June 3, 2024 • 38 mins
Mike Armstrong and Marc Fandetti discuss why the Fed has to worry about much more than just inflation. Key engines of consumer spending are losing steam all at once. NYSE technical issue shows Berkshire Hathaway down 99%. GameStop shares surge 25% after 'Roaring Kitty' posts big position in the company. Inflations feels bad no matter how you define it.
Mark as Played
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Episode Transcript
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K Boston is presented by Veterans DevelopmentCorporation. FACE is the Financial Exchange with
Mike Armstrong and Mark Fandetti. Goodmorning, Happy Monday, and welcome back
to the Financial Exchange. It's MikeArmstrong, Mark Fandetti and Tucker Silva with
you. Kicking off a jobs week, so we'll get the monthly jobs report
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for the month of May coming outthis Friday. Next week will be a
Federal Reserve meeting today. This morning, we got data on ism manufacturing,
which we were just talking about beforethe program started. Maybe not the best
leading indicator of recession, but historicallybeen a reasonably good coincidental indicator of recession.
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And that number came out pretty weekthis morning. So on that news,
you've got treasuries rallying, bond yieldsdown slightly to yield on the tenure
treasure down to four point four onetwo percent. What else is catching our
eye this week? Let's see Joltswill come out on Tuesday. That's the
report on another labor market report,the job openings, labor turnover services.
(02:09):
About that, Hey, tune inbig news, But nobody cares about jolts
anymore because the relationship between inflation andthat as a forecasting tool has sort of
broken down. Yeah, I don'tthink good great as a forecasting tool,
but definitely I think people cared aboutit in so far as that's where we
got the big statistic that almost everybodywas talking about for the last few years,
which, oh, man, there'stwo people. There's two jobs open
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for every person looking for work.What a crazy number. We've never seen
anything like that before. But yes, did a little early on a Monday
to start with this, probably,but it for decades economists put the unemployment
rate in their little inflation process models. It worked reasonably well as a predictor
of how much the economy relatives itscapacity was or was not overheating. Yep,
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that relationship broke down really after theGreat Recession. Unemployment went everybody remembers
it. Employment went way up.Inflation didn't go next though it did a
little bit in eight and after thatit went right back up to two to
three percent, and then late twentytens it went way way down and still
no inflation. So it left.This left labor economists searching in macroeconomists generally
searching for a new so called slackvariable fancy way of saying a variable to
(03:15):
measure slack in the economy, andthe ratio of unemployed people to vacancies or
the inverse of that, excuse me, did reasonably well for a while,
but that seems to have broken downas inflations, as inflation's underlying causes have
evolved over the past a couple ofyears. It's really interesting if you're a
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researcher. But if you just followthis stuff casually, your head's got to
be spinning. Yeah, And infact, I was going to talk about
some of that head spinning during today'sshow, because we kick off our next
story here and I'm trying to seeif there's anything else incredibly exciting about data
this week. I don't. Idon't generally think so. I think the
big items are, like I said, I ascend this morning, Jilt Report
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tomorrow, followed by Friday jobs You'repoor. But the stories that we have
to cover for the first half ofthe show today, many of them are
saying, hey, watch out,FED, because you might soon have to
worry about another problem, not justinflation, which newslash for you. The
FED is very concerned about the potentialof recession already. They seem to have
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it in all of their underlying commentsthat hey, we are terrified of causing
a recession and don't want to dothat and watch out because it could happen.
But that seems to be the piecethat's being written this morning is Hey,
look at all these other data pointsthat seem to be indicating an economic
slowdown, and I am let merather than injecting my opinion, Mark,
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I'm interested to hear your opinion onsome of these pieces as to whether you're
not they have any merit that,Hey, this is where we should be
shifting our focus now away from inflationand towards an economic slowdown. I mean
maybe, look, I preface alot of what I say here when I
fill in from time to time foryou at Chuck with I do something called
applied financial economics, which is reallynarrow. I look at inflation and asset
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classes and sure, because we runpeople's money in our day job, so
that's my job. So anything beyondthat, I start to get a little
bit uncomfortable. Yeah. No,economists, no matter how in what specialty
they're trained, should be comfortable forecastinga recession because nobody has been able to
do it consistently historically. That said, the FED spends a lot of time
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tweaking there these fast, complex models. And if you're picturing the big IBM
computers of the forties and punch cardsinstead of still running, you're not Yeah,
you're not far off. It's likea team of people. The computers
are smaller, but the the paceis similar, constantly putting data in,
getting output out. The FED fearsnothing more than a recession. Arguably,
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they will err on the side ofcausing a little bit more inflation, which
they ultimately have control over over avoidingrecession. You could say they miscalculated a
few years ago when they let inflationrun up and it didn't cause a recession
because they could have stopped it butdidn't. People are really upset about this.
We all know how much everybody hatesinflation, even more maybe than researchers
thought going into this. But thequestion you're going to ask yourself is do
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you hate recession more? Do youhate high unemployment more? I don't know
the answer to that. I'm kindof asking it rhetorically. Neil Kashkari asked
the same thing. But my pointwith some of these pieces, and like
I said, we're going to covera number of them today, but many
of them seem to be trying tocompile evidence that we are heading for a
slowdown. And I'm going to raisemy hand and say, for every data
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point that I'm seeing you print hereabout Wendy's offering discounts or personal spending slowing
down compared to previous years, whichis you know something that's drawn out from
the PC inflation measures and survey thatwe did last week that that we received
data on. I think I caneasily point to a number of other factors
that have been published the last fewweeks that would indicate that, no,
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we're not heading for a slowdown.We're still heading for an overheating economy.
And I think I come to thesame conclusion you do, which is it's
really really difficult even for the foremostexperts in their field to come up with
any sort of cohesive argument and conclusionthat is going to be correct that yeah,
we are or or no, weare not heading for a slowdown.
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I don't know. I think mygoal, I can tell you is that
when it's when recession is obvious andupon us, the FED will aggressively ease
policy. They did it even innineteen eighty two, when inflation was still
a year over year running in doubledigit this was, you know, Paul
Ironfist, Paul Voker, that's nothis actual nickname. I'm just trying to
come up with something that conveys howdetermined a guy hear him call you never
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that. Yeah, it's just meand a few close friends call him that.
So the FED will ease aggressively nomatter what inflation's doing, figuring that
high unemployment will take care of inflation. They'll probably be be right. But
we won't know again until we're staringover the precipice of an economic contraction.
Right. So I think that's myoverall point is. You know, this
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piece from the Wall Street Journal isjust one of many, Like I said,
but the headline is the FED mightsoon have to worry about more than
just inflation as evidence. The subheadline, as evidence mounts that the economy is
slowing, Pressure to lower rates couldbuild it. And I would just push
back on the fact that I don'tthink there is really any more evidence of
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a slowing economy than there was thistime last year. Who remembers the remember
all the stories last year that werepiling up in the spring and summer about
how consumers had spent all their pandemicsavings and look out, because once they
do, they're gonna pull back onspending. They're not gonna have any more
money. They're not gonna go onvacation, they're not gonna buy new houses.
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They're certainly not gonna be buying furnitureor electronics or subscribing to new AI
chatbots. And then all of asudden, I don't know if you remember
what happened for the last twelve monthsof the last rolling twelve months, but
consumers have stayed employed, They've continuedspending. Credit card debts somehow at the
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beginning of this year was really highand then came down a little bit in
fact, and stock markets have reachednew all time highs and there hasn't been
a recession. So sometimes these thingssound really obvious, and you listen to
Goldman Sachs or JP Morgan put togetherthe forecast of oh, the consumers already
spent through all of their money,watch out, this is coming, or
Jamie Diamond tell you, tells youthat there's a hurricane coming, and then
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it just doesn't materialize. And Ihave no idea if it's going to this
time. But these stories sound exactlythe same as they did in April,
May and June of twenty twenty three. You and Chuck's out to say this
all the time. It's one dayto point. If you look back at
this, you made a great analogyto the second and third quarter of last
year. We now know real GDPwas growing by recent standards like Gangbusters,
(09:56):
and Q three had grew it overtwo percent, well over two percent in
Q one Q two. Obviously,I'm looking back that. Thus the hesitation
Q three nearly five percent. Thoseare very good relative to the experience of
the past twenty years. Annualized ratesof real so called GDP gross domestic product,
which is how we measure what weproduce as a country rates and during
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those each of those periods, realdisposable personal income, which we know slid,
and when I say real, IMA inadjusted for inflation, slid month
over month. This was reported onFriday, we talked about it. Real
spending also slid, just a bita tenth in each case. Plenty of
instances of that happening last year,but we won't know for several months whether
or not this represents a blip orthe start of a new and from an
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economic growth concerns, point of viewsort of alarming trend. We just won't
know for a while. Let's takea quick break when we come back.
Neil Kashkari, the FED President forthe Minneapolis Federal Reserve, did a podcast
a few weeks ago, just gotaired today, and I thought he had
some interesting conclusions about what we weretalking about, people's preferences for inflation versus
recession and that trade off. Let'scover that next on The Financial Exchange.
(11:07):
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Veterans Development Corporation. A bit ofbreaking news that probably is int relevant to
a whole lot of investors out there, but New York Stock Exchange is experiencing
some technical glitches. Just to explainone of these technical glitches, this morning,
(12:46):
the Berkshire Hathaway B shares are tradingtoday at four hundred and ten dollars
and fifty five cents. That's downabout nine tenths of a percent this morning
the A shares, according to Again, this is according to Google Finance,
which pulls data probably from New YorkStock Exchange, the A shares of Berkshire
Hathway have lost six hundred and twentyand fourteen dollars and ninety cents per share,
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which would be a loss of ninetynine points nine to seven percent.
According to reporting from CNBC, thisis a technical issue reporting some stock prices
and is not in fact correct thatBerkshire hathaway A shares have lost more than
ninety nine percent of their value.So if anybody was a little bit concerned
about that, then, yeah,if that didn't kill Warren Buffett, he's
(13:30):
going to live another That's true.Years, He's gonna outlive us all.
Wasn't there an issue last week?There was an issue with New York Stock
Exchange data last week. I'm startingto wonder now if there is Thursday.
Yeah, I'm wondering if this isless of a technical glitch and more of
a hack or problem with the NewYork Stock Exchange. That is going to
(13:52):
be disclosed in a few weeks oncewe find out, but we will see.
So if you have a stop orderon that meaning if the price goes
below a certain amount, triggers anautomatic sale. That triggered a bunch of
stopwarks, that's a really good question. Mark orders. If the price falls
below a certain threshold, you automaticallybuy. Probably not, it was probably
so fleeting. Probably, I meanit's still sitting there right, I mean,
(14:13):
hopefully the brokers work. Could Imean, right now, sitting there,
what are we doing here not buyingit? So we don't we don't
talk about that. We're not sostuck, not folks. Yeah yeah,
presumably that would lead to, uh, if you tried to divest the shares
because you took advantage of it.I mean, nothing's trading, is the
(14:33):
point? Yeah? Well, whatthe heck? If some if some actually
this is frozen. Would if somemeatball can put a post of himself?
If if right, some jackass putsa post of himself, it puts a
picture, a screenshot of the numberof game Stop shares he owns, are
options to buy it online, sendsthe stock up fifty percent today? Then
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why can't we do this? We'rethe least of the I'm the least of
the SECS warriors. Well let's gothere. Then that was can be covered
later in our stack. But ifyou don't know why you do it,
which say that word that Mark justsaid, jackass, that's all right,
all right if a donkey okay,uh, the jackassible we could say anything
in the Bible. Okay, goodto know. The jackass that Mark Vandetti
(15:18):
is referring to is Keith Gill,So I don't know him. I know
he's local. I hope it's Idon't want to offend anybody, but how
he's how what he's doing is legalis beyond me. His name is Keith
Gill. He also goes by RoaringKitty, which is I don't know,
it's just a very funny name,and uh, it's taken for for that
background. He used to work formass Mutual, was it? I believe
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it was mass Mutual and Massachusetts brokerof one sort or another is develop this
online persona and following uh trading memestocks and a few weeks ago he posted
a you know, Twitter shot ofme, a meme of some guy leaning
forward in his chair, which investorssomehow took to mean that he's paying much
(16:03):
more attention right now, or abunch of attention right now, and they
piled in to game Stop, whichwas the big company that he made a
whole bunch of information on. Andthis time he posted another couple tweets.
One was apparently disclosing a position whichagain is standing. Game Stop shares up
one hundred percent this morning. Didn'the have another post as well? I
(16:26):
think there were two posts as partof this one that it was a card.
Oh yeah, reverse, no card, which I don't I don't,
I don't know, I'd never played. What that imply well, I mean
it implies reverse. I just don'tknow what he's reversing. But to your
point, what part of that doyou think should be disallowed? Mark?
Because I remembering you just said,Mike, it discredits his Chartered Financial Analyst
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designation. But he already lost alldid he lose He's permanently barred from FINRA.
He has lost. I don't knowabout his desert nations if he is
a CFA or CFP, but Iwould guess that he's lost those. But
let's talk about legality for a moment. Like I agree that if you are
a registered investment advisor or a brokerand you are doing something like this,
then almost definitely it's going to beagainst your company's policies and probably against FINRA
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rules as well as any of thosedesignations you hold. They're probably gonna strip
you of all of them. SoI'm not encouraging anybody to go build the
next roaring Kittie, but fundamentally himposting and saying I own a hundred However,
million dollars worth of this company.Not obvious. It doesn't look like
manipulation to me. I'm not alawyer, but let's get Alvin Bragg on
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this. That New York dah,he's pretty good at concocting crimes apparently,
Like, let's get him on this. I know some people in the audience
will love that's that's my yeah,I just like I see how that was
problematic for mass mutual Probably free speech. Yeah, if you must to post
a picture of himself leaning forward onthe toilet or whatever he was leaning forward
on. And if investors want togo and pile it into a stock based
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on that's that's yeah, your financialfuneral. So I see fundamentally plenty of
things wrong if you want to workas a profession in this industry and you
know, advise other people on theirmoney, or accept trades on others' behalf,
or represent a company that is fundamentallyserious about investing, Like, I
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can see how all of those thingswould be problematic. But if you just
want to be as a private citizensomebody that posts memes that send shares flying
through the roof, so long asI mean, there are plenty of ways
that you could potentially front run thatand and effectively be considered to have insider
trading. But so long as you'renot doing any of those things, I
(18:41):
don't see any fundamental issues with it. The question would be, I guess
does he tell anybody ahead of time? Hey, I'm about to post this
meme on Twitter? Because if hedoes, then you've got an insider trading
case. I think, right,well, he doesn't have insider information,
inside information. Great, Oh,this is two non lawyers getting getting on
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increasingly flimsy ground here. Maybe it'snot insider information, but it is information
that we fundamentally I think you canfundamentally agree that the information he would be
about to the post would move thestock price. So yeah, And I
don't know how irritating that I didn'tget in on. It's probably that's what
I'm really just sour grapes. Ireally idolized. This Mark also has a
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YouTube personality called Rowing Lion, andit's just not been getting the following that
Roaring Kitty has been getting. Solet's take a quick break Wall Street watches
next, and then I'll eventually talkabout Neil Cashcari. Like us on Facebook
and follow us on Twitter at TFFEshow. Breaking business news is always first
(19:49):
right here on the Financial Exchange RadioNetwork. Time now for Wall Street Watch
a complete look at what's moving marketso far today right here on the Financial
Exchange Radio Network. Well, anew week is underway and markets are a
mixed territory. Is traders ready forseveral key economic data points this week,
(20:10):
including a big jobs report on Friday. Right now, the Dow is down
by forty seven points, s andP five hundred is up by eight points.
In the Nasdaq up by two thirdsof a percent, RUSS two thousand
is up by about a quarter percent, ten year Treasure Reel down by nine
basis points at four point four toone percent, and crude oil down about
(20:32):
three percent, trading at seventy fourdollars and seventy four cents a barrel.
We'll keep you updated on the latestdeveloping story that the New York Stock Exchange
it seems to be having technical issuesif we've seen Berkshire Hathaway down nearly one
hundred percent and that stock is nowhalted and trading has also been halted in
Barre Gold and New Scale Power apparentlyas well. So we'll keep you posted
(20:57):
on that as the show goes on. As mentioned in the previous seven segment,
Gamestock currently up by thirty one percenton the Rory Kitty post as we
discussed. Meanwhile, Waste Management agreedto buy medical waste disposal companies stere Recycle
and a seven point two billion dollardeal. Waste Management down by two and
a half percent, while ste Recycleshares are up by fifteen percent. Elsewhere,
(21:22):
chip makers including Nvidia and AMD areseeing gains of four percent and actually
mds off by half a percent,respectively, after each company announced their new
AI chips separately. Bank of Americanamed Nvidia a top pick and kept its
price target that implies a thirty sixpercent upside for the stock. Boston Beer
(21:42):
down by five percent after Bloomberg reportedthat Japanese brewer and distiller Suntori denied an
earlier report from The Wall Street Journalthat it was in talks to acquire the
Sam Adam Adams parent company. Spotifyup by five percent after the music streaming
company announced it will hike prices forits premium subscriptions beginning in July. In
(22:04):
Paramount Global up by seven percent afterCNBC reported that Paramount and sky Dance have
agreed to terms of a merger,which will likely be announced in the coming
days. Tucker Silvan that's Wall StreetWatch. By the way, market according
to CNBC, there were fewer thanfour thousand recorded trades on the day for
Berkshire's A shares when trading was halted, So apparently, yes, a few
(22:26):
people did make trades on that.But I have to expect that those all
get blown out. I would think, so, yeah, I'll get out
and corrected and fixed. But yeah, I would think that. What would
say about financial markets today that gameStop is apparently it's a well functioning market
(22:47):
for that company, probably going theway of the Chia pet or something whatever
your your favorite flashing the pan forthe last twenty years is Meanwhile, Berkshire,
Hathaway in what a goal miner wasit? Barracks is Barrack Gold and
the Barrack. Meanwhile, we don'thave well functioning markets for these huge blue
chip companies. This is not engendera lot of confidence for what is for
(23:07):
most people their primary engine of growthfor their retirement portfolio. By the way,
those game Stop shares, which haddoubled as of early training this morning,
are now up just thirty four percent, So that's rapidly changed, and
hopefully you weren't one that bought atthat doubling price. Neil Cashcaring, like
I said, did a podcast withThe Financial Times a couple of weeks ago
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now just got released, I thinkon Monday, and I thought he had
one really interesting kind of series ofcomments that the focus of this was about
American's visceral hatred of inflation end quote. Some people would prefer a recession to
a jump in prices, and I'mreally interest people. I want names.
(23:53):
No, I'm interested in that statementbecause I can well, I guess there's
a few things that I would sayabout that. One. I can see
why some might be interested in that, because, let's be clear, in
the worst of worst recessions in theUnited States, let's not go back to
the Great Depression. Let's go backto eight when unemployment last peaked. What
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percentage of Americans lost their jobs ineight Do you think deployment peaked in twenty
twenty at fourteen percent? The highestsince the Great Depression eighty two was what
ten points something? Great Recession wasalso ten points something, I believe,
So the worst case scenario in recessionsthat was really brief in the last fifty
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years. Worst case scenario eighty two, I mean, is like one out
of every eight Americans lose their job, right, Yeah, And you could
argue twenty twenty was't an normally forobvious reasons. Eighty two was kind of
depression. Eighty one to eighty twowas very depression like, whereas probably ninety
out of one hundred Americans feel inflationwhen it gets as bad as it has
been. So I think there's theargument of, look, if there's a
(25:03):
recession, if I work in youknow, I work for a utility company.
My job's not going anywhere, Sowhat do I care if we hit
a recession. I don't have anystock market investments perhaps, and so yeah,
I don't care if we get arecession. There's probably a subset of
people that fundamentally do believe that maybethey've got a lot of cash that they've
been waiting to buy into a market, maybe whatever it might be. I
think there is a group of peopleare rooting for a Oh oh, you
(25:26):
don't know ahead of time if you'regoing to be one of the unlucky unemployed.
Of course, if you had toright now say we're going to be
a recession a year for someone posethis scenario to you as if you could
have a choice. But let's supposewe could do the experiment you've now,
the economy is going to be inrecession. Unemployment is going to go up
to, say, five to sixpercent, and let's just say that means
you have a one in maybe twentychance. I'll just call it five percent
(25:47):
of becoming unemployed yourself versus price isgoing up four percent, but your wage
is only going up three point nineto four point one. I'm throwing a
lot of numbers out here. Iapologize, But if you could with certainty
lock in a scenario today, wouldit be definitely have a job a year
from now, possibly treading water whenit comes to purchasing power. I'll take
that one, or any rational personwould. If you wouldn't, please let
(26:08):
us know what your rationale is.So then here is my real life.
Because I do believe when you askpeople this question, I think they genuinely
think that they prefer recession over continuedprices. Here's what the when you ask
people the question, I think thatthey are answering this way. And here's
why we don't know what recession isa lot of people have, right,
(26:33):
haven't been in the workforce long enough. We can't count twenty twenty because it
was only two months long. Whatwas the poll that was done just a
few weeks ago? The Harris Pollfound that fifty some odd percentage of Americans
think that we are in a recessionright now. Sixty percent of them thought
the stock market was down over thelast twelve months. So the reason I
think that people are saying, yeah, I would prefer recession to a jump
in prices is because we don't fundamentally, or apparently a bunch of us don't
(26:59):
know what a recess. I thinkhe just nailed it. A recession is
abstract right now. Inflation is real. And by the way, we keep
throwing around the word recession and havecompletely lost the meaning of it. Right,
how many stories did we cover overthe last three years about specific industry
quote recessions. Real estate's in arecession, college grads are in a recession.
There's a vibe recession, there's avibe session. We've fundamentally gotten away
(27:22):
from the true meaning of a recession, which I don't have the definition in
front of me right now. Fromwho marks the National Bureau of economic research
up the street. They a broaddecline in a large number of economic It's
not two consecutive quarters of negative growth, unlike in Europe and elsewhere where.
They do define it that way.And it's pretty vague, pretty vague,
(27:44):
A broad slow down in economic activity, usually and I think there's a specific
quote in here that I'm trying toremember, lasting more than a few quarters,
and usually accompanied by an increase inunemployment. Yeah, it's a pretty
but it's pretty vague. And thereare nine folks who essentially vote. They
get on a conference call and theycall it yep. And this can be
a month after the recession starts orseveral months. It's very imperfect. So
(28:07):
I think that's probably where this typeof thing comes from. Is it's not
people that's fair making a accurate evaluationor realistic evaluation of their financial future.
Right. They're not sitting there andsaying, oh, okay, So if
inflation stays where it is, thenthis is what it means for my spending
power. If there's a recession twelvemonths ahead, that means that I have
(28:30):
a one in eight chance of losingmy job. Which one of those do
I prefer? I don't think anybody'smaking. No rational person would choose the
latter, would choose a possibility ofunemployment. You would take again running in
place in terms of living standards everysingle time, and there are economic arguments
to avoid. Look, I'm notdefending the inflation of the COVID era,
though I will tell you it wouldhave happened no matter who the president was.
(28:52):
We had so much stimulus in thepipeline, and the COVID supply constraints
were so severe, and the Fedchair you can't do anything about. He's
got a four or is it yearfour year term, five year term,
so we can't replay that and doit over. But the idea that anyone
would prefer recession which leaves permanent scars, just look at the trajectory of US
(29:15):
growth after the two thousand and eighttwo thousand and nine recession, which admittedly
was very large. But those joblosses that occur during recession, they leave
permanent scars. People's skills erode,they become less employable. Whereas inflation,
if well managed, and the jurystill out on whether or not the Fed's
got to handle on this, doesnot. So then why I'm concerned about
(29:36):
this statement from Kashkari is maybe he'sright that some people are saying that they
prefer recession over a jump in prices, but they won't once it's here,
and I hope that the FED isnot shifting their outlook. I agree that,
Look, you know, people hateinflation. They are really uncomfortable with
it, and I think they wouldprefer a non recession but slower growth scenario
(29:57):
with lower inflation than what we've beendealing with. But if the FED starts
shifting their thinking and saying, oh, we need to focus that much more
on inflation because people don't care aboutrecession, I hope that is not the
conclusion that Neil Kashkari is coming tobased on these polls. That's what he
said. That's what he stated,is that you know, apparently some Americans
(30:21):
would prefer recession to a jump inprice. By the way, it doesn't
have to be recession. It canbe a so called growth slow down.
The FED has engineered a couple,not many in the post war periods,
slow downs that didn't lead to officialrecession that did seem twenty twenty two,
it is one of them. Youcould slow down, and yeah, that
may have although the hikes had juststarted at that point, make so I
(30:42):
tend to not attribute that acceleration towhat the FED did. H There are
there a few examples, historically,they are pretty few and far between.
They're sort of like miracle outcomes.It's just very hard to thread that needle.
But there's no doubt after this experience, and in part possibly depending on
who wins in November, the Fedwill rewait the priority that it assigns to
(31:06):
keeping inflation under control relative to growth, and it may overdo it, and
we will then find out how manypeople actually prefer a growth slowdown or worse
recession to inflation. Let's take anotherquick break. When we come back,
there's a piece from Bloomberg, andspecifically from an economist that we have mentioned
on this program many times before.She has a name, a rule named
(31:26):
after her, and a very interestingpiece on polling about the economy. That's
next here on the Financial Exchange,breaking business and financial news first throughout the
day, only here on the FinancialExchange Radio Network. The Financial Exchange Show
podcast drops every day on Apple,Spotify, and iHeartRadio. Hit that subscribe
(31:47):
button then leave us a five starreview. You're listening to the Financial Exchange
radio network. Claudia Som who inventedis, invented the right word, created
a like, created through through research, created created a rule that's now named
(32:13):
after you. You want to wantthe technical phrase, Yeah, let's go.
She noticed in empirical regularity a pastconnection that may or may not hold
in the future. Thanks Dada.Uh, and we call it the Psalm
rule. It basically honestly, shenamed it the rule. I don't know
that she named it, did she? She may have, uh, just
(32:34):
trashing over Claudia song for no reasonsession and she's a long story's well published.
Uh, and I think, uh, well respected economist. She was
on the she was on Obama's Councilof Economic Advisors. She's what does she
doing? She got independent consulting fromnow in the media a lot. She
(32:55):
likes the media. And she's talkingin this piece about I guess gloominess and
people's feelings towards the economy, whichwe've been talking about too, because all
of the polling figured it out thatwe've been looking at seems just weird and
often I don't know that she figuredanything out specifically, Like she was.
She was aggressively defiant for years aboutinflation h aggressively. Yeah. So here's
(33:19):
one thing that she found that Ifind very intriguing. So we talked about
how University of Michigan has this consumersentiment poll that they've been putting together for
decades now goes back when did theystart fifties, possibly very very long time.
And we quoted back in twenty twentytwo that we were seeing the worst
consumer sentiment numbers that we had seensince nineteen eighty and in fact, it
(33:42):
actually got lower in twenty twenty twothan it did in nineteen eighty. In
twenty twenty two, we all recall, I think that prices were up,
you know, from pandemic pre pandemiclevels a good fifteen percent, but unemployment
was really low. Nineteen seventy eightto nineteen eighty one, the price level
rose thirty percent, which is abouttwice the increase that we saw in twenty
(34:05):
twenty two, and unemployment averaged sevenpercent. Yet we said that in twenty
twenty two things were worse than theywere in nineteen eighty when asked about people's
feelings about the economy and stuff.And I just find that intriguing because I
think you can look at that periodof time and say, almost by every
economic measure, things looked worse innineteen eighty, right, we would come
(34:30):
off of inflation that was substantially higher, an unemployment, remember, substantially higher
as well. So I find thatvery intriguing that in spite of that,
we are saying that things are substantiallyworse now. And she basically goes on
to say that, you know,our tools that we have for measuring this
might just not be very good atit. And so trying to use something
(34:51):
like how people are responding to questionslike how do you feel about things?
We might not be able to solvethat as economists. And my favorite quote
from her quote, maybe the bestway forward is fewer words from economists,
less argument over the meaning of commoneconomic terms, and more discussion about all
the non economic reasons for our gloom. Yeah, but then it's not she
(35:14):
knows it's PhD trained. Yeah,it's so she could start by following taking
her own advice. Oh, she'spaid to give her opinions, so she
has arguably has no choice. Alot of these, a lot of the
terms that we throw around now we'reacting in the capacity sort of journalists and
commentators here, so we use termscasually that have very specific meanings for researchers.
(35:38):
I don't I don't know of agood analogy off the top of my
head, other than maybe physics.You know, we say something is massive,
very different than when a physicist usesthe terms. So economists have their
own arcane. It's not ourcane.It's usually based in statistics or some related
discipline. They have their own vocabulary. There's no better place to vacation than
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USVII dot com. Yeah, Ithink that's precisely. I think that's precisely
the point that I would get toMark. I know you are going we're
with the commentary before, and Ithink, yeah, we try to use
(37:05):
economics in the same way that peopletry to use physics or chemistry, and
that's not how it works now,especially since conclusions are subject to being overturned.
I can tell you from personal experience, you always endo research paper with
I find no evidence that you don'tsay XYZ is the case you usually say,
(37:27):
and it sounds like you're woosen out. I can rule out these things.
The evidence discussed here probably does notsupport the idea that XYZ is an
inflation hedge. For example, youwould never say it isn't or won't ever
be. It's always very provisional becausefuture evidence can overturn the conclusion. That's
why I think where economists do theirbest work, they help to narrow the
(37:51):
discussion a little bit blanket statements,ideologically driven statements, which I guess we're
all prone to just not helpful,Yeah, tend not to be. Markets
remain open but have flipped a littlebit. You've got the Dow in negative
territory, off half of percent,the SMP down one fifth of one percent.
Nasdaq is still positive, but onlyby about a tenth of eight percent.
(38:12):
We'll check in again on markets towardsthe top of the next hour,
but a lot more to cover inour second hour, the financial exchange.
Stay tuned, folks,
The Financial Exchanges produced by Money MattersRadio and is hosted by employees of the
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(01:03):
K Boston is presented by Veterans DevelopmentCorporation. FACE is the Financial Exchange with
Mike Armstrong and Mark Fandetti. Goodmorning, Happy Monday, and welcome back
to the Financial Exchange. It's MikeArmstrong, Mark Fandetti and Tucker Silva with
you. Kicking off a jobs week, so we'll get the monthly jobs report
(01:26):
for the month of May coming outthis Friday. Next week will be a
Federal Reserve meeting today. This morning, we got data on ism manufacturing,
which we were just talking about beforethe program started. Maybe not the best
leading indicator of recession, but historicallybeen a reasonably good coincidental indicator of recession.
(01:48):
And that number came out pretty weekthis morning. So on that news,
you've got treasuries rallying, bond yieldsdown slightly to yield on the tenure
treasure down to four point four onetwo percent. What else is catching our
eye this week? Let's see Joltswill come out on Tuesday. That's the
report on another labor market report,the job openings, labor turnover services.
(02:09):
About that, Hey, tune inbig news, But nobody cares about jolts
anymore because the relationship between inflation andthat as a forecasting tool has sort of
broken down. Yeah, I don'tthink good great as a forecasting tool,
but definitely I think people cared aboutit in so far as that's where we
got the big statistic that almost everybodywas talking about for the last few years,
which, oh, man, there'stwo people. There's two jobs open
(02:30):
for every person looking for work.What a crazy number. We've never seen
anything like that before. But yes, did a little early on a Monday
to start with this, probably,but it for decades economists put the unemployment
rate in their little inflation process models. It worked reasonably well as a predictor
of how much the economy relatives itscapacity was or was not overheating. Yep,
(02:53):
that relationship broke down really after theGreat Recession. Unemployment went everybody remembers
it. Employment went way up.Inflation didn't go next though it did a
little bit in eight and after thatit went right back up to two to
three percent, and then late twentytens it went way way down and still
no inflation. So it left.This left labor economists searching in macroeconomists generally
searching for a new so called slackvariable fancy way of saying a variable to
(03:15):
measure slack in the economy, andthe ratio of unemployed people to vacancies or
the inverse of that, excuse me, did reasonably well for a while,
but that seems to have broken downas inflations, as inflation's underlying causes have
evolved over the past a couple ofyears. It's really interesting if you're a
(03:36):
researcher. But if you just followthis stuff casually, your head's got to
be spinning. Yeah, And infact, I was going to talk about
some of that head spinning during today'sshow, because we kick off our next
story here and I'm trying to seeif there's anything else incredibly exciting about data
this week. I don't. Idon't generally think so. I think the
big items are, like I said, I ascend this morning, Jilt Report
(03:58):
tomorrow, followed by Friday jobs You'repoor. But the stories that we have
to cover for the first half ofthe show today, many of them are
saying, hey, watch out,FED, because you might soon have to
worry about another problem, not justinflation, which newslash for you. The
FED is very concerned about the potentialof recession already. They seem to have
(04:24):
it in all of their underlying commentsthat hey, we are terrified of causing
a recession and don't want to dothat and watch out because it could happen.
But that seems to be the piecethat's being written this morning is Hey,
look at all these other data pointsthat seem to be indicating an economic
slowdown, and I am let merather than injecting my opinion, Mark,
(04:46):
I'm interested to hear your opinion onsome of these pieces as to whether you're
not they have any merit that,Hey, this is where we should be
shifting our focus now away from inflationand towards an economic slowdown. I mean
maybe, look, I preface alot of what I say here when I
fill in from time to time foryou at Chuck with I do something called
applied financial economics, which is reallynarrow. I look at inflation and asset
(05:10):
classes and sure, because we runpeople's money in our day job, so
that's my job. So anything beyondthat, I start to get a little
bit uncomfortable. Yeah. No,economists, no matter how in what specialty
they're trained, should be comfortable forecastinga recession because nobody has been able to
do it consistently historically. That said, the FED spends a lot of time
(05:30):
tweaking there these fast, complex models. And if you're picturing the big IBM
computers of the forties and punch cardsinstead of still running, you're not Yeah,
you're not far off. It's likea team of people. The computers
are smaller, but the the paceis similar, constantly putting data in,
getting output out. The FED fearsnothing more than a recession. Arguably,
(05:53):
they will err on the side ofcausing a little bit more inflation, which
they ultimately have control over over avoidingrecession. You could say they miscalculated a
few years ago when they let inflationrun up and it didn't cause a recession
because they could have stopped it butdidn't. People are really upset about this.
We all know how much everybody hatesinflation, even more maybe than researchers
thought going into this. But thequestion you're going to ask yourself is do
(06:15):
you hate recession more? Do youhate high unemployment more? I don't know
the answer to that. I'm kindof asking it rhetorically. Neil Kashkari asked
the same thing. But my pointwith some of these pieces, and like
I said, we're going to covera number of them today, but many
of them seem to be trying tocompile evidence that we are heading for a
slowdown. And I'm going to raisemy hand and say, for every data
(06:39):
point that I'm seeing you print hereabout Wendy's offering discounts or personal spending slowing
down compared to previous years, whichis you know something that's drawn out from
the PC inflation measures and survey thatwe did last week that that we received
data on. I think I caneasily point to a number of other factors
that have been published the last fewweeks that would indicate that, no,
(07:01):
we're not heading for a slowdown.We're still heading for an overheating economy.
And I think I come to thesame conclusion you do, which is it's
really really difficult even for the foremostexperts in their field to come up with
any sort of cohesive argument and conclusionthat is going to be correct that yeah,
we are or or no, weare not heading for a slowdown.
(07:24):
I don't know. I think mygoal, I can tell you is that
when it's when recession is obvious andupon us, the FED will aggressively ease
policy. They did it even innineteen eighty two, when inflation was still
a year over year running in doubledigit this was, you know, Paul
Ironfist, Paul Voker, that's nothis actual nickname. I'm just trying to
come up with something that conveys howdetermined a guy hear him call you never
(07:46):
that. Yeah, it's just meand a few close friends call him that.
So the FED will ease aggressively nomatter what inflation's doing, figuring that
high unemployment will take care of inflation. They'll probably be be right. But
we won't know again until we're staringover the precipice of an economic contraction.
Right. So I think that's myoverall point is. You know, this
(08:07):
piece from the Wall Street Journal isjust one of many, Like I said,
but the headline is the FED mightsoon have to worry about more than
just inflation as evidence. The subheadline, as evidence mounts that the economy is
slowing, Pressure to lower rates couldbuild it. And I would just push
back on the fact that I don'tthink there is really any more evidence of
(08:28):
a slowing economy than there was thistime last year. Who remembers the remember
all the stories last year that werepiling up in the spring and summer about
how consumers had spent all their pandemicsavings and look out, because once they
do, they're gonna pull back onspending. They're not gonna have any more
money. They're not gonna go onvacation, they're not gonna buy new houses.
(08:48):
They're certainly not gonna be buying furnitureor electronics or subscribing to new AI
chatbots. And then all of asudden, I don't know if you remember
what happened for the last twelve monthsof the last rolling twelve months, but
consumers have stayed employed, They've continuedspending. Credit card debts somehow at the
(09:09):
beginning of this year was really highand then came down a little bit in
fact, and stock markets have reachednew all time highs and there hasn't been
a recession. So sometimes these thingssound really obvious, and you listen to
Goldman Sachs or JP Morgan put togetherthe forecast of oh, the consumers already
spent through all of their money,watch out, this is coming, or
Jamie Diamond tell you, tells youthat there's a hurricane coming, and then
(09:33):
it just doesn't materialize. And Ihave no idea if it's going to this
time. But these stories sound exactlythe same as they did in April,
May and June of twenty twenty three. You and Chuck's out to say this
all the time. It's one dayto point. If you look back at
this, you made a great analogyto the second and third quarter of last
year. We now know real GDPwas growing by recent standards like Gangbusters,
(09:56):
and Q three had grew it overtwo percent, well over two percent in
Q one Q two. Obviously,I'm looking back that. Thus the hesitation
Q three nearly five percent. Thoseare very good relative to the experience of
the past twenty years. Annualized ratesof real so called GDP gross domestic product,
which is how we measure what weproduce as a country rates and during
(10:20):
those each of those periods, realdisposable personal income, which we know slid,
and when I say real, IMA inadjusted for inflation, slid month
over month. This was reported onFriday, we talked about it. Real
spending also slid, just a bita tenth in each case. Plenty of
instances of that happening last year,but we won't know for several months whether
or not this represents a blip orthe start of a new and from an
(10:43):
economic growth concerns, point of viewsort of alarming trend. We just won't
know for a while. Let's takea quick break when we come back.
Neil Kashkari, the FED President forthe Minneapolis Federal Reserve, did a podcast
a few weeks ago, just gotaired today, and I thought he had
some interesting conclusions about what we weretalking about, people's preferences for inflation versus
recession and that trade off. Let'scover that next on The Financial Exchange.
(11:07):
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(11:58):
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Veterans Development Corporation. A bit ofbreaking news that probably is int relevant to
a whole lot of investors out there, but New York Stock Exchange is experiencing
some technical glitches. Just to explainone of these technical glitches, this morning,
(12:46):
the Berkshire Hathaway B shares are tradingtoday at four hundred and ten dollars
and fifty five cents. That's downabout nine tenths of a percent this morning
the A shares, according to Again, this is according to Google Finance,
which pulls data probably from New YorkStock Exchange, the A shares of Berkshire
Hathway have lost six hundred and twentyand fourteen dollars and ninety cents per share,
(13:07):
which would be a loss of ninetynine points nine to seven percent.
According to reporting from CNBC, thisis a technical issue reporting some stock prices
and is not in fact correct thatBerkshire hathaway A shares have lost more than
ninety nine percent of their value.So if anybody was a little bit concerned
about that, then, yeah,if that didn't kill Warren Buffett, he's
(13:30):
going to live another That's true.Years, He's gonna outlive us all.
Wasn't there an issue last week?There was an issue with New York Stock
Exchange data last week. I'm startingto wonder now if there is Thursday.
Yeah, I'm wondering if this isless of a technical glitch and more of
a hack or problem with the NewYork Stock Exchange. That is going to
(13:52):
be disclosed in a few weeks oncewe find out, but we will see.
So if you have a stop orderon that meaning if the price goes
below a certain amount, triggers anautomatic sale. That triggered a bunch of
stopwarks, that's a really good question. Mark orders. If the price falls
below a certain threshold, you automaticallybuy. Probably not, it was probably
so fleeting. Probably, I meanit's still sitting there right, I mean,
(14:13):
hopefully the brokers work. Could Imean, right now, sitting there,
what are we doing here not buyingit? So we don't we don't
talk about that. We're not sostuck, not folks. Yeah yeah,
presumably that would lead to, uh, if you tried to divest the shares
because you took advantage of it.I mean, nothing's trading, is the
(14:33):
point? Yeah? Well, whatthe heck? If some if some actually
this is frozen. Would if somemeatball can put a post of himself?
If if right, some jackass putsa post of himself, it puts a
picture, a screenshot of the numberof game Stop shares he owns, are
options to buy it online, sendsthe stock up fifty percent today? Then
(14:54):
why can't we do this? We'rethe least of the I'm the least of
the SECS warriors. Well let's gothere. Then that was can be covered
later in our stack. But ifyou don't know why you do it,
which say that word that Mark justsaid, jackass, that's all right,
all right if a donkey okay,uh, the jackassible we could say anything
in the Bible. Okay, goodto know. The jackass that Mark Vandetti
(15:18):
is referring to is Keith Gill,So I don't know him. I know
he's local. I hope it's Idon't want to offend anybody, but how
he's how what he's doing is legalis beyond me. His name is Keith
Gill. He also goes by RoaringKitty, which is I don't know,
it's just a very funny name,and uh, it's taken for for that
background. He used to work formass Mutual, was it? I believe
(15:39):
it was mass Mutual and Massachusetts brokerof one sort or another is develop this
online persona and following uh trading memestocks and a few weeks ago he posted
a you know, Twitter shot ofme, a meme of some guy leaning
forward in his chair, which investorssomehow took to mean that he's paying much
(16:03):
more attention right now, or abunch of attention right now, and they
piled in to game Stop, whichwas the big company that he made a
whole bunch of information on. Andthis time he posted another couple tweets.
One was apparently disclosing a position whichagain is standing. Game Stop shares up
one hundred percent this morning. Didn'the have another post as well? I
(16:26):
think there were two posts as partof this one that it was a card.
Oh yeah, reverse, no card, which I don't I don't,
I don't know, I'd never played. What that imply well, I mean
it implies reverse. I just don'tknow what he's reversing. But to your
point, what part of that doyou think should be disallowed? Mark?
Because I remembering you just said,Mike, it discredits his Chartered Financial Analyst
(16:52):
designation. But he already lost alldid he lose He's permanently barred from FINRA.
He has lost. I don't knowabout his desert nations if he is
a CFA or CFP, but Iwould guess that he's lost those. But
let's talk about legality for a moment. Like I agree that if you are
a registered investment advisor or a brokerand you are doing something like this,
then almost definitely it's going to beagainst your company's policies and probably against FINRA
(17:17):
rules as well as any of thosedesignations you hold. They're probably gonna strip
you of all of them. SoI'm not encouraging anybody to go build the
next roaring Kittie, but fundamentally himposting and saying I own a hundred However,
million dollars worth of this company.Not obvious. It doesn't look like
manipulation to me. I'm not alawyer, but let's get Alvin Bragg on
(17:37):
this. That New York dah,he's pretty good at concocting crimes apparently,
Like, let's get him on this. I know some people in the audience
will love that's that's my yeah,I just like I see how that was
problematic for mass mutual Probably free speech. Yeah, if you must to post
a picture of himself leaning forward onthe toilet or whatever he was leaning forward
on. And if investors want togo and pile it into a stock based
(18:00):
on that's that's yeah, your financialfuneral. So I see fundamentally plenty of
things wrong if you want to workas a profession in this industry and you
know, advise other people on theirmoney, or accept trades on others' behalf,
or represent a company that is fundamentallyserious about investing, Like, I
(18:21):
can see how all of those thingswould be problematic. But if you just
want to be as a private citizensomebody that posts memes that send shares flying
through the roof, so long asI mean, there are plenty of ways
that you could potentially front run thatand and effectively be considered to have insider
trading. But so long as you'renot doing any of those things, I
(18:41):
don't see any fundamental issues with it. The question would be, I guess
does he tell anybody ahead of time? Hey, I'm about to post this
meme on Twitter? Because if hedoes, then you've got an insider trading
case. I think, right,well, he doesn't have insider information,
inside information. Great, Oh,this is two non lawyers getting getting on
(19:03):
increasingly flimsy ground here. Maybe it'snot insider information, but it is information
that we fundamentally I think you canfundamentally agree that the information he would be
about to the post would move thestock price. So yeah, And I
don't know how irritating that I didn'tget in on. It's probably that's what
I'm really just sour grapes. Ireally idolized. This Mark also has a
(19:26):
YouTube personality called Rowing Lion, andit's just not been getting the following that
Roaring Kitty has been getting. Solet's take a quick break Wall Street watches
next, and then I'll eventually talkabout Neil Cashcari. Like us on Facebook
and follow us on Twitter at TFFEshow. Breaking business news is always first
(19:49):
right here on the Financial Exchange RadioNetwork. Time now for Wall Street Watch
a complete look at what's moving marketso far today right here on the Financial
Exchange Radio Network. Well, anew week is underway and markets are a
mixed territory. Is traders ready forseveral key economic data points this week,
(20:10):
including a big jobs report on Friday. Right now, the Dow is down
by forty seven points, s andP five hundred is up by eight points.
In the Nasdaq up by two thirdsof a percent, RUSS two thousand
is up by about a quarter percent, ten year Treasure Reel down by nine
basis points at four point four toone percent, and crude oil down about
(20:32):
three percent, trading at seventy fourdollars and seventy four cents a barrel.
We'll keep you updated on the latestdeveloping story that the New York Stock Exchange
it seems to be having technical issuesif we've seen Berkshire Hathaway down nearly one
hundred percent and that stock is nowhalted and trading has also been halted in
Barre Gold and New Scale Power apparentlyas well. So we'll keep you posted
(20:57):
on that as the show goes on. As mentioned in the previous seven segment,
Gamestock currently up by thirty one percenton the Rory Kitty post as we
discussed. Meanwhile, Waste Management agreedto buy medical waste disposal companies stere Recycle
and a seven point two billion dollardeal. Waste Management down by two and
a half percent, while ste Recycleshares are up by fifteen percent. Elsewhere,
(21:22):
chip makers including Nvidia and AMD areseeing gains of four percent and actually
mds off by half a percent,respectively, after each company announced their new
AI chips separately. Bank of Americanamed Nvidia a top pick and kept its
price target that implies a thirty sixpercent upside for the stock. Boston Beer
(21:42):
down by five percent after Bloomberg reportedthat Japanese brewer and distiller Suntori denied an
earlier report from The Wall Street Journalthat it was in talks to acquire the
Sam Adam Adams parent company. Spotifyup by five percent after the music streaming
company announced it will hike prices forits premium subscriptions beginning in July. In
(22:04):
Paramount Global up by seven percent afterCNBC reported that Paramount and sky Dance have
agreed to terms of a merger,which will likely be announced in the coming
days. Tucker Silvan that's Wall StreetWatch. By the way, market according
to CNBC, there were fewer thanfour thousand recorded trades on the day for
Berkshire's A shares when trading was halted, So apparently, yes, a few
(22:26):
people did make trades on that.But I have to expect that those all
get blown out. I would think, so, yeah, I'll get out
and corrected and fixed. But yeah, I would think that. What would
say about financial markets today that gameStop is apparently it's a well functioning market
(22:47):
for that company, probably going theway of the Chia pet or something whatever
your your favorite flashing the pan forthe last twenty years is Meanwhile, Berkshire,
Hathaway in what a goal miner wasit? Barracks is Barrack Gold and
the Barrack. Meanwhile, we don'thave well functioning markets for these huge blue
chip companies. This is not engendera lot of confidence for what is for
(23:07):
most people their primary engine of growthfor their retirement portfolio. By the way,
those game Stop shares, which haddoubled as of early training this morning,
are now up just thirty four percent, So that's rapidly changed, and
hopefully you weren't one that bought atthat doubling price. Neil Cashcaring, like
I said, did a podcast withThe Financial Times a couple of weeks ago
(23:30):
now just got released, I thinkon Monday, and I thought he had
one really interesting kind of series ofcomments that the focus of this was about
American's visceral hatred of inflation end quote. Some people would prefer a recession to
a jump in prices, and I'mreally interest people. I want names.
(23:53):
No, I'm interested in that statementbecause I can well, I guess there's
a few things that I would sayabout that. One. I can see
why some might be interested in that, because, let's be clear, in
the worst of worst recessions in theUnited States, let's not go back to
the Great Depression. Let's go backto eight when unemployment last peaked. What
(24:17):
percentage of Americans lost their jobs ineight Do you think deployment peaked in twenty
twenty at fourteen percent? The highestsince the Great Depression eighty two was what
ten points something? Great Recession wasalso ten points something, I believe,
So the worst case scenario in recessionsthat was really brief in the last fifty
(24:40):
years. Worst case scenario eighty two, I mean, is like one out
of every eight Americans lose their job, right, Yeah, And you could
argue twenty twenty was't an normally forobvious reasons. Eighty two was kind of
depression. Eighty one to eighty twowas very depression like, whereas probably ninety
out of one hundred Americans feel inflationwhen it gets as bad as it has
been. So I think there's theargument of, look, if there's a
(25:03):
recession, if I work in youknow, I work for a utility company.
My job's not going anywhere, Sowhat do I care if we hit
a recession. I don't have anystock market investments perhaps, and so yeah,
I don't care if we get arecession. There's probably a subset of
people that fundamentally do believe that maybethey've got a lot of cash that they've
been waiting to buy into a market, maybe whatever it might be. I
think there is a group of peopleare rooting for a Oh oh, you
(25:26):
don't know ahead of time if you'regoing to be one of the unlucky unemployed.
Of course, if you had toright now say we're going to be
a recession a year for someone posethis scenario to you as if you could
have a choice. But let's supposewe could do the experiment you've now,
the economy is going to be inrecession. Unemployment is going to go up
to, say, five to sixpercent, and let's just say that means
you have a one in maybe twentychance. I'll just call it five percent
(25:47):
of becoming unemployed yourself versus price isgoing up four percent, but your wage
is only going up three point nineto four point one. I'm throwing a
lot of numbers out here. Iapologize, But if you could with certainty
lock in a scenario today, wouldit be definitely have a job a year
from now, possibly treading water whenit comes to purchasing power. I'll take
that one, or any rational personwould. If you wouldn't, please let
(26:08):
us know what your rationale is.So then here is my real life.
Because I do believe when you askpeople this question, I think they genuinely
think that they prefer recession over continuedprices. Here's what the when you ask
people the question, I think thatthey are answering this way. And here's
why we don't know what recession isa lot of people have, right,
(26:33):
haven't been in the workforce long enough. We can't count twenty twenty because it
was only two months long. Whatwas the poll that was done just a
few weeks ago? The Harris Pollfound that fifty some odd percentage of Americans
think that we are in a recessionright now. Sixty percent of them thought
the stock market was down over thelast twelve months. So the reason I
think that people are saying, yeah, I would prefer recession to a jump
in prices is because we don't fundamentally, or apparently a bunch of us don't
(26:59):
know what a recess. I thinkhe just nailed it. A recession is
abstract right now. Inflation is real. And by the way, we keep
throwing around the word recession and havecompletely lost the meaning of it. Right,
how many stories did we cover overthe last three years about specific industry
quote recessions. Real estate's in arecession, college grads are in a recession.
There's a vibe recession, there's avibe session. We've fundamentally gotten away
(27:22):
from the true meaning of a recession, which I don't have the definition in
front of me right now. Fromwho marks the National Bureau of economic research
up the street. They a broaddecline in a large number of economic It's
not two consecutive quarters of negative growth, unlike in Europe and elsewhere where.
They do define it that way.And it's pretty vague, pretty vague,
(27:44):
A broad slow down in economic activity, usually and I think there's a specific
quote in here that I'm trying toremember, lasting more than a few quarters,
and usually accompanied by an increase inunemployment. Yeah, it's a pretty
but it's pretty vague. And thereare nine folks who essentially vote. They
get on a conference call and theycall it yep. And this can be
a month after the recession starts orseveral months. It's very imperfect. So
(28:07):
I think that's probably where this typeof thing comes from. Is it's not
people that's fair making a accurate evaluationor realistic evaluation of their financial future.
Right. They're not sitting there andsaying, oh, okay, So if
inflation stays where it is, thenthis is what it means for my spending
power. If there's a recession twelvemonths ahead, that means that I have
(28:30):
a one in eight chance of losingmy job. Which one of those do
I prefer? I don't think anybody'smaking. No rational person would choose the
latter, would choose a possibility ofunemployment. You would take again running in
place in terms of living standards everysingle time, and there are economic arguments
to avoid. Look, I'm notdefending the inflation of the COVID era,
though I will tell you it wouldhave happened no matter who the president was.
(28:52):
We had so much stimulus in thepipeline, and the COVID supply constraints
were so severe, and the Fedchair you can't do anything about. He's
got a four or is it yearfour year term, five year term,
so we can't replay that and doit over. But the idea that anyone
would prefer recession which leaves permanent scars, just look at the trajectory of US
(29:15):
growth after the two thousand and eighttwo thousand and nine recession, which admittedly
was very large. But those joblosses that occur during recession, they leave
permanent scars. People's skills erode,they become less employable. Whereas inflation,
if well managed, and the jurystill out on whether or not the Fed's
got to handle on this, doesnot. So then why I'm concerned about
(29:36):
this statement from Kashkari is maybe he'sright that some people are saying that they
prefer recession over a jump in prices, but they won't once it's here,
and I hope that the FED isnot shifting their outlook. I agree that,
Look, you know, people hateinflation. They are really uncomfortable with
it, and I think they wouldprefer a non recession but slower growth scenario
(29:57):
with lower inflation than what we've beendealing with. But if the FED starts
shifting their thinking and saying, oh, we need to focus that much more
on inflation because people don't care aboutrecession, I hope that is not the
conclusion that Neil Kashkari is coming tobased on these polls. That's what he
said. That's what he stated,is that you know, apparently some Americans
(30:21):
would prefer recession to a jump inprice. By the way, it doesn't
have to be recession. It canbe a so called growth slow down.
The FED has engineered a couple,not many in the post war periods,
slow downs that didn't lead to officialrecession that did seem twenty twenty two,
it is one of them. Youcould slow down, and yeah, that
may have although the hikes had juststarted at that point, make so I
(30:42):
tend to not attribute that acceleration towhat the FED did. H There are
there a few examples, historically,they are pretty few and far between.
They're sort of like miracle outcomes.It's just very hard to thread that needle.
But there's no doubt after this experience, and in part possibly depending on
who wins in November, the Fedwill rewait the priority that it assigns to
(31:06):
keeping inflation under control relative to growth, and it may overdo it, and
we will then find out how manypeople actually prefer a growth slowdown or worse
recession to inflation. Let's take anotherquick break. When we come back,
there's a piece from Bloomberg, andspecifically from an economist that we have mentioned
on this program many times before.She has a name, a rule named
(31:26):
after her, and a very interestingpiece on polling about the economy. That's
next here on the Financial Exchange,breaking business and financial news first throughout the
day, only here on the FinancialExchange Radio Network. The Financial Exchange Show
podcast drops every day on Apple,Spotify, and iHeartRadio. Hit that subscribe
(31:47):
button then leave us a five starreview. You're listening to the Financial Exchange
radio network. Claudia Som who inventedis, invented the right word, created
a like, created through through research, created created a rule that's now named
(32:13):
after you. You want to wantthe technical phrase, Yeah, let's go.
She noticed in empirical regularity a pastconnection that may or may not hold
in the future. Thanks Dada.Uh, and we call it the Psalm
rule. It basically honestly, shenamed it the rule. I don't know
that she named it, did she? She may have, uh, just
(32:34):
trashing over Claudia song for no reasonsession and she's a long story's well published.
Uh, and I think, uh, well respected economist. She was
on the she was on Obama's Councilof Economic Advisors. She's what does she
doing? She got independent consulting fromnow in the media a lot. She
(32:55):
likes the media. And she's talkingin this piece about I guess gloominess and
people's feelings towards the economy, whichwe've been talking about too, because all
of the polling figured it out thatwe've been looking at seems just weird and
often I don't know that she figuredanything out specifically, Like she was.
She was aggressively defiant for years aboutinflation h aggressively. Yeah. So here's
(33:19):
one thing that she found that Ifind very intriguing. So we talked about
how University of Michigan has this consumersentiment poll that they've been putting together for
decades now goes back when did theystart fifties, possibly very very long time.
And we quoted back in twenty twentytwo that we were seeing the worst
consumer sentiment numbers that we had seensince nineteen eighty and in fact, it
(33:42):
actually got lower in twenty twenty twothan it did in nineteen eighty. In
twenty twenty two, we all recall, I think that prices were up,
you know, from pandemic pre pandemiclevels a good fifteen percent, but unemployment
was really low. Nineteen seventy eightto nineteen eighty one, the price level
rose thirty percent, which is abouttwice the increase that we saw in twenty
(34:05):
twenty two, and unemployment averaged sevenpercent. Yet we said that in twenty
twenty two things were worse than theywere in nineteen eighty when asked about people's
feelings about the economy and stuff.And I just find that intriguing because I
think you can look at that periodof time and say, almost by every
economic measure, things looked worse innineteen eighty, right, we would come
(34:30):
off of inflation that was substantially higher, an unemployment, remember, substantially higher
as well. So I find thatvery intriguing that in spite of that,
we are saying that things are substantiallyworse now. And she basically goes on
to say that, you know,our tools that we have for measuring this
might just not be very good atit. And so trying to use something
(34:51):
like how people are responding to questionslike how do you feel about things?
We might not be able to solvethat as economists. And my favorite quote
from her quote, maybe the bestway forward is fewer words from economists,
less argument over the meaning of commoneconomic terms, and more discussion about all
the non economic reasons for our gloom. Yeah, but then it's not she
(35:14):
knows it's PhD trained. Yeah,it's so she could start by following taking
her own advice. Oh, she'spaid to give her opinions, so she
has arguably has no choice. Alot of these, a lot of the
terms that we throw around now we'reacting in the capacity sort of journalists and
commentators here, so we use termscasually that have very specific meanings for researchers.
(35:38):
I don't I don't know of agood analogy off the top of my
head, other than maybe physics.You know, we say something is massive,
very different than when a physicist usesthe terms. So economists have their
own arcane. It's not ourcane.It's usually based in statistics or some related
discipline. They have their own vocabulary. There's no better place to vacation than
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USVII dot com. Yeah, Ithink that's precisely. I think that's precisely
the point that I would get toMark. I know you are going we're
with the commentary before, and Ithink, yeah, we try to use
(37:05):
economics in the same way that peopletry to use physics or chemistry, and
that's not how it works now,especially since conclusions are subject to being overturned.
I can tell you from personal experience, you always endo research paper with
I find no evidence that you don'tsay XYZ is the case you usually say,
(37:27):
and it sounds like you're woosen out. I can rule out these things.
The evidence discussed here probably does notsupport the idea that XYZ is an
inflation hedge. For example, youwould never say it isn't or won't ever
be. It's always very provisional becausefuture evidence can overturn the conclusion. That's
why I think where economists do theirbest work, they help to narrow the
(37:51):
discussion a little bit blanket statements,ideologically driven statements, which I guess we're
all prone to just not helpful,Yeah, tend not to be. Markets
remain open but have flipped a littlebit. You've got the Dow in negative
territory, off half of percent,the SMP down one fifth of one percent.
Nasdaq is still positive, but onlyby about a tenth of eight percent.
(38:12):
We'll check in again on markets towardsthe top of the next hour,
but a lot more to cover inour second hour, the financial exchange.
Stay tuned, folks,
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