February 17, 2026 • 38 mins
Mike Armstrong and Marc Fandetti examine whether artificial intelligence will meaningfully change long-term economic growth — or simply reshuffle industries and jobs. They also discuss falling Treasury yields, Fed rate-cut expectations, rising inflation pressures from AI-related shortages, and what those forces could mean for consumers, housing, and markets.
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Speaker 1 (00:00):
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(00:43):
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(01:06):
Mike Armstrong and Mark Vandetti.
Speaker 2 (01:12):
Good morning, Happy Tuesday, Welcome back to the Financial Exchange.
It's Mike, Mark and Tucker with you on a morning
where markets are actually improving.
Speaker 3 (01:20):
Here we get the Dow off eighty eight.
Speaker 2 (01:22):
Points, a little bit more than a little bit less
than one fifth of a percent. Nasdaks still leading the
way down, off more than like a third of a percent,
but that's far better than where we were just even
ten minutes ago. So some improvement in early trading in markets.
SMP down sixteen points or one quarter of one percent.
We'll be hearing from the likes of Walmart, John Deere,
and others this week. In earnings, we'll be getting some
(01:44):
more inflation rings. The Q four first read on Q
four GDP, Is that right, Mark, Yes, we'll be get
that reading as well. Oil markets are not seemingly reacting
a whole lot to around, partially closing the straight of
horror moves with West Texas Crewed moving down in price
by one and a half percent.
Speaker 3 (02:04):
In the bond market, we've got yields.
Speaker 2 (02:06):
On the ten year Treasury sitting at four point zero
five percent and nothing. Oh yeah, once again. In commodity markets,
wild things happening once again. We've got silver prices moving
down five bucks an ounce six and a half percent. There,
gold prices moving down one hundred and fifty five dollars
ounce three percent in early trading. There anything else kind
(02:30):
of catching your eyes?
Speaker 3 (02:31):
Marketing?
Speaker 4 (02:32):
So rates dropping pretty precipitously. Sure, what's the consensus? Is
there a little scrolling explanation there? Expectations that the Fed
will cut rates. That has that impacts obviously the short
end of the so called yield curve, maybe out to
ten years or so. So it could be that could
market processing the idea that the Fed will have room
(02:53):
to ease. A prominent Fed governor this morning said he
sees the possibility of several rate cuts. Don't ask me why,
but he he's accomplished academic too, He's probably good as reasons.
See the possibility of several rate cuts this year. That
puts pressure again on the front end of the curve.
That could be it.
Speaker 2 (03:07):
Yeah, to your point, early February ten year, rates were
sitting around four and a quarter. We're now down to
almost four percent even. Yeah, multitude of factors, maybe nervousness
about markets, I.
Speaker 4 (03:20):
Mean it AINTI economy, the economy is going like gangbusters
without really we're not exaggerating.
Speaker 3 (03:25):
Yeah, the market story we're talking about this in the
first hour.
Speaker 2 (03:28):
But the market story that's been dominating for the last
few weeks now has been interesting to me as well.
It's turned from oh, this AI stuff is overblown to know,
there's no way it's overblown. If we have these companies
spending six hundred and fifty billion dollars in AI build
out next year, but a bunch of the companies that
exist to day might not exist in the future, or
at least might not exist in the same fashion given
(03:50):
this new technology and its capabilities, which.
Speaker 3 (03:53):
Is interesting to me.
Speaker 2 (03:53):
That is a very different narrative than what was deployed
over the course of the last three years.
Speaker 4 (03:57):
There are almost a couple different questions here. Mike, will
change the world Probably, yeah, I'll defer to the experts
on that the Internet changed the world. Will it change
the trend and growth? That's a bigger question, and that's
a rhetorical one. We don't know. Some enthusiasts say absolutely
it will. So what do I mean by change the
trending growth? Do you mind if I just briefly say, okay,
so twenty five years from now, will we be richer
(04:19):
than we otherwise would have been had AI not been invented?
And keep in mind that, or had AI not become
pervasive and integrated into everything, keep in mind that if
that doesn't happen, something else will. So to ask this
question differently, Mike, if the Internet hadn't been invented, would
we be as rich as we are today? Well, actually,
(04:39):
growth has slowed down a little bit from the late
twentieth century. Would it have slowed down even more without
the Internet? Or would something else have taken its place?
Would we instead of cured I mean, it seems silly
to even speculate about this. Would we have cured some
major cause of mortality, heart disease or something like that,
and those two are obviously not exclusive, But those investments
(05:00):
would have went somewhere else, something would have caused the
economy to grow. It's not clear that the Internet changed
the trend in GDP growth, which is what matters for
living standards, and it's not clear at this point. By analogy,
I hope this works that AI will change the trend
in GDP such that when we look back twenty five
years from now, you and me doing the show. Hopefully, well,
(05:21):
maybe at least one of us, we could say, yeah,
we're richer today, I ask.
Speaker 3 (05:26):
Heart disease thing years.
Speaker 4 (05:29):
Some things aren't looking things aren't looking good for either
one of us, probably especially me. But anyway, will we
be richer than we otherwise would have been? That's a
harder question. And that doesn't mean AI won't matter in
the intern It will certainly matter for the companies that
are put out of business by it, and for the
companies and people who own them that grow rich as
a result of it.
Speaker 2 (05:48):
It seems to me equity investors are hypothesizing, yes, to
answer that question, the all be richer, but we will
be richer because of it, and they also seem to
be hypothesizing. Can't say that there's been a uniform theory
on this, but that there'll be a massive reshuffling of
the deck that I could killing.
Speaker 4 (06:06):
Would you agree with that?
Speaker 3 (06:08):
I think? I do? I do.
Speaker 4 (06:09):
It's going to change the world, there's no doubt. Like
the Internet changed the world. Life's a lot different now
than it was in nineteen ninety.
Speaker 2 (06:15):
What's been interesting is for the last couple of decades,
so technology in particular has been a.
Speaker 3 (06:21):
Sector where there has.
Speaker 2 (06:24):
Not been the same dominance by single companies over long
periods of time. Right, You think about the energy sector
and you go take a look at the major players there.
They are pretty much the same major players, although merged
together and traded five decades ago. Take a look at
tech and you think about who the major players were
in nineteen ninety and then two thousand, and then twenty ten,
(06:47):
and from really twenty ten through now. We have not
seen much in the way of a reshuffling on that front,
but there were completely different companies.
Speaker 3 (06:56):
Right. IBM was top of the playhouse back in.
Speaker 2 (06:58):
Nineteen ninety and barely is even worth mentioning in today's economy.
Will AI be the new reason that, Hey, that whole
deck gets reshuffled, and the wealth and the market creation
it's allocated elsewhere. That's been the trend for taps for
most of its history.
Speaker 4 (07:14):
Isn't the safe answer to that? The radical answer, which
is yeah, probably, I can't tell you the winners will
be sure, but yeah, probably, But that doesn't mean will
be worse. This is a little bit yeah or but
this doesn't mean the average person will be better off.
And this sounds a little abstract but it's true, though,
if AI is not trend changing, like the Internet was
not trend changing. If you a plot a time so
(07:39):
called time series of GDP growth, and you look at
it the right way, you won't see a change in
the slope. You won't see GDP like took off in
the nineties because of the Internet. You'll see what looks
like a pretty uniform trend from nineteen forty seven, when
really good record keeping started. You can go back even
earlier if you look in the right place until today. Hey,
(08:00):
that's what's That's what's most confounding about all this. It
can be both life changing, but at the same time
in a per capita wealth sense, and maybe that's too
narrow in the same time, not living standard changing like
the Again, the Internet wasn't, even though we lived much
differently than we did.
Speaker 2 (08:18):
In the same way that everybody's been theorizing about the
winners and losers in the AI space, everybody's been theorizing
about who the employee winners and losers are going to be.
What areas of the labor market are going to be
completely disrupted. We've got three separate pieces this morning. Muhammad
al Arian published one in the Financial Times talking about
(08:40):
how this time really could be different on jobs and
effectively saying that, hey, the jobs report that we got
last Wednesday was an in.
Speaker 3 (08:50):
And of itself more or less a mirage.
Speaker 2 (08:53):
It showed really strong growth, and you know what, the
revisions that came through and other revisions in the future
might wipe some of that away.
Speaker 3 (09:00):
What is your take on.
Speaker 2 (09:03):
Does Muhammad al Arian have a succinct view on what
he believes is happening with the US labor market or
is there really nothing here because we continue to get
piece after piece of people disagreeing about what the direction
is going to be the labor market because of Ai.
Speaker 4 (09:17):
No, I think he's his arguments are coherent. I mean,
he is a PhD former academic, so he makes intellectually
sort of tight arguments. He's not all over the place. Sure,
he's a little bit bland at times. He kind of
summarizes conventional thinking and repackages it a little. So I
always come I always walk away from his pieces like
(09:39):
I just you know, like you do after Chinese food,
like I'm still Hungry's what's going on? So his his pieces,
his articles to me are like Chinese food, and I
don't nothing against Chinese food, which I love, we all
love it, but leave you a little bit wanting, and
his articles always do so with that sort of general comment. Yeah, Mike,
I mean he points out the things a lot of
people are talking about. Certain jobs will become redundant with AI. Yep, well,
(10:04):
no kidding, and as a result, you may seek He
talks about the decoupling that we talked about earlier in
the show today between GDP growth last year really stark
last year, zero to negative. Apparently new jobs is measured
by payrolls anyway, coupled with strong GDP growth. Wow, that
doesn't happen a lot. That actually happens out of coming
(10:25):
out of jobless during jobless recoveries, right, And that could
be a pattern.
Speaker 3 (10:30):
If you will.
Speaker 2 (10:31):
I guess my question is do you believe that it
can happen for the long term? Like I could see
this for a short term. But the narrative that seems
to be dominating right now is AI is going to
replace all of us and we're going to permanently have
higher unemployment.
Speaker 3 (10:42):
And so there has never been a single technology that's.
Speaker 4 (10:45):
Exactly exactly you get a level shift, not a chance.
This is what I was talking about earlier. If you
ever took a macro economics class, you learned the solo
growth model, named after the MIT economists who, among others,
popularized it. You get these one time changes in levels,
but not a change in the long term or steady
(11:07):
state if you prefer growth rate, and that's really what
he's getting at. I don't think it's going to be
a change in the trend growth rate, and I think
it would have to be for this to be unfolding over,
you know, a continually disruptive Now that said, there are
people who know a lot more about this than I do, certainly,
which is not saying much because I know so little
(11:29):
about the coding behind these AI models.
Speaker 2 (11:33):
I tend to think there'll be higher industries of workers
who do not have that work anymore. Okay, and that's
gonna be a problem because we're garbage at retraining people
and we've seen them.
Speaker 4 (11:43):
But it depends, though, go ahead, sorry, so no, please,
depends on what's happening elsewhere in the economy. If you
look at the number of typists, it went from a
million in nineteen seventy to virtually none today because they
were all replaced by Microsoft Word but there were other
things going on in the economy that was not disruptive
as a result. If there aren't other things, if this
is and this is what some people worry about, if
(12:04):
this is that pervasive and it displaces huge numbers of
people across multiple industries, there's not going to be any
place to absorb people who need to be repositioned.
Speaker 2 (12:13):
Right, quick break, We've got a little bit of trivia
coming up next here on the Financial Exchange.
Speaker 1 (12:18):
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Speaker 2 (14:04):
I mentioned last segment the stocks were improving. We've turned
to green now in all three major indices. Dow Jones
up one hundred and twelve points, quarter of a percent,
s and P up nine little bit more than a
tenth of a percent, and NASDAC up nineteen points about
a tenth of a percent will be doing worrel Street
Watch next segment and give a full update, but thought
worth mentioning that you have seen a reversal unfortune since
(14:26):
nine thirty this morning. Gen Z is locked out of
home buying and putting its money in the market. So
we've had this discussion before, but it's been a little
while about Hey, what would you actually be better off
doing right, like buying a house, taking out a mortgage
and experiencing the price appreciation on that home of the
course of thirty years, or renting that entire time, having
(14:48):
no control over your housing costs, but taking the difference
and investing it in the market.
Speaker 3 (14:53):
And plenty of people have done this as well.
Speaker 2 (14:55):
And I think the study was what by Dow Jones
finding that, Hey, after thirty years of monthly payments, the
renter would have been wealthier by over a million dollars
over the course of history, based on a four percent
annual rate of appreciation on their home, which by the way,
is kind of the higher end of expectations throughout history
on single family residences. But it's an interesting case. And
(15:19):
the Wall Street Journal puts together the idea that hey,
gen z actually is investing more, you know, based on
this lockout effect.
Speaker 3 (15:28):
I'm not sure if that's the cause.
Speaker 2 (15:30):
But the share of people twenty five to thirty nine
years old making annual transfers to investment accounts more than
tripled between twenty thirteen and twenty twenty three to fourteen.
Speaker 3 (15:40):
Point four percent, So that seems to I don't know.
Speaker 2 (15:43):
That seems to be indicate something to me about the
popularity of investing, and it does follow along trends that
we've seen from the likes of Robinhood and just more
retail investors getting into investing post COVID. The problem is,
I'm not sure it will actually work out the way
that people are hoping if they are planning to beat
out home ownership here, and I don't think that's actually
(16:05):
what people want to do, right. They pose it this
way that hey, if you just sat there for thirty
years and rented instead of bought a home and actually
invested the difference, you'd be better off.
Speaker 3 (16:15):
Rarely is that anyone's true objective.
Speaker 4 (16:17):
Yeah, I don't think it's one or the other, and
they don't say that it is, but they suggest that
it is.
Speaker 2 (16:23):
Yeah, that's kind of my takeaway like, here's the problem
that I see is everybody right now is saying that
homes are too unaffordable, mortgage rates over six percent, and
plenty parts of the country that happens to be true.
My first question would be, okay, so how are you
investing and is your goal to truly rent forever or
(16:45):
are you just sitting out the housing market right now?
Because if you're just sitting out the housing market right
now and you're pouring all of your money into sports,
gambling bets on polymarket, I'm not sure one that I
consider that investing or two that those are going to
work out favor if you need the money in the future.
Let's say you're even being more responsible, though by the
(17:06):
time housing becomes more affordable, your stock portfolio might not
be in a great position to uh support that decision
to buy a home. Would be would be one of
my concerns here. Rarely does somebody say I just want
to be a renter for life.
Speaker 4 (17:22):
Yeah, I mean, you buy when life circumstances compel you
to buy, And if you think that could happen in
the next few years that you wouldn't you would tell
a client. I think, Mike, what those funds should be
in some space.
Speaker 3 (17:34):
Yeah, be intentional with your money.
Speaker 2 (17:35):
Line up, you know, line up your decisions with with
where your actual needs are going to be. I think
would be would be the responsible answer there. But look,
I think ultimately, but I.
Speaker 4 (17:45):
Mean specifically, you don't put it in the market if
you think you don't need it in a year. Right,
That's what I was trying to get at.
Speaker 2 (17:51):
It would be a relatively sound strategy. And but but
I'm not sure that that's what's happening here and alaud
regardless of how the money's getting invested. And I know
there's a bunch of trends now where people are using
single day expiration options and a bunch of things that
I don't think of as really investing.
Speaker 3 (18:12):
No, that's speculation, it's speculation.
Speaker 2 (18:15):
But I take as encouraging that twenty five to thirty
nine year olds are transferring more into investment accounts. They
are seemingly learning lessons about markets and dabbling in a
little bit more. I recognize that there can be a
lot of downside too, but more experience is more experience.
Speaker 4 (18:33):
I mean, you think homes are expensive, take a look
at stocks relative to earnings. No assets are cheap. You
think I don't want to buy a house? What the
price could fall? Equities are trade? Well, look, we got
into this a little bit when we were talking about AI.
If it's even if AI is transformative to the extent
that it's enthusiasts think it will be, that could be.
That isn't necessarily good news for publicly traded companies. So
(18:57):
younger people trying to build wealth don't have a lot
of good choices unless you assume some sort of explosive
growth ratear that.
Speaker 2 (19:05):
Valuations don't matter, nor did twenty five to thirty nine
year olds I'm putting myself in this bucket, really have
any context for a major market recession and downturn like
we saw in two thousand and eight.
Speaker 4 (19:18):
Yeah, that was a decade of virtues.
Speaker 3 (19:19):
Thirty nine years old.
Speaker 2 (19:20):
Then that was, you know, in story, very early twenties,
and so it was a you know, particularly big lesson,
but not for that group.
Speaker 3 (19:29):
Quick Break, Wall Street Watches.
Speaker 1 (19:30):
Next, bringing the latest financial news straight to your radio.
Every day. It's the Financial Exchange on the Financial Exchange
Radio Network. Time Now for Wall Street Watch a complete
(19:54):
look at what's moving market so far today. Right here
on the Financial Exchange Radio Network.
Speaker 5 (20:00):
Now some volatility by midday, with markets rebounding after tech
was initially selling off as Wall Street prepares for a
week that includes a look at fourth quarter GDP and
the Fed's preferred measure of inflation, the core PCE index.
Right now, markets are mixed. The Dow is edging seven
points higher, mostly flat, s and P five hundred dipping
(20:21):
by four points. Nasdaq is down by two tenths of
one percent, or forty five points lower. RUSS two thousand
flat dipping as well. Tenure Treasure reeled is flat at
four point zero five two percent, and crude oil down
about one percent, trading at sixty two dollars and thirty
cents a barrel. We have yet another development on the
(20:42):
deal four Warner Brothers Discovery, after Warner agreed to reopen
negotiations with Paramount for a potential bidding war with Netflix.
Netflix granted warners board a week to discuss Paramount's most
recent proposal. Warner Brothers shares are up by two percent,
Paramount stock is up by five percent in Netflix shares
are dipping. Meanwhile, the Wall Street Journal report of the
(21:05):
Genuine Parts the parent company to NAPA Autocare Centers plans
to separate its autoparts business from its industrial parts unit
into two separate public companies. That stock is tumbling by
thirteen percent. Elsewhere, The Wall Street Journal is also reporting
that activist investor Elliott Management has built a more than
ten percent stake in Norwegian Cruise Line and plans to
(21:28):
push four changes to turn the struggling cruise ship operator around.
Norwegian stock is rallying by nine percent and shares in
serial maker General Mills falling by seven percent now after
the company cut its annual sales and profit outlook. I'm
Tucker Silva and that is Wall Street Watch And in
the previous segment we asked you the trivia question how
(21:50):
many times did Michael Jordan retire from the NBA. That'll
be three times. Chuck from Newton, Mass is our winner
today taking on the Financial Exchange Show, t shirt congrass
the Chuck and we play trivia every day here on
the Financial Exchange. See complete contest rules at Financial Exchange
Show dot com.
Speaker 2 (22:09):
Federal Reserve is set to loosen some US banking rules
with the seemingly expressed purpose to boost mortgage lending.
Speaker 3 (22:17):
Thinking being more mortgage lending.
Speaker 2 (22:19):
More lenders willing to do it, lower interest rates to follow,
and I the first thing I was talking to Mark
about during the break was, Okay, how do we how
do we measure?
Speaker 3 (22:31):
You know, where.
Speaker 2 (22:33):
Rates might be with less regulations. So here's how I
thought about this. Immediately, I looked at the thirty year
fixed rate mortgage average rate according to Mortgage News Daily
right now six point zero four percent. The yield on
the ten year Treasury, which we oftentimes quote as kind
of leading where mortgage rates will go, is sitting at
four point zero five percent. So we're at almost an
(22:55):
exactly two percent spread between what the average mortgages getting
originated for and the yield on the ten year Treasury.
And so the obvious question to me was where has
that been historically? And so good news is there's data
on this, we can actually.
Speaker 3 (23:10):
Look at it.
Speaker 2 (23:11):
I'm most interested markt where were we in terms of
that spread before the Great Financial Crisis, when pretty much
all of these regulations about mortgage issuans and what banks
were allowed to do went into place, or a lot
of them did that they're talking about rolling back.
Speaker 3 (23:25):
Do we have the spread going back to that far?
Speaker 1 (23:28):
Like?
Speaker 3 (23:28):
Where were we in the nineties and two thousands.
Speaker 4 (23:30):
Yeah, sure, assuming this is the right way to look
at it. And I haven't really, we haven't. You and I,
Mike thought deeply about this, but it seems like a
reasonable first pass. And we say spread, we just mean
difference one minus the other. So we take the thirty
year fixed rate, and we subtract from that the ten
year yield.
Speaker 3 (23:45):
Like we just said, it's about two right now.
Speaker 4 (23:46):
Yeah, it's about two. Throughout the two thousands, up until
the ga Up until the Great Financial and Global Financial Crisis,
the so called GFC, it was about a point and
a half, okay, And this is true throughout the twenty
teens as well, slightly higher. But the mortgage market changed
a lot after the GFC. It became less bank centric
(24:09):
and more private lender and alternative lender centric. So it's
a little strange to me that it wouldn't have changed
fundamentally given the so that that suggested to me that
maybe this doesn't pick up on the things we wanted to,
but we'll go with it nevertheless as a first pass.
And right now, like you said, Mike, it's it's elevated.
If your standard is what it was in the PREGFC
(24:30):
two thousands, and then the twenty tens slightly elevated. It
was quite elevated. When the FED started to raise rates.
Mortgage rates went up by more. The thirty year fixed
rate mortgage interest rate went up by more than the
ten year did so twenties you mean yeah, ex excuse me, yes,
when the FED decided to kill inflation by raising rates.
Speaker 3 (24:51):
So maybe there's something here.
Speaker 2 (24:52):
I mean, the obvious danger here is these rules and
regulations were put into place to prevent ohkay yea financial crisis.
Speaker 3 (25:00):
So I don't think we can go without saying.
Speaker 4 (25:01):
At center of a world near depression, yes, right.
Speaker 2 (25:04):
Yes, So specifically, the mortgage market caused the worst recession
since the Great Depression, and we're talking about rolling back
some of those Now. I will be the first to
admit that oftentimes the pendulum swings too far and maybe
some of these regulations do need to go. But just
very important context to have when we talk about reducing
regulation in mortgage markets.
Speaker 3 (25:24):
It might bring down mortgage rates, but it was also.
Speaker 2 (25:27):
The area of the market that sparked the biggest financial
crisis since the Great Depression in one hundred years. So
you know, just tread carefully, I think would be my
main message there, folks want to talk to you about
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And we see this.
Speaker 2 (26:26):
It's quite pervasive. It doesn't get reported frequently because of
how embarrassed people are about it, but definitely something to
keep an eye on and you know.
Speaker 3 (26:35):
Be very hyper aware of.
Speaker 2 (26:37):
The Other one that I keep seeing consistently are scams
related to whatever the latest high flying new area of
the market is, and most recently that's been crypto. I've
seen all sorts of crypto related scams popping up where
they try and convince you, hey, sign this NDA because
we can't tell you all the details about it without it,
(26:57):
but then transfer us a whole bunch of money and
you know we're going to guarantee these sorts of results
in your investments over a short period of time. I
have seen people firsthand fall victims to this, sometimes pull
money out of a retirement account in order to do it,
and end up getting crushed with penalties and taxes. Because
bear in mind, you lose all your money to some
(27:17):
sort of scam that you fell for, you are not
exempt from the taxes and the penalties for taking money
out of your retirement account just because you lost it
all to a scam. The guide ultimately is about how
to detect this stuff and how to work with your
loved ones ahead of time so that when something like
this comes, because ultimately, for a lot of folks, it's
not a question of if, it's more a question of
(27:39):
when they will be approached for a scam of some
sort or another, and how to be able to detect
it and how to be prepared for it. If you'd
like your free copy again of our new guide for
February called Understanding Elder Financial Abuse. Please call us here
at the Armstrong Advisory Group for your free copy the
numbers eight hundred three nine three four zero zero one.
(28:00):
You can also request it online at Armstrong Advisory dot com.
But that number again for your free guide on all
Your Financial Abuse eight hundred three nine three for zero
zero one.
Speaker 1 (28:11):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong Guide a specific financial, legal or tax advice. Consult
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Speaker 2 (28:26):
America fell out of love with the Sedan, and now
Detroit wants to bring it back. I just don't think
so what. I love a Sadan, But I mean I
was talking about this with my sister, you know, we
were talking about cars, and she's just like, yeah, I
don't think I ever want to drive a Sedan again.
Speaker 3 (28:45):
She's talking about her commuter car, and she is.
Speaker 4 (28:48):
But people are clamoring for sorry for cheaper.
Speaker 3 (28:51):
Cars, right yeah, right, yeah.
Speaker 2 (28:53):
I hope that this is the direction things go back
in the early twenty tens, the sales of cars versus
trucks and SUVs, it was about fifty to fifty. Since then,
it's been a straight, you know, gap that we have
widened here where. According to Bloomberg, as of twenty twenty two,
around sixty five percent of all vehicles sold were trucks
(29:16):
and SUVs and less than a third were sedans of
one sort or another. And we all sit here questioning
why cars are so expensive, and it is ultimately just
because of us, just plain and simple. We used to
drive cheaper, smaller cars, and now we all demand bigger,
four wheel drive, giant cars that cost more money if.
Speaker 4 (29:37):
Offered quality options. Well, yes it is. It's true that
that's what American car makers have had the most success
selling and are motivated to sell because of the massive margins.
It's true that Toyota doesn't make a lot of money
on the Corolla VW, doesn't make a lot of money
on the Jetta, but it's also true that there's a
robust market for those Look, I can't. I'm not going
(30:00):
to say they could create demand if they wanted to,
But that's what advertising's supposed to do. I don't know.
Maybe it's time for a next generation to look. Yeah,
I was gonna say next generation Taurus. I'm being a
little sentimental, But think about the great American cars of
the past thirty years. Chevy had some nice and still
does has some nice Malibus, the Ford Taurus, Ford Fusion
a good solid car Allied. Yeah, others they weren't so
(30:24):
successful with so American automakers had a mixed record with
Sedan's like Ford. Just like the problem is, Mike, when
you stop making these things for.
Speaker 3 (30:31):
A while, you're bad at it. Yeah.
Speaker 4 (30:33):
Yeah, Like with anything, you need the institutional knowledge. I'm
not sure they could just jump back into it. How
do you build now? Maybe you just soa well, we're
gonna put it on the Escape chassis, which they're actually
phasing out. Sorry I'm jumping around now I'm talking about Ford.
Maybe that's the easiest way in. We're just going to
make a car version of the Escape like everybody else
is doing with their crossovers, and and start there. I
(30:54):
obviously don't have the answer. Would love to see it
because I'd like to see more choice.
Speaker 3 (30:59):
We'll see.
Speaker 2 (31:00):
I mean, I just I hear people complain about expensive
cars over and over, and you know, they blame it
on regulation and you know, fuel requirements and all this stuff,
and I look at it and I'm just like, it
really just seems like consumer preference to me more than
anything else.
Speaker 3 (31:14):
Let's take a quick break. When we come back, Stack
Roulette is next.
Speaker 1 (31:17):
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Speaker 2 (32:26):
Uh, time for a bit of stackeru let here. We
were talking earlier in the show about prices and businesses
basically hinting that they are going to be raising prices
and Levi Strauss McCormick spices among companies.
Speaker 3 (32:41):
That were interviewed. One area that if anybody has.
Speaker 2 (32:45):
Not already seen the story here, is worth mentioning has
to do with consumer electronics. So whether it's the iPhone
that Mark's being distracted on right now, or the computer
in front of me, or pretty much everything that Tucker
is using behind the board right now.
Speaker 3 (33:00):
Research Michael Research, Yeah, sure, I see what you're browsing.
Speaker 2 (33:05):
All of those devices are pretty much required to have
what's referred to as DRAM dynamic random access memory. It's
a pretty basic component to all of our electronics, but
also absolutely required in order to operate. And from all
the reports, there are massive shortages now of this specific
(33:28):
type of product. Why, of course, because of the AI
industry build out and how much of it is being
bought up by the companies that are committing to spend
six hundred and fifty billion.
Speaker 3 (33:36):
Dollars this year.
Speaker 2 (33:37):
So in reaction, we're hearing a few things. One Apple
mentioned it in their most recent call that hey, they're
going to see a margin hit if they don't raise
prices on their iPhones because those products are becoming more expensive.
Nintendo Sony is talking about delaying the rollout of a
new gaming system, and several computer manufacturers are now eliminating
(33:59):
moll of their kind of baseline laptops and computers here
because the margins just aren't thick enough.
Speaker 3 (34:06):
And then also worth reporting that Costco has started.
Speaker 2 (34:10):
Removing all of the removable memory from their display devices
in stores, just kind of acknowledging you know what we
are dealing with now. So while all those other industries
I'm really unsure of where prices go from my blue
jeans and my Paprika consumer electronics, to me, seems very
(34:30):
obvious where the prices are going, and there is no
fighting that one like electricity and other supplies are in shortage,
this is only going on with.
Speaker 4 (34:40):
This is one of the reasons why the effect on
inflation of the AI revolution. If that's not too strong
of a way to describe what's happening is ambiguous. It
could be good, it could be bad. You just gave
several examples of things happening exactly as you would expect
them to happen. As AI soaks up resources, you've got
(35:00):
prices elsewhere as resources become scarce. You were giving inputs
as examples. But you could also give capital as an example.
As AI soaks up and data center soak up capital,
that pushes up rates and therefore pushes up the economies
neutral if if you don't mind me using that concept,
interest rate, and that makes the fed's job harder. In
(35:20):
some ways, it's not obvious as Kevin Warre says that
oh AI is going to revolutionize things, productivity will go up,
therefore interest rates could come down. No, no, no, he's
not thinking correctly about that, or not thinking at all.
Speaker 2 (35:31):
It is really interesting to me because that has been
you know, consumer facing electronics have been an area of
not disinflation, like deflation throughout.
Speaker 3 (35:39):
The course of the Yeah, they's gone out right cheaper
twenty years.
Speaker 2 (35:42):
Right. We use this example all the time, but go
walk around the same costco and look at the price
of a eighty five inch television today. Compared to what
that would have cost a decade ago. And you'll see
what I'm talking about. What if we see that reversal, Right,
how difficult would it be to keep inflation at two
and a half percent if you have a whole bunch
of the segment of consumer electronics increasing in keeping inflation.
Speaker 4 (36:04):
When you say keeping, I read that as long term,
and that's the Fed's job. In the short term, you
get these extreme relative price movements, the price of a
TV relative to a price of shoes, stuff like that.
That's not what you weren't saying this, But I'll just
make the point. That's not what drives long term inflation.
It is the supply of money that drives long term inflation.
(36:24):
Like full stop.
Speaker 3 (36:26):
What do you have for us, sacred letmark average tax.
Speaker 4 (36:28):
Refund Mike, according to Bloomberg, two hundred bucks in the
first few weeks of this filing season. Now, without a
reference point, that may not mean much. So the average
refund overall was about twenty three hundred bucks. So I'm
going to round a little bit and say, you know,
a ten percent, actually zero point seven percent increase in refunds.
(36:51):
Even I'm not using the right baseline. There so refunds
are up. I'm gonna round up and just call it
like ten percent, and this is what you would have
expected right now. And the changes in the tax.
Speaker 2 (37:01):
Bunch of changes in the tax code, including new carve
outs for taxes on tips over time. And then the
biggest one that I just see on a day to
day basis is the new deduction for those over the.
Speaker 3 (37:13):
Age of sixty five.
Speaker 2 (37:14):
Again, to be clear, it has not made Social Security
tax free, as was advertised by the Social Security Administration
themselves at one point, but for a large portion of
tax filers over the age of sixty five, they are
seeing a big cut in taxes based on this, and
it does genuinely reshape things. The ultimate question I think
(37:37):
for this year, in terms of some market dynamics and
the economy itself, is what happens with these new refunds.
Right historic trend has been that we spend them. If
we're particularly nervous about the economy, maybe we don't, But
my guess would be this increase in tax refund season
that we end up seeing get spent in pretty short order,
(37:58):
and we will see what that does to price and
everything else.
Speaker 3 (38:01):
As we close out the show.
Speaker 2 (38:03):
Markets have once again flipped into positive territory, with the
nas that barely hanging on too gains up twenty points,
or a tenth of a percent, but the Dow up
one hundred and eight, or one fifth of a percent.
We'll be back at it tomorrow, folks. Have a great
rest of your day and we'll see you then
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
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(01:06):
Mike Armstrong and Mark Vandetti.
Speaker 2 (01:12):
Good morning, Happy Tuesday, Welcome back to the Financial Exchange.
It's Mike, Mark and Tucker with you on a morning
where markets are actually improving.
Speaker 3 (01:20):
Here we get the Dow off eighty eight.
Speaker 2 (01:22):
Points, a little bit more than a little bit less
than one fifth of a percent. Nasdaks still leading the
way down, off more than like a third of a percent,
but that's far better than where we were just even
ten minutes ago. So some improvement in early trading in markets.
SMP down sixteen points or one quarter of one percent.
We'll be hearing from the likes of Walmart, John Deere,
and others this week. In earnings, we'll be getting some
(01:44):
more inflation rings. The Q four first read on Q
four GDP, Is that right, Mark, Yes, we'll be get
that reading as well. Oil markets are not seemingly reacting
a whole lot to around, partially closing the straight of
horror moves with West Texas Crewed moving down in price
by one and a half percent.
Speaker 3 (02:04):
In the bond market, we've got yields.
Speaker 2 (02:06):
On the ten year Treasury sitting at four point zero
five percent and nothing. Oh yeah, once again. In commodity markets,
wild things happening once again. We've got silver prices moving
down five bucks an ounce six and a half percent. There,
gold prices moving down one hundred and fifty five dollars
ounce three percent in early trading. There anything else kind
(02:30):
of catching your eyes?
Speaker 3 (02:31):
Marketing?
Speaker 4 (02:32):
So rates dropping pretty precipitously. Sure, what's the consensus? Is
there a little scrolling explanation there? Expectations that the Fed
will cut rates. That has that impacts obviously the short
end of the so called yield curve, maybe out to
ten years or so. So it could be that could
market processing the idea that the Fed will have room
(02:53):
to ease. A prominent Fed governor this morning said he
sees the possibility of several rate cuts. Don't ask me why,
but he he's accomplished academic too, He's probably good as reasons.
See the possibility of several rate cuts this year. That
puts pressure again on the front end of the curve.
That could be it.
Speaker 2 (03:07):
Yeah, to your point, early February ten year, rates were
sitting around four and a quarter. We're now down to
almost four percent even. Yeah, multitude of factors, maybe nervousness
about markets, I.
Speaker 4 (03:20):
Mean it AINTI economy, the economy is going like gangbusters
without really we're not exaggerating.
Speaker 3 (03:25):
Yeah, the market story we're talking about this in the
first hour.
Speaker 2 (03:28):
But the market story that's been dominating for the last
few weeks now has been interesting to me as well.
It's turned from oh, this AI stuff is overblown to know,
there's no way it's overblown. If we have these companies
spending six hundred and fifty billion dollars in AI build
out next year, but a bunch of the companies that
exist to day might not exist in the future, or
at least might not exist in the same fashion given
(03:50):
this new technology and its capabilities, which.
Speaker 3 (03:53):
Is interesting to me.
Speaker 2 (03:53):
That is a very different narrative than what was deployed
over the course of the last three years.
Speaker 4 (03:57):
There are almost a couple different questions here. Mike, will
change the world Probably, yeah, I'll defer to the experts
on that the Internet changed the world. Will it change
the trend and growth? That's a bigger question, and that's
a rhetorical one. We don't know. Some enthusiasts say absolutely
it will. So what do I mean by change the
trending growth? Do you mind if I just briefly say, okay,
so twenty five years from now, will we be richer
(04:19):
than we otherwise would have been had AI not been invented?
And keep in mind that, or had AI not become
pervasive and integrated into everything, keep in mind that if
that doesn't happen, something else will. So to ask this
question differently, Mike, if the Internet hadn't been invented, would
we be as rich as we are today? Well, actually,
(04:39):
growth has slowed down a little bit from the late
twentieth century. Would it have slowed down even more without
the Internet? Or would something else have taken its place?
Would we instead of cured I mean, it seems silly
to even speculate about this. Would we have cured some
major cause of mortality, heart disease or something like that,
and those two are obviously not exclusive, But those investments
(05:00):
would have went somewhere else, something would have caused the
economy to grow. It's not clear that the Internet changed
the trend in GDP growth, which is what matters for
living standards, and it's not clear at this point. By analogy,
I hope this works that AI will change the trend
in GDP such that when we look back twenty five
years from now, you and me doing the show. Hopefully, well,
(05:21):
maybe at least one of us, we could say, yeah,
we're richer today, I ask.
Speaker 3 (05:26):
Heart disease thing years.
Speaker 4 (05:29):
Some things aren't looking things aren't looking good for either
one of us, probably especially me. But anyway, will we
be richer than we otherwise would have been? That's a
harder question. And that doesn't mean AI won't matter in
the intern It will certainly matter for the companies that
are put out of business by it, and for the
companies and people who own them that grow rich as
a result of it.
Speaker 2 (05:48):
It seems to me equity investors are hypothesizing, yes, to
answer that question, the all be richer, but we will
be richer because of it, and they also seem to
be hypothesizing. Can't say that there's been a uniform theory
on this, but that there'll be a massive reshuffling of
the deck that I could killing.
Speaker 4 (06:06):
Would you agree with that?
Speaker 3 (06:08):
I think? I do? I do.
Speaker 4 (06:09):
It's going to change the world, there's no doubt. Like
the Internet changed the world. Life's a lot different now
than it was in nineteen ninety.
Speaker 2 (06:15):
What's been interesting is for the last couple of decades,
so technology in particular has been a.
Speaker 3 (06:21):
Sector where there has.
Speaker 2 (06:24):
Not been the same dominance by single companies over long
periods of time. Right, You think about the energy sector
and you go take a look at the major players there.
They are pretty much the same major players, although merged
together and traded five decades ago. Take a look at
tech and you think about who the major players were
in nineteen ninety and then two thousand, and then twenty ten,
(06:47):
and from really twenty ten through now. We have not
seen much in the way of a reshuffling on that front,
but there were completely different companies.
Speaker 3 (06:56):
Right. IBM was top of the playhouse back in.
Speaker 2 (06:58):
Nineteen ninety and barely is even worth mentioning in today's economy.
Will AI be the new reason that, Hey, that whole
deck gets reshuffled, and the wealth and the market creation
it's allocated elsewhere. That's been the trend for taps for
most of its history.
Speaker 4 (07:14):
Isn't the safe answer to that? The radical answer, which
is yeah, probably, I can't tell you the winners will
be sure, but yeah, probably, But that doesn't mean will
be worse. This is a little bit yeah or but
this doesn't mean the average person will be better off.
And this sounds a little abstract but it's true, though,
if AI is not trend changing, like the Internet was
not trend changing. If you a plot a time so
(07:39):
called time series of GDP growth, and you look at
it the right way, you won't see a change in
the slope. You won't see GDP like took off in
the nineties because of the Internet. You'll see what looks
like a pretty uniform trend from nineteen forty seven, when
really good record keeping started. You can go back even
earlier if you look in the right place until today. Hey,
(08:00):
that's what's That's what's most confounding about all this. It
can be both life changing, but at the same time
in a per capita wealth sense, and maybe that's too
narrow in the same time, not living standard changing like
the Again, the Internet wasn't, even though we lived much
differently than we did.
Speaker 2 (08:18):
In the same way that everybody's been theorizing about the
winners and losers in the AI space, everybody's been theorizing
about who the employee winners and losers are going to be.
What areas of the labor market are going to be
completely disrupted. We've got three separate pieces this morning. Muhammad
al Arian published one in the Financial Times talking about
(08:40):
how this time really could be different on jobs and
effectively saying that, hey, the jobs report that we got
last Wednesday was an in.
Speaker 3 (08:50):
And of itself more or less a mirage.
Speaker 2 (08:53):
It showed really strong growth, and you know what, the
revisions that came through and other revisions in the future
might wipe some of that away.
Speaker 3 (09:00):
What is your take on.
Speaker 2 (09:03):
Does Muhammad al Arian have a succinct view on what
he believes is happening with the US labor market or
is there really nothing here because we continue to get
piece after piece of people disagreeing about what the direction
is going to be the labor market because of Ai.
Speaker 4 (09:17):
No, I think he's his arguments are coherent. I mean,
he is a PhD former academic, so he makes intellectually
sort of tight arguments. He's not all over the place. Sure,
he's a little bit bland at times. He kind of
summarizes conventional thinking and repackages it a little. So I
always come I always walk away from his pieces like
(09:39):
I just you know, like you do after Chinese food,
like I'm still Hungry's what's going on? So his his pieces,
his articles to me are like Chinese food, and I
don't nothing against Chinese food, which I love, we all
love it, but leave you a little bit wanting, and
his articles always do so with that sort of general comment. Yeah, Mike,
I mean he points out the things a lot of
people are talking about. Certain jobs will become redundant with AI. Yep, well,
(10:04):
no kidding, and as a result, you may seek He
talks about the decoupling that we talked about earlier in
the show today between GDP growth last year really stark
last year, zero to negative. Apparently new jobs is measured
by payrolls anyway, coupled with strong GDP growth. Wow, that
doesn't happen a lot. That actually happens out of coming
(10:25):
out of jobless during jobless recoveries, right, And that could
be a pattern.
Speaker 3 (10:30):
If you will.
Speaker 2 (10:31):
I guess my question is do you believe that it
can happen for the long term? Like I could see
this for a short term. But the narrative that seems
to be dominating right now is AI is going to
replace all of us and we're going to permanently have
higher unemployment.
Speaker 3 (10:42):
And so there has never been a single technology that's.
Speaker 4 (10:45):
Exactly exactly you get a level shift, not a chance.
This is what I was talking about earlier. If you
ever took a macro economics class, you learned the solo
growth model, named after the MIT economists who, among others,
popularized it. You get these one time changes in levels,
but not a change in the long term or steady
(11:07):
state if you prefer growth rate, and that's really what
he's getting at. I don't think it's going to be
a change in the trend growth rate, and I think
it would have to be for this to be unfolding over,
you know, a continually disruptive Now that said, there are
people who know a lot more about this than I do, certainly,
which is not saying much because I know so little
(11:29):
about the coding behind these AI models.
Speaker 2 (11:33):
I tend to think there'll be higher industries of workers
who do not have that work anymore. Okay, and that's
gonna be a problem because we're garbage at retraining people
and we've seen them.
Speaker 4 (11:43):
But it depends, though, go ahead, sorry, so no, please,
depends on what's happening elsewhere in the economy. If you
look at the number of typists, it went from a
million in nineteen seventy to virtually none today because they
were all replaced by Microsoft Word but there were other
things going on in the economy that was not disruptive
as a result. If there aren't other things, if this
is and this is what some people worry about, if
(12:04):
this is that pervasive and it displaces huge numbers of
people across multiple industries, there's not going to be any
place to absorb people who need to be repositioned.
Speaker 2 (12:13):
Right, quick break, We've got a little bit of trivia
coming up next here on the Financial Exchange.
Speaker 1 (12:18):
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(13:13):
Exchange and today is Michael Jordan's sixty third birthday. Jordan
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(13:37):
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Speaker 2 (14:04):
I mentioned last segment the stocks were improving. We've turned
to green now in all three major indices. Dow Jones
up one hundred and twelve points, quarter of a percent,
s and P up nine little bit more than a
tenth of a percent, and NASDAC up nineteen points about
a tenth of a percent will be doing worrel Street
Watch next segment and give a full update, but thought
worth mentioning that you have seen a reversal unfortune since
(14:26):
nine thirty this morning. Gen Z is locked out of
home buying and putting its money in the market. So
we've had this discussion before, but it's been a little
while about Hey, what would you actually be better off
doing right, like buying a house, taking out a mortgage
and experiencing the price appreciation on that home of the
course of thirty years, or renting that entire time, having
(14:48):
no control over your housing costs, but taking the difference
and investing it in the market.
Speaker 3 (14:53):
And plenty of people have done this as well.
Speaker 2 (14:55):
And I think the study was what by Dow Jones
finding that, Hey, after thirty years of monthly payments, the
renter would have been wealthier by over a million dollars
over the course of history, based on a four percent
annual rate of appreciation on their home, which by the way,
is kind of the higher end of expectations throughout history
on single family residences. But it's an interesting case. And
(15:19):
the Wall Street Journal puts together the idea that hey,
gen z actually is investing more, you know, based on
this lockout effect.
Speaker 3 (15:28):
I'm not sure if that's the cause.
Speaker 2 (15:30):
But the share of people twenty five to thirty nine
years old making annual transfers to investment accounts more than
tripled between twenty thirteen and twenty twenty three to fourteen.
Speaker 3 (15:40):
Point four percent, So that seems to I don't know.
Speaker 2 (15:43):
That seems to be indicate something to me about the
popularity of investing, and it does follow along trends that
we've seen from the likes of Robinhood and just more
retail investors getting into investing post COVID. The problem is,
I'm not sure it will actually work out the way
that people are hoping if they are planning to beat
out home ownership here, and I don't think that's actually
(16:05):
what people want to do, right. They pose it this
way that hey, if you just sat there for thirty
years and rented instead of bought a home and actually
invested the difference, you'd be better off.
Speaker 3 (16:15):
Rarely is that anyone's true objective.
Speaker 4 (16:17):
Yeah, I don't think it's one or the other, and
they don't say that it is, but they suggest that
it is.
Speaker 2 (16:23):
Yeah, that's kind of my takeaway like, here's the problem
that I see is everybody right now is saying that
homes are too unaffordable, mortgage rates over six percent, and
plenty parts of the country that happens to be true.
My first question would be, okay, so how are you
investing and is your goal to truly rent forever or
(16:45):
are you just sitting out the housing market right now?
Because if you're just sitting out the housing market right
now and you're pouring all of your money into sports,
gambling bets on polymarket, I'm not sure one that I
consider that investing or two that those are going to
work out favor if you need the money in the future.
Let's say you're even being more responsible, though by the
(17:06):
time housing becomes more affordable, your stock portfolio might not
be in a great position to uh support that decision
to buy a home. Would be would be one of
my concerns here. Rarely does somebody say I just want
to be a renter for life.
Speaker 4 (17:22):
Yeah, I mean, you buy when life circumstances compel you
to buy, And if you think that could happen in
the next few years that you wouldn't you would tell
a client. I think, Mike, what those funds should be
in some space.
Speaker 3 (17:34):
Yeah, be intentional with your money.
Speaker 2 (17:35):
Line up, you know, line up your decisions with with
where your actual needs are going to be. I think
would be would be the responsible answer there. But look,
I think ultimately, but I.
Speaker 4 (17:45):
Mean specifically, you don't put it in the market if
you think you don't need it in a year. Right,
That's what I was trying to get at.
Speaker 2 (17:51):
It would be a relatively sound strategy. And but but
I'm not sure that that's what's happening here and alaud
regardless of how the money's getting invested. And I know
there's a bunch of trends now where people are using
single day expiration options and a bunch of things that
I don't think of as really investing.
Speaker 3 (18:12):
No, that's speculation, it's speculation.
Speaker 2 (18:15):
But I take as encouraging that twenty five to thirty
nine year olds are transferring more into investment accounts. They
are seemingly learning lessons about markets and dabbling in a
little bit more. I recognize that there can be a
lot of downside too, but more experience is more experience.
Speaker 4 (18:33):
I mean, you think homes are expensive, take a look
at stocks relative to earnings. No assets are cheap. You
think I don't want to buy a house? What the
price could fall? Equities are trade? Well, look, we got
into this a little bit when we were talking about AI.
If it's even if AI is transformative to the extent
that it's enthusiasts think it will be, that could be.
That isn't necessarily good news for publicly traded companies. So
(18:57):
younger people trying to build wealth don't have a lot
of good choices unless you assume some sort of explosive
growth ratear that.
Speaker 2 (19:05):
Valuations don't matter, nor did twenty five to thirty nine
year olds I'm putting myself in this bucket, really have
any context for a major market recession and downturn like
we saw in two thousand and eight.
Speaker 4 (19:18):
Yeah, that was a decade of virtues.
Speaker 3 (19:19):
Thirty nine years old.
Speaker 2 (19:20):
Then that was, you know, in story, very early twenties,
and so it was a you know, particularly big lesson,
but not for that group.
Speaker 3 (19:29):
Quick Break, Wall Street Watches.
Speaker 1 (19:30):
Next, bringing the latest financial news straight to your radio.
Every day. It's the Financial Exchange on the Financial Exchange
Radio Network. Time Now for Wall Street Watch a complete
(19:54):
look at what's moving market so far today. Right here
on the Financial Exchange Radio Network.
Speaker 5 (20:00):
Now some volatility by midday, with markets rebounding after tech
was initially selling off as Wall Street prepares for a
week that includes a look at fourth quarter GDP and
the Fed's preferred measure of inflation, the core PCE index.
Right now, markets are mixed. The Dow is edging seven
points higher, mostly flat, s and P five hundred dipping
(20:21):
by four points. Nasdaq is down by two tenths of
one percent, or forty five points lower. RUSS two thousand
flat dipping as well. Tenure Treasure reeled is flat at
four point zero five two percent, and crude oil down
about one percent, trading at sixty two dollars and thirty
cents a barrel. We have yet another development on the
(20:42):
deal four Warner Brothers Discovery, after Warner agreed to reopen
negotiations with Paramount for a potential bidding war with Netflix.
Netflix granted warners board a week to discuss Paramount's most
recent proposal. Warner Brothers shares are up by two percent,
Paramount stock is up by five percent in Netflix shares
are dipping. Meanwhile, the Wall Street Journal report of the
(21:05):
Genuine Parts the parent company to NAPA Autocare Centers plans
to separate its autoparts business from its industrial parts unit
into two separate public companies. That stock is tumbling by
thirteen percent. Elsewhere, The Wall Street Journal is also reporting
that activist investor Elliott Management has built a more than
ten percent stake in Norwegian Cruise Line and plans to
(21:28):
push four changes to turn the struggling cruise ship operator around.
Norwegian stock is rallying by nine percent and shares in
serial maker General Mills falling by seven percent now after
the company cut its annual sales and profit outlook. I'm
Tucker Silva and that is Wall Street Watch And in
the previous segment we asked you the trivia question how
(21:50):
many times did Michael Jordan retire from the NBA. That'll
be three times. Chuck from Newton, Mass is our winner
today taking on the Financial Exchange Show, t shirt congrass
the Chuck and we play trivia every day here on
the Financial Exchange. See complete contest rules at Financial Exchange
Show dot com.
Speaker 2 (22:09):
Federal Reserve is set to loosen some US banking rules
with the seemingly expressed purpose to boost mortgage lending.
Speaker 3 (22:17):
Thinking being more mortgage lending.
Speaker 2 (22:19):
More lenders willing to do it, lower interest rates to follow,
and I the first thing I was talking to Mark
about during the break was, Okay, how do we how
do we measure?
Speaker 3 (22:31):
You know, where.
Speaker 2 (22:33):
Rates might be with less regulations. So here's how I
thought about this. Immediately, I looked at the thirty year
fixed rate mortgage average rate according to Mortgage News Daily
right now six point zero four percent. The yield on
the ten year Treasury, which we oftentimes quote as kind
of leading where mortgage rates will go, is sitting at
four point zero five percent. So we're at almost an
(22:55):
exactly two percent spread between what the average mortgages getting
originated for and the yield on the ten year Treasury.
And so the obvious question to me was where has
that been historically? And so good news is there's data
on this, we can actually.
Speaker 3 (23:10):
Look at it.
Speaker 2 (23:11):
I'm most interested markt where were we in terms of
that spread before the Great Financial Crisis, when pretty much
all of these regulations about mortgage issuans and what banks
were allowed to do went into place, or a lot
of them did that they're talking about rolling back.
Speaker 3 (23:25):
Do we have the spread going back to that far?
Speaker 1 (23:28):
Like?
Speaker 3 (23:28):
Where were we in the nineties and two thousands.
Speaker 4 (23:30):
Yeah, sure, assuming this is the right way to look
at it. And I haven't really, we haven't. You and I,
Mike thought deeply about this, but it seems like a
reasonable first pass. And we say spread, we just mean
difference one minus the other. So we take the thirty
year fixed rate, and we subtract from that the ten
year yield.
Speaker 3 (23:45):
Like we just said, it's about two right now.
Speaker 4 (23:46):
Yeah, it's about two. Throughout the two thousands, up until
the ga Up until the Great Financial and Global Financial Crisis,
the so called GFC, it was about a point and
a half, okay, And this is true throughout the twenty
teens as well, slightly higher. But the mortgage market changed
a lot after the GFC. It became less bank centric
(24:09):
and more private lender and alternative lender centric. So it's
a little strange to me that it wouldn't have changed
fundamentally given the so that that suggested to me that
maybe this doesn't pick up on the things we wanted to,
but we'll go with it nevertheless as a first pass.
And right now, like you said, Mike, it's it's elevated.
If your standard is what it was in the PREGFC
(24:30):
two thousands, and then the twenty tens slightly elevated. It
was quite elevated. When the FED started to raise rates.
Mortgage rates went up by more. The thirty year fixed
rate mortgage interest rate went up by more than the
ten year did so twenties you mean yeah, ex excuse me, yes,
when the FED decided to kill inflation by raising rates.
Speaker 3 (24:51):
So maybe there's something here.
Speaker 2 (24:52):
I mean, the obvious danger here is these rules and
regulations were put into place to prevent ohkay yea financial crisis.
Speaker 3 (25:00):
So I don't think we can go without saying.
Speaker 4 (25:01):
At center of a world near depression, yes, right.
Speaker 2 (25:04):
Yes, So specifically, the mortgage market caused the worst recession
since the Great Depression, and we're talking about rolling back
some of those Now. I will be the first to
admit that oftentimes the pendulum swings too far and maybe
some of these regulations do need to go. But just
very important context to have when we talk about reducing
regulation in mortgage markets.
Speaker 3 (25:24):
It might bring down mortgage rates, but it was also.
Speaker 2 (25:27):
The area of the market that sparked the biggest financial
crisis since the Great Depression in one hundred years. So
you know, just tread carefully, I think would be my
main message there, folks want to talk to you about
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(25:48):
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(26:12):
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Speaker 3 (26:24):
And we see this.
Speaker 2 (26:26):
It's quite pervasive. It doesn't get reported frequently because of
how embarrassed people are about it, but definitely something to
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Speaker 3 (26:35):
Be very hyper aware of.
Speaker 2 (26:37):
The Other one that I keep seeing consistently are scams
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(26:57):
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(27:17):
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(27:39):
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Speaker 1 (28:11):
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Speaker 2 (28:26):
America fell out of love with the Sedan, and now
Detroit wants to bring it back. I just don't think
so what. I love a Sadan, But I mean I
was talking about this with my sister, you know, we
were talking about cars, and she's just like, yeah, I
don't think I ever want to drive a Sedan again.
Speaker 3 (28:45):
She's talking about her commuter car, and she is.
Speaker 4 (28:48):
But people are clamoring for sorry for cheaper.
Speaker 3 (28:51):
Cars, right yeah, right, yeah.
Speaker 2 (28:53):
I hope that this is the direction things go back
in the early twenty tens, the sales of cars versus
trucks and SUVs, it was about fifty to fifty. Since then,
it's been a straight, you know, gap that we have
widened here where. According to Bloomberg, as of twenty twenty two,
around sixty five percent of all vehicles sold were trucks
(29:16):
and SUVs and less than a third were sedans of
one sort or another. And we all sit here questioning
why cars are so expensive, and it is ultimately just
because of us, just plain and simple. We used to
drive cheaper, smaller cars, and now we all demand bigger,
four wheel drive, giant cars that cost more money if.
Speaker 4 (29:37):
Offered quality options. Well, yes it is. It's true that
that's what American car makers have had the most success
selling and are motivated to sell because of the massive margins.
It's true that Toyota doesn't make a lot of money
on the Corolla VW, doesn't make a lot of money
on the Jetta, but it's also true that there's a
robust market for those Look, I can't. I'm not going
(30:00):
to say they could create demand if they wanted to,
But that's what advertising's supposed to do. I don't know.
Maybe it's time for a next generation to look. Yeah,
I was gonna say next generation Taurus. I'm being a
little sentimental, But think about the great American cars of
the past thirty years. Chevy had some nice and still
does has some nice Malibus, the Ford Taurus, Ford Fusion
a good solid car Allied. Yeah, others they weren't so
(30:24):
successful with so American automakers had a mixed record with
Sedan's like Ford. Just like the problem is, Mike, when
you stop making these things for.
Speaker 3 (30:31):
A while, you're bad at it. Yeah.
Speaker 4 (30:33):
Yeah, Like with anything, you need the institutional knowledge. I'm
not sure they could just jump back into it. How
do you build now? Maybe you just soa well, we're
gonna put it on the Escape chassis, which they're actually
phasing out. Sorry I'm jumping around now I'm talking about Ford.
Maybe that's the easiest way in. We're just going to
make a car version of the Escape like everybody else
is doing with their crossovers, and and start there. I
(30:54):
obviously don't have the answer. Would love to see it
because I'd like to see more choice.
Speaker 3 (30:59):
We'll see.
Speaker 2 (31:00):
I mean, I just I hear people complain about expensive
cars over and over, and you know, they blame it
on regulation and you know, fuel requirements and all this stuff,
and I look at it and I'm just like, it
really just seems like consumer preference to me more than
anything else.
Speaker 3 (31:14):
Let's take a quick break. When we come back, Stack
Roulette is next.
Speaker 1 (31:17):
Text us six one seven three, six two one three
eighty five with your comments and questions about today's show.
This is the Financial Exchange Radio Network. The Financial Exchange
Show podcast drops every day on Apple, Spotify, and iHeartRadio.
Hit that subscribe button, then leave us a five star review.
You're listening to the Financial Exchange Radio Network.
Speaker 5 (31:51):
This segment of the Financial Exchange is brought to you
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Speaker 2 (32:26):
Uh, time for a bit of stackeru let here. We
were talking earlier in the show about prices and businesses
basically hinting that they are going to be raising prices
and Levi Strauss McCormick spices among companies.
Speaker 3 (32:41):
That were interviewed. One area that if anybody has.
Speaker 2 (32:45):
Not already seen the story here, is worth mentioning has
to do with consumer electronics. So whether it's the iPhone
that Mark's being distracted on right now, or the computer
in front of me, or pretty much everything that Tucker
is using behind the board right now.
Speaker 3 (33:00):
Research Michael Research, Yeah, sure, I see what you're browsing.
Speaker 2 (33:05):
All of those devices are pretty much required to have
what's referred to as DRAM dynamic random access memory. It's
a pretty basic component to all of our electronics, but
also absolutely required in order to operate. And from all
the reports, there are massive shortages now of this specific
(33:28):
type of product. Why, of course, because of the AI
industry build out and how much of it is being
bought up by the companies that are committing to spend
six hundred and fifty billion.
Speaker 3 (33:36):
Dollars this year.
Speaker 2 (33:37):
So in reaction, we're hearing a few things. One Apple
mentioned it in their most recent call that hey, they're
going to see a margin hit if they don't raise
prices on their iPhones because those products are becoming more expensive.
Nintendo Sony is talking about delaying the rollout of a
new gaming system, and several computer manufacturers are now eliminating
(33:59):
moll of their kind of baseline laptops and computers here
because the margins just aren't thick enough.
Speaker 3 (34:06):
And then also worth reporting that Costco has started.
Speaker 2 (34:10):
Removing all of the removable memory from their display devices
in stores, just kind of acknowledging you know what we
are dealing with now. So while all those other industries
I'm really unsure of where prices go from my blue
jeans and my Paprika consumer electronics, to me, seems very
(34:30):
obvious where the prices are going, and there is no
fighting that one like electricity and other supplies are in shortage,
this is only going on with.
Speaker 4 (34:40):
This is one of the reasons why the effect on
inflation of the AI revolution. If that's not too strong
of a way to describe what's happening is ambiguous. It
could be good, it could be bad. You just gave
several examples of things happening exactly as you would expect
them to happen. As AI soaks up resources, you've got
(35:00):
prices elsewhere as resources become scarce. You were giving inputs
as examples. But you could also give capital as an example.
As AI soaks up and data center soak up capital,
that pushes up rates and therefore pushes up the economies
neutral if if you don't mind me using that concept,
interest rate, and that makes the fed's job harder. In
(35:20):
some ways, it's not obvious as Kevin Warre says that
oh AI is going to revolutionize things, productivity will go up,
therefore interest rates could come down. No, no, no, he's
not thinking correctly about that, or not thinking at all.
Speaker 2 (35:31):
It is really interesting to me because that has been
you know, consumer facing electronics have been an area of
not disinflation, like deflation throughout.
Speaker 3 (35:39):
The course of the Yeah, they's gone out right cheaper
twenty years.
Speaker 2 (35:42):
Right. We use this example all the time, but go
walk around the same costco and look at the price
of a eighty five inch television today. Compared to what
that would have cost a decade ago. And you'll see
what I'm talking about. What if we see that reversal, Right,
how difficult would it be to keep inflation at two
and a half percent if you have a whole bunch
of the segment of consumer electronics increasing in keeping inflation.
Speaker 4 (36:04):
When you say keeping, I read that as long term,
and that's the Fed's job. In the short term, you
get these extreme relative price movements, the price of a
TV relative to a price of shoes, stuff like that.
That's not what you weren't saying this, But I'll just
make the point. That's not what drives long term inflation.
It is the supply of money that drives long term inflation.
(36:24):
Like full stop.
Speaker 3 (36:26):
What do you have for us, sacred letmark average tax.
Speaker 4 (36:28):
Refund Mike, according to Bloomberg, two hundred bucks in the
first few weeks of this filing season. Now, without a
reference point, that may not mean much. So the average
refund overall was about twenty three hundred bucks. So I'm
going to round a little bit and say, you know,
a ten percent, actually zero point seven percent increase in refunds.
(36:51):
Even I'm not using the right baseline. There so refunds
are up. I'm gonna round up and just call it
like ten percent, and this is what you would have
expected right now. And the changes in the tax.
Speaker 2 (37:01):
Bunch of changes in the tax code, including new carve
outs for taxes on tips over time. And then the
biggest one that I just see on a day to
day basis is the new deduction for those over the.
Speaker 3 (37:13):
Age of sixty five.
Speaker 2 (37:14):
Again, to be clear, it has not made Social Security
tax free, as was advertised by the Social Security Administration
themselves at one point, but for a large portion of
tax filers over the age of sixty five, they are
seeing a big cut in taxes based on this, and
it does genuinely reshape things. The ultimate question I think
(37:37):
for this year, in terms of some market dynamics and
the economy itself, is what happens with these new refunds.
Right historic trend has been that we spend them. If
we're particularly nervous about the economy, maybe we don't, But
my guess would be this increase in tax refund season
that we end up seeing get spent in pretty short order,
(37:58):
and we will see what that does to price and
everything else.
Speaker 3 (38:01):
As we close out the show.
Speaker 2 (38:03):
Markets have once again flipped into positive territory, with the
nas that barely hanging on too gains up twenty points,
or a tenth of a percent, but the Dow up
one hundred and eight, or one fifth of a percent.
We'll be back at it tomorrow, folks. Have a great
rest of your day and we'll see you then
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