September 6, 2024 • 38 mins
Chuck Zodda and Mike Armstrong breakdown the August jobs report that came in lower than expected and wonder how this information will impact the Fed's upcoming rate cut. Are there downsides to falling interest rates? What is causing the recent market jitters? The massive tech company nobody talks about just reported sluggish earnings.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
registered investment advisor. All opinions expressed are solely those of
the hosts. Do not reflect the opinions of Armstrong Advisory
or anyone else. Investments can lose money. This program does
not offer any specific financial or investment advice. Please consult
your own financial, tax, and estate planning advisors before making
(00:20):
any investment decisions. Armstrong Advisory and the advertisers heard on
this program do not endorse each other or their services.
Armstrong and Money Matters Radio do not compensate each other
for referrals and are not affiliated. This is The Financial
Exchange with Chuck Zada and Mike Armstrong, your exclusive look
at business and financial news affecting your day, your city,
(00:42):
your world. Stay informed and up to date about economic
and market trends plus breaking business news every day. The
Financial Exchange is a ground partner of the Disabled American
Veterans Department of Massachusetts. Help us support our great American
heroes by visiting DAV five k dot Boston and making
a donation today. The DAV five K Boston is presented
(01:04):
by Veterans Development Corporation. This is the Financial Exchange with
Chuck Zada and Mike Armstrong.
Speaker 2 (01:13):
Chuck, Mike and Tucker with you here on a jobs Friday.
At eight thirty am this morning, Eastern time. The Bureau
of Labor Statistics, or the Bulls as they are commonly
referred to.
Speaker 3 (01:26):
No, they're not. They're not.
Speaker 2 (01:27):
They're referred to as the BLS more often. Yes, they
put out the Employment Situation Report, and what it showed
was that non farm payroll employment increased by one hundred
and forty two thousand jobs in August, and the unemployment
rate ticked down slightly to four point two percent from
four point three percent.
Speaker 3 (01:46):
A little bit of context.
Speaker 4 (01:47):
Anybody remember about a month ago when markets sold off
by six percent in two days. Yes, that was the
last time this report came out, So it was an
important one this morning.
Speaker 3 (01:56):
At a lot of eyes on this report.
Speaker 2 (01:57):
Yes, certain death was coming for us, is what I
had heard. Uh, And so what we saw here were
numbers that were again at first blush you say, okay,
expectations were for one hundred and sixty thousand jobs created,
one forty two but then spitting distance pretty close, especially
since the average error on this once they finally go
and revise them. You know, down the road is seventy
(02:19):
eight thousand jobs, so it's well within the marginal varia. Say, okay,
like it's you know who again, like if you had
printed like one fifty nine or one sixty one. Like, honestly,
we don't even know if this is statistically meaningful. Four
point two percent of tick down in the unemployment rate.
Nice to see, but let's talk a little bit about
what's actually going on here, because the headline numbers are
not they're not the telling this matters.
Speaker 3 (02:42):
They don't hear.
Speaker 2 (02:43):
First, the previous two employment reports had significant downward revisions.
June revised down by sixty one thousand from one hundred
and seventy nine thousand to one hundred and eighteen thousand.
July revised down by twenty five thousand from one hundred
and fourteen thousand eighty nine thousand. So both of those
meaningfully worse than we previously thought.
Speaker 4 (03:05):
Again, I'm just going to remind people here and put
this out here. The reason these get revised is because
these are surveys and they get more data. You send
a bunch of surveys out to a bunch of businesses,
a bunch of them, don't send the information back in
time to publish the data. Right, if you were surveyed
by the Bureau of Labor Statistics and you got the
data back to them today, you weren't included in the data.
Speaker 3 (03:26):
But no, you will be when they go and revise
these numbers a month later.
Speaker 2 (03:30):
So that's why you see those downward revisions. Downward revisions
in past months typically a pretty bearish sign. Historically there
has been a strong correlation with a weakening labor market
and downward revisions of previous reports. So that's something that
I think is notable. There other things that we saw
when we talk about what is going on with the
(03:54):
unemployment rate. The biggest thing that is pointed to in
this piece, not this piece, in this report as the
reason for it. Temporary layoffs declined by one hundred and
ninety thousand to eight hundred and seventy two thousand, So
we were a little over a million. We went down
to eight hundred and seventy two thousand. By and large,
(04:16):
I predominantly attribute that to you had a bunch of
temporary layoffs in July because of Hurricane Barrel in the
Gulf and those have since passed. They said that, look,
we weren't sure if they didn't think there was anything
meaningful with hurricane Barrel for the July numbers, but this
is one area where it probably was in that the
temporary layoff numbers came back down here. So I think
(04:37):
that's how I would square that circle and try to
make sense of what is going on there. Other things
that we saw here, average hourly earnings ticked up at
a point four percent monthly rate, a little bit hotter
than expected. But there's basically no other inflationary evidence anywhere
(04:57):
in really me any reports, basically any report that I've
seen for the last couple of months, and so the
fact that you had average hourly earnings come into touch
hot this month, I don't know that it necessarily means anything.
And overall aggregate payroll growth over the last twelve months,
meaning the combination of jobs added and wage gains running
(05:18):
four point nine percent, which is right in the pre
pandemic range that you were twenty seventeen to twenty nineteen.
And so there's nothing out of character there or something
that you need to worry about in terms of a
rebound in inflation.
Speaker 3 (05:30):
As a result of this report.
Speaker 4 (05:32):
Here my general conclusion it seems to be the same
one that markets are having, which is, I'm not entirely
sure how to interpret this report.
Speaker 3 (05:38):
There are parts of it that are I'm one hundred
percent sure you are. There are parts of.
Speaker 4 (05:42):
It that are pretty relieving to me because you didn't
see that unemployment route rate shoot up, but it does
not contradict the other data about a slowly weakening job market.
Speaker 2 (05:52):
This is a bad jobs report that's not as bad
as last month. You agree, this is like a dus
in last month was probably a d Yeah, you know,
that's kind of how you look at this. The redeeming
factors here are that the unemployment rate did not tick
back up, and I guess you could also say, look,
(06:14):
construction jobs ticked up, which you know construction jobs are
a big leading indicator, and so those ticked up, But
you lost manufacturing jobs down twenty four thousand. Manufacturing had
been an area of growth over the last couple of years,
so that's not a great sign on that front there.
You look at what we are seeing in terms of
the labor force participation rate holden steady, So there's nothing bad,
(06:37):
nothing good it's a sixty two seven. The employment to
population ratio, you know, remains high, which is good to see,
but it also puts you in a place where there's
a threat that it worsens from there. And so especially
given the downward revisions to the last two, which are
meaningful data points, as well as the fact that look
(06:58):
a couple weeks ago, remember we got the big annual
revisions to the jobs reports, and what those showed were that, hey,
you had, you know, sixty seventy thousand jobs a month.
Few were created in that twenty twenty three period than
we thought there were. And I know that you can't
necessarily extrapolate that one to one to where we are today,
(07:20):
but they're using the same methodology today that they were
last year, and they had a drastic overestimation of the
number of jobs created.
Speaker 3 (07:29):
Even if you cut that in half and.
Speaker 2 (07:30):
Say, look it's a modest overestimation, the Jew numbers instead
of one hundred and eighteen thousand now look like you know,
eighty thousand, and the July numbers instead of ninety thousand,
look like sixty thousand jobs created. So you're approaching stall
speed on the economy from a job's perspective there, and
I don't think there's much that's reassuring in here other
(07:52):
than here's what I will say, given this data, we
got to punt out the recession at least another month,
because there is not a recession report. I said, you know,
prior to you know, call it. I've been saying for
the last six weeks that hey, by the end of September,
you'll have a pretty good sense of you know, you
should be able to know whether the economy is heading
(08:13):
into recession or not. Don't believe that anymore. I don't
think this report clears the economy because it's one report,
and the other economic data in you know, for labor,
is continuing to deteriorate, and this isn't strong enough to
offset that. It couldn't be as just one data point anyways,
and so I think ultimately it's okay. I don't think
(08:34):
that you're necessarily going to know by the end of
September whether you have an all clear or not. Now
you probably have to start waiting till, you know, end
of October, end of November. But the data is weakening,
and this doesn't really do anything to conclusively say no,
it isn't it's just not weakening as badly as it
was in the previous report in my opinion.
Speaker 4 (08:55):
So early trading here, we've got the NASDA go off
more than one percent, s and P off by a
half down basically flat for the day, and the yield
on the ten year treasury basically flat, which is a.
Speaker 2 (09:04):
Big reversal by the way, from where we opened. Yeah,
SMP opened and moved up half almost half a percent
positive territory on the open and now it's almost a
one percent intra day reversal that we've seen.
Speaker 4 (09:15):
So how about should we take a quick break both
strap on our purple ties and put ourselves in J.
Powell shoes in terms of the next FED meeting and
what comes next.
Speaker 3 (09:24):
Yeah, that sounds fun. Let's take quick break. We'll do
that next. On the Financial Exchange.
Speaker 1 (09:28):
The Financial Exchange is now available on your Alexis smart speaker.
Ask to play the Financial Exchange and catch up on
anything you might have missed. This is the Financial Exchange
Radio network. The Financial Exchange Show podcast drops every day
on Apple, Spotify, and iHeartRadio. Hit that subscribe button then
leave us a five star review. You're listening to the
(09:49):
Financial Exchange Radio network.
Speaker 5 (09:53):
This segment of the financial Exchange is brought to you
in part by the US Virgin Islands Department of Tourism.
The US Virgin i Islands are Saint Croix, Saint Thomas,
and Saint John. Summer is just about over, so now's
the time to start looking at a fabulous holiday vacation.
And there's no better place than the US Virgin Islands.
Enjoy perfect weather, world class dining, incredible beaches, in a
(10:14):
vibrant nightlife. No passport is needed, and there's no money
to exchange. Take your next vacation in America's Caribbean paradise
the United States Virgin Islands. Go to visit USBI dot
com to book your trip. That's visit USBI dot com.
Speaker 3 (10:27):
Mike, So, J Powell and the gang.
Speaker 2 (10:30):
They are about to enter their quiet period prior to
the fed's meeting a week and a half from now.
And so the last speaker that we have scheduled is Waller,
who I believe is going at eleven am. Yeah, he's
speaking at eleven am and probably is going to give
(10:52):
us a pretty good sense of what they're going to do.
Speaker 3 (10:55):
Now. But you're J.
Speaker 2 (10:57):
Powell, You're Christopher Waller at this job's report and the
situation as a whole.
Speaker 3 (11:05):
What's your read?
Speaker 4 (11:06):
Oh, I think it's important to acknowledge all the data
that has come in between now, between this meeting and
the last meeting. The last meet was July thirty first,
meaning they didn't even have the July jobs report at
that point in time when they had their last meeting.
We've heard from feder Reserve officials since then, but they
did not have their rate setting meeting with that data
(11:27):
in hand.
Speaker 3 (11:27):
So what do you have?
Speaker 4 (11:29):
You have a labor market that has clearly weakened since
the last meeting, So first things first, you have all
the ammunition needed for a twenty five basis point rate
decrease at this next meeting. The whole question, there's no
question that you are cutting rates at this next meeting.
You've already forecasted it, and that was just based on
(11:51):
the data you had before this morning's jobs report, which,
like we said, wasn't a disaster but was nothing great.
I personally, if I'm strapping on the purple tie, I
don't see the call for a fifty bases point hike because,
like we said, this report that we got this morning
did not prove out recession.
Speaker 2 (12:10):
Here's the call for fifty BIPs in my opinion, and
I'm I'm not giving my opinion on whether or not
I think it's good. But here here's the case for
fifty BIPs the measures of the labor market that we have.
And again, you don't just look at one like Ja
Powell doesn't just look at the jobs and it's like, wow,
one hundred and forty two thousand jobs, because.
Speaker 3 (12:30):
That's what Jay Powell sounds like.
Speaker 2 (12:31):
Also, uh, you know, he doesn't go, wow, one hundred
and forty two thousand jobs created. I guess we don't
need to call it fifty bases points. We could just
do twenty five. Now, it's totally not.
Speaker 3 (12:42):
What he sounds like. It's fine, Like it's fine, let's
just go with it. Yep.
Speaker 2 (12:48):
Instead, he says, Okay, I have a bunch of different
things that are pointing in kind of scary directions for me. First,
I have a job opening's number that relative to the
number of unemployed people is coming.
Speaker 3 (13:04):
Down really quickly.
Speaker 2 (13:05):
Yeah, and is at the same place it was in
twenty seventeen, twenty eighteen, but it's on a pace where
if it continues to move in this fashion for the
next eight months or so, it's gonna end up back
where it was in twenty fifteen or twenty sixteen, which
was kind of where the economy started to become good
again after the Great Recession, but the economy was still
(13:29):
dodgy around the I mean, you look at twenty sixteen.
Unemployment rate was still four point nine percent at the
start of twenty sixteen, and in twenty fifteen it was
still above five which again historically those are fine numbers,
but you still don't want to be like, Okay, we're
heading to five percent unemployment from three point four. That's
not a great feeling.
Speaker 3 (13:50):
The trend is more important than the single data point.
Speaker 2 (13:53):
Other things that we are seeing when we look out there,
we have temporary help serve says continuing to show declines.
That's a big leading indicator for economic activity because the
first places that companies cut are the temp workers because
they don't want to fire their permanent people, and those
are continuing to decline as well. Also, even within this report,
(14:14):
even though the unemployment rate ticked down, the underemployment rate
the U six, which shows people that are underemployed, Hey,
I want more hours or more of this or more that.
Really it's hours, uh, because it's labor that ticked up
by point one percent from seven point eight to seven
point nine. So the underemployment rate moved in the opposite
direction of the employment rate. You also have, you know,
(14:36):
when you look at some of these the softer data.
The Conference Board on a monthly basis does a survey
and ask people, hey, our jobs easy to find or
hard to find? And the ratio that you have of
easy to find the hard to find right now again
back to twenty seventeen twenty eighteen levels, but weakening quickly.
And you don't want to end up back in twenty
(14:57):
fourteen or something like that, because that was not a
good labor market.
Speaker 3 (15:02):
So the case.
Speaker 2 (15:03):
For Powell going fifty at the next meeting is labor
markets are convex in nature in that when when you
reach a tipping point in them, the acceleration to the
upside on unemployment moves much faster than it did earlier
in the cycle. And so you want to try to
(15:26):
catch the labor market before it gets to that tipping point.
So the case for fifty, if I'm J. Powell, is hey,
right now, I got a bunch of things that are
kind of yelling at me and saying, hey, these are
you know, brightly flashing yellow lights to in some cases
red lights, saying the labor market is entering a danger zone.
Speaker 3 (15:48):
Yeah, the sound rules of red light.
Speaker 2 (15:49):
And I want to get there first before the labor
market gets to that danger zone.
Speaker 4 (15:55):
So I've got to move fifty. Pretty tough, Pretty tough
to do without alarming people. The kiss challenge, Well, I know,
you say, like, they don't have to worry about that,
but they do, because, in my opinion, at least half
of the fed's influence has nothing to do with where
rates lands.
Speaker 3 (16:10):
True, It's easily.
Speaker 4 (16:13):
Half has to do with how they guide what they
tell the general public and the confidence with which they
speak about the economy.
Speaker 3 (16:19):
It is true. So that's the case for fifty.
Speaker 2 (16:22):
The case for twenty five is, hey, the labor market
is slowly getting worse. We still haven't seen any job
loss on a net basis. The unemployment rate is ticked
up purely because population growth is outstripped job growth, and
that's not normally what you see immediately before things get
really bad, Like you look at previous cutting cycles and
(16:45):
you've had job loss before they started. Yep, we haven't
even seen net job loss yet and we're talking about
cutting fifty g That seems pretty aggressive.
Speaker 4 (16:56):
Final point there would be, you know, in spite of
all the data about a weakening labor market, not much
on the unemployment claims.
Speaker 3 (17:03):
So we've talked about why that might be.
Speaker 4 (17:04):
But that's the only one data point that I can
look at on the labor market and say this might
not be as bad as we are seeing elsewhere.
Speaker 3 (17:13):
Yeah, so where do they end up going? Now? Like
this is the question, and it's a dumb question.
Speaker 4 (17:20):
Doesn't really matter. It doesn't matter whether they go twenty
five or fifty at this meeting, although the messaging matters.
The messaging does. But here's the other great thing about
this meeting. By the way, this is one of the
four meetings a year that we get from the FED
where they give us their summary of economic projections, where
they have to tell us what they think unemployment's gonna be,
GDP inflation. I gotta say, this is a spaghetti meeting.
Speaker 2 (17:44):
You just put that in the pot, get it nice
and warm, and throw it at the wall because you
have no idea it's gonna be all freaking over.
Speaker 4 (17:54):
There is anyone else wondering what Chuck was meeting by
a spaghetti meeting.
Speaker 3 (17:57):
It's a spaghetti meeting.
Speaker 2 (17:59):
Like again, it's they have no idea where this economy
is going to go, because no one does.
Speaker 1 (18:05):
Well.
Speaker 2 (18:05):
I think there's we're telling you conclusively that we've escaped
recession or we're definitely going in. I think it's being disingenuous, right,
I think there's one ray that they know this economy
is not going it's not reflating again, right, not yet.
That's the one thing that can say with confidence.
Speaker 4 (18:20):
And so again to play devil's advocate of my own
argument here, if you are quite confident about that, then
why not go fifty and explain that's your reasoning. Go
fifty and explain, Hey, we're not doing this because we
think we are imminently in recession. We are not doing
this because we think we are, you know, trying to
catch a falling knife here. The labor market is not imploding,
(18:42):
but we are so confident that inflation is behind us
that we're willing to cut by fifty basis points.
Speaker 1 (18:46):
Here.
Speaker 2 (18:47):
The other thing, so the market right now, Chicago Marke
no exchange. Their fed watch tool is pricing in a
forty three percent chance of a fifty basis point cut
fifty chance of a twenty five basis has been all
over the place this morning, but it has.
Speaker 3 (19:04):
It's it's been.
Speaker 2 (19:05):
It's a coin flip, because again, no one knows anything.
Everyone's Tony soprano right now. Nobody knows anything. Where's Paulie.
Nobody knows anything, Pollie talking to the Feds. Nobody knows anything.
Speaker 3 (19:20):
Right now.
Speaker 2 (19:21):
The one thing that I would point to in this cycle,
fed's almost always taking the Dubvish way out, or wanted
to at least quick break here Wall Street watches Next.
Speaker 1 (19:40):
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 and what's moving markets so far
today right here on the Financial Exchange Radio Network.
Speaker 5 (20:00):
A little bit of a bumpy ride on Wall Street
as investors sift through the August Jaws report posted this morning,
which revealed one hundred and forty two thousand jobs were
added last month, just below forecasts of about one hundred
and sixty five thousand, while the unemployment rate ticked lower
to four point two percent. The Labor Department also revised
down its estimates for June and July job growth by
(20:21):
combined eighty six thousand jobs. Right now, the Dow is
off by over a third of a percent, or one
hundred and fifty four points, SMP five hundred down by
one percent, and the Nasdaq down by over one and
a half percent as well. Russell two thousand is off
by half a percent. Ten year treasure yield is down
by three basis points a three point six y nine percent,
(20:43):
and crude oil up about half a percent, Trading at
sixty nine dollars in forty five cents a barrel. Broadcom
shares down by nine percent despite the chip maker beating
quarterly estimates on the top and bottom lines. However, the
company's revenue guidance fell short of street expect Sticking with
the chip sector, where super micro Computer was downgraded by
(21:04):
JP Morgan to neutral from overweight, with a bank noted
there is no rationale to buy shares while uncertainty exists
around the company regaining compliance. Shares in super micro Computer
today down by five percent and shares in smart Sheet
are up by eight percent. After the work management software
company beat second quarter earnings and revenue expectations. Yesterday, Reuters
(21:27):
reported that Vista and Blackstone were in talks to buy Smartsheet.
I'm Tucker Silvan. That's Wall Street Watch, Mike.
Speaker 2 (21:35):
There's a piece of New York Times today. It's titled
the Downside of Falling Interest Rates, and a couple different
things on this that you can think of. Look, if
you are someone who is you know, trying to borrow,
that's obviously a situation where falling interest rates potentially can
be good for you. Sure if you are a saver
who for the last two two and a half years
(21:55):
has said, man, it's great that I've finally been able
to get you know, five five percent on a CD
or hey, I've been able to you know, get five
percent on a money market.
Speaker 3 (22:06):
You're ready.
Speaker 2 (22:07):
It's it's looking like that's not going to be the case.
I'll already tell you when you look out at you know,
the bond marketer, CD market beyond a year, it's not
the case. Already You're seeing rates back into the threeson
a lot of those cases.
Speaker 4 (22:18):
Now, yeah, pieces like this are sometimes I know why
the Times is doing this and pointing this out, but
whether rates are high or low. Somebody's writing a complaint
article about how it doesn't work for them, and yes,
the reality is that there is no perfect interest rate
because if you are a saver, low rates are bad
(22:38):
for you. If you are a borrower, then uh, low
rates are great for you. And anybody that had we
financed a mortgage over the last few years is well
aware of that story.
Speaker 3 (22:48):
But here's where it does matter.
Speaker 4 (22:50):
We've spent the last two years on this program, Chuck
talking about how people you know have a ton of
money sitting in bank accounts, oftentimes in and checking accounts
without a high interest rate, and for the last two
three years, there's been, like you mentioned, great opportunities to
go and improve their return on that money. Right now,
(23:11):
I'm on bank Rates, I'm on bank Rate's website, and
I'm seeing two different banks at the moment that are
offering five point three percent apy on high yield savings accounts.
Speaker 3 (23:21):
Yep.
Speaker 4 (23:22):
Week and a half from now. My guess is that's
going to not exist anymore. The problem with this type
of thing is that right now the best rate you
can get is on something like this, and the most
likely to change is something like this. That is the
really challenging part that I think people struggle to understand
at the moment, which is, yeah, I'm not getting paid
(23:42):
quite as much on a nine month CD or an
eighteen month CD or a three year treasury bond, but
at least I know what I'm getting over the next
eighteen months. When I go and do that, I know
there are a lot of folks listening that probably have
still a lot of money in cash of one sort
or another. And it has been good to you if
you've made those moves over the last few years. I
(24:03):
hope that you are also going in eyes wide open
about the fact that that situation's about to change. It
already has in a lot of cases. You know, how
long ago was it that you could get a ten
year treasury bond well over four percent.
Speaker 2 (24:16):
It was like, Mike, you get a tenure treasury bond
at five last October.
Speaker 4 (24:21):
Now that's looking pretty good because now it's now below
four and when.
Speaker 2 (24:25):
Everyone last October is going on the federal debt's too high,
no one's going to buy all the Hey, when the
economy gets dodgy, people buy it, yep.
Speaker 4 (24:33):
And so this is the trade off you have. But
my point here would be if you're sitting on a
bunch of cash you're not sure what to do about it.
You recognize that the Federal Reserve is about to embark
on what looks like a rate cutting cycle. That's what
it looks like to me. Could be wrong, but that's
what it certainly looks like. There will be advantages to
be had. Car Loan rates mortgages are have already come
(24:53):
down a bit, and they could come down further in
the event of a recession and economic downturn. But so
will those rates on those cash investments over time. And
so if you're trying to figure out what is the
right plan for my cash, how do I address this
problem that I'm likely to face over the next few years,
Please give the folks at Armstrong Advisory Group a call
(25:14):
help you evaluate what the options are, what it looks like,
and how to best stabilize principle at a time when
you know there's a lot of concern about things like
recession and falling rates. The phone number for the Armstrong
Advisory Group is eight hundred three nine three four zero
zero one. We have offices throughout New England and clients
throughout the country that we work with to develop their
(25:34):
financial plans and investment strategies for the long term. Give
us a call once again. That phone number for the
Armstrong Advisory Group eight hundred three nine three four zero
zero one.
Speaker 1 (25:45):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal or tax advice. Consult
your own financial tax into state planning advisors before making
any investment decisions. Armstrong make contact you to offer investment
Advisoryerviss Mike.
Speaker 2 (26:01):
There's a piece in the Wall Street Journal today. It's
titled what Lies behind the Market's jitters? The answer is
people and the subheadline, though, kind of gives me a
little bit that feeling, and it says stocks and bonds
are far more sensitive to economic indicators than they have
(26:23):
been in the past because investors are aware of just
how much rests on a soft landing. And I kind
of poo pooh that quite honestly, because you can look
back at history as a lesson.
Speaker 3 (26:39):
In this respect.
Speaker 2 (26:40):
In that look, we've had other times where the economic
data is turned and markets have as well, and you
see bouts of volatility on a regular basis. So I'm
not really buying that this market is more volatile than
it's been in the past. In fact, the previous eight
months were remarked we calm. It was one of the
(27:01):
calmest eight month periods that we had seen in the
S and P five hundred.
Speaker 3 (27:04):
Yeah.
Speaker 4 (27:05):
I mean, if you want to make the argument that
right now stocks are more sensitive to these jitters because
people are finally opening their eyes about the risk of recession. Sure,
and we haven't really had much of that for the
last fifteen years. So that's all true, right, you know,
we haven't had much in the way of risk of recession.
(27:27):
There was risk of recession, but it popped out of
nowhere in early March, and we were through it by
you know, mid April, so you're talking last of twenty
twenty rather so like there wasn't time for people to
be jittery about the economic.
Speaker 2 (27:41):
Even recently, Like twenty twenty two was a horrible year
in markets, and like people were concerned about recession. Then
in the stock market fell more than twenty percent on
the S and P five hundred twenty twenty three, y'all.
Speaker 3 (27:54):
Remember Silicon Valley Bank. I do, I do.
Speaker 2 (27:57):
People got pretty nervous about that. And then don't you
remember last August, Last August and September, we're a puke
fest as well. The S and P fell almost ten percent,
I think actually a little bit more than ten percent,
And it wasn't because the economy actually went into recession.
It was people were nervous about the possibility of it.
Speaker 4 (28:17):
So we've now accumulated more recession indicators than we had
at anytime in the next last two years. So we've
accumulated more of these things that indicate that we could
be heading for a recession. Investors should be aware of
that and be paying attention to these signals if they
are again worried about and paying attention to their portfolio.
So this isn't surprising, But I don't know that you
(28:38):
can make much of an argument that we're paying closer
attention to it. We're paying closer attention to some signals.
I'm more paying attention to the jobs report right now
than I was in twenty twenty two.
Speaker 2 (28:50):
I do have to say, when you say that we've
accumulated more recession signals, I.
Speaker 3 (28:54):
Just have a picture of me like scooping them up,
and now.
Speaker 2 (28:56):
I'm picturing thanoscribbing Infinity Stones and just snapping his fingers
and half the market cap of stocking disease. Like that's
you know that that would be the Marvel movie for
like Recession man, Recession man. You know, it would be
like someone, I'm accumulating all of the recession indicators and
(29:17):
I'm gonna snap my fingers and destroy this wealth. It
doesn't sound so bad when you say that, but then
you realized it's horrible actually, kind of like Dan's destroying
half the people.
Speaker 3 (29:27):
Yeah.
Speaker 4 (29:27):
Yeah, but there are lots of people that have been
the fanos of this economy of the last few years.
Speaker 2 (29:32):
Shooting for recession and and like, guys, trust me, when
it gets here, it's gonna suck.
Speaker 3 (29:37):
You're gonna wish you didn't root for it. Yeah. Yeah,
recessions not great.
Speaker 2 (29:42):
So there's that we can pitch that movie to Marvel
and see that they haven't had a great run recently,
but they bounced back with something this year, right Deadpool?
Speaker 4 (29:53):
Deadpool? Yeah, yeah, killing best R rated movie ever.
Speaker 3 (29:59):
Yes, I believe.
Speaker 2 (29:59):
So it was definitely the best opening. I don't know
if it's gotten too best totally yet, but I'll look
that up. During the break which we're gonna take right now,
and then when we come back, let's see. Do you
want to talk about Broadcom, the least known seven hundred
billion dollar company in the world.
Speaker 3 (30:14):
Sure, let's do that. When we return.
Speaker 1 (30:17):
Business and financial news affecting the markets and your wallet.
We've got it all straight from Wall Street right here
on the Financial Exchange Radio Network. The Financial Exchange streams
live on YouTube. Like our page and stay up to
date on breaking business news all morning long. This is
the Financial Exchange Radio Network.
Speaker 5 (30:41):
The Financial Exchange has built an incredible partnership with the
Disabled American Veterans Department of Massachusetts and we can't wait
to take part in this year's DAV five K, set
for Saturday, November ninth at Fort Independence on Castle Island.
Registrations now open. You can help our great American heroes
by walking, running, or simply make a donation. Your gifts
(31:01):
will sport services such as the Veteran Advancement Program, which
offers permanent and affordable housing opportunities for veterans and their dependents.
Learn more at dabfivek dot Boston. The DAV five K
Boston is presented by Veterans Development Corporation Broadcom.
Speaker 2 (31:18):
Most people like pay absolutely no attention to this company
because they like, for some reason, we don't talk about
it as a major tech company. And I don't really
know why, because prior to today its market cap was
north of seven hundred billion dollars that's billion with a B,
so like almost a trillion dollar company, and like for
(31:39):
some reason we don't talk about it as part of
the Magnificent seven or.
Speaker 3 (31:42):
Anything like that.
Speaker 2 (31:43):
Even though the trailing three year return on it is
two hundred and thirty one percent, the trailing one year
return is seventy eight percent. So like the thing's been holland,
it's been, it's been cranking. It's been good today, or
rather yesterday after the bell they reported earnings and earnings
were fine, like they beat on both revenue and profit.
(32:04):
The guidance was a little bit down beat. And so
when you're priced as they are, and again we talk
about this a lot, like expectations and what's priced in,
they matter. When you're trading twenty nine times forward earnings
and fourteen and a half times forward sales, you better
do more than just a week guidance. And snow broad
(32:27):
Calm down almost ten percent today on that news.
Speaker 4 (32:30):
Which is actually similar to what we saw from Nvidia
after their earnings very much. So, Yeah, expectations matter, obviously,
and when you have been absolutely blowing those expectations out
of the water and then suddenly failed to do so
in the same way, it can hit your stock price.
I do look at this and wonder how much of
this is what I will briefly call the Intel effect
(32:50):
of if you aren't selling the latest and greatest AI chips,
then you don't have much of a business right now,
because demand for other types of semiconductors are just falling
off a cliff.
Speaker 3 (33:03):
And Broadcom in a lot of cases.
Speaker 4 (33:05):
Is selling the latest and greatest AI chips, but they're
you know, some of their core businesses. No, it's we're
selling these legacy ones that go into all sorts of
other things, whether it's TVs cars, you know, just kind
of baseline semiconductors, and sales of those aren't going great,
and so uh that that is at least part of
the story here as well.
Speaker 2 (33:26):
So broad Coom again, I don't think there's I don't
think you can extrapolate this to the broader economy. But
much more like as Mike said, Hey, sales growth is
still there. They're still hugely profitable. I mean, this is
not something where you look at this company and you're like, gee,
how are they going to make it? They're free cash
flow over the last twelve twelve months is eighteen billion dollars.
Their net incomes ten billion dollars. They have ten billion
(33:50):
dollars in cash and short term investments on hand. The
company like, this is not a going out of business sale.
This is just Hey, when when you're priced nuttly yours
your earnings have to be nutty too.
Speaker 3 (34:03):
And they just weren't nutty enough, right, not enough nuts.
Speaker 2 (34:07):
It's the problem there. Let's see in Vidia, do we
want to talk about how their chips are cheaper to
rent in China than the United States.
Speaker 3 (34:14):
Yeah.
Speaker 4 (34:14):
So, first off, I think we have to understand what
the hell this means by renting AI chips. For a
moment here, when you talk about cloud computing. If you
work for a company right now that stores, for instance,
their their data on the Microsoft Cloud, that's what they're
describing here is renting the space in that cloud storage
(34:37):
for you know, something very basic. Now, you know, take
a step back. When you are utilizing some form of
artificial intelligence, cloud computing like chat GPT. You know, open
Ai is ultimately renting that cloud space from Nvidia in
some way, shape or form, And that's what we're referring
to here, is it's cheaper to do so in China
(34:57):
in spite of what was supposed to be some pretty
real bust restrictions on how Chinese companies get access to
these semiconductors and are able to market them to their customers.
Speaker 2 (35:07):
So ultimately, again, I think that when we're when we're
trying to figure out where this market is it is going,
there are signs now in my opinion, that like it's
it's starting to get a little bit toppy on this stuff.
And it's not to say that again, these businesses are
not going to fall apart. They're making billions of dollars,
(35:30):
but you're seeing some signs of, hey, we've got excess
supply here and excess demand here, and we're trying to
match them up and there's dislocations.
Speaker 3 (35:39):
Yeah, it's.
Speaker 2 (35:41):
It's not as robust in terms of the growth picture
as it was a year ago. Obviously, because you can't
double your you can't triple your profit and double your
revenue every year forever.
Speaker 4 (35:54):
The case that's being made in this piece here about
you know, the divergence in cost between Like if we
start seeing the cost in you know, in these large
scale cloud computing models come down across the board, then
that's a pretty good indication of a lack of demand
and problems for these companies. What we're talking about here
is not that we're talking about a difference in price
(36:15):
between what it costs in China versus what it costs
in the United States. And I think that's a difference.
I think that's a problem with demand.
Speaker 2 (36:22):
And I know they can't send the same chips and
YadA YadA, but ultimately, if you can, if you're not
getting consistent demand everywhere, even for slightly different chips, doesn't
it show that hey, outside of like this market where
it's there, well great, now that we've saturated that market,
where are we going to sell to next?
Speaker 3 (36:42):
Right?
Speaker 2 (36:45):
And again I'm not saying that they're gonna like run
out of sales. That's not where I'm going. Where I'm
going with this is might.
Speaker 3 (36:52):
Not continue at one hundred and twenty percent year over year.
Speaker 2 (36:54):
And they're priced like they're going to And that's the Again,
it's you can still have a great company that just
has to have its valuation. Come back to Norm normal
whatever the words show.
Speaker 3 (37:07):
Norm McDonald rest in peace. Yeah. Norm was one of
the best, wasn't he.
Speaker 2 (37:14):
Nobody Nobody cared less about being invited back to a show.
Speaker 4 (37:20):
Yeah, and no comedian is willing to just leave an
audience out there for as long as Norm McDonald.
Speaker 3 (37:26):
He loved people being uncomfortable. Yeah, like he did.
Speaker 2 (37:29):
You could see his face just light up when when
when like he said something that he knew he shouldn't
and he's just like I did it.
Speaker 4 (37:36):
Some of the some of his favorite bits that I
know of are just the worst jokes that you can
pot like, just the dumbest jokes that have no good punchline,
but that drag on for a good seven or eight minutes.
Speaker 3 (37:47):
He crushed it at that.
Speaker 5 (37:49):
He and Letterman also had like the biggest bromance going
go back and watch old clips of.
Speaker 3 (37:52):
Those two they did. Oh yeah, such a bromance they
really did. It's uh, I don't know how how did
we get here from normal? Norm?
Speaker 4 (38:01):
Yeah? Yeah, Okay, Well it's a Friday.
Speaker 2 (38:06):
We're going to take a normal break now, and when
we return, we got our two of the financial exchange
coming up for you,
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
registered investment advisor. All opinions expressed are solely those of
the hosts. Do not reflect the opinions of Armstrong Advisory
or anyone else. Investments can lose money. This program does
not offer any specific financial or investment advice. Please consult
your own financial, tax, and estate planning advisors before making
(00:20):
any investment decisions. Armstrong Advisory and the advertisers heard on
this program do not endorse each other or their services.
Armstrong and Money Matters Radio do not compensate each other
for referrals and are not affiliated. This is The Financial
Exchange with Chuck Zada and Mike Armstrong, your exclusive look
at business and financial news affecting your day, your city,
(00:42):
your world. Stay informed and up to date about economic
and market trends plus breaking business news every day. The
Financial Exchange is a ground partner of the Disabled American
Veterans Department of Massachusetts. Help us support our great American
heroes by visiting DAV five k dot Boston and making
a donation today. The DAV five K Boston is presented
(01:04):
by Veterans Development Corporation. This is the Financial Exchange with
Chuck Zada and Mike Armstrong.
Speaker 2 (01:13):
Chuck, Mike and Tucker with you here on a jobs Friday.
At eight thirty am this morning, Eastern time. The Bureau
of Labor Statistics, or the Bulls as they are commonly
referred to.
Speaker 3 (01:26):
No, they're not. They're not.
Speaker 2 (01:27):
They're referred to as the BLS more often. Yes, they
put out the Employment Situation Report, and what it showed
was that non farm payroll employment increased by one hundred
and forty two thousand jobs in August, and the unemployment
rate ticked down slightly to four point two percent from
four point three percent.
Speaker 3 (01:46):
A little bit of context.
Speaker 4 (01:47):
Anybody remember about a month ago when markets sold off
by six percent in two days. Yes, that was the
last time this report came out, So it was an
important one this morning.
Speaker 3 (01:56):
At a lot of eyes on this report.
Speaker 2 (01:57):
Yes, certain death was coming for us, is what I
had heard. Uh, And so what we saw here were
numbers that were again at first blush you say, okay,
expectations were for one hundred and sixty thousand jobs created,
one forty two but then spitting distance pretty close, especially
since the average error on this once they finally go
and revise them. You know, down the road is seventy
(02:19):
eight thousand jobs, so it's well within the marginal varia. Say, okay,
like it's you know who again, like if you had
printed like one fifty nine or one sixty one. Like, honestly,
we don't even know if this is statistically meaningful. Four
point two percent of tick down in the unemployment rate.
Nice to see, but let's talk a little bit about
what's actually going on here, because the headline numbers are
not they're not the telling this matters.
Speaker 3 (02:42):
They don't hear.
Speaker 2 (02:43):
First, the previous two employment reports had significant downward revisions.
June revised down by sixty one thousand from one hundred
and seventy nine thousand to one hundred and eighteen thousand.
July revised down by twenty five thousand from one hundred
and fourteen thousand eighty nine thousand. So both of those
meaningfully worse than we previously thought.
Speaker 4 (03:05):
Again, I'm just going to remind people here and put
this out here. The reason these get revised is because
these are surveys and they get more data. You send
a bunch of surveys out to a bunch of businesses,
a bunch of them, don't send the information back in
time to publish the data. Right, if you were surveyed
by the Bureau of Labor Statistics and you got the
data back to them today, you weren't included in the data.
Speaker 3 (03:26):
But no, you will be when they go and revise
these numbers a month later.
Speaker 2 (03:30):
So that's why you see those downward revisions. Downward revisions
in past months typically a pretty bearish sign. Historically there
has been a strong correlation with a weakening labor market
and downward revisions of previous reports. So that's something that
I think is notable. There other things that we saw
when we talk about what is going on with the
(03:54):
unemployment rate. The biggest thing that is pointed to in
this piece, not this piece, in this report as the
reason for it. Temporary layoffs declined by one hundred and
ninety thousand to eight hundred and seventy two thousand, So
we were a little over a million. We went down
to eight hundred and seventy two thousand. By and large,
(04:16):
I predominantly attribute that to you had a bunch of
temporary layoffs in July because of Hurricane Barrel in the
Gulf and those have since passed. They said that, look,
we weren't sure if they didn't think there was anything
meaningful with hurricane Barrel for the July numbers, but this
is one area where it probably was in that the
temporary layoff numbers came back down here. So I think
(04:37):
that's how I would square that circle and try to
make sense of what is going on there. Other things
that we saw here, average hourly earnings ticked up at
a point four percent monthly rate, a little bit hotter
than expected. But there's basically no other inflationary evidence anywhere
(04:57):
in really me any reports, basically any report that I've
seen for the last couple of months, and so the
fact that you had average hourly earnings come into touch
hot this month, I don't know that it necessarily means anything.
And overall aggregate payroll growth over the last twelve months,
meaning the combination of jobs added and wage gains running
(05:18):
four point nine percent, which is right in the pre
pandemic range that you were twenty seventeen to twenty nineteen.
And so there's nothing out of character there or something
that you need to worry about in terms of a
rebound in inflation.
Speaker 3 (05:30):
As a result of this report.
Speaker 4 (05:32):
Here my general conclusion it seems to be the same
one that markets are having, which is, I'm not entirely
sure how to interpret this report.
Speaker 3 (05:38):
There are parts of it that are I'm one hundred
percent sure you are. There are parts of.
Speaker 4 (05:42):
It that are pretty relieving to me because you didn't
see that unemployment route rate shoot up, but it does
not contradict the other data about a slowly weakening job market.
Speaker 2 (05:52):
This is a bad jobs report that's not as bad
as last month. You agree, this is like a dus
in last month was probably a d Yeah, you know,
that's kind of how you look at this. The redeeming
factors here are that the unemployment rate did not tick
back up, and I guess you could also say, look,
(06:14):
construction jobs ticked up, which you know construction jobs are
a big leading indicator, and so those ticked up, But
you lost manufacturing jobs down twenty four thousand. Manufacturing had
been an area of growth over the last couple of years,
so that's not a great sign on that front there.
You look at what we are seeing in terms of
the labor force participation rate holden steady, So there's nothing bad,
(06:37):
nothing good it's a sixty two seven. The employment to
population ratio, you know, remains high, which is good to see,
but it also puts you in a place where there's
a threat that it worsens from there. And so especially
given the downward revisions to the last two, which are
meaningful data points, as well as the fact that look
(06:58):
a couple weeks ago, remember we got the big annual
revisions to the jobs reports, and what those showed were that, hey,
you had, you know, sixty seventy thousand jobs a month.
Few were created in that twenty twenty three period than
we thought there were. And I know that you can't
necessarily extrapolate that one to one to where we are today,
(07:20):
but they're using the same methodology today that they were
last year, and they had a drastic overestimation of the
number of jobs created.
Speaker 3 (07:29):
Even if you cut that in half and.
Speaker 2 (07:30):
Say, look it's a modest overestimation, the Jew numbers instead
of one hundred and eighteen thousand now look like you know,
eighty thousand, and the July numbers instead of ninety thousand,
look like sixty thousand jobs created. So you're approaching stall
speed on the economy from a job's perspective there, and
I don't think there's much that's reassuring in here other
(07:52):
than here's what I will say, given this data, we
got to punt out the recession at least another month,
because there is not a recession report. I said, you know,
prior to you know, call it. I've been saying for
the last six weeks that hey, by the end of September,
you'll have a pretty good sense of you know, you
should be able to know whether the economy is heading
(08:13):
into recession or not. Don't believe that anymore. I don't
think this report clears the economy because it's one report,
and the other economic data in you know, for labor,
is continuing to deteriorate, and this isn't strong enough to
offset that. It couldn't be as just one data point anyways,
and so I think ultimately it's okay. I don't think
(08:34):
that you're necessarily going to know by the end of
September whether you have an all clear or not. Now
you probably have to start waiting till, you know, end
of October, end of November. But the data is weakening,
and this doesn't really do anything to conclusively say no,
it isn't it's just not weakening as badly as it
was in the previous report in my opinion.
Speaker 4 (08:55):
So early trading here, we've got the NASDA go off
more than one percent, s and P off by a
half down basically flat for the day, and the yield
on the ten year treasury basically flat, which is a.
Speaker 2 (09:04):
Big reversal by the way, from where we opened. Yeah,
SMP opened and moved up half almost half a percent
positive territory on the open and now it's almost a
one percent intra day reversal that we've seen.
Speaker 4 (09:15):
So how about should we take a quick break both
strap on our purple ties and put ourselves in J.
Powell shoes in terms of the next FED meeting and
what comes next.
Speaker 3 (09:24):
Yeah, that sounds fun. Let's take quick break. We'll do
that next. On the Financial Exchange.
Speaker 1 (09:28):
The Financial Exchange is now available on your Alexis smart speaker.
Ask to play the Financial Exchange and catch up on
anything you might have missed. This is the Financial Exchange
Radio network. The Financial Exchange Show podcast drops every day
on Apple, Spotify, and iHeartRadio. Hit that subscribe button then
leave us a five star review. You're listening to the
(09:49):
Financial Exchange Radio network.
Speaker 5 (09:53):
This segment of the financial Exchange is brought to you
in part by the US Virgin Islands Department of Tourism.
The US Virgin i Islands are Saint Croix, Saint Thomas,
and Saint John. Summer is just about over, so now's
the time to start looking at a fabulous holiday vacation.
And there's no better place than the US Virgin Islands.
Enjoy perfect weather, world class dining, incredible beaches, in a
(10:14):
vibrant nightlife. No passport is needed, and there's no money
to exchange. Take your next vacation in America's Caribbean paradise
the United States Virgin Islands. Go to visit USBI dot
com to book your trip. That's visit USBI dot com.
Speaker 3 (10:27):
Mike, So, J Powell and the gang.
Speaker 2 (10:30):
They are about to enter their quiet period prior to
the fed's meeting a week and a half from now.
And so the last speaker that we have scheduled is Waller,
who I believe is going at eleven am. Yeah, he's
speaking at eleven am and probably is going to give
(10:52):
us a pretty good sense of what they're going to do.
Speaker 3 (10:55):
Now. But you're J.
Speaker 2 (10:57):
Powell, You're Christopher Waller at this job's report and the
situation as a whole.
Speaker 3 (11:05):
What's your read?
Speaker 4 (11:06):
Oh, I think it's important to acknowledge all the data
that has come in between now, between this meeting and
the last meeting. The last meet was July thirty first,
meaning they didn't even have the July jobs report at
that point in time when they had their last meeting.
We've heard from feder Reserve officials since then, but they
did not have their rate setting meeting with that data
(11:27):
in hand.
Speaker 3 (11:27):
So what do you have?
Speaker 4 (11:29):
You have a labor market that has clearly weakened since
the last meeting, So first things first, you have all
the ammunition needed for a twenty five basis point rate
decrease at this next meeting. The whole question, there's no
question that you are cutting rates at this next meeting.
You've already forecasted it, and that was just based on
(11:51):
the data you had before this morning's jobs report, which,
like we said, wasn't a disaster but was nothing great.
I personally, if I'm strapping on the purple tie, I
don't see the call for a fifty bases point hike because,
like we said, this report that we got this morning
did not prove out recession.
Speaker 2 (12:10):
Here's the call for fifty BIPs in my opinion, and
I'm I'm not giving my opinion on whether or not
I think it's good. But here here's the case for
fifty BIPs the measures of the labor market that we have.
And again, you don't just look at one like Ja
Powell doesn't just look at the jobs and it's like, wow,
one hundred and forty two thousand jobs, because.
Speaker 3 (12:30):
That's what Jay Powell sounds like.
Speaker 2 (12:31):
Also, uh, you know, he doesn't go, wow, one hundred
and forty two thousand jobs created. I guess we don't
need to call it fifty bases points. We could just
do twenty five. Now, it's totally not.
Speaker 3 (12:42):
What he sounds like. It's fine, Like it's fine, let's
just go with it. Yep.
Speaker 2 (12:48):
Instead, he says, Okay, I have a bunch of different
things that are pointing in kind of scary directions for me. First,
I have a job opening's number that relative to the
number of unemployed people is coming.
Speaker 3 (13:04):
Down really quickly.
Speaker 2 (13:05):
Yeah, and is at the same place it was in
twenty seventeen, twenty eighteen, but it's on a pace where
if it continues to move in this fashion for the
next eight months or so, it's gonna end up back
where it was in twenty fifteen or twenty sixteen, which
was kind of where the economy started to become good
again after the Great Recession, but the economy was still
(13:29):
dodgy around the I mean, you look at twenty sixteen.
Unemployment rate was still four point nine percent at the
start of twenty sixteen, and in twenty fifteen it was
still above five which again historically those are fine numbers,
but you still don't want to be like, Okay, we're
heading to five percent unemployment from three point four. That's
not a great feeling.
Speaker 3 (13:50):
The trend is more important than the single data point.
Speaker 2 (13:53):
Other things that we are seeing when we look out there,
we have temporary help serve says continuing to show declines.
That's a big leading indicator for economic activity because the
first places that companies cut are the temp workers because
they don't want to fire their permanent people, and those
are continuing to decline as well. Also, even within this report,
(14:14):
even though the unemployment rate ticked down, the underemployment rate
the U six, which shows people that are underemployed, Hey,
I want more hours or more of this or more that.
Really it's hours, uh, because it's labor that ticked up
by point one percent from seven point eight to seven
point nine. So the underemployment rate moved in the opposite
direction of the employment rate. You also have, you know,
(14:36):
when you look at some of these the softer data.
The Conference Board on a monthly basis does a survey
and ask people, hey, our jobs easy to find or
hard to find? And the ratio that you have of
easy to find the hard to find right now again
back to twenty seventeen twenty eighteen levels, but weakening quickly.
And you don't want to end up back in twenty
(14:57):
fourteen or something like that, because that was not a
good labor market.
Speaker 3 (15:02):
So the case.
Speaker 2 (15:03):
For Powell going fifty at the next meeting is labor
markets are convex in nature in that when when you
reach a tipping point in them, the acceleration to the
upside on unemployment moves much faster than it did earlier
in the cycle. And so you want to try to
(15:26):
catch the labor market before it gets to that tipping point.
So the case for fifty, if I'm J. Powell, is hey,
right now, I got a bunch of things that are
kind of yelling at me and saying, hey, these are
you know, brightly flashing yellow lights to in some cases
red lights, saying the labor market is entering a danger zone.
Speaker 3 (15:48):
Yeah, the sound rules of red light.
Speaker 2 (15:49):
And I want to get there first before the labor
market gets to that danger zone.
Speaker 4 (15:55):
So I've got to move fifty. Pretty tough, Pretty tough
to do without alarming people. The kiss challenge, Well, I know,
you say, like, they don't have to worry about that,
but they do, because, in my opinion, at least half
of the fed's influence has nothing to do with where
rates lands.
Speaker 3 (16:10):
True, It's easily.
Speaker 4 (16:13):
Half has to do with how they guide what they
tell the general public and the confidence with which they
speak about the economy.
Speaker 3 (16:19):
It is true. So that's the case for fifty.
Speaker 2 (16:22):
The case for twenty five is, hey, the labor market
is slowly getting worse. We still haven't seen any job
loss on a net basis. The unemployment rate is ticked
up purely because population growth is outstripped job growth, and
that's not normally what you see immediately before things get
really bad, Like you look at previous cutting cycles and
(16:45):
you've had job loss before they started. Yep, we haven't
even seen net job loss yet and we're talking about
cutting fifty g That seems pretty aggressive.
Speaker 4 (16:56):
Final point there would be, you know, in spite of
all the data about a weakening labor market, not much
on the unemployment claims.
Speaker 3 (17:03):
So we've talked about why that might be.
Speaker 4 (17:04):
But that's the only one data point that I can
look at on the labor market and say this might
not be as bad as we are seeing elsewhere.
Speaker 3 (17:13):
Yeah, so where do they end up going? Now? Like
this is the question, and it's a dumb question.
Speaker 4 (17:20):
Doesn't really matter. It doesn't matter whether they go twenty
five or fifty at this meeting, although the messaging matters.
The messaging does. But here's the other great thing about
this meeting. By the way, this is one of the
four meetings a year that we get from the FED
where they give us their summary of economic projections, where
they have to tell us what they think unemployment's gonna be,
GDP inflation. I gotta say, this is a spaghetti meeting.
Speaker 2 (17:44):
You just put that in the pot, get it nice
and warm, and throw it at the wall because you
have no idea it's gonna be all freaking over.
Speaker 4 (17:54):
There is anyone else wondering what Chuck was meeting by
a spaghetti meeting.
Speaker 3 (17:57):
It's a spaghetti meeting.
Speaker 2 (17:59):
Like again, it's they have no idea where this economy
is going to go, because no one does.
Speaker 1 (18:05):
Well.
Speaker 2 (18:05):
I think there's we're telling you conclusively that we've escaped
recession or we're definitely going in. I think it's being disingenuous, right,
I think there's one ray that they know this economy
is not going it's not reflating again, right, not yet.
That's the one thing that can say with confidence.
Speaker 4 (18:20):
And so again to play devil's advocate of my own
argument here, if you are quite confident about that, then
why not go fifty and explain that's your reasoning. Go
fifty and explain, Hey, we're not doing this because we
think we are imminently in recession. We are not doing
this because we think we are, you know, trying to
catch a falling knife here. The labor market is not imploding,
(18:42):
but we are so confident that inflation is behind us
that we're willing to cut by fifty basis points.
Speaker 1 (18:46):
Here.
Speaker 2 (18:47):
The other thing, so the market right now, Chicago Marke
no exchange. Their fed watch tool is pricing in a
forty three percent chance of a fifty basis point cut
fifty chance of a twenty five basis has been all
over the place this morning, but it has.
Speaker 3 (19:04):
It's it's been.
Speaker 2 (19:05):
It's a coin flip, because again, no one knows anything.
Everyone's Tony soprano right now. Nobody knows anything. Where's Paulie.
Nobody knows anything, Pollie talking to the Feds. Nobody knows anything.
Speaker 3 (19:20):
Right now.
Speaker 2 (19:21):
The one thing that I would point to in this cycle,
fed's almost always taking the Dubvish way out, or wanted
to at least quick break here Wall Street watches Next.
Speaker 1 (19:40):
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 and what's moving markets so far
today right here on the Financial Exchange Radio Network.
Speaker 5 (20:00):
A little bit of a bumpy ride on Wall Street
as investors sift through the August Jaws report posted this morning,
which revealed one hundred and forty two thousand jobs were
added last month, just below forecasts of about one hundred
and sixty five thousand, while the unemployment rate ticked lower
to four point two percent. The Labor Department also revised
down its estimates for June and July job growth by
(20:21):
combined eighty six thousand jobs. Right now, the Dow is
off by over a third of a percent, or one
hundred and fifty four points, SMP five hundred down by
one percent, and the Nasdaq down by over one and
a half percent as well. Russell two thousand is off
by half a percent. Ten year treasure yield is down
by three basis points a three point six y nine percent,
(20:43):
and crude oil up about half a percent, Trading at
sixty nine dollars in forty five cents a barrel. Broadcom
shares down by nine percent despite the chip maker beating
quarterly estimates on the top and bottom lines. However, the
company's revenue guidance fell short of street expect Sticking with
the chip sector, where super micro Computer was downgraded by
(21:04):
JP Morgan to neutral from overweight, with a bank noted
there is no rationale to buy shares while uncertainty exists
around the company regaining compliance. Shares in super micro Computer
today down by five percent and shares in smart Sheet
are up by eight percent. After the work management software
company beat second quarter earnings and revenue expectations. Yesterday, Reuters
(21:27):
reported that Vista and Blackstone were in talks to buy Smartsheet.
I'm Tucker Silvan. That's Wall Street Watch, Mike.
Speaker 2 (21:35):
There's a piece of New York Times today. It's titled
the Downside of Falling Interest Rates, and a couple different
things on this that you can think of. Look, if
you are someone who is you know, trying to borrow,
that's obviously a situation where falling interest rates potentially can
be good for you. Sure if you are a saver
who for the last two two and a half years
(21:55):
has said, man, it's great that I've finally been able
to get you know, five five percent on a CD
or hey, I've been able to you know, get five
percent on a money market.
Speaker 3 (22:06):
You're ready.
Speaker 2 (22:07):
It's it's looking like that's not going to be the case.
I'll already tell you when you look out at you know,
the bond marketer, CD market beyond a year, it's not
the case. Already You're seeing rates back into the threeson
a lot of those cases.
Speaker 4 (22:18):
Now, yeah, pieces like this are sometimes I know why
the Times is doing this and pointing this out, but
whether rates are high or low. Somebody's writing a complaint
article about how it doesn't work for them, and yes,
the reality is that there is no perfect interest rate
because if you are a saver, low rates are bad
(22:38):
for you. If you are a borrower, then uh, low
rates are great for you. And anybody that had we
financed a mortgage over the last few years is well
aware of that story.
Speaker 3 (22:48):
But here's where it does matter.
Speaker 4 (22:50):
We've spent the last two years on this program, Chuck
talking about how people you know have a ton of
money sitting in bank accounts, oftentimes in and checking accounts
without a high interest rate, and for the last two
three years, there's been, like you mentioned, great opportunities to
go and improve their return on that money. Right now,
(23:11):
I'm on bank Rates, I'm on bank Rate's website, and
I'm seeing two different banks at the moment that are
offering five point three percent apy on high yield savings accounts.
Speaker 3 (23:21):
Yep.
Speaker 4 (23:22):
Week and a half from now. My guess is that's
going to not exist anymore. The problem with this type
of thing is that right now the best rate you
can get is on something like this, and the most
likely to change is something like this. That is the
really challenging part that I think people struggle to understand
at the moment, which is, yeah, I'm not getting paid
(23:42):
quite as much on a nine month CD or an
eighteen month CD or a three year treasury bond, but
at least I know what I'm getting over the next
eighteen months. When I go and do that, I know
there are a lot of folks listening that probably have
still a lot of money in cash of one sort
or another. And it has been good to you if
you've made those moves over the last few years. I
(24:03):
hope that you are also going in eyes wide open
about the fact that that situation's about to change. It
already has in a lot of cases. You know, how
long ago was it that you could get a ten
year treasury bond well over four percent.
Speaker 2 (24:16):
It was like, Mike, you get a tenure treasury bond
at five last October.
Speaker 4 (24:21):
Now that's looking pretty good because now it's now below
four and when.
Speaker 2 (24:25):
Everyone last October is going on the federal debt's too high,
no one's going to buy all the Hey, when the
economy gets dodgy, people buy it, yep.
Speaker 4 (24:33):
And so this is the trade off you have. But
my point here would be if you're sitting on a
bunch of cash you're not sure what to do about it.
You recognize that the Federal Reserve is about to embark
on what looks like a rate cutting cycle. That's what
it looks like to me. Could be wrong, but that's
what it certainly looks like. There will be advantages to
be had. Car Loan rates mortgages are have already come
(24:53):
down a bit, and they could come down further in
the event of a recession and economic downturn. But so
will those rates on those cash investments over time. And
so if you're trying to figure out what is the
right plan for my cash, how do I address this
problem that I'm likely to face over the next few years,
Please give the folks at Armstrong Advisory Group a call
(25:14):
help you evaluate what the options are, what it looks like,
and how to best stabilize principle at a time when
you know there's a lot of concern about things like
recession and falling rates. The phone number for the Armstrong
Advisory Group is eight hundred three nine three four zero
zero one. We have offices throughout New England and clients
throughout the country that we work with to develop their
(25:34):
financial plans and investment strategies for the long term. Give
us a call once again. That phone number for the
Armstrong Advisory Group eight hundred three nine three four zero
zero one.
Speaker 1 (25:45):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal or tax advice. Consult
your own financial tax into state planning advisors before making
any investment decisions. Armstrong make contact you to offer investment
Advisoryerviss Mike.
Speaker 2 (26:01):
There's a piece in the Wall Street Journal today. It's
titled what Lies behind the Market's jitters? The answer is
people and the subheadline, though, kind of gives me a
little bit that feeling, and it says stocks and bonds
are far more sensitive to economic indicators than they have
(26:23):
been in the past because investors are aware of just
how much rests on a soft landing. And I kind
of poo pooh that quite honestly, because you can look
back at history as a lesson.
Speaker 3 (26:39):
In this respect.
Speaker 2 (26:40):
In that look, we've had other times where the economic
data is turned and markets have as well, and you
see bouts of volatility on a regular basis. So I'm
not really buying that this market is more volatile than
it's been in the past. In fact, the previous eight
months were remarked we calm. It was one of the
(27:01):
calmest eight month periods that we had seen in the
S and P five hundred.
Speaker 3 (27:04):
Yeah.
Speaker 4 (27:05):
I mean, if you want to make the argument that
right now stocks are more sensitive to these jitters because
people are finally opening their eyes about the risk of recession. Sure,
and we haven't really had much of that for the
last fifteen years. So that's all true, right, you know,
we haven't had much in the way of risk of recession.
(27:27):
There was risk of recession, but it popped out of
nowhere in early March, and we were through it by
you know, mid April, so you're talking last of twenty
twenty rather so like there wasn't time for people to
be jittery about the economic.
Speaker 2 (27:41):
Even recently, Like twenty twenty two was a horrible year
in markets, and like people were concerned about recession. Then
in the stock market fell more than twenty percent on
the S and P five hundred twenty twenty three, y'all.
Speaker 3 (27:54):
Remember Silicon Valley Bank. I do, I do.
Speaker 2 (27:57):
People got pretty nervous about that. And then don't you
remember last August, Last August and September, we're a puke
fest as well. The S and P fell almost ten percent,
I think actually a little bit more than ten percent,
And it wasn't because the economy actually went into recession.
It was people were nervous about the possibility of it.
Speaker 4 (28:17):
So we've now accumulated more recession indicators than we had
at anytime in the next last two years. So we've
accumulated more of these things that indicate that we could
be heading for a recession. Investors should be aware of
that and be paying attention to these signals if they
are again worried about and paying attention to their portfolio.
So this isn't surprising, But I don't know that you
(28:38):
can make much of an argument that we're paying closer
attention to it. We're paying closer attention to some signals.
I'm more paying attention to the jobs report right now
than I was in twenty twenty two.
Speaker 2 (28:50):
I do have to say, when you say that we've
accumulated more recession signals, I.
Speaker 3 (28:54):
Just have a picture of me like scooping them up,
and now.
Speaker 2 (28:56):
I'm picturing thanoscribbing Infinity Stones and just snapping his fingers
and half the market cap of stocking disease. Like that's
you know that that would be the Marvel movie for
like Recession man, Recession man. You know, it would be
like someone, I'm accumulating all of the recession indicators and
(29:17):
I'm gonna snap my fingers and destroy this wealth. It
doesn't sound so bad when you say that, but then
you realized it's horrible actually, kind of like Dan's destroying
half the people.
Speaker 3 (29:27):
Yeah.
Speaker 4 (29:27):
Yeah, but there are lots of people that have been
the fanos of this economy of the last few years.
Speaker 2 (29:32):
Shooting for recession and and like, guys, trust me, when
it gets here, it's gonna suck.
Speaker 3 (29:37):
You're gonna wish you didn't root for it. Yeah. Yeah,
recessions not great.
Speaker 2 (29:42):
So there's that we can pitch that movie to Marvel
and see that they haven't had a great run recently,
but they bounced back with something this year, right Deadpool?
Speaker 4 (29:53):
Deadpool? Yeah, yeah, killing best R rated movie ever.
Speaker 3 (29:59):
Yes, I believe.
Speaker 2 (29:59):
So it was definitely the best opening. I don't know
if it's gotten too best totally yet, but I'll look
that up. During the break which we're gonna take right now,
and then when we come back, let's see. Do you
want to talk about Broadcom, the least known seven hundred
billion dollar company in the world.
Speaker 3 (30:14):
Sure, let's do that. When we return.
Speaker 1 (30:17):
Business and financial news affecting the markets and your wallet.
We've got it all straight from Wall Street right here
on the Financial Exchange Radio Network. The Financial Exchange streams
live on YouTube. Like our page and stay up to
date on breaking business news all morning long. This is
the Financial Exchange Radio Network.
Speaker 5 (30:41):
The Financial Exchange has built an incredible partnership with the
Disabled American Veterans Department of Massachusetts and we can't wait
to take part in this year's DAV five K, set
for Saturday, November ninth at Fort Independence on Castle Island.
Registrations now open. You can help our great American heroes
by walking, running, or simply make a donation. Your gifts
(31:01):
will sport services such as the Veteran Advancement Program, which
offers permanent and affordable housing opportunities for veterans and their dependents.
Learn more at dabfivek dot Boston. The DAV five K
Boston is presented by Veterans Development Corporation Broadcom.
Speaker 2 (31:18):
Most people like pay absolutely no attention to this company
because they like, for some reason, we don't talk about
it as a major tech company. And I don't really
know why, because prior to today its market cap was
north of seven hundred billion dollars that's billion with a B,
so like almost a trillion dollar company, and like for
(31:39):
some reason we don't talk about it as part of
the Magnificent seven or.
Speaker 3 (31:42):
Anything like that.
Speaker 2 (31:43):
Even though the trailing three year return on it is
two hundred and thirty one percent, the trailing one year
return is seventy eight percent. So like the thing's been holland,
it's been, it's been cranking. It's been good today, or
rather yesterday after the bell they reported earnings and earnings
were fine, like they beat on both revenue and profit.
(32:04):
The guidance was a little bit down beat. And so
when you're priced as they are, and again we talk
about this a lot, like expectations and what's priced in,
they matter. When you're trading twenty nine times forward earnings
and fourteen and a half times forward sales, you better
do more than just a week guidance. And snow broad
(32:27):
Calm down almost ten percent today on that news.
Speaker 4 (32:30):
Which is actually similar to what we saw from Nvidia
after their earnings very much. So, Yeah, expectations matter, obviously,
and when you have been absolutely blowing those expectations out
of the water and then suddenly failed to do so
in the same way, it can hit your stock price.
I do look at this and wonder how much of
this is what I will briefly call the Intel effect
(32:50):
of if you aren't selling the latest and greatest AI chips,
then you don't have much of a business right now,
because demand for other types of semiconductors are just falling
off a cliff.
Speaker 3 (33:03):
And Broadcom in a lot of cases.
Speaker 4 (33:05):
Is selling the latest and greatest AI chips, but they're
you know, some of their core businesses. No, it's we're
selling these legacy ones that go into all sorts of
other things, whether it's TVs cars, you know, just kind
of baseline semiconductors, and sales of those aren't going great,
and so uh that that is at least part of
the story here as well.
Speaker 2 (33:26):
So broad Coom again, I don't think there's I don't
think you can extrapolate this to the broader economy. But
much more like as Mike said, Hey, sales growth is
still there. They're still hugely profitable. I mean, this is
not something where you look at this company and you're like, gee,
how are they going to make it? They're free cash
flow over the last twelve twelve months is eighteen billion dollars.
Their net incomes ten billion dollars. They have ten billion
(33:50):
dollars in cash and short term investments on hand. The
company like, this is not a going out of business sale.
This is just Hey, when when you're priced nuttly yours
your earnings have to be nutty too.
Speaker 3 (34:03):
And they just weren't nutty enough, right, not enough nuts.
Speaker 2 (34:07):
It's the problem there. Let's see in Vidia, do we
want to talk about how their chips are cheaper to
rent in China than the United States.
Speaker 3 (34:14):
Yeah.
Speaker 4 (34:14):
So, first off, I think we have to understand what
the hell this means by renting AI chips. For a
moment here, when you talk about cloud computing. If you
work for a company right now that stores, for instance,
their their data on the Microsoft Cloud, that's what they're
describing here is renting the space in that cloud storage
(34:37):
for you know, something very basic. Now, you know, take
a step back. When you are utilizing some form of
artificial intelligence, cloud computing like chat GPT. You know, open
Ai is ultimately renting that cloud space from Nvidia in
some way, shape or form, And that's what we're referring
to here, is it's cheaper to do so in China
(34:57):
in spite of what was supposed to be some pretty
real bust restrictions on how Chinese companies get access to
these semiconductors and are able to market them to their customers.
Speaker 2 (35:07):
So ultimately, again, I think that when we're when we're
trying to figure out where this market is it is going,
there are signs now in my opinion, that like it's
it's starting to get a little bit toppy on this stuff.
And it's not to say that again, these businesses are
not going to fall apart. They're making billions of dollars,
(35:30):
but you're seeing some signs of, hey, we've got excess
supply here and excess demand here, and we're trying to
match them up and there's dislocations.
Speaker 3 (35:39):
Yeah, it's.
Speaker 2 (35:41):
It's not as robust in terms of the growth picture
as it was a year ago. Obviously, because you can't
double your you can't triple your profit and double your
revenue every year forever.
Speaker 4 (35:54):
The case that's being made in this piece here about
you know, the divergence in cost between Like if we
start seeing the cost in you know, in these large
scale cloud computing models come down across the board, then
that's a pretty good indication of a lack of demand
and problems for these companies. What we're talking about here
is not that we're talking about a difference in price
(36:15):
between what it costs in China versus what it costs
in the United States. And I think that's a difference.
I think that's a problem with demand.
Speaker 2 (36:22):
And I know they can't send the same chips and
YadA YadA, but ultimately, if you can, if you're not
getting consistent demand everywhere, even for slightly different chips, doesn't
it show that hey, outside of like this market where
it's there, well great, now that we've saturated that market,
where are we going to sell to next?
Speaker 3 (36:42):
Right?
Speaker 2 (36:45):
And again I'm not saying that they're gonna like run
out of sales. That's not where I'm going. Where I'm
going with this is might.
Speaker 3 (36:52):
Not continue at one hundred and twenty percent year over year.
Speaker 2 (36:54):
And they're priced like they're going to And that's the Again,
it's you can still have a great company that just
has to have its valuation. Come back to Norm normal
whatever the words show.
Speaker 3 (37:07):
Norm McDonald rest in peace. Yeah. Norm was one of
the best, wasn't he.
Speaker 2 (37:14):
Nobody Nobody cared less about being invited back to a show.
Speaker 4 (37:20):
Yeah, and no comedian is willing to just leave an
audience out there for as long as Norm McDonald.
Speaker 3 (37:26):
He loved people being uncomfortable. Yeah, like he did.
Speaker 2 (37:29):
You could see his face just light up when when
when like he said something that he knew he shouldn't
and he's just like I did it.
Speaker 4 (37:36):
Some of the some of his favorite bits that I
know of are just the worst jokes that you can
pot like, just the dumbest jokes that have no good punchline,
but that drag on for a good seven or eight minutes.
Speaker 3 (37:47):
He crushed it at that.
Speaker 5 (37:49):
He and Letterman also had like the biggest bromance going
go back and watch old clips of.
Speaker 3 (37:52):
Those two they did. Oh yeah, such a bromance they
really did. It's uh, I don't know how how did
we get here from normal? Norm?
Speaker 4 (38:01):
Yeah? Yeah, Okay, Well it's a Friday.
Speaker 2 (38:06):
We're going to take a normal break now, and when
we return, we got our two of the financial exchange
coming up for you,
Popular Podcasts
NFL Daily with Gregg Rosenthal
Gregg Rosenthal and a rotating crew of elite NFL Media co-hosts, including Patrick Claybon, Colleen Wolfe, Steve Wyche, Nick Shook and Jourdan Rodrigue of The Athletic get you caught up daily on all the NFL news and analysis you need to be smarter and funnier than your friends.
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com