August 2, 2024 • 38 mins
Chuck Zodda and Mike Armstrong breakdown the terrible July jobs report and explain why this could be a recession indicator. Flight from stocks accelerates as fear grows Fed too slow to cut. How are Treasury Bonds holding up during today's madness? A judge overturned the $4.7B Sunday Ticket lawsuit. Venu Sports streaming service announced a $42.99 montly price point.
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Episode Transcript
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Speaker 1 (00:00):
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(01:03):
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Speaker 2 (01:12):
Chuck, Mike and Ben with you here today. Tucker is, uh, well,
I don't know exactly where he is, but he's got
the day off, and so we've got Ben running the
show for us. And it also happens to be a
jobs day, which is almost as meaningful as you know,
Ben joining us here. So we're gonna start things off
today talking about the Bureau of Labor Statistics jobs report
(01:35):
that we received at eight thirty am this morning, and
what it showed was one hundred and fourteen thousand jobs created,
the unemployment rate rose to four point three percent, And
those are the two headline numbers that basically, if you
don't listen to our show or watch you know, financial
news on a regular basis, those are probably the only
(01:58):
two numbers that I suspect most Americans. Well here, Is
that a fair statement? Mike?
Speaker 3 (02:03):
Yeah, I think it would be.
Speaker 4 (02:05):
The expectations out there were for a lot better than this.
One hundred and eighty five thousand jobs were estimated to
be created in the month of July when economists were asked,
and the unemployment rate was expected to stick right around
at four point one percent. So to frame all of this,
this is a bad report. It's a bad report for
(02:26):
the economy right now.
Speaker 2 (02:27):
Yes, I think that when you're looking at this, and
let's discuss why, because we actually we'll probably spend quite honestly,
like thirty to forty minutes talking about this because this
is a big one and there's a lot to get
into on it. So first let's talk a little bit
about the jobs that were at one hundred and fourteen thousand.
Remember the jobs report, it's two different surveys. One is
(02:49):
they survey households and say hey what happened there? The
other day survey businesses and say hey, what did you see?
And the one in which they survey businesses is the
one that they get the jobs added number from. And
there's a bunch of statistical reasons why they do that,
but ultimately one hundred and fourteen thousand jobs created. This
is the pace that basically, it's right around the pace
(03:12):
that you need to maintain if you don't want unemployment
to go up given regular population growth. So if you're
only adding thirty forty thousand jobs a month, yes you're
adding jobs, but the population grows faster than that, at
least the working population does. And so thirty to forty
thousand jobs added is not enough to maintain an unemployment rate.
(03:34):
You'd see the unemployment rate go up there, even all
else being equal. So first the down shift to there.
Granted it's one month, the three month average is still
one hundred and seventy thousand jobs added a month, So
you know, you've got a good clip that you're moving
at there. But you say, okay, we don't want to
get into this range on a regular basis, because it's
pretty much saying, yeah, the economy is in danger of,
(03:57):
you know, kind of hitting stall speeds. So that's that's
part one. That's problematic. Part two, and I'm again just
looking at the big headline numbers here. The unemployment rate
rose to four point three percent from four to one.
And this has now triggered what is known as the
Psalm rule. And the Psalm rule we've talked about it before,
but it's named after Claudia sam who is an economist
(04:20):
who's been at the FED all over the place, a
bunch of different places. And basically what it says is, hey,
in the last eighty years, whenever we've had a recession
really the last seventy years. I think it goes back
to like the nineteen fifty seven recession. Whenever we've had
a recession, the three month average of the unemployment rate,
when it rises half a percent above the low for
(04:44):
the three month average in the previous twelve months, you've
had a recession happen pretty much concurrently or shortly thereafter.
Speaker 4 (04:52):
And examples here, Chuck if I may April of two
thousand and eight, we saw a Psalm rule trigger at
You're a point five percent in April of eight.
Speaker 2 (05:02):
And the NBER went back, by the way and said
that the recession actually began in December of two thousand
and seven. It's just it happens after the fact that
they declare recessions. They don't declare them as they're happening,
because they need to actually look and see what the
economy has done right.
Speaker 4 (05:17):
July two thousand and one, same story, some rule triggered
back in July two thousand and one. February, sorry, no, December,
November of nineteen ninety we saw a Psalm rule get
triggered once again. Recession and so beyond the inverted yield curve,
beyond ism manufacturing surveys or rather different recession indicators that
(05:39):
have been out there. We've talked about, for instance, losses
in temporary workers and how that was a pretty good
recession indicator. This has predicted every recession historically, going back
to I think I see data as from the nineteen
fifties without any false positives. That's why it's looked at,
and that's what we have triggered.
Speaker 2 (05:58):
This point, and this is probably one of the reasons
why the ten year US treasury as of as we're
speaking right now is down another fifteen basis points to
three point eight three percent. So a couple things on
this sam rule. The first is just because well, let's
let's do a couple things. The first is when you
(06:19):
look at this business cycle, this particular business cycle has
broken a lot of different indicators that used to work
about the state of the economy at one point or another.
Some of them have been broken for four or five years.
Some of them went through a period of a year
or two where they didn't work, and then you know,
they're they're becoming useful again. Some of them broke for
(06:39):
you know, a couple months. But there have been a
whole bunch where you look at it and you're like,
I don't necessarily know that this means what it used to,
just because this business cycle is different. So that's the
first thing that I want to preface this with. The
second is that Claudia sam when she developed this, it
was entirely with backwards looking data. She basically could look
(07:01):
at the data and say, hey, I can find a
rule based on you know, unemployment in the unemployment rate
that fits based on what we've seen previously. So she
was looking back at the data when she made this.
She she didn't invent this in nineteen seventy and then
have every recession since then, you know, end up being
predicted correctly. It was something where she was looking backwards
(07:25):
at all of this data and effectively said, yeah, this
is you know, what we've seen. And so she had
the you know, any back test. If you ever look at,
you know, any back test for you know, any financial product,
they always say, oh, look at how well this is done,
and it's like, okay, well, now show me what it's
doing out of sample, meaning in the future, and will
(07:45):
do the same thing. And the answer is, you don't
know if it will.
Speaker 4 (07:50):
Yeah, she was data mining. She was looking for trends
in data in previous times, and she herself has said, look,
eventually this rule will break. This won't always work to predict.
It's very likely to not work in the future in
the same way that has in the past. So do
we know that we're in a recession right now because
the PSALM rule has triggered.
Speaker 3 (08:08):
No.
Speaker 4 (08:09):
And we talked about before how it was pretty likely,
based on the way that the data was going, that
a SAM rule would trigger sometime this year.
Speaker 2 (08:18):
So again, this is I think one of the big
things that we're seeing here is, Hey, we're right at
this point now where historically, when you get to this
point on the unemployment rate and it's moved upward, you're
typically talking about a recession happening either right now, maybe
a couple months before it started, or a couple months later.
(08:39):
That's that's pretty much where you are at this point.
And so it raises the very real question. And this
is kind of a you know, we've talked about, Hey,
are there any you know, legitimate red flags right now?
This is a screaming one because you do have to
acknowledge the accuracy historically while also acknowledging that, hey, some
(08:59):
of the these indicators have broken in this cycle, but
you kind of have to prove that it's broken in
this case before you can say it's broken. So this
is a real concern about the potential for, you know,
more imminent recession. The counterpoint to that is that we
just got GDP for the second quarter that came in
at two point eight percent, which look, it could be
(09:20):
revised up or down. It's kind of rare. And by
kind of rare, I mean you don't usually have recession
happening like the week or month after you have a
quarter like that. That's also kind of unusual. So something's
kind of got to give here, and I don't know
(09:40):
which way it is. The chances of recession right now,
in my opinion, are higher than any time that they've
been since the spring of twenty twenty two. You know,
last year, everyone was running around with like a chicken
with their head cut off, And the point that we
made all year is no, the growth is stronger than
people think, and there was not a recession last year
despite all of the chickens with heads cut off running around.
(10:04):
This year, it's a different scenario because you are seeing
a meaningful move upward in unemployment housing in the last
few months has started to turn you know, negative year
over year in terms of the data. And I remarked
last year it's really hard to have a recession when
housing is expanding year over year. It's not the case
right now. The last couple months we've seen a real
turn there. We've seen some other negative data in other
(10:26):
parts of the economy and other parts of the market
as well, and so there are I think more legitimate
concerns right now about recession than at any point in
the last two and a half years. You got to
go back to you know, kind of February March April
of twenty twenty two to find the last time that
I think it was as big of a concern. Does
(10:48):
it mean that you're going to get one, No, it doesn't,
But it is something where you know, we're always talking about, hey,
what are the risks you need to watch for. The
risk of an inflationary bound is next to nothing over
the next six months, barring you know, some major escalation
in the Middle East through this and that, Like you
always caveat it with that, But there's nothing in any
(11:09):
economic data right now that's showing any meaningful inflationary impulse
the risk of a recession meaningful? Do I think it's
like thirty percent or no idea. I'm not going to
put a percentage on it because it doesn't do anyone
any good. Like, what are you gonna do with a
percentage anyways? But it's a higher threat now in my opinion,
(11:29):
than any time in the last two and a half years.
Speaker 3 (11:33):
Yeah, I'm right there with you.
Speaker 4 (11:35):
The one thing that came to mind for me was, wow,
you know, four point three percent, while it's been a
big increase, is still a very low unemployment rate. It
doesn't matter if he looked at doesn't decades. I agree,
it doesn't matter at all. And that's what I was
going to point out, is it it might seem low
right now, but you know what, April of two thousand
and eight, the unemployment rate was sitting at like five percent.
It can still go dramatically higher than where it is
(11:57):
right now. Dot com bubble, same story, right we triggered
that som rule in July ofh one, the unemployment rates
sitting back there in July of one was sitting at
like four point six percent, like right close to where
we are right now. And so to me, I'm with
you right there is just because that unemployment rate is
(12:17):
sitting at four point three percent, and just because that
is a historically pretty normal unemployment rate, that in and
of itself is not enough to say, Okay, well we're
not in a recession. Because the unemployment rates just at
four point three percent, that's nothing that is something to
worry about because of the dramatic rise in unemployment that
we have seen over the last twelve months.
Speaker 2 (12:37):
Let's take a quick break here when we come back,
more to diget on here, including Hey, what's the FED
do now? And should they have done something different?
Speaker 1 (12:45):
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Speaker 5 (13:08):
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Speaker 2 (13:47):
Let's talk a little bit more about, you know, kind
of what we're seeing out there as far as chatter
about the FED as it relates to this jobs report,
because I don't know about you, but I've had a
number of people in various different mediums, be it social media, text, email, YadA, YadA,
(14:08):
say some variation of, Hey, why didn't the Fed do
anything on Wednesday?
Speaker 3 (14:13):
Now?
Speaker 2 (14:13):
Why didn't they cut in July? Now they're behind the
curve on this.
Speaker 4 (14:16):
Yeah, Monday morning quarterbacking is going to be big this week,
and justifiably so, because I don't think it's not justifiably so. Okay, yeah,
I guess expectedly so, maybe not justifiably so. The Federal
Reserve did not have any pre disclosed data about where
this unemployment rate was going to go and where this
(14:37):
job's report was going to come in when they made
their policy decision on Tuesday of this week.
Speaker 2 (14:42):
Well, even I'll go further than that. Let's say that
they let's say that they did have this information, which
again I know that they didn't, and let's say that
they decided to cut twenty five basis points. Does that matter?
Speaker 3 (14:55):
Wouldn't have changed anything.
Speaker 4 (14:56):
Markets might have gone up a little bit more on
Wednesday than they did, but it doesn't fundamentally change much of.
Speaker 2 (15:02):
Anything, not to markets. Does it matter to the economy now,
a twenty five basis point cut six weeks before your
next meeting, if you're actually having a recession, If you're
actually having a recession, cutting twenty five basis points two
days ago, it's not even shuffling the deck chairs of
(15:24):
the Titanic. It's like sitting on one of them. It
doesn't make any impact. If you're actually having a recession,
then you've got to cut somewhere in the ballpark. Depending
on the recession and in the economic environment. Historically you
gotta cut anywhere from two to four percent in order
to deal with it, which the FED still can yep.
So yeah, would it have been nice if they started
(15:47):
the process off, like in a perfect war. Yes, but
it's not like a twenty five basis point cut was
gonna save you know, anything, if there is an actual recession.
It just starts the process off.
Speaker 4 (15:59):
And it probably wouldn't have been justifiable to do anything
more than twenty five basis points as of when they
especially given that they did not have this data. So
let me ask you a different question. There is a
meeting now in six weeks, yes, late September, yep. What
do we do then? Are we looking at a fifty
basis point cut? I would argue, should this data not change,
(16:24):
and granted we'll see multiple more CPI reports, which I
agree with, you can take a back seat, but we'll
get one more jobs report prior to that decision as well.
Let's assume for a moment that unemployment you know, I guess,
stays at this four to three level. What do you
do at that meeting?
Speaker 2 (16:44):
So here the trajectory I think is going to be important.
If it's at four to three, they have plausible cover
to say, yeah, we're just going to go a quarter percent.
Speaker 3 (16:53):
Then agreed.
Speaker 2 (16:54):
If it increases further to four four, four five, they're
cutting fifty basis points. Yea, they should. And here's what
matters is, there are three more FED meetings before the
end of the year. You've got a September, November, and
December one. You're all loaded up once you get the
economic data. As you said, Mike, the CPI doesn't really
matter right now because there is no inflationary impulse out
(17:17):
there that we're seeing. First and second, hey, the Fed's
got this dual mandate of employment and inflation, and the
inflation picture is stable right now and the employment picture
is deteriorating. As such, anything related to employment, so consumption's
gonna matter. You're gonna look at retail, sales, housing activity,
(17:38):
all that kind of stuff like that. That's what you're
gonna be plugged into on this and where this can
go in my opinion is the FED has a chance
to say, yeah, you know, we didn't need to cut
in July, and we stand by that. And I don't
think they're wrong on that, by the way, because again
it's not like there's a ton of data before being like, hey,
(17:59):
you really need to do something now. But they have
a chance to say, if the data worsens a little bit, yep,
you know what we're gonna do. We're cutting fifty BIPs
in September. We're gonna cut, you know, if needed another
fifty to seventy five in November, and another fifty to
seventy five in December, and we can through that cut
(18:20):
interest rates by one and a half to two percent
by year end in a three month period, and generally
that does a pretty good job of least starting to
stabilize things. Because here's here's where you are right now.
If if you want the soft landing, you need to
land now, not crash. You need to land like you
need to level out, because you're at the point where
(18:43):
you have to land the thing. Actually, and we've talked about, hey,
what what is the definition for the soft landing, And
we said, look, you don't want unemployment or inflation getting
back above four and a half percent by year end.
Inflation's not gonna be there. You don't have to worry
about it. Unemployment you got question marks now. And so
(19:03):
this is why I've been saying, Look, you still can't
say you've gotten a soft landing until you get through
twenty twenty four unscathed. You still got you still got
to do the work here. So they have the tools
available to them to still get the policy rate to
where it needs to be by your end. And by
the way, just because they're not cutting right now, doesn't
mean the market isn't doing the work for them. Interest
(19:24):
rates on longer term bonds longer term, but other short
term bonds are coming down anyways, expecting the FED to
cut even though they're not meeting today. So we'll talk
about that, and we've got Wall Street Watch coming up
when we return.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter. At
TFE show, breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch. A complete look at what's moving markets so
far today right here on the Financial Exchange Radio at work.
Speaker 5 (20:02):
Markets are very down right now. The Dow Jones is
down seven hundred and fifteen points or one point seven percent,
The S and P five hundred is down one hundred
and twenty six points or two point three percent, and
the Nasdaq is down five hundred and thirty three points
or three point one percent as well. Just while Wall
Street continues to digest the July jobs report that came
(20:24):
in far below expectations. At the moment, Exon Mobile shares
are up three quarters of a percent. The energy giant
reported a stronger than expected profit for the second quarter
amid record production in Guyana and the Permian Basin. Earnings
per share came in at two dollars and fourteen cents,
beating an LSEG forecast of two dollars in one cent
per share. Intel shares have plunged twenty nine percent on
(20:46):
the back of weaker than expected earnings and revenue for
the second quarter. The company also announced it would lay
off more than fifteen percent of employees due to a
ten billion dollar cost cutting push. Shares of the Snapchat
parent company Or down twenty five percent on disappointing guidance.
For the third quarter, snap expecks adjusted earnings to range
(21:07):
between seventy million and one hundred million, versus a street
account estimate of one hundred and ten million. Roku fell
two and a half percent after recording a second quarter
loss of twenty four cents per share, better than the
forty three cents loss per share expected from analysts. Revenue
came in at nine hundred and sixty eight million, beating
the nine hundred and thirty eight million consensus estimate. And finally,
(21:29):
we look at go Daddy shares are up five percent
after the web hosting company increase its outlook for the
full year. Go Daddy issued full year revenue guidance between
four point five to five billion and four point five
sixty five billion, while analysts polled had expected four point
five three billion. I am ben Kitchen, and that was
Wall Street Watch, Mike.
Speaker 2 (21:51):
I want to just put a bow on our discussion
of the jobs reporting the FED if we could.
Speaker 3 (21:57):
Sure.
Speaker 4 (21:58):
I'm sure we're gonna be really bringing it through every
story that we cover today because it's kind of the
only thing that matters today. But yeah, let's put a bit.
Speaker 2 (22:05):
There's some other stuff that matters too.
Speaker 3 (22:07):
Ah yeah, yeah.
Speaker 2 (22:10):
Not much, but there's some other stuff. So prior to
the break, I made a quick remark that, look, just
because the FED isn't meeting, it doesn't mean that bond
yields aren't moving. And this is something that I think
is important to remember as well, because hey, the FED
doesn't meet again until September, and naturally you get people
(22:32):
thrown up their arms saying, oh, like gee, they're just gonna,
you know, wait six weeks before they do anything, Like
isn't that gonna be too long? Blah blah blah, And
the answer is, well, no, like it's it's not going
to be too long, and here's why.
Speaker 4 (22:45):
But before you even go there. Furthermore, if this thing
really takes a turn, the FED has a history of
stepping in and cutting rates between meetings too, So there's
no dual out there. It says the FED can't do that.
The problem with it is it sends a clear message
of oh boy, we're panicking about this economy. So I
doubt they want to do that unless they feel they
have to.
Speaker 2 (23:02):
The other thing, keep in mind, they do have their
Jackson Hole symposium where they can signal as strongly as
they want in what like three weeks, Hey, like get ready,
we're gonna really start cutting in September, so they can
signal in between then anyways. But just as an example, Uh,
the six month US treasury right now is at four
point eight seven two percent. Uh that is down point
(23:26):
one seven percent, so that the interest rate on that
has come down by point one seven percent today. Mike,
did the FED meet today?
Speaker 3 (23:32):
No?
Speaker 2 (23:33):
Does the Fed specifically say hey, this is the rate
that we're setting the six month treasury at.
Speaker 3 (23:38):
No, they don't control that. It's a market driven interest rate.
Speaker 2 (23:41):
They control what they call the short term Federal Funds rate,
which is pretty much the rate at which they will
pay out interest if banks park money at the FED.
That's the rate that the FED actually controls. Longer term
rates the two year Treasury, which went from four point
one six percent to three point nine percent today it's
down point twenty six. Fed doesn't touch that. The tenure Treasury,
(24:03):
which is a good benchmark for kind of how long
term mortgage rates move, went from three point nine seven
percent to three point eight two percent today, which means
and again we're gonna have to see the final data,
but Mortgage News Daily yesterday had the national thirty year
fixed rate mortgage at six point six two percent. Today
it's probably gonna be somewhere in the six point four
to five to six point five range. And this is
(24:25):
all without the FED doing anything today, because what markets
are pricing in is, hey, the data is worse, and
so the FED is going to have to do something,
and then that will be made reality when the FED
decides what they finally end up doing. So just because
the FED didn't cut yesterday or two days ago rather
doesn't mean that the market isn't doing some of the
(24:47):
work for them also, it absolutely is. And so when
we look at this and the potential for you know,
these these stabilizers on the economy to kick in in
the event we are heading into recession, the single biggest
one is longer term interest rates coming down because one
of the major issues we've been talking about all year, Hey,
(25:08):
there's just not that many people who either a can
afford to sell their home and buy a new one
with rates at you know, seven point one percent, and
b hey, with prices this high. People can't afford to
buy with rates that high either, even if they're not selling,
even if they're just coming from renting. Well, you start
getting rates down into the low sixes, the calculus changes.
Speaker 3 (25:27):
Now.
Speaker 2 (25:27):
It's tough in the back half of the year just
because there's not as much volume that takes place in
the housing market. It's a much slower market in the
second half of the year than it is in the
front half. There's some great data from Mike Simonson on this,
who we have on the show on a regular basis.
He runs the data for Altus Research, and if you
(25:49):
look at the new contracts pending on a weekly basis,
the peak that we've seen the last couple of years.
In the spring, like April through June is typical between
like sixty five thousand and eighty five thousand contracts on
a weekly basis that are being signed. The end of
the year, you're typically only seeing between fifty and sixty
(26:10):
thousand contracts a week being signed, so it's it's a
meaningfully lower number. But maybe some of that just gets
pushed out this year because you know, people have been
waiting and now interest rates are lower and they decide
to Or maybe people get a little bit nervous and say, no,
I'm you know, I heard that, you know this recession
rule triggered, and I'm a little nervous. So maybe they
push it out to next year and it becomes worse
(26:30):
before it gets better. These are both possibilities here. But
the point that I am making is just because the
Fed isn't meeting today doesn't mean that interest rates aren't
moving based on what they're projected to do at future meetings.
It's not like the market waits for the meeting in
September and then says, oh, now you did this, we're gonna,
you know, reflect it. The market is reflecting projections for
(26:51):
September in real time.
Speaker 4 (26:52):
Yeah, and we can get a bit technical on this
show from time to time and just to very much
explain what's going on here. When we talk about the
bond market doing some of the job of the Fed
for it, what you have happening today is not big
giant traders out there saying, okay, we need to pick
up where the Fed can't act. What we have happening
(27:14):
here is people selling stocks and buying bonds. That's what
happens when when rates are going down. What that means
is that people bidding up the price of bonds, and
today it's largely because they are concerned about recession for
the future. They don't love what they saw from companies
this week in earnings, which we will talk about, and
they're saying, I'm going to go plant some money in
(27:34):
long term treasury bonds, which is driving the yield on
those bonds down. Pretty basic, you know, econ one on
one stuff, But I thought it might be worth explaining
here just we can get a little bit out there
and technical and that that's what's actually happening right now
is a steep sell off inequities and a steep cell
off in rates. But what that really means that bonds
(27:56):
are rallying on this news.
Speaker 2 (27:58):
I will say, also, can we get more technical on
a Friday? Is that sure? Is that acceptable? Normally we
talk about like salami on Fridays, but today we've got
to kind of go in a different direction. The VIX,
which is often referred to as Wall Street's fear gauge.
The VIX, the basic premise of it is it measures
(28:20):
implied volatility for the S and P five hundred over
the next thirty days, over the next month, and a
fancy way like, it's basically telling you how much the
market expects stocks to move on a daily basis over
that time period. I'm not going to get into why
you do the calculations this way, but if you want
to know what the market's projecting, take the current VIX,
divide it by two and I'm sorry, divide it by
(28:41):
sixteen and that's basically what it thinks the market's going
to do on any given day. Or divide yeah, divide
it into sixteen. Sorry, I'm throwing a bunch of math
out there. The VIX today for whatever reason, and normally
vixes calm on Fridays. For again, technical reasons. I'm not
going to get into the whole thing, but generally you
(29:04):
see the VIX somewhat move in lockstep with markets. And
what I mean by that is, if the S and
P five hundred is up one percent, VIX is usually
falling by about one percent. By by about one it's
already in percentage terms. If the S and P five
hundreds down one or two percent, usually the VIX is
you know, rising by one or two And that's kind
(29:27):
of the correlation that you get. What we have happening
today is a significant jump in fear. The S ANDP
is down about two and a half percent as of
this moment, the VIX just bumped up nine and a
half points. And so what this is telling you is
that one of the major things that's driving this is
not inherently it's not necessarily at least a mass selling
(29:48):
of stocks, but a mass buying of protection in the
form of put options on the S and P five hundred. That, hey,
investors don't necessarily want to sell a ton of their
stocks now now, but they're buying a lot of protection.
They still are, you know, selling some obviously, like I
don't have to, you know, lay that out, But a
jump of that magnitude in the VIX, when the S
(30:10):
and P is off this much is indicative of some
concern about, hey, what does the next month look like.
It doesn't mean the next month is inherently going to
be bad. In fact, some of the best times that
you have seen in markets have been when the VIC
spikes and then all of that fear burns off of
markets in the future. But there is a significant vowl event,
a volatility event that is happening today, and people are
(30:33):
buying volatility protection in a way that they haven't really
done over the course of the last twelve to eighteen months,
aside from a couple, you know, very brief instances here.
So yeah, you gotta go back.
Speaker 3 (30:44):
To twenty twenty two to see this type of activity
on the VIX.
Speaker 2 (30:47):
Yeah, so it's you're finally seeing this priced in here.
Where markets end up going is still anyone's question, But
you're finally seeing some fear that's being priced into markets,
and again, that is good for healthy markets long term,
even if it may indicate that you could have some
additional pain short term depending on how the data comes
(31:08):
out and everything else unfolds over the next you know
month or two because the next month or two. We've
said it for a while. Look, you're gonna know if
there's a recession by the end of September. You're gonna
know if there's one coming because the economic data won't
level off and improve like it did last year. That's
where we are now. The next eight to nine weeks.
(31:28):
I think it's gonna tell the story for us. Mike,
Let's take a quick break when we come back, Sho,
we get into some earnings or we hold those for
a little bit later. Your call, Chuck, I'm gonna hold
those for later instead when we come back.
Speaker 1 (31:45):
Hmm.
Speaker 2 (31:47):
I'll come up with something really good for when we
come back. Just trust me on it. More Financial Exchange
right after this.
Speaker 1 (31:55):
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Speaker 2 (32:52):
Mike first, up to this segment, we've got a judge
US District Judge Philip Gudieriaz tossing out both the day
and the class liability in the class action suit against
the National Football League for their Sunday ticket pricing. So
that big award, remember was announced, it was a twelve
billion dollar award back in June, that is going to
(33:13):
be voided. Gaudiera is saying that the expert witness testimony
provided by the plaintiffs used flawed methodologies, and the jury's
damages weren't based on evidence but more can to guesswork
and speculation. And again it's basically over right now, and
so there's nothing happening as a result of this.
Speaker 4 (33:37):
So I think we have to take a step back,
as again, this was a really it's kind of a
strange lawsuit that came out. It was it was brought
by was it the owner of a bar or somewhere
out in California that they sued I can't.
Speaker 2 (33:50):
Remember if it was. This can, by the way, be appealed,
I think one more time by now the plaintiffs, sure,
but again it would be a hard hurdle to over
come at this point because judges typically don't overturn other judges.
Speaker 4 (34:04):
It was a basically it was brought by a San
Francisco bar in twenty fifteen, and then you know, forty
eight thousand businesses and residential customers signed on and we're
suing saying.
Speaker 3 (34:15):
Like, you know, you are what was it?
Speaker 4 (34:18):
It was that they were, you know, somehow the NFL
was colluding with the team owners to you know, to
package this all together in one thing.
Speaker 3 (34:24):
And I don't know.
Speaker 4 (34:26):
I was scratching my head from the very beginning of
this lawsuit trying to figure out what exactly the anti
competitive and violations were. But we both kind of scratched
our heads at the end of the day and said, look,
neither of us are attorneys.
Speaker 3 (34:41):
We're not judges. We have no idea what this stuff means.
Speaker 4 (34:43):
But at least one other judge scratching his head and
saying this doesn't seem to make much sense to me either.
Speaker 5 (34:50):
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Speaker 1 (35:40):
Mike suproceeding was paid for and the views expressed are
solely those of Cushing and Dolan. Cushing and Dolan and
or Armstrong Advisory may contact you offering legal or investment services.
Cushing and Armstrong do not endorse each other and are
not affiliated Mike.
Speaker 2 (35:51):
We also have the pricing information now on Venue Sports,
that is the joint venture between Fox, ESPN and Warner
Brothers Discovery to try to get a whole bunch of
different live sports channels including ESPN, TNT, Fox Sports, all
on one platform but no other stations. Forty two dollars
and ninety nine cents a month. Here's my reasonable.
Speaker 3 (36:14):
Than less in three to sixty.
Speaker 2 (36:16):
But nonetheless, here's my take on in most streaming platforms
or cable right now. If you look at like streaming platforms,
I think a lot of them are somewhere in like
the sixty five to seventy five dollars a month range.
So you lose all the other channels that you get
through a streaming platform and only get sports, and you
save thirty dollars a month. I'm not four. I don't
(36:41):
understand I'm not this is this is for someone who
only watch wants to watch sports and nothing else, and
I don't know who that is.
Speaker 4 (36:52):
Yeah, I'm struggling with the reactions here. I think that
people got rid of their cable packages because the service
from the cable companies was terrible. It was wrapped up
in all the other services that you didn't need, You
were tied into long term contracts, and quite honestly, the
experience was garbage. These days, you have the option to
(37:13):
do something called YouTube TV or Fubo or Hulu Live TV,
any of these different options that will still build you
a cable bundle, which seemingly is what everyone wants. I
don't know who this is for, Like, this is for
somebody that only wants to watch Netflix and then all
the sports, and I don't think that customer exists. I
think that most households want a cable bundle that's not
(37:36):
a huge.
Speaker 3 (37:37):
Pain to administer and deal with.
Speaker 2 (37:39):
Yeah, I guess the market for this is probably a
single person who only wants to watch sports, because in
most families you got so much like diversity of like
what you want to watch, that you still want the
whole bundle, whether it's in streaming or a cable bundle.
Speaker 4 (37:56):
You and I both lived with a group of guys
right after college, like people living in the same apartment.
Speaker 3 (38:01):
Where'd you have bought it?
Speaker 1 (38:02):
Then?
Speaker 3 (38:04):
Maybe I don't know.
Speaker 4 (38:06):
I'm really trying to find a market for this and
I'm struggling to come up with one.
Speaker 2 (38:09):
Maybe, but even there, it's kind of like, I don't know.
If I want to watch the History Channel, I can't
do that. If I want to watch you know, whatever,
the like, uh oh, there's a great whatever it was
about airplanes and stuff. There's air disasters. That's the one.
Can't watch that. On this quick break, here more financial exchange.
Now we're two coming up.
The Financial Exchanges produced by Money Matters Radio and is
hosted by employees of the Armstrong Advisory Group, a registered
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(00:21):
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(01:03):
presented by Veterans Development Corporation. This is the Financial Exchange
with Chuck Zada and Mike Armstrong's.
Speaker 2 (01:12):
Chuck, Mike and Ben with you here today. Tucker is, uh, well,
I don't know exactly where he is, but he's got
the day off, and so we've got Ben running the
show for us. And it also happens to be a
jobs day, which is almost as meaningful as you know,
Ben joining us here. So we're gonna start things off
today talking about the Bureau of Labor Statistics jobs report
(01:35):
that we received at eight thirty am this morning, and
what it showed was one hundred and fourteen thousand jobs created,
the unemployment rate rose to four point three percent, And
those are the two headline numbers that basically, if you
don't listen to our show or watch you know, financial
news on a regular basis, those are probably the only
(01:58):
two numbers that I suspect most Americans. Well here, Is
that a fair statement? Mike?
Speaker 3 (02:03):
Yeah, I think it would be.
Speaker 4 (02:05):
The expectations out there were for a lot better than this.
One hundred and eighty five thousand jobs were estimated to
be created in the month of July when economists were asked,
and the unemployment rate was expected to stick right around
at four point one percent. So to frame all of this,
this is a bad report. It's a bad report for
(02:26):
the economy right now.
Speaker 2 (02:27):
Yes, I think that when you're looking at this, and
let's discuss why, because we actually we'll probably spend quite honestly,
like thirty to forty minutes talking about this because this
is a big one and there's a lot to get
into on it. So first let's talk a little bit
about the jobs that were at one hundred and fourteen thousand.
Remember the jobs report, it's two different surveys. One is
(02:49):
they survey households and say hey what happened there? The
other day survey businesses and say hey, what did you see?
And the one in which they survey businesses is the
one that they get the jobs added number from. And
there's a bunch of statistical reasons why they do that,
but ultimately one hundred and fourteen thousand jobs created. This
is the pace that basically, it's right around the pace
(03:12):
that you need to maintain if you don't want unemployment
to go up given regular population growth. So if you're
only adding thirty forty thousand jobs a month, yes you're
adding jobs, but the population grows faster than that, at
least the working population does. And so thirty to forty
thousand jobs added is not enough to maintain an unemployment rate.
(03:34):
You'd see the unemployment rate go up there, even all
else being equal. So first the down shift to there.
Granted it's one month, the three month average is still
one hundred and seventy thousand jobs added a month, So
you know, you've got a good clip that you're moving
at there. But you say, okay, we don't want to
get into this range on a regular basis, because it's
pretty much saying, yeah, the economy is in danger of,
(03:57):
you know, kind of hitting stall speeds. So that's that's
part one. That's problematic. Part two, and I'm again just
looking at the big headline numbers here. The unemployment rate
rose to four point three percent from four to one.
And this has now triggered what is known as the
Psalm rule. And the Psalm rule we've talked about it before,
but it's named after Claudia sam who is an economist
(04:20):
who's been at the FED all over the place, a
bunch of different places. And basically what it says is, hey,
in the last eighty years, whenever we've had a recession
really the last seventy years. I think it goes back
to like the nineteen fifty seven recession. Whenever we've had
a recession, the three month average of the unemployment rate,
when it rises half a percent above the low for
(04:44):
the three month average in the previous twelve months, you've
had a recession happen pretty much concurrently or shortly thereafter.
Speaker 4 (04:52):
And examples here, Chuck if I may April of two
thousand and eight, we saw a Psalm rule trigger at
You're a point five percent in April of eight.
Speaker 2 (05:02):
And the NBER went back, by the way and said
that the recession actually began in December of two thousand
and seven. It's just it happens after the fact that
they declare recessions. They don't declare them as they're happening,
because they need to actually look and see what the
economy has done right.
Speaker 4 (05:17):
July two thousand and one, same story, some rule triggered
back in July two thousand and one. February, sorry, no, December,
November of nineteen ninety we saw a Psalm rule get
triggered once again. Recession and so beyond the inverted yield curve,
beyond ism manufacturing surveys or rather different recession indicators that
(05:39):
have been out there. We've talked about, for instance, losses
in temporary workers and how that was a pretty good
recession indicator. This has predicted every recession historically, going back
to I think I see data as from the nineteen
fifties without any false positives. That's why it's looked at,
and that's what we have triggered.
Speaker 2 (05:58):
This point, and this is probably one of the reasons
why the ten year US treasury as of as we're
speaking right now is down another fifteen basis points to
three point eight three percent. So a couple things on
this sam rule. The first is just because well, let's
let's do a couple things. The first is when you
(06:19):
look at this business cycle, this particular business cycle has
broken a lot of different indicators that used to work
about the state of the economy at one point or another.
Some of them have been broken for four or five years.
Some of them went through a period of a year
or two where they didn't work, and then you know,
they're they're becoming useful again. Some of them broke for
(06:39):
you know, a couple months. But there have been a
whole bunch where you look at it and you're like,
I don't necessarily know that this means what it used to,
just because this business cycle is different. So that's the
first thing that I want to preface this with. The
second is that Claudia sam when she developed this, it
was entirely with backwards looking data. She basically could look
(07:01):
at the data and say, hey, I can find a
rule based on you know, unemployment in the unemployment rate
that fits based on what we've seen previously. So she
was looking back at the data when she made this.
She she didn't invent this in nineteen seventy and then
have every recession since then, you know, end up being
predicted correctly. It was something where she was looking backwards
(07:25):
at all of this data and effectively said, yeah, this
is you know, what we've seen. And so she had
the you know, any back test. If you ever look at,
you know, any back test for you know, any financial product,
they always say, oh, look at how well this is done,
and it's like, okay, well, now show me what it's
doing out of sample, meaning in the future, and will
(07:45):
do the same thing. And the answer is, you don't
know if it will.
Speaker 4 (07:50):
Yeah, she was data mining. She was looking for trends
in data in previous times, and she herself has said, look,
eventually this rule will break. This won't always work to predict.
It's very likely to not work in the future in
the same way that has in the past. So do
we know that we're in a recession right now because
the PSALM rule has triggered.
Speaker 3 (08:08):
No.
Speaker 4 (08:09):
And we talked about before how it was pretty likely,
based on the way that the data was going, that
a SAM rule would trigger sometime this year.
Speaker 2 (08:18):
So again, this is I think one of the big
things that we're seeing here is, Hey, we're right at
this point now where historically, when you get to this
point on the unemployment rate and it's moved upward, you're
typically talking about a recession happening either right now, maybe
a couple months before it started, or a couple months later.
(08:39):
That's that's pretty much where you are at this point.
And so it raises the very real question. And this
is kind of a you know, we've talked about, Hey,
are there any you know, legitimate red flags right now?
This is a screaming one because you do have to
acknowledge the accuracy historically while also acknowledging that, hey, some
(08:59):
of the these indicators have broken in this cycle, but
you kind of have to prove that it's broken in
this case before you can say it's broken. So this
is a real concern about the potential for, you know,
more imminent recession. The counterpoint to that is that we
just got GDP for the second quarter that came in
at two point eight percent, which look, it could be
(09:20):
revised up or down. It's kind of rare. And by
kind of rare, I mean you don't usually have recession
happening like the week or month after you have a
quarter like that. That's also kind of unusual. So something's
kind of got to give here, and I don't know
(09:40):
which way it is. The chances of recession right now,
in my opinion, are higher than any time that they've
been since the spring of twenty twenty two. You know,
last year, everyone was running around with like a chicken
with their head cut off, And the point that we
made all year is no, the growth is stronger than
people think, and there was not a recession last year
despite all of the chickens with heads cut off running around.
(10:04):
This year, it's a different scenario because you are seeing
a meaningful move upward in unemployment housing in the last
few months has started to turn you know, negative year
over year in terms of the data. And I remarked
last year it's really hard to have a recession when
housing is expanding year over year. It's not the case
right now. The last couple months we've seen a real
turn there. We've seen some other negative data in other
(10:26):
parts of the economy and other parts of the market
as well, and so there are I think more legitimate
concerns right now about recession than at any point in
the last two and a half years. You got to
go back to you know, kind of February March April
of twenty twenty two to find the last time that
I think it was as big of a concern. Does
(10:48):
it mean that you're going to get one, No, it doesn't,
But it is something where you know, we're always talking about, hey,
what are the risks you need to watch for. The
risk of an inflationary bound is next to nothing over
the next six months, barring you know, some major escalation
in the Middle East through this and that, Like you
always caveat it with that, But there's nothing in any
(11:09):
economic data right now that's showing any meaningful inflationary impulse
the risk of a recession meaningful? Do I think it's
like thirty percent or no idea. I'm not going to
put a percentage on it because it doesn't do anyone
any good. Like, what are you gonna do with a
percentage anyways? But it's a higher threat now in my opinion,
(11:29):
than any time in the last two and a half years.
Speaker 3 (11:33):
Yeah, I'm right there with you.
Speaker 4 (11:35):
The one thing that came to mind for me was, wow,
you know, four point three percent, while it's been a
big increase, is still a very low unemployment rate. It
doesn't matter if he looked at doesn't decades. I agree,
it doesn't matter at all. And that's what I was
going to point out, is it it might seem low
right now, but you know what, April of two thousand
and eight, the unemployment rate was sitting at like five percent.
It can still go dramatically higher than where it is
(11:57):
right now. Dot com bubble, same story, right we triggered
that som rule in July ofh one, the unemployment rates
sitting back there in July of one was sitting at
like four point six percent, like right close to where
we are right now. And so to me, I'm with
you right there is just because that unemployment rate is
(12:17):
sitting at four point three percent, and just because that
is a historically pretty normal unemployment rate, that in and
of itself is not enough to say, Okay, well we're
not in a recession. Because the unemployment rates just at
four point three percent, that's nothing that is something to
worry about because of the dramatic rise in unemployment that
we have seen over the last twelve months.
Speaker 2 (12:37):
Let's take a quick break here when we come back,
more to diget on here, including Hey, what's the FED
do now? And should they have done something different?
Speaker 1 (12:45):
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Speaker 2 (13:47):
Let's talk a little bit more about, you know, kind
of what we're seeing out there as far as chatter
about the FED as it relates to this jobs report,
because I don't know about you, but I've had a
number of people in various different mediums, be it social media, text, email, YadA, YadA,
(14:08):
say some variation of, Hey, why didn't the Fed do
anything on Wednesday?
Speaker 3 (14:13):
Now?
Speaker 2 (14:13):
Why didn't they cut in July? Now they're behind the
curve on this.
Speaker 4 (14:16):
Yeah, Monday morning quarterbacking is going to be big this week,
and justifiably so, because I don't think it's not justifiably so. Okay, yeah,
I guess expectedly so, maybe not justifiably so. The Federal
Reserve did not have any pre disclosed data about where
this unemployment rate was going to go and where this
(14:37):
job's report was going to come in when they made
their policy decision on Tuesday of this week.
Speaker 2 (14:42):
Well, even I'll go further than that. Let's say that
they let's say that they did have this information, which
again I know that they didn't, and let's say that
they decided to cut twenty five basis points. Does that matter?
Speaker 3 (14:55):
Wouldn't have changed anything.
Speaker 4 (14:56):
Markets might have gone up a little bit more on
Wednesday than they did, but it doesn't fundamentally change much of.
Speaker 2 (15:02):
Anything, not to markets. Does it matter to the economy now,
a twenty five basis point cut six weeks before your
next meeting, if you're actually having a recession, If you're
actually having a recession, cutting twenty five basis points two
days ago, it's not even shuffling the deck chairs of
(15:24):
the Titanic. It's like sitting on one of them. It
doesn't make any impact. If you're actually having a recession,
then you've got to cut somewhere in the ballpark. Depending
on the recession and in the economic environment. Historically you
gotta cut anywhere from two to four percent in order
to deal with it, which the FED still can yep.
So yeah, would it have been nice if they started
(15:47):
the process off, like in a perfect war. Yes, but
it's not like a twenty five basis point cut was
gonna save you know, anything, if there is an actual recession.
It just starts the process off.
Speaker 4 (15:59):
And it probably wouldn't have been justifiable to do anything
more than twenty five basis points as of when they
especially given that they did not have this data. So
let me ask you a different question. There is a
meeting now in six weeks, yes, late September, yep. What
do we do then? Are we looking at a fifty
basis point cut? I would argue, should this data not change,
(16:24):
and granted we'll see multiple more CPI reports, which I
agree with, you can take a back seat, but we'll
get one more jobs report prior to that decision as well.
Let's assume for a moment that unemployment you know, I guess,
stays at this four to three level. What do you
do at that meeting?
Speaker 2 (16:44):
So here the trajectory I think is going to be important.
If it's at four to three, they have plausible cover
to say, yeah, we're just going to go a quarter percent.
Speaker 3 (16:53):
Then agreed.
Speaker 2 (16:54):
If it increases further to four four, four five, they're
cutting fifty basis points. Yea, they should. And here's what
matters is, there are three more FED meetings before the
end of the year. You've got a September, November, and
December one. You're all loaded up once you get the
economic data. As you said, Mike, the CPI doesn't really
matter right now because there is no inflationary impulse out
(17:17):
there that we're seeing. First and second, hey, the Fed's
got this dual mandate of employment and inflation, and the
inflation picture is stable right now and the employment picture
is deteriorating. As such, anything related to employment, so consumption's
gonna matter. You're gonna look at retail, sales, housing activity,
(17:38):
all that kind of stuff like that. That's what you're
gonna be plugged into on this and where this can
go in my opinion is the FED has a chance
to say, yeah, you know, we didn't need to cut
in July, and we stand by that. And I don't
think they're wrong on that, by the way, because again
it's not like there's a ton of data before being like, hey,
(17:59):
you really need to do something now. But they have
a chance to say, if the data worsens a little bit, yep,
you know what we're gonna do. We're cutting fifty BIPs
in September. We're gonna cut, you know, if needed another
fifty to seventy five in November, and another fifty to
seventy five in December, and we can through that cut
(18:20):
interest rates by one and a half to two percent
by year end in a three month period, and generally
that does a pretty good job of least starting to
stabilize things. Because here's here's where you are right now.
If if you want the soft landing, you need to
land now, not crash. You need to land like you
need to level out, because you're at the point where
(18:43):
you have to land the thing. Actually, and we've talked about, hey,
what what is the definition for the soft landing, And
we said, look, you don't want unemployment or inflation getting
back above four and a half percent by year end.
Inflation's not gonna be there. You don't have to worry
about it. Unemployment you got question marks now. And so
(19:03):
this is why I've been saying, Look, you still can't
say you've gotten a soft landing until you get through
twenty twenty four unscathed. You still got you still got
to do the work here. So they have the tools
available to them to still get the policy rate to
where it needs to be by your end. And by
the way, just because they're not cutting right now, doesn't
mean the market isn't doing the work for them. Interest
(19:24):
rates on longer term bonds longer term, but other short
term bonds are coming down anyways, expecting the FED to
cut even though they're not meeting today. So we'll talk
about that, and we've got Wall Street Watch coming up
when we return.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter. At
TFE show, breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch. A complete look at what's moving markets so
far today right here on the Financial Exchange Radio at work.
Speaker 5 (20:02):
Markets are very down right now. The Dow Jones is
down seven hundred and fifteen points or one point seven percent,
The S and P five hundred is down one hundred
and twenty six points or two point three percent, and
the Nasdaq is down five hundred and thirty three points
or three point one percent as well. Just while Wall
Street continues to digest the July jobs report that came
(20:24):
in far below expectations. At the moment, Exon Mobile shares
are up three quarters of a percent. The energy giant
reported a stronger than expected profit for the second quarter
amid record production in Guyana and the Permian Basin. Earnings
per share came in at two dollars and fourteen cents,
beating an LSEG forecast of two dollars in one cent
per share. Intel shares have plunged twenty nine percent on
(20:46):
the back of weaker than expected earnings and revenue for
the second quarter. The company also announced it would lay
off more than fifteen percent of employees due to a
ten billion dollar cost cutting push. Shares of the Snapchat
parent company Or down twenty five percent on disappointing guidance.
For the third quarter, snap expecks adjusted earnings to range
(21:07):
between seventy million and one hundred million, versus a street
account estimate of one hundred and ten million. Roku fell
two and a half percent after recording a second quarter
loss of twenty four cents per share, better than the
forty three cents loss per share expected from analysts. Revenue
came in at nine hundred and sixty eight million, beating
the nine hundred and thirty eight million consensus estimate. And finally,
(21:29):
we look at go Daddy shares are up five percent
after the web hosting company increase its outlook for the
full year. Go Daddy issued full year revenue guidance between
four point five to five billion and four point five
sixty five billion, while analysts polled had expected four point
five three billion. I am ben Kitchen, and that was
Wall Street Watch, Mike.
Speaker 2 (21:51):
I want to just put a bow on our discussion
of the jobs reporting the FED if we could.
Speaker 3 (21:57):
Sure.
Speaker 4 (21:58):
I'm sure we're gonna be really bringing it through every
story that we cover today because it's kind of the
only thing that matters today. But yeah, let's put a bit.
Speaker 2 (22:05):
There's some other stuff that matters too.
Speaker 3 (22:07):
Ah yeah, yeah.
Speaker 2 (22:10):
Not much, but there's some other stuff. So prior to
the break, I made a quick remark that, look, just
because the FED isn't meeting, it doesn't mean that bond
yields aren't moving. And this is something that I think
is important to remember as well, because hey, the FED
doesn't meet again until September, and naturally you get people
(22:32):
thrown up their arms saying, oh, like gee, they're just gonna,
you know, wait six weeks before they do anything, Like
isn't that gonna be too long? Blah blah blah, And
the answer is, well, no, like it's it's not going
to be too long, and here's why.
Speaker 4 (22:45):
But before you even go there. Furthermore, if this thing
really takes a turn, the FED has a history of
stepping in and cutting rates between meetings too, So there's
no dual out there. It says the FED can't do that.
The problem with it is it sends a clear message
of oh boy, we're panicking about this economy. So I
doubt they want to do that unless they feel they
have to.
Speaker 2 (23:02):
The other thing, keep in mind, they do have their
Jackson Hole symposium where they can signal as strongly as
they want in what like three weeks, Hey, like get ready,
we're gonna really start cutting in September, so they can
signal in between then anyways. But just as an example, Uh,
the six month US treasury right now is at four
point eight seven two percent. Uh that is down point
(23:26):
one seven percent, so that the interest rate on that
has come down by point one seven percent today. Mike,
did the FED meet today?
Speaker 3 (23:32):
No?
Speaker 2 (23:33):
Does the Fed specifically say hey, this is the rate
that we're setting the six month treasury at.
Speaker 3 (23:38):
No, they don't control that. It's a market driven interest rate.
Speaker 2 (23:41):
They control what they call the short term Federal Funds rate,
which is pretty much the rate at which they will
pay out interest if banks park money at the FED.
That's the rate that the FED actually controls. Longer term
rates the two year Treasury, which went from four point
one six percent to three point nine percent today it's
down point twenty six. Fed doesn't touch that. The tenure Treasury,
(24:03):
which is a good benchmark for kind of how long
term mortgage rates move, went from three point nine seven
percent to three point eight two percent today, which means
and again we're gonna have to see the final data,
but Mortgage News Daily yesterday had the national thirty year
fixed rate mortgage at six point six two percent. Today
it's probably gonna be somewhere in the six point four
to five to six point five range. And this is
(24:25):
all without the FED doing anything today, because what markets
are pricing in is, hey, the data is worse, and
so the FED is going to have to do something,
and then that will be made reality when the FED
decides what they finally end up doing. So just because
the FED didn't cut yesterday or two days ago rather
doesn't mean that the market isn't doing some of the
(24:47):
work for them also, it absolutely is. And so when
we look at this and the potential for you know,
these these stabilizers on the economy to kick in in
the event we are heading into recession, the single biggest
one is longer term interest rates coming down because one
of the major issues we've been talking about all year, Hey,
(25:08):
there's just not that many people who either a can
afford to sell their home and buy a new one
with rates at you know, seven point one percent, and
b hey, with prices this high. People can't afford to
buy with rates that high either, even if they're not selling,
even if they're just coming from renting. Well, you start
getting rates down into the low sixes, the calculus changes.
Speaker 3 (25:27):
Now.
Speaker 2 (25:27):
It's tough in the back half of the year just
because there's not as much volume that takes place in
the housing market. It's a much slower market in the
second half of the year than it is in the
front half. There's some great data from Mike Simonson on this,
who we have on the show on a regular basis.
He runs the data for Altus Research, and if you
(25:49):
look at the new contracts pending on a weekly basis,
the peak that we've seen the last couple of years.
In the spring, like April through June is typical between
like sixty five thousand and eighty five thousand contracts on
a weekly basis that are being signed. The end of
the year, you're typically only seeing between fifty and sixty
(26:10):
thousand contracts a week being signed, so it's it's a
meaningfully lower number. But maybe some of that just gets
pushed out this year because you know, people have been
waiting and now interest rates are lower and they decide
to Or maybe people get a little bit nervous and say, no,
I'm you know, I heard that, you know this recession
rule triggered, and I'm a little nervous. So maybe they
push it out to next year and it becomes worse
(26:30):
before it gets better. These are both possibilities here. But
the point that I am making is just because the
Fed isn't meeting today doesn't mean that interest rates aren't
moving based on what they're projected to do at future meetings.
It's not like the market waits for the meeting in
September and then says, oh, now you did this, we're gonna,
you know, reflect it. The market is reflecting projections for
(26:51):
September in real time.
Speaker 4 (26:52):
Yeah, and we can get a bit technical on this
show from time to time and just to very much
explain what's going on here. When we talk about the
bond market doing some of the job of the Fed
for it, what you have happening today is not big
giant traders out there saying, okay, we need to pick
up where the Fed can't act. What we have happening
(27:14):
here is people selling stocks and buying bonds. That's what
happens when when rates are going down. What that means
is that people bidding up the price of bonds, and
today it's largely because they are concerned about recession for
the future. They don't love what they saw from companies
this week in earnings, which we will talk about, and
they're saying, I'm going to go plant some money in
(27:34):
long term treasury bonds, which is driving the yield on
those bonds down. Pretty basic, you know, econ one on
one stuff, But I thought it might be worth explaining
here just we can get a little bit out there
and technical and that that's what's actually happening right now
is a steep sell off inequities and a steep cell
off in rates. But what that really means that bonds
(27:56):
are rallying on this news.
Speaker 2 (27:58):
I will say, also, can we get more technical on
a Friday? Is that sure? Is that acceptable? Normally we
talk about like salami on Fridays, but today we've got
to kind of go in a different direction. The VIX,
which is often referred to as Wall Street's fear gauge.
The VIX, the basic premise of it is it measures
(28:20):
implied volatility for the S and P five hundred over
the next thirty days, over the next month, and a
fancy way like, it's basically telling you how much the
market expects stocks to move on a daily basis over
that time period. I'm not going to get into why
you do the calculations this way, but if you want
to know what the market's projecting, take the current VIX,
divide it by two and I'm sorry, divide it by
(28:41):
sixteen and that's basically what it thinks the market's going
to do on any given day. Or divide yeah, divide
it into sixteen. Sorry, I'm throwing a bunch of math
out there. The VIX today for whatever reason, and normally
vixes calm on Fridays. For again, technical reasons. I'm not
going to get into the whole thing, but generally you
(29:04):
see the VIX somewhat move in lockstep with markets. And
what I mean by that is, if the S and
P five hundred is up one percent, VIX is usually
falling by about one percent. By by about one it's
already in percentage terms. If the S and P five
hundreds down one or two percent, usually the VIX is
you know, rising by one or two And that's kind
(29:27):
of the correlation that you get. What we have happening
today is a significant jump in fear. The S ANDP
is down about two and a half percent as of
this moment, the VIX just bumped up nine and a
half points. And so what this is telling you is
that one of the major things that's driving this is
not inherently it's not necessarily at least a mass selling
(29:48):
of stocks, but a mass buying of protection in the
form of put options on the S and P five hundred. That, hey,
investors don't necessarily want to sell a ton of their
stocks now now, but they're buying a lot of protection.
They still are, you know, selling some obviously, like I
don't have to, you know, lay that out, But a
jump of that magnitude in the VIX, when the S
(30:10):
and P is off this much is indicative of some
concern about, hey, what does the next month look like.
It doesn't mean the next month is inherently going to
be bad. In fact, some of the best times that
you have seen in markets have been when the VIC
spikes and then all of that fear burns off of
markets in the future. But there is a significant vowl event,
a volatility event that is happening today, and people are
(30:33):
buying volatility protection in a way that they haven't really
done over the course of the last twelve to eighteen months,
aside from a couple, you know, very brief instances here.
So yeah, you gotta go back.
Speaker 3 (30:44):
To twenty twenty two to see this type of activity
on the VIX.
Speaker 2 (30:47):
Yeah, so it's you're finally seeing this priced in here.
Where markets end up going is still anyone's question, But
you're finally seeing some fear that's being priced into markets,
and again, that is good for healthy markets long term,
even if it may indicate that you could have some
additional pain short term depending on how the data comes
(31:08):
out and everything else unfolds over the next you know
month or two because the next month or two. We've
said it for a while. Look, you're gonna know if
there's a recession by the end of September. You're gonna
know if there's one coming because the economic data won't
level off and improve like it did last year. That's
where we are now. The next eight to nine weeks.
(31:28):
I think it's gonna tell the story for us. Mike,
Let's take a quick break when we come back, Sho,
we get into some earnings or we hold those for
a little bit later. Your call, Chuck, I'm gonna hold
those for later instead when we come back.
Speaker 1 (31:45):
Hmm.
Speaker 2 (31:47):
I'll come up with something really good for when we
come back. Just trust me on it. More Financial Exchange
right after this.
Speaker 1 (31:55):
This is your home for the most comprehensive coverage of
the economy and the trends on Wall Street. Face is
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Speaker 5 (32:19):
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Speaker 2 (32:52):
Mike first, up to this segment, we've got a judge
US District Judge Philip Gudieriaz tossing out both the day
and the class liability in the class action suit against
the National Football League for their Sunday ticket pricing. So
that big award, remember was announced, it was a twelve
billion dollar award back in June, that is going to
(33:13):
be voided. Gaudiera is saying that the expert witness testimony
provided by the plaintiffs used flawed methodologies, and the jury's
damages weren't based on evidence but more can to guesswork
and speculation. And again it's basically over right now, and
so there's nothing happening as a result of this.
Speaker 4 (33:37):
So I think we have to take a step back,
as again, this was a really it's kind of a
strange lawsuit that came out. It was it was brought
by was it the owner of a bar or somewhere
out in California that they sued I can't.
Speaker 2 (33:50):
Remember if it was. This can, by the way, be appealed,
I think one more time by now the plaintiffs, sure,
but again it would be a hard hurdle to over
come at this point because judges typically don't overturn other judges.
Speaker 4 (34:04):
It was a basically it was brought by a San
Francisco bar in twenty fifteen, and then you know, forty
eight thousand businesses and residential customers signed on and we're
suing saying.
Speaker 3 (34:15):
Like, you know, you are what was it?
Speaker 4 (34:18):
It was that they were, you know, somehow the NFL
was colluding with the team owners to you know, to
package this all together in one thing.
Speaker 3 (34:24):
And I don't know.
Speaker 4 (34:26):
I was scratching my head from the very beginning of
this lawsuit trying to figure out what exactly the anti
competitive and violations were. But we both kind of scratched
our heads at the end of the day and said, look,
neither of us are attorneys.
Speaker 3 (34:41):
We're not judges. We have no idea what this stuff means.
Speaker 4 (34:43):
But at least one other judge scratching his head and
saying this doesn't seem to make much sense to me either.
Speaker 5 (34:50):
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Speaker 2 (35:51):
We also have the pricing information now on Venue Sports,
that is the joint venture between Fox, ESPN and Warner
Brothers Discovery to try to get a whole bunch of
different live sports channels including ESPN, TNT, Fox Sports, all
on one platform but no other stations. Forty two dollars
and ninety nine cents a month. Here's my reasonable.
Speaker 3 (36:14):
Than less in three to sixty.
Speaker 2 (36:16):
But nonetheless, here's my take on in most streaming platforms
or cable right now. If you look at like streaming platforms,
I think a lot of them are somewhere in like
the sixty five to seventy five dollars a month range.
So you lose all the other channels that you get
through a streaming platform and only get sports, and you
save thirty dollars a month. I'm not four. I don't
(36:41):
understand I'm not this is this is for someone who
only watch wants to watch sports and nothing else, and
I don't know who that is.
Speaker 4 (36:52):
Yeah, I'm struggling with the reactions here. I think that
people got rid of their cable packages because the service
from the cable companies was terrible. It was wrapped up
in all the other services that you didn't need, You
were tied into long term contracts, and quite honestly, the
experience was garbage. These days, you have the option to
(37:13):
do something called YouTube TV or Fubo or Hulu Live TV,
any of these different options that will still build you
a cable bundle, which seemingly is what everyone wants. I
don't know who this is for, Like, this is for
somebody that only wants to watch Netflix and then all
the sports, and I don't think that customer exists. I
think that most households want a cable bundle that's not
(37:36):
a huge.
Speaker 3 (37:37):
Pain to administer and deal with.
Speaker 2 (37:39):
Yeah, I guess the market for this is probably a
single person who only wants to watch sports, because in
most families you got so much like diversity of like
what you want to watch, that you still want the
whole bundle, whether it's in streaming or a cable bundle.
Speaker 4 (37:56):
You and I both lived with a group of guys
right after college, like people living in the same apartment.
Speaker 3 (38:01):
Where'd you have bought it?
Speaker 1 (38:02):
Then?
Speaker 3 (38:04):
Maybe I don't know.
Speaker 4 (38:06):
I'm really trying to find a market for this and
I'm struggling to come up with one.
Speaker 2 (38:09):
Maybe, but even there, it's kind of like, I don't know.
If I want to watch the History Channel, I can't
do that. If I want to watch you know, whatever,
the like, uh oh, there's a great whatever it was
about airplanes and stuff. There's air disasters. That's the one.
Can't watch that. On this quick break, here more financial exchange.
Now we're two coming up.
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