December 10, 2024 • 38 mins
Mike Armstrong and Marc Fandetti discuss the current state of the US labor market. Beneath the hood, stocks just suffered their worst day of the year. Some are worried. College enrollment is falling at a ‘concerning’ rate, new data reveals. At ‘Tax Prom,’ Washington prepares for more Tax Cuts. Here are some reasons Elon Musk and DOGE will fail at making government more ‘efficient’.
Mark as Played
Transcript
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Speaker 1 (00:00):
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Armstrong and Mark Fandetti.
Speaker 2 (01:14):
Good morning, Welcome back to the Financial Exchange. Markets have
turned positive for the day, at least for the moment,
now up forty eight points one tenth percent, SMP similar
percentage wise one tenth percent, and NAZAC leading the way
up a quarter of one percent. Here Tomorrow, we will
have a report from the Bureau of Labor Statistics on
the rate of inflation. The CPI report comes out tomorrow.
(01:36):
Week from tomorrow, we'll have the Federal Reserve meeting. We
get PPI, the Producer Price Index on Thursday. Frankly, not
a lot of folks pay too close of attention to that.
I'm sure there are economists out there that put it
in their models, but doesn't make as many headlines. We
also have the initial jobless claims that will be coming
out on Thursday morning at eight thirty, and that's kind
of where I want to start this hour is a
(01:58):
read on the overall state of the labor market. Because
we've talked at length, and maybe you and I haven't marked,
but the when I when I look at overall, you
know four point two percent unemployment inflation rates that are
you know, sub three percent overall, a labor force participation
(02:20):
rate that is generally higher than what we saw for
most of the twenty tens decade, and is at you know,
rates that we haven't seen since the late nineties. It's
tough to look at that and say, oh, that's a
that's a rough job market. But in other ways it's
showing some signs of stagnating and that you know, it
isn't as problematic as a labor market that is in
(02:43):
free fall, but does pose some unique challenges, I guess,
and I find it particularly interesting that we are calling
this job market stagnant at the same time that we
have investors talking about the most innovative and groundbreaking piece
of technology that's ever you know, that that's hit markets
(03:04):
in decades, which would be artificial in tell. Because of that,
I guess that's where I'm kind of leading into and
maybe maybe leaning into a little bit too much. But
I guess, where does it stack up for you in
terms of the state of this labor market. And you
always have to graide this thing on in the context
of just recently.
Speaker 3 (03:22):
I'm just a generalist, not a labor economist. I know
I always say that, but it's it's I think it's
important because there may be subtle points that I'm missing.
The way a generalist like me would look at the
labor market is to look at things like unemployment, payroll growth,
and as you said at the beginning of this segment,
you put those into your little model. Now, it depends
(03:43):
on what you're trying to do with your model. You're
trying to forecast inflation, You're trying to forecast GDP growth,
You're trying to forecast like the stock market, which is impossible.
But suppose it weren't. What are you doing with the data?
What do you want it to tell you? All I
can tell you based on the way you frame the question,
and you already really answered this, but it's worth understan going.
Is that unemployment at four point two percent, the rate
of unemployment, which is the number of unemployed people divided
(04:05):
by the size of the labor force, very simple to
get there, is historically speaking, very low wage growth, which
is also in the employment report we got the other day,
is historically speaking respectable. Is pretty strong payroll growth. The
business reported side of the state of the labor market
(04:25):
is more than enough. It was about two undred thirty
thousand jobs last month, higher than the past six month average.
For what that's worth is more than enough to create
new jobs for people entering the labor force. That's what
labor market economists would tell you. So by all surface measures,
the economy as measured by the state of the labor market,
(04:46):
or more precisely, the labor market, for good about the
economy for a second, though they're closely related. The economy
the labor market is excuse me, strong. There's no denying that.
I mean, if you think otherwise, give me an objective
measure that we can agree upon and identify in advance,
and we can go with that. But by conventional measures, Mike,
(05:06):
the labor market, as you said, is strong. The idea
that it's stagnant, I guess comes from the declining so
called quits rate, which comes out of that Jolts report
that we talk about from from month to month, when
it comes out fewer people are quitting is a percentage
of the total number of people employed than say, earlier
in COVID. But we know that that was a frenetic, unstable, unstably,
(05:30):
unsustainably excuse me, a hot labor market. So I don't
think that's much of a benchmark.
Speaker 2 (05:35):
I will I'll talk to that separations piece a little bit,
and again, I think all of this has to be
taken in the context of what you've experienced most recently
and what you've experienced most recently in terms of the
labor market. The total separations rate, which you know, Saint
Louis FED has an excellent, you know, data series on this.
In say, November of twenty twenty one, the rate of separations,
(05:57):
which would mean quits firings, as a percentage of the two.
Speaker 3 (06:00):
So is that different in quits what you're looking at there.
Speaker 2 (06:02):
Yeah, it's total separations would be quits and layoffs I believe. Okay,
So voluntary and involuntary was sitting around four point two
percent in November of twenty twenty one, and generally was
above four percent or close to it for most of
twenty twenty two as well. We've now for the last
two months come down to a rate of three point
three percent. By the way, that stuff going on in
(06:22):
twenty twenty one and twenty twenty two was largely not layoffs.
It was quits. But I'm looking at total separations here
just as a different way of looking at it today.
Three point three percent is that way different from four percent? No,
but it's it's enough to be noticed. For the twenty
ten decade. You have to go all the way back
to November of twenty fourteen to get down to a
(06:45):
three point three percent total separations rate. So okay, I
can see how some people might define this labor market
as stagnant to your point earlier, though from most other measures,
it's a really strong labor market. The total employment to
population ratio right now eighty point four percent. We only
got above that level pre COVID in December of twenty nineteen.
(07:09):
That was the only time in the entire twenty ten
decade that we approached eighty point four percent of the
population of twenty five to fifty four year olds working.
So are we on a decline from where we were
of the last few years? Yes? Are we just coming
in line with where we were pre COVID. Also yes,
the unemployment rate we've talked about this one at length,
four point two percent, generally healthy, lower than it was
for most of the twenty ten decade. Once again, the
(07:33):
you talked about payrolls. Chuck always likes to talk about
those aggregate weekly payrolls and looking at those year over year,
this combines both raises plus new workers into the labor
market once again flatlining, but at five percent, that's better
than it was for most of the twenty ten decade.
And so I do land at this position where I
(07:54):
certainly can understand some of the frustrations that I'm hearing
from some workers of being dissatisfied in their existing role,
unable to move up, and unable to find a new
job elsewhere. But that sure sounds a lot better to
me than the economy of twenty eleven, when you couldn't
move up and you couldn't find any job, and you
were sitting unemployed for a year and a half. And
(08:15):
so again, it all comes down to grading this stuff
with a scale. I think the other piece of this, though,
that I find compelling and interesting, is is some of
this stagnation occurring because of artificial intelligence. And I don't
think we have any way of measuring that, and probably
won't for years. But that's the promise of AI is, Hey,
(08:36):
you worker are supposed to be more effective in your
existing job because of artificial intelligence, and therefore I don't
need that new employee, and I don't need to pay
you quite as much because you can do more with
the same number of hours.
Speaker 3 (08:49):
Uh yeah, that's the definition of productivity. Then higher productivity
is not necessarily good for unemployment. In fact, you could
there are situations where productive product productivity grow. There's always
high during recessions, for example. Yeah, not always, but that
sort of perverse result prevails. I just I want to
step back make a larger point about economic data. First
(09:10):
of all, these are estimates. We call them statistics, not
because we like fancy words for numbers, but because.
Speaker 2 (09:16):
Well, we also like fancy words.
Speaker 3 (09:18):
We also are are highly pretentious.
Speaker 2 (09:21):
But it can be both.
Speaker 3 (09:22):
It means you're right, it means it's an estimate. We
don't know the true value. The Department of Labor doesn't
talk to everybody. It only talks to one hundred whatever
it is, twenty thousand households and sixty thousand businesses. I
always forget and reverse those two things. But the point
is these are estimates, which is why they get revised.
They weren't meant when created, and even today they're not
(09:44):
meant to be perfect measures of the health of the
economy or reflective of your lived experience. But that all
that said, you can look at them relative to past values,
which is I think the safest way for people like
us non labor econ to use them. Just look at
unemployment today relative to where it's been historically, and it's low.
(10:04):
Take that for what it's worth. If you don't like
that measure, come up with your own. And I know
a lot of you don't. I get that it's not
reflective again of everybody's experience.
Speaker 2 (10:13):
And I came up with four of them, and three
out of four of them are indicating. Look, this is
a heck of a struggle.
Speaker 3 (10:18):
They're all the same. They're all they're all statistics prone
to sampling and other errors. Nor are they meant to
capture again, what's most important to everybody. They all suffer
from the same.
Speaker 2 (10:29):
True, But it's all we got.
Speaker 3 (10:31):
It is all we got, Or find your own is
I mentioned? But when you look back in two years
and ask the question, you're better off now than you
were two years ago. Remember the numbers. I like to say,
remember for what it's worth. That also sounds pretentious, but
for what it's worth, remember the norm is two three
and four. Two is roughly where core inflation is today,
is measured by the Fed's choice measure. It's a little
(10:51):
bit higher than that. I'm rounded down. Three is roughly
what GDP after inflation has done over the past twelve months,
several quarters actually, And four is where unemployment is today.
If you're keeping score at home, judging the new administration
or whatever, remember those numbers and compare them to those,
or suggest something else as a yard stick by which
(11:13):
we're going to keep score. I don't know what else
to use. Or there's a stock mark.
Speaker 2 (11:17):
We're notoriously pretty bad at that. But yeah, it's easy
for me to understand how twenty twenty one would stick
in people's minds and be the benchmark that they're using,
because in twenty twenty one, a lot of people got
new jobs, a lot of people got raises, a lot
of people got money from the US government in the
stock market crushed it, and inflation hadn't really taken off yet.
So yeah, it's easy for me to say, oh, yeah,
(11:37):
I get why people are dissatisfied with this market if
they're comparing it to a narrow span of time when
they might have gotten a new job or might have
gotten a big raise, and things that are just not
happening in twenty twenty four. Let's take a quick break.
When we come back, we're going to have some trivia
up next, and then I want to talk about my
dumb stock market story of the day. That's next on
the Financial Exchange.
Speaker 1 (11:59):
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(12:20):
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Speaker 4 (12:30):
Let's do a little bit of trivia here on the
Financial Exchange. Since we only have twelve shows left and
soil Christmas, let's start doing Christmas trivia today. So our
question today what country does the Christmas tree tradition supposedly
come from? Once again, what country does the Christmas tree
tradition supposedly come from? Let's go with be the sixth
(12:55):
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two thirteen eighty five with the correct answer, and you
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Speaker 2 (13:16):
If you're browsing the typical financial news publications today, Mark,
you may have come across this one of a rough
day in some momentum stocks. So yesterday on Monday, the
SMP sold off by six tens of a percent, which
I know that's a lot of points, but is not
all that impactful and is not all that outrageous. I'm
(13:37):
sure that we have lots of days where equity markets
sell off by more than half a percent.
Speaker 3 (13:41):
We should mention that during the break, Mike, I could
have given you a FIR.
Speaker 2 (13:43):
I'm sure you could have. Nonetheless, we had that yesterday.
The piece then points out that momentum plays of late
fared a lot worse. So micro Strategy off set seven
and a half percent, app love and down fourteen point
seven percent, Palentteer down five percent, down two and a
half percent, Goldman Sachs has what it calls this high
(14:04):
momentum long short index, and on Monday that group tumbled
six point one percent, and so they're concluding that, Hey,
you know, historically, when you've had a tumble like this
of our big momentum stocks, this is what's happened with
equity markets, and a lot of the times it's resulted
in some pretty big draw downs on equities. And I'm
left sitting here saying, what in God's name am I
(14:24):
actually supposed to do with this? Because I, as someone
who reads these types of stories every day, I don't
know what they're telling me to do, and I don't
have any idea have the average investors to read anything
into this other than og if I just piled into
like Nvidia and every other high flying tech stock this
year last week, then I might be I might have
(14:46):
just been in for some trouble because it just sold
off by six percent. I don't know that there's anything
that this can tell you about markets at large, or
more broadly speaking. I mean, you know, Monday, let's face
the fact that you know, it may have just had
a lot to do with the fact that China trade
tensions were heating up and then Video sold off substantially.
I don't know that there's a lot more to read
(15:07):
into all of this, and just taking a momentum stock
index that you just created and saying that it's sold
off a bunch. Again, I'm just unsure of what I'm
supposed to do with that mark. What do you have
for me?
Speaker 3 (15:19):
Let's see, so the fraction of days, Mike, that the
we've had losses greater than in an absolute sense, so
less than if you want to be technically right, Yeah,
it happens on one in every five days point six,
a loss of point six.
Speaker 2 (15:35):
I had it. I had to look so over a
certain time period that you.
Speaker 3 (15:39):
Just ran nineteen twenty subib When did this data set start?
I pulled it off a Yahoo twelve thirty nineteen twenty
seven was the first date for the s. You can
get this on Yahoo and then you just have to
import it into your favorite statistical program and then you
can filter by you know, loss size. So yeah, it
is not it is not unusual, as you pointed out,
(15:59):
it's prey normal occurrence. So no news there. Look these
momentum stocks. There is an S and P five hundred
momentum index. It invests in stocks that I'm oversimplifying here,
But if you're interested, google it. You can go to
S and P S Methodology on their website. You can
get their real fast It's very comprehensible. It filters for
companies that have gone up lately. That's all momentum is.
(16:20):
It's exactly what it sounds like, Believe it or not.
It's a source. It's a it's one of the fundamental
ingredients of investment returns. You can you can break returns
up into their constituents, like underneath underneath the S and
P return there returns to factors' finance researchers call them that.
That comprise or explain that returns on the S and
P there's quality, there's there's momentum, there's value, there's size,
(16:44):
there are others. Momentum is a legit basis for an
investment strategy. It's an actual long term source of returns. So,
but it's up fifty percent this year, some retracing of
that would be pretty normal. I don't know how much
of a prelude. Look, if this happens a lot, this
means the momentum trade, which has been driving the overall market.
That's the larger point here. If that's sold, maybe we're
(17:06):
in trouble. But don't forget there are other factors that
constitute investment returns. Maybe they take the lead mic.
Speaker 2 (17:11):
The important fact and I think the important piece that
we try and drive home on all this is if
you read an article like the one that I'm talking about,
and I'll give you the headline beneath the hood, stocks
just suffered their worst day of the year. Some are
worried if you read something like this and it completely
changes your perspective on markets, and you're suddenly thinking that, hey,
momentum is going to be the thing that drags the
(17:31):
market down or pulls it up. I just asked you
to take a step back and say, did you have
any of that perspective prior to reading this article or
is this the one thing that completely changed your mind
on markets? And if it's the latter, where's this from
market Watch? Nobody don't worry. Nobody read it. In any case,
these articles appear everywhere all the time, whether it's Yahoo Finance,
(17:54):
a lot of free publications that you can get into.
And again, if any of them make you completely change
your view or outlook or trading strategy based on them,
then check your feelings that the door get hit.
Speaker 3 (18:06):
Don't worry about it.
Speaker 2 (18:07):
They should not be going anywhere. Colleges are nervous across
the country because enrollments falling at quote concerning rates. To
give you some stats on this decline is most significant
significant at both public and private universities. Nonprofit four year
colleges have seen a more than six percent decline in enrollment.
(18:28):
The average drop was almost seven percent for forty six states.
And you're seeing an interesting thing here where applications aren't down,
enrollment is. So I don't know exactly what to blame
that on. There were problems with the FAFSA, obviously there
are affordability issues with higher education. But I find it
very interesting that enrollments down, applications are up. What might
(18:52):
that mean for the next few years. I don't have
any answering to trade school.
Speaker 3 (18:55):
They're getting into colleges as a fallback position but then
doing something else, or.
Speaker 2 (18:59):
They're going later. The state of the labor market, like
we've talked about this.
Speaker 3 (19:02):
You know, sample the labor market, sample trade school. It's
probably not a terrible sign.
Speaker 2 (19:07):
Mike, No, I don't think it is. I mean, it's
probably a terrible sign for a whole bunch of unprofitable universities.
But for the average American, I don't know. I know
they describe this as concerning My point would be concerning
for whom exactly. Demographics I'm sure play a role into
this too, that that would be interesting, But overall, I'm
not sure this is a bad sign. Quick break, we'll
(19:28):
have the trivia winner, and then we're going to tax
prom when we come back.
Speaker 5 (19:41):
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Speaker 4 (20:06):
Trivia question today was what country does the Christmas tree
tradition supposedly come from?
Speaker 2 (20:12):
Germany?
Speaker 4 (20:12):
German immigrants brought the Christmas tree tradition to the US
and the eighteenth and nineteenth centuries Queen Victoria and her
German born husband Prince Albert also popularized popularize the tradition
in Britain. Winner today of the Financial Exchange Show teachers
Kathy from Burlington, mass Congrats to Kathy, and we play
(20:34):
trivia every day here on the Financial Exchange. See complete
contest rules at Financial Exchange Show dot com.
Speaker 2 (20:41):
I'm happy to say that I did not know until
recently that something called tax prom actually exists. It's a
black tied dinner in DC for a whole bunch of
lobbyists and business executives to attend. And I cannot think
of a more boring group of old white men to
it to get together than than this group.
Speaker 3 (21:03):
Mark was joking maybe afternoons of the villages.
Speaker 2 (21:05):
Yeah, yeah, find we will not find a more concentrated.
Speaker 3 (21:09):
Chumps and tuxedos.
Speaker 2 (21:11):
Uh. Nonetheless, it did occur in DC over I think
the weekend, and a lot of excitement of Uh, it's
just basically it's basically a black tie event to uh
lobby lobby lawmakers to lower lower.
Speaker 3 (21:27):
The last because it's like the most pollutocratic thing.
Speaker 2 (21:31):
Really, Uh, you know, bad pun jokes about depreciation schedules
probably and yeah, that that's what you get at tax prom,
which at least is a little bit self deprecating calling
it tax prom. But to the serious side of this,
there's a lot of conjecture about what tax reform is
(21:52):
going to look like in twenty twenty five. I think
it's likely to be one of the first items taken
up by the new Congress in January, and I'm really
unsure of which direction it's going to go, because you're
going to need to do it without probably a single
Democrat support, would be my guess. So there's some things
(22:12):
that seem like a sure thing, which would be corporate
tax rates staying where they are. I don't know that
they're going a lot lower, and then the locking in
of all of the previous Trump tax cuts from twenty
seventeen is when the first tax proposal was done. But
beyond that, I just have absolutely no idea what the
(22:33):
actual priorities are going to be. We've had so many
different tax pledges and promises. There have been Republican lawmakers
from New York, for instance, who said they will not
support any tax bill unless there's a repeal of the
salt cap. For anyone unfamiliar that's listening to New England,
you shouldn't be, but you know there's a ten thousand
dollars current cap on state and local taxes. Some New
(22:55):
York lawmakers said, nope, not get my vote unless you
repeal that. Obviously, there's the Trump campaign pledges on taxes,
on tips, over time, social security. You know, all of
these things were pledges during the military and trail.
Speaker 3 (23:09):
Exacting every group he was in front of in the
last six weeks from income taxes.
Speaker 2 (23:13):
He wants to exempt a military payroll from taxes. Believe
he did.
Speaker 3 (23:16):
Didn't he say that, public safety, law enforcement, military Again,
just look at who he was speaking in front of,
and you can assume he promised them a tax cut
in the last several weeks of the campaign.
Speaker 2 (23:25):
So evidently it worked again. All of these things are
I think, legitimately on the table. I think some are
more likely than others and other Some would leave bigger
holes than others in the overall budget. But I have
no idea what the priorities are. I can't even begin
to tell you. I don't think they know which ones
are going to get prioritized, and it's going to be
a messy period time. I think it's safe to say
that corporate taxes aren't going up because the Trump tax
(23:48):
cut first time pretty much promised that. I think it's
pretty safe to say that individual tax rates are going
to stay flat. They were supposed to go up in
twenty twenty six beyond that, I've got no idea. And importantly,
if you actually want to affect the economy in some
meaningful way, you have to go beyond just those two things, right,
(24:11):
Just keep.
Speaker 3 (24:11):
Your subjective is I don't know there was never a
philosophy behind these promises articulated.
Speaker 2 (24:17):
Well, I think the objective is plain and simple, lower
tax rates. I don't think that conclude anything. Yeah, I
don't think there's anything you can conclude about which direction
they're going to go. But that's where we're setting up.
And you know, I was looking through this to say, hey,
is there are there any trends coming out of all
of this in terms of what's going to get prioritized?
(24:38):
And I got nothing. I have no idea what is
going to be the priority when Congress comes in in January.
Speaker 4 (24:45):
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Speaker 1 (25:39):
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Speaker 2 (25:50):
Well, it's another week and there's another piece being written
about how the Department of Government Efficiency is going to
inevitably fail. One quote here from the author. It's focusing
on the wrong targets, with the wrong approach and the
wrong leadership. So harsh words for the Department of Government Efficiency.
Initially committing to cut two trillion dollars from the government budget,
(26:13):
Elon Musk has now paired that back by a full
seventy five percent to targeting five hundred billion dollars in
spending cuts that they're trying to target here, and the
author concluding here that even that is woefully over promised.
Speaker 3 (26:27):
Yeah, this piece is from sorry Market having a hard
time identify market once again, Market. Laura Tyson is an economist.
I recognize the name. She used to go by Laura
DeAndrea Tyson. Some of you may recognize the name.
Speaker 2 (26:40):
Or probably not.
Speaker 3 (26:41):
She was head of Bill Clinton's first CEA. So she's
she's biased. That's okay, she's analytical, but she's she's biased.
Speaker 2 (26:48):
Yep.
Speaker 3 (26:49):
I didn't have to read this, Mike, because I know
how these commissions go. Commissions are where you put and
I know Laurie from Laurie from Rhode Island is going
to hate what I'm about to say. Sorry, Laurie, this
commission is shaping. It's all ready a joke. It's Elon
and Ramaswami taking tweets off there whatever they call the
truths or tweets or those utterances on his social media bullhorn,
(27:11):
and then we're like retweeting it, saying, oh, this would
be a good thing to cut that would be a
good thing to cut. There's no systematic approach, there's no
involved there's there's a there was a week attempt at
involving Congress, but no structure. How do we make these
suggestions into something coherent and something which legislators can act on.
(27:32):
And then there's the absurdity of cutting a third of
the federal budget all in one fell swoop. You could
fire every federal employee. That saves you three hundred billion.
That's fifteen percent of their promised cuts.
Speaker 2 (27:47):
So let's let's take their revised half a half a
trillion dollar number that they are now talking about.
Speaker 3 (27:52):
So they've they've ratcheted down the lowering expectations.
Speaker 2 (27:56):
A full seventy percent from their initial target.
Speaker 3 (27:58):
So it's been three weeks, they've nothing yet President the
president Elec's not even an office yet, and they've already
lowered the bar by seventy five percent. That gives you
an indication of where this sucker's going.
Speaker 2 (28:07):
So when you say it's fundamentally un serious, let me
let me give you some of the reasons why they
have indicated that they are looking at specific cuts Planned
Parenthood and other progressive groups. They're looking at three hundred
million dollars a year there the Corporation for Public Broadcasting
would get you half a billion dollars there, one.
Speaker 3 (28:27):
And a half eliminating PBS.
Speaker 2 (28:30):
Maybe that goes to NPR. I'm not sure it is.
Speaker 3 (28:33):
And so we're going to take those things off the air, yes, or.
Speaker 2 (28:36):
At least stop funding them so they'll have to fund themselves.
I don't know. One and a half billion dollars a
year goes to various international organizations that have been identified.
Six point six billion dollars a year goes to the
National Oceanic and Atmospheric Administration. Again, I'm not sure why
you would want to kill.
Speaker 3 (28:52):
Yeah, why would we want to track climate change.
Speaker 2 (28:54):
Or just generally weather forecasts? But neither here nor there.
The State Department thirty eight billion dollars, Education Department twenty
nine billion dollars. There is talk about going after NASA,
but for obvious self interested reasons. Elon Musk's not about
to cut NASA's budget because that's what you know, butters
his bread for a moment here. So this is say that.
Speaker 3 (29:15):
It's honestly unbelievable.
Speaker 2 (29:17):
But if you included all of those and it just
said you're going to kill all of it. I think
we've come up with maybe thirty or forty billion, No,
forty or fifty billion dollars, which is one tenth of
the lower committed number. And again I'm not saying that
this isn't a good exercise. Maybe you should cut all
of those.
Speaker 3 (29:36):
You know, then Congress goes through this every year. You
don't think there are people that push back on what
they view as frivilous spending, Like no one's ever thought
of any of this before. Like Elon's the first guy
to have this pop into is his his fertile brain.
Speaker 2 (29:48):
The critical piece here is that seventy four percent of
the federal spending goes to defense, Social Security, Medicare, Medicaid, Obamacare,
and interest. I'm not debating you can't try and cut
Medicaid and Obamacare. Uh, those are the only ones that
I think, generally speaking, people would look at in favor.
But you've tried to do it every year for the
(30:10):
last decade and it just hasn't happened.
Speaker 3 (30:12):
The fear. Look, there are plenty of good plans out
there to cut spending. For what it's worthful disclosure, I
am an I am a cut spend I am the
iatola of cutting spending. Personally, I would slice it all,
including Social Security, not particularly popular. I wouldn't get elected,
but it needs to be done, so I take this
stuff deadly seriously, as we should. I think there have
(30:32):
been plans over my lifetime of paying attention to this.
Over thirty years now, every year Heritage and CATO and
others come out with a very detailed, principled plan for
gradually cutting spending. They're aggressive, but they're also realistic. These
plans are not, as you said, serious. They're scattershot, and
(30:53):
they seem frivolous to me. And it doesn't charge. It
sets the cause back, Mike. It doesn't help the cause.
Speaker 2 (30:58):
It's turning into what I suspect it would, which circus.
Let's create a bunch of headlines of going after areas
that people generally object to, or a large portion of
Americans object to. I'm sure there's you know, if you
pull the Americans, how many of them think that no
money should be going to Planned parenthood or corporation for
public broadcasting. I'm guessing it's more than half or close
to half of Americans who were at polled say pull
(31:20):
the funding. The problem is it doesn't do anything, So
you know, take that for what it will like. Yeah,
and I'm not saying it's meaningless. I'm just merely saying
that if you cut those two sources, you're making up
a fraction of the total government spending and not actually
fixing any the problems.
Speaker 3 (31:36):
Yeah. If these guys came in to take over your
company and they took this approach tweeting out people's names
that they're gonna fire, Honest to god, this is happening,
you'd be out of there quicker than you'd you would
have ever thought possible. It just seems like a joke.
Speaker 1 (31:54):
Mike.
Speaker 2 (31:54):
Let's take a quick break when we come back. Bit
of stack Roulette next. On the Financial Exchange.
Speaker 1 (31:59):
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Speaker 4 (32:24):
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Speaker 2 (32:58):
We've got a few texts after the segment, and I
want to clarify at least my own position on why
I'm so negative on this Department of Government efficiency. It
is not because I think that we should just spend
money carelessly and continue to see deficits ballooed. I think
quite the opposite. My problem is that this department seems
(33:21):
completely disingenuine. The consistent problem that I see on spending
is that lawmakers are completely unwilling to do the work
that would actually be impactful on our massive deficits because
it gets them voted out of office. Until we have
a real reckoning with that, then it's just not going
to get fixed. If you want to impact thing, there
(33:42):
is only really a few things that you can do
that will actually move the needle. At this stage, you
have to go after Social Security, Medicare, and Defense and Medicaid.
If you're unwilling to touch those or Obamacare, if you're
unwilling to touch those items, then you can't fundamentally get
anything done. And so while it might be entertaining to
talk about planned parenthood and all these other things, you
(34:03):
are being fundamentally unseerious in addressing the issue if you're
not going to be willing to address those items.
Speaker 3 (34:08):
Republicans have been trying to, rightfully, in my view, eliminate
the Department of Education for philosophical reasons. Libertarians like me
and others oppose federal involvement in education. They've been trying
to eliminate it my whole life. The fact, it's not
because New Gingrich wasn't competent. It's not because John Bahner
and Paul Ryan weren't competent. It's because of the inertia
that is so different, the inertia in the spending, in
(34:30):
the inertia in the created by special interest activity. It
just really really hard to do. I don't think you're
going to get it done with a bunch of tweets
that are that are disjointed and aren't built into some
sort of legislative proposal. I hope I'm wrong. I hope
it happens. It just doesn't seem like a serious way
to do it.
Speaker 2 (34:51):
So anyway, just thought that was worth clarifying. What do
you have for us for stack re let Mark.
Speaker 3 (34:55):
Mike A reminder from CNBC that all interest rates are
not equal. We all know the Fed started lowering its
short term target in March of twenty twenty two, so
almost three years ago now, but over the same period
of time, the typical interest rate, the average charged by
big commercial banks on credit cards, has actually gone up
from fifteen overfit little over fifteen percent to currently just
(35:19):
under twenty two percent.
Speaker 2 (35:20):
Which is a short term rate, right. This is not
a mortgage rate where it's thirty years. It is typically
moves lock and step with shorter term rates. How the
article explains this in terms of new potential legislation.
Speaker 3 (35:33):
Terms of the two you are, it's why are credit
card companies charging more? Well, they're making offers to less
credit worthy people. It's easier than it was a few
years ago to get a credit card. They're practically forcing
them on people. We all get the solicitations. So there's risk,
broadly speaking, i'd call that risk, and there's regulation the
(35:54):
consumer credit protection beyond.
Speaker 2 (35:56):
Consumer financial CFPV consumer financial protection areer.
Speaker 3 (35:59):
I want to eliminate that one too. By the way,
I think Republicans do good luck. I hope they do.
But good luck is imposing regulations on limits on fees.
So credit card companies have to make up the difference somewhere.
They're making it up in the APR.
Speaker 2 (36:13):
Yeah, And frankly, I think it a lot a lot
of it comes down to because they can you know,
there's just not a whole lot of it that there's
just not a whole lot of attention paid to the
APR on credit cards, not every account holder actually pays
the interest, and there's just not a lot of willingness
from the credit card companies to lower the rates that
(36:33):
you know, do they actually think these new rules around
you know, late fees are going to go into place.
I think they probably recognize that with an incoming Trump
administration that's not going to happen. But any scapegoat they
can use to keep interest rates higher on credit cards
they're going to take. And by the way, that's why
some of these proposals from the CFPB are so stupid
because guess what happened the moment the CFPB proposed imposing
(36:58):
proposed imposing yes, eight fees on credit cards? What did
those credit card companies do? They raised interest rates on
credit cards. You're gonna pay it somewhere else. They're not
going to just say, yeah, that's fine, We're gonna take
that lower profit margin and we'll be okay with that
going forward, will be just fine.
Speaker 3 (37:14):
We tried.
Speaker 2 (37:14):
Yeah, No, you're going to make it up elsewhere. And
that's what these companies are talking about doing. Is it disingenuous? Yeah?
Are consumers going to push back on it all that strongly?
Apparently not? I mean, you know where you're gonna go?
A loan shark. Yeah, maybe that's kind of your other
options here if you are one of the low credit
(37:35):
consumers that are stuck on one of these credit cards
with an outstanding balance. Taking a look around at markets
that earlier upswing has dissipated quite a bit. Dow now
up twenty eight points, a little bit more than five
one hundreds of a percent, SMP down to basically flat
for the day, Nasdaq slightly up, still ten points. Similar
(37:57):
to the Dow. In terms of percentage terms, yield on
the ten year treasure sitting at four point two three
eight percent. In the price of a barrel of oil
as we close out the show, still sitting at sixty
nine dollars a barrel. That's up about one percent on
some Seria concerns. Quick break for the next twenty two hours.
We'll be right back at it tomorrow. Have a great
rest of your day, folks. Inflation tomorrow, CPI at a
(38:18):
thirty
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(01:05):
Veterans Development Corporation. Base is the Financial Exchange with Mike
Armstrong and Mark Fandetti.
Speaker 2 (01:14):
Good morning, Welcome back to the Financial Exchange. Markets have
turned positive for the day, at least for the moment,
now up forty eight points one tenth percent, SMP similar
percentage wise one tenth percent, and NAZAC leading the way
up a quarter of one percent. Here Tomorrow, we will
have a report from the Bureau of Labor Statistics on
the rate of inflation. The CPI report comes out tomorrow.
(01:36):
Week from tomorrow, we'll have the Federal Reserve meeting. We
get PPI, the Producer Price Index on Thursday. Frankly, not
a lot of folks pay too close of attention to that.
I'm sure there are economists out there that put it
in their models, but doesn't make as many headlines. We
also have the initial jobless claims that will be coming
out on Thursday morning at eight thirty, and that's kind
of where I want to start this hour is a
(01:58):
read on the overall state of the labor market. Because
we've talked at length, and maybe you and I haven't marked,
but the when I when I look at overall, you
know four point two percent unemployment inflation rates that are
you know, sub three percent overall, a labor force participation
(02:20):
rate that is generally higher than what we saw for
most of the twenty tens decade, and is at you know,
rates that we haven't seen since the late nineties. It's
tough to look at that and say, oh, that's a
that's a rough job market. But in other ways it's
showing some signs of stagnating and that you know, it
isn't as problematic as a labor market that is in
(02:43):
free fall, but does pose some unique challenges, I guess,
and I find it particularly interesting that we are calling
this job market stagnant at the same time that we
have investors talking about the most innovative and groundbreaking piece
of technology that's ever you know, that that's hit markets
(03:04):
in decades, which would be artificial in tell. Because of that,
I guess that's where I'm kind of leading into and
maybe maybe leaning into a little bit too much. But
I guess, where does it stack up for you in
terms of the state of this labor market. And you
always have to graide this thing on in the context
of just recently.
Speaker 3 (03:22):
I'm just a generalist, not a labor economist. I know
I always say that, but it's it's I think it's
important because there may be subtle points that I'm missing.
The way a generalist like me would look at the
labor market is to look at things like unemployment, payroll growth,
and as you said at the beginning of this segment,
you put those into your little model. Now, it depends
(03:43):
on what you're trying to do with your model. You're
trying to forecast inflation, You're trying to forecast GDP growth,
You're trying to forecast like the stock market, which is impossible.
But suppose it weren't. What are you doing with the data?
What do you want it to tell you? All I
can tell you based on the way you frame the question,
and you already really answered this, but it's worth understan going.
Is that unemployment at four point two percent, the rate
of unemployment, which is the number of unemployed people divided
(04:05):
by the size of the labor force, very simple to
get there, is historically speaking, very low wage growth, which
is also in the employment report we got the other day,
is historically speaking respectable. Is pretty strong payroll growth. The
business reported side of the state of the labor market
(04:25):
is more than enough. It was about two undred thirty
thousand jobs last month, higher than the past six month average.
For what that's worth is more than enough to create
new jobs for people entering the labor force. That's what
labor market economists would tell you. So by all surface measures,
the economy as measured by the state of the labor market,
(04:46):
or more precisely, the labor market, for good about the
economy for a second, though they're closely related. The economy
the labor market is excuse me, strong. There's no denying that.
I mean, if you think otherwise, give me an objective
measure that we can agree upon and identify in advance,
and we can go with that. But by conventional measures, Mike,
(05:06):
the labor market, as you said, is strong. The idea
that it's stagnant, I guess comes from the declining so
called quits rate, which comes out of that Jolts report
that we talk about from from month to month, when
it comes out fewer people are quitting is a percentage
of the total number of people employed than say, earlier
in COVID. But we know that that was a frenetic, unstable, unstably,
(05:30):
unsustainably excuse me, a hot labor market. So I don't
think that's much of a benchmark.
Speaker 2 (05:35):
I will I'll talk to that separations piece a little bit,
and again, I think all of this has to be
taken in the context of what you've experienced most recently
and what you've experienced most recently in terms of the
labor market. The total separations rate, which you know, Saint
Louis FED has an excellent, you know, data series on this.
In say, November of twenty twenty one, the rate of separations,
(05:57):
which would mean quits firings, as a percentage of the two.
Speaker 3 (06:00):
So is that different in quits what you're looking at there.
Speaker 2 (06:02):
Yeah, it's total separations would be quits and layoffs I believe. Okay,
So voluntary and involuntary was sitting around four point two
percent in November of twenty twenty one, and generally was
above four percent or close to it for most of
twenty twenty two as well. We've now for the last
two months come down to a rate of three point
three percent. By the way, that stuff going on in
(06:22):
twenty twenty one and twenty twenty two was largely not layoffs.
It was quits. But I'm looking at total separations here
just as a different way of looking at it today.
Three point three percent is that way different from four percent? No,
but it's it's enough to be noticed. For the twenty
ten decade. You have to go all the way back
to November of twenty fourteen to get down to a
(06:45):
three point three percent total separations rate. So okay, I
can see how some people might define this labor market
as stagnant to your point earlier, though from most other measures,
it's a really strong labor market. The total employment to
population ratio right now eighty point four percent. We only
got above that level pre COVID in December of twenty nineteen.
(07:09):
That was the only time in the entire twenty ten
decade that we approached eighty point four percent of the
population of twenty five to fifty four year olds working.
So are we on a decline from where we were
of the last few years? Yes? Are we just coming
in line with where we were pre COVID. Also yes,
the unemployment rate we've talked about this one at length,
four point two percent, generally healthy, lower than it was
for most of the twenty ten decade. Once again, the
(07:33):
you talked about payrolls. Chuck always likes to talk about
those aggregate weekly payrolls and looking at those year over year,
this combines both raises plus new workers into the labor
market once again flatlining, but at five percent, that's better
than it was for most of the twenty ten decade.
And so I do land at this position where I
(07:54):
certainly can understand some of the frustrations that I'm hearing
from some workers of being dissatisfied in their existing role,
unable to move up, and unable to find a new
job elsewhere. But that sure sounds a lot better to
me than the economy of twenty eleven, when you couldn't
move up and you couldn't find any job, and you
were sitting unemployed for a year and a half. And
(08:15):
so again, it all comes down to grading this stuff
with a scale. I think the other piece of this, though,
that I find compelling and interesting, is is some of
this stagnation occurring because of artificial intelligence. And I don't
think we have any way of measuring that, and probably
won't for years. But that's the promise of AI is, Hey,
(08:36):
you worker are supposed to be more effective in your
existing job because of artificial intelligence, and therefore I don't
need that new employee, and I don't need to pay
you quite as much because you can do more with
the same number of hours.
Speaker 3 (08:49):
Uh yeah, that's the definition of productivity. Then higher productivity
is not necessarily good for unemployment. In fact, you could
there are situations where productive product productivity grow. There's always
high during recessions, for example. Yeah, not always, but that
sort of perverse result prevails. I just I want to
step back make a larger point about economic data. First
(09:10):
of all, these are estimates. We call them statistics, not
because we like fancy words for numbers, but because.
Speaker 2 (09:16):
Well, we also like fancy words.
Speaker 3 (09:18):
We also are are highly pretentious.
Speaker 2 (09:21):
But it can be both.
Speaker 3 (09:22):
It means you're right, it means it's an estimate. We
don't know the true value. The Department of Labor doesn't
talk to everybody. It only talks to one hundred whatever
it is, twenty thousand households and sixty thousand businesses. I
always forget and reverse those two things. But the point
is these are estimates, which is why they get revised.
They weren't meant when created, and even today they're not
(09:44):
meant to be perfect measures of the health of the
economy or reflective of your lived experience. But that all
that said, you can look at them relative to past values,
which is I think the safest way for people like
us non labor econ to use them. Just look at
unemployment today relative to where it's been historically, and it's low.
(10:04):
Take that for what it's worth. If you don't like
that measure, come up with your own. And I know
a lot of you don't. I get that it's not
reflective again of everybody's experience.
Speaker 2 (10:13):
And I came up with four of them, and three
out of four of them are indicating. Look, this is
a heck of a struggle.
Speaker 3 (10:18):
They're all the same. They're all they're all statistics prone
to sampling and other errors. Nor are they meant to
capture again, what's most important to everybody. They all suffer
from the same.
Speaker 2 (10:29):
True, But it's all we got.
Speaker 3 (10:31):
It is all we got, Or find your own is
I mentioned? But when you look back in two years
and ask the question, you're better off now than you
were two years ago. Remember the numbers. I like to say,
remember for what it's worth. That also sounds pretentious, but
for what it's worth, remember the norm is two three
and four. Two is roughly where core inflation is today,
is measured by the Fed's choice measure. It's a little
(10:51):
bit higher than that. I'm rounded down. Three is roughly
what GDP after inflation has done over the past twelve months,
several quarters actually, And four is where unemployment is today.
If you're keeping score at home, judging the new administration
or whatever, remember those numbers and compare them to those,
or suggest something else as a yard stick by which
(11:13):
we're going to keep score. I don't know what else
to use. Or there's a stock mark.
Speaker 2 (11:17):
We're notoriously pretty bad at that. But yeah, it's easy
for me to understand how twenty twenty one would stick
in people's minds and be the benchmark that they're using,
because in twenty twenty one, a lot of people got
new jobs, a lot of people got raises, a lot
of people got money from the US government in the
stock market crushed it, and inflation hadn't really taken off yet.
So yeah, it's easy for me to say, oh, yeah,
(11:37):
I get why people are dissatisfied with this market if
they're comparing it to a narrow span of time when
they might have gotten a new job or might have
gotten a big raise, and things that are just not
happening in twenty twenty four. Let's take a quick break.
When we come back, we're going to have some trivia
up next, and then I want to talk about my
dumb stock market story of the day. That's next on
the Financial Exchange.
Speaker 1 (11:59):
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Speaker 4 (12:30):
Let's do a little bit of trivia here on the
Financial Exchange. Since we only have twelve shows left and
soil Christmas, let's start doing Christmas trivia today. So our
question today what country does the Christmas tree tradition supposedly
come from? Once again, what country does the Christmas tree
tradition supposedly come from? Let's go with be the sixth
(12:55):
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Speaker 2 (13:16):
If you're browsing the typical financial news publications today, Mark,
you may have come across this one of a rough
day in some momentum stocks. So yesterday on Monday, the
SMP sold off by six tens of a percent, which
I know that's a lot of points, but is not
all that impactful and is not all that outrageous. I'm
(13:37):
sure that we have lots of days where equity markets
sell off by more than half a percent.
Speaker 3 (13:41):
We should mention that during the break, Mike, I could
have given you a FIR.
Speaker 2 (13:43):
I'm sure you could have. Nonetheless, we had that yesterday.
The piece then points out that momentum plays of late
fared a lot worse. So micro Strategy off set seven
and a half percent, app love and down fourteen point
seven percent, Palentteer down five percent, down two and a
half percent, Goldman Sachs has what it calls this high
(14:04):
momentum long short index, and on Monday that group tumbled
six point one percent, and so they're concluding that, Hey,
you know, historically, when you've had a tumble like this
of our big momentum stocks, this is what's happened with
equity markets, and a lot of the times it's resulted
in some pretty big draw downs on equities. And I'm
left sitting here saying, what in God's name am I
(14:24):
actually supposed to do with this? Because I, as someone
who reads these types of stories every day, I don't
know what they're telling me to do, and I don't
have any idea have the average investors to read anything
into this other than og if I just piled into
like Nvidia and every other high flying tech stock this
year last week, then I might be I might have
(14:46):
just been in for some trouble because it just sold
off by six percent. I don't know that there's anything
that this can tell you about markets at large, or
more broadly speaking. I mean, you know, Monday, let's face
the fact that you know, it may have just had
a lot to do with the fact that China trade
tensions were heating up and then Video sold off substantially.
I don't know that there's a lot more to read
(15:07):
into all of this, and just taking a momentum stock
index that you just created and saying that it's sold
off a bunch. Again, I'm just unsure of what I'm
supposed to do with that mark. What do you have
for me?
Speaker 3 (15:19):
Let's see, so the fraction of days, Mike, that the
we've had losses greater than in an absolute sense, so
less than if you want to be technically right, Yeah,
it happens on one in every five days point six,
a loss of point six.
Speaker 2 (15:35):
I had it. I had to look so over a
certain time period that you.
Speaker 3 (15:39):
Just ran nineteen twenty subib When did this data set start?
I pulled it off a Yahoo twelve thirty nineteen twenty
seven was the first date for the s. You can
get this on Yahoo and then you just have to
import it into your favorite statistical program and then you
can filter by you know, loss size. So yeah, it
is not it is not unusual, as you pointed out,
(15:59):
it's prey normal occurrence. So no news there. Look these
momentum stocks. There is an S and P five hundred
momentum index. It invests in stocks that I'm oversimplifying here,
But if you're interested, google it. You can go to
S and P S Methodology on their website. You can
get their real fast It's very comprehensible. It filters for
companies that have gone up lately. That's all momentum is.
(16:20):
It's exactly what it sounds like, Believe it or not.
It's a source. It's a it's one of the fundamental
ingredients of investment returns. You can you can break returns
up into their constituents, like underneath underneath the S and
P return there returns to factors' finance researchers call them that.
That comprise or explain that returns on the S and
P there's quality, there's there's momentum, there's value, there's size,
(16:44):
there are others. Momentum is a legit basis for an
investment strategy. It's an actual long term source of returns. So,
but it's up fifty percent this year, some retracing of
that would be pretty normal. I don't know how much
of a prelude. Look, if this happens a lot, this
means the momentum trade, which has been driving the overall market.
That's the larger point here. If that's sold, maybe we're
(17:06):
in trouble. But don't forget there are other factors that
constitute investment returns. Maybe they take the lead mic.
Speaker 2 (17:11):
The important fact and I think the important piece that
we try and drive home on all this is if
you read an article like the one that I'm talking about,
and I'll give you the headline beneath the hood, stocks
just suffered their worst day of the year. Some are
worried if you read something like this and it completely
changes your perspective on markets, and you're suddenly thinking that, hey,
momentum is going to be the thing that drags the
(17:31):
market down or pulls it up. I just asked you
to take a step back and say, did you have
any of that perspective prior to reading this article or
is this the one thing that completely changed your mind
on markets? And if it's the latter, where's this from
market Watch? Nobody don't worry. Nobody read it. In any case,
these articles appear everywhere all the time, whether it's Yahoo Finance,
(17:54):
a lot of free publications that you can get into.
And again, if any of them make you completely change
your view or outlook or trading strategy based on them,
then check your feelings that the door get hit.
Speaker 3 (18:06):
Don't worry about it.
Speaker 2 (18:07):
They should not be going anywhere. Colleges are nervous across
the country because enrollments falling at quote concerning rates. To
give you some stats on this decline is most significant
significant at both public and private universities. Nonprofit four year
colleges have seen a more than six percent decline in enrollment.
(18:28):
The average drop was almost seven percent for forty six states.
And you're seeing an interesting thing here where applications aren't down,
enrollment is. So I don't know exactly what to blame
that on. There were problems with the FAFSA, obviously there
are affordability issues with higher education. But I find it
very interesting that enrollments down, applications are up. What might
(18:52):
that mean for the next few years. I don't have
any answering to trade school.
Speaker 3 (18:55):
They're getting into colleges as a fallback position but then
doing something else, or.
Speaker 2 (18:59):
They're going later. The state of the labor market, like
we've talked about this.
Speaker 3 (19:02):
You know, sample the labor market, sample trade school. It's
probably not a terrible sign.
Speaker 2 (19:07):
Mike, No, I don't think it is. I mean, it's
probably a terrible sign for a whole bunch of unprofitable universities.
But for the average American, I don't know. I know
they describe this as concerning My point would be concerning
for whom exactly. Demographics I'm sure play a role into
this too, that that would be interesting, But overall, I'm
not sure this is a bad sign. Quick break, we'll
(19:28):
have the trivia winner, and then we're going to tax
prom when we come back.
Speaker 5 (19:41):
Bringing the latest financial news straight to your radio. Every day,
it's the Financial Exchange on the Financial Exchange Radio Network.
Find daily interviews and full shows of the Financial Exchange
on our YouTube page. Like us on YouTube and get
caught up on anything and everything you might have missed.
This is the Financial Exchange Radio Network.
Speaker 4 (20:06):
Trivia question today was what country does the Christmas tree
tradition supposedly come from?
Speaker 2 (20:12):
Germany?
Speaker 4 (20:12):
German immigrants brought the Christmas tree tradition to the US
and the eighteenth and nineteenth centuries Queen Victoria and her
German born husband Prince Albert also popularized popularize the tradition
in Britain. Winner today of the Financial Exchange Show teachers
Kathy from Burlington, mass Congrats to Kathy, and we play
(20:34):
trivia every day here on the Financial Exchange. See complete
contest rules at Financial Exchange Show dot com.
Speaker 2 (20:41):
I'm happy to say that I did not know until
recently that something called tax prom actually exists. It's a
black tied dinner in DC for a whole bunch of
lobbyists and business executives to attend. And I cannot think
of a more boring group of old white men to
it to get together than than this group.
Speaker 3 (21:03):
Mark was joking maybe afternoons of the villages.
Speaker 2 (21:05):
Yeah, yeah, find we will not find a more concentrated.
Speaker 3 (21:09):
Chumps and tuxedos.
Speaker 2 (21:11):
Uh. Nonetheless, it did occur in DC over I think
the weekend, and a lot of excitement of Uh, it's
just basically it's basically a black tie event to uh
lobby lobby lawmakers to lower lower.
Speaker 3 (21:27):
The last because it's like the most pollutocratic thing.
Speaker 2 (21:31):
Really, Uh, you know, bad pun jokes about depreciation schedules
probably and yeah, that that's what you get at tax prom,
which at least is a little bit self deprecating calling
it tax prom. But to the serious side of this,
there's a lot of conjecture about what tax reform is
(21:52):
going to look like in twenty twenty five. I think
it's likely to be one of the first items taken
up by the new Congress in January, and I'm really
unsure of which direction it's going to go, because you're
going to need to do it without probably a single
Democrat support, would be my guess. So there's some things
(22:12):
that seem like a sure thing, which would be corporate
tax rates staying where they are. I don't know that
they're going a lot lower, and then the locking in
of all of the previous Trump tax cuts from twenty
seventeen is when the first tax proposal was done. But
beyond that, I just have absolutely no idea what the
(22:33):
actual priorities are going to be. We've had so many
different tax pledges and promises. There have been Republican lawmakers
from New York, for instance, who said they will not
support any tax bill unless there's a repeal of the
salt cap. For anyone unfamiliar that's listening to New England,
you shouldn't be, but you know there's a ten thousand
dollars current cap on state and local taxes. Some New
(22:55):
York lawmakers said, nope, not get my vote unless you
repeal that. Obviously, there's the Trump campaign pledges on taxes,
on tips, over time, social security. You know, all of
these things were pledges during the military and trail.
Speaker 3 (23:09):
Exacting every group he was in front of in the
last six weeks from income taxes.
Speaker 2 (23:13):
He wants to exempt a military payroll from taxes. Believe
he did.
Speaker 3 (23:16):
Didn't he say that, public safety, law enforcement, military Again,
just look at who he was speaking in front of,
and you can assume he promised them a tax cut
in the last several weeks of the campaign.
Speaker 2 (23:25):
So evidently it worked again. All of these things are
I think, legitimately on the table. I think some are
more likely than others and other Some would leave bigger
holes than others in the overall budget. But I have
no idea what the priorities are. I can't even begin
to tell you. I don't think they know which ones
are going to get prioritized, and it's going to be
a messy period time. I think it's safe to say
that corporate taxes aren't going up because the Trump tax
(23:48):
cut first time pretty much promised that. I think it's
pretty safe to say that individual tax rates are going
to stay flat. They were supposed to go up in
twenty twenty six beyond that, I've got no idea. And importantly,
if you actually want to affect the economy in some
meaningful way, you have to go beyond just those two things, right,
(24:11):
Just keep.
Speaker 3 (24:11):
Your subjective is I don't know there was never a
philosophy behind these promises articulated.
Speaker 2 (24:17):
Well, I think the objective is plain and simple, lower
tax rates. I don't think that conclude anything. Yeah, I
don't think there's anything you can conclude about which direction
they're going to go. But that's where we're setting up.
And you know, I was looking through this to say, hey,
is there are there any trends coming out of all
of this in terms of what's going to get prioritized?
(24:38):
And I got nothing. I have no idea what is
going to be the priority when Congress comes in in January.
Speaker 4 (24:45):
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Speaker 1 (25:39):
The proceeding was paid for and the views expressed are
solely those of Cushing and Dolan. Cushing and Dolan and
or Armstrong Advisory may contact you offering legal or investment services.
Cushing and Armstrong do not endorse each other and are
not affiliated.
Speaker 2 (25:50):
Well, it's another week and there's another piece being written
about how the Department of Government Efficiency is going to
inevitably fail. One quote here from the author. It's focusing
on the wrong targets, with the wrong approach and the
wrong leadership. So harsh words for the Department of Government Efficiency.
Initially committing to cut two trillion dollars from the government budget,
(26:13):
Elon Musk has now paired that back by a full
seventy five percent to targeting five hundred billion dollars in
spending cuts that they're trying to target here, and the
author concluding here that even that is woefully over promised.
Speaker 3 (26:27):
Yeah, this piece is from sorry Market having a hard
time identify market once again, Market. Laura Tyson is an economist.
I recognize the name. She used to go by Laura
DeAndrea Tyson. Some of you may recognize the name.
Speaker 2 (26:40):
Or probably not.
Speaker 3 (26:41):
She was head of Bill Clinton's first CEA. So she's
she's biased. That's okay, she's analytical, but she's she's biased.
Speaker 2 (26:48):
Yep.
Speaker 3 (26:49):
I didn't have to read this, Mike, because I know
how these commissions go. Commissions are where you put and
I know Laurie from Laurie from Rhode Island is going
to hate what I'm about to say. Sorry, Laurie, this
commission is shaping. It's all ready a joke. It's Elon
and Ramaswami taking tweets off there whatever they call the
truths or tweets or those utterances on his social media bullhorn,
(27:11):
and then we're like retweeting it, saying, oh, this would
be a good thing to cut that would be a
good thing to cut. There's no systematic approach, there's no
involved there's there's a there was a week attempt at
involving Congress, but no structure. How do we make these
suggestions into something coherent and something which legislators can act on.
(27:32):
And then there's the absurdity of cutting a third of
the federal budget all in one fell swoop. You could
fire every federal employee. That saves you three hundred billion.
That's fifteen percent of their promised cuts.
Speaker 2 (27:47):
So let's let's take their revised half a half a
trillion dollar number that they are now talking about.
Speaker 3 (27:52):
So they've they've ratcheted down the lowering expectations.
Speaker 2 (27:56):
A full seventy percent from their initial target.
Speaker 3 (27:58):
So it's been three weeks, they've nothing yet President the
president Elec's not even an office yet, and they've already
lowered the bar by seventy five percent. That gives you
an indication of where this sucker's going.
Speaker 2 (28:07):
So when you say it's fundamentally un serious, let me
let me give you some of the reasons why they
have indicated that they are looking at specific cuts Planned
Parenthood and other progressive groups. They're looking at three hundred
million dollars a year there the Corporation for Public Broadcasting
would get you half a billion dollars there, one.
Speaker 3 (28:27):
And a half eliminating PBS.
Speaker 2 (28:30):
Maybe that goes to NPR. I'm not sure it is.
Speaker 3 (28:33):
And so we're going to take those things off the air, yes, or.
Speaker 2 (28:36):
At least stop funding them so they'll have to fund themselves.
I don't know. One and a half billion dollars a
year goes to various international organizations that have been identified.
Six point six billion dollars a year goes to the
National Oceanic and Atmospheric Administration. Again, I'm not sure why
you would want to kill.
Speaker 3 (28:52):
Yeah, why would we want to track climate change.
Speaker 2 (28:54):
Or just generally weather forecasts? But neither here nor there.
The State Department thirty eight billion dollars, Education Department twenty
nine billion dollars. There is talk about going after NASA,
but for obvious self interested reasons. Elon Musk's not about
to cut NASA's budget because that's what you know, butters
his bread for a moment here. So this is say that.
Speaker 3 (29:15):
It's honestly unbelievable.
Speaker 2 (29:17):
But if you included all of those and it just
said you're going to kill all of it. I think
we've come up with maybe thirty or forty billion, No,
forty or fifty billion dollars, which is one tenth of
the lower committed number. And again I'm not saying that
this isn't a good exercise. Maybe you should cut all
of those.
Speaker 3 (29:36):
You know, then Congress goes through this every year. You
don't think there are people that push back on what
they view as frivilous spending, Like no one's ever thought
of any of this before. Like Elon's the first guy
to have this pop into is his his fertile brain.
Speaker 2 (29:48):
The critical piece here is that seventy four percent of
the federal spending goes to defense, Social Security, Medicare, Medicaid, Obamacare,
and interest. I'm not debating you can't try and cut
Medicaid and Obamacare. Uh, those are the only ones that
I think, generally speaking, people would look at in favor.
But you've tried to do it every year for the
(30:10):
last decade and it just hasn't happened.
Speaker 3 (30:12):
The fear. Look, there are plenty of good plans out
there to cut spending. For what it's worthful disclosure, I
am an I am a cut spend I am the
iatola of cutting spending. Personally, I would slice it all,
including Social Security, not particularly popular. I wouldn't get elected,
but it needs to be done, so I take this
stuff deadly seriously, as we should. I think there have
(30:32):
been plans over my lifetime of paying attention to this.
Over thirty years now, every year Heritage and CATO and
others come out with a very detailed, principled plan for
gradually cutting spending. They're aggressive, but they're also realistic. These
plans are not, as you said, serious. They're scattershot, and
(30:53):
they seem frivolous to me. And it doesn't charge. It
sets the cause back, Mike. It doesn't help the cause.
Speaker 2 (30:58):
It's turning into what I suspect it would, which circus.
Let's create a bunch of headlines of going after areas
that people generally object to, or a large portion of
Americans object to. I'm sure there's you know, if you
pull the Americans, how many of them think that no
money should be going to Planned parenthood or corporation for
public broadcasting. I'm guessing it's more than half or close
to half of Americans who were at polled say pull
(31:20):
the funding. The problem is it doesn't do anything, So
you know, take that for what it will like. Yeah,
and I'm not saying it's meaningless. I'm just merely saying
that if you cut those two sources, you're making up
a fraction of the total government spending and not actually
fixing any the problems.
Speaker 3 (31:36):
Yeah. If these guys came in to take over your
company and they took this approach tweeting out people's names
that they're gonna fire, Honest to god, this is happening,
you'd be out of there quicker than you'd you would
have ever thought possible. It just seems like a joke.
Speaker 1 (31:54):
Mike.
Speaker 2 (31:54):
Let's take a quick break when we come back. Bit
of stack Roulette next. On the Financial Exchange.
Speaker 1 (31:59):
Breaking buses this and financial news first throughout the day.
Only here on the Financial Exchange Radio Network. Find daily
interviews and full shows of the Financial Exchange on How
Are YouTube page. Get caught up on anything and everything
you might have missed. This is the Financial Exchange Radio Network.
Speaker 4 (32:24):
The Financial Exchange is a proud partner of the Disabled
American Veterans Department of Massachusetts. This year's five K was
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of initiatives like the DAV Transportation Program, which takes disabled
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Speaker 2 (32:58):
We've got a few texts after the segment, and I
want to clarify at least my own position on why
I'm so negative on this Department of Government efficiency. It
is not because I think that we should just spend
money carelessly and continue to see deficits ballooed. I think
quite the opposite. My problem is that this department seems
(33:21):
completely disingenuine. The consistent problem that I see on spending
is that lawmakers are completely unwilling to do the work
that would actually be impactful on our massive deficits because
it gets them voted out of office. Until we have
a real reckoning with that, then it's just not going
to get fixed. If you want to impact thing, there
(33:42):
is only really a few things that you can do
that will actually move the needle. At this stage, you
have to go after Social Security, Medicare, and Defense and Medicaid.
If you're unwilling to touch those or Obamacare, if you're
unwilling to touch those items, then you can't fundamentally get
anything done. And so while it might be entertaining to
talk about planned parenthood and all these other things, you
(34:03):
are being fundamentally unseerious in addressing the issue if you're
not going to be willing to address those items.
Speaker 3 (34:08):
Republicans have been trying to, rightfully, in my view, eliminate
the Department of Education for philosophical reasons. Libertarians like me
and others oppose federal involvement in education. They've been trying
to eliminate it my whole life. The fact, it's not
because New Gingrich wasn't competent. It's not because John Bahner
and Paul Ryan weren't competent. It's because of the inertia
that is so different, the inertia in the spending, in
(34:30):
the inertia in the created by special interest activity. It
just really really hard to do. I don't think you're
going to get it done with a bunch of tweets
that are that are disjointed and aren't built into some
sort of legislative proposal. I hope I'm wrong. I hope
it happens. It just doesn't seem like a serious way
to do it.
Speaker 2 (34:51):
So anyway, just thought that was worth clarifying. What do
you have for us for stack re let Mark.
Speaker 3 (34:55):
Mike A reminder from CNBC that all interest rates are
not equal. We all know the Fed started lowering its
short term target in March of twenty twenty two, so
almost three years ago now, but over the same period
of time, the typical interest rate, the average charged by
big commercial banks on credit cards, has actually gone up
from fifteen overfit little over fifteen percent to currently just
(35:19):
under twenty two percent.
Speaker 2 (35:20):
Which is a short term rate, right. This is not
a mortgage rate where it's thirty years. It is typically
moves lock and step with shorter term rates. How the
article explains this in terms of new potential legislation.
Speaker 3 (35:33):
Terms of the two you are, it's why are credit
card companies charging more? Well, they're making offers to less
credit worthy people. It's easier than it was a few
years ago to get a credit card. They're practically forcing
them on people. We all get the solicitations. So there's risk,
broadly speaking, i'd call that risk, and there's regulation the
(35:54):
consumer credit protection beyond.
Speaker 2 (35:56):
Consumer financial CFPV consumer financial protection areer.
Speaker 3 (35:59):
I want to eliminate that one too. By the way,
I think Republicans do good luck. I hope they do.
But good luck is imposing regulations on limits on fees.
So credit card companies have to make up the difference somewhere.
They're making it up in the APR.
Speaker 2 (36:13):
Yeah, And frankly, I think it a lot a lot
of it comes down to because they can you know,
there's just not a whole lot of it that there's
just not a whole lot of attention paid to the
APR on credit cards, not every account holder actually pays
the interest, and there's just not a lot of willingness
from the credit card companies to lower the rates that
(36:33):
you know, do they actually think these new rules around
you know, late fees are going to go into place.
I think they probably recognize that with an incoming Trump
administration that's not going to happen. But any scapegoat they
can use to keep interest rates higher on credit cards
they're going to take. And by the way, that's why
some of these proposals from the CFPB are so stupid
because guess what happened the moment the CFPB proposed imposing
(36:58):
proposed imposing yes, eight fees on credit cards? What did
those credit card companies do? They raised interest rates on
credit cards. You're gonna pay it somewhere else. They're not
going to just say, yeah, that's fine, We're gonna take
that lower profit margin and we'll be okay with that
going forward, will be just fine.
Speaker 3 (37:14):
We tried.
Speaker 2 (37:14):
Yeah, No, you're going to make it up elsewhere. And
that's what these companies are talking about doing. Is it disingenuous? Yeah?
Are consumers going to push back on it all that strongly?
Apparently not? I mean, you know where you're gonna go?
A loan shark. Yeah, maybe that's kind of your other
options here if you are one of the low credit
(37:35):
consumers that are stuck on one of these credit cards
with an outstanding balance. Taking a look around at markets
that earlier upswing has dissipated quite a bit. Dow now
up twenty eight points, a little bit more than five
one hundreds of a percent, SMP down to basically flat
for the day, Nasdaq slightly up, still ten points. Similar
(37:57):
to the Dow. In terms of percentage terms, yield on
the ten year treasure sitting at four point two three
eight percent. In the price of a barrel of oil
as we close out the show, still sitting at sixty
nine dollars a barrel. That's up about one percent on
some Seria concerns. Quick break for the next twenty two hours.
We'll be right back at it tomorrow. Have a great
rest of your day, folks. Inflation tomorrow, CPI at a
(38:18):
thirty
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