January 15, 2025 • 38 mins
Chuck Zodda and Marc Fandetti discuss the CPI report that came in better than expected and why that started a rally in markets.What if the Fed does a u-turn and raises rates this year? What is quantum computing and why is it a major talking point? JPMorgan traders notch record fourth quarter. Wells Fargo's cost cutting measures are producing results.
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 Mark fan Daddy, your exclusive
look at business and financial news affecting your day, your city,
(00:43):
your world. Stay informed and up to date about economic
and market trends, plus breaking business news every day. The
Financial Exchange is a proud partner of the Disabled American
Veterans Department of Massachusetts. Help us support our great American
heroes by visiting DAVFK dot Boston and making a donation today.
(01:03):
This is the Financial Exchange with Chuck Zada and Mark Fandetti.
Speaker 2 (01:12):
It is Chuck, Mark and Tucker with you on a
CPI Wednesday, And at eight thirty this morning, we got
the CPI data from the fine folks at the Bureau
of Labor Statistics, and what it showed was that month
over month, the headline inflation rate increased point four percent
(01:37):
as expected. The core inflation rate, we little bit better,
came in at point two percent. In terms of that
core number, it was something that when we look at
the unrounded version, because again they give you two decimal points,
but all that gets published is one. When you look
(01:59):
at the unrounded version, they came in at point two two.
So it's not something like it came in a like
point two four five and got rounded down. It was,
you know, pretty darn close to point two. And so
that's always good to see when you know, you go
out one more decimal point and you're not really surprised
by anything there. And so on this uh, you've got
the ten year US treasury dropping thirteen basis points to
(02:21):
four point six six one percent from four point you
know seven nine ish, okay, And ultimately, you know, it
seems to me that sure these you know, the core
reading was better. I mean, it annulyzes to around two
seven if you, you know, think you're gonna get twelve
more of these, which is better. Like there, there's nothing
(02:43):
wrong there. Uh. But ultimately, I don't know that you
can really look at this data and be like, hey,
we whipped inflation. Good.
Speaker 3 (02:51):
You know, don't let market reaction color your interpretation of
the data. Try to if you're into this kind of stuff,
if you don't care, and you probably care a little
bit because you're listening, but you don't have to care
that much because it's only one month's worth. But I
think we all have a tendency to look at what
the market did, and it either amplifies or mutes or
warps our interpretation of the data. The immediate reaction to
(03:13):
core CPI, which is headline all items, less food and energy.
Why food and energy? Because there were big contributors to
random shocks during the nineteen seventies, core was a little
bit more moderate than expected. Bond market went bonkers, as
you pointed out, Chuck, I think right before this show.
It was probably because everybody was on the other side
of that.
Speaker 2 (03:32):
Yeah. No, no one's wanted to own bonds for the
last month or so, and so everyone's kind of all
bared up on bonds and you get something that is
even marginally in the other direction, and it's, oh, gee,
maybe we're wrong about this, and all this money has
to run in the other direction in order to not
be off size.
Speaker 3 (03:47):
So that was ready to tip. It was sort of
teetering that recent. The momentum was bound to abate there.
But that causes i'll just say, less informed market commentators.
Sorry if that sounds snobby, but it's totally true to
let the markets reaction color their spin or their interpretation
(04:07):
because they're a little bit, you know, weak minded. They
don't have firm views or a model for inflation in mind,
and then they run with that because it's the easy
thing to do, and it starts getting amplified Bloomberg, CNBC,
they all repeat the same headline, and it's annoying.
Speaker 2 (04:23):
And I think where I continue to land at this
point is there's pretty ample evidence that core inflation is
stalling out somewhere in the high twos to low threes.
Exactly where does it really matter? But there's pretty good
evidence that core inflation is stalling out there. And why
(04:45):
that matters is not because we don't think that. You know,
it's not because we're sitting here going, hey, all you plubs,
you don't really need food and fuel. No, it's not that.
It's that. Look, food and fuel prices they tend to
be self correcting, and that if gas prices go up
a ton, economic activity slows and gas prices come back down,
(05:05):
so that it's not something that is typically a long
term trend. It tends to be kind of it regresses
to the mean over time with you know, some some
long term you know growth built in in prices just
because of you know, general labor inflation and things like that.
But the the core inflation piece to me is one
(05:26):
where look, for much of the twenty tens, core inflation
was basically hanging out in like the one five to
one seven area. There wasn't much inflation present in that decade,
and that's largely because economic growth was completely anemic during
much of the twenty tens. Where we sit today is, hey,
(05:48):
there isn't really evidence that we have that you're gonna
get core inflation back down to two percent, And as such,
maybe you need to prepare for a world in which
it's not you know, sitting like it was in twenty
twenty two when it's like six, But maybe you need
to prepare for a world where it's sitting closer to
three than two. And what does that look like.
Speaker 3 (06:12):
Yeah, in the long run, CORE and headline. First of all,
CORE came out of the seventies because there were supply
shocks to both food and energy, multiple shocks that distorted
the trend in inflation. And that's what the FED focus
is on and what they can control. The FED controls
the supply of money, which in the long run, controls inflation.
We use trend inflation core as a synonym for that.
(06:35):
There are other measures that try to get at the
trend in inflation, other measures, to be even more confusing
about it, other measures of CORE, like median and trimming outliers.
We'll get some of those later today. We'll see what
they say. But I think it's important to keep in
mind that the Fed's job is to control long term inflation.
Movements in food, energy, or insurance premiums or cell phone premiums.
(06:56):
They can distort the trend that the FED needs to
focus on, which is why we report both numbers. But
in the long run, the Fed's not targeting core inflation.
Journalists get this wrong. Core is just a way to
remove the noise from the monthly signal. Separate monthly noise
from signal. In the long run, the Fed's job is
(07:17):
headline inflation, and it remains if you look at the
past twelve months for what it's worth, and over longer
periods at one time, fleeting shocks to food, energy, cell
phone bills or whatever they do, get they do get
removed in the wash. Headline inflation remains elevated, and so
does median and other measures of core for that.
Speaker 2 (07:37):
Matter, in terms of and I also just want to
just give a little bit of context on this because
again we've talked about why the Fed's two percent target
is a dumb target, and I'm not trying to excuse
the Fed. It's much more. Hey, there isn't really evidence
that they can hit that, you know, over the long term.
But it's something where if we look back at let's
(08:03):
look like the last forty years of data, so since
the mid nineteen eighties. I'm going to exclude the nineteen
seventies where we obviously had some big, big spikes in inflation,
but let's go back to you know, one one nineteen
eighty five, and look at what we have seen as
far as inflation goes annually. The forty year average for
(08:24):
CPI is two point eight two percent. We're sitting here
right now at two point eight nine. I think the
point I'm trying to make is not that, hey, the
FED like, I'm not trying to excuse the FED and
be a FED apologist. It's much more I don't know
that we have facts and evidence that we can conclusively
(08:47):
target two percent in the long term for inflation. The
Feds existed during this entire time span. They have not
had an explicit two percent inflation target until whind Bernanke
put in place twenty twelve. Was that early twenty twelve,
So for the last thirteen years they've had that. But effectively,
(09:08):
the inflation that we've seen over the last twelve months
now is pretty much in line with the forty year
average for inflation. And if you go and take a
look at US core CPI and say, okay, what does
you know, what does that look like in terms of again,
same thing, when when you look at the forty year
(09:30):
average for core CPI it's two point eight four percent.
Speaker 3 (09:35):
Yeah, they should be say we are at tent.
Speaker 2 (09:36):
In the long term, we are at you know, three
point twenty five now, so you can make a case
that we're higher. But also the main reason that that
core CPI number is higher right now is because of
shelter costs, which are continuing to trend down. Because it's
such a lad series in there, like by the end
of this year, pretty good chance that core CPI is
somewhere in the high twos, two eight, two nine, somewhere
(09:59):
around there, you know, unless you get some kind of
weird you know, shocked to the system or something like that.
So where I'm going with this is we're condition now
over the last decade to expect two percent inflation, because look,
for the twenty tens, the big problem was not too
(10:19):
much inflation from the as the FED viewed it, it was, hey,
we're getting too little, Like inflation was running like one
and a half for much of the twenty tens. And
I think we need to be honest with ourselves when
we say that period's probably the outlier and not the
norm of what we have seen through human history and
even through like the recent you know, last couple of generations.
Speaker 3 (10:42):
YEA, In the long run, it doesn't matter whether the
target is two, three or four percent. Money's neutral. There's
some economists who disagree with that statement. They think that
monetary that changes in the money supply can have long
run effects on the economy through persistence of things like unemployment.
But let's just pretend money's neutral. Generally not controversial, so
it really doesn't matter what the FED alects. Some inflation
(11:05):
is probably a good thing. Most economists would say that
gives the FED room the lower real race when a
shock hits, when something bad happens. It also gives the
labor market some leeway because it's easier to say, raise
somebody's nominal wage and let their real wage fall than
it is to cut somebody's real wage. And I can
(11:27):
that sounds more technical than it is, but just accept no.
Speaker 2 (11:30):
It's basically we have egos. It's a lot easier for
us to say, hey, I'm giving you a five percent
raise when inflation's running six percent. Yeah, then hey, price
is dropped by three percent, so I'm cutting your salary
by two percent.
Speaker 3 (11:41):
And the example you just gave. But we're getting at
here in case this is an unfamiliar concept. In the
example you just gave, you get a five percent raise.
But prices went up by six, you were standard of
living went down by one. But it doesn't feel that way.
You still go home and you said, babe, I got
a five percent raise. Okay, Well that's you know, not
what we were hoping for, but it's okay.
Speaker 2 (11:59):
On the other hand, hey, if prices go down three.
Speaker 3 (12:02):
Same suppose we had zero inflation, which sounds like a
good goal. Go ahead.
Speaker 2 (12:06):
Yeah. If if prices stay the same and your employer says, hey,
take a one percent pay cut, they're like no, you no, Like,
screw you. I'm not taking a pay cut. You're taking
a pay cut.
Speaker 3 (12:18):
So that's that's the main argument. I think from a
labor economists point of view that some inflation is a
good thing, but reasonable people differ on that. Some go
some want zero, some want five.
Speaker 2 (12:27):
How much inflation do you want?
Speaker 3 (12:29):
Mark low and stable? We've always said that so that
we're not even aware of happening.
Speaker 2 (12:33):
What number like when when you go to sleep at
night counting inflation? Yeah, of course, what what number do
you see? I see one point.
Speaker 3 (12:42):
I'm a hard money guy. I'm a zero guy. I'm
in the zero camp because I don't trust government to
run the money supply in a time consistent way. So
it's it's political with what it comes down to your ideology.
I think sure, like I would have been for the
gold standard, even though it's absurd, it's absurdly ineffective at
running a modern economy. So it comes down to your ideology,
I think. And how much of a how much of
(13:04):
a stiff you are?
Speaker 2 (13:06):
Interesting?
Speaker 3 (13:06):
Yeah, f I'm a pretty big stiff.
Speaker 2 (13:09):
I like that about you. Let's take a quick break.
When we come back, let's talk a little bit. I
think that's enough inflation to talk for now. Let's talk
about the FED though, and what they potentially do over
the course of twenty twenty five.
Speaker 1 (13:23):
Text us six one seven, three, six two thirteen eighty
five with your comments and questions about today's show and
let us know what you think about the stories we
are covering. This is 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.
(13:44):
This is the Financial Exchange Radio Network.
Speaker 4 (13:52):
The Financial Exchange is a proud partner of the Disabled
American Veterans Department of Massachusetts. By making a donation, you
can support with the Veteran Advancement Program, which offers permanent
and transitional affordable housing to veterans and their dependents. The
DAV of Massachusetts is the only DAV department in the
country to lead a veterans housing initiative for single vets
(14:15):
and those with families. Visit DAV five k dot Boston
to make a donation today and make note for this
year's five K to be held on Saturday, November eighth.
That's DAV five k dot Boston.
Speaker 1 (14:29):
Mark.
Speaker 2 (14:30):
I'm old enough to remember Jeremy Siegel last September coming
out and yelling at me, not me personally, but through
my TV, yelling at me that the Federal Reserve needed
to do an emergency seventy five basis point rate cut
(14:51):
and then cut seventy five basis points the next meeting.
I'm also old enough to remember this piece from the
Wall Street Journal from yesterday by James Macintosh, and it's
titled what if the fed U turns and raises rates
this year? And by golly, I am so sick of
us extrapolating two to three month trends in what's going
(15:14):
on in the economic data into what is ultimately going
to happen over the next three years, because that's what
we've done in each of these cases. Yea, in September,
it was, well, we've had a tough summer of you know,
employment data, and the SAM rule triggered, and so everybody
panic and Jeremy Siegel was leading the freaking panic, which
(15:35):
is two bad. Is Jeremy Siegel generally a really smart guy,
but he was an absolute mess after that employment report
that we got for August. In this case, it's not Siegel,
it's a whole bunch of other people that are running
around now going, oh, we're gonna have to raise rates.
The economy is too hot. And ultimately neither of these
(15:55):
are probably right because in every economy you see these
fluctuations over two and three month periods because it's never stable,
it's never stagnant, it never just sits where you want
it to. It's always evolving. And just to look at well,
you know, employments, you know, not good for a few months,
or hey, bond yields are selling off right now, does
(16:15):
that mean that you know inflation's back? For Sometimes you
can just not do anything, and that's perfectly fine.
Speaker 3 (16:25):
We don't understand a lot about inflation. Unfortunately economists don't.
They admit this. Academic researchers are the first to admit it.
And I think seagulls, alarmism and hyperventilating is a good reminder.
And you all know this. Take predictions from so called experts.
(16:46):
And he is one Yale PhD buddies with Robert Schiller
who want to nobel. I mean, these guys are top
notch yes searchers, teachers in an ivy League school. Siegel
does wrote a very popular.
Speaker 2 (16:56):
Way no dummy book.
Speaker 3 (16:57):
This is Yeah, you you already made this point. I'm
just in it on a little thick I guess. But
in our domain, finance, more generally economics, forecasts are problematic,
I'll just say, much more so than in say the
hard sciences economics, finance. They're so they're softer sciences, they're
(17:18):
social sciences.
Speaker 2 (17:19):
To the gen zers listening, the shorthand is math is hard, yo.
Speaker 3 (17:23):
You might put it that way. Forecasting is certainly hard
in soft sciences like this one, and serious people know
not to do it. I think sometimes even serious people
can get carried away. But anybody listening knows to take
economic or market predictions with a huge grain of salt.
Speaker 2 (17:41):
When we talk about the case for the Federal Reserve hiking,
I'll lay out in my case in which it would
be reasonable to discuss this, and that is, if you
see an uptick in core CPI beyond where it is today,
in a meaningful uptick over the course of this year,
to the point where we're sitting there at three two
(18:03):
five right now, if you get core CPI somehow accelerating
to foreign change four four one four two, okay, case
to be made that, Yeah, the Fed ass to have
a real serious conversation about hiking. But the question that
I'll ask to anyone listening and to you, Mark, is okay,
what's the case for core CPI accelerating from?
Speaker 3 (18:26):
So you have to think about the process of inflation,
and the way researchers generally think about it is it's
composed of a core or underlying component. I'm using core here,
not in the ex food and energy sense. I'm using
it in the more general sense. It's driven by too
much money being It's driven by output departing from its potential,
the economy exceeding its speed limit. That's one part of
core in modern macroeconomic models. The other part is expectations,
(18:49):
and then all inflation can be explained by those two things,
plus the supply shock component, oil prices, productivity, any number
of things that can shift those relationships around. So if
the economy suddenly sped up, or if inflation expectations continued
to creep up like they did this month, probably in
response to energy, but they did, nevertheless, the FED might
(19:09):
want to get ahead of that. If there's an outside
shock like we had during COVID, the FED might this
time want to get ahead of that and respond a
little more severely. So there are ways beyond looking at
core or headline inflation, huck, which is a rearview, mirror
perspective that could motivate the FED to act or not.
Speaker 2 (19:28):
Take a quick break. When we come back, it's time
for Wall Street Watch.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look at what's moving markets so
far today right here on the Financial Exchange Radio Network.
Speaker 4 (20:01):
Market's are rallying as Wall Street reacts to the Consumer
Price Index this morning for the latest reading on inflation,
where consumer prices climb two point nine percent on an
annual basis, in line with expectations. Month over month prices
climb zero point four percent, also in line with forecasts.
Traders are also sifting through strong bank earnings posted ahead
(20:23):
of the opening bell this morning. Right now, the Dow
is up by one in two thirds of a percent,
or seven hundred points. S and P five hundred also
up one in two thirds of percent or ninety eight points,
Nasdaq surging over two percent higher or four hundred and
twenty eight points, Russell two thousand, up nearly two and
a half percent higher, are fifty three points, Tenure Treasure
(20:44):
will pulling back by fourteen basis points at four point
six three percent, and crude oil is up two percent higher,
trading just above seventy nine dollars a barrel. JP Morgan, Chase,
and Wells Fargo impressed on their fourth quarter results, as
boltans beat earnings and revenue expectations. JP Morgan saw strong
performances from its fixed income and investment business, while Wells
(21:08):
Fargo said it expects net interest income to increase one
to three percent in twenty twenty five from a year ago.
JP Morgan up by one percent, while Wells Fargo stock
is up by five percent. Other banks, including Goldman Sachs,
black Rock, and City Group are also seeing gains after
posting strong fourth quarter results. Elsewhere, Microsoft announced its new
(21:29):
Quantum Ready program for businesses, saying quote, we are at
the advent of the reliable quantum computing era. Shares in
quantum stocks, including We're Getting Computing, d Wave, Quantum, and
ion Q are jumping on the news. Shares in Meta
up by nearly four percent following news that the social
media giant is readying to cut about five percent of
(21:50):
its workforce, focusing on Meta's lowest performing staffers. In a
memo to employees, CEO Mark Zuckerberg said twenty twenty five
will be an intense year, and tomorrow morning we'll see
more bank earnings from Bank of America and Morgan Stanley.
United Health will also report ahead of the opening bell.
I'm Tucker Silvan. That's Wall Street Watch.
Speaker 2 (22:12):
Can we take a quick detour? Mark? Okay, I want
to talk about quantum computing.
Speaker 3 (22:19):
Oh jeez, No, I can't think of something I know
less about.
Speaker 2 (22:23):
Well, I can think of lots that you know less about.
I don't know if that's good or bad. Look here
here's the deal. For anyone listening and wondering what quantum
computing is, here's the basic rundown of it. A normal
computer has processors that have billions of transistors. A transistor
is quite simply something that either is it's either open
(22:46):
or closed, it's one or zero, and the combination of
ones and zeros in the binary language end up telling
the computer to do something. It might be you know
the letter A, put a pixel here, do this do that.
You don't need to know the exact specifics of it
other than and transistors are binary. They can either be
open or closed. They can't be both the same time.
And so as an example, the reason why encryption works
(23:10):
is because if you have an encryption key that is
really freaking long, you have to try every single combination
in sequence, and you can't break that sequence for trillions
of years if you're using the right kind of encryption,
because you have to go through each option one at
a time, even doing millions a minute. If there are
(23:31):
trillions of options, it takes you freaking forever. Quantum computing,
the premise is simple. You are able to use what
are called cubits, which are I'll be honest, I don't
know exactly what they are, but the premise of them
and how they actually work is, rather than having to
cycle through everything sequentially, they can both be a one
(23:55):
and a zero at the same time, and so you
can compute all of these possibilities. Is not necessarily instantly
because it doesn't really work like that, but much much
faster in something that might take trillions of years might
take ten minutes instead. And so Google made some noise
back in what was it December where they said, oh,
(24:16):
like we've seen, like, you know, massive improvement on quantum
computing blah blah blah, and it touched off this whole
like quantum computing cycle in stocks here. Here's the thing
quantum computers. And this is from people that I know
that actually know what they're talking about on this stuff.
(24:36):
It is at least a decade away from even being
viable to try to use these commercially, and probably two
to three decades away from any kind of mass adoption.
So when I go to Microsoft's azer page where it's
titled this for me yesterday twenty twenty five, the year
to become quantum ready, I'm just gonna read some quotes
(24:59):
here as we look forward to the next twelve months.
The pace of quantum research and development is only going
to accelerate, making this a critical and catalyzing time for
business leaders to act. In a business decision maker study,
twelve percent of business decision makers said their organizations were
prepared to assess quantum opportunities. What freaking business is looking
(25:19):
at quantum opportunities this year? There is no one at
all who woke up on January first and said, you
know what my business needs this year? Some quantum computers.
No one said that. I am not believing that twelve
percent of people said that they were prepared to assess
quantum opportunities this year. That is complete crap and it
(25:45):
should be treated as such. Now. I get that Microsoft
has seen, you know, a whole bunch of benefit from
being on the cutting edge of AI, and their stock's
done very nicely over the last couple of years, and
obviously you need to deliver the what's next to your
shareholders to keep the ball rolling. But these are tied together.
In my opinion, you're doing the weave. If we're really
(26:09):
so convinced, and if Microsoft and Google and Meta and
everyone is really so convinced that AI is this productivity
game changer that's gonna usher in like, hey, we can
have so much more growth. Why are they not laying
off more people and specifically salesforce. Who is a company
(26:34):
that's like supposedly at the forefront of Lake They have
all these AI agents that they're rolling out. Why did
Mark Benioff, the CEO, announced they were hiring two thousand
more salespeople at the end of last year to sell AI?
Why can't your AI agents do the selling? Is it
maybe because they can't do what you're saying they can do?
(26:56):
Because all I know is if I had access to
all of these tools internally and they were really as
good as as I was claiming them to be, Well,
why do I need either A? Why do I need
the headcount that I have because they can do the work?
Or B? Why am I going out and hiring a
whole bunch of people to sell the AI tools? Why
am I not just building AI to sell the AI tools?
Speaker 3 (27:19):
It should be self evident that it will help your business.
They should just show you the software.
Speaker 2 (27:23):
So I guess where I'm kind of at to tie
this all back together. Is the reason that we're starting
to see all of this quantum computing talk from the
big AI guys. Is it because the promise of AI
is going to fall flat on its face in the
next year or two? Is the question that I'm asking.
Speaker 3 (27:42):
I'm snorting because you're piling fantasy, though grounded in reality,
upon fantasy. It's like when AI stopped pushing your stock up.
You found that throwing quantum and a few press releases
gave you a boost. So does it feel like that?
Not the first time. There's a great Jeremy Siegels book chronicle.
Brandon Burton mal Kyle's book Random Walk Down Wall Street
(28:06):
goes back decades. A lot of many of you read
it in college. You may have forgotten it, but pick
it up again. He chronicles the tech boom, the tronics boom,
excuse me of the sixties when businesses started suffixing their
names with tronics because they realized that they could push
up there's your price just by seeming to be avant
(28:26):
garde or cutting edge. So this is not new in
my experience. When people in finance with MBAs, even though
they're really smart, start talking about a technology, they generally
don't understand it and they're just trying to sell you
something or push up their stock price. Look, I'm not
denying that there could be enormous productivity and thus economic
(28:46):
growth benefits from something like AI. But you don't have
to be a savvy investor to avail yourselves of them.
Just buy an index fund and you'll benefit passively as
they're engineered to do from any of those innovations.
Speaker 2 (29:03):
Becoming quantum ready is both a business and global imperative.
Speaker 3 (29:08):
Maybe, I don't know.
Speaker 2 (29:09):
In fact, the United Nations announced twenty twenty five as
the International Year of Quantum Science and Technology Parentheses IYQ,
reflecting the transformative impact quantum mechanics has had in the
past century and setting the stage for the next wave
of quantum innovation.
Speaker 3 (29:30):
Yeah. I mean, if you're really curious, there are some
good lectures on Amazon Prime about physics and quantum mechanics
for lay people like.
Speaker 2 (29:37):
Yeah, I think it's really interesting stuff. I think that
what we're talking about here in terms of you know, oh,
companies need to use this year to get serious about
quantum computing. No, they don't.
Speaker 3 (29:50):
I don't know. Maybe in retrospect, this will have been
the year to make room for that big quantum computer
in the kitchen. I don't I don't know, don't. I
don't put it on the board, Tucker. No one is
selling a quantum computer in twenty twenty five. Someone might
make one and use it internally, but no one is
selling one.
Speaker 4 (30:08):
What about twenty twenty six.
Speaker 2 (30:11):
Fine, you can put that on the book, till I
was trying to I know you normally don't like really
long term things.
Speaker 4 (30:17):
That's short enough because you're saying this year in next
it's fine.
Speaker 2 (30:21):
You usually do like a decade out predictions. I know
I'm trying ridiculous. I'm trying to be better. Yeah, two years.
If I can get a little better each day, that's
all I'm trying to do. Just take a quick break.
When we come back, we'll talk a little bit about
banker ans, JP, Morgan, Wells, Fargo, Goldman, Sachs, whole bunch
of reporting. We got a couple of them that will
cover when we return.
Speaker 1 (30:42):
This is your home for the most comprehensive coverage of
the economy and the trends on Wall Street. This is
the Financial Exchange Radio Network. Find daily interviews and full
shows of the Financial Exchange on our YouTube page. Like
us on YouTube and get caught up on anything and
everything you might have missed. This is the Financial Exchange
Radio Network.
Speaker 2 (31:15):
All right, so we're right in the middle of bank
earning season. JP Morgan reported earnings. What did Senor Diamond
tell us this morning?
Speaker 3 (31:25):
Oh, I was just looking at the results. I wasn't
paying too much attention to his editorializing. But what strikes
me about JP Morgan is operational I'll just call it efficiency.
They're very high Roe return on equity relative to competitors.
It seems like all financial services companies have benefited from
(31:47):
the lush and favorable financial conditions we've experienced over the
past year. You see that with Goldman, you see that
with Morgan, you see that with the Bank of A
pretty much across the board. So when you get when
you get iye popping results like they seem to be
delivering this quarter, you got to wonder how much of
it is due to favorable conditions, how much of it
(32:08):
is due to i't's call it skill in management. And
Morgan in particular, since you asked, seems to be able
to generate consistently high ROE relative to competitors. The one
metric notable to me is someone who doesn't you know,
follow this space that closely and again that's not due
to just a favorable backdrop, that's due to skill in management.
Speaker 4 (32:32):
According to jen Worth, the average monthly cost for a
private room in New England could double by twenty forty.
So if you're not prepared to handle the increased costs
of nursing home care, your assets may be at risk.
Call Cushing and Dolin today and request their new guide
called long Term Care Planning for Procrastinators. It'll help you
understand how to protect your assets and allow you to
enjoy your later years. An unexpected nursing home stay could
(32:55):
significantly reduce your wealth and prosperity. Called Cushing and Dolan
right now out eight six six eight four eight five
six nine nine and get your free guide called long
Term Care Planning for Procrastinators. Don't put off today what
you might really need to do tomorrow. That's eight sixty
six eight four eight five six nine nine. Or you
can request the guide from their website Legal exchange show
(33:19):
dot com.
Speaker 1 (33:20):
The proceeding was paid for and the views expressed are
solely those of Cushing and Dolan. Cushing and Dolan and
or Armstrong Advisory may contact you offering legal or investment services.
Cushing and Armstrong did not endorse each other and are
not affiliated.
Speaker 2 (33:31):
Wells Fargo also reporting they took a six hundred and
forty seven million dollars severance charge for the quarters. They're
continuing to try to cut their head count, but overall,
when you look at Wells Fargo again trying to I think,
get their feet under them after a decade in the
(33:51):
twenty tens that I think can best be described as
like very out of character and very bad for a
bank that was typically thought of, as you know, operating
at a high level, not taking big risks, and generally
being pretty well thought of, had a number of different
scandals related largely to a lack of internal control within
the company, and now trying to get themselves kind of
(34:16):
back on their feet as they go through the twenty twenties.
So it's hard for me to find a bank that
saw its starfall more than them during the twenty tens
and again just trying to get themselves squared away. Here,
I think is the message that that I get out
(34:37):
of this.
Speaker 3 (34:38):
Yeah, apparently their investment banking business, just reading from the
headlines today contributed It's not clear whether it's most or
a disproportionate share of its most recent jump in profit
or net income, depending on how you want to measure it.
I do you have any sense for whether they're their
core business banking, Yes, has sort of stable, lot Ston
(35:00):
is growing at the rate that they or investors have expected.
Nor are they Yeah, Yeah, I don't know. I'm sorry,
I don't know either. I asked a question, I don't
know the answer.
Speaker 2 (35:12):
They're there. I haven't like see. I think the one
thing that you can say, it doesn't seem like there
has been any new scandal recently, because for much of
the twenty tens, like you were seeing stuff popping up
quite honestly on kind of an annual basis. So I
(35:32):
do think that's good. Remember Wells Fargo was the company
that had the big cross selling scandal. They also had
I'm trying to think of all the different ones that
they had. I just want to make sure that I
don't ascribe something to them that was someone else. Okay,
here we go. They also had the fake account scandal,
so that was in September of twenty sixteen, where they
(35:56):
created more than one point five million fake deposit accounts
in five hundred thousand fake credit cards in customers' names
without their permission. So these were affecting like customer credit
reports and things like that. And this was in order
to be able to you know, have bank you know,
loan originators hitting their bogies. In September of that year,
(36:17):
they were improperly repossessing service members cars. So these are
military service members that they were repossessing without basically with
like when they should not have been other things. In
March of seventeen, they found more fake accounts that they
had previously not found in the first round when they
(36:39):
went through. They also had a lawsuit in August of
seventeen for overcharging small business retailers. Let's see what else
did they.
Speaker 3 (36:49):
Have for I go out of business if you're a
big bank.
Speaker 2 (36:51):
March twenty eighteen, Wells Farger reported that the Justice Department
was investigating their wealth management business. In April of twenty eighteen,
they agreed to a billion settlement for mortgage locks and
auto loan issues. Let's see May of twenty eighteen, they
altered business information like social security numbers and dates of
birth without client knowledge. Let's see what else did they
(37:13):
have here. July twenty eighteen, they had to issue refunds
on add ons like pet insurance and legal services without
cut that they had put on products without customers full
understanding and consent. Let's see again, it was like just
all over the place. It was like a NonStop thing.
So I guess that the thing that you can say,
(37:34):
I don't think I've seen too much on that side recently,
which is good.
Speaker 3 (37:38):
What didn't they do during that period? Any shenanigans they
didn't try might be a shorter list.
Speaker 2 (37:44):
Well, again, to be fair, it wasn't like every single
thing they did was a problem, but it was a
long Listen, and by the way, I didn't even August
twenty eighteen, this one's bad too. They foreclosed on hundreds
of homes due to a computer glitch where people were
incorrectly denied loan modifications. So four hundred foreclosures happened that
(38:05):
should not have. It's pretty bad. Like it's pretty bad
losing your home when you shouldn't have. Let's take a
quick break. Hour two coming up in a bit
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 Mark fan Daddy, your exclusive
look at business and financial news affecting your day, your city,
(00:43):
your world. Stay informed and up to date about economic
and market trends, plus breaking business news every day. The
Financial Exchange is a proud partner of the Disabled American
Veterans Department of Massachusetts. Help us support our great American
heroes by visiting DAVFK dot Boston and making a donation today.
(01:03):
This is the Financial Exchange with Chuck Zada and Mark Fandetti.
Speaker 2 (01:12):
It is Chuck, Mark and Tucker with you on a
CPI Wednesday, And at eight thirty this morning, we got
the CPI data from the fine folks at the Bureau
of Labor Statistics, and what it showed was that month
over month, the headline inflation rate increased point four percent
(01:37):
as expected. The core inflation rate, we little bit better,
came in at point two percent. In terms of that
core number, it was something that when we look at
the unrounded version, because again they give you two decimal points,
but all that gets published is one. When you look
(01:59):
at the unrounded version, they came in at point two two.
So it's not something like it came in a like
point two four five and got rounded down. It was,
you know, pretty darn close to point two. And so
that's always good to see when you know, you go
out one more decimal point and you're not really surprised
by anything there. And so on this uh, you've got
the ten year US treasury dropping thirteen basis points to
(02:21):
four point six six one percent from four point you
know seven nine ish, okay, And ultimately, you know, it
seems to me that sure these you know, the core
reading was better. I mean, it annulyzes to around two
seven if you, you know, think you're gonna get twelve
more of these, which is better. Like there, there's nothing
(02:43):
wrong there. Uh. But ultimately, I don't know that you
can really look at this data and be like, hey,
we whipped inflation. Good.
Speaker 3 (02:51):
You know, don't let market reaction color your interpretation of
the data. Try to if you're into this kind of stuff,
if you don't care, and you probably care a little
bit because you're listening, but you don't have to care
that much because it's only one month's worth. But I
think we all have a tendency to look at what
the market did, and it either amplifies or mutes or
warps our interpretation of the data. The immediate reaction to
(03:13):
core CPI, which is headline all items, less food and energy.
Why food and energy? Because there were big contributors to
random shocks during the nineteen seventies, core was a little
bit more moderate than expected. Bond market went bonkers, as
you pointed out, Chuck, I think right before this show.
It was probably because everybody was on the other side
of that.
Speaker 2 (03:32):
Yeah. No, no one's wanted to own bonds for the
last month or so, and so everyone's kind of all
bared up on bonds and you get something that is
even marginally in the other direction, and it's, oh, gee,
maybe we're wrong about this, and all this money has
to run in the other direction in order to not
be off size.
Speaker 3 (03:47):
So that was ready to tip. It was sort of
teetering that recent. The momentum was bound to abate there.
But that causes i'll just say, less informed market commentators.
Sorry if that sounds snobby, but it's totally true to
let the markets reaction color their spin or their interpretation
(04:07):
because they're a little bit, you know, weak minded. They
don't have firm views or a model for inflation in mind,
and then they run with that because it's the easy
thing to do, and it starts getting amplified Bloomberg, CNBC,
they all repeat the same headline, and it's annoying.
Speaker 2 (04:23):
And I think where I continue to land at this
point is there's pretty ample evidence that core inflation is
stalling out somewhere in the high twos to low threes.
Exactly where does it really matter? But there's pretty good
evidence that core inflation is stalling out there. And why
(04:45):
that matters is not because we don't think that. You know,
it's not because we're sitting here going, hey, all you plubs,
you don't really need food and fuel. No, it's not that.
It's that. Look, food and fuel prices they tend to
be self correcting, and that if gas prices go up
a ton, economic activity slows and gas prices come back down,
(05:05):
so that it's not something that is typically a long
term trend. It tends to be kind of it regresses
to the mean over time with you know, some some
long term you know growth built in in prices just
because of you know, general labor inflation and things like that.
But the the core inflation piece to me is one
(05:26):
where look, for much of the twenty tens, core inflation
was basically hanging out in like the one five to
one seven area. There wasn't much inflation present in that decade,
and that's largely because economic growth was completely anemic during
much of the twenty tens. Where we sit today is, hey,
(05:48):
there isn't really evidence that we have that you're gonna
get core inflation back down to two percent, And as such,
maybe you need to prepare for a world in which
it's not you know, sitting like it was in twenty
twenty two when it's like six, But maybe you need
to prepare for a world where it's sitting closer to
three than two. And what does that look like.
Speaker 3 (06:12):
Yeah, in the long run, CORE and headline. First of all,
CORE came out of the seventies because there were supply
shocks to both food and energy, multiple shocks that distorted
the trend in inflation. And that's what the FED focus
is on and what they can control. The FED controls
the supply of money, which in the long run, controls inflation.
We use trend inflation core as a synonym for that.
(06:35):
There are other measures that try to get at the
trend in inflation, other measures, to be even more confusing
about it, other measures of CORE, like median and trimming outliers.
We'll get some of those later today. We'll see what
they say. But I think it's important to keep in
mind that the Fed's job is to control long term inflation.
Movements in food, energy, or insurance premiums or cell phone premiums.
(06:56):
They can distort the trend that the FED needs to
focus on, which is why we report both numbers. But
in the long run, the Fed's not targeting core inflation.
Journalists get this wrong. Core is just a way to
remove the noise from the monthly signal. Separate monthly noise
from signal. In the long run, the Fed's job is
(07:17):
headline inflation, and it remains if you look at the
past twelve months for what it's worth, and over longer
periods at one time, fleeting shocks to food, energy, cell
phone bills or whatever they do, get they do get
removed in the wash. Headline inflation remains elevated, and so
does median and other measures of core for that.
Speaker 2 (07:37):
Matter, in terms of and I also just want to
just give a little bit of context on this because
again we've talked about why the Fed's two percent target
is a dumb target, and I'm not trying to excuse
the Fed. It's much more. Hey, there isn't really evidence
that they can hit that, you know, over the long term.
But it's something where if we look back at let's
(08:03):
look like the last forty years of data, so since
the mid nineteen eighties. I'm going to exclude the nineteen
seventies where we obviously had some big, big spikes in inflation,
but let's go back to you know, one one nineteen
eighty five, and look at what we have seen as
far as inflation goes annually. The forty year average for
(08:24):
CPI is two point eight two percent. We're sitting here
right now at two point eight nine. I think the
point I'm trying to make is not that, hey, the
FED like, I'm not trying to excuse the FED and
be a FED apologist. It's much more I don't know
that we have facts and evidence that we can conclusively
(08:47):
target two percent in the long term for inflation. The
Feds existed during this entire time span. They have not
had an explicit two percent inflation target until whind Bernanke
put in place twenty twelve. Was that early twenty twelve,
So for the last thirteen years they've had that. But effectively,
(09:08):
the inflation that we've seen over the last twelve months
now is pretty much in line with the forty year
average for inflation. And if you go and take a
look at US core CPI and say, okay, what does
you know, what does that look like in terms of again,
same thing, when when you look at the forty year
(09:30):
average for core CPI it's two point eight four percent.
Speaker 3 (09:35):
Yeah, they should be say we are at tent.
Speaker 2 (09:36):
In the long term, we are at you know, three
point twenty five now, so you can make a case
that we're higher. But also the main reason that that
core CPI number is higher right now is because of
shelter costs, which are continuing to trend down. Because it's
such a lad series in there, like by the end
of this year, pretty good chance that core CPI is
somewhere in the high twos, two eight, two nine, somewhere
(09:59):
around there, you know, unless you get some kind of
weird you know, shocked to the system or something like that.
So where I'm going with this is we're condition now
over the last decade to expect two percent inflation, because look,
for the twenty tens, the big problem was not too
(10:19):
much inflation from the as the FED viewed it, it was, hey,
we're getting too little, Like inflation was running like one
and a half for much of the twenty tens. And
I think we need to be honest with ourselves when
we say that period's probably the outlier and not the
norm of what we have seen through human history and
even through like the recent you know, last couple of generations.
Speaker 3 (10:42):
YEA, In the long run, it doesn't matter whether the
target is two, three or four percent. Money's neutral. There's
some economists who disagree with that statement. They think that
monetary that changes in the money supply can have long
run effects on the economy through persistence of things like unemployment.
But let's just pretend money's neutral. Generally not controversial, so
it really doesn't matter what the FED alects. Some inflation
(11:05):
is probably a good thing. Most economists would say that
gives the FED room the lower real race when a
shock hits, when something bad happens. It also gives the
labor market some leeway because it's easier to say, raise
somebody's nominal wage and let their real wage fall than
it is to cut somebody's real wage. And I can
(11:27):
that sounds more technical than it is, but just accept no.
Speaker 2 (11:30):
It's basically we have egos. It's a lot easier for
us to say, hey, I'm giving you a five percent
raise when inflation's running six percent. Yeah, then hey, price
is dropped by three percent, so I'm cutting your salary
by two percent.
Speaker 3 (11:41):
And the example you just gave. But we're getting at
here in case this is an unfamiliar concept. In the
example you just gave, you get a five percent raise.
But prices went up by six, you were standard of
living went down by one. But it doesn't feel that way.
You still go home and you said, babe, I got
a five percent raise. Okay, Well that's you know, not
what we were hoping for, but it's okay.
Speaker 2 (11:59):
On the other hand, hey, if prices go down three.
Speaker 3 (12:02):
Same suppose we had zero inflation, which sounds like a
good goal. Go ahead.
Speaker 2 (12:06):
Yeah. If if prices stay the same and your employer says, hey,
take a one percent pay cut, they're like no, you no, Like,
screw you. I'm not taking a pay cut. You're taking
a pay cut.
Speaker 3 (12:18):
So that's that's the main argument. I think from a
labor economists point of view that some inflation is a
good thing, but reasonable people differ on that. Some go
some want zero, some want five.
Speaker 2 (12:27):
How much inflation do you want?
Speaker 3 (12:29):
Mark low and stable? We've always said that so that
we're not even aware of happening.
Speaker 2 (12:33):
What number like when when you go to sleep at
night counting inflation? Yeah, of course, what what number do
you see? I see one point.
Speaker 3 (12:42):
I'm a hard money guy. I'm a zero guy. I'm
in the zero camp because I don't trust government to
run the money supply in a time consistent way. So
it's it's political with what it comes down to your ideology.
I think sure, like I would have been for the
gold standard, even though it's absurd, it's absurdly ineffective at
running a modern economy. So it comes down to your ideology,
I think. And how much of a how much of
(13:04):
a stiff you are?
Speaker 2 (13:06):
Interesting?
Speaker 3 (13:06):
Yeah, f I'm a pretty big stiff.
Speaker 2 (13:09):
I like that about you. Let's take a quick break.
When we come back, let's talk a little bit. I
think that's enough inflation to talk for now. Let's talk
about the FED though, and what they potentially do over
the course of twenty twenty five.
Speaker 1 (13:23):
Text us six one seven, three, six two thirteen eighty
five with your comments and questions about today's show and
let us know what you think about the stories we
are covering. This is 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.
(13:44):
This is the Financial Exchange Radio Network.
Speaker 4 (13:52):
The Financial Exchange is a proud partner of the Disabled
American Veterans Department of Massachusetts. By making a donation, you
can support with the Veteran Advancement Program, which offers permanent
and transitional affordable housing to veterans and their dependents. The
DAV of Massachusetts is the only DAV department in the
country to lead a veterans housing initiative for single vets
(14:15):
and those with families. Visit DAV five k dot Boston
to make a donation today and make note for this
year's five K to be held on Saturday, November eighth.
That's DAV five k dot Boston.
Speaker 1 (14:29):
Mark.
Speaker 2 (14:30):
I'm old enough to remember Jeremy Siegel last September coming
out and yelling at me, not me personally, but through
my TV, yelling at me that the Federal Reserve needed
to do an emergency seventy five basis point rate cut
(14:51):
and then cut seventy five basis points the next meeting.
I'm also old enough to remember this piece from the
Wall Street Journal from yesterday by James Macintosh, and it's
titled what if the fed U turns and raises rates
this year? And by golly, I am so sick of
us extrapolating two to three month trends in what's going
(15:14):
on in the economic data into what is ultimately going
to happen over the next three years, because that's what
we've done in each of these cases. Yea, in September,
it was, well, we've had a tough summer of you know,
employment data, and the SAM rule triggered, and so everybody
panic and Jeremy Siegel was leading the freaking panic, which
(15:35):
is two bad. Is Jeremy Siegel generally a really smart guy,
but he was an absolute mess after that employment report
that we got for August. In this case, it's not Siegel,
it's a whole bunch of other people that are running
around now going, oh, we're gonna have to raise rates.
The economy is too hot. And ultimately neither of these
(15:55):
are probably right because in every economy you see these
fluctuations over two and three month periods because it's never stable,
it's never stagnant, it never just sits where you want
it to. It's always evolving. And just to look at well,
you know, employments, you know, not good for a few months,
or hey, bond yields are selling off right now, does
(16:15):
that mean that you know inflation's back? For Sometimes you
can just not do anything, and that's perfectly fine.
Speaker 3 (16:25):
We don't understand a lot about inflation. Unfortunately economists don't.
They admit this. Academic researchers are the first to admit it.
And I think seagulls, alarmism and hyperventilating is a good reminder.
And you all know this. Take predictions from so called experts.
(16:46):
And he is one Yale PhD buddies with Robert Schiller
who want to nobel. I mean, these guys are top
notch yes searchers, teachers in an ivy League school. Siegel
does wrote a very popular.
Speaker 2 (16:56):
Way no dummy book.
Speaker 3 (16:57):
This is Yeah, you you already made this point. I'm
just in it on a little thick I guess. But
in our domain, finance, more generally economics, forecasts are problematic,
I'll just say, much more so than in say the
hard sciences economics, finance. They're so they're softer sciences, they're
(17:18):
social sciences.
Speaker 2 (17:19):
To the gen zers listening, the shorthand is math is hard, yo.
Speaker 3 (17:23):
You might put it that way. Forecasting is certainly hard
in soft sciences like this one, and serious people know
not to do it. I think sometimes even serious people
can get carried away. But anybody listening knows to take
economic or market predictions with a huge grain of salt.
Speaker 2 (17:41):
When we talk about the case for the Federal Reserve hiking,
I'll lay out in my case in which it would
be reasonable to discuss this, and that is, if you
see an uptick in core CPI beyond where it is today,
in a meaningful uptick over the course of this year,
to the point where we're sitting there at three two
(18:03):
five right now, if you get core CPI somehow accelerating
to foreign change four four one four two, okay, case
to be made that, Yeah, the Fed ass to have
a real serious conversation about hiking. But the question that
I'll ask to anyone listening and to you, Mark, is okay,
what's the case for core CPI accelerating from?
Speaker 3 (18:26):
So you have to think about the process of inflation,
and the way researchers generally think about it is it's
composed of a core or underlying component. I'm using core here,
not in the ex food and energy sense. I'm using
it in the more general sense. It's driven by too
much money being It's driven by output departing from its potential,
the economy exceeding its speed limit. That's one part of
core in modern macroeconomic models. The other part is expectations,
(18:49):
and then all inflation can be explained by those two things,
plus the supply shock component, oil prices, productivity, any number
of things that can shift those relationships around. So if
the economy suddenly sped up, or if inflation expectations continued
to creep up like they did this month, probably in
response to energy, but they did, nevertheless, the FED might
(19:09):
want to get ahead of that. If there's an outside
shock like we had during COVID, the FED might this
time want to get ahead of that and respond a
little more severely. So there are ways beyond looking at
core or headline inflation, huck, which is a rearview, mirror
perspective that could motivate the FED to act or not.
Speaker 2 (19:28):
Take a quick break. When we come back, it's time
for Wall Street Watch.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look at what's moving markets so
far today right here on the Financial Exchange Radio Network.
Speaker 4 (20:01):
Market's are rallying as Wall Street reacts to the Consumer
Price Index this morning for the latest reading on inflation,
where consumer prices climb two point nine percent on an
annual basis, in line with expectations. Month over month prices
climb zero point four percent, also in line with forecasts.
Traders are also sifting through strong bank earnings posted ahead
(20:23):
of the opening bell this morning. Right now, the Dow
is up by one in two thirds of a percent,
or seven hundred points. S and P five hundred also
up one in two thirds of percent or ninety eight points,
Nasdaq surging over two percent higher or four hundred and
twenty eight points, Russell two thousand, up nearly two and
a half percent higher, are fifty three points, Tenure Treasure
(20:44):
will pulling back by fourteen basis points at four point
six three percent, and crude oil is up two percent higher,
trading just above seventy nine dollars a barrel. JP Morgan, Chase,
and Wells Fargo impressed on their fourth quarter results, as
boltans beat earnings and revenue expectations. JP Morgan saw strong
performances from its fixed income and investment business, while Wells
(21:08):
Fargo said it expects net interest income to increase one
to three percent in twenty twenty five from a year ago.
JP Morgan up by one percent, while Wells Fargo stock
is up by five percent. Other banks, including Goldman Sachs,
black Rock, and City Group are also seeing gains after
posting strong fourth quarter results. Elsewhere, Microsoft announced its new
(21:29):
Quantum Ready program for businesses, saying quote, we are at
the advent of the reliable quantum computing era. Shares in
quantum stocks, including We're Getting Computing, d Wave, Quantum, and
ion Q are jumping on the news. Shares in Meta
up by nearly four percent following news that the social
media giant is readying to cut about five percent of
(21:50):
its workforce, focusing on Meta's lowest performing staffers. In a
memo to employees, CEO Mark Zuckerberg said twenty twenty five
will be an intense year, and tomorrow morning we'll see
more bank earnings from Bank of America and Morgan Stanley.
United Health will also report ahead of the opening bell.
I'm Tucker Silvan. That's Wall Street Watch.
Speaker 2 (22:12):
Can we take a quick detour? Mark? Okay, I want
to talk about quantum computing.
Speaker 3 (22:19):
Oh jeez, No, I can't think of something I know
less about.
Speaker 2 (22:23):
Well, I can think of lots that you know less about.
I don't know if that's good or bad. Look here
here's the deal. For anyone listening and wondering what quantum
computing is, here's the basic rundown of it. A normal
computer has processors that have billions of transistors. A transistor
is quite simply something that either is it's either open
(22:46):
or closed, it's one or zero, and the combination of
ones and zeros in the binary language end up telling
the computer to do something. It might be you know
the letter A, put a pixel here, do this do that.
You don't need to know the exact specifics of it
other than and transistors are binary. They can either be
open or closed. They can't be both the same time.
And so as an example, the reason why encryption works
(23:10):
is because if you have an encryption key that is
really freaking long, you have to try every single combination
in sequence, and you can't break that sequence for trillions
of years if you're using the right kind of encryption,
because you have to go through each option one at
a time, even doing millions a minute. If there are
(23:31):
trillions of options, it takes you freaking forever. Quantum computing,
the premise is simple. You are able to use what
are called cubits, which are I'll be honest, I don't
know exactly what they are, but the premise of them
and how they actually work is, rather than having to
cycle through everything sequentially, they can both be a one
(23:55):
and a zero at the same time, and so you
can compute all of these possibilities. Is not necessarily instantly
because it doesn't really work like that, but much much
faster in something that might take trillions of years might
take ten minutes instead. And so Google made some noise
back in what was it December where they said, oh,
(24:16):
like we've seen, like, you know, massive improvement on quantum
computing blah blah blah, and it touched off this whole
like quantum computing cycle in stocks here. Here's the thing
quantum computers. And this is from people that I know
that actually know what they're talking about on this stuff.
(24:36):
It is at least a decade away from even being
viable to try to use these commercially, and probably two
to three decades away from any kind of mass adoption.
So when I go to Microsoft's azer page where it's
titled this for me yesterday twenty twenty five, the year
to become quantum ready, I'm just gonna read some quotes
(24:59):
here as we look forward to the next twelve months.
The pace of quantum research and development is only going
to accelerate, making this a critical and catalyzing time for
business leaders to act. In a business decision maker study,
twelve percent of business decision makers said their organizations were
prepared to assess quantum opportunities. What freaking business is looking
(25:19):
at quantum opportunities this year? There is no one at
all who woke up on January first and said, you
know what my business needs this year? Some quantum computers.
No one said that. I am not believing that twelve
percent of people said that they were prepared to assess
quantum opportunities this year. That is complete crap and it
(25:45):
should be treated as such. Now. I get that Microsoft
has seen, you know, a whole bunch of benefit from
being on the cutting edge of AI, and their stock's
done very nicely over the last couple of years, and
obviously you need to deliver the what's next to your
shareholders to keep the ball rolling. But these are tied together.
In my opinion, you're doing the weave. If we're really
(26:09):
so convinced, and if Microsoft and Google and Meta and
everyone is really so convinced that AI is this productivity
game changer that's gonna usher in like, hey, we can
have so much more growth. Why are they not laying
off more people and specifically salesforce. Who is a company
(26:34):
that's like supposedly at the forefront of Lake They have
all these AI agents that they're rolling out. Why did
Mark Benioff, the CEO, announced they were hiring two thousand
more salespeople at the end of last year to sell AI?
Why can't your AI agents do the selling? Is it
maybe because they can't do what you're saying they can do?
(26:56):
Because all I know is if I had access to
all of these tools internally and they were really as
good as as I was claiming them to be, Well,
why do I need either A? Why do I need
the headcount that I have because they can do the work?
Or B? Why am I going out and hiring a
whole bunch of people to sell the AI tools? Why
am I not just building AI to sell the AI tools?
Speaker 3 (27:19):
It should be self evident that it will help your business.
They should just show you the software.
Speaker 2 (27:23):
So I guess where I'm kind of at to tie
this all back together. Is the reason that we're starting
to see all of this quantum computing talk from the
big AI guys. Is it because the promise of AI
is going to fall flat on its face in the
next year or two? Is the question that I'm asking.
Speaker 3 (27:42):
I'm snorting because you're piling fantasy, though grounded in reality,
upon fantasy. It's like when AI stopped pushing your stock up.
You found that throwing quantum and a few press releases
gave you a boost. So does it feel like that?
Not the first time. There's a great Jeremy Siegels book chronicle.
Brandon Burton mal Kyle's book Random Walk Down Wall Street
(28:06):
goes back decades. A lot of many of you read
it in college. You may have forgotten it, but pick
it up again. He chronicles the tech boom, the tronics boom,
excuse me of the sixties when businesses started suffixing their
names with tronics because they realized that they could push
up there's your price just by seeming to be avant
(28:26):
garde or cutting edge. So this is not new in
my experience. When people in finance with MBAs, even though
they're really smart, start talking about a technology, they generally
don't understand it and they're just trying to sell you
something or push up their stock price. Look, I'm not
denying that there could be enormous productivity and thus economic
(28:46):
growth benefits from something like AI. But you don't have
to be a savvy investor to avail yourselves of them.
Just buy an index fund and you'll benefit passively as
they're engineered to do from any of those innovations.
Speaker 2 (29:03):
Becoming quantum ready is both a business and global imperative.
Speaker 3 (29:08):
Maybe, I don't know.
Speaker 2 (29:09):
In fact, the United Nations announced twenty twenty five as
the International Year of Quantum Science and Technology Parentheses IYQ,
reflecting the transformative impact quantum mechanics has had in the
past century and setting the stage for the next wave
of quantum innovation.
Speaker 3 (29:30):
Yeah. I mean, if you're really curious, there are some
good lectures on Amazon Prime about physics and quantum mechanics
for lay people like.
Speaker 2 (29:37):
Yeah, I think it's really interesting stuff. I think that
what we're talking about here in terms of you know, oh,
companies need to use this year to get serious about
quantum computing. No, they don't.
Speaker 3 (29:50):
I don't know. Maybe in retrospect, this will have been
the year to make room for that big quantum computer
in the kitchen. I don't I don't know, don't. I
don't put it on the board, Tucker. No one is
selling a quantum computer in twenty twenty five. Someone might
make one and use it internally, but no one is
selling one.
Speaker 4 (30:08):
What about twenty twenty six.
Speaker 2 (30:11):
Fine, you can put that on the book, till I
was trying to I know you normally don't like really
long term things.
Speaker 4 (30:17):
That's short enough because you're saying this year in next
it's fine.
Speaker 2 (30:21):
You usually do like a decade out predictions. I know
I'm trying ridiculous. I'm trying to be better. Yeah, two years.
If I can get a little better each day, that's
all I'm trying to do. Just take a quick break.
When we come back, we'll talk a little bit about
banker ans, JP, Morgan, Wells, Fargo, Goldman, Sachs, whole bunch
of reporting. We got a couple of them that will
cover when we return.
Speaker 1 (30:42):
This is your home for the most comprehensive coverage of
the economy and the trends on Wall Street. This is
the Financial Exchange Radio Network. Find daily interviews and full
shows of the Financial Exchange on our YouTube page. Like
us on YouTube and get caught up on anything and
everything you might have missed. This is the Financial Exchange
Radio Network.
Speaker 2 (31:15):
All right, so we're right in the middle of bank
earning season. JP Morgan reported earnings. What did Senor Diamond
tell us this morning?
Speaker 3 (31:25):
Oh, I was just looking at the results. I wasn't
paying too much attention to his editorializing. But what strikes
me about JP Morgan is operational I'll just call it efficiency.
They're very high Roe return on equity relative to competitors.
It seems like all financial services companies have benefited from
(31:47):
the lush and favorable financial conditions we've experienced over the
past year. You see that with Goldman, you see that
with Morgan, you see that with the Bank of A
pretty much across the board. So when you get when
you get iye popping results like they seem to be
delivering this quarter, you got to wonder how much of
it is due to favorable conditions, how much of it
(32:08):
is due to i't's call it skill in management. And
Morgan in particular, since you asked, seems to be able
to generate consistently high ROE relative to competitors. The one
metric notable to me is someone who doesn't you know,
follow this space that closely and again that's not due
to just a favorable backdrop, that's due to skill in management.
Speaker 4 (32:32):
According to jen Worth, the average monthly cost for a
private room in New England could double by twenty forty.
So if you're not prepared to handle the increased costs
of nursing home care, your assets may be at risk.
Call Cushing and Dolin today and request their new guide
called long Term Care Planning for Procrastinators. It'll help you
understand how to protect your assets and allow you to
enjoy your later years. An unexpected nursing home stay could
(32:55):
significantly reduce your wealth and prosperity. Called Cushing and Dolan
right now out eight six six eight four eight five
six nine nine and get your free guide called long
Term Care Planning for Procrastinators. Don't put off today what
you might really need to do tomorrow. That's eight sixty
six eight four eight five six nine nine. Or you
can request the guide from their website Legal exchange show
(33:19):
dot com.
Speaker 1 (33:20):
The proceeding was paid for and the views expressed are
solely those of Cushing and Dolan. Cushing and Dolan and
or Armstrong Advisory may contact you offering legal or investment services.
Cushing and Armstrong did not endorse each other and are
not affiliated.
Speaker 2 (33:31):
Wells Fargo also reporting they took a six hundred and
forty seven million dollars severance charge for the quarters. They're
continuing to try to cut their head count, but overall,
when you look at Wells Fargo again trying to I think,
get their feet under them after a decade in the
(33:51):
twenty tens that I think can best be described as
like very out of character and very bad for a
bank that was typically thought of, as you know, operating
at a high level, not taking big risks, and generally
being pretty well thought of, had a number of different
scandals related largely to a lack of internal control within
the company, and now trying to get themselves kind of
(34:16):
back on their feet as they go through the twenty twenties.
So it's hard for me to find a bank that
saw its starfall more than them during the twenty tens
and again just trying to get themselves squared away. Here,
I think is the message that that I get out
(34:37):
of this.
Speaker 3 (34:38):
Yeah, apparently their investment banking business, just reading from the
headlines today contributed It's not clear whether it's most or
a disproportionate share of its most recent jump in profit
or net income, depending on how you want to measure it.
I do you have any sense for whether they're their
core business banking, Yes, has sort of stable, lot Ston
(35:00):
is growing at the rate that they or investors have expected.
Nor are they Yeah, Yeah, I don't know. I'm sorry,
I don't know either. I asked a question, I don't
know the answer.
Speaker 2 (35:12):
They're there. I haven't like see. I think the one
thing that you can say, it doesn't seem like there
has been any new scandal recently, because for much of
the twenty tens, like you were seeing stuff popping up
quite honestly on kind of an annual basis. So I
(35:32):
do think that's good. Remember Wells Fargo was the company
that had the big cross selling scandal. They also had
I'm trying to think of all the different ones that
they had. I just want to make sure that I
don't ascribe something to them that was someone else. Okay,
here we go. They also had the fake account scandal,
so that was in September of twenty sixteen, where they
(35:56):
created more than one point five million fake deposit accounts
in five hundred thousand fake credit cards in customers' names
without their permission. So these were affecting like customer credit
reports and things like that. And this was in order
to be able to you know, have bank you know,
loan originators hitting their bogies. In September of that year,
(36:17):
they were improperly repossessing service members cars. So these are
military service members that they were repossessing without basically with
like when they should not have been other things. In
March of seventeen, they found more fake accounts that they
had previously not found in the first round when they
(36:39):
went through. They also had a lawsuit in August of
seventeen for overcharging small business retailers. Let's see what else
did they.
Speaker 3 (36:49):
Have for I go out of business if you're a
big bank.
Speaker 2 (36:51):
March twenty eighteen, Wells Farger reported that the Justice Department
was investigating their wealth management business. In April of twenty eighteen,
they agreed to a billion settlement for mortgage locks and
auto loan issues. Let's see May of twenty eighteen, they
altered business information like social security numbers and dates of
birth without client knowledge. Let's see what else did they
(37:13):
have here. July twenty eighteen, they had to issue refunds
on add ons like pet insurance and legal services without
cut that they had put on products without customers full
understanding and consent. Let's see again, it was like just
all over the place. It was like a NonStop thing.
So I guess that the thing that you can say,
(37:34):
I don't think I've seen too much on that side recently,
which is good.
Speaker 3 (37:38):
What didn't they do during that period? Any shenanigans they
didn't try might be a shorter list.
Speaker 2 (37:44):
Well, again, to be fair, it wasn't like every single
thing they did was a problem, but it was a
long Listen, and by the way, I didn't even August
twenty eighteen, this one's bad too. They foreclosed on hundreds
of homes due to a computer glitch where people were
incorrectly denied loan modifications. So four hundred foreclosures happened that
(38:05):
should not have. It's pretty bad. Like it's pretty bad
losing your home when you shouldn't have. Let's take a
quick break. Hour two coming up in a bit
Popular Podcasts
Las Culturistas with Matt Rogers and Bowen Yang
Ding dong! Join your culture consultants, Matt Rogers and Bowen Yang, on an unforgettable journey into the beating heart of CULTURE. Alongside sizzling special guests, they GET INTO the hottest pop-culture moments of the day and the formative cultural experiences that turned them into Culturistas. Produced by the Big Money Players Network and iHeartRadio.
The Joe Rogan Experience
The official podcast of comedian Joe Rogan.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.