit industry, which has raised trillions of dollars from
32:47
Speaker 3: investors to lend the mid sized companies that tend to
32:49
Speaker 3: be highly leverged, but with a little public disclosure. And
32:53
Speaker 3: this to me is like the meat of the entire
32:56
Speaker 3: thing in two different places. Number One, Look, there's clearly
33:01
Speaker 3: something happening in the auto space, like this is this
33:03
Speaker 3: is three things in the span of two weeks that
33:06
Speaker 3: doesn't just happen. There's something bad that's going on in
33:09
Speaker 3: the auto space. The private credit angle is one that
33:12
Speaker 3: I hadn't thought of. But it kind of makes me wonder. Look,
33:16
Speaker 3: we've been seeing volatility creeping up for the last week
33:20
Speaker 3: or so, even when stocks were rising. At the end
33:22
Speaker 3: of last week, volatility like metrics like the VIX was rising,
33:26
Speaker 3: and you had, you know, concerns that were building under
33:28
Speaker 3: the hood, and I couldn't quite figure out what it is.
33:32
Speaker 3: I wonder if there's just like this private credit issue
33:35
Speaker 3: that's finally coming to a head as part of this,
33:38
Speaker 3: Because if there's one place that no one has any
33:41
Speaker 3: idea what's actually going on, it's the debt of these
33:44
Speaker 3: like mid size companies that are all financing through private credit,
33:48
Speaker 3: and none of the debt is publicly traded, so you
33:50
Speaker 3: can't see how it's actually trading. Yeah, no, no, I'm
33:56
Speaker 3: just speculating. But I'm trying to tie this all together.
33:59
Speaker 3: And I feel a little bit like Charlie Day and
34:01
Speaker 3: always sunny. But this this is my.
34:05
Speaker 2: Wall of strings.
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35:09
Speaker 2: Mike.
35:09
Speaker 3: We get a couple of pieces today on the H
35:12
Speaker 3: one B visa application fee changes and how that may
35:18
Speaker 3: impact the US workforce. What kinds of things are being
35:20
Speaker 3: talked about here.
35:22
Speaker 4: So we're talking about one hundred thousand dollars new fee,
35:24
Speaker 4: and here's what it seems to be coming down to
35:27
Speaker 4: is one a lot of scrutiny on the companies who
35:29
Speaker 4: are heavy users of these applications. It seems to be
35:31
Speaker 4: one thing that both Democrats or some Democrats and some
35:34
Speaker 4: Republicans can agree on is that they want to scrutinize
35:37
Speaker 4: those companies that use a lot of them and ask
35:40
Speaker 4: the very obvious question, are you using these the way
35:43
Speaker 4: they're supposed to be used, which is higher foreigners on
35:47
Speaker 4: an H one B visa for specific skills and pay
35:49
Speaker 4: them the going rate for the same employment that it
35:52
Speaker 4: would cost a hire an American in that role, Or
35:55
Speaker 4: are you doing what everyone's accusing you of, which is
35:57
Speaker 4: dramatically lowering your employment costs by using H one B visas?
36:01
Speaker 4: And my guesses it's more towards it's probably a little
36:04
Speaker 4: bit of both, but more towards the lowering the cost
36:06
Speaker 4: of employment. But the other big, you know, kind of
36:10
Speaker 4: economic question to all this, which I have a tough
36:13
Speaker 4: time answering, is Okay, so you've put a much higher
36:17
Speaker 4: value on these H one B visas. If I'm Amazon
36:22
Speaker 4: and I genuinely need this work done, and I would
36:26
Speaker 4: have otherwise hired somebody on these visas, who's going to
36:28
Speaker 4: pay taxes in the US, and you know, work here,
36:31
Speaker 4: rent a home here. Might I just consider opening a
36:35
Speaker 4: bigger office in Bangalore and hiring the same person.
36:39
Speaker 2: Maybe right now?
36:40
Speaker 4: If my real goal here is reducing wages rather than
36:43
Speaker 4: getting the specific labor, or even if it's both, Do
36:46
Speaker 4: I really need that person inside the bords of the
36:49
Speaker 4: United States? For Amazon? Maybe one tenth of the work
36:54
Speaker 4: that they do? The answers yes, right, Like, Hey, I'm
36:58
Speaker 4: working on the you know this storage, the cloud storage
37:02
Speaker 4: for the Pentagon. Yeah, they're not gonna let you do
37:04
Speaker 4: that out of Bangalore, or at least I really hope
37:06
Speaker 4: they're not. But for ninety percent of the other work
37:09
Speaker 4: that Amazon does, do I need that person here today?
37:14
Speaker 4: I would say the answer is I need that person
37:17
Speaker 4: in the United States less today than ever before in history,
37:22
Speaker 4: and now it'll just continue to be the case the
37:23
Speaker 4: better technology gets.
37:24
Speaker 3: Yeah, And the estimates that are out there are that
37:27
Speaker 3: somewhere in the range of like sixty to seventy percent
37:31
Speaker 3: of h one B visa holders work in computer related occupations,
37:35
Speaker 3: so it's like it's a lot of them are potentially
37:38
Speaker 3: jobs where you don't necessarily need that person in the
37:41
Speaker 3: United States. There are others where you might say, yeah,
37:45
Speaker 3: maybe you do need to have like some of these
37:47
Speaker 3: people need to be here, but it's disproportionately concentrated in
37:55
Speaker 3: computer related professions at this point.
37:57
Speaker 4: Right, And by the way, I'm not saying that I
37:59
Speaker 4: think it's a bad idea to go this. I think
38:01
Speaker 4: this is a solution that, in my mind is far
38:04
Speaker 4: away better than the current solution, So I think it's
38:07
Speaker 4: an improvement. I'm just interested to see the effects.
38:09
Speaker 2: Quick break here.
38:10
Speaker 3: Hour two coming up in just a bit.