October 29, 2024 • 38 mins
Mike Armstrong and Marc Fandetti discuss the JOLTS report that showed job openings dropping to the lowest level in over three years. What are unemployment rates in swing states? Wages have outpaced inflation. But not for everyone. Bond market responds oddly to the Fed's move. Deficit threat drives bond yields higher. Ford's 3rd-quarter profit falls as EV losses persist.
Mark as Played
Transcript
Episode Transcript
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(01:06):
Face is the Financial Exchange with Mike Armstrong and Mark Fandetti.
Speaker 2 (01:13):
Good morning, Welcome back to the Financial Exchange on Tuesday
of a just a kind of crazy week, both in
terms of earnings as well as economic data. Not to mention,
not sure if anybody heard, there's a somewhat big election
seven days from now, So it is a jam packed
week here and if you need some respite from the
(01:35):
constant political chatter, we will have it because, like I said,
there is so much going on in markets and the
economy this week that we don't we don't need to
spend our time conjecturing and debating what's going to be
the next economic policy there, because there's plenty of time
over here in terms of what's coming out. So this morning,
(01:55):
let's see, we received information on retail inventories, wholesale inventories,
Case Shiller Home price Index, consumer confidence. I haven't even
looked at some of these yet. The job openings report,
which we discussed, came out exactly seven minutes ago. Anticipated
to see eight million job openings. We came in a
fair bit lower than that, but not a big change
(02:17):
from where we were in previous months. We will have
earnings this week from some of the largest companies in
the world, including Google parent company Alphabet after the bell tonight,
but tomorrow after the bell we have both Microsoft and
Facebook parent company Meta again not in the tech range,
but Eli Lilly, the maker of one of the most
(02:38):
successful weight loss and diabetes drug treatments in the world,
reports tomorrow morning before the bell. That's now an eight
hundred and fifty billion dollar company. Thursday of this week,
after the bell, both Apple and Amazon reporting. So crazy week,
both in terms of earnings as well as economic data.
Friday of this week, we'll have the monthly jobs report.
Let's dive in first to this job openings report came
(03:01):
out Like I mentioned seven minutes ago, it's where we
derive one of those kind of fascinating numbers during the
pandemic that showed the state of the labor market, when
we were talking about the real labor shortages that were
taking place back in twenty twenty one twenty twenty two,
when you saw McDonald's offering signing bonuses and all sorts
(03:22):
of fun stuff going on there, that's where we derive
this ratio. And in March of twenty twenty two, the
ratio of job openings to unemployed people looking for work
was sitting at two, which I don't know how long
this data series goes back. Let me see only to
two thousand and two, so not a terribly long data series,
(03:43):
but that's well above anything we had seen during the
twenty year time period for the data series. Today, with
the most recent job openings, which again for the headline number,
the number of job openings didn't really change much. It's
sat at seven point four million jobs on the last
business day of September, and that brings that ratio down
considerably down to one point one thereabouts. So we're sitting
(04:08):
there at one point one in terms of almost a
perfect match of unemployed people to jobs open You might say, wow,
that's a huge drop from two, but what I would
point out is that in no point during the twenty
ten decade until mid twenty eighteen did we even get
(04:29):
over one. So this is a this is a more
recent effect in terms of the tightness of this labor market,
but it's just one of those additional indicators that over
the last several months has brought us to a point
where we're saying, hey, concerns about the labor market. Are
we returning to a pre COVID level of employment stability
(04:50):
or are we headed for a recession? Your takeaways from
the report itself. Like I said, the headline.
Speaker 3 (04:57):
Umbers, chill out, don't worry about it. This is like
to pull a single economic statistic out like this. It
would be like looking at the Celtics box score last
night and saying, oh, twenty five team rebounds. I don't
know if that's right. That sounds a little low. I'm
just off the top of my head. Sure, eight assists.
These things tell you nothing.
Speaker 2 (05:15):
Out and of themselves they really did.
Speaker 3 (05:17):
Now I'm oversimplifying a little bit, but this statistic that
you're talking about is useful if you're building an economic
model and you need something, as you suggested, Mike, that
gets at the amount of slack or tightness in the
labor market. There are lots of different ways to measure it,
and maybe you want to use more than one measure.
So pulling a number like this out and drawing conclusions
(05:42):
from it is problematic. It's not meant to be used
that way. So I'm what I'm saying is hopefully liberating.
Don't sweat every statistic we report them here because this
is a topical Joe, you're on the air every day
for two hours, you got to talk about it. The
way an economist would think about this is look at
the trend and ask does this number help us to
(06:02):
predict price pressure? Does this particular statistic help me to
forecast inflation better? As a researcher, If that's what I.
Speaker 2 (06:09):
Do, so take this statistic in un I'll give.
Speaker 3 (06:12):
You an answer to that. Well, go ahead, good, Sorry, Mike.
Speaker 2 (06:15):
No, what's the answer to what question is?
Speaker 3 (06:18):
Does this help me forecast inflation better than, say, just
using past values of inflation itself, or using more traditional
measures like the gap between actual and potential gross domestic
product GDP or the rate of unemployment, a very traditional measure.
And the answer is doesn't seem to. For a while,
it wined up better with increasing price pressure rising inflation
(06:39):
in the early twenty twenties, but those relationships aren't stable.
So I guess what I'm saying is I'm not even
sure this matters in terms of what we all care about,
which is fork I think, which is modeling and forecasting inflation.
Speaker 2 (06:54):
It's interesting that I would argue that ninety percent of
the people listening right now, don't care about this in
terms of model and forecasting inflation. Well, I think ninety
percent of people listening are because they're interested in what's
the state of labor market, what's the trend of it?
Will I be able to get a raise this year?
Will I be able to use it for those purposes.
Speaker 3 (07:09):
I've never done any work in that area, so I
can't tell you if labor market economists if this is
their go to or if this is just one of many.
All I can tell you is that one statistic not
put into the context of a larger framework, so to speak,
could be misleading. So I'm what I'm saying is not
that we shouldn't report it or opine on it or
(07:32):
make inferences, but rather, if it if it moves in
an extreme fashion in one direction or other, don't sweat
it too much. It may not even be a good
indicator of the thing you're trying to forecast, even if
it has been historically.
Speaker 2 (07:45):
So in terms of these numbers, number of job openings,
like I mentioned, not changed much seven point four million
in the last business day of the month, but that
is down by about two million jobs over the course
of the year. You saw some big swings in terms
of job openings in healthcare and social assistans, since those
job openings were down one hundred and seventy eight thousand.
State and local government excluding education was down seventy nine thousand,
(08:06):
federal government down twenty eight thousand. You did see it
uptick in job openings for finance and insurance by a
tune of eighty five k. So I don't know what
that's related to, but nonetheless you saw those different areas
moving in one way or another. Overall, I think to
take this report for me is I don't think it
changes much at all about my narrative of the internal
(08:30):
narrative I have about the state of the labor market,
which is, we were heading for this path of slow
down over the last three three to six months. We
saw an uptick on the unemployment rate, an uptick in
the number of people not working. We saw a slow
down in the number of hires and jobs created. And
nothing about this report does anything to further that narrative.
(08:54):
I don't think that this would indicate that a further
slowing in the state of the labor market. I also
don't think it indicates any thing in terms of a
vast rebound in the state of the labor market. And
so that's where you know, when I placed this data
point in the line with weekly jobless claims, with the
unemployment jobs report that we will get on Friday of
this week, with all the other labor market readings that
we have, I think that this falls right in line
(09:16):
with where we already were with an main narrative.
Speaker 3 (09:19):
It seems yeah, I guess if you were going to
tell it in simple story fashion, the labor market was
unsustainably tight and hot a year and a half ago.
Now it's just pretty hot. I'm just going by four
point one percent on employment or three percent here in Massachusetts.
Elsewhere in New England it's it's it's it's bouncing around
(09:41):
historic lows as well, not everywhere in the country but
most in most places, it is.
Speaker 2 (09:45):
Yeah, there is a let me see that came out
about a week ago, the jobless rates in all the
different states, and that is an interesting one to look at,
especially when we think about swing states for the upcoming
election and just general state of things. But yes, to
your point here we're in why is it not giving
me Massachusetts think.
Speaker 3 (10:05):
Right around three which is very low historically.
Speaker 2 (10:08):
Not going to give it. There we go. Unemployment rate
in September of twenty twenty four. Actually in Massachusetts, I
have three point eight percent in September of twenty twenty four,
which is a decent uptick from three point three percent
a year ago. But in terms of where we're seeing
relatively higher unemployment, California sitting at five point three percent,
(10:30):
DC five point seven, Illinois five to three. Trying to
find some other states with over five.
Speaker 3 (10:36):
Now I am, I am a little anxious. Now we're
up from so I was very cavalou that it was
still let around three. Yeah, we were a few months ago.
So your unemployment in mass is trending.
Speaker 2 (10:45):
Up, is trending up kinda sharply, you know. Taking a
look at some of these swing states here, Michigan sitting
at four and a half percent, up a little bit
over the last twelve months, Arizona actually coming down three
point five percent, Nevada if I can find them, five
to two to five six percent over the last course
(11:08):
of the year. So actually Rhode Island here, I'm looking
at a one point four percent uptake an unemployment over
the last twelve months.
Speaker 3 (11:14):
But again we're coming off and unsustainably low.
Speaker 2 (11:17):
We are.
Speaker 3 (11:18):
I'm not going to minimize the rise in unemployment because
unemployment is persistent. His research people like to say, once
it gets going, once it starts going up, it tends
to continue to go up, and vice versa two.
Speaker 2 (11:27):
Except this time, except the last six months, right, I mean, like,
we saw the unemployment rate climb by nearly a percentage
point nationally over the last course line class, of the
course of the eighteen months, we saw the unemployment rate
increase by nine tens percent, and then the last two
months declined by two tens percent. And that's again, you know, possible,
(11:50):
but you go take a look at previous increases unemployment
and that's not on average what we've experienced. So let's
take a quick break. We do have take a quick break,
and when we come back, we can touch a little
bit more on just the state of labor market and
what we may or may not see with the other
two pretty big data points on labor market this week,
the weekly the Jobless Claims as well as the National
Unemployment Situation Summary. That's next here on the Financial Exchange.
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Speaker 2 (13:18):
Do either of you remember about, let's say, sixteen minutes ago,
when I said that we wouldn't have to talk about
politics on the show today. Because there's so much going on,
I do recall that well, I just can't help myself.
So I was taking a look at, as I mentioned,
unemployment rate by state, which we got about a week ago.
It comes out a little bit later the daily series
than it does the traditional unemployment report, which we get
(13:40):
right on the like the first Friday of every month.
And so I was curious, just you know, taking a
look at the six swing states Arizona, Nevada, Michigan, Pennsylvania,
North Carolina, and Georgia, who will very likely decide the
outcome of the presidential election. What's been going on with
unemployment in the states over the last year. That's you know,
that's of interest to me. Let's start out with Arizona,
(14:02):
which has had the most significant downturn in unemployment. September
of twenty twenty three, unemployment rate in Arizona sitting at
four point two percent, now sitting at three and a
half percent. So in spite of the entire nation going
the other direction. So national unemployment September of twenty twenty three,
I don't know it off the top of my head,
but it was high threes and by September of twenty four,
(14:23):
we were down to low fours. Arizona has seen a
trend in the other direction, but Nevada was sitting at
five to two up to five point six percent. Nevada
has pretty reliably seen an uptick in unemployment and had
traditionally a higher unemployment rate than most of the country
with the highly cyclical casino business and just general travel.
Speaker 3 (14:48):
Economy goes haywire every three to five years, Yes it does.
Speaker 2 (14:52):
Michigan unemployment up from four to one a year ago
to four and a half percent, so four tens percent uptick.
Pennsylvania basically flat three three to three point four percent,
no real change, and unemployment rate over the last twelve months.
North Carolina slight uptick three six to three eight. That's
more in line with the national averages than Georgia three
two to three point six percent. So I don't think
(15:13):
this tells you anything about which way those directions the
states are going to go. Some are obviously a little
bit closer than others, but I don't know. Just another interesting.
Speaker 3 (15:21):
Year ago they were at record lows and everybody hated
the economy, right, the same people citing this dismissing those
statistics a year ago, the same people who said they
were fake, that it doesn't reflect my lived experience. They
cannot cite the same statistics twelve months later as proof
that the economy is deteriorating or can they? Are you
(15:41):
saying these people are hypocrits? Might don't say.
Speaker 2 (15:43):
That, let's not say can maybe shouldn't, but definitely are
are you saying these.
Speaker 3 (15:48):
People are ignoramuses and hypocrites? Mike, I refuse to subscribe.
Speaker 2 (15:52):
I don't think it has to be both, but I
think it could be one of the other.
Speaker 3 (15:57):
But you do have to pick. You do have to
pick a statistic and stick with it. If you dismiss
the relatively solid economic growth, the very low unemployment, and
all the other traditional metrics which are pointing to historically
very respectably strong economy, you cannot cite those from when
the last guy was president and say we had the
(16:18):
best economy ever, which we did in anyway. But nevertheless,
suppose they were.
Speaker 2 (16:23):
Just record because I guarantee you that's that's what that
first consumer confidence survey that we get. Depending on the
outcome of this election, I know they're going to be
flips to Donald Trump.
Speaker 3 (16:33):
Trump Trump did this last time, first unemployment report that
came out, he'd been president for sixteen days. He was
touting it as somehow the result of his the first
monthly unemployment.
Speaker 2 (16:43):
I would even go the other way.
Speaker 3 (16:44):
The other side does it too.
Speaker 2 (16:44):
I'm sure consumer confidence. You will have a massive flip
in terms of how people feel about the state of
the economy based on their political aspect. I keep coming back.
Speaker 3 (16:55):
To the Fed's failure to nip inflation in the bud
early on in this cycle, even at the expense of
some economic growth. The FED did make a choice. They
didn't want to push up unemployment or retard the recovery
early on when we were coming out of COVID, so
they said, we're gonna let this big wave of inflation
pass over us. We think it's fleeting and to an
extent that theory about inflation has been born out. To
(17:18):
an extent, it's still not where we'd like it to be.
So the FED made a choice, as it turns out,
much like the nineteen seventies people, which actually, yeah, which seventies.
I showed this in a chart internally this morning, and
I had to do the CALC twice just to make
sure I was doing it right. We actually had higher
economic growth slightly or about the same in real terms
in the seventies is in the eighties, I'll tell you
right now. Nobody remembers it that way. No, everybody remembers
(17:39):
the seventies as being disastrous. I'm using real GDPR as
the measure. My point is that inflation is so reviled,
and the effects are on the way you perceive everything
are so pervasive that I'm convinced now and the Fed
should be too, particularly if Trump wins and then kicks
their butts eye, which would be a poetic come up.
And for some of these egg heads, it would be
(18:02):
interesting to watch people hate inflation more than anything. They
ignore every other statistics they do in the face of
it after its faded.
Speaker 2 (18:09):
Speaking of ignoring such statistics, there's a piece today. I
think this is from the Times of wages having outpaced
inflation by almost every way that you measure it. And
I do find this piece again fairly interesting and fairly compelling,
from almost every way that you measure both inflation and wages,
(18:30):
whether you look at after tax incomes, whether you look
at pre tax incomes, whether you look at CPIPCE. In
a worst case scenario, some of these measures show that
wages and inflation are about even over the last five years.
And in other scenarios you have wages and overall income
outpacing inflation to the tune of seven to eight percent,
(18:53):
depending on which measure you use. And so this again,
you know, go ask people. This is not the quoted experience.
When you ask people about the state of inflamenca.
Speaker 3 (19:02):
A dirty little secret among labor economists. They will tell
you this inflation's good because it allows employers to let
people whose performance is lackluster let their real wages go down.
That's actually how it's supposed to work. If you're not
getting real increases, your employer is trying to tell you
something interesting.
Speaker 2 (19:19):
Exercise if you're at home, if you have it, go
pull out your twenty nineteen tax return. Look at your
twenty twenty three tax return. Is the agi more than
twenty percent up in that year versus the other I'm
just kind of curious. Take a look. We got to
take quick break. Wall Street watches next.
Speaker 1 (19:42):
Like us on Facebook and follow us on Twitter at
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on the Financial Exchange Radio Network. Time Now for Wall
Street Watch a complete look at what's moving market so
far today right here on the Financial Exchange Radio network.
Speaker 4 (20:06):
Markets are edging higher, mostly quiet, as investors digest a
new batch of third quarter earnings and economic data points,
including job openings.
Speaker 2 (20:16):
This morning.
Speaker 4 (20:18):
Right now, the Dow is up by eleven points, sm
P five hundred is up by only five points, and
the NAZAC is up by a quarter of a percent.
Russell two thousand is down two thirds of a percent.
Ten year Treasure reeled is up by two basis points
at four point three zero percent, and crude oil up
about half a percent higher, trading a sixty seven dollars
(20:39):
and sixty nine cents a barrel. Ford shares skidding by
eight percent after the Detroit automaker slightly beat third quarter
earnings expectations. However, the company guide it to the low
end of its previously announced full years full year earnings guidance.
Ford has been dealing with softening demand, rising inventory, and
concerns about its ability to achieve cost cuts this year. Meanwhile,
(21:01):
McDonald's posted third quarter results ahead of the open this morning,
beating earnings and revenue forecast. The fast food giant made progress,
lifting its US business during the quarter, but its same
store sales missed expectations. That stock is up by one percent. Elsewhere,
Pfizer's third quarter earnings and sales beat estimates, where the
biotech company also hiked its annual outlook, citing sales upside
(21:24):
from its COVID related products.
Speaker 2 (21:26):
That stock is.
Speaker 4 (21:27):
Down by one percent. VF Corp, The parent company to
the North Face and Vans, among others, posted stronger than
expected quarterly results and also declared a quarterly dividend of
nine cents per share. That stock jumping by twenty five percent.
Jet blued down by seventeen percent after the company's fourth
quarter guidance called for shrinking revenue, and after today's close,
(21:48):
we'll see big third quarter earnings reports from Alphabet, AMD, Chipotle,
and Visa. I'm Tucker, Silvan. That's Wall Street Watch just.
Speaker 2 (21:57):
One strange market edition. Trading of Trump Media shares, according
to CNBC, were halted for volatility multiple times this morning.
The company trading under DJT, was halted for five minutes
at nine thirty six am, when shares were trading up
around fourteen percent, halted again a second time at nine
forty two with shares up nine percent. Once again at
(22:19):
nine point fifty. Then it was halted at fourth time
at ten twenty one AM. Stock down more than two
percent at that point, and then again trading halted once again.
Ten minutes later, Nearly sixteen million shares of Trump Media
have changed hands. Presume, you know, analysts are kind of
guessing at this point, but you know, being assumed that
(22:41):
this is people placing bets based on recent polling data
and direction of this thing.
Speaker 3 (22:47):
Yeah, after three hours of violent fluctuations in the share price,
the former president called on shareholders to disperse peaceably.
Speaker 2 (22:55):
Okay, moving on. Muhammadel Arean has a piece out today
in Bloomberg. Bond market responds oddly to the Fed's move.
I have an issue with this piece, and maybe actually
I know that muhammadel area knows more about the bond
market than I do. But just how strange would it
(23:17):
be for the ten year treasury to move up by
more than half percent after a FED rate cut? I
don't know that that is actually statistically odd in any way,
shape or form. To outline what's happened, I mean, since
the September rate cut of half a percent, bond yields
on the ten year Treasury have risen by more than
(23:38):
sixty basis points from the level on September eighteenth. There's
been a lot of conjecture about why that might be happening,
a major one being that economic data has come in
has come in significantly better than anticipated after that rate cut.
There's more conjecture that, you know, perhaps with a shifting
(23:59):
moved towards a more likely Donald Trump presidency, that taxes
will be cut and therefore rates go higher on that news.
I don't know how, and I don't think there's any
way to attribute one versus the other. But I just
don't know how odd and you know, and unrealistic and
weird it is for rates to move up if you're.
Speaker 3 (24:18):
Tormenting me, because I can do that, I just can't
do it in a minute. So we'll find out. It's
a good question. It is curious because if you think
about it, long term rates should just result from rolling
over shorter term instruments like why would you get paid
more to hold from right now? Why can't I just
buy one year securities for the next ten years and
(24:39):
get the same return as I can on the ten
year In theory, some would say they should be the
same but they're not because of the risk obviously. Short
answer is, well, it's the risk of holding something for
ten years, inflation risk and other forms of risk. We
can break that point six percentage point sixty so called
basis point rise in the ten years since the ED
(25:00):
loosened on September eighteenth, we can, we can disaggregate that.
We can attribute part of it to inflation expectations, and
part of it to real pressures like concerns over debt,
maybe growth optimism which increases demand for lawnable funds, and most,
but not all, most, though substantially, most of the rise
in the ten year treasury since September eighteenth is due
(25:22):
to rising real rates. And that's why in one of
the articles we're going to talk about in a second here,
some attribute it to debt concerns. Though that's always the
culprit when rates go up without an obvious trigger.
Speaker 2 (25:34):
So let's, I guess talk about that deficit threat and
bond yields being driven higher. I guess first things, First,
do you buy that you know we have that we
have bond yields moving higher primarily due to concerns about politics? Right?
Do you buy that that's the main reason for it,
(25:56):
or do you attribute it to other things as well.
Speaker 3 (25:59):
I can't say it's not the case. It's just very
hard to in a rigorous sense, the sense that we
demand as researchers doing this for a living, those of
us who work at firms like Armstrong Advisory and try
to impart good information to our clients. I can't prove
that statistically because there are lots of things we don't
observe that could be impacting it that we can't control.
(26:20):
For Mike, a lot of these movements, as you and
Chuck talk about every day in stocks or bonds or
any other security, they're just random, and they tend to
take on a life of their own, and it's natural
to after the fact look for explanations. What I would
love is for somebody to tell me before the fact
that investors are getting unusually concerned. This freight train has
been coming down the track for my whole life. I'm
(26:41):
fifty two, and people have been saying, oh, it's going
to push up rates at some point. There have been
these little mini spurts, but for the most part, longer term,
secular forces have dominated and rates have remained tame. Not
saying that will always remain the case. I just don't
know when the reckoning for these large deficits and large
large debt at the federal level is going to come.
(27:02):
So sure, why not? Maybe it's just impossible to say
with any kind of rigor can.
Speaker 2 (27:06):
You put some I mean, we talked about them this morning, Mark,
you and I. Can you put some numbers behind some
of the interesting stuff when it comes to the deficits. Obviously,
you know, the increase that we have seen in the
total federal debt over the course of the COVID era
the twenty twenties has been substantial by any way that
you measure it. It's been substantial on a percentage increase
(27:26):
a dollar increase. The interest payments on the federal debts
currently make up what one third of is a GDP
or one third?
Speaker 3 (27:36):
I think the number we looked at this morning was
the percentage of of interest payments, which about nine hundred
fifty billion dollars. That is a percentage of So just
take the ratio is a percentage of tax receipt tax
three trillion. So of the of every dollar that you
pay to the federal government, a third of it goes
just on interest, just on to have more than on
(27:56):
defense right now. That'll ebb and flow with interest rates.
You know, interest rates have come up because we all
no longer term interest rates, and the average rate on
federal debt right now is about three and a third
three point three or zero percent now counterpoint.
Speaker 2 (28:09):
Plenty of people listening might look at that and say, well,
you know, if I'm going to compare this to my
personal situation, I own a home, I pay a mortgage payment,
and you know that that's pretty normal for that to
make up a third of my income. And that was
actually brought up by somebody else today, And I would
counter that with remember that when we talk about a
(28:30):
third of tax receipts going towards interest on the debt,
that's just interest you are not paying down principle. I
don't think the comparison to a household versus the government
is a particularly useful comparison in the first place, because
there are a lot of very crucial No.
Speaker 3 (28:45):
I didn't like that analogy, but it's good to think
about why that analogy is. Like, there are no the
old phrase, there are no stupid questions, which I don't
agree with. There are lots of stupid questions that was
not a stupid question because it makes you think about
why it's not true. Your gut says, wait a minute,
that's doesn't sound right, and it isn't. But it's good
to think it through. And I think look by any
measure debt and you can look this up. Go to
(29:06):
the Saint Louis Federals. Don't watch a horror movie this Halloween.
Go to the FRED database. It's called FRED Federals or
of Economic Database, and type in debt to GDP, type
in federal debt period. You will see these hockey stick
patterns from all of these things that we're from, all
of these series that we're discussing here. And you don't
(29:27):
have to be a macro economist to say, hey, that
doesn't look sustainable to me. What allowed us to get
out We talked about this this morning. Internally. What allowed
us to get out of the debt jam of World
War two, which was arguably money well spent unless you're
a Nazi, that was money well spent. What allowed us
to get out of it was we curtailed spending by
(29:47):
a lot and the economy grew by a lot for
and I'm going to round up and say a half
percent in the fifties and sixties. That's rounding up very aggressively,
but relative to the following decades, growth was breakneck, so
we grew our way out of it. That probably won't
happen again because the circumstances are so different.
Speaker 2 (30:08):
Well that and we've never since then had much of
a history of curtailing that spending growth terribly and the
most likely outcomes, I think objectively, if you take a
step back and look at this presidential election, the most
likely outcomes, regardless of the winner, would be for higher
net spending.
Speaker 3 (30:27):
I think so unless Trump is serious about making Elon Musk,
I have my doubts, but people like me our ears
really perked up the other night when Elon Musk says
he thinks he can cut two trillion. I know that
sounds like a fantasy and people can know the budget,
but that was his claim. Like, that's really encouraged if
Trump is seriously going to empower Elon Musk. Now, of
course Concress has to vote on these things, but to
(30:48):
identify that degree of spending cuts that's going in the
right direction. So there are some of us who can
be sort of like fed. Independence is important to me
Mike Yep. Trump has opinions about in your traits that
he thinks you ought to be able to weigh in on.
That's worrisome Harris's profit fed independence. But if Trump will
do a better job getting a handle on spending, there
(31:09):
are those of us that could be happy with either
election outcome on Tuesday, potentially.
Speaker 2 (31:14):
Let's take a quick break. When we come back, I
want to get back to the earning story. We had
a lot of reports over the course of this morning
as well as yesterday. We'll cover that next year on
the Financial Exchange.
Speaker 1 (31:26):
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Speaker 2 (31:53):
Ford Motor Company reported earnings this morning yesterday yesterday, okay,
the bill yesterday after the bell and I don't know.
Just continuing to disappoint, even to its Piers. Ford continues
to disappoint. Stock is down nearly nine percent this morning,
a year to date off nearly fifteen percent. I guess
(32:17):
they've gone up over the course of the last twelve months,
but we continue to see a company here who is
attempting to pair back their spending in the electric vehicle
space where their only solutions on the EV front are
giant trucks and sports cars. Actually can even call the
(32:37):
Mustang EV a sports car. It's this like weird suv
type thing, So I'm not sure I put it there.
But you know, we've talked at length about the price
decreases showing up in the electric vehicle space across the board,
and Ford doesn't really have a lower end EV to
go out and sell there, so that pieces is running
them pretty dry. The other piece that I just have
(33:00):
to ridicule forward for our higher warranty costs. So for
those of you that don't speak the auto industry lingo,
higher warranty costs just mean that you're bad at making cars.
I'm just going to simplify it for you there. Higher
warranty costs comes into play because you're so bad at
making cars that they have to go back in to
be repaired because they're under warranty and they're already you
(33:24):
know whatding the bed after you know the course of
the first year of driving them. That is a really
embarrassing indication for a car manufacturer that, hey, our higher
warranty costs have been just ravaging the company for more
than a year now. Expenses related to safety recalls and
other fixes have weighed on Ford's bottom line for several years.
(33:46):
Costs improved slightly in the July through September period, but
remain higher than what Ford expected or their peers. This
is a company again, this is not a company in
free fall. They have you know, they're making a profit.
They're making five and a half percent margins, but compared
to General Motors at eight and a half, and compared
to Tesla A ten, it doesn't really compare. And then
(34:06):
I also, I don't know. I look at this company
and say, hey, it's been good for them because people
have been willing to buy eighty thousand dollars pickup trucks
and SUVs over the course of the last few years.
But today Ford sells SUVs, pickup trucks and high end
electric vehicles. If we have a recession where people need
(34:28):
cheaper cars, this company screwed.
Speaker 3 (34:31):
Yeah, they get out of the car business because and
I can attest to this as someone who's owned Ford
Cars in the past twenty years. They weren't very good
at it, not just fit and finish issues that you'd
associate with American cars from say the eighties.
Speaker 2 (34:44):
And by out of the car businesses and focusing on
the truck and suv business.
Speaker 3 (34:48):
Do they make a mid sized sedan in the US?
Speaker 1 (34:50):
Right?
Speaker 2 (34:50):
They don't make any cedans in the US.
Speaker 1 (34:52):
Right.
Speaker 2 (34:52):
They gave up on the sedan.
Speaker 3 (34:54):
I own their last one, and that was a good move.
They just sort of threw their hands. I'm very diss pointed,
and they want to have I wrote to Mark Fields
at the time, whose admin got back to me. They
just kept mailing me checks Mike every time my transmission failed.
Here's five hundred, here's five hundred, please sign this waiver.
Here's five hundred. I ended up with like twenty five
hundred bucks by the time. Anyway, it was I was
(35:16):
a horror story. I know a lot of you can relate.
So they understandably go out of the car making business.
They can. They make beautiful trucks that will last a
lifetime and are head turning, and they eves because they
have to.
Speaker 2 (35:29):
Pretty much, they felt bad and there's nothing in between
yeah falls in full swing, the leaves are changing, the
days are getting shorter, and the cold is inching closer.
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Speaker 2 (36:35):
Sticking in the auto space for the first time in
eighty seven year history. Volkswagen may end up closing factories
in Germany. They warned some of their workers and that
they might be looking at closing plants, lowering wages or
layoffs across their workforce. Here, different auto manufacturer, different presents
different set of problems, but another one that is struggling
(36:59):
here and has been for a few years. Ford's problem
again seems to be much one of too much money
spent on the EV space and troubles with the manufacturing
process and the quality control of their cars. Volkswagons is
a bit different. They don't seem to be facing a
lot of those same pressures. They didn't invest a ton
(37:20):
of money in very very high end electric vehicles, although
they have those two through their Audi brand. Their problem
seems to be of much of a much bigger of
a global player in the auto industry. You know, this
was of Europe and large parts of South America. And yeah,
(37:41):
they are global. They're like Toyota in the sense that
they're and face considerably more competition from China than Ford does.
And so that's where I would put some of this
competition and problems for Volkswagen is you know, it's not
the days of them cheating on emissions, it's not the
days of them having real you know, manufacturing problems are
trouble keeping up in the EV space where they seem
(38:03):
to be struggling is, Hey, we can't sell our cars
in Brazil because Chinese made cars are thirty percent cheaper
and there's no tariffs there. Let's take a quick break,
but a lot more to cover. In the second hour.
Markets have turned positive for the day. We'll cover that
and more next on the Financial Exchange
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(01:06):
Face is the Financial Exchange with Mike Armstrong and Mark Fandetti.
Speaker 2 (01:13):
Good morning, Welcome back to the Financial Exchange on Tuesday
of a just a kind of crazy week, both in
terms of earnings as well as economic data. Not to mention,
not sure if anybody heard, there's a somewhat big election
seven days from now, So it is a jam packed
week here and if you need some respite from the
(01:35):
constant political chatter, we will have it because, like I said,
there is so much going on in markets and the
economy this week that we don't we don't need to
spend our time conjecturing and debating what's going to be
the next economic policy there, because there's plenty of time
over here in terms of what's coming out. So this morning,
(01:55):
let's see, we received information on retail inventories, wholesale inventories,
Case Shiller Home price Index, consumer confidence. I haven't even
looked at some of these yet. The job openings report,
which we discussed, came out exactly seven minutes ago. Anticipated
to see eight million job openings. We came in a
fair bit lower than that, but not a big change
(02:17):
from where we were in previous months. We will have
earnings this week from some of the largest companies in
the world, including Google parent company Alphabet after the bell tonight,
but tomorrow after the bell we have both Microsoft and
Facebook parent company Meta again not in the tech range,
but Eli Lilly, the maker of one of the most
(02:38):
successful weight loss and diabetes drug treatments in the world,
reports tomorrow morning before the bell. That's now an eight
hundred and fifty billion dollar company. Thursday of this week,
after the bell, both Apple and Amazon reporting. So crazy week,
both in terms of earnings as well as economic data.
Friday of this week, we'll have the monthly jobs report.
Let's dive in first to this job openings report came
(03:01):
out Like I mentioned seven minutes ago, it's where we
derive one of those kind of fascinating numbers during the
pandemic that showed the state of the labor market, when
we were talking about the real labor shortages that were
taking place back in twenty twenty one twenty twenty two,
when you saw McDonald's offering signing bonuses and all sorts
(03:22):
of fun stuff going on there, that's where we derive
this ratio. And in March of twenty twenty two, the
ratio of job openings to unemployed people looking for work
was sitting at two, which I don't know how long
this data series goes back. Let me see only to
two thousand and two, so not a terribly long data series,
(03:43):
but that's well above anything we had seen during the
twenty year time period for the data series. Today, with
the most recent job openings, which again for the headline number,
the number of job openings didn't really change much. It's
sat at seven point four million jobs on the last
business day of September, and that brings that ratio down
considerably down to one point one thereabouts. So we're sitting
(04:08):
there at one point one in terms of almost a
perfect match of unemployed people to jobs open You might say, wow,
that's a huge drop from two, but what I would
point out is that in no point during the twenty
ten decade until mid twenty eighteen did we even get
(04:29):
over one. So this is a this is a more
recent effect in terms of the tightness of this labor market,
but it's just one of those additional indicators that over
the last several months has brought us to a point
where we're saying, hey, concerns about the labor market. Are
we returning to a pre COVID level of employment stability
(04:50):
or are we headed for a recession? Your takeaways from
the report itself. Like I said, the headline.
Speaker 3 (04:57):
Umbers, chill out, don't worry about it. This is like
to pull a single economic statistic out like this. It
would be like looking at the Celtics box score last
night and saying, oh, twenty five team rebounds. I don't
know if that's right. That sounds a little low. I'm
just off the top of my head. Sure, eight assists.
These things tell you nothing.
Speaker 2 (05:15):
Out and of themselves they really did.
Speaker 3 (05:17):
Now I'm oversimplifying a little bit, but this statistic that
you're talking about is useful if you're building an economic
model and you need something, as you suggested, Mike, that
gets at the amount of slack or tightness in the
labor market. There are lots of different ways to measure it,
and maybe you want to use more than one measure.
So pulling a number like this out and drawing conclusions
(05:42):
from it is problematic. It's not meant to be used
that way. So I'm what I'm saying is hopefully liberating.
Don't sweat every statistic we report them here because this
is a topical Joe, you're on the air every day
for two hours, you got to talk about it. The
way an economist would think about this is look at
the trend and ask does this number help us to
(06:02):
predict price pressure? Does this particular statistic help me to
forecast inflation better? As a researcher, If that's what I.
Speaker 2 (06:09):
Do, so take this statistic in un I'll give.
Speaker 3 (06:12):
You an answer to that. Well, go ahead, good, Sorry, Mike.
Speaker 2 (06:15):
No, what's the answer to what question is?
Speaker 3 (06:18):
Does this help me forecast inflation better than, say, just
using past values of inflation itself, or using more traditional
measures like the gap between actual and potential gross domestic
product GDP or the rate of unemployment, a very traditional measure.
And the answer is doesn't seem to. For a while,
it wined up better with increasing price pressure rising inflation
(06:39):
in the early twenty twenties, but those relationships aren't stable.
So I guess what I'm saying is I'm not even
sure this matters in terms of what we all care about,
which is fork I think, which is modeling and forecasting inflation.
Speaker 2 (06:54):
It's interesting that I would argue that ninety percent of
the people listening right now, don't care about this in
terms of model and forecasting inflation. Well, I think ninety
percent of people listening are because they're interested in what's
the state of labor market, what's the trend of it?
Will I be able to get a raise this year?
Will I be able to use it for those purposes.
Speaker 3 (07:09):
I've never done any work in that area, so I
can't tell you if labor market economists if this is
their go to or if this is just one of many.
All I can tell you is that one statistic not
put into the context of a larger framework, so to speak,
could be misleading. So I'm what I'm saying is not
that we shouldn't report it or opine on it or
(07:32):
make inferences, but rather, if it if it moves in
an extreme fashion in one direction or other, don't sweat
it too much. It may not even be a good
indicator of the thing you're trying to forecast, even if
it has been historically.
Speaker 2 (07:45):
So in terms of these numbers, number of job openings,
like I mentioned, not changed much seven point four million
in the last business day of the month, but that
is down by about two million jobs over the course
of the year. You saw some big swings in terms
of job openings in healthcare and social assistans, since those
job openings were down one hundred and seventy eight thousand.
State and local government excluding education was down seventy nine thousand,
(08:06):
federal government down twenty eight thousand. You did see it
uptick in job openings for finance and insurance by a
tune of eighty five k. So I don't know what
that's related to, but nonetheless you saw those different areas
moving in one way or another. Overall, I think to
take this report for me is I don't think it
changes much at all about my narrative of the internal
(08:30):
narrative I have about the state of the labor market,
which is, we were heading for this path of slow
down over the last three three to six months. We
saw an uptick on the unemployment rate, an uptick in
the number of people not working. We saw a slow
down in the number of hires and jobs created. And
nothing about this report does anything to further that narrative.
(08:54):
I don't think that this would indicate that a further
slowing in the state of the labor market. I also
don't think it indicates any thing in terms of a
vast rebound in the state of the labor market. And
so that's where you know, when I placed this data
point in the line with weekly jobless claims, with the
unemployment jobs report that we will get on Friday of
this week, with all the other labor market readings that
we have, I think that this falls right in line
(09:16):
with where we already were with an main narrative.
Speaker 3 (09:19):
It seems yeah, I guess if you were going to
tell it in simple story fashion, the labor market was
unsustainably tight and hot a year and a half ago.
Now it's just pretty hot. I'm just going by four
point one percent on employment or three percent here in Massachusetts.
Elsewhere in New England it's it's it's it's bouncing around
(09:41):
historic lows as well, not everywhere in the country but
most in most places, it is.
Speaker 2 (09:45):
Yeah, there is a let me see that came out
about a week ago, the jobless rates in all the
different states, and that is an interesting one to look at,
especially when we think about swing states for the upcoming
election and just general state of things. But yes, to
your point here we're in why is it not giving
me Massachusetts think.
Speaker 3 (10:05):
Right around three which is very low historically.
Speaker 2 (10:08):
Not going to give it. There we go. Unemployment rate
in September of twenty twenty four. Actually in Massachusetts, I
have three point eight percent in September of twenty twenty four,
which is a decent uptick from three point three percent
a year ago. But in terms of where we're seeing
relatively higher unemployment, California sitting at five point three percent,
(10:30):
DC five point seven, Illinois five to three. Trying to
find some other states with over five.
Speaker 3 (10:36):
Now I am, I am a little anxious. Now we're
up from so I was very cavalou that it was
still let around three. Yeah, we were a few months ago.
So your unemployment in mass is trending.
Speaker 2 (10:45):
Up, is trending up kinda sharply, you know. Taking a
look at some of these swing states here, Michigan sitting
at four and a half percent, up a little bit
over the last twelve months, Arizona actually coming down three
point five percent, Nevada if I can find them, five
to two to five six percent over the last course
(11:08):
of the year. So actually Rhode Island here, I'm looking
at a one point four percent uptake an unemployment over
the last twelve months.
Speaker 3 (11:14):
But again we're coming off and unsustainably low.
Speaker 2 (11:17):
We are.
Speaker 3 (11:18):
I'm not going to minimize the rise in unemployment because
unemployment is persistent. His research people like to say, once
it gets going, once it starts going up, it tends
to continue to go up, and vice versa two.
Speaker 2 (11:27):
Except this time, except the last six months, right, I mean, like,
we saw the unemployment rate climb by nearly a percentage
point nationally over the last course line class, of the
course of the eighteen months, we saw the unemployment rate
increase by nine tens percent, and then the last two
months declined by two tens percent. And that's again, you know, possible,
(11:50):
but you go take a look at previous increases unemployment
and that's not on average what we've experienced. So let's
take a quick break. We do have take a quick break,
and when we come back, we can touch a little
bit more on just the state of labor market and
what we may or may not see with the other
two pretty big data points on labor market this week,
the weekly the Jobless Claims as well as the National
Unemployment Situation Summary. That's next here on the Financial Exchange.
Speaker 1 (12:13):
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Speaker 2 (13:18):
Do either of you remember about, let's say, sixteen minutes ago,
when I said that we wouldn't have to talk about
politics on the show today. Because there's so much going on,
I do recall that well, I just can't help myself.
So I was taking a look at, as I mentioned,
unemployment rate by state, which we got about a week ago.
It comes out a little bit later the daily series
than it does the traditional unemployment report, which we get
(13:40):
right on the like the first Friday of every month.
And so I was curious, just you know, taking a
look at the six swing states Arizona, Nevada, Michigan, Pennsylvania,
North Carolina, and Georgia, who will very likely decide the
outcome of the presidential election. What's been going on with
unemployment in the states over the last year. That's you know,
that's of interest to me. Let's start out with Arizona,
(14:02):
which has had the most significant downturn in unemployment. September
of twenty twenty three, unemployment rate in Arizona sitting at
four point two percent, now sitting at three and a
half percent. So in spite of the entire nation going
the other direction. So national unemployment September of twenty twenty three,
I don't know it off the top of my head,
but it was high threes and by September of twenty four,
(14:23):
we were down to low fours. Arizona has seen a
trend in the other direction, but Nevada was sitting at
five to two up to five point six percent. Nevada
has pretty reliably seen an uptick in unemployment and had
traditionally a higher unemployment rate than most of the country
with the highly cyclical casino business and just general travel.
Speaker 3 (14:48):
Economy goes haywire every three to five years, Yes it does.
Speaker 2 (14:52):
Michigan unemployment up from four to one a year ago
to four and a half percent, so four tens percent uptick.
Pennsylvania basically flat three three to three point four percent,
no real change, and unemployment rate over the last twelve months.
North Carolina slight uptick three six to three eight. That's
more in line with the national averages than Georgia three
two to three point six percent. So I don't think
(15:13):
this tells you anything about which way those directions the
states are going to go. Some are obviously a little
bit closer than others, but I don't know. Just another interesting.
Speaker 3 (15:21):
Year ago they were at record lows and everybody hated
the economy, right, the same people citing this dismissing those
statistics a year ago, the same people who said they
were fake, that it doesn't reflect my lived experience. They
cannot cite the same statistics twelve months later as proof
that the economy is deteriorating or can they? Are you
(15:41):
saying these people are hypocrits? Might don't say.
Speaker 2 (15:43):
That, let's not say can maybe shouldn't, but definitely are
are you saying these.
Speaker 3 (15:48):
People are ignoramuses and hypocrites? Mike, I refuse to subscribe.
Speaker 2 (15:52):
I don't think it has to be both, but I
think it could be one of the other.
Speaker 3 (15:57):
But you do have to pick. You do have to
pick a statistic and stick with it. If you dismiss
the relatively solid economic growth, the very low unemployment, and
all the other traditional metrics which are pointing to historically
very respectably strong economy, you cannot cite those from when
the last guy was president and say we had the
(16:18):
best economy ever, which we did in anyway. But nevertheless,
suppose they were.
Speaker 2 (16:23):
Just record because I guarantee you that's that's what that
first consumer confidence survey that we get. Depending on the
outcome of this election, I know they're going to be
flips to Donald Trump.
Speaker 3 (16:33):
Trump Trump did this last time, first unemployment report that
came out, he'd been president for sixteen days. He was
touting it as somehow the result of his the first
monthly unemployment.
Speaker 2 (16:43):
I would even go the other way.
Speaker 3 (16:44):
The other side does it too.
Speaker 2 (16:44):
I'm sure consumer confidence. You will have a massive flip
in terms of how people feel about the state of
the economy based on their political aspect. I keep coming back.
Speaker 3 (16:55):
To the Fed's failure to nip inflation in the bud
early on in this cycle, even at the expense of
some economic growth. The FED did make a choice. They
didn't want to push up unemployment or retard the recovery
early on when we were coming out of COVID, so
they said, we're gonna let this big wave of inflation
pass over us. We think it's fleeting and to an
extent that theory about inflation has been born out. To
(17:18):
an extent, it's still not where we'd like it to be.
So the FED made a choice, as it turns out,
much like the nineteen seventies people, which actually, yeah, which seventies.
I showed this in a chart internally this morning, and
I had to do the CALC twice just to make
sure I was doing it right. We actually had higher
economic growth slightly or about the same in real terms
in the seventies is in the eighties, I'll tell you
right now. Nobody remembers it that way. No, everybody remembers
(17:39):
the seventies as being disastrous. I'm using real GDPR as
the measure. My point is that inflation is so reviled,
and the effects are on the way you perceive everything
are so pervasive that I'm convinced now and the Fed
should be too, particularly if Trump wins and then kicks
their butts eye, which would be a poetic come up.
And for some of these egg heads, it would be
(18:02):
interesting to watch people hate inflation more than anything. They
ignore every other statistics they do in the face of
it after its faded.
Speaker 2 (18:09):
Speaking of ignoring such statistics, there's a piece today. I
think this is from the Times of wages having outpaced
inflation by almost every way that you measure it. And
I do find this piece again fairly interesting and fairly compelling,
from almost every way that you measure both inflation and wages,
(18:30):
whether you look at after tax incomes, whether you look
at pre tax incomes, whether you look at CPIPCE. In
a worst case scenario, some of these measures show that
wages and inflation are about even over the last five years.
And in other scenarios you have wages and overall income
outpacing inflation to the tune of seven to eight percent,
(18:53):
depending on which measure you use. And so this again,
you know, go ask people. This is not the quoted experience.
When you ask people about the state of inflamenca.
Speaker 3 (19:02):
A dirty little secret among labor economists. They will tell
you this inflation's good because it allows employers to let
people whose performance is lackluster let their real wages go down.
That's actually how it's supposed to work. If you're not
getting real increases, your employer is trying to tell you
something interesting.
Speaker 2 (19:19):
Exercise if you're at home, if you have it, go
pull out your twenty nineteen tax return. Look at your
twenty twenty three tax return. Is the agi more than
twenty percent up in that year versus the other I'm
just kind of curious. Take a look. We got to
take quick break. Wall Street watches next.
Speaker 1 (19:42):
Like us on Facebook and follow us on Twitter at
TFFE 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 market so
far today right here on the Financial Exchange Radio network.
Speaker 4 (20:06):
Markets are edging higher, mostly quiet, as investors digest a
new batch of third quarter earnings and economic data points,
including job openings.
Speaker 2 (20:16):
This morning.
Speaker 4 (20:18):
Right now, the Dow is up by eleven points, sm
P five hundred is up by only five points, and
the NAZAC is up by a quarter of a percent.
Russell two thousand is down two thirds of a percent.
Ten year Treasure reeled is up by two basis points
at four point three zero percent, and crude oil up
about half a percent higher, trading a sixty seven dollars
(20:39):
and sixty nine cents a barrel. Ford shares skidding by
eight percent after the Detroit automaker slightly beat third quarter
earnings expectations. However, the company guide it to the low
end of its previously announced full years full year earnings guidance.
Ford has been dealing with softening demand, rising inventory, and
concerns about its ability to achieve cost cuts this year. Meanwhile,
(21:01):
McDonald's posted third quarter results ahead of the open this morning,
beating earnings and revenue forecast. The fast food giant made progress,
lifting its US business during the quarter, but its same
store sales missed expectations. That stock is up by one percent. Elsewhere,
Pfizer's third quarter earnings and sales beat estimates, where the
biotech company also hiked its annual outlook, citing sales upside
(21:24):
from its COVID related products.
Speaker 2 (21:26):
That stock is.
Speaker 4 (21:27):
Down by one percent. VF Corp, The parent company to
the North Face and Vans, among others, posted stronger than
expected quarterly results and also declared a quarterly dividend of
nine cents per share. That stock jumping by twenty five percent.
Jet blued down by seventeen percent after the company's fourth
quarter guidance called for shrinking revenue, and after today's close,
(21:48):
we'll see big third quarter earnings reports from Alphabet, AMD, Chipotle,
and Visa. I'm Tucker, Silvan. That's Wall Street Watch just.
Speaker 2 (21:57):
One strange market edition. Trading of Trump Media shares, according
to CNBC, were halted for volatility multiple times this morning.
The company trading under DJT, was halted for five minutes
at nine thirty six am, when shares were trading up
around fourteen percent, halted again a second time at nine
forty two with shares up nine percent. Once again at
(22:19):
nine point fifty. Then it was halted at fourth time
at ten twenty one AM. Stock down more than two
percent at that point, and then again trading halted once again.
Ten minutes later, Nearly sixteen million shares of Trump Media
have changed hands. Presume, you know, analysts are kind of
guessing at this point, but you know, being assumed that
(22:41):
this is people placing bets based on recent polling data
and direction of this thing.
Speaker 3 (22:47):
Yeah, after three hours of violent fluctuations in the share price,
the former president called on shareholders to disperse peaceably.
Speaker 2 (22:55):
Okay, moving on. Muhammadel Arean has a piece out today
in Bloomberg. Bond market responds oddly to the Fed's move.
I have an issue with this piece, and maybe actually
I know that muhammadel area knows more about the bond
market than I do. But just how strange would it
(23:17):
be for the ten year treasury to move up by
more than half percent after a FED rate cut? I
don't know that that is actually statistically odd in any way,
shape or form. To outline what's happened, I mean, since
the September rate cut of half a percent, bond yields
on the ten year Treasury have risen by more than
(23:38):
sixty basis points from the level on September eighteenth. There's
been a lot of conjecture about why that might be happening,
a major one being that economic data has come in
has come in significantly better than anticipated after that rate cut.
There's more conjecture that, you know, perhaps with a shifting
(23:59):
moved towards a more likely Donald Trump presidency, that taxes
will be cut and therefore rates go higher on that news.
I don't know how, and I don't think there's any
way to attribute one versus the other. But I just
don't know how odd and you know, and unrealistic and
weird it is for rates to move up if you're.
Speaker 3 (24:18):
Tormenting me, because I can do that, I just can't
do it in a minute. So we'll find out. It's
a good question. It is curious because if you think
about it, long term rates should just result from rolling
over shorter term instruments like why would you get paid
more to hold from right now? Why can't I just
buy one year securities for the next ten years and
(24:39):
get the same return as I can on the ten
year In theory, some would say they should be the
same but they're not because of the risk obviously. Short
answer is, well, it's the risk of holding something for
ten years, inflation risk and other forms of risk. We
can break that point six percentage point sixty so called
basis point rise in the ten years since the ED
(25:00):
loosened on September eighteenth, we can, we can disaggregate that.
We can attribute part of it to inflation expectations, and
part of it to real pressures like concerns over debt,
maybe growth optimism which increases demand for lawnable funds, and most,
but not all, most, though substantially, most of the rise
in the ten year treasury since September eighteenth is due
(25:22):
to rising real rates. And that's why in one of
the articles we're going to talk about in a second here,
some attribute it to debt concerns. Though that's always the
culprit when rates go up without an obvious trigger.
Speaker 2 (25:34):
So let's, I guess talk about that deficit threat and
bond yields being driven higher. I guess first things, First,
do you buy that you know we have that we
have bond yields moving higher primarily due to concerns about politics? Right?
Do you buy that that's the main reason for it,
(25:56):
or do you attribute it to other things as well.
Speaker 3 (25:59):
I can't say it's not the case. It's just very
hard to in a rigorous sense, the sense that we
demand as researchers doing this for a living, those of
us who work at firms like Armstrong Advisory and try
to impart good information to our clients. I can't prove
that statistically because there are lots of things we don't
observe that could be impacting it that we can't control.
(26:20):
For Mike, a lot of these movements, as you and
Chuck talk about every day in stocks or bonds or
any other security, they're just random, and they tend to
take on a life of their own, and it's natural
to after the fact look for explanations. What I would
love is for somebody to tell me before the fact
that investors are getting unusually concerned. This freight train has
been coming down the track for my whole life. I'm
(26:41):
fifty two, and people have been saying, oh, it's going
to push up rates at some point. There have been
these little mini spurts, but for the most part, longer term,
secular forces have dominated and rates have remained tame. Not
saying that will always remain the case. I just don't
know when the reckoning for these large deficits and large
large debt at the federal level is going to come.
(27:02):
So sure, why not? Maybe it's just impossible to say
with any kind of rigor can.
Speaker 2 (27:06):
You put some I mean, we talked about them this morning, Mark,
you and I. Can you put some numbers behind some
of the interesting stuff when it comes to the deficits. Obviously,
you know, the increase that we have seen in the
total federal debt over the course of the COVID era
the twenty twenties has been substantial by any way that
you measure it. It's been substantial on a percentage increase
(27:26):
a dollar increase. The interest payments on the federal debts
currently make up what one third of is a GDP
or one third?
Speaker 3 (27:36):
I think the number we looked at this morning was
the percentage of of interest payments, which about nine hundred
fifty billion dollars. That is a percentage of So just
take the ratio is a percentage of tax receipt tax
three trillion. So of the of every dollar that you
pay to the federal government, a third of it goes
just on interest, just on to have more than on
(27:56):
defense right now. That'll ebb and flow with interest rates.
You know, interest rates have come up because we all
no longer term interest rates, and the average rate on
federal debt right now is about three and a third
three point three or zero percent now counterpoint.
Speaker 2 (28:09):
Plenty of people listening might look at that and say, well,
you know, if I'm going to compare this to my
personal situation, I own a home, I pay a mortgage payment,
and you know that that's pretty normal for that to
make up a third of my income. And that was
actually brought up by somebody else today, And I would
counter that with remember that when we talk about a
(28:30):
third of tax receipts going towards interest on the debt,
that's just interest you are not paying down principle. I
don't think the comparison to a household versus the government
is a particularly useful comparison in the first place, because
there are a lot of very crucial No.
Speaker 3 (28:45):
I didn't like that analogy, but it's good to think
about why that analogy is. Like, there are no the
old phrase, there are no stupid questions, which I don't
agree with. There are lots of stupid questions that was
not a stupid question because it makes you think about
why it's not true. Your gut says, wait a minute,
that's doesn't sound right, and it isn't. But it's good
to think it through. And I think look by any
measure debt and you can look this up. Go to
(29:06):
the Saint Louis Federals. Don't watch a horror movie this Halloween.
Go to the FRED database. It's called FRED Federals or
of Economic Database, and type in debt to GDP, type
in federal debt period. You will see these hockey stick
patterns from all of these things that we're from, all
of these series that we're discussing here. And you don't
(29:27):
have to be a macro economist to say, hey, that
doesn't look sustainable to me. What allowed us to get
out We talked about this this morning. Internally. What allowed
us to get out of the debt jam of World
War two, which was arguably money well spent unless you're
a Nazi, that was money well spent. What allowed us
to get out of it was we curtailed spending by
(29:47):
a lot and the economy grew by a lot for
and I'm going to round up and say a half
percent in the fifties and sixties. That's rounding up very aggressively,
but relative to the following decades, growth was breakneck, so
we grew our way out of it. That probably won't
happen again because the circumstances are so different.
Speaker 2 (30:08):
Well that and we've never since then had much of
a history of curtailing that spending growth terribly and the
most likely outcomes, I think objectively, if you take a
step back and look at this presidential election, the most
likely outcomes, regardless of the winner, would be for higher
net spending.
Speaker 3 (30:27):
I think so unless Trump is serious about making Elon Musk,
I have my doubts, but people like me our ears
really perked up the other night when Elon Musk says
he thinks he can cut two trillion. I know that
sounds like a fantasy and people can know the budget,
but that was his claim. Like, that's really encouraged if
Trump is seriously going to empower Elon Musk. Now, of
course Concress has to vote on these things, but to
(30:48):
identify that degree of spending cuts that's going in the
right direction. So there are some of us who can
be sort of like fed. Independence is important to me
Mike Yep. Trump has opinions about in your traits that
he thinks you ought to be able to weigh in on.
That's worrisome Harris's profit fed independence. But if Trump will
do a better job getting a handle on spending, there
(31:09):
are those of us that could be happy with either
election outcome on Tuesday, potentially.
Speaker 2 (31:14):
Let's take a quick break. When we come back, I
want to get back to the earning story. We had
a lot of reports over the course of this morning
as well as yesterday. We'll cover that next year on
the Financial Exchange.
Speaker 1 (31:26):
Find daily interviews and full shows of the Financial Exchange
on how are YouTube page get cut up on anything
and everything you might have missed. This is the Financial
Exchange Radio Network. Text us six one seven three six
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about today's show. This is the Financial Exchange Radio Network.
Speaker 2 (31:53):
Ford Motor Company reported earnings this morning yesterday yesterday, okay,
the bill yesterday after the bell and I don't know.
Just continuing to disappoint, even to its Piers. Ford continues
to disappoint. Stock is down nearly nine percent this morning,
a year to date off nearly fifteen percent. I guess
(32:17):
they've gone up over the course of the last twelve months,
but we continue to see a company here who is
attempting to pair back their spending in the electric vehicle
space where their only solutions on the EV front are
giant trucks and sports cars. Actually can even call the
(32:37):
Mustang EV a sports car. It's this like weird suv
type thing, So I'm not sure I put it there.
But you know, we've talked at length about the price
decreases showing up in the electric vehicle space across the board,
and Ford doesn't really have a lower end EV to
go out and sell there, so that pieces is running
them pretty dry. The other piece that I just have
(33:00):
to ridicule forward for our higher warranty costs. So for
those of you that don't speak the auto industry lingo,
higher warranty costs just mean that you're bad at making cars.
I'm just going to simplify it for you there. Higher
warranty costs comes into play because you're so bad at
making cars that they have to go back in to
be repaired because they're under warranty and they're already you
(33:24):
know whatding the bed after you know the course of
the first year of driving them. That is a really
embarrassing indication for a car manufacturer that, hey, our higher
warranty costs have been just ravaging the company for more
than a year now. Expenses related to safety recalls and
other fixes have weighed on Ford's bottom line for several years.
(33:46):
Costs improved slightly in the July through September period, but
remain higher than what Ford expected or their peers. This
is a company again, this is not a company in
free fall. They have you know, they're making a profit.
They're making five and a half percent margins, but compared
to General Motors at eight and a half, and compared
to Tesla A ten, it doesn't really compare. And then
(34:06):
I also, I don't know. I look at this company
and say, hey, it's been good for them because people
have been willing to buy eighty thousand dollars pickup trucks
and SUVs over the course of the last few years.
But today Ford sells SUVs, pickup trucks and high end
electric vehicles. If we have a recession where people need
(34:28):
cheaper cars, this company screwed.
Speaker 3 (34:31):
Yeah, they get out of the car business because and
I can attest to this as someone who's owned Ford
Cars in the past twenty years. They weren't very good
at it, not just fit and finish issues that you'd
associate with American cars from say the eighties.
Speaker 2 (34:44):
And by out of the car businesses and focusing on
the truck and suv business.
Speaker 3 (34:48):
Do they make a mid sized sedan in the US?
Speaker 1 (34:50):
Right?
Speaker 2 (34:50):
They don't make any cedans in the US.
Speaker 1 (34:52):
Right.
Speaker 2 (34:52):
They gave up on the sedan.
Speaker 3 (34:54):
I own their last one, and that was a good move.
They just sort of threw their hands. I'm very diss pointed,
and they want to have I wrote to Mark Fields
at the time, whose admin got back to me. They
just kept mailing me checks Mike every time my transmission failed.
Here's five hundred, here's five hundred, please sign this waiver.
Here's five hundred. I ended up with like twenty five
hundred bucks by the time. Anyway, it was I was
(35:16):
a horror story. I know a lot of you can relate.
So they understandably go out of the car making business.
They can. They make beautiful trucks that will last a
lifetime and are head turning, and they eves because they
have to.
Speaker 2 (35:29):
Pretty much, they felt bad and there's nothing in between
yeah falls in full swing, the leaves are changing, the
days are getting shorter, and the cold is inching closer.
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Speaker 2 (36:35):
Sticking in the auto space for the first time in
eighty seven year history. Volkswagen may end up closing factories
in Germany. They warned some of their workers and that
they might be looking at closing plants, lowering wages or
layoffs across their workforce. Here, different auto manufacturer, different presents
different set of problems, but another one that is struggling
(36:59):
here and has been for a few years. Ford's problem
again seems to be much one of too much money
spent on the EV space and troubles with the manufacturing
process and the quality control of their cars. Volkswagons is
a bit different. They don't seem to be facing a
lot of those same pressures. They didn't invest a ton
(37:20):
of money in very very high end electric vehicles, although
they have those two through their Audi brand. Their problem
seems to be of much of a much bigger of
a global player in the auto industry. You know, this
was of Europe and large parts of South America. And yeah,
(37:41):
they are global. They're like Toyota in the sense that
they're and face considerably more competition from China than Ford does.
And so that's where I would put some of this
competition and problems for Volkswagen is you know, it's not
the days of them cheating on emissions, it's not the
days of them having real you know, manufacturing problems are
trouble keeping up in the EV space where they seem
(38:03):
to be struggling is, Hey, we can't sell our cars
in Brazil because Chinese made cars are thirty percent cheaper
and there's no tariffs there. Let's take a quick break,
but a lot more to cover. In the second hour.
Markets have turned positive for the day. We'll cover that
and more next on the Financial Exchange
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