April 22, 2024 • 38 mins
Chuck Zodda and Mike Armstrong discuss how poorly things shaped up to end the week. Can Big Tech's upcoming earnings prop the market back up? How not to invest in the bond market. Is the Fed's forecasting method outdated? Home sellers have given up waiting for favorable rates. Big banks have been pushed aside for giant fund managers.
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Boston is presented by Veterans Development Corporation. This is the Financial Exchange with Chuck
Zada and Mike Armstrong. I hopeeveryone had a great weekend. It's Chuck,
Mike and Tucker here with you,and man, I gotta tell you,
I am excited for this week.We've got forty percent of the S
and P five hundred reporting earnings thisweek. We get GDP data on Thursday,
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we get inflation data from the PCPersonal Consumption Expenditure Index on Friday.
It is a glorious week of springhere on the Financial Exchange. But and
then even if it all goes extremelypoorly, we've got the Celtics and the
Bruins in playoffs for all of ourNew England listeners. So yeah, well
that's a that's a given at thispoint of me. And you don't even
talk about that. It's just tellyou just let them keep going. But
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I want to talk about what happenedlast week because things went in the toilet
very quickly for a lot of people. Yeah, and I think we need
to talk about where things stand rightnow, because there there's a lot to
digest here. The first thing isthat the S and P five hundred as
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of Friday saw six straight selling days, six straight down days, which is
something that happens, but you know, there's generally kind of a limit as
to how many in a row yourack up. So if you're if you
were sitting there on Friday afternoon,like, man, this feels like crap,
the answers, Yeah, it does, because it's like, it's not
something that happens every week. Youknow, you might see a couple of
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those instances every year or two,but it's it's something that just feels bad.
What made it feel worse was thatin every single day during that period,
markets opened in positive territory and closedin negative. So it wasn't like,
hey, we you know, weset up for you know, a
down, open and then lost more. It was no, you opened up
one percent and closed down half percent, You opened up a quarter percent and
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closed down half a percent, upone percent and closed down one percent.
It was just it was bad.It just felt bad. I don't know
that you should make anything of that. By the way, I'm trying to
think of what that tells you abouta market in terms of starting on the
positive and ending down. But Idon't think there's anything that I've ever seen
that says, oh yeah, whenyou have those types of days all in
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a row, it signifies this orthat, other than to say it's very
different from sustained pressure and like youdescribed, just every morning opening up,
down and closing down. What Ican tell you is that markets are not
While in the long term markets area coin flip, in the short term,
they're not necessarily and you do getto a point where that selling just
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gets exhausted because it's like, okay, you know, people start looking for
bargains and you eventually find bottom.Yeah, but when we look at this,
the S and P five hundred hasnow fallen more than five percent from
its all time high, which wecan at least now finally say, okay,
I understand why this is a littlebit uncomfortable. It still is not
pan worthy. As you know,at the first three days this year.
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Hey, the S and P fivehundreds down the first three days of twenty
twenty four. Is this going tobe a that that stuff is dumb?
At least now you can say,yeah, it's down five percent. This
feels uncomfortable. I get that.What was really interesting to me about Friday
was the way that this unfolded,which is where if you lag the New
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York Stock Exchange sixty four percent ofthe volume traded on It was an upward
moving issues, which means that generallythe NIX will be moving up. If
you have a sixty four percent upvolume day, it's like, yeah,
things are you know, that's that'sa nice, good broad move. So
why the market get whacked by theS and P five hundred down forty points?
Well, it's because in Video,which is you know, massive in
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terms of its market cap, lostten percent in a day on no news.
By the way, there was herethe drips and drafts. Best I
can I can figure out? Uh. First, Stanley Drunken Miller, who
is a hedge fund guy, announcedin a private meeting supposedly last week that
he had exited his position. Noconfirmation of it, but maybe that was
(05:09):
It doesn't seem like a lot.The other piece also on Friday, super
micro Computer SMCI, which is areal company name in one of the best
performing stocks in the last couple ofyears because they do all kinds of stuff
related to server infrastructure for AI.They announced their earnings date. That's it.
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The reason why it matters is thelast few supposedly Okay, this again,
I'm piecing together theories. The reasonwhy this matters is that the last
four or five earnings date announcements,they've also pre announced higher guidance for their
earnings. They did not this time. Super Micro Computer Incorporator was down twenty
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two percent on Friday as a result. In the whole last week, the
Magnificent seven stocks, the Microsoft Iwho else is in our seven? Facebook?
Google names? Michael Meta, Alphabet, Apple, who missing? Tesla?
Amazon lost about a trillion dollars lastweek, just shy of it,
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nine hundred and fifty billion dollars.And so yeah to your points, Chuck.
If it felt like a pretty roughweek last week, it was,
especially if you were perhaps been chasingsome of those high flyers over the last
few months. So here's the layof the land after Friday. The worst
performing US index that most people knowabout the Russell two thousand, down three
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point nine two percent year to date. The Dow Jones Industrial Average, probably
the most well known index in theworld, quite honestly, up point seventy
nine percent. Okay, the Nasdaqone hundred, which is a narrower,
you know, version of the Nasdaqcomposite, up only one point two six
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percent. Nazdak positive only one pointeight percent the good old Standard and Poors
five hundred. Now you're best performingmajor US index for twenty twenty four a
four point one four percent. Soto everyone who is you know, piling
into tech over the last you know, a few months in Oh, I
feel like I'm falling behind. Igot to get into tech because I missed
last year. There's a reason whya lot of economists and market watchers you
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know, generally say that diversification makessense, is because what does well in
one year doesn't necessarily do well thenext year. And this year, tech
so far, if you use theNasdaq as a proxy, not doing as
well as the broad market. Now, a few things here one, uh,
this does not bring us back tolevels and last scene in twenty twenty
two or anything like that. Butbasically trading where we were on the Nasdaq
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January, on the S and PFebruary five percent declines you see usually a
few times a year, pretty regularly, pretty common. It is fair to
say, like, hey, whatis this exactly tied to? Is it
higher interest rates? Is it concernin the Middle East? It's probably all
of the above. But I don'tknow that there's any one thing that's driving
this, But there is a lotof pending news that's about to come out
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this week and over the next severalweeks. Yeah, that could either reverse
some of this action or confirm someof the concerns that have been getting baked
in over the last week. Thisweek alone, we're hearing from I'm just
gonna name the big ones Tesla,Meta, Alphabet, and Microsoft in terms
of their earnings and projections for therest of this year. Beyond that,
in terms of companies that are alsobig. Actually, did you see that
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Tesla now has a smaller market capthan Exon Mobile for the first time in
like five years? Huh? Idid? Yeah. But other big companies
that aren't reporting Visa, Pepsi,General Electric, Texas Instruments there this week,
Thermal, Fisher, Scientific, Qualcom, ibm AT, and t Boeing
reports this week that'd be about hopefully, hopefully they can at least get through
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that without any problems. Who elsedo we have? You mentioned? Microsoft
and Alphabet, Merk, T Mobile, Caterpillar, Comcast, Intel, Union,
Pacific, Honeywell, Bristol, Meyers, squib And it's a big week
with over forty percent of the Sand P five hundred reporting and Friday exit
on Mobile, Chevron, ab V, Colgate, Palmal, Phillips sixty six.
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That's this week. Next week,you basically have another thirty percent of
the index that reports as well nextweek. Just to we can get it
all out there, you know,we might as well. You got Amazon,
Ey, Lilly, Coca Cola,a MD McDonald's, Starbucks, Mandole's,
Illinois Toolworks, PayPal, you gotMasterCard, Pfizer, ADP, CVS,
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Marriott, You've got Apple, Conicgo, Phillips, am jen Signa,
Regeneron Southern Company. And again there'sthere's more. I'm just you know,
hitting the highlights. I'm not reallygonna talk about, Hey, you know,
Evergy is reporting earnings because I don'tknow what Evergy is fair. It's
fine somebody they're an eleven billion dollarcompany, so they're not tiny, but
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I don't know what that is ifI'm being honest. So I think when
you look at this, it's fairto say that, hey, this is
a market that, yeah, hasgone through you know, a bit of
a sell off now, and Iunderstand if you're feeling a little bit nervous,
but also remember if your market participantmarkets go through five percent declines usually
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a few times a year, veryvery rare, three to four. It's
a normal part of a healthy functioningmarket. About a third of the time,
five percent declines turn into ten percentdeclines. Okay, So if you
have, you know, in anytwo year period, six to eight of
these, one to two of themI'm sorry, two to three of them
might turn into ten percent declines.And that's normal. Of those ten percent
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of colines, usually around ten tofifteen percent of those turn into twenty percent
declines. Bear markets were rare,doesn't mean that they don't happen. Sometimes
you get a few and a fewyears sometimes you go, I mean,
we went what like a decade withouta bear market from I think two thousand
and nine through the pandemic is likeeleven years. I think, yeah,
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that we went without one. It'sthere's not a regularly scheduled bear market.
They come about. I mean,in the last few years, the average
seven year every seven years, actuallygoing into twenty twenty, I think it
was every seven years. Your face. Yeah, I don't know what it
is now. It could be alittle bit more fair. So we had
one in twenty twenty, we hadanother one in twenty twenty two yep,
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and I think those are the twothus far this decade. On the S
and P five hundred NASDAC might havebeen a different experience, but I think
largely the same. So that's whatwe're seeing in again, a lot of
earnings this week. Interesting theme towatch. The companies that have reported earnings,
that have had good earnings have hada lot of trouble struggling with gains,
holding on to gains they have notbeen able to. And that is
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whether you're looking at you know,a company like Netflix that you know didn't
have gains but still at a decentquarter in earnings that ended up down ten
percent. Was it down ten forthe day? Yeah? Yeah, then
being down seven when we were talkingd R. Horton home Builder opened up
five percent for the day on theirearnings close down one percent. You know,
it's you're seeing it in all kindsof different companies. Let's take a
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quick break here and when we comeback, let's talk about this piece from
the Wall Street Journal how not toinvest in the bond market. It's any
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com. How not to invest inthe bond market. That is the title
(13:16):
of this piece from the Wall StreetJournal. What was that that just went
over there? Paper fill? Ohsorry, it caught something at the quarter
of my eye. Didn't know whatit was, but I'll quote here.
In twenty twenty three, investors porta record fifty four billion dollars into mutual
funds and exchange traded funds specializing inlong term US government debt. According to
(13:37):
Morning star. More than half ofthe I shares twenty plus year Treasury bond
ETF's forty six point one billion intotal assets came in the last year alone.
So the theory is, hey,if you think interest rates are going
to start going down, or ifyou just want to have you know,
an allocation to long term bonds ingeneral, then you buy long term bonds.
(14:01):
Oh that's the idea. Yeah,here's the thing. Interest rates have
been moving back up over the lastfour months or so, now after you
know, dipping late last year.But I think that here's what I'm struggling
with a bit. Interest rates alwaysfluctuate, Like they don't just get somewhere
(14:24):
and then sit there. They're alwaysin motion, even during you know,
time periods where the Fed doesn't changepolicy very much for a long period of
time. If you were to goand look at interest rates over you know,
let's look at the ten year treasuryjust as an example over the last
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decade. And I know a lotof that's now in the twenty twenties,
but there's still you know, adecent chunk that was before twenty sixteen,
interest rates opened. The ten yeartreasury was around two point one seven by
the middle of the year was toone point five and then later in the
year went back up to two pointfive percent, so you had, you
know, a range of about onepercent that it traded within. There.
(15:07):
I just I'm trying to figure outwhy it seems like it's being talked about
now that Yeah, interest rates havemoved up by three quarters of a percent
in the last four months now,and we're talking about it like it's armageddon.
Yeah. Well, I think onewould be trying to answer why a
bunch of you know, fifty fourbillion dollars flowed into long term government debt.
(15:31):
And I think some of the answerthere is that the bond cycle,
at least historically the United States,has been a lot longer than the stock
cycle or the interest rate cycle.I guess in general, has been a
longer cycle than the average business cycle. Right. People talk about that multi
decade period from the early eighties rightthrough end of the twenty tens when interest
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rates, while volatile, followed adownward path. And therefore, if you
owned a bunch of long term governmentinto debt for that period of time,
what did you do. You madea killing. You made an absolute killing
during that period of time, andSo my guess is that many people were
projecting that we were heading or werepeaking in terms of rates and heading for
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another long term cyclical decline in termsof interest rates, and therefore piled into
what ended up not being a well, depending on when you did it,
a not terribly well timed trade.I will also say that if you did
this trade back in October of lastyear, still coming out ahead at the
moment, rates were higher, evenif you're still right now. Yeah.
(16:37):
The other kind of piece here thatthey're making the point on is a conversation
about individual bonds versus bond funds,mutual funds, or exchange traded funds,
and some of the benefits of holdingan individual bond versus the fund counterpart.
And I think the answer, likeeverything else, is it really depends what
the heck you're trying to do.Right the example of, Oh, I've
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got this liability coming due in twentyyears where I'm going to need a bunch
of cash. Yeah, I guessin that case, it might specifically make
a whole lot of sense to ownan individual treasury bond when I know that
that's going to come do twenty years, and that my fluctuations are going to
be declining over that period of time, and I'm locking in my interest rate.
(17:22):
More often than not, That's notwhat people are doing though, No,
right like, most of the time, I don't know, Oh,
yeah, I've got this big balloonpayment twenty years from now that I need
to line up my liabilities with.And so companies might do that. Yes,
if you are Apple, you mighthave a pretty good sense that,
hey, my lease is coming duein twenty years and I need to fund
a new building at that point.But by and large individuals don't fall into
(17:45):
that same boat, or at leastif they do, it's usually on a
shorter time schedule. So I thinkthat what this gets at is something that
I came back to an awful lot, which is, look, you have
to understand what you own in yourportfolio, what it does, what the
risks are, and why you ownthat. Sure, if you own bonds
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of any kind, whether there's shortduration, long duration, corporates, US
treasuries, other sovereigns, junk bonds, whatever, there's a million different kinds
of bonds, why do you havethem in there? And if you can't
answer that question, it means oneof two things. Either A maybe they
shouldn't be in there. Maybe thereisn't a good reason, you know,
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like maybe there isn't in your specificcase, or maybe you need to find
someone who can help you answer thatreason, and maybe you shouldn't be managing
that portfolio yourself. Yeah, ifthe answer is some version of my cousin
Vinnie told me that I should dosomething like that, that's not usually a
great reason. No, unless Vinnie'sname is not actually Vinnie and it's you
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know, like Bill Gross, Andeven then he hasn't had the best ten
years in the bond market. Sowell, even then you have to ask
if he knows anything about you,Right, that's the problem with just listening
to talking heads either, well,we don't really give we don't give investment
advice, but plenty of programs onTV too, and the fact of the
matter is that most of them knownothing about you personally, correct, which
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is why we don't. Yeah,I would agree. Let's take a quick
break here. When we come back, we'll do a little bit of Wall
Street watch here, and then we'retalking about why the fed's forecasting model might
be a little bit outdated. Likeus on Facebook and follow us on Twitter
(19:45):
at TFE show. Breaking business newsis always first right here on the Financial
Exchange Radio Network. Time now forWall Street watch a complete look at what's
moving market so far today right hereon the finchel Exchange Radio Network. Well,
markets are trying to bounce back followingthe last week's losses, with the
(20:07):
SMP looking to snap at six daylosing streak as investors ready for a busy,
busy week of first quarter earnings.Right now, all three major averages
are up by about a quarter percent, while the RUST of two thousand is
up by over half a percent.Ten year Treasure reeled up by two basis
points at four points sixty three percent, and crude oil dipping into negative territory
(20:33):
trading at eighty three dollars a barrel. Verizon reported first quarter results ahead of
the open this morning, beating earningsexpectations but narrowly missing on revenue forecasts.
The telecom giant did, however,say lost fewer than expected wireless subscribers in
the quarter due to its flexible plansand streaming bundles that offer discounts for services
including Netflix and Max. Verizon alsoreaffirmed its full year guidance for several measures.
(21:00):
However, that's stocked down by threeand a half percent. Meanwhile,
shares in electric vehicle makers Lee Autoand Tesla dropping six and a half percent
and four percent, respectively, afterboth companies announced price cuts in China.
Elsewhere, the Wall Street Journal isreporting that takeover talks between Salesforce and data
management software firm Informatica have fizzled afterthe companies couldn't agree on terms. Informatica
(21:25):
shares are down by eight and ahalf percent, while Salesforce shares are edging
two thirds higher. And taking alook at the earnings calendar, there's week
with some notable names. Tomorrow morning, we'll see Pepsi and Ge report ahead
of the open. Visa and Teslawill post after the close. On Wednesday,
Boeing will report and will report inthe morning. Well Meta will follow
(21:48):
after Wednesday's closing bell. On Thursday, Microsoft and Alphabet will report after the
bell, and on Friday we'll seeExxon Mobile and Chevron post ahead of the
open. I'm Tucker Silvan, that'sWall Street. Watch Bloomberg with a piece
discussing Ben Burnanke, of all people, who is currently across the pond in
(22:10):
the UK, and he is tryingto convince the Bank of England to adopt
a strategy for communication and forecasting calledscenario analysis. What is scenario analysis,
Michael? So? Right now,the Federal Reserve and most central banks basically
run a bunch of models of whatthey think is going to happen, and
(22:33):
then their committees generally agree on themost likely model, and then they put
out of a whole bunch of projections. That's how you got to the FED
forecasting that they were going to cutinterest rates three times this year. That's
also how you got to the forecastback in twenty twenty two of the FED
raising interest rates by How much werethey planning on in twenty twenty two?
Do you recall three quarters of apercentage? Okay, So in twenty twenty
(22:55):
two they're planning on raising by threequarters of percent That was what their scenarios
told them, their models told themwas going to be necessary. That fed
into how much inflation they thought theywere going to have, and it turned
out they were wrong, And anybodythat was listening to them and placing their
bets based on what they thought theywere going to have to do was also
wrong. The argument that Bernanki ismaking is actually kind of a similar one
(23:19):
to the one that we've been making, which is y'all talk too much,
y'all tell us way too much,with seemingly too much confidence about what's happening
in this economy. And I don'tlove Bernanki's solution, which is give a
whole bunch more information, right likethis seems perhaps even more confusing, But
I think it's a step in thedirection of just admitting on the part of
(23:42):
central banks that forecasting over the courseof a year of where the economy is
going to go is about as usefuland reliable as forecasting what the weather is
going to be twelve months from now. Yeah, and we've talked about this
a lot, and I don't knowwhat bringing you know, additional scenarios in
(24:07):
would do other than then you getthe debate on each data point, well,
which scenario are we in? Now? Are we in scenario A,
B or C? And it itdoesn't really do anything to change that.
Yeah, it's just it formalizes whattheir scenarios are instead of the ones that
traders are thinking about in their heads. Anyways. Yeah, all this does,
(24:29):
in my mind is gives the FEDA or any central back a bit
of a cop out to say,well, you know, we had a
scenario that you guys knew about thatthis could have happened in, we just
didn't think it was the most likelyone. That's not terribly helpful. I
would go back to the overall story, which is, you know, it's
okay to say what you think,I guess is the most likely outcome for
(24:49):
where things go. But taking astep back and operating with a little bit
less certainty about where it's all goingto get and admitting that there's a whole
lot of uncertainty with this without displayingthirty different models, is the direction that
I would like to see it go. Because the other thing, if it's
like, oh, here's you know, the alternative you know forecast that we
(25:11):
could have, well, are youthen committing yourself to do what you said
in that forecast? Even if theeconomy rarely ends up exactly how we think
it will, it rarely does,and even when it does, it ends
up there for like a little blipof time, and then it moves on
because it's constantly evolving and constantly changing. I think that this look that the
(25:40):
answer, in my opinion, isyou gotta say less. Yeah, you
just gotta say less because if wealready parse every word that the Fed does,
say, Oh, what words changedin their statement this month? Did
Jay Powell say too hot? Oryou know, almost too hot? These
(26:02):
are things that we shouldn't be talkingabout as human beings because they're a waste
of our life. Quite honestly,Hey, all you need to know what
the Fed decide to do for interestrates? Do they hike? Did they
change? Like? We don't needto know every single thing they're thinking.
So here would be Devil's advocate pointof view. I think that the Federal
(26:25):
Reserve very firmly believes that part oftheir job is to control expectations about inflation.
Sure, and so therefore them tellingthe entire like, I think that's
probably the justification in their mind ofputting out all these forecasts and putting out
all this really firmly entrenched belief thatthey will be able to control inflation.
(26:49):
Is Hey, if we can convincethe American public that we can control inflation,
then there won't be that inflation becausethe self fulfilling prophecy there. And
I agree they haven't done a greatjob of it, but I think that
would be their counterpoint to just shuttingup and not talking as much as Hey,
we need to get out there andlet the American public know that we've
got this. I get that,but it's here's why I think it's wrong.
(27:15):
The best way to make the Americanpublic believe that you have inflation under
control is to have inflation under control. And the best way to do that
is to actually move the little numberson your spreadsheet to get it there.
If all we could do is just, you know, say some incantation into
the air, and gosh, nowwe've persuaded American How many Americans even know
(27:38):
who J. Powell is? Right? Yeah? And I think that's like
the Americans that matter, like allof us matter as Americans and human beings,
but the six of us who listento J. Powell giving a speech
in Canada last week, like,we're not the ones who need convincing.
(28:00):
We look at this stuff all thetime. Yeah, How Joe six pack
is not sitting there saying, well, they got Williams lined up on the
FED speaker. No, Joe sixPack is like, how the heck am
I going to afford gas right becauseit's too high? How am I going
to afford broccoli because my family needssome iron. And the counterpoint to my
counterpoint is the more that you talkand make predictions and they are wrong,
(28:22):
the less credibility you have, sothat when you do go out and talk
to Joe six Pack, nobody's peoplestop believing you. You know who you
need talking about inflation expectations. Youneed the Rock talking about inflation expectations,
which one Chris Dwayne Kid Kid,there's lots of them. You need all
of the Rocks talking about inflation expectations, the pet Rock. You get them
(28:42):
all lined up. You know,you need them talking about it. You
need Beyonce talking about you need tailors. Like that's how you'd actually get Americans
to understand. No One's like,hey, you know what Austin goules Be,
I'd really like to tune it.I'm not knocking Austin Goulesby as an
economist or a thinker. I'm justsaying that Americans don't know who is No.
(29:06):
If I say Austin Goolesby, peopleare like, yeah, I saw
him in the Martian. It's like, no, you didn't. That was
Matt Damon. Then we get thispiece do interest rates matter anymore? From
the Wall Street Journal. Yes,yes they do, of course. Please
let's take a quick break. Whenwe come back, we'll talk about why
home sellers are done waiting for theFed to lower rates. There's only one
(29:30):
show that follows Wall Street's continued volatility. Keep it here all morning long on
the Financial Exchange Radio Network. Textus six one, seven, three,
six two thirteen eighty five with yourcomments and questions about today's show, and
let us know what you think aboutthe stories we are covering. This is
the Financial Exchange Radio Network. Igot a new euro Mike, you do,
(30:00):
Luke Bolton, tell me, tellme more. Luke Bolton listed his
home in March and expects to closesoon on a purchase. According to the
Wall Street Journal quote, we can'tjust let our kids grow up while the
FED figures out what they think aboutinflation. And this gets it something that
we've been talking about here in theFinancial Exchange for the entire year thus far,
almost four months, which is thatyou are going to see higher inventories
(30:23):
this year because the purchases and salesthat people have put off for the last
couple of years. Eventually you justhave to move because the kids need more
space, or someone passed away.Or you're getting married, or this and
that. The five d's that wecan never remember, they're right there.
You see posted them. They aredivorce, death, diamonds, Dandy Lyons,
no diamonds, that's right, diaper'sin downsizing, no dodge. Those
(30:48):
things happen and you can put itoff for a little while, but eventually
you gotta move. And this iswhat we're seeing right now. And Luke
Bolton, interviewed in the Wall StreetJournal, is the epitome of this,
saying, look, I don't lovemortgage rates. It's seven percent when I'm
trying to sell my home, butI gotta do it because life goes on
and you only get so many bitesat the apple. Can we talk about
(31:08):
why this might not feel like it'sthe case in your local area, because
here here is the truth. Yearover year, inventory levels for housing across
the United States are up, andthey're up pretty substanti thirty. Yeah,
March data that I have from theFederal Reserve is twenty three and a half.
It depends what you're looking at,single family versus Yeah. This is
(31:30):
total housing inventory from the Saint Louisfed that I'm looking at. So nationwide,
you're seeing a big, big turn. I'm going to try and figure
out where it's coming from because inBoston, Texas quite obviously, in Massachusetts
it's only a four percent increase.So if you're in Masachusetts, in Texas
for that doesn't feel like it,that might be why Maine actually is seeing
(31:52):
an increase. Let me get throughNew England first and then i'll pull up.
Oh yeah, Maine twenty three pointseven percent year over year increase.
If we take a look here atNew Hampshire right in the middle, eighteen
point three, Connecticut down in fact, Connecticut inventory year over year down three
point three percent, and finally RhodeIsland here. Sorry, I didn't get
(32:14):
to your Vermont three point nine percentto the upside in terms of inventory,
basically flat in like half of NewEngland states is what we're seeing here.
What do you see in Texas,Chuck, or did you get I see
in Texas right now year over yearup thirty one percent and that's after last
year being up one hundred and ninepercent. Damn taking a look. Let's
(32:36):
take a look at Florida here,because I think that's going to be telling
as well. Percentage changed from ayear ago. Yeah, We've got Florida
up fifty seven percent in terms ofinventory. So these are again not nationwide
trends. These are highly regional.But to your point, these things can
only be put off for so long. And I don't know why New England
(32:59):
the inventory situation is worse than otherareas. Probably has to do with the
type of economy that we have hereversus other areas, and the type of
development that happened here versus other areas. The US Virgin Islands is Saint Croix,
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today. That's visit USBI dot com. Piece in the Wall Street Journal that
(34:08):
at first I looked at and waslike, Okay, this is kind of
boring. But the more I thoughtabout it, the more I think this
is actually a seismic shift that hashappened in the last fifteen years that has
gone somewhat unappreciated since the Great FinancialCrisis is really when this shift started into
high gear. Yeah, And whatthis piece lays out is that before the
(34:29):
Great Financial Crisis, the big banksin the United States largely controlled a ton
of the investment decision making in thecountry. Who got a mortgage, who
got a loan, what companies wentpublic, who's investing in what you know
askeid out this that and whatever,And what you've moved towards now is something
(34:51):
where a lot of that is notbeing done under the umbrellas of banks,
but rather just standalone asset managers thatare you know, buying different businesses and
then operating them in different ways.Whether you're talking about you know, private
equity, your Blackstones of the world, sure, whether you're talking about your
(35:12):
hedge funds that are out there,or you know, even publicly available in
publicly traded vehicles from companies like blackRock or Franklin Templeton. This is kind
of where things have gone, ismoving towards investment management companies having more control
over the US financial system than anypoint that probably they have in history.
(35:32):
So I think anybody that studied theg the Great Financial Crisis probably understands why
these banks were subject to whole newregulations around what type of lending they can
do, deposit requirements, all sortsof stuff that made for instance, you
know, day to day commercial lendingnot as viable as it once was for
the banks. And that's just oneexample. It's also probably why a lot
(35:54):
of the big banks don't have themost competitive things like mortgage rates out there
for the individual that or has goneelsewhere where. The obvious, the obvious
downside to me on This would bethat the regulation a company like Franklin Templeton,
KKR, black Rock faces is fundamentallydifferent than a US bank. It's
(36:16):
geared towards it's geared towards examining differentrisks. It's not better or worse,
it's just not designed for the samething. Fundamentally different. And so I
guess you need to ask yourself inthis is are these companies fundamentally any different
from large banks? They are?But do we have the risk of getting
(36:36):
to the same result that we hadin the Great Financial Crisis of a bunch
of poorly regulated industry taking risk thatthey didn't fully understand. And just as
an example, I was chatting withsomeone from an investment management company in the
last three to four weeks and theywere talking about, Hey, you know,
(36:57):
one of the things that we're lookingat now is you know, private
credit, and you know, it'shistorically been riskier, but now we're you
know, starting to securitize this andso we end up with higher rated stuff.
And I'm sitting there, I'm going, oh my goodness, it's two
thousand and seven all over again.Now, it's not to say that the
private credit market's going to blow uplike the housing market did back in oh
seven. But I'm sitting I'm goingthis, this exact same speech was given
(37:22):
seventeen eighteen years ago about Housing Actit all together and look how diversified it.
And I'm sitting I'm going, ohmy goodness. And and yet this
doesn't receive the same type of regulationthat banks do because the companies are fundamentally
different from banks at their core,and sometimes the customers are fundamentally different too,
(37:44):
And so you know, you doneed to ask yourself, right like
if Blackstone completely blew up, wouldthe US government decide to bail it out?
I don't really know. I haveno idea. I would think that
if black Rock did, they might. Again, a lot of it comes
down to what customers you serve,and if it's the voting public, then
(38:05):
it might get a bail out.Let's take a quick break here. We
got a lot to come an houror two, including the latest on the
potential TikTok band that is now windingits way through Congress for the fourth time,
and a lot more right after this
The Financial Exchanges produced by Money MattersRadio and is hosted by employees of the
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(00:20):
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(01:03):
Boston is presented by Veterans Development Corporation. This is the Financial Exchange with Chuck
Zada and Mike Armstrong. I hopeeveryone had a great weekend. It's Chuck,
Mike and Tucker here with you,and man, I gotta tell you,
I am excited for this week.We've got forty percent of the S
and P five hundred reporting earnings thisweek. We get GDP data on Thursday,
(01:29):
we get inflation data from the PCPersonal Consumption Expenditure Index on Friday.
It is a glorious week of springhere on the Financial Exchange. But and
then even if it all goes extremelypoorly, we've got the Celtics and the
Bruins in playoffs for all of ourNew England listeners. So yeah, well
that's a that's a given at thispoint of me. And you don't even
talk about that. It's just tellyou just let them keep going. But
(01:53):
I want to talk about what happenedlast week because things went in the toilet
very quickly for a lot of people. Yeah, and I think we need
to talk about where things stand rightnow, because there there's a lot to
digest here. The first thing isthat the S and P five hundred as
(02:14):
of Friday saw six straight selling days, six straight down days, which is
something that happens, but you know, there's generally kind of a limit as
to how many in a row yourack up. So if you're if you
were sitting there on Friday afternoon,like, man, this feels like crap,
the answers, Yeah, it does, because it's like, it's not
something that happens every week. Youknow, you might see a couple of
(02:37):
those instances every year or two,but it's it's something that just feels bad.
What made it feel worse was thatin every single day during that period,
markets opened in positive territory and closedin negative. So it wasn't like,
hey, we you know, weset up for you know, a
down, open and then lost more. It was no, you opened up
one percent and closed down half percent, You opened up a quarter percent and
(02:58):
closed down half a percent, upone percent and closed down one percent.
It was just it was bad.It just felt bad. I don't know
that you should make anything of that. By the way, I'm trying to
think of what that tells you abouta market in terms of starting on the
positive and ending down. But Idon't think there's anything that I've ever seen
that says, oh yeah, whenyou have those types of days all in
(03:19):
a row, it signifies this orthat, other than to say it's very
different from sustained pressure and like youdescribed, just every morning opening up,
down and closing down. What Ican tell you is that markets are not
While in the long term markets area coin flip, in the short term,
they're not necessarily and you do getto a point where that selling just
(03:40):
gets exhausted because it's like, okay, you know, people start looking for
bargains and you eventually find bottom.Yeah, but when we look at this,
the S and P five hundred hasnow fallen more than five percent from
its all time high, which wecan at least now finally say, okay,
I understand why this is a littlebit uncomfortable. It still is not
pan worthy. As you know,at the first three days this year.
(04:01):
Hey, the S and P fivehundreds down the first three days of twenty
twenty four. Is this going tobe a that that stuff is dumb?
At least now you can say,yeah, it's down five percent. This
feels uncomfortable. I get that.What was really interesting to me about Friday
was the way that this unfolded,which is where if you lag the New
(04:23):
York Stock Exchange sixty four percent ofthe volume traded on It was an upward
moving issues, which means that generallythe NIX will be moving up. If
you have a sixty four percent upvolume day, it's like, yeah,
things are you know, that's that'sa nice, good broad move. So
why the market get whacked by theS and P five hundred down forty points?
Well, it's because in Video,which is you know, massive in
(04:45):
terms of its market cap, lostten percent in a day on no news.
By the way, there was herethe drips and drafts. Best I
can I can figure out? Uh. First, Stanley Drunken Miller, who
is a hedge fund guy, announcedin a private meeting supposedly last week that
he had exited his position. Noconfirmation of it, but maybe that was
(05:09):
It doesn't seem like a lot.The other piece also on Friday, super
micro Computer SMCI, which is areal company name in one of the best
performing stocks in the last couple ofyears because they do all kinds of stuff
related to server infrastructure for AI.They announced their earnings date. That's it.
(05:30):
The reason why it matters is thelast few supposedly Okay, this again,
I'm piecing together theories. The reasonwhy this matters is that the last
four or five earnings date announcements,they've also pre announced higher guidance for their
earnings. They did not this time. Super Micro Computer Incorporator was down twenty
(05:51):
two percent on Friday as a result. In the whole last week, the
Magnificent seven stocks, the Microsoft Iwho else is in our seven? Facebook?
Google names? Michael Meta, Alphabet, Apple, who missing? Tesla?
Amazon lost about a trillion dollars lastweek, just shy of it,
(06:14):
nine hundred and fifty billion dollars.And so yeah to your points, Chuck.
If it felt like a pretty roughweek last week, it was,
especially if you were perhaps been chasingsome of those high flyers over the last
few months. So here's the layof the land after Friday. The worst
performing US index that most people knowabout the Russell two thousand, down three
(06:36):
point nine two percent year to date. The Dow Jones Industrial Average, probably
the most well known index in theworld, quite honestly, up point seventy
nine percent. Okay, the Nasdaqone hundred, which is a narrower,
you know, version of the Nasdaqcomposite, up only one point two six
(06:57):
percent. Nazdak positive only one pointeight percent the good old Standard and Poors
five hundred. Now you're best performingmajor US index for twenty twenty four a
four point one four percent. Soto everyone who is you know, piling
into tech over the last you know, a few months in Oh, I
feel like I'm falling behind. Igot to get into tech because I missed
last year. There's a reason whya lot of economists and market watchers you
(07:23):
know, generally say that diversification makessense, is because what does well in
one year doesn't necessarily do well thenext year. And this year, tech
so far, if you use theNasdaq as a proxy, not doing as
well as the broad market. Now, a few things here one, uh,
this does not bring us back tolevels and last scene in twenty twenty
two or anything like that. Butbasically trading where we were on the Nasdaq
(07:46):
January, on the S and PFebruary five percent declines you see usually a
few times a year, pretty regularly, pretty common. It is fair to
say, like, hey, whatis this exactly tied to? Is it
higher interest rates? Is it concernin the Middle East? It's probably all
of the above. But I don'tknow that there's any one thing that's driving
this, But there is a lotof pending news that's about to come out
(08:11):
this week and over the next severalweeks. Yeah, that could either reverse
some of this action or confirm someof the concerns that have been getting baked
in over the last week. Thisweek alone, we're hearing from I'm just
gonna name the big ones Tesla,Meta, Alphabet, and Microsoft in terms
of their earnings and projections for therest of this year. Beyond that,
in terms of companies that are alsobig. Actually, did you see that
(08:31):
Tesla now has a smaller market capthan Exon Mobile for the first time in
like five years? Huh? Idid? Yeah. But other big companies
that aren't reporting Visa, Pepsi,General Electric, Texas Instruments there this week,
Thermal, Fisher, Scientific, Qualcom, ibm AT, and t Boeing
reports this week that'd be about hopefully, hopefully they can at least get through
(08:52):
that without any problems. Who elsedo we have? You mentioned? Microsoft
and Alphabet, Merk, T Mobile, Caterpillar, Comcast, Intel, Union,
Pacific, Honeywell, Bristol, Meyers, squib And it's a big week
with over forty percent of the Sand P five hundred reporting and Friday exit
on Mobile, Chevron, ab V, Colgate, Palmal, Phillips sixty six.
(09:15):
That's this week. Next week,you basically have another thirty percent of
the index that reports as well nextweek. Just to we can get it
all out there, you know,we might as well. You got Amazon,
Ey, Lilly, Coca Cola,a MD McDonald's, Starbucks, Mandole's,
Illinois Toolworks, PayPal, you gotMasterCard, Pfizer, ADP, CVS,
(09:35):
Marriott, You've got Apple, Conicgo, Phillips, am jen Signa,
Regeneron Southern Company. And again there'sthere's more. I'm just you know,
hitting the highlights. I'm not reallygonna talk about, Hey, you know,
Evergy is reporting earnings because I don'tknow what Evergy is fair. It's
fine somebody they're an eleven billion dollarcompany, so they're not tiny, but
(09:58):
I don't know what that is ifI'm being honest. So I think when
you look at this, it's fairto say that, hey, this is
a market that, yeah, hasgone through you know, a bit of
a sell off now, and Iunderstand if you're feeling a little bit nervous,
but also remember if your market participantmarkets go through five percent declines usually
(10:18):
a few times a year, veryvery rare, three to four. It's
a normal part of a healthy functioningmarket. About a third of the time,
five percent declines turn into ten percentdeclines. Okay, So if you
have, you know, in anytwo year period, six to eight of
these, one to two of themI'm sorry, two to three of them
might turn into ten percent declines.And that's normal. Of those ten percent
(10:41):
of colines, usually around ten tofifteen percent of those turn into twenty percent
declines. Bear markets were rare,doesn't mean that they don't happen. Sometimes
you get a few and a fewyears sometimes you go, I mean,
we went what like a decade withouta bear market from I think two thousand
and nine through the pandemic is likeeleven years. I think, yeah,
(11:01):
that we went without one. It'sthere's not a regularly scheduled bear market.
They come about. I mean,in the last few years, the average
seven year every seven years, actuallygoing into twenty twenty, I think it
was every seven years. Your face. Yeah, I don't know what it
is now. It could be alittle bit more fair. So we had
one in twenty twenty, we hadanother one in twenty twenty two yep,
(11:22):
and I think those are the twothus far this decade. On the S
and P five hundred NASDAC might havebeen a different experience, but I think
largely the same. So that's whatwe're seeing in again, a lot of
earnings this week. Interesting theme towatch. The companies that have reported earnings,
that have had good earnings have hada lot of trouble struggling with gains,
holding on to gains they have notbeen able to. And that is
(11:43):
whether you're looking at you know,a company like Netflix that you know didn't
have gains but still at a decentquarter in earnings that ended up down ten
percent. Was it down ten forthe day? Yeah? Yeah, then
being down seven when we were talkingd R. Horton home Builder opened up
five percent for the day on theirearnings close down one percent. You know,
it's you're seeing it in all kindsof different companies. Let's take a
(12:05):
quick break here and when we comeback, let's talk about this piece from
the Wall Street Journal how not toinvest in the bond market. It's any
of the show. The Financial ExchangeShow podcast is available on Apple, Spotify,
and iHeartRadio. Hit the subscribe buttonand leave us a five star review.
This is the Financial Exchange Radio Network. Get up to the minute market
(12:31):
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(12:52):
and enjoy your next incredible vacation.Explores Saint Croix, Saint Thomas, or
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to visit USVII dot com and bookyour trip today. That's visit USVII dot
com. How not to invest inthe bond market. That is the title
(13:16):
of this piece from the Wall StreetJournal. What was that that just went
over there? Paper fill? Ohsorry, it caught something at the quarter
of my eye. Didn't know whatit was, but I'll quote here.
In twenty twenty three, investors porta record fifty four billion dollars into mutual
funds and exchange traded funds specializing inlong term US government debt. According to
(13:37):
Morning star. More than half ofthe I shares twenty plus year Treasury bond
ETF's forty six point one billion intotal assets came in the last year alone.
So the theory is, hey,if you think interest rates are going
to start going down, or ifyou just want to have you know,
an allocation to long term bonds ingeneral, then you buy long term bonds.
(14:01):
Oh that's the idea. Yeah,here's the thing. Interest rates have
been moving back up over the lastfour months or so, now after you
know, dipping late last year.But I think that here's what I'm struggling
with a bit. Interest rates alwaysfluctuate, Like they don't just get somewhere
(14:24):
and then sit there. They're alwaysin motion, even during you know,
time periods where the Fed doesn't changepolicy very much for a long period of
time. If you were to goand look at interest rates over you know,
let's look at the ten year treasuryjust as an example over the last
(14:46):
decade. And I know a lotof that's now in the twenty twenties,
but there's still you know, adecent chunk that was before twenty sixteen,
interest rates opened. The ten yeartreasury was around two point one seven by
the middle of the year was toone point five and then later in the
year went back up to two pointfive percent, so you had, you
know, a range of about onepercent that it traded within. There.
(15:07):
I just I'm trying to figure outwhy it seems like it's being talked about
now that Yeah, interest rates havemoved up by three quarters of a percent
in the last four months now,and we're talking about it like it's armageddon.
Yeah. Well, I think onewould be trying to answer why a
bunch of you know, fifty fourbillion dollars flowed into long term government debt.
(15:31):
And I think some of the answerthere is that the bond cycle,
at least historically the United States,has been a lot longer than the stock
cycle or the interest rate cycle.I guess in general, has been a
longer cycle than the average business cycle. Right. People talk about that multi
decade period from the early eighties rightthrough end of the twenty tens when interest
(15:54):
rates, while volatile, followed adownward path. And therefore, if you
owned a bunch of long term governmentinto debt for that period of time,
what did you do. You madea killing. You made an absolute killing
during that period of time, andSo my guess is that many people were
projecting that we were heading or werepeaking in terms of rates and heading for
(16:14):
another long term cyclical decline in termsof interest rates, and therefore piled into
what ended up not being a well, depending on when you did it,
a not terribly well timed trade.I will also say that if you did
this trade back in October of lastyear, still coming out ahead at the
moment, rates were higher, evenif you're still right now. Yeah.
(16:37):
The other kind of piece here thatthey're making the point on is a conversation
about individual bonds versus bond funds,mutual funds, or exchange traded funds,
and some of the benefits of holdingan individual bond versus the fund counterpart.
And I think the answer, likeeverything else, is it really depends what
the heck you're trying to do.Right the example of, Oh, I've
(17:00):
got this liability coming due in twentyyears where I'm going to need a bunch
of cash. Yeah, I guessin that case, it might specifically make
a whole lot of sense to ownan individual treasury bond when I know that
that's going to come do twenty years, and that my fluctuations are going to
be declining over that period of time, and I'm locking in my interest rate.
(17:22):
More often than not, That's notwhat people are doing though, No,
right like, most of the time, I don't know, Oh,
yeah, I've got this big balloonpayment twenty years from now that I need
to line up my liabilities with.And so companies might do that. Yes,
if you are Apple, you mighthave a pretty good sense that,
hey, my lease is coming duein twenty years and I need to fund
a new building at that point.But by and large individuals don't fall into
(17:45):
that same boat, or at leastif they do, it's usually on a
shorter time schedule. So I thinkthat what this gets at is something that
I came back to an awful lot, which is, look, you have
to understand what you own in yourportfolio, what it does, what the
risks are, and why you ownthat. Sure, if you own bonds
(18:07):
of any kind, whether there's shortduration, long duration, corporates, US
treasuries, other sovereigns, junk bonds, whatever, there's a million different kinds
of bonds, why do you havethem in there? And if you can't
answer that question, it means oneof two things. Either A maybe they
shouldn't be in there. Maybe thereisn't a good reason, you know,
(18:30):
like maybe there isn't in your specificcase, or maybe you need to find
someone who can help you answer thatreason, and maybe you shouldn't be managing
that portfolio yourself. Yeah, ifthe answer is some version of my cousin
Vinnie told me that I should dosomething like that, that's not usually a
great reason. No, unless Vinnie'sname is not actually Vinnie and it's you
(18:53):
know, like Bill Gross, Andeven then he hasn't had the best ten
years in the bond market. Sowell, even then you have to ask
if he knows anything about you,Right, that's the problem with just listening
to talking heads either, well,we don't really give we don't give investment
advice, but plenty of programs onTV too, and the fact of the
matter is that most of them knownothing about you personally, correct, which
(19:15):
is why we don't. Yeah,I would agree. Let's take a quick
break here. When we come back, we'll do a little bit of Wall
Street watch here, and then we'retalking about why the fed's forecasting model might
be a little bit outdated. Likeus on Facebook and follow us on Twitter
(19:45):
at TFE show. Breaking business newsis always first right here on the Financial
Exchange Radio Network. Time now forWall Street watch a complete look at what's
moving market so far today right hereon the finchel Exchange Radio Network. Well,
markets are trying to bounce back followingthe last week's losses, with the
(20:07):
SMP looking to snap at six daylosing streak as investors ready for a busy,
busy week of first quarter earnings.Right now, all three major averages
are up by about a quarter percent, while the RUST of two thousand is
up by over half a percent.Ten year Treasure reeled up by two basis
points at four points sixty three percent, and crude oil dipping into negative territory
(20:33):
trading at eighty three dollars a barrel. Verizon reported first quarter results ahead of
the open this morning, beating earningsexpectations but narrowly missing on revenue forecasts.
The telecom giant did, however,say lost fewer than expected wireless subscribers in
the quarter due to its flexible plansand streaming bundles that offer discounts for services
including Netflix and Max. Verizon alsoreaffirmed its full year guidance for several measures.
(21:00):
However, that's stocked down by threeand a half percent. Meanwhile,
shares in electric vehicle makers Lee Autoand Tesla dropping six and a half percent
and four percent, respectively, afterboth companies announced price cuts in China.
Elsewhere, the Wall Street Journal isreporting that takeover talks between Salesforce and data
management software firm Informatica have fizzled afterthe companies couldn't agree on terms. Informatica
(21:25):
shares are down by eight and ahalf percent, while Salesforce shares are edging
two thirds higher. And taking alook at the earnings calendar, there's week
with some notable names. Tomorrow morning, we'll see Pepsi and Ge report ahead
of the open. Visa and Teslawill post after the close. On Wednesday,
Boeing will report and will report inthe morning. Well Meta will follow
(21:48):
after Wednesday's closing bell. On Thursday, Microsoft and Alphabet will report after the
bell, and on Friday we'll seeExxon Mobile and Chevron post ahead of the
open. I'm Tucker Silvan, that'sWall Street. Watch Bloomberg with a piece
discussing Ben Burnanke, of all people, who is currently across the pond in
(22:10):
the UK, and he is tryingto convince the Bank of England to adopt
a strategy for communication and forecasting calledscenario analysis. What is scenario analysis,
Michael? So? Right now,the Federal Reserve and most central banks basically
run a bunch of models of whatthey think is going to happen, and
(22:33):
then their committees generally agree on themost likely model, and then they put
out of a whole bunch of projections. That's how you got to the FED
forecasting that they were going to cutinterest rates three times this year. That's
also how you got to the forecastback in twenty twenty two of the FED
raising interest rates by How much werethey planning on in twenty twenty two?
Do you recall three quarters of apercentage? Okay, So in twenty twenty
(22:55):
two they're planning on raising by threequarters of percent That was what their scenarios
told them, their models told themwas going to be necessary. That fed
into how much inflation they thought theywere going to have, and it turned
out they were wrong, And anybodythat was listening to them and placing their
bets based on what they thought theywere going to have to do was also
wrong. The argument that Bernanki ismaking is actually kind of a similar one
(23:19):
to the one that we've been making, which is y'all talk too much,
y'all tell us way too much,with seemingly too much confidence about what's happening
in this economy. And I don'tlove Bernanki's solution, which is give a
whole bunch more information, right likethis seems perhaps even more confusing, But
I think it's a step in thedirection of just admitting on the part of
(23:42):
central banks that forecasting over the courseof a year of where the economy is
going to go is about as usefuland reliable as forecasting what the weather is
going to be twelve months from now. Yeah, and we've talked about this
a lot, and I don't knowwhat bringing you know, additional scenarios in
(24:07):
would do other than then you getthe debate on each data point, well,
which scenario are we in? Now? Are we in scenario A,
B or C? And it itdoesn't really do anything to change that.
Yeah, it's just it formalizes whattheir scenarios are instead of the ones that
traders are thinking about in their heads. Anyways. Yeah, all this does,
(24:29):
in my mind is gives the FEDA or any central back a bit
of a cop out to say,well, you know, we had a
scenario that you guys knew about thatthis could have happened in, we just
didn't think it was the most likelyone. That's not terribly helpful. I
would go back to the overall story, which is, you know, it's
okay to say what you think,I guess is the most likely outcome for
(24:49):
where things go. But taking astep back and operating with a little bit
less certainty about where it's all goingto get and admitting that there's a whole
lot of uncertainty with this without displayingthirty different models, is the direction that
I would like to see it go. Because the other thing, if it's
like, oh, here's you know, the alternative you know forecast that we
(25:11):
could have, well, are youthen committing yourself to do what you said
in that forecast? Even if theeconomy rarely ends up exactly how we think
it will, it rarely does,and even when it does, it ends
up there for like a little blipof time, and then it moves on
because it's constantly evolving and constantly changing. I think that this look that the
(25:40):
answer, in my opinion, isyou gotta say less. Yeah, you
just gotta say less because if wealready parse every word that the Fed does,
say, Oh, what words changedin their statement this month? Did
Jay Powell say too hot? Oryou know, almost too hot? These
(26:02):
are things that we shouldn't be talkingabout as human beings because they're a waste
of our life. Quite honestly,Hey, all you need to know what
the Fed decide to do for interestrates? Do they hike? Did they
change? Like? We don't needto know every single thing they're thinking.
So here would be Devil's advocate pointof view. I think that the Federal
(26:25):
Reserve very firmly believes that part oftheir job is to control expectations about inflation.
Sure, and so therefore them tellingthe entire like, I think that's
probably the justification in their mind ofputting out all these forecasts and putting out
all this really firmly entrenched belief thatthey will be able to control inflation.
(26:49):
Is Hey, if we can convincethe American public that we can control inflation,
then there won't be that inflation becausethe self fulfilling prophecy there. And
I agree they haven't done a greatjob of it, but I think that
would be their counterpoint to just shuttingup and not talking as much as Hey,
we need to get out there andlet the American public know that we've
got this. I get that,but it's here's why I think it's wrong.
(27:15):
The best way to make the Americanpublic believe that you have inflation under
control is to have inflation under control. And the best way to do that
is to actually move the little numberson your spreadsheet to get it there.
If all we could do is just, you know, say some incantation into
the air, and gosh, nowwe've persuaded American How many Americans even know
(27:38):
who J. Powell is? Right? Yeah? And I think that's like
the Americans that matter, like allof us matter as Americans and human beings,
but the six of us who listento J. Powell giving a speech
in Canada last week, like,we're not the ones who need convincing.
(28:00):
We look at this stuff all thetime. Yeah, How Joe six pack
is not sitting there saying, well, they got Williams lined up on the
FED speaker. No, Joe sixPack is like, how the heck am
I going to afford gas right becauseit's too high? How am I going
to afford broccoli because my family needssome iron. And the counterpoint to my
counterpoint is the more that you talkand make predictions and they are wrong,
(28:22):
the less credibility you have, sothat when you do go out and talk
to Joe six Pack, nobody's peoplestop believing you. You know who you
need talking about inflation expectations. Youneed the Rock talking about inflation expectations,
which one Chris Dwayne Kid Kid,there's lots of them. You need all
of the Rocks talking about inflation expectations, the pet Rock. You get them
(28:42):
all lined up. You know,you need them talking about it. You
need Beyonce talking about you need tailors. Like that's how you'd actually get Americans
to understand. No One's like,hey, you know what Austin goules Be,
I'd really like to tune it.I'm not knocking Austin Goulesby as an
economist or a thinker. I'm justsaying that Americans don't know who is No.
(29:06):
If I say Austin Goolesby, peopleare like, yeah, I saw
him in the Martian. It's like, no, you didn't. That was
Matt Damon. Then we get thispiece do interest rates matter anymore? From
the Wall Street Journal. Yes,yes they do, of course. Please
let's take a quick break. Whenwe come back, we'll talk about why
home sellers are done waiting for theFed to lower rates. There's only one
(29:30):
show that follows Wall Street's continued volatility. Keep it here all morning long on
the Financial Exchange Radio Network. Textus six one, seven, three,
six two thirteen eighty five with yourcomments and questions about today's show, and
let us know what you think aboutthe stories we are covering. This is
the Financial Exchange Radio Network. Igot a new euro Mike, you do,
(30:00):
Luke Bolton, tell me, tellme more. Luke Bolton listed his
home in March and expects to closesoon on a purchase. According to the
Wall Street Journal quote, we can'tjust let our kids grow up while the
FED figures out what they think aboutinflation. And this gets it something that
we've been talking about here in theFinancial Exchange for the entire year thus far,
almost four months, which is thatyou are going to see higher inventories
(30:23):
this year because the purchases and salesthat people have put off for the last
couple of years. Eventually you justhave to move because the kids need more
space, or someone passed away.Or you're getting married, or this and
that. The five d's that wecan never remember, they're right there.
You see posted them. They aredivorce, death, diamonds, Dandy Lyons,
no diamonds, that's right, diaper'sin downsizing, no dodge. Those
(30:48):
things happen and you can put itoff for a little while, but eventually
you gotta move. And this iswhat we're seeing right now. And Luke
Bolton, interviewed in the Wall StreetJournal, is the epitome of this,
saying, look, I don't lovemortgage rates. It's seven percent when I'm
trying to sell my home, butI gotta do it because life goes on
and you only get so many bitesat the apple. Can we talk about
(31:08):
why this might not feel like it'sthe case in your local area, because
here here is the truth. Yearover year, inventory levels for housing across
the United States are up, andthey're up pretty substanti thirty. Yeah,
March data that I have from theFederal Reserve is twenty three and a half.
It depends what you're looking at,single family versus Yeah. This is
(31:30):
total housing inventory from the Saint Louisfed that I'm looking at. So nationwide,
you're seeing a big, big turn. I'm going to try and figure
out where it's coming from because inBoston, Texas quite obviously, in Massachusetts
it's only a four percent increase.So if you're in Masachusetts, in Texas
for that doesn't feel like it,that might be why Maine actually is seeing
(31:52):
an increase. Let me get throughNew England first and then i'll pull up.
Oh yeah, Maine twenty three pointseven percent year over year increase.
If we take a look here atNew Hampshire right in the middle, eighteen
point three, Connecticut down in fact, Connecticut inventory year over year down three
point three percent, and finally RhodeIsland here. Sorry, I didn't get
(32:14):
to your Vermont three point nine percentto the upside in terms of inventory,
basically flat in like half of NewEngland states is what we're seeing here.
What do you see in Texas,Chuck, or did you get I see
in Texas right now year over yearup thirty one percent and that's after last
year being up one hundred and ninepercent. Damn taking a look. Let's
(32:36):
take a look at Florida here,because I think that's going to be telling
as well. Percentage changed from ayear ago. Yeah, We've got Florida
up fifty seven percent in terms ofinventory. So these are again not nationwide
trends. These are highly regional.But to your point, these things can
only be put off for so long. And I don't know why New England
(32:59):
the inventory situation is worse than otherareas. Probably has to do with the
type of economy that we have hereversus other areas, and the type of
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today. That's visit USBI dot com. Piece in the Wall Street Journal that
(34:08):
at first I looked at and waslike, Okay, this is kind of
boring. But the more I thoughtabout it, the more I think this
is actually a seismic shift that hashappened in the last fifteen years that has
gone somewhat unappreciated since the Great FinancialCrisis is really when this shift started into
high gear. Yeah, And whatthis piece lays out is that before the
(34:29):
Great Financial Crisis, the big banksin the United States largely controlled a ton
of the investment decision making in thecountry. Who got a mortgage, who
got a loan, what companies wentpublic, who's investing in what you know
askeid out this that and whatever,And what you've moved towards now is something
(34:51):
where a lot of that is notbeing done under the umbrellas of banks,
but rather just standalone asset managers thatare you know, buying different businesses and
then operating them in different ways.Whether you're talking about you know, private
equity, your Blackstones of the world, sure, whether you're talking about your
(35:12):
hedge funds that are out there,or you know, even publicly available in
publicly traded vehicles from companies like blackRock or Franklin Templeton. This is kind
of where things have gone, ismoving towards investment management companies having more control
over the US financial system than anypoint that probably they have in history.
(35:32):
So I think anybody that studied theg the Great Financial Crisis probably understands why
these banks were subject to whole newregulations around what type of lending they can
do, deposit requirements, all sortsof stuff that made for instance, you
know, day to day commercial lendingnot as viable as it once was for
the banks. And that's just oneexample. It's also probably why a lot
(35:54):
of the big banks don't have themost competitive things like mortgage rates out there
for the individual that or has goneelsewhere where. The obvious, the obvious
downside to me on This would bethat the regulation a company like Franklin Templeton,
KKR, black Rock faces is fundamentallydifferent than a US bank. It's
(36:16):
geared towards it's geared towards examining differentrisks. It's not better or worse,
it's just not designed for the samething. Fundamentally different. And so I
guess you need to ask yourself inthis is are these companies fundamentally any different
from large banks? They are?But do we have the risk of getting
(36:36):
to the same result that we hadin the Great Financial Crisis of a bunch
of poorly regulated industry taking risk thatthey didn't fully understand. And just as
an example, I was chatting withsomeone from an investment management company in the
last three to four weeks and theywere talking about, Hey, you know,
(36:57):
one of the things that we're lookingat now is you know, private
credit, and you know, it'shistorically been riskier, but now we're you
know, starting to securitize this andso we end up with higher rated stuff.
And I'm sitting there, I'm going, oh my goodness, it's two
thousand and seven all over again.Now, it's not to say that the
private credit market's going to blow uplike the housing market did back in oh
seven. But I'm sitting I'm goingthis, this exact same speech was given
(37:22):
seventeen eighteen years ago about Housing Actit all together and look how diversified it.
And I'm sitting I'm going, ohmy goodness. And and yet this
doesn't receive the same type of regulationthat banks do because the companies are fundamentally
different from banks at their core,and sometimes the customers are fundamentally different too,
(37:44):
And so you know, you doneed to ask yourself, right like
if Blackstone completely blew up, wouldthe US government decide to bail it out?
I don't really know. I haveno idea. I would think that
if black Rock did, they might. Again, a lot of it comes
down to what customers you serve,and if it's the voting public, then
(38:05):
it might get a bail out.Let's take a quick break here. We
got a lot to come an houror two, including the latest on the
potential TikTok band that is now windingits way through Congress for the fourth time,
and a lot more right after this
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