October 9, 2025 • 38 mins
Chuck Zodda and Mike Armstrong discuss financial conditions actually being too tight right now. Q3 earnings are anticipated to show growth of 8%. Fed minutes reveal divide over outlook for interest-rate cuts. First Brands bankruptcy damage spreads to Jefferies, UBS. Is the auto industry going through what the housing market went through in 2007. Who’s going to ‘Eat’ Tariffs? Not US shoppers. Why carmakers are falling back in love with petrol.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
registered investment advisor. All opinions expressed are solely those of
the hosts. Do not reflect the opinions of Armstrong Advisory
or anyone else. Investments can lose money. This program does
not offer any specific financial or investment advice. Please consult
your own financial, tax, and estate planning advisors before making
(00:20):
any investment decisions. Armstrong Advisory and the advertisers heard on
this program do not endorse each other or their services.
Armstrong and Money Matters Radio do not compensate each other
for referrals and are not affiliated. This is the Financial
Exchange with Chuck Zada and Mike Armstrong, your exclusive look
at business and financial news affecting your day, your city,
(00:42):
your world. Stay informed and up to date about economic
and market trends plus breaking business news every day. The
Financial Exchange is a proud partner of the Disabled American
Veterans Department of Massachusetts. Help us support our great American
heroes by visiting dav five K Dog Boston and making
a donation today. This is the Financial Exchange with Chuck
(01:05):
Zada and Mike Armstrong.
Speaker 2 (01:10):
Chuck, Mike and Tucker with you, and we are broadcasting
live from the Margaritaville Resort on Cape Cod And we
got a fantastic crowd here today hanging out with us.
We are excited to see everyone. It's nice and we
got a really good show today. Even though the federal
government remains shut down into its ninth day, the Financial
(01:32):
Exchange continues to not shut down into its ninth day,
and so we're gonna be talking about some earnings. We
got Delta who reported earnings. Pepsi reported earnings this morning.
We unfortunately do not have weekly jobless claims, but Mike
and I still have jobs as of this very minute,
and so no claims on our side at the moment.
(01:53):
But I think the big thing that I want to
kind of kick things off with is looking at this
Q three earning season as we get into it again.
Delta and Pepsi both reporting this morning. We take a
look at Delta. They had a very nice quarter in
a good guide, which is why the stock's up six percent.
They basically reaffirmed towards the top end of their full
(02:15):
fiscal year guidance, and so that's always good to see.
Speaker 3 (02:18):
Pepsi had almost nothing interesting to say in which is
kind of what find so right it exists. Next, you're
at the point right now where if you look at
the world as a whole, the eight billion people out
there all kind of have their opinion on soda and
they're not really changing much. You know, you're either drinking
X amount of day or you're not. It's there's there's
(02:40):
just not that much room for movement there, which is
why Pepsi stock is up point three percent today. Let's
start talking about Delta then, because I think that they
did have some interesting things to say, both about the
government shutdown and the state of consumers in this country
right now. I guess global consumers, but you know, a
little bit more of a focus here in the United States.
So guiding their earnings for the next quarter, they came
(03:02):
in at anywhere between a bucks sixty and a buck
ninety is what they're estimating for the upcoming quarter. Analysts
that have been pulled we're planning on a bucks sixty
five per share in earnings, so you know, the very
lower end of the expectations there would beat most analysts expectations.
I guess the two pieces that I found interesting. One
(03:24):
was that, coinciding with a lot of the data, we
already have their luxury, high spending consumer in their first
class cabins doesn't seem to be slowing down.
Speaker 2 (03:36):
No, here's what you saw from them. Revenue from that
high end segment, first class, you know, the premium economy,
anything that's in that category. That revenue up nine percent
in Q three. Main cabin revenue down four percent over
the same time period. This basically exactly matches. Remember, Marriott
(03:56):
reported their second quarter earnings a couple months ago, and
it showed almost an identical pattern. The high end brands
that they have, whether you're talking about you know, Ritz, Carlton,
Saint Regis, all that stuff crankin the Marriott courtyard and
stuff like that slowing down. And so it's very clear.
We talked about this a lot, this idea of this
(04:18):
K shaped recovery, where the high end consumer, if you
are in the top twenty percent as far as either
income or net worth, you're spending like it's going out
of style. If you are in the bottom fifty to
sixty percent as far as income or net worth, you
don't have the money to spend like it's going out
(04:40):
of style. It's not available to you right now. And
so I think that ultimately Delta giving us further confirmation
on that front. And it also gets back to this
question that I think that you know, we've talked about
over the last month or two now, which is, hey,
we've seen it continued weakening in the labor market, but overall,
(05:03):
consumer spending trends remain remarkably consistent. Four to six percent
year over year growth in consumer spending. You figure inflations
running about three percent, so net net, yeah, you got
consumer spending rising somewhere like one to three percent on
a real basis, and we we kind of look at
it and we say, well, look, payrolls aren't growing that
quickly anymore. What gives Hey, You've got a bunch of
(05:26):
baby boomers that are retired and living off of portfolios
and social Security right now, which is going up, which
you know could continue to move up. You've got a
situation where high income earners are generally not the ones
that are seeing the more sluggish job market right now.
And so ultimately, I think we are in a position,
(05:46):
until proven otherwise, where you can still have that consumer
ending engine. Consumer spending engine just chugging right along until
you know, you see those high end segments impacted, which
they have not been.
Speaker 3 (06:02):
To this point. I think the baby boomer piece of
it is especially relevant, Chuck, because remember too that when
that segment goes and files their taxes next spring, most
of the we're gonna be gett an extra twelve grand
deduction on top of everything that they previously had. It
sounds fun making. Just imagine for a minute that you had,
(06:22):
between your IRA withdrawals and your source security and everything else,
you had gross income of one hundred and twenty thousand
dollars back in twenty twenty four. If you do that
same thing in twenty twenty five, you're probably gonna save
something like fifteen hundred bucks in taxes. Mean, you're getting
a bigger refunder than you did the previous year. And
so it it all comes back to one, you know,
really important question, which is our financial conditions actually too
(06:45):
tight right now? But that's that's a question for the
FED to try and answer. I don't want to answer
it quite yet. That's fine, We've got that coming up.
We'll talk about that in a little bit. Letch on
one more thing on Delta before we move on from that.
Speaker 2 (06:58):
Sure.
Speaker 3 (07:00):
The CEO ed Bashom was specifically asked about the government shutdown,
and according to him quote it had not had a
significant impact on the airline's operations. He did warn that
should it continue for another week to ten days, he
would very much expect a significant operational difficulty for their airline.
Every airline is a little bit different here, they have
all different exposures. Obviously, Delta does not fly into your
(07:24):
smaller airlines where some small staffing issue can really throw
things off. So I would imagine that your smaller regional
folks might already be experiencing some problems, but for Delta themselves,
no impact yet from this government shutdown, and I think
continued shutdown or at least a lack of pressure for
an end to that shutdown coming from the airline industry
(07:44):
thus far.
Speaker 2 (07:45):
Yeah, the betting markets now have the government shutdown lasting
twenty seven days. That's where prediction markets are up to.
We're currently at nine, so that would be eighteen days
beyond where we are today. Twenty nineteen was thirty four
thirty four, so we'll see again. It's you know, we're
(08:05):
not really getting anywhere at the moment. If we have
a resolution in the next week or so, it's unlikely
that you'd have any kind of meaningful broad economic impact,
even though again, if you talk to anyone who's you know,
a government contractor or adjacent to those businesses, they'll tell
you that, yeah, like things are a little bit dodgy
right now. But broadly speaking, the shutdown is not having
(08:26):
any major impact on the US economy at this point,
even though obviously it can be uncomfortable for some of
those who may be directly impacted by it right now.
At least, so when we get back to looking at
Q three earnings right now, in the aggregate fact set,
which is just kind of a big aggregator platform, they
(08:47):
anticipate that year over your earnings growth is going to
be eight percent for Q three, which is actually an
upward revision from where they thought it would be on
June thirtieth. So what I will say this is one
of the more positive things that you can see in
markets when earnings revisions are moving upward into the quarter
(09:08):
of reporting, that's kind of unexpected. Normally the game that
you see played is, well, two months ago, we thought
earnings growth was going to be seven point three percent.
Now we think it's going to be six and hey,
all these companies beat and Earning's growth came in at
seven point five percent. Well, yeah, that's because you guys
all lowered your expectations heading into it. When you have
(09:31):
an upwardly revised set of earnings going into it, it's
typically a pretty optimistic sign. And you can say that
that's one of the reasons why markets might have continued
to move up over the last quarter is that earnings
estimates have been improving as some of the uncertainty regarding
tariff impact and things like that has been pushed out
(09:52):
of the overall system.
Speaker 3 (09:53):
Now I'm doing a bit of apples to oranges comparisons
here in terms of timeline, Chuck. But if Earning's growth
comes in it eight percent year every year, and the
stock market of the last twelve months is up, let's
call it sixteen more with dividends. What that means is
we've all become willing to pay a fair bit more
for the stocks that we all own.
Speaker 2 (10:13):
Yes, So here's the thing. Stocks aren't cheap right now.
The forward twelve month peve ratio for the S and
P five hundred, it's twenty two point eight x the
five year average is nineteen point nine, the ten year
average is eighteen point six. The long term average is
down even further than that. You can make a case
(10:33):
that there are structural changes that mean that you're not
going to get back to a time where stocks should
be valued like twelve thirteen times earnings.
Speaker 3 (10:41):
That's fine.
Speaker 2 (10:42):
I think we can accept that they're still expensive even
relative to the last five years, which include one of
the bubbliest periods that we've seen. I mean, we were
talking spack mania back in twenty twenty one. We had
Trevor Milton pushing trucks down hills in order to get
them moving. You know, we had Shamath was coming out
(11:03):
with U Spack every week in order to do something.
This is. You know, we're at some pretty high valuations,
but market's been pretty highly valued all year. Valuation isn't
what causes problems. No, it's when something pops that the
valuation means that you might have further to fall. But
(11:24):
just because something's valued highly doesn't mean that it's going
to at any point in the near future. Just take
a quick break. When we return, let's talk a little
bit about the FED. We got FED meeting minutes, which
in a time when there's nothing coming out from the
federal government as far as economic data, gosh, FED meeting
minutes something to look forward to. We're going to talk
(11:46):
about that next.
Speaker 1 (11:49):
The Financial Exchange streams live on YouTube. Subscribe to our
page and stay up to date on breaking business news.
Speaker 3 (11:56):
All morning.
Speaker 1 (11:56):
Long Face is the Financial Exchange Radio Network. The Financial
Exchange Show podcast drops every day on Apple, Spotify, and iHeartRadio.
Hit that subscribe button, then leave us a five star review.
You're listening to the Financial Exchange Radio Network.
Speaker 3 (12:20):
All right.
Speaker 2 (12:20):
We got a Wall Street Journal piece here. It's titled
five Minutes Revealed, Divide over outlook for interest rate cuts?
What is happening on the most dramatic season of the
Federal Reserve.
Speaker 3 (12:35):
Yeah, not as nearly as dramatic as as even the
Wall Street Journal wants to make it. But you did
have the meeting minutes come out. These are somewhat informative
to give you the behind the scenes view because you
don't get that immediately, and quite frankly, in the absence
of any data on joblessness, inflation, etc. People are gonna be,
(12:56):
you know, pondering over this and looking through it. I
think what you still have excuse me, what you still
have after digesting the meeting minutes, at least in my view,
would be a small majority of folks believing that they
need to continue with the most recent rate cuts and
do that at least two more times to the end
of this year. And so I suspect that that's what
(13:18):
is going to happen. But it is not as much
as a There's not as much cohesion there around the
subject on lower interest rates as you might expect given
where the votes came like very obviously everybody wanted to
cut rates at the most recent meeting. There's not a
clear outlook for that. Definitely needing another two rate cuts
(13:40):
through year end. When you take a look at these minutes, though.
Speaker 2 (13:44):
Say that one more time so I can make sure
I understand what you just said.
Speaker 3 (13:47):
I think that the surprise could be towards the fewer
rate cuts side rather than the more.
Speaker 2 (13:53):
I don't think it will be in the next two months,
because really we're talking about a meeting in three weeks
and a meeting in nine weeks.
Speaker 3 (14:01):
Yep.
Speaker 2 (14:03):
So here's where I land.
Speaker 3 (14:04):
Pretty much locked into two cuts? Is your outlook the
October meeting, there's a pretty good chance you don't have
any more economic data by then. Yep yees, who changes
their mind from the September meeting? No one voting?
Speaker 2 (14:20):
Probably right, Like what changes your mind the December one?
Will see what data we have that comes in at
that point. But I think there are two different cases
to be made. The first is, look, you might only
have one job support if this shutdown goes into early November.
You might only have a jobs report that comes out
in early December, and you might have one CPI reading
(14:43):
as well. There's not much to work from there. The
other piece is when we talk about policy errors. I
love how everyone likes to get all hopped up about well,
are they gonna cut a quarter percent or a half Guys,
the difference between in a quarter percent cut in a
half percent cut has no impact on the economy. When
(15:07):
we talk about policy errors, were like, hey, we were
cutting and got interest rates down to three percent when
they should have been up at five. That's a policy error.
Not well, we cut a quarter percent when we should
have cut a half. No, like that's that that that's
not going to cause problems because a quarter percent shift
in either direction, it's just not fundamentally big enough to
(15:31):
cause either a problem or be a huge benefit. So
I think if you're in the camp that I'm in,
which is they cut in September because they saw problems
with the labor market. To this point, all of the
supplemental data that's out there you'll get indeed, ADP paychecks,
all the private sector data that we get, is any
of it showing improvement in the labor market.
Speaker 3 (15:53):
No, there's no improvement, but there's still no firings.
Speaker 2 (15:56):
True.
Speaker 3 (15:57):
But if you were comfortable cutting in septem yeah, you
shouldn't it.
Speaker 2 (16:01):
And there's been no change in trajectory of the other
data that you get.
Speaker 3 (16:05):
Yep.
Speaker 2 (16:06):
Then you say yes, I'm good to cut in October.
And if you say yes, I'm good to cut in October, well,
what's the worst that happens if we cut an extra
quarter percent in December?
Speaker 3 (16:15):
Fair?
Speaker 2 (16:15):
So that that's kind of where I get to in
terms of I know everyone wants to make this all dramatic,
because look, I get it. You want people to pay
attention to you and read your stuff. This is another
one of those points where I kind of say, it
doesn't really matter if there's an extra quarter percent cut
or not. What matters is the broader direction of travel.
(16:39):
And if the Fed's wrong, it's not gonna be because
they cut by an extra quarter percent. It's gonna be
because they cut it all when they should have been hiking.
Speaker 3 (16:49):
Yeah, and that seems like an unlikely outcome base what
we're seeing right now, but I do hear you. One
interesting trend we've been following to the last FED meeting
September seventeenth, correct, that was the date of the actual announcement.
Speaker 2 (17:02):
Sure, I believe you, uh ye.
Speaker 3 (17:04):
Mortgage rates on that day thirty year fixed, according to
Mortgage News Daily sitting at six two two. We are
now sitting at six three six. We have continued to
see a rise in mortgage rates in spite of the
FED cutting at the most recent meeting and signaling that
they are going to continue to cut. We saw this
last fall, Yeah, last fall as well, just fall end
of the year, where the FED started cutting rates, mortgage
(17:25):
rates went in the exact opposite direction. And when you
are cutting interest rates in an environment that is not recessionary,
which you never know if you're in recession until years out,
but hypothetically we might be there again, it is a
coin flip, as to whether or not mortgage rates follow
the Fed's decision. So we are right now seeing mortgage
rates move back up. It speaks to, you know, general
(17:47):
financial conditions, and I think the main argument you can
make for why rates might need to stay where they
are would be, yeah, we're seeing some weakness in the
labor market, but we're not on the spending side. The
stock market continues to hit new all time highs almost
every day, and also the housing market, while showing weakness,
is not in free fall either. Let's be honest.
Speaker 2 (18:10):
The case to be made for the FED not cutting
rates right now is that Round Hill Investments just brought
back their meme stock ETF No Boy, which the last
time that they had it out there was basically the
top of the meme market. They got rid of it
at the bottom, and now it's back baby.
Speaker 3 (18:30):
They brought it back. Huh.
Speaker 2 (18:31):
Fed's got a hike.
Speaker 3 (18:35):
So that it actually went defunct and then they just
brought it back up.
Speaker 2 (18:38):
Yes, I saw the chart of it earlier today. Let
me see if I can find it.
Speaker 3 (18:42):
If we're speaking Greek ta if you remember meme stocks
back in twenty twenty one, was basically anybody that posted
something on Reddit or started some infatuation with any company
they wanted, just blew up to the upside, put a
bunch of hedge funds nearly or entirely out of business,
and there were no real fundamentals on the trading strategy
(19:03):
other than follow me because I'm gonna blow up some
hedge funds. And if that's coming back, then that leads
to some interesting questions about where this market could drive
to next.
Speaker 2 (19:15):
Yeah, so I'll pull the exact dates during the break.
But needless to say, this was okay, no, here we go,
so oh no, we got to go to break?
Speaker 3 (19:26):
We do? Okay, Well, we're sorry.
Speaker 2 (19:29):
Watch Wall Street watch and then the meme stock ETF
when we return.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter at
TFF show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look and what's moving market so
far today right here on the Financial Exchange Radio.
Speaker 4 (20:00):
This day nine of the government shut down, and markets
are pulling back in negative territory as investors sift through
FED meeting minutes. And also we act to third quarter
earnings from PEPSI and Delta unveiled earlier this morning. Right now,
the Dow is down by four tenths of one percenter
one hundred and ninety four points. SMB five hundred is
(20:21):
down about a third of a percent or twenty one points.
NASDAC also down by about a third of a percent
or seventy nine points. Russell two thousand is off by
you guessed it a third of a percent. Tenure Treasreel
is flat at four point one four percent. In crude
oil is down about four tenths of one percent, trading
at sixty two dollars and thirty cents a barrel. Delta
(20:43):
reported stronger than expected third quarter results, where the airline
issued strong guidance, saying it expects a resurgence in travel
demand to continue in the holiday season. Delta stock is
climbing nearly four percent higher. Meanwhile, Pepsi up over one
percent after the snacks in average Giant also impress for
its third quarter beating on earnings in revenue. Pepsi also
(21:05):
named a new CFO from Walmart's US unit. Elsewhere shares
in luxury car maker Ferrari skidding twelve percent after the
company trimmed its electrification targets. Ferrari said it expects its
twenty thirty sports car model lineup to be made up
of only twenty percent fully electric vehicles, down from its
(21:27):
prior target of forty percent EV sales by the end
of the decade. Mp Material stock rising over six percent
after BMO Capital Markets reinstated coverage at a market perform rating,
calling the rare earth metals producer a rare earth champion
following its partnership with the Department of Defense. Separately, China
said it tightened rare earth export controls ahead of a
(21:51):
potential meeting between President Trump and Chinese President Jijingpeng, and
Costco saw its sales climb eight percent on the year,
sending that stock up almost three percent. I'm Tucker Silva,
and that is Wall Street Watch, Mike.
Speaker 2 (22:06):
We're continuing to get more information surrounding the First Brands bankruptcy.
Speaker 3 (22:13):
Should we do a little bit of background on that
first brand? Again, nobody really knew who this company was,
right they might be second brands until what this time
last week, last Monday.
Speaker 2 (22:25):
Yes, like, in full disclosure, I didn't have any idea
that this company existed before last week. It's not like
this is something that we paid any attention to because
you and I do not scrutinize auto part manufacturers balance
sheets that are not publicly traded, like this is just
(22:45):
not something that you would do. So First brands that
the big thing for them. They are a or They
were a company that operated a lot of you know,
big auto parts. Think about you know, fram oil filters,
they made windshield wipe, but like all kinds of different
stuff all across the board. And last week they declared bankruptcy.
(23:09):
And most of their creditors were expecting them to declare
somewhere in the ballpark of around like five to seven
billion dollars in debt. It now appears that they have
somewhere between twelve and fifteen billion dollars in debts that
come and most of it held you know, off balance sheet,
and some of their lenders are saying that there might
(23:33):
be as much as two point three billion dollars in
assets that are unaccounted for. This from a technology group
called Raystone, who helped arrange a lot of this financing.
They're basically saying, hey, we arranged this with the idea
that you had you know, assets of X, Y and
Z to lend against, and now you're telling us this
(23:54):
two point three billion is missing, So is it actually
I don't know, but First Brands is pretty much already
admitted Yeah, there's some accounting stuff that we can't reconcile.
And so it does appear that you do need an
independent third party auditor to come in and at the
very least say hey, show us what's going on here.
Speaker 3 (24:15):
So the interesting part of this story to me at least,
has been about the debt from the very beginning and
how much did the lenders know about the business, how
much did they know about the other debt being issued
against the business, and is it indicative of the overall
private credit space? And I suppose if you want to
(24:36):
look at the optimistic side of this and say, no,
it's not a problem with private credit and there's two
point three billion dollars worth of accounting fraud potentially in there,
you might be able to take that as a positive
news story here that oh no, it was not a
blow up in the private credit industry. It was one
company ripping off their customers, or not ripping off their customers,
(24:56):
ripping off their lenders by miscalculating things and high things
from them. That would be the most optimistic viewpoints you
could take. The pessimistic viewpoint would be this type of
lending is insidious in the overall industry. And while it
might not be occurring at the Walmarts of the world
because they don't need to go to KKR or UBS's
(25:18):
O'Connor fund to find debt to finance their businesses, this
could be insidious of much smaller companies across the country
where we have seen this type of debt issuance really
blow up over the course of the last fifteen years
and especially over the last five to ten.
Speaker 2 (25:34):
The third possibility, and the one that I am increasingly thinking,
is that there is a problem in the auto sector
that is much larger than anyone wants to admit. And
that's because look, in the last month now, we've had
three different signals there. We've got this first Brands bankruptcy
(25:55):
that blew up. We have this Tricolor bankruptcy, Tricolor a
dealer and lender for subprime borrowers. And we've got CarMax
that reported earnings that were horrific to quite horrific, and
the stockfeld, you know, twenty percent upon the release of
(26:18):
those earnings. The other thing that we're now seeing and
this is if you look at some of the I
do love that we're like, we're basically doing the auto
version of two thousand and seven is kind of where
we are right now.
Speaker 3 (26:34):
I was talking at Vini Penn this morning. If you're
not familiar. Vinie Penn is a radio show host down
in Connecticut on one of the stations that we broadcast to,
and he made that exact point. He's like, this, what
you're describing with this auto sector and what's happening with
these loans sounds a lot like two thousand and seven.
Speaker 2 (26:51):
And it does. Yeah, frankly, it just does. So where
we're at right now. Carvana, who is a publicly traded company.
One of the main things that they do is they
underwrite loans for their vehicles and then remind me, if
this sounds familiar, they package those loans up into different
tranches based on how likely they are to be repaid,
(27:13):
and they sell them off to people who want to
buy those loans. And basically what you're seeing now is
the tranches that have been issued since twenty twenty one
are seeing significantly higher losses than the prior vintages. So
as an example, if you look at they have different
(27:34):
vintages per year, so they have one that's categorized as
twenty twenty and one. It's just like the number. And
if you look at basically where that was at the time,
that about fifty percent of the loan was paid off
on average, you ended up in a situation where the
cumulative losses were about four percent on those loans. Now,
(27:55):
remember in twenty twenty one, there was still free money
slashing around. We had a last round of stremulous checks.
You had mortgage for barons that was in place for
an awful long time. You had student loan payments that
were stopped. Like twenty twenty one was as good of
a credit situation as you could find. By which you
mean you could borrow money with no repercussions, is that well,
(28:18):
no one was defaulting, You could lend money with no repercussions,
Like nothing went wrong if you went money in early
twenty twenty one, like everyone paid it back because it
was just sloshy slashy.
Speaker 3 (28:28):
Just clarifying that it wasn't necessarily a good idea, just
good if you were either lending borrowing the money.
Speaker 2 (28:34):
It was a good idea. This is what I'm saying.
Like the loans that were made in twenty twenty. Only
by the time half those auto loans were paid off,
only four percent was was realized as a loss like
it was it was great, Like it was a.
Speaker 3 (28:47):
Good decision to problem the money and to borrow the
money was a good decision in twenty Making the conditions
to allow that type of borrowing and lending, I don't
think was a good idea.
Speaker 2 (28:58):
Yes, totally. And here's the other problem is that lenders,
like the end buyers of these loans, looked at that
vintage and said, great, this is what we can expect
going forward. And now what we have is when we
look at the twenty twenty four vintage that's in the
same boat, the cumulative losses on that vintage are around
(29:21):
seventeen percent as opposed to four percent, four and a
quarter times as high. And so I am increasingly convinced
that there is something very ugly happening in the auto
lending area, and it's going to cause some problems, not
to the scale of what we saw in the financial crisis,
(29:43):
because the auto sector is a tenth of the size
of the housing sector.
Speaker 3 (29:49):
So that's the important clarification here is according to the
most recent numbers from the Federal Reserve back in New
York second quarter twenty twenty five, total mortgage dead outstanding
about thirteen trillion dollars, Auto loan debt one point sixty six,
So not big enough to sink big major banks, but
pretty messy.
Speaker 2 (30:10):
Pretty messy, and enough also to have when you look
at like the underwriting standards for auto loans, they're gonna
have to change dramatically over the next couple of years,
which means the auto sector is likely entering into a
period where they're not gonna be able.
Speaker 3 (30:24):
To sell as many vehicles. By the way, pretty wild debt.
Student loan debt is at about the same level of
auto loan debt. If if you just think about like
the portion of Americans that have an auto loan versus
the portion of Americans that have a student loan, for
that to be the total student loan debt one point
six four trillion dollars in credit card debt at one
point two trillion, it's just wild to be that dispersion
(30:48):
given how narrow a student loan is.
Speaker 2 (30:51):
Yeah, because student loans, I think there's somewhere between like
forty and sixty million people that have outstanding borrowings auto loans.
I think it's double or triple that. Yeah, I think
it's like somewhere around one hundred to one hundred and
twenty million.
Speaker 3 (31:02):
Because does anyone.
Speaker 2 (31:04):
Pay cash for a car in this in straine environment
and this you would you would like to, but I
think most people don't, like they're not cheap. So I
think there's something in the auto sector that that stinks.
Other things just that I think are like kind of
the the black comedy of this whole thing is okay, so.
Speaker 3 (31:27):
Excuse me.
Speaker 2 (31:28):
Jeffrey's Financial yesterday said that they had a fund that
was impacted potentially up to seven hundred and fifteen million dollars.
The name of the asset manager that they have is
called Point Benita Capital, which feels like it's right out
of like Glengarry glen Ross. It's like Alec Baldwin trying
to sell like bad real estate. To me, yeah, I
work for Point Benita Capital. I got auto loans like it,
(31:52):
just it feels just too on brand. There. The other thing, ubs.
Speaker 3 (31:58):
Of course, you'd bs who bought.
Speaker 2 (32:00):
Credit Sweee a couple of years ago, and Credit Sweez
historically has been like they've been the company that always
is on the front edge, the leading edge of well
this is kind of questionable, but will make the loan
and see how it goes. Like that's what credit Sweese does.
They make the loan that no one else will did
they did?
Speaker 3 (32:20):
Yeah?
Speaker 2 (32:20):
Yeah, and then they had to get bought by UBS
because they basically like did too much of that. Yeah,
they did too much. UBS said that they have around
five hundred million dollars in exposure as well, because of
course UBS they have.
Speaker 3 (32:35):
One fund where thirty percent of it approximately with loans
to this first.
Speaker 2 (32:38):
Preak, which seems totally reasonable from a risk management perspective. Yeah,
I just put thirty percent of it in this like
subprime auto parts loans loan.
Speaker 3 (32:46):
So counterpoint to this just being relegated to the auto
industry would be that some of the major private credit
lenders there out there are getting hammered this year. Apollo
Global Management down twenty five percent, KKR down seventeen percent
this year.
Speaker 2 (33:02):
I'd like to introduce you to Blue Owl Capital, who really,
like it is, is specifically focused in this area, down
twenty seven percent and down ten percent in the last
couple of weeks. And the problem that you have now
is you get a couple of these popping up in
every lender out there is kind of looking at it going,
I don't know what my loans are worth right now,
(33:23):
I don't know what we're going to do. Let's take
a quick break and when we come back, Uh, let's
do a little bit of tariff talk.
Speaker 1 (33:31):
When we return, the latest news on inflation, the Fed,
the economy, and how the markets are reacting. Every morning
right here on the Financial Exchange Radio Network. Thanks to
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.
(33:52):
This is the Financial Exchange Radio.
Speaker 5 (33:54):
Network piece from the Blue Meeberg Who's gonna eat the tariffs,
not US shoppers?
Speaker 2 (34:05):
That is the piece that is here talking about, Hey,
you're starting to see signs of more tariff price related
increases coming into stores over the last few months. To
this point, you haven't seen any impact though in overall
retail sales.
Speaker 3 (34:22):
Retail sales up three and a half percent.
Speaker 2 (34:24):
Now in real terms they're up half a percent.
Speaker 3 (34:26):
Sure, okay, but that means that the people are still
buying more stuff. It's divided higher prices.
Speaker 2 (34:30):
They are, So I think the big thing that I
look at is the question that we've been asking for
a while, which is, Okay, you've got weakening jobs data,
you still have strong consumer spending. Typically, consumer spending does
not break in advance of a recession. It's usually when
people start getting laid off. That's when the spending issue happens.
(34:51):
And I think, honestly, I'm kind of getting to the
point where, unless the stock market cracks or high income
earners start getting laid off in larger numbers, I don't
know that you're going to see an impact on the
retail side of things like that. This piece tries to
make the case that US shoppers won't pay price increases.
Speaker 3 (35:10):
I think they will.
Speaker 2 (35:11):
I don't know that some of them might not because
they might not be able to. But those aren't the
spenders that are driving the US economy right now from
the data that we see.
Speaker 3 (35:21):
Yeah, I mean tough position to be in if you're
a retailer, because you have no idea what to do
with pricing. Also, you're pretty concerned about driving those higher
price increases in the face of all this, all these
news stories about to the weaker kids.
Speaker 2 (35:35):
Did you also know that as of last year, even
before this year, the terrify on imported leather gloves averaged
nineteen and a half percent. You weren't to wear that, chuck,
I wasn't buying leather gloves. Apparently not, I guess not.
Speaker 1 (35:46):
So.
Speaker 2 (35:47):
Ultimately, the question is going to be are consumer's going
to go and keep buying this stuff or do they
just take a look at the window and say not
for me.
Speaker 4 (35:55):
The US Virgin Islands aren't just stunning, their thriving and
continue to be one of the hottest for vacationers in
the Caribbean. New crows port upgrades, better air connections, and
a sharper focus on cultural experiences have put the islands
back on the map for travelers seeking something special. Saint
Thomas is your cruise hub, known for duty free shopping
(36:15):
in the world famous Megan's Bay. Saint John is pure
escape with national park hikes, secluded beaches and tropical tranquility.
Saint Croix brings the history with colonial architecture, old sugar mills,
and vibrant coral reefs. Visit one island or all three
and get plenty of pampering, undisturbed nature, and a vibe
(36:36):
like no other, all jammed into one vacation with easy
travels from New England, no passport required and no money
to exchange. Paradise is closer than you think this fall,
plan your getaway and fall naturally in rhythm with the
heartbeat of the islands in America's Caribbean. Visit USVII dot
(36:56):
com and book your trip today. That's visit dot com piece.
Speaker 2 (37:01):
And Financial Times why car makers are falling back.
Speaker 3 (37:04):
In love with petrol because they pushed too much into
electric vehicles and nobody wants to.
Speaker 2 (37:10):
It's because they're actually profitable. That's why they're falling in
love with petrol. The reason that they fell in love
with EV's they saw what was going on with Tesla's
stock price and said, oh, we can be that, and
then it turned out, no, you can't be that. It's
it's actually really hard to be that. If you don't
have someone named Elon Musk running an EV company.
Speaker 3 (37:25):
They might have also fallen in love with some really
nice subsidies on electric vehicles.
Speaker 2 (37:30):
Possible. Yeah, but I think that when you look at this,
ultimately internal combustion engine vehicles are profitable. The evs generally
are not for most automakers right now. And so you've
got projections out now, this from alex Partners, that US
EV sales are going to be around seven percent of
all car sales this year and maybe only as little
as eighteen percent in twenty thirty, compared to previous estimates
(37:53):
of like thirty to fifty percent at that time.
Speaker 3 (37:55):
Not just the US phenomenon either, you're seeing the same
thing upon among European makers who sure partly are seeing
the pushback on demand and then partly are trying to
compete with Chinese made evs. And good luck.
Speaker 2 (38:07):
Let's take a quick break when we return. We got
a whole nother hour coming up to make sure you
stick around on the Financial Exchange
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
registered investment advisor. All opinions expressed are solely those of
the hosts. Do not reflect the opinions of Armstrong Advisory
or anyone else. Investments can lose money. This program does
not offer any specific financial or investment advice. Please consult
your own financial, tax, and estate planning advisors before making
(00:20):
any investment decisions. Armstrong Advisory and the advertisers heard on
this program do not endorse each other or their services.
Armstrong and Money Matters Radio do not compensate each other
for referrals and are not affiliated. This is the Financial
Exchange with Chuck Zada and Mike Armstrong, your exclusive look
at business and financial news affecting your day, your city,
(00:42):
your world. Stay informed and up to date about economic
and market trends plus breaking business news every day. The
Financial Exchange is a proud partner of the Disabled American
Veterans Department of Massachusetts. Help us support our great American
heroes by visiting dav five K Dog Boston and making
a donation today. This is the Financial Exchange with Chuck
(01:05):
Zada and Mike Armstrong.
Speaker 2 (01:10):
Chuck, Mike and Tucker with you, and we are broadcasting
live from the Margaritaville Resort on Cape Cod And we
got a fantastic crowd here today hanging out with us.
We are excited to see everyone. It's nice and we
got a really good show today. Even though the federal
government remains shut down into its ninth day, the Financial
(01:32):
Exchange continues to not shut down into its ninth day,
and so we're gonna be talking about some earnings. We
got Delta who reported earnings. Pepsi reported earnings this morning.
We unfortunately do not have weekly jobless claims, but Mike
and I still have jobs as of this very minute,
and so no claims on our side at the moment.
(01:53):
But I think the big thing that I want to
kind of kick things off with is looking at this
Q three earning season as we get into it again.
Delta and Pepsi both reporting this morning. We take a
look at Delta. They had a very nice quarter in
a good guide, which is why the stock's up six percent.
They basically reaffirmed towards the top end of their full
(02:15):
fiscal year guidance, and so that's always good to see.
Speaker 3 (02:18):
Pepsi had almost nothing interesting to say in which is
kind of what find so right it exists. Next, you're
at the point right now where if you look at
the world as a whole, the eight billion people out
there all kind of have their opinion on soda and
they're not really changing much. You know, you're either drinking
X amount of day or you're not. It's there's there's
(02:40):
just not that much room for movement there, which is
why Pepsi stock is up point three percent today. Let's
start talking about Delta then, because I think that they
did have some interesting things to say, both about the
government shutdown and the state of consumers in this country
right now. I guess global consumers, but you know, a
little bit more of a focus here in the United States.
So guiding their earnings for the next quarter, they came
(03:02):
in at anywhere between a bucks sixty and a buck
ninety is what they're estimating for the upcoming quarter. Analysts
that have been pulled we're planning on a bucks sixty
five per share in earnings, so you know, the very
lower end of the expectations there would beat most analysts expectations.
I guess the two pieces that I found interesting. One
(03:24):
was that, coinciding with a lot of the data, we
already have their luxury, high spending consumer in their first
class cabins doesn't seem to be slowing down.
Speaker 2 (03:36):
No, here's what you saw from them. Revenue from that
high end segment, first class, you know, the premium economy,
anything that's in that category. That revenue up nine percent
in Q three. Main cabin revenue down four percent over
the same time period. This basically exactly matches. Remember, Marriott
(03:56):
reported their second quarter earnings a couple months ago, and
it showed almost an identical pattern. The high end brands
that they have, whether you're talking about you know, Ritz, Carlton,
Saint Regis, all that stuff crankin the Marriott courtyard and
stuff like that slowing down. And so it's very clear.
We talked about this a lot, this idea of this
(04:18):
K shaped recovery, where the high end consumer, if you
are in the top twenty percent as far as either
income or net worth, you're spending like it's going out
of style. If you are in the bottom fifty to
sixty percent as far as income or net worth, you
don't have the money to spend like it's going out
(04:40):
of style. It's not available to you right now. And
so I think that ultimately Delta giving us further confirmation
on that front. And it also gets back to this
question that I think that you know, we've talked about
over the last month or two now, which is, hey,
we've seen it continued weakening in the labor market, but overall,
(05:03):
consumer spending trends remain remarkably consistent. Four to six percent
year over year growth in consumer spending. You figure inflations
running about three percent, so net net, yeah, you got
consumer spending rising somewhere like one to three percent on
a real basis, and we we kind of look at
it and we say, well, look, payrolls aren't growing that
quickly anymore. What gives Hey, You've got a bunch of
(05:26):
baby boomers that are retired and living off of portfolios
and social Security right now, which is going up, which
you know could continue to move up. You've got a
situation where high income earners are generally not the ones
that are seeing the more sluggish job market right now.
And so ultimately, I think we are in a position,
(05:46):
until proven otherwise, where you can still have that consumer
ending engine. Consumer spending engine just chugging right along until
you know, you see those high end segments impacted, which
they have not been.
Speaker 3 (06:02):
To this point. I think the baby boomer piece of
it is especially relevant, Chuck, because remember too that when
that segment goes and files their taxes next spring, most
of the we're gonna be gett an extra twelve grand
deduction on top of everything that they previously had. It
sounds fun making. Just imagine for a minute that you had,
(06:22):
between your IRA withdrawals and your source security and everything else,
you had gross income of one hundred and twenty thousand
dollars back in twenty twenty four. If you do that
same thing in twenty twenty five, you're probably gonna save
something like fifteen hundred bucks in taxes. Mean, you're getting
a bigger refunder than you did the previous year. And
so it it all comes back to one, you know,
really important question, which is our financial conditions actually too
(06:45):
tight right now? But that's that's a question for the
FED to try and answer. I don't want to answer
it quite yet. That's fine, We've got that coming up.
We'll talk about that in a little bit. Letch on
one more thing on Delta before we move on from that.
Speaker 2 (06:58):
Sure.
Speaker 3 (07:00):
The CEO ed Bashom was specifically asked about the government shutdown,
and according to him quote it had not had a
significant impact on the airline's operations. He did warn that
should it continue for another week to ten days, he
would very much expect a significant operational difficulty for their airline.
Every airline is a little bit different here, they have
all different exposures. Obviously, Delta does not fly into your
(07:24):
smaller airlines where some small staffing issue can really throw
things off. So I would imagine that your smaller regional
folks might already be experiencing some problems, but for Delta themselves,
no impact yet from this government shutdown, and I think
continued shutdown or at least a lack of pressure for
an end to that shutdown coming from the airline industry
(07:44):
thus far.
Speaker 2 (07:45):
Yeah, the betting markets now have the government shutdown lasting
twenty seven days. That's where prediction markets are up to.
We're currently at nine, so that would be eighteen days
beyond where we are today. Twenty nineteen was thirty four
thirty four, so we'll see again. It's you know, we're
(08:05):
not really getting anywhere at the moment. If we have
a resolution in the next week or so, it's unlikely
that you'd have any kind of meaningful broad economic impact,
even though again, if you talk to anyone who's you know,
a government contractor or adjacent to those businesses, they'll tell
you that, yeah, like things are a little bit dodgy
right now. But broadly speaking, the shutdown is not having
(08:26):
any major impact on the US economy at this point,
even though obviously it can be uncomfortable for some of
those who may be directly impacted by it right now.
At least, so when we get back to looking at
Q three earnings right now, in the aggregate fact set,
which is just kind of a big aggregator platform, they
(08:47):
anticipate that year over your earnings growth is going to
be eight percent for Q three, which is actually an
upward revision from where they thought it would be on
June thirtieth. So what I will say this is one
of the more positive things that you can see in
markets when earnings revisions are moving upward into the quarter
(09:08):
of reporting, that's kind of unexpected. Normally the game that
you see played is, well, two months ago, we thought
earnings growth was going to be seven point three percent.
Now we think it's going to be six and hey,
all these companies beat and Earning's growth came in at
seven point five percent. Well, yeah, that's because you guys
all lowered your expectations heading into it. When you have
(09:31):
an upwardly revised set of earnings going into it, it's
typically a pretty optimistic sign. And you can say that
that's one of the reasons why markets might have continued
to move up over the last quarter is that earnings
estimates have been improving as some of the uncertainty regarding
tariff impact and things like that has been pushed out
(09:52):
of the overall system.
Speaker 3 (09:53):
Now I'm doing a bit of apples to oranges comparisons
here in terms of timeline, Chuck. But if Earning's growth
comes in it eight percent year every year, and the
stock market of the last twelve months is up, let's
call it sixteen more with dividends. What that means is
we've all become willing to pay a fair bit more
for the stocks that we all own.
Speaker 2 (10:13):
Yes, So here's the thing. Stocks aren't cheap right now.
The forward twelve month peve ratio for the S and
P five hundred, it's twenty two point eight x the
five year average is nineteen point nine, the ten year
average is eighteen point six. The long term average is
down even further than that. You can make a case
(10:33):
that there are structural changes that mean that you're not
going to get back to a time where stocks should
be valued like twelve thirteen times earnings.
Speaker 3 (10:41):
That's fine.
Speaker 2 (10:42):
I think we can accept that they're still expensive even
relative to the last five years, which include one of
the bubbliest periods that we've seen. I mean, we were
talking spack mania back in twenty twenty one. We had
Trevor Milton pushing trucks down hills in order to get
them moving. You know, we had Shamath was coming out
(11:03):
with U Spack every week in order to do something.
This is. You know, we're at some pretty high valuations,
but market's been pretty highly valued all year. Valuation isn't
what causes problems. No, it's when something pops that the
valuation means that you might have further to fall. But
(11:24):
just because something's valued highly doesn't mean that it's going
to at any point in the near future. Just take
a quick break. When we return, let's talk a little
bit about the FED. We got FED meeting minutes, which
in a time when there's nothing coming out from the
federal government as far as economic data, gosh, FED meeting
minutes something to look forward to. We're going to talk
(11:46):
about that next.
Speaker 1 (11:49):
The Financial Exchange streams live on YouTube. Subscribe to our
page and stay up to date on breaking business news.
Speaker 3 (11:56):
All morning.
Speaker 1 (11:56):
Long Face is the Financial Exchange Radio Network. The Financial
Exchange Show podcast drops every day on Apple, Spotify, and iHeartRadio.
Hit that subscribe button, then leave us a five star review.
You're listening to the Financial Exchange Radio Network.
Speaker 3 (12:20):
All right.
Speaker 2 (12:20):
We got a Wall Street Journal piece here. It's titled
five Minutes Revealed, Divide over outlook for interest rate cuts?
What is happening on the most dramatic season of the
Federal Reserve.
Speaker 3 (12:35):
Yeah, not as nearly as dramatic as as even the
Wall Street Journal wants to make it. But you did
have the meeting minutes come out. These are somewhat informative
to give you the behind the scenes view because you
don't get that immediately, and quite frankly, in the absence
of any data on joblessness, inflation, etc. People are gonna be,
(12:56):
you know, pondering over this and looking through it. I
think what you still have excuse me, what you still
have after digesting the meeting minutes, at least in my view,
would be a small majority of folks believing that they
need to continue with the most recent rate cuts and
do that at least two more times to the end
of this year. And so I suspect that that's what
(13:18):
is going to happen. But it is not as much
as a There's not as much cohesion there around the
subject on lower interest rates as you might expect given
where the votes came like very obviously everybody wanted to
cut rates at the most recent meeting. There's not a
clear outlook for that. Definitely needing another two rate cuts
(13:40):
through year end. When you take a look at these minutes, though.
Speaker 2 (13:44):
Say that one more time so I can make sure
I understand what you just said.
Speaker 3 (13:47):
I think that the surprise could be towards the fewer
rate cuts side rather than the more.
Speaker 2 (13:53):
I don't think it will be in the next two months,
because really we're talking about a meeting in three weeks
and a meeting in nine weeks.
Speaker 3 (14:01):
Yep.
Speaker 2 (14:03):
So here's where I land.
Speaker 3 (14:04):
Pretty much locked into two cuts? Is your outlook the
October meeting, there's a pretty good chance you don't have
any more economic data by then. Yep yees, who changes
their mind from the September meeting? No one voting?
Speaker 2 (14:20):
Probably right, Like what changes your mind the December one?
Will see what data we have that comes in at
that point. But I think there are two different cases
to be made. The first is, look, you might only
have one job support if this shutdown goes into early November.
You might only have a jobs report that comes out
in early December, and you might have one CPI reading
(14:43):
as well. There's not much to work from there. The
other piece is when we talk about policy errors. I
love how everyone likes to get all hopped up about well,
are they gonna cut a quarter percent or a half Guys,
the difference between in a quarter percent cut in a
half percent cut has no impact on the economy. When
(15:07):
we talk about policy errors, were like, hey, we were
cutting and got interest rates down to three percent when
they should have been up at five. That's a policy error.
Not well, we cut a quarter percent when we should
have cut a half. No, like that's that that that's
not going to cause problems because a quarter percent shift
in either direction, it's just not fundamentally big enough to
(15:31):
cause either a problem or be a huge benefit. So
I think if you're in the camp that I'm in,
which is they cut in September because they saw problems
with the labor market. To this point, all of the
supplemental data that's out there you'll get indeed, ADP paychecks,
all the private sector data that we get, is any
of it showing improvement in the labor market.
Speaker 3 (15:53):
No, there's no improvement, but there's still no firings.
Speaker 2 (15:56):
True.
Speaker 3 (15:57):
But if you were comfortable cutting in septem yeah, you
shouldn't it.
Speaker 2 (16:01):
And there's been no change in trajectory of the other
data that you get.
Speaker 3 (16:05):
Yep.
Speaker 2 (16:06):
Then you say yes, I'm good to cut in October.
And if you say yes, I'm good to cut in October, well,
what's the worst that happens if we cut an extra
quarter percent in December?
Speaker 3 (16:15):
Fair?
Speaker 2 (16:15):
So that that's kind of where I get to in
terms of I know everyone wants to make this all dramatic,
because look, I get it. You want people to pay
attention to you and read your stuff. This is another
one of those points where I kind of say, it
doesn't really matter if there's an extra quarter percent cut
or not. What matters is the broader direction of travel.
(16:39):
And if the Fed's wrong, it's not gonna be because
they cut by an extra quarter percent. It's gonna be
because they cut it all when they should have been hiking.
Speaker 3 (16:49):
Yeah, and that seems like an unlikely outcome base what
we're seeing right now, but I do hear you. One
interesting trend we've been following to the last FED meeting
September seventeenth, correct, that was the date of the actual announcement.
Speaker 2 (17:02):
Sure, I believe you, uh ye.
Speaker 3 (17:04):
Mortgage rates on that day thirty year fixed, according to
Mortgage News Daily sitting at six two two. We are
now sitting at six three six. We have continued to
see a rise in mortgage rates in spite of the
FED cutting at the most recent meeting and signaling that
they are going to continue to cut. We saw this
last fall, Yeah, last fall as well, just fall end
of the year, where the FED started cutting rates, mortgage
(17:25):
rates went in the exact opposite direction. And when you
are cutting interest rates in an environment that is not recessionary,
which you never know if you're in recession until years out,
but hypothetically we might be there again, it is a
coin flip, as to whether or not mortgage rates follow
the Fed's decision. So we are right now seeing mortgage
rates move back up. It speaks to, you know, general
(17:47):
financial conditions, and I think the main argument you can
make for why rates might need to stay where they
are would be, yeah, we're seeing some weakness in the
labor market, but we're not on the spending side. The
stock market continues to hit new all time highs almost
every day, and also the housing market, while showing weakness,
is not in free fall either. Let's be honest.
Speaker 2 (18:10):
The case to be made for the FED not cutting
rates right now is that Round Hill Investments just brought
back their meme stock ETF No Boy, which the last
time that they had it out there was basically the
top of the meme market. They got rid of it
at the bottom, and now it's back baby.
Speaker 3 (18:30):
They brought it back. Huh.
Speaker 2 (18:31):
Fed's got a hike.
Speaker 3 (18:35):
So that it actually went defunct and then they just
brought it back up.
Speaker 2 (18:38):
Yes, I saw the chart of it earlier today. Let
me see if I can find it.
Speaker 3 (18:42):
If we're speaking Greek ta if you remember meme stocks
back in twenty twenty one, was basically anybody that posted
something on Reddit or started some infatuation with any company
they wanted, just blew up to the upside, put a
bunch of hedge funds nearly or entirely out of business,
and there were no real fundamentals on the trading strategy
(19:03):
other than follow me because I'm gonna blow up some
hedge funds. And if that's coming back, then that leads
to some interesting questions about where this market could drive
to next.
Speaker 2 (19:15):
Yeah, so I'll pull the exact dates during the break.
But needless to say, this was okay, no, here we go,
so oh no, we got to go to break?
Speaker 3 (19:26):
We do? Okay, Well, we're sorry.
Speaker 2 (19:29):
Watch Wall Street watch and then the meme stock ETF
when we return.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter at
TFF show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look and what's moving market so
far today right here on the Financial Exchange Radio.
Speaker 4 (20:00):
This day nine of the government shut down, and markets
are pulling back in negative territory as investors sift through
FED meeting minutes. And also we act to third quarter
earnings from PEPSI and Delta unveiled earlier this morning. Right now,
the Dow is down by four tenths of one percenter
one hundred and ninety four points. SMB five hundred is
(20:21):
down about a third of a percent or twenty one points.
NASDAC also down by about a third of a percent
or seventy nine points. Russell two thousand is off by
you guessed it a third of a percent. Tenure Treasreel
is flat at four point one four percent. In crude
oil is down about four tenths of one percent, trading
at sixty two dollars and thirty cents a barrel. Delta
(20:43):
reported stronger than expected third quarter results, where the airline
issued strong guidance, saying it expects a resurgence in travel
demand to continue in the holiday season. Delta stock is
climbing nearly four percent higher. Meanwhile, Pepsi up over one
percent after the snacks in average Giant also impress for
its third quarter beating on earnings in revenue. Pepsi also
(21:05):
named a new CFO from Walmart's US unit. Elsewhere shares
in luxury car maker Ferrari skidding twelve percent after the
company trimmed its electrification targets. Ferrari said it expects its
twenty thirty sports car model lineup to be made up
of only twenty percent fully electric vehicles, down from its
(21:27):
prior target of forty percent EV sales by the end
of the decade. Mp Material stock rising over six percent
after BMO Capital Markets reinstated coverage at a market perform rating,
calling the rare earth metals producer a rare earth champion
following its partnership with the Department of Defense. Separately, China
said it tightened rare earth export controls ahead of a
(21:51):
potential meeting between President Trump and Chinese President Jijingpeng, and
Costco saw its sales climb eight percent on the year,
sending that stock up almost three percent. I'm Tucker Silva,
and that is Wall Street Watch, Mike.
Speaker 2 (22:06):
We're continuing to get more information surrounding the First Brands bankruptcy.
Speaker 3 (22:13):
Should we do a little bit of background on that
first brand? Again, nobody really knew who this company was,
right they might be second brands until what this time
last week, last Monday.
Speaker 2 (22:25):
Yes, like, in full disclosure, I didn't have any idea
that this company existed before last week. It's not like
this is something that we paid any attention to because
you and I do not scrutinize auto part manufacturers balance
sheets that are not publicly traded, like this is just
(22:45):
not something that you would do. So First brands that
the big thing for them. They are a or They
were a company that operated a lot of you know,
big auto parts. Think about you know, fram oil filters,
they made windshield wipe, but like all kinds of different
stuff all across the board. And last week they declared bankruptcy.
(23:09):
And most of their creditors were expecting them to declare
somewhere in the ballpark of around like five to seven
billion dollars in debt. It now appears that they have
somewhere between twelve and fifteen billion dollars in debts that
come and most of it held you know, off balance sheet,
and some of their lenders are saying that there might
(23:33):
be as much as two point three billion dollars in
assets that are unaccounted for. This from a technology group
called Raystone, who helped arrange a lot of this financing.
They're basically saying, hey, we arranged this with the idea
that you had you know, assets of X, Y and
Z to lend against, and now you're telling us this
(23:54):
two point three billion is missing, So is it actually
I don't know, but First Brands is pretty much already
admitted Yeah, there's some accounting stuff that we can't reconcile.
And so it does appear that you do need an
independent third party auditor to come in and at the
very least say hey, show us what's going on here.
Speaker 3 (24:15):
So the interesting part of this story to me at least,
has been about the debt from the very beginning and
how much did the lenders know about the business, how
much did they know about the other debt being issued
against the business, and is it indicative of the overall
private credit space? And I suppose if you want to
(24:36):
look at the optimistic side of this and say, no,
it's not a problem with private credit and there's two
point three billion dollars worth of accounting fraud potentially in there,
you might be able to take that as a positive
news story here that oh no, it was not a
blow up in the private credit industry. It was one
company ripping off their customers, or not ripping off their customers,
(24:56):
ripping off their lenders by miscalculating things and high things
from them. That would be the most optimistic viewpoints you
could take. The pessimistic viewpoint would be this type of
lending is insidious in the overall industry. And while it
might not be occurring at the Walmarts of the world
because they don't need to go to KKR or UBS's
(25:18):
O'Connor fund to find debt to finance their businesses, this
could be insidious of much smaller companies across the country
where we have seen this type of debt issuance really
blow up over the course of the last fifteen years
and especially over the last five to ten.
Speaker 2 (25:34):
The third possibility, and the one that I am increasingly thinking,
is that there is a problem in the auto sector
that is much larger than anyone wants to admit. And
that's because look, in the last month now, we've had
three different signals there. We've got this first Brands bankruptcy
(25:55):
that blew up. We have this Tricolor bankruptcy, Tricolor a
dealer and lender for subprime borrowers. And we've got CarMax
that reported earnings that were horrific to quite horrific, and
the stockfeld, you know, twenty percent upon the release of
(26:18):
those earnings. The other thing that we're now seeing and
this is if you look at some of the I
do love that we're like, we're basically doing the auto
version of two thousand and seven is kind of where
we are right now.
Speaker 3 (26:34):
I was talking at Vini Penn this morning. If you're
not familiar. Vinie Penn is a radio show host down
in Connecticut on one of the stations that we broadcast to,
and he made that exact point. He's like, this, what
you're describing with this auto sector and what's happening with
these loans sounds a lot like two thousand and seven.
Speaker 2 (26:51):
And it does. Yeah, frankly, it just does. So where
we're at right now. Carvana, who is a publicly traded company.
One of the main things that they do is they
underwrite loans for their vehicles and then remind me, if
this sounds familiar, they package those loans up into different
tranches based on how likely they are to be repaid,
(27:13):
and they sell them off to people who want to
buy those loans. And basically what you're seeing now is
the tranches that have been issued since twenty twenty one
are seeing significantly higher losses than the prior vintages. So
as an example, if you look at they have different
(27:34):
vintages per year, so they have one that's categorized as
twenty twenty and one. It's just like the number. And
if you look at basically where that was at the time,
that about fifty percent of the loan was paid off
on average, you ended up in a situation where the
cumulative losses were about four percent on those loans. Now,
(27:55):
remember in twenty twenty one, there was still free money
slashing around. We had a last round of stremulous checks.
You had mortgage for barons that was in place for
an awful long time. You had student loan payments that
were stopped. Like twenty twenty one was as good of
a credit situation as you could find. By which you
mean you could borrow money with no repercussions, is that well,
(28:18):
no one was defaulting, You could lend money with no repercussions,
Like nothing went wrong if you went money in early
twenty twenty one, like everyone paid it back because it
was just sloshy slashy.
Speaker 3 (28:28):
Just clarifying that it wasn't necessarily a good idea, just
good if you were either lending borrowing the money.
Speaker 2 (28:34):
It was a good idea. This is what I'm saying.
Like the loans that were made in twenty twenty. Only
by the time half those auto loans were paid off,
only four percent was was realized as a loss like
it was it was great, Like it was a.
Speaker 3 (28:47):
Good decision to problem the money and to borrow the
money was a good decision in twenty Making the conditions
to allow that type of borrowing and lending, I don't
think was a good idea.
Speaker 2 (28:58):
Yes, totally. And here's the other problem is that lenders,
like the end buyers of these loans, looked at that
vintage and said, great, this is what we can expect
going forward. And now what we have is when we
look at the twenty twenty four vintage that's in the
same boat, the cumulative losses on that vintage are around
(29:21):
seventeen percent as opposed to four percent, four and a
quarter times as high. And so I am increasingly convinced
that there is something very ugly happening in the auto
lending area, and it's going to cause some problems, not
to the scale of what we saw in the financial crisis,
(29:43):
because the auto sector is a tenth of the size
of the housing sector.
Speaker 3 (29:49):
So that's the important clarification here is according to the
most recent numbers from the Federal Reserve back in New
York second quarter twenty twenty five, total mortgage dead outstanding
about thirteen trillion dollars, Auto loan debt one point sixty six,
So not big enough to sink big major banks, but
pretty messy.
Speaker 2 (30:10):
Pretty messy, and enough also to have when you look
at like the underwriting standards for auto loans, they're gonna
have to change dramatically over the next couple of years,
which means the auto sector is likely entering into a
period where they're not gonna be able.
Speaker 3 (30:24):
To sell as many vehicles. By the way, pretty wild debt.
Student loan debt is at about the same level of
auto loan debt. If if you just think about like
the portion of Americans that have an auto loan versus
the portion of Americans that have a student loan, for
that to be the total student loan debt one point
six four trillion dollars in credit card debt at one
point two trillion, it's just wild to be that dispersion
(30:48):
given how narrow a student loan is.
Speaker 2 (30:51):
Yeah, because student loans, I think there's somewhere between like
forty and sixty million people that have outstanding borrowings auto loans.
I think it's double or triple that. Yeah, I think
it's like somewhere around one hundred to one hundred and
twenty million.
Speaker 3 (31:02):
Because does anyone.
Speaker 2 (31:04):
Pay cash for a car in this in straine environment
and this you would you would like to, but I
think most people don't, like they're not cheap. So I
think there's something in the auto sector that that stinks.
Other things just that I think are like kind of
the the black comedy of this whole thing is okay, so.
Speaker 3 (31:27):
Excuse me.
Speaker 2 (31:28):
Jeffrey's Financial yesterday said that they had a fund that
was impacted potentially up to seven hundred and fifteen million dollars.
The name of the asset manager that they have is
called Point Benita Capital, which feels like it's right out
of like Glengarry glen Ross. It's like Alec Baldwin trying
to sell like bad real estate. To me, yeah, I
work for Point Benita Capital. I got auto loans like it,
(31:52):
just it feels just too on brand. There. The other thing, ubs.
Speaker 3 (31:58):
Of course, you'd bs who bought.
Speaker 2 (32:00):
Credit Sweee a couple of years ago, and Credit Sweez
historically has been like they've been the company that always
is on the front edge, the leading edge of well
this is kind of questionable, but will make the loan
and see how it goes. Like that's what credit Sweese does.
They make the loan that no one else will did
they did?
Speaker 3 (32:20):
Yeah?
Speaker 2 (32:20):
Yeah, and then they had to get bought by UBS
because they basically like did too much of that. Yeah,
they did too much. UBS said that they have around
five hundred million dollars in exposure as well, because of
course UBS they have.
Speaker 3 (32:35):
One fund where thirty percent of it approximately with loans
to this first.
Speaker 2 (32:38):
Preak, which seems totally reasonable from a risk management perspective. Yeah,
I just put thirty percent of it in this like
subprime auto parts loans loan.
Speaker 3 (32:46):
So counterpoint to this just being relegated to the auto
industry would be that some of the major private credit
lenders there out there are getting hammered this year. Apollo
Global Management down twenty five percent, KKR down seventeen percent
this year.
Speaker 2 (33:02):
I'd like to introduce you to Blue Owl Capital, who really,
like it is, is specifically focused in this area, down
twenty seven percent and down ten percent in the last
couple of weeks. And the problem that you have now
is you get a couple of these popping up in
every lender out there is kind of looking at it going,
I don't know what my loans are worth right now,
(33:23):
I don't know what we're going to do. Let's take
a quick break and when we come back, Uh, let's
do a little bit of tariff talk.
Speaker 1 (33:31):
When we return, the latest news on inflation, the Fed,
the economy, and how the markets are reacting. Every morning
right here on the Financial Exchange Radio Network. Thanks to
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.
(33:52):
This is the Financial Exchange Radio.
Speaker 5 (33:54):
Network piece from the Blue Meeberg Who's gonna eat the tariffs,
not US shoppers?
Speaker 2 (34:05):
That is the piece that is here talking about, Hey,
you're starting to see signs of more tariff price related
increases coming into stores over the last few months. To
this point, you haven't seen any impact though in overall
retail sales.
Speaker 3 (34:22):
Retail sales up three and a half percent.
Speaker 2 (34:24):
Now in real terms they're up half a percent.
Speaker 3 (34:26):
Sure, okay, but that means that the people are still
buying more stuff. It's divided higher prices.
Speaker 2 (34:30):
They are, So I think the big thing that I
look at is the question that we've been asking for
a while, which is, Okay, you've got weakening jobs data,
you still have strong consumer spending. Typically, consumer spending does
not break in advance of a recession. It's usually when
people start getting laid off. That's when the spending issue happens.
(34:51):
And I think, honestly, I'm kind of getting to the
point where, unless the stock market cracks or high income
earners start getting laid off in larger numbers, I don't
know that you're going to see an impact on the
retail side of things like that. This piece tries to
make the case that US shoppers won't pay price increases.
Speaker 3 (35:10):
I think they will.
Speaker 2 (35:11):
I don't know that some of them might not because
they might not be able to. But those aren't the
spenders that are driving the US economy right now from
the data that we see.
Speaker 3 (35:21):
Yeah, I mean tough position to be in if you're
a retailer, because you have no idea what to do
with pricing. Also, you're pretty concerned about driving those higher
price increases in the face of all this, all these
news stories about to the weaker kids.
Speaker 2 (35:35):
Did you also know that as of last year, even
before this year, the terrify on imported leather gloves averaged
nineteen and a half percent. You weren't to wear that, chuck,
I wasn't buying leather gloves. Apparently not, I guess not.
Speaker 1 (35:46):
So.
Speaker 2 (35:47):
Ultimately, the question is going to be are consumer's going
to go and keep buying this stuff or do they
just take a look at the window and say not
for me.
Speaker 4 (35:55):
The US Virgin Islands aren't just stunning, their thriving and
continue to be one of the hottest for vacationers in
the Caribbean. New crows port upgrades, better air connections, and
a sharper focus on cultural experiences have put the islands
back on the map for travelers seeking something special. Saint
Thomas is your cruise hub, known for duty free shopping
(36:15):
in the world famous Megan's Bay. Saint John is pure
escape with national park hikes, secluded beaches and tropical tranquility.
Saint Croix brings the history with colonial architecture, old sugar mills,
and vibrant coral reefs. Visit one island or all three
and get plenty of pampering, undisturbed nature, and a vibe
(36:36):
like no other, all jammed into one vacation with easy
travels from New England, no passport required and no money
to exchange. Paradise is closer than you think this fall,
plan your getaway and fall naturally in rhythm with the
heartbeat of the islands in America's Caribbean. Visit USVII dot
(36:56):
com and book your trip today. That's visit dot com piece.
Speaker 2 (37:01):
And Financial Times why car makers are falling back.
Speaker 3 (37:04):
In love with petrol because they pushed too much into
electric vehicles and nobody wants to.
Speaker 2 (37:10):
It's because they're actually profitable. That's why they're falling in
love with petrol. The reason that they fell in love
with EV's they saw what was going on with Tesla's
stock price and said, oh, we can be that, and
then it turned out, no, you can't be that. It's
it's actually really hard to be that. If you don't
have someone named Elon Musk running an EV company.
Speaker 3 (37:25):
They might have also fallen in love with some really
nice subsidies on electric vehicles.
Speaker 2 (37:30):
Possible. Yeah, but I think that when you look at this,
ultimately internal combustion engine vehicles are profitable. The evs generally
are not for most automakers right now. And so you've
got projections out now, this from alex Partners, that US
EV sales are going to be around seven percent of
all car sales this year and maybe only as little
as eighteen percent in twenty thirty, compared to previous estimates
(37:53):
of like thirty to fifty percent at that time.
Speaker 3 (37:55):
Not just the US phenomenon either, you're seeing the same
thing upon among European makers who sure partly are seeing
the pushback on demand and then partly are trying to
compete with Chinese made evs. And good luck.
Speaker 2 (38:07):
Let's take a quick break when we return. We got
a whole nother hour coming up to make sure you
stick around on the Financial Exchange
Popular Podcasts
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.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
My Favorite Murder with Karen Kilgariff and Georgia Hardstark
My Favorite Murder is a true crime comedy podcast hosted by Karen Kilgariff and Georgia Hardstark. Each week, Karen and Georgia share compelling true crimes and hometown stories from friends and listeners. Since MFM launched in January of 2016, Karen and Georgia have shared their lifelong interest in true crime and have covered stories of infamous serial killers like the Night Stalker, mysterious cold cases, captivating cults, incredible survivor stories and important events from history like the Tulsa race massacre of 1921. My Favorite Murder is part of the Exactly Right podcast network that provides a platform for bold, creative voices to bring to life provocative, entertaining and relatable stories for audiences everywhere. The Exactly Right roster of podcasts covers a variety of topics including historic true crime, comedic interviews and news, science, pop culture and more. Podcasts on the network include Buried Bones with Kate Winkler Dawson and Paul Holes, That's Messed Up: An SVU Podcast, This Podcast Will Kill You, Bananas and more.