February 11, 2026 • 37 mins
Chuck Zodda and Marc Fandetti analyze a stronger-than-expected January jobs report that showed 130,000 new jobs added and unemployment falling to 4.3%. With wage growth running hot and GDP trending above potential, the discussion turns to whether the Federal Reserve may need to hold rates higher for longer — or even consider future hikes if labor market strength continues. Luke Kawa of Sherwood News also joined the show to explore rising investor anxiety around artificial intelligence, including whether AI could disrupt software, finance, and knowledge-based industries faster than markets expect. Later in the hour, the hosts discuss mounting federal deficits, growing consumer credit balances, and the long-term risks tied to persistent government borrowing.
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Speaker 1 (00:00):
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(01:06):
and Mark Vandetti.
Speaker 2 (01:10):
Chuck, Mark and Tucker with you here and kicking things
off today. We had a jobs report that came out
at UH It was a thirty this morning Eastern Time,
and jobs report much better than anticipated, one hundred and
thirty thousand jobs created for the month versus expectations of
forty to seventy k. Unemployment rate dropped from four point
(01:32):
four to four point three percent. You go through again
kind of all the the big data data pieces in
here and hard to find bad ones. The household data showed,
you know, an even greater number of jobs added, five
hundred and twenty eight thousand. Remember the household and establishment
survey don't often add up, they're not always the same.
(01:53):
Labor force participation rate improved from sixty two point four
to sixty two point five percent, so you know, that
makes the unemployment rate drop even more impressive. Other things
that you saw aggregate payroll growth now running back up
around four point eight percent year over year to dropping
to three point seven percent last month with the new
(02:14):
updated numbers. So overall, good jobs report, but one that
quite honestly, with some of the wage growth that you're
seeing underlying it, if you were to see a few
more of these, you know, come through in the next
couple months, it really does then tilt the balance of
risks in the you know, remaining two thirds of the
year to Hey, inflation could move higher if you start
(02:35):
seeing weekly wage growth numbers coming in consistently at point
seven percent month over month. That is not just hot,
that is like very very, very very hot, and would
represent a material shift that could become problematic. This is
one month. Let's not overreact to it. Let's see how
things go. So overall, I think this is a very
(02:57):
solid jobs report that if you see more of them,
you're not getting any more rate cuts and you might
start getting rate hikes.
Speaker 3 (03:04):
Yeah, I think that's where a reasonable analyst should land
on this. We had a couple very strong quarters of
GDP growth, the second and third, if I'm remembering correctly,
in twenty twenty five, we probably finished the year very strong.
There were some weaknesses in some high level employment data.
You pointed it out earlier in the show, But as
(03:26):
it turns out, those may have been Now that's a
tricky phrase to use because we don't how it's going
to turn out, but if this persists, those were a blip.
The economy is unquestionably running hotter than its potential, said differently, Well, actually,
I don't know that I would say that any differently.
Economy's running too hot, whether you look at GDP. Arguably,
(03:49):
if you look at unemployment too unemployment in the low
fours is probably unnaturally low. That's probably below the threshold
at which inflation starts to rise. Said differently, the Fed
is over stimulus the economy. It's growing demand too fast
relative to the growth in supply in the productive capacity
the economy.
Speaker 2 (04:08):
So ultimately, I think this is the thing that we're
going to watch the next couple months. Is this turn
that's happening in the labor market going to continue or
is this, you know, a one month blipping the data
for whatever reason. I don't know. We'll see what we get.
But how does this potentially impact the balance of risks
on you know, that inflation versus unemployment question that the
(04:31):
Fed has over the rest of the year. It's a
big one, especially with a new FET chair that's that's
going to be AMA coming.
Speaker 3 (04:36):
How much of an unemployment a low unemployment fanatic and
that sounds cool because anybody out of a job creates
an unemployment crisis in their world. But it's unreasonable to
want to push the economy below the mid to low fours.
And I'm just basing that on recent experience of what
seems to be sustainable late twenty tens and going a
(04:57):
little farther back late nineteen nineties, though there were a
things going on. Then what kind of fanatic forgive me,
but wants to push unemployment below four percent when inflation
is elevated. That's clearly, that's I say, clearly, because inflation
goes it was very high when unemployment was below four percent.
That's that's why I amplify that with clearly, that's clearly
(05:18):
not sustainable, and people were very upset with elevated inflation.
Speaker 2 (05:22):
So I was I was gonna talk about something else
to kick this hour off, but we're sitting in on this. No no, no, no, no, no, no,
no apologies here on the financial exchange. Okay, Let's let's
dig in a little bit more on this in a
couple of respects. The first is, there's two things that
I want to talk about on this. The first is,
(05:44):
hasn't the messaging from the Trump administration in the last
six months or so been we're going to run the
economy hot.
Speaker 4 (05:50):
Yes, it has sound familiar, Joe Bien.
Speaker 2 (05:53):
And so ultimately, if they're trying to which, by the way,
all of the policy making indication that that's where they're going.
When you talk about, you know, the big beautiful bill
and the additional stimulus that that's going to kick into
the economy this year, it makes sense from that perspective.
So they're telling you that they want to run the
economy hot. There are signs that the labor market may
(06:15):
be turning and starting to hotten up. If we will,
and I will, and so I am a big believer
in Hey, you know, when someone's telling you what they
want to do and they're actually doing it, like, okay,
you should probably believe them. The other piece that I
think has the potential to make this hotter from an
inflation perspective, if this turn in the labor market is real,
(06:39):
if labor demand turns up in a world where labor
supply is flat to contracting, you've got big problems on
the inflation side of things.
Speaker 3 (06:47):
Well, yeah, and generalize that if demand they just think
of overall economic demand and think the FED is controlling it.
The problem in twenty twenty one. The problem in the
seventies too. In addition to the price spikes in seventy three,
seventy four and again in seventy nine that exacerbated inflation,
the Fed thought the economy could grow faster than it
(07:07):
was growing, and therefore they could keep interest rates lower
than they would otherwise. They misread the structure of the economy.
It's like overfeeding your dog or cat. You don't understand
their activity levels properly. You're pushing their calorie intake beyond
what's necessary to keep their weight stable. It's sort of
that's not my best analogy, but a pet owner kind
(07:29):
of gets that. You got to you got to find
the right diet, the find the right dose at your food,
dose at your food whatever, relative to your pet's activity.
If it's trying to do the same thing, it's how
much do we feed this this big dog the economy, Well,
if I don't want it to gain weight, I don't
want it to lose weight either, where weight is analogously
inflation here, and that's always changing.
Speaker 2 (07:50):
So it's yeah, I'm very much you know of the opinion. Look,
you already had this demographic tsunami that was coming with
baby boomers retiring, and there aren't enough twenty two year
olds to replace all of the sixty two and seventy
two year olds that are retiring. It's a math problem,
and it's not a complicated one. It's it's simple subtraction.
(08:11):
If X is greater than why then you have more
people leaving the economy than coming in. And that's that's
where we start. But then when you throw in the
immigration piece as well, it's one where hey, now your
potential you know, relief valve for labor supply is you know,
being closed, and this has the potential if labor demand
(08:31):
ticks up in any meaningful fashion, you've got an inflation problem.
Because if I am a restaurant and Mark, if there's
anything that Italians know about, it's restaurants. You know, it's
like every one of us has at least like six
cousins and uncles who are you know, in some form
of the restaurant food chain pun intended And so ultimately
(08:57):
you're running a restaurant, your margins, as they are if
you're successful, are like four percent. They're not good. And
now your labor cost goes up because you know, Johnny
got a new job working down the street and so
you got to bring someone in who's new, but you
got to pay them more. And so you're sitting there,
You're like, Okay, this just ate all of my profits.
I gotta raise prices. This is how inflation happens. People
(09:20):
are like, oh, what is inflation. Ultimately, it's companies deciding
to raise prices and when enough of them do it,
and enough of that is supported by the demand side
for people to pay for those price increases, that's why
inflation happens. And so this is the dangerous thing that
we have to watch for and see how it develops.
Let's take a quick break. When we come back or
(09:41):
joined by Luke Kwa from Sherwood News, we're talking about
why the tech world and the finance world have very
different opinions on artificial intelligence.
Speaker 1 (09:50):
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Speaker 2 (10:12):
As promised, we are now joined by Luke Kawa from
Sherwood News. Luke wrote a piece last week. It's titled
why There's a huge vibe difference between tech and finance
on AI. I immediately sent to Tucker and said, Tuck,
you got to get Luke back on the show, and
Tucker was nice enough to reach out. So Luke, appreciate
you joining us today.
Speaker 5 (10:31):
Always my pleasure, man, Luke.
Speaker 2 (10:32):
What is this huge vibe difference that you're describing in
this piece?
Speaker 5 (10:37):
Yeah, I think to encapsulate it, you can turn first
to the markets and you can say AI's been negative
for the stock market this year. If you look at
pretty much every day, there is a rolling series of
industries that are seemingly at risk of being disrupted by AI.
And it doesn't matter, like I think people talking about,
you know, the idea that you're not going to vibe
(10:58):
code your way to this kind of new great salesforce
or big app like that doesn't matter. What matters is
might you in ten fifteen years And if that's the case,
then that's something you have to worry about now. So
it's been kind of negative for a rolling series of industries,
from you know, software to add tech, to gaming, insurance
(11:19):
even recently brokerages. So that's that's the kind of the
the easy part, the market's part. The other part is.
Speaker 6 (11:26):
Something that you know, I'm happy I got to write
about it before this viral post on Twitter from from
Matt Schuber that was effectively entitled something big is happening,
And I think that post kind of encapsulates what I
was trying to get at pretty well, and it's that
everyone in the tech.
Speaker 5 (11:41):
Space who is very high touch with AI tools is
going that, like, hey, with with some of the recent
progress by Claude and from some of the newer chat
GPT iterants, some of the new tools developed that like,
this is this is the real shift. They're arguing in
terms of the way they are working day to day
has fundamentally changed, and they're saying that, hey, we're on
(12:03):
the bleeding edge of it. We're seeing it first, it's
coming for you, and it's going to be pervasive. So
there is this gap between the market going okay, like
a guy's kind of zero perhaps negative sum, and the
tech guys going this is so fundamentally transformative. And there
are ways to kind of explain away the gap, but
you know, it's a big one. I think it Warrant's
kind of monitoring right now.
Speaker 2 (12:24):
Yeah, I've I've spent the last couple of weeks now
kind of digging in more on this and kind of
seeing like some of the actual functionality. And I've gotten
to the point now where you know, I've kind of
had my my Ahama moment or like my oh crap moment,
like depending on how you want to look at it.
And you know, you mentioned look like no one's gonna
like vibe code themselves like the next salesforce, like just
(12:46):
for their personal use. But here's the middle ground that
that I think is interesting to explore. All these tech
companies have been laying people off left and right over
the last couple of years. What's to stop three engineers
from one of them from saying, hey, we can vibe
code the next one and start a company and sell
our product at a fraction of the cost of the
legacy ones on the market and eat into market share.
(13:09):
And that impacts those companies as well.
Speaker 5 (13:13):
Yeah, I think the kind of the middle ground, or
the part that you know software companies are doing, they're
obviously incorporating AI agents themselves. I think what you're getting
at is how can you effectively disintermediate at a much
leaner scale and The kind of the moat that a
lot of established software companies have is the legacy data
(13:34):
and the fact that it's been there. It's all been there.
So the kind of the workaround or the kind of
justifying your existence would be, hey, you know, in the
same way that you rent for a seat or you
pay for a seat in terms of software, well, you're
going to be paying for access and performance.
Speaker 2 (13:50):
To that data and that set.
Speaker 5 (13:51):
So that's a way of trying to like extract a rent,
so to speak, from the the legacy data set, even
as kind of AI agents, whether that's from kind of
other existing companies or from new entrants, try to irb
that away. I think then the difficulty is, well, you know,
how big of a rent can you get before you
(14:12):
just decide, okay, it's worth reinventing the whole kit and kaboodle.
Like Jensen Wong said that, you know, nobody's going to that.
AI agents are just going to use tools that are there.
They're not going to reinvent hammers and chain saws. The
chain saws one got me really worried. But you know,
I think at a certain point, if the margins are
big enough, high margins are a big kick me sign
(14:33):
that says compete and go in there and take it.
Speaker 2 (14:36):
And this is the whole thing, which is software has
had this wide moat for a while in these areas
because it's you needed, you know, hundreds or thousands of
engineers in order to build the stuff, and then you
need to sell it and hopefully get to profitability when
you get to scale. But once you get there, you've
got these fat margins that you just sit on because
it's so hard for new entrants to come in. If
(14:58):
those we're talking about the potential commoditization of that software space,
are we not?
Speaker 5 (15:04):
I would say, you know, completely and utterly, and you
know that's something. Hey, I write a lot about things
that go up and down on charts. I am not
immune from this commoditization.
Speaker 2 (15:14):
And I think all of us are going to get hit.
Speaker 5 (15:17):
Yeah, yeah, all of us in different ways.
Speaker 2 (15:20):
I think it's Ah.
Speaker 5 (15:21):
Some things I'm trying to keep in mind and remembering
is hey, like the worst ais that will ever be
used commercially are being used now, They're probably going to
get better. And what do I have to offer that
is kind of independent of things that are easily commoditizable
that's not something I have an easy answer to on
the day by day, to be quite honest, and I
(15:42):
think that's kind of reflected in what we see broadly
in markets, is there's margins that are getting intact. Nobody
knows whether this is going to be open AI and
tropics kind of net profits over time, or whether this
is something that really, I would say, as the Internet
establishes itself, is more of a broader consumer surplus over time.
(16:02):
So that's a big tvd's.
Speaker 2 (16:06):
It's gonna be wild. And I'm now on the trend
that this is going to happen faster than any of
us expected the last month or so. It has really
changed my thinking and looking at this. Luke, I appreciate
you joining us. I appreciate you writing this piece because
it was one of the ones that got me thinking
really and looking forward to talking again soon.
Speaker 5 (16:24):
I appreciate the bemeback Man. Thanks a lot.
Speaker 2 (16:26):
That is Luke Kawa from Sherwood News talking about what
we are seeing in artificial intelligence at the moments.
Speaker 7 (16:34):
All right, Sam for trivia here on the Financial Exchange
and TV movie star Jennifer Anderson turned fifty seven years
old today. Before her famous role as Rachel Green in
the popular sitcom Friends, Jennifer was actually offered a role
on another NBC show before choosing Friends back in nineteen
ninety four. So our trivia question today, what show did
(16:55):
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Once again, what show did Jennifer Anderson turned down before
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(17:17):
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Speaker 2 (17:33):
Mark Continuing the AI chatter here a couple pieces one
from uh well both from Bloomberg uh talking about you know,
basically anything that Wall Street views that could be in
AI's crosshairs is basically stocks are just getting arbitrarrily dumped.
Yesterday as an example, uh, you had a case where
a bunch of finance companies Charles Schwab lpl Finance a
(17:56):
bunch of the big you know, custodians in the finance
space getting hit because all Truest Corporation rolled out an
AI based tax strategies tool that they said could automate
a lot of that process. And so pretty much what
you're seeing right now. And again, I don't know how
much of this is right or wrong, but it sell first.
Ask questions later. When businesses are viewed to be under
(18:20):
threat by artificial intelligence.
Speaker 3 (18:23):
Yeah, I think one way to think about it, if
you're concerned about your own role, and to your and
Luke's point, I guess we all should be to a degree,
is if you wrote down what you did, could somebody
just following those instructions execute successfully and perform your job?
Speaker 2 (18:38):
I e.
Speaker 3 (18:39):
Does it require any judgment and any experience at all?
If the answer is no, you're probably vulnerable in this
short term. Would you agree with that, Chuck?
Speaker 2 (18:47):
Yes. And the other differentiating factor is does it require
anything anything in the physical world or anything relationship based
at this point? Yes, If it requires those things you
have more.
Speaker 4 (18:59):
Time, Yeah, it's yeah.
Speaker 2 (19:00):
If it doesn't, there's a there's a rapidly ticking clock,
you know, And I don't know whether that is six
months or eighteen months, but it's not a decade. It's
like this is now coming faster than we thought. As
Luke said, look, let me take a quick break here.
When we come back, I want to dig in more
(19:21):
on one thing that he said. We've also got the
trivia answer in Wall Street Watch.
Speaker 1 (19:24):
Too, bringing the latest financial news straight to your radio
every day. It's the Financial Exchange on the Financial Exchange
Radio Network. Time now for Wall Street Watch a complete
look at what's moving market so far today right here
(19:45):
on the Financial Exchange Radio Network.
Speaker 7 (19:47):
Some job be trading on Wall Street to this point
as investors react to US stronger than expected January job support,
where one hundred and thirty thousand jobs were added last month,
above expectations of sixty five. The unemployment rate also ticked
lower to four point three percent. Right now, the Dow
is only off by forty six points, SMP five hundred
(20:09):
edging two points higher, Nasdaq down about a third of
a percent, Rusted two thousand selling off one percent, ten
year treasure reeled is up one basis point at four
point one six two percent, and crude oil up nearly
two percent higher now trading just above sixty five dollars
a barrel. Kraft Heines announced this morning it is pausing
work on a previously announced plan to split the company,
(20:31):
stating that many of the company's issues are fixable and
within its control. Craft heinds shares are edging higher. Meanwhile,
shares and Warner Brothers Discovery are modestly higher. After The
Wall Street Journal reported activists Investor and Korra built a
near two hundred million dollar stake in Warner and plans
to oppose its deal with Netflix, saying Warnerfield to adequately
(20:53):
engage with Paramount's rival offer. Netflix, by the way, is
down by over two percent. Elsewhere, Adernas stock is down
eight percent following news that the FDA refused to review
the drug maker's application to sell a new seasonal flu vaccine.
Lift stock is dropping nearly fifteen percent after its fourth
quarter ridership numbers disappointed. However, it's CEO said consumer demand
(21:17):
remained strong, and shares and toy manufacturer Mattel are plunging
twenty four percent after miss earnings and revenue expectation. City
Group in JP Morgan Chase also both downgraded the stock.
I'm Tucker Silva and That is Wall Street Watching. On
the previous segment, we asked you the trivia question what
show did Jennifer Anderson turn down before accepting her role
(21:41):
on Friends? It would be Saturday Night Live. Jason from Kingston,
New Hampshire is our winner today, taking home a Financial
Exchange Show t shirt. Congrats to Jason. We play trivia
every day here on the Financial Exchange. See complete contest
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Speaker 2 (21:59):
Federal Reserve Bank of New York out with their latest
quarterly report on Americans and their household finances. What they
show is that credit card debt has now topped one
point two eight trillion dollars. It's a five point five
percent jump from the prior year. Remember, inflation is running
(22:19):
about three percent, so it's about a two and a
half percent jump in real terms. That's the one that matters,
and matters also, Hey, how much of this is being
rolled over each month and not paid versus how much
is being paid off? Because ultimately, if you have that
credit card balance but you pay it off every month,
it's not really a problem in any way, shape or form,
(22:40):
at least not in your you know, current state. So
I always, you know, we get these and you know,
it's always good to you know, poo poo them and
be like, oh, like, you know, here are the things
that you need to look at. Is there anything that's
actually concerning when you look at the data from this
most recent quarterly report?
Speaker 4 (23:01):
Hard to say. I don't know, Like I don't know
where to put it.
Speaker 3 (23:03):
You know, if you're a researcher, maybe this is an
input into a model of yours that forecasts spending. Maybe
this is an input into a model that forecasts growth.
Maybe both those two things are related. I don't use it,
so I don't want to say something, you know, really stupid.
Only someone who used the data and knew what it
(23:24):
was a useful input to would would pick up on it.
But it hard to say, like it doesn't feel good. Well, geez,
debt grew in real terms. That can't be good. No,
I guess not unless people are one economic explanation as well,
people expect future earnings growth to be higher. We keep
hearing about a productivity miracle of AI that may eventually
make its way into wages.
Speaker 4 (23:45):
It look there, that's two ifs.
Speaker 3 (23:46):
So first it happens, then workers workers benefit, and maybe
people are spending on it. This is so weak, but
I'll throw it out there. Maybe they're spending an inticipation
about that. I don't think anybody would take that seriously though.
Speaker 2 (24:00):
The place that I tend to come back to is
the household debt service ratio. Basically, what percentage of your
disposable income do debt payments makeup? Right now Q four
it's about eleven point six percent. That's the most recent
data that is released here in Q four seven. Right
before everything fell apart in the financial crisis, it was
(24:23):
fifteen point eight And for most of the last forty
five years we have the data set I'm looking at
here goes back to nineteen eighty it was generally between
twelve and fourteen percent. That's kind of where it tended
to live. So fifteen point eight percent right before the
financial crisis was yeah, significantly high compared to where it
had previously been. Eleven point six percent. You're basically at
(24:46):
the same place that you were at for most of
the twenty eleven through twenty nineteen period. I'm just not
convinced that Americans are borrowing too much in the aggregate. Again,
I'm not saying that there aren't problems, but when you
look at the fact that unfortunately, most of the spending
(25:07):
is now done by that top five to ten percent
of Americans, And so as long as they can continue
to service their debt, the struggles of you know, the
bottom fifty to sixty percent, they don't necessarily impact the
US economy in the same way that they may have previously.
And like it's it's not good, Like this is not
good from a societal perspective, that such a large portion
(25:31):
of Americans are really struggling to pay the bills. And
somehow it still doesn't like influence the economy enough. But
it's kind of where we are right now.
Speaker 4 (25:42):
Any thoughts, Mark, No, I think you make a good point.
Speaker 3 (25:46):
I wonder about a debt service relative to interest rates.
Debt service includes mortgages, right and longer term? Yes, okay,
so you've got some of that was refined. Some of
that represents mortgagees taken out at rates that were artificially logos.
The FED was effectively capping them for a while. I
(26:09):
don't know what, Chuck, I don't know.
Speaker 2 (26:11):
So, yeah, it's what we'll see where this goes. Folks.
We are talking about the overall you know, health of
the US economy and health of personal finances here and
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(27:18):
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Speaker 1 (27:19):
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Speaker 2 (27:35):
Last segment, we were also chatting with Luke Kawa, and
you know, I said I had one more thought that
I wanted to give as it relates to AI, and
it's something that he said, but I want to dig
in on it a little bit more, and that's Look,
the AI models that you see today that are being used,
they are the worst ones that will exist going forward.
(27:56):
And plenty of us, myself included, we've been critical of,
you know, Google telling you to, you know, go eat
rocks ten years or two years ago. We've been critical of,
you know, all of the dumb stuff that some of
these consumer facing versions of AI have produced. But ultimately,
if you're looking at what the cutting edge models can
(28:17):
do now, and remember just how quickly this has evolved
in that two years from now, these are going to
look even more different from what they are today. If
you're trying to judge AI by the mistakes that were
made early on, that's like trying to decide whether you're
gonna get on a plane today based on what the
Wright brothers did, and I would not have hopped on
(28:37):
that plane, you know, in Kitty Hawk, North Carolina. But yeah,
you better believe that I'm gonna you know, hop on
a seven thirty seven and fly to wherever because you know, again,
basically air travel at this point is the safest way
to get from you know, from one place to another.
So I do think that, you know, for those who
are AI skeptical and I'm in this category, but what
(28:59):
I've seen in the last month, I do think has
changed how I think about it, I urge you not
to get stuck on well, I saw this you know
article that it told people to do blah blah blah.
I get that. And I'm also not trying to just
like push away the concerns about, hey, you know, you've
got you know, AI programs that are you know, trying
(29:21):
to get into you know, allowing erotica for their users,
and oh like you can generate these images and these
videos like no, like that's the dumb consumer facing stuff
that that is you know, not good and and and
look like there's there's a lot of crap that goes
along with it. But don't let that crap cause you
to miss what I do think now is going to
(29:43):
be a fundamental change in the way that a ton
of knowledge work to begin with, and potentially even physical
work ends up evolving what it evolves into in the
next several years and over the next decade. It's it's
I know there's a lot of crap there, and and
trust me, like when it continues to come up, we
will call out the crap, but understand that when it
(30:05):
comes to people trying to actually do real work using this,
some of the things that have come about in the
last month or two are absolutely transformational. And it's okay
to still be skeptical. But skeptical doesn't mean that you
just bury your head in the sand and say that
there's nothing actually happening here. Just take a quick break.
When we come back, let's do a little bit of
stack roulette.
Speaker 1 (30:24):
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Speaker 2 (31:15):
Mark, what do you have for me for stack roulette?
Speaker 1 (31:17):
He?
Speaker 3 (31:17):
Can I go back to AI for just I have
a riveting stack roulette item.
Speaker 4 (31:21):
It's it's so mind blowing.
Speaker 3 (31:22):
I'm debating whether or not to share it. But can
I go back to AI for a second. It's I
know it's it's one of your favorite subjects, right, and
you're you're unusually knowledgeable, So can I hit you with something.
Speaker 2 (31:32):
I'm knowledgeable enough to be dangerous?
Speaker 3 (31:34):
Well, that's that's what I'm not even knowledgeable enough to
be dangerous, which.
Speaker 2 (31:37):
Mark, You're always dangerous?
Speaker 3 (31:39):
Yeah, I don't need as The baseline for me is
is heightened heightened. Everybody should be on heightened alert.
Speaker 2 (31:45):
So is it to me?
Speaker 3 (31:47):
One of the paradox is potential paradoxes of AI is
it's going to be life changing like the Internet was.
I mean, life is different than it was in nineteen
ninety than it is today just because the Internet and
it's fusion with the smartphone. But the trend in growth
didn't change. In fact, it's slowed down for reasons other
I assume than that we're all online a lot, maybe
wasting time. Maybe that's not a coincidence. Now that I
(32:08):
think about it, Is it possible AI is transformative? It
changes the way we all work, It makes some professions
obsolete and introduces ones we couldn't even imagine, but doesn't
actually change the long term trend in growth.
Speaker 2 (32:24):
Would say that again, So I don't.
Speaker 3 (32:26):
Okay, here's I could see AI being. I'll just use
the word transformative, even though it's cliche. It changes everybody's life,
just like the Internet has. But it doesn't necessarily mean
we're going to be any richer now. And I know
this sounds ridiculous, then say any richer in twenty five
or fifty years than we would have been had it
not been introduced. Other things would have come along. They
(32:46):
would have been sources of growth, not as dramatic, but
the economies, the growth is driven by bigger forces, is
what I think i've is what I think I believe
about this, because things like the Internet and before that,
electricity didn't change the trend in growth, and I'm not
sure AI will either.
Speaker 4 (33:07):
As much as that sounds like a contradiction.
Speaker 2 (33:10):
What's your what's your mind blowing thing for stack roulettes
or that?
Speaker 3 (33:13):
Okay, that apparently didn't impress you.
Speaker 4 (33:15):
Okay, that was it?
Speaker 3 (33:17):
No, no, no, see this is well if that didn't,
if that didn't do anything that you know, a Providence
College of B minus, which which is where I went
for undergrad that's that's that's quite weak.
Speaker 4 (33:33):
Okay.
Speaker 3 (33:34):
Uh CBO released its budget projections today. That's the Congressional
Budget Office, the non part.
Speaker 2 (33:38):
Okay.
Speaker 3 (33:39):
And I don't know, Tuck, if we have a sound
effect for something for a man getting skinned alive or
like a devastating world killing explosion, but not not good
relative to the size of the economy. And this is
all this, you can get bogged down in numbers, really fast.
I think the upshot here for those of us that
don't like dealing with like scientific notation when it comes
(34:01):
to expressing big numbers and when percentages getting compounded becomes bewildering,
is that budget deficits are expected deficits, the cumulative effect
of which is the debt expected to continue to grow.
There will be no interruption because of demographics. The debt
is a percentage of the US economy is expected to
continue to grow. It's currently at about one hundred percent
(34:23):
of so called GDP. It's going to be at least
twenty percent more than that in several years from now,
and it will continue to grow at five per six
to six of GDP a year. The question is, Chuck,
when do things break?
Speaker 2 (34:37):
When do they break?
Speaker 4 (34:39):
Nobody knows?
Speaker 3 (34:39):
The right answer is that nobody knows the right answer.
It's it's it's well, I could say one thing. I
guess we're closer to that point than we were five
or ten years ago. But maybe those goalposts move.
Speaker 1 (34:50):
I don't know.
Speaker 2 (34:51):
It's because it's not physics. You know, there's not a
level that you get up to where you say, okay,
this is broken. Like it's It varies based on on
the specific situation, the country, the issue were you know,
there's a wide range that you can get into here.
Ultimately it does get more and more uncomfortable. And part
of it is also look the CBO projections, they never
(35:15):
project any kind of recession happening. Ever, they just because.
Speaker 4 (35:20):
Because they're not predictable.
Speaker 2 (35:21):
They're not economists who predict recession, and so it's just okay,
here's the baseline, steady state. The fascinating thing is that
we're basically running recession level deficits in the absence of
a recession, and so when one eventually comes, whether it's
in a year, whether it's in five years, ten, like,
no one knows when it's going to be. The economists
have successfully predicted fifty five of the last one recessions.
(35:44):
But ultimately, when that recession does come, if you're running
six percent deficits annually before that, where do you end
up after that? We probably like eight to twelve percent.
Speaker 3 (35:55):
We saw that in twenty twenty there was a big
structural deficit.
Speaker 4 (35:59):
Total lefis less.
Speaker 3 (36:00):
What's what's being paid an interest to people going into COVID.
Trump was running the economy hot and it was enjoyable.
Speaker 4 (36:07):
Stocks were growing up.
Speaker 3 (36:08):
Growth was solid, but we went into it with a
big deficit relative to GDP, and as you point out,
emergencies happen and then things just explode. And by the way,
when we say break, like at some point this is
gonna break, what does that mean? It means higher inflation,
higher interest rates. It doesn't necessarily mean the end of
like civilization, no, just just leaner times.
Speaker 2 (36:27):
For a while. Yeah, there's you always get the people
that are like, oh, like, you know, something's gonna happen.
It's like, well, what do you think is gonna happen?
They're like, I don't know. Well, yeah, it generally means,
as Mark said, it's it's higher inflation and or higher
interest rates. So cost go up and it's really uncomfortable
in growth slows and that's that's not good for anyone. Uh,
but you know, we'll kind of have to see how
(36:48):
it unfolds. Take a look at markets right now. You've
got kind of a mixed set up here. The Dow
is up one tenth of a percent, so is the
S and P, and a's that composite though down about
a third of a percent. So again kind of that
AI trade dragging on markets. Right now, and even with
the good jobs report, at least through the morning, not
able to kind of get any escape velocity. Inequities still
(37:11):
somewhat range bound as they've been in recent weeks. Earlier
today you had a little bit of a self going
on in bonds. That's abated. The tenure treasury is up
one basis point now, that's not really anything to write
home about, so there's not much movement on that front either.
We're gonna take a break for the next twenty four hours,
(37:32):
but since tomorrow is a weekday, we're gonna be back
and doing another show, and you can tune into us
then if you liked what you heard today,
The Financial Exchange is produced by Money Matters Radio and
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(01:06):
and Mark Vandetti.
Speaker 2 (01:10):
Chuck, Mark and Tucker with you here and kicking things
off today. We had a jobs report that came out
at UH It was a thirty this morning Eastern Time,
and jobs report much better than anticipated, one hundred and
thirty thousand jobs created for the month versus expectations of
forty to seventy k. Unemployment rate dropped from four point
(01:32):
four to four point three percent. You go through again
kind of all the the big data data pieces in
here and hard to find bad ones. The household data showed,
you know, an even greater number of jobs added, five
hundred and twenty eight thousand. Remember the household and establishment
survey don't often add up, they're not always the same.
(01:53):
Labor force participation rate improved from sixty two point four
to sixty two point five percent, so you know, that
makes the unemployment rate drop even more impressive. Other things
that you saw aggregate payroll growth now running back up
around four point eight percent year over year to dropping
to three point seven percent last month with the new
(02:14):
updated numbers. So overall, good jobs report, but one that
quite honestly, with some of the wage growth that you're
seeing underlying it, if you were to see a few
more of these, you know, come through in the next
couple months, it really does then tilt the balance of
risks in the you know, remaining two thirds of the
year to Hey, inflation could move higher if you start
(02:35):
seeing weekly wage growth numbers coming in consistently at point
seven percent month over month. That is not just hot,
that is like very very, very very hot, and would
represent a material shift that could become problematic. This is
one month. Let's not overreact to it. Let's see how
things go. So overall, I think this is a very
(02:57):
solid jobs report that if you see more of them,
you're not getting any more rate cuts and you might
start getting rate hikes.
Speaker 3 (03:04):
Yeah, I think that's where a reasonable analyst should land
on this. We had a couple very strong quarters of
GDP growth, the second and third, if I'm remembering correctly,
in twenty twenty five, we probably finished the year very strong.
There were some weaknesses in some high level employment data.
You pointed it out earlier in the show, But as
(03:26):
it turns out, those may have been Now that's a
tricky phrase to use because we don't how it's going
to turn out, but if this persists, those were a blip.
The economy is unquestionably running hotter than its potential, said differently, Well, actually,
I don't know that I would say that any differently.
Economy's running too hot, whether you look at GDP. Arguably,
(03:49):
if you look at unemployment too unemployment in the low
fours is probably unnaturally low. That's probably below the threshold
at which inflation starts to rise. Said differently, the Fed
is over stimulus the economy. It's growing demand too fast
relative to the growth in supply in the productive capacity
the economy.
Speaker 2 (04:08):
So ultimately, I think this is the thing that we're
going to watch the next couple months. Is this turn
that's happening in the labor market going to continue or
is this, you know, a one month blipping the data
for whatever reason. I don't know. We'll see what we get.
But how does this potentially impact the balance of risks
on you know, that inflation versus unemployment question that the
(04:31):
Fed has over the rest of the year. It's a
big one, especially with a new FET chair that's that's
going to be AMA coming.
Speaker 3 (04:36):
How much of an unemployment a low unemployment fanatic and
that sounds cool because anybody out of a job creates
an unemployment crisis in their world. But it's unreasonable to
want to push the economy below the mid to low fours.
And I'm just basing that on recent experience of what
seems to be sustainable late twenty tens and going a
(04:57):
little farther back late nineteen nineties, though there were a
things going on. Then what kind of fanatic forgive me,
but wants to push unemployment below four percent when inflation
is elevated. That's clearly, that's I say, clearly, because inflation
goes it was very high when unemployment was below four percent.
That's that's why I amplify that with clearly, that's clearly
(05:18):
not sustainable, and people were very upset with elevated inflation.
Speaker 2 (05:22):
So I was I was gonna talk about something else
to kick this hour off, but we're sitting in on this. No no, no, no, no, no, no,
no apologies here on the financial exchange. Okay, Let's let's
dig in a little bit more on this in a
couple of respects. The first is, there's two things that
I want to talk about on this. The first is,
(05:44):
hasn't the messaging from the Trump administration in the last
six months or so been we're going to run the
economy hot.
Speaker 4 (05:50):
Yes, it has sound familiar, Joe Bien.
Speaker 2 (05:53):
And so ultimately, if they're trying to which, by the way,
all of the policy making indication that that's where they're going.
When you talk about, you know, the big beautiful bill
and the additional stimulus that that's going to kick into
the economy this year, it makes sense from that perspective.
So they're telling you that they want to run the
economy hot. There are signs that the labor market may
(06:15):
be turning and starting to hotten up. If we will,
and I will, and so I am a big believer
in Hey, you know, when someone's telling you what they
want to do and they're actually doing it, like, okay,
you should probably believe them. The other piece that I
think has the potential to make this hotter from an
inflation perspective, if this turn in the labor market is real,
(06:39):
if labor demand turns up in a world where labor
supply is flat to contracting, you've got big problems on
the inflation side of things.
Speaker 3 (06:47):
Well, yeah, and generalize that if demand they just think
of overall economic demand and think the FED is controlling it.
The problem in twenty twenty one. The problem in the
seventies too. In addition to the price spikes in seventy three,
seventy four and again in seventy nine that exacerbated inflation,
the Fed thought the economy could grow faster than it
(07:07):
was growing, and therefore they could keep interest rates lower
than they would otherwise. They misread the structure of the economy.
It's like overfeeding your dog or cat. You don't understand
their activity levels properly. You're pushing their calorie intake beyond
what's necessary to keep their weight stable. It's sort of
that's not my best analogy, but a pet owner kind
(07:29):
of gets that. You got to you got to find
the right diet, the find the right dose at your food,
dose at your food whatever, relative to your pet's activity.
If it's trying to do the same thing, it's how
much do we feed this this big dog the economy, Well,
if I don't want it to gain weight, I don't
want it to lose weight either, where weight is analogously
inflation here, and that's always changing.
Speaker 2 (07:50):
So it's yeah, I'm very much you know of the opinion. Look,
you already had this demographic tsunami that was coming with
baby boomers retiring, and there aren't enough twenty two year
olds to replace all of the sixty two and seventy
two year olds that are retiring. It's a math problem,
and it's not a complicated one. It's it's simple subtraction.
(08:11):
If X is greater than why then you have more
people leaving the economy than coming in. And that's that's
where we start. But then when you throw in the
immigration piece as well, it's one where hey, now your
potential you know, relief valve for labor supply is you know,
being closed, and this has the potential if labor demand
(08:31):
ticks up in any meaningful fashion, you've got an inflation problem.
Because if I am a restaurant and Mark, if there's
anything that Italians know about, it's restaurants. You know, it's
like every one of us has at least like six
cousins and uncles who are you know, in some form
of the restaurant food chain pun intended And so ultimately
(08:57):
you're running a restaurant, your margins, as they are if
you're successful, are like four percent. They're not good. And
now your labor cost goes up because you know, Johnny
got a new job working down the street and so
you got to bring someone in who's new, but you
got to pay them more. And so you're sitting there,
You're like, Okay, this just ate all of my profits.
I gotta raise prices. This is how inflation happens. People
(09:20):
are like, oh, what is inflation. Ultimately, it's companies deciding
to raise prices and when enough of them do it,
and enough of that is supported by the demand side
for people to pay for those price increases, that's why
inflation happens. And so this is the dangerous thing that
we have to watch for and see how it develops.
Let's take a quick break. When we come back or
(09:41):
joined by Luke Kwa from Sherwood News, we're talking about
why the tech world and the finance world have very
different opinions on artificial intelligence.
Speaker 1 (09:50):
Right after this, if you missed any of today's show,
catch up whenever you want on our YouTube page. Find
daily show segments and full shows. Just go to YouTube
dot com and search for the Financial Exchange. This is
your home for breaking business and financial news. This is
the Financial Exchange Radio Network.
Speaker 2 (10:12):
As promised, we are now joined by Luke Kawa from
Sherwood News. Luke wrote a piece last week. It's titled
why There's a huge vibe difference between tech and finance
on AI. I immediately sent to Tucker and said, Tuck,
you got to get Luke back on the show, and
Tucker was nice enough to reach out. So Luke, appreciate
you joining us today.
Speaker 5 (10:31):
Always my pleasure, man, Luke.
Speaker 2 (10:32):
What is this huge vibe difference that you're describing in
this piece?
Speaker 5 (10:37):
Yeah, I think to encapsulate it, you can turn first
to the markets and you can say AI's been negative
for the stock market this year. If you look at
pretty much every day, there is a rolling series of
industries that are seemingly at risk of being disrupted by AI.
And it doesn't matter, like I think people talking about,
you know, the idea that you're not going to vibe
(10:58):
code your way to this kind of new great salesforce
or big app like that doesn't matter. What matters is
might you in ten fifteen years And if that's the case,
then that's something you have to worry about now. So
it's been kind of negative for a rolling series of industries,
from you know, software to add tech, to gaming, insurance
(11:19):
even recently brokerages. So that's that's the kind of the
the easy part, the market's part. The other part is.
Speaker 6 (11:26):
Something that you know, I'm happy I got to write
about it before this viral post on Twitter from from
Matt Schuber that was effectively entitled something big is happening,
And I think that post kind of encapsulates what I
was trying to get at pretty well, and it's that
everyone in the tech.
Speaker 5 (11:41):
Space who is very high touch with AI tools is
going that, like, hey, with with some of the recent
progress by Claude and from some of the newer chat
GPT iterants, some of the new tools developed that like,
this is this is the real shift. They're arguing in
terms of the way they are working day to day
has fundamentally changed, and they're saying that, hey, we're on
(12:03):
the bleeding edge of it. We're seeing it first, it's
coming for you, and it's going to be pervasive. So
there is this gap between the market going okay, like
a guy's kind of zero perhaps negative sum, and the
tech guys going this is so fundamentally transformative. And there
are ways to kind of explain away the gap, but
you know, it's a big one. I think it Warrant's
kind of monitoring right now.
Speaker 2 (12:24):
Yeah, I've I've spent the last couple of weeks now
kind of digging in more on this and kind of
seeing like some of the actual functionality. And I've gotten
to the point now where you know, I've kind of
had my my Ahama moment or like my oh crap moment,
like depending on how you want to look at it.
And you know, you mentioned look like no one's gonna
like vibe code themselves like the next salesforce, like just
(12:46):
for their personal use. But here's the middle ground that
that I think is interesting to explore. All these tech
companies have been laying people off left and right over
the last couple of years. What's to stop three engineers
from one of them from saying, hey, we can vibe
code the next one and start a company and sell
our product at a fraction of the cost of the
legacy ones on the market and eat into market share.
(13:09):
And that impacts those companies as well.
Speaker 5 (13:13):
Yeah, I think the kind of the middle ground, or
the part that you know software companies are doing, they're
obviously incorporating AI agents themselves. I think what you're getting
at is how can you effectively disintermediate at a much
leaner scale and The kind of the moat that a
lot of established software companies have is the legacy data
(13:34):
and the fact that it's been there. It's all been there.
So the kind of the workaround or the kind of
justifying your existence would be, hey, you know, in the
same way that you rent for a seat or you
pay for a seat in terms of software, well, you're
going to be paying for access and performance.
Speaker 2 (13:50):
To that data and that set.
Speaker 5 (13:51):
So that's a way of trying to like extract a rent,
so to speak, from the the legacy data set, even
as kind of AI agents, whether that's from kind of
other existing companies or from new entrants, try to irb
that away. I think then the difficulty is, well, you know,
how big of a rent can you get before you
(14:12):
just decide, okay, it's worth reinventing the whole kit and kaboodle.
Like Jensen Wong said that, you know, nobody's going to that.
AI agents are just going to use tools that are there.
They're not going to reinvent hammers and chain saws. The
chain saws one got me really worried. But you know,
I think at a certain point, if the margins are
big enough, high margins are a big kick me sign
(14:33):
that says compete and go in there and take it.
Speaker 2 (14:36):
And this is the whole thing, which is software has
had this wide moat for a while in these areas
because it's you needed, you know, hundreds or thousands of
engineers in order to build the stuff, and then you
need to sell it and hopefully get to profitability when
you get to scale. But once you get there, you've
got these fat margins that you just sit on because
it's so hard for new entrants to come in. If
(14:58):
those we're talking about the potential commoditization of that software space,
are we not?
Speaker 5 (15:04):
I would say, you know, completely and utterly, and you
know that's something. Hey, I write a lot about things
that go up and down on charts. I am not
immune from this commoditization.
Speaker 2 (15:14):
And I think all of us are going to get hit.
Speaker 5 (15:17):
Yeah, yeah, all of us in different ways.
Speaker 2 (15:20):
I think it's Ah.
Speaker 5 (15:21):
Some things I'm trying to keep in mind and remembering
is hey, like the worst ais that will ever be
used commercially are being used now, They're probably going to
get better. And what do I have to offer that
is kind of independent of things that are easily commoditizable
that's not something I have an easy answer to on
the day by day, to be quite honest, and I
(15:42):
think that's kind of reflected in what we see broadly
in markets, is there's margins that are getting intact. Nobody
knows whether this is going to be open AI and
tropics kind of net profits over time, or whether this
is something that really, I would say, as the Internet
establishes itself, is more of a broader consumer surplus over time.
(16:02):
So that's a big tvd's.
Speaker 2 (16:06):
It's gonna be wild. And I'm now on the trend
that this is going to happen faster than any of
us expected the last month or so. It has really
changed my thinking and looking at this. Luke, I appreciate
you joining us. I appreciate you writing this piece because
it was one of the ones that got me thinking
really and looking forward to talking again soon.
Speaker 5 (16:24):
I appreciate the bemeback Man. Thanks a lot.
Speaker 2 (16:26):
That is Luke Kawa from Sherwood News talking about what
we are seeing in artificial intelligence at the moments.
Speaker 7 (16:34):
All right, Sam for trivia here on the Financial Exchange
and TV movie star Jennifer Anderson turned fifty seven years
old today. Before her famous role as Rachel Green in
the popular sitcom Friends, Jennifer was actually offered a role
on another NBC show before choosing Friends back in nineteen
ninety four. So our trivia question today, what show did
(16:55):
Jennifer Anderson turn down before accepting her role on Friends?
Once again, what show did Jennifer Anderson turned down before
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(17:17):
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Speaker 2 (17:33):
Mark Continuing the AI chatter here a couple pieces one
from uh well both from Bloomberg uh talking about you know,
basically anything that Wall Street views that could be in
AI's crosshairs is basically stocks are just getting arbitrarrily dumped.
Yesterday as an example, uh, you had a case where
a bunch of finance companies Charles Schwab lpl Finance a
(17:56):
bunch of the big you know, custodians in the finance
space getting hit because all Truest Corporation rolled out an
AI based tax strategies tool that they said could automate
a lot of that process. And so pretty much what
you're seeing right now. And again, I don't know how
much of this is right or wrong, but it sell first.
Ask questions later. When businesses are viewed to be under
(18:20):
threat by artificial intelligence.
Speaker 3 (18:23):
Yeah, I think one way to think about it, if
you're concerned about your own role, and to your and
Luke's point, I guess we all should be to a degree,
is if you wrote down what you did, could somebody
just following those instructions execute successfully and perform your job?
Speaker 2 (18:38):
I e.
Speaker 3 (18:39):
Does it require any judgment and any experience at all?
If the answer is no, you're probably vulnerable in this
short term. Would you agree with that, Chuck?
Speaker 2 (18:47):
Yes. And the other differentiating factor is does it require
anything anything in the physical world or anything relationship based
at this point? Yes, If it requires those things you
have more.
Speaker 4 (18:59):
Time, Yeah, it's yeah.
Speaker 2 (19:00):
If it doesn't, there's a there's a rapidly ticking clock,
you know, And I don't know whether that is six
months or eighteen months, but it's not a decade. It's
like this is now coming faster than we thought. As
Luke said, look, let me take a quick break here.
When we come back, I want to dig in more
(19:21):
on one thing that he said. We've also got the
trivia answer in Wall Street Watch.
Speaker 1 (19:24):
Too, bringing the latest financial news straight to your radio
every day. It's the Financial Exchange on the Financial Exchange
Radio Network. Time now for Wall Street Watch a complete
look at what's moving market so far today right here
(19:45):
on the Financial Exchange Radio Network.
Speaker 7 (19:47):
Some job be trading on Wall Street to this point
as investors react to US stronger than expected January job support,
where one hundred and thirty thousand jobs were added last month,
above expectations of sixty five. The unemployment rate also ticked
lower to four point three percent. Right now, the Dow
is only off by forty six points, SMP five hundred
(20:09):
edging two points higher, Nasdaq down about a third of
a percent, Rusted two thousand selling off one percent, ten
year treasure reeled is up one basis point at four
point one six two percent, and crude oil up nearly
two percent higher now trading just above sixty five dollars
a barrel. Kraft Heines announced this morning it is pausing
work on a previously announced plan to split the company,
(20:31):
stating that many of the company's issues are fixable and
within its control. Craft heinds shares are edging higher. Meanwhile,
shares and Warner Brothers Discovery are modestly higher. After The
Wall Street Journal reported activists Investor and Korra built a
near two hundred million dollar stake in Warner and plans
to oppose its deal with Netflix, saying Warnerfield to adequately
(20:53):
engage with Paramount's rival offer. Netflix, by the way, is
down by over two percent. Elsewhere, Adernas stock is down
eight percent following news that the FDA refused to review
the drug maker's application to sell a new seasonal flu vaccine.
Lift stock is dropping nearly fifteen percent after its fourth
quarter ridership numbers disappointed. However, it's CEO said consumer demand
(21:17):
remained strong, and shares and toy manufacturer Mattel are plunging
twenty four percent after miss earnings and revenue expectation. City
Group in JP Morgan Chase also both downgraded the stock.
I'm Tucker Silva and That is Wall Street Watching. On
the previous segment, we asked you the trivia question what
show did Jennifer Anderson turn down before accepting her role
(21:41):
on Friends? It would be Saturday Night Live. Jason from Kingston,
New Hampshire is our winner today, taking home a Financial
Exchange Show t shirt. Congrats to Jason. We play trivia
every day here on the Financial Exchange. See complete contest
rules at Financial Exchange Show dot com.
Speaker 2 (21:59):
Federal Reserve Bank of New York out with their latest
quarterly report on Americans and their household finances. What they
show is that credit card debt has now topped one
point two eight trillion dollars. It's a five point five
percent jump from the prior year. Remember, inflation is running
(22:19):
about three percent, so it's about a two and a
half percent jump in real terms. That's the one that matters,
and matters also, Hey, how much of this is being
rolled over each month and not paid versus how much
is being paid off? Because ultimately, if you have that
credit card balance but you pay it off every month,
it's not really a problem in any way, shape or form,
(22:40):
at least not in your you know, current state. So
I always, you know, we get these and you know,
it's always good to you know, poo poo them and
be like, oh, like, you know, here are the things
that you need to look at. Is there anything that's
actually concerning when you look at the data from this
most recent quarterly report?
Speaker 4 (23:01):
Hard to say. I don't know, Like I don't know
where to put it.
Speaker 3 (23:03):
You know, if you're a researcher, maybe this is an
input into a model of yours that forecasts spending. Maybe
this is an input into a model that forecasts growth.
Maybe both those two things are related. I don't use it,
so I don't want to say something, you know, really stupid.
Only someone who used the data and knew what it
(23:24):
was a useful input to would would pick up on it.
But it hard to say, like it doesn't feel good. Well, geez,
debt grew in real terms. That can't be good. No,
I guess not unless people are one economic explanation as well,
people expect future earnings growth to be higher. We keep
hearing about a productivity miracle of AI that may eventually
make its way into wages.
Speaker 4 (23:45):
It look there, that's two ifs.
Speaker 3 (23:46):
So first it happens, then workers workers benefit, and maybe
people are spending on it. This is so weak, but
I'll throw it out there. Maybe they're spending an inticipation
about that. I don't think anybody would take that seriously though.
Speaker 2 (24:00):
The place that I tend to come back to is
the household debt service ratio. Basically, what percentage of your
disposable income do debt payments makeup? Right now Q four
it's about eleven point six percent. That's the most recent
data that is released here in Q four seven. Right
before everything fell apart in the financial crisis, it was
(24:23):
fifteen point eight And for most of the last forty
five years we have the data set I'm looking at
here goes back to nineteen eighty it was generally between
twelve and fourteen percent. That's kind of where it tended
to live. So fifteen point eight percent right before the
financial crisis was yeah, significantly high compared to where it
had previously been. Eleven point six percent. You're basically at
(24:46):
the same place that you were at for most of
the twenty eleven through twenty nineteen period. I'm just not
convinced that Americans are borrowing too much in the aggregate. Again,
I'm not saying that there aren't problems, but when you
look at the fact that unfortunately, most of the spending
(25:07):
is now done by that top five to ten percent
of Americans, And so as long as they can continue
to service their debt, the struggles of you know, the
bottom fifty to sixty percent, they don't necessarily impact the
US economy in the same way that they may have previously.
And like it's it's not good, Like this is not
good from a societal perspective, that such a large portion
(25:31):
of Americans are really struggling to pay the bills. And
somehow it still doesn't like influence the economy enough. But
it's kind of where we are right now.
Speaker 4 (25:42):
Any thoughts, Mark, No, I think you make a good point.
Speaker 3 (25:46):
I wonder about a debt service relative to interest rates.
Debt service includes mortgages, right and longer term? Yes, okay,
so you've got some of that was refined. Some of
that represents mortgagees taken out at rates that were artificially logos.
The FED was effectively capping them for a while. I
(26:09):
don't know what, Chuck, I don't know.
Speaker 2 (26:11):
So, yeah, it's what we'll see where this goes. Folks.
We are talking about the overall you know, health of
the US economy and health of personal finances here and
if you've got questions about heading into retirement in your
personal financial situation, the Armstrong Advisory Group as offices all
throughout the New England region. To help you answer those
(26:34):
questions and figure out what the path forward is for
you financially. You can head over to our website at
Armstrong Advisory dot com. Once you're there, there's a button
that says get started. You can click that and schedule
time to speak with someone from our team. Doesn't cost
you anything to sit down and chat with someone, and
again it can help you to get a better handle
(26:55):
on what it is you're doing financially, even if it's
just getting a second opinion on what it is that
you're already doing. So, whether you have no idea what's
going on financially with your situation, whether you've got a
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over to Armstrong Advisory dot com, click that get started
button and then you can schedule a time to speak
with someone in the near future. Again, that website is
(27:18):
Armstrong Advisory dot com.
Speaker 1 (27:19):
The proceeding was paid for by Armstrong Advisory Group, a
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Armstrong guide a specific financial, legal or tax advice. Consult
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Speaker 2 (27:35):
Last segment, we were also chatting with Luke Kawa, and
you know, I said I had one more thought that
I wanted to give as it relates to AI, and
it's something that he said, but I want to dig
in on it a little bit more, and that's Look,
the AI models that you see today that are being used,
they are the worst ones that will exist going forward.
(27:56):
And plenty of us, myself included, we've been critical of,
you know, Google telling you to, you know, go eat
rocks ten years or two years ago. We've been critical of,
you know, all of the dumb stuff that some of
these consumer facing versions of AI have produced. But ultimately,
if you're looking at what the cutting edge models can
(28:17):
do now, and remember just how quickly this has evolved
in that two years from now, these are going to
look even more different from what they are today. If
you're trying to judge AI by the mistakes that were
made early on, that's like trying to decide whether you're
gonna get on a plane today based on what the
Wright brothers did, and I would not have hopped on
(28:37):
that plane, you know, in Kitty Hawk, North Carolina. But yeah,
you better believe that I'm gonna you know, hop on
a seven thirty seven and fly to wherever because you know, again,
basically air travel at this point is the safest way
to get from you know, from one place to another.
So I do think that, you know, for those who
are AI skeptical and I'm in this category, but what
(28:59):
I've seen in the last month, I do think has
changed how I think about it, I urge you not
to get stuck on well, I saw this you know
article that it told people to do blah blah blah.
I get that. And I'm also not trying to just
like push away the concerns about, hey, you know, you've
got you know, AI programs that are you know, trying
(29:21):
to get into you know, allowing erotica for their users,
and oh like you can generate these images and these
videos like no, like that's the dumb consumer facing stuff
that that is you know, not good and and and
look like there's there's a lot of crap that goes
along with it. But don't let that crap cause you
to miss what I do think now is going to
(29:43):
be a fundamental change in the way that a ton
of knowledge work to begin with, and potentially even physical
work ends up evolving what it evolves into in the
next several years and over the next decade. It's it's
I know there's a lot of crap there, and and
trust me, like when it continues to come up, we
will call out the crap, but understand that when it
(30:05):
comes to people trying to actually do real work using this,
some of the things that have come about in the
last month or two are absolutely transformational. And it's okay
to still be skeptical. But skeptical doesn't mean that you
just bury your head in the sand and say that
there's nothing actually happening here. Just take a quick break.
When we come back, let's do a little bit of
stack roulette.
Speaker 1 (30:24):
Find daily interviews and full shows of the Financial Exchange
on our YouTube page. Like us on YouTube and get
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This is the Financial Exchange Radio Network.
Speaker 7 (30:38):
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Speaker 2 (31:15):
Mark, what do you have for me for stack roulette?
Speaker 1 (31:17):
He?
Speaker 3 (31:17):
Can I go back to AI for just I have
a riveting stack roulette item.
Speaker 4 (31:21):
It's it's so mind blowing.
Speaker 3 (31:22):
I'm debating whether or not to share it. But can
I go back to AI for a second. It's I
know it's it's one of your favorite subjects, right, and
you're you're unusually knowledgeable, So can I hit you with something.
Speaker 2 (31:32):
I'm knowledgeable enough to be dangerous?
Speaker 3 (31:34):
Well, that's that's what I'm not even knowledgeable enough to
be dangerous, which.
Speaker 2 (31:37):
Mark, You're always dangerous?
Speaker 3 (31:39):
Yeah, I don't need as The baseline for me is
is heightened heightened. Everybody should be on heightened alert.
Speaker 2 (31:45):
So is it to me?
Speaker 3 (31:47):
One of the paradox is potential paradoxes of AI is
it's going to be life changing like the Internet was.
I mean, life is different than it was in nineteen
ninety than it is today just because the Internet and
it's fusion with the smartphone. But the trend in growth
didn't change. In fact, it's slowed down for reasons other
I assume than that we're all online a lot, maybe
wasting time. Maybe that's not a coincidence. Now that I
(32:08):
think about it, Is it possible AI is transformative? It
changes the way we all work, It makes some professions
obsolete and introduces ones we couldn't even imagine, but doesn't
actually change the long term trend in growth.
Speaker 2 (32:24):
Would say that again, So I don't.
Speaker 3 (32:26):
Okay, here's I could see AI being. I'll just use
the word transformative, even though it's cliche. It changes everybody's life,
just like the Internet has. But it doesn't necessarily mean
we're going to be any richer now. And I know
this sounds ridiculous, then say any richer in twenty five
or fifty years than we would have been had it
not been introduced. Other things would have come along. They
(32:46):
would have been sources of growth, not as dramatic, but
the economies, the growth is driven by bigger forces, is
what I think i've is what I think I believe
about this, because things like the Internet and before that,
electricity didn't change the trend in growth, and I'm not
sure AI will either.
Speaker 4 (33:07):
As much as that sounds like a contradiction.
Speaker 2 (33:10):
What's your what's your mind blowing thing for stack roulettes
or that?
Speaker 3 (33:13):
Okay, that apparently didn't impress you.
Speaker 4 (33:15):
Okay, that was it?
Speaker 3 (33:17):
No, no, no, see this is well if that didn't,
if that didn't do anything that you know, a Providence
College of B minus, which which is where I went
for undergrad that's that's that's quite weak.
Speaker 4 (33:33):
Okay.
Speaker 3 (33:34):
Uh CBO released its budget projections today. That's the Congressional
Budget Office, the non part.
Speaker 2 (33:38):
Okay.
Speaker 3 (33:39):
And I don't know, Tuck, if we have a sound
effect for something for a man getting skinned alive or
like a devastating world killing explosion, but not not good
relative to the size of the economy. And this is
all this, you can get bogged down in numbers, really fast.
I think the upshot here for those of us that
don't like dealing with like scientific notation when it comes
(34:01):
to expressing big numbers and when percentages getting compounded becomes bewildering,
is that budget deficits are expected deficits, the cumulative effect
of which is the debt expected to continue to grow.
There will be no interruption because of demographics. The debt
is a percentage of the US economy is expected to
continue to grow. It's currently at about one hundred percent
(34:23):
of so called GDP. It's going to be at least
twenty percent more than that in several years from now,
and it will continue to grow at five per six
to six of GDP a year. The question is, Chuck,
when do things break?
Speaker 2 (34:37):
When do they break?
Speaker 4 (34:39):
Nobody knows?
Speaker 3 (34:39):
The right answer is that nobody knows the right answer.
It's it's it's well, I could say one thing. I
guess we're closer to that point than we were five
or ten years ago. But maybe those goalposts move.
Speaker 1 (34:50):
I don't know.
Speaker 2 (34:51):
It's because it's not physics. You know, there's not a
level that you get up to where you say, okay,
this is broken. Like it's It varies based on on
the specific situation, the country, the issue were you know,
there's a wide range that you can get into here.
Ultimately it does get more and more uncomfortable. And part
of it is also look the CBO projections, they never
(35:15):
project any kind of recession happening. Ever, they just because.
Speaker 4 (35:20):
Because they're not predictable.
Speaker 2 (35:21):
They're not economists who predict recession, and so it's just okay,
here's the baseline, steady state. The fascinating thing is that
we're basically running recession level deficits in the absence of
a recession, and so when one eventually comes, whether it's
in a year, whether it's in five years, ten, like,
no one knows when it's going to be. The economists
have successfully predicted fifty five of the last one recessions.
(35:44):
But ultimately, when that recession does come, if you're running
six percent deficits annually before that, where do you end
up after that? We probably like eight to twelve percent.
Speaker 3 (35:55):
We saw that in twenty twenty there was a big
structural deficit.
Speaker 4 (35:59):
Total lefis less.
Speaker 3 (36:00):
What's what's being paid an interest to people going into COVID.
Trump was running the economy hot and it was enjoyable.
Speaker 4 (36:07):
Stocks were growing up.
Speaker 3 (36:08):
Growth was solid, but we went into it with a
big deficit relative to GDP, and as you point out,
emergencies happen and then things just explode. And by the way,
when we say break, like at some point this is
gonna break, what does that mean? It means higher inflation,
higher interest rates. It doesn't necessarily mean the end of
like civilization, no, just just leaner times.
Speaker 2 (36:27):
For a while. Yeah, there's you always get the people
that are like, oh, like, you know, something's gonna happen.
It's like, well, what do you think is gonna happen?
They're like, I don't know. Well, yeah, it generally means,
as Mark said, it's it's higher inflation and or higher
interest rates. So cost go up and it's really uncomfortable
in growth slows and that's that's not good for anyone. Uh,
but you know, we'll kind of have to see how
(36:48):
it unfolds. Take a look at markets right now. You've
got kind of a mixed set up here. The Dow
is up one tenth of a percent, so is the
S and P, and a's that composite though down about
a third of a percent. So again kind of that
AI trade dragging on markets. Right now, and even with
the good jobs report, at least through the morning, not
able to kind of get any escape velocity. Inequities still
(37:11):
somewhat range bound as they've been in recent weeks. Earlier
today you had a little bit of a self going
on in bonds. That's abated. The tenure treasury is up
one basis point now, that's not really anything to write
home about, so there's not much movement on that front either.
We're gonna take a break for the next twenty four hours,
(37:32):
but since tomorrow is a weekday, we're gonna be back
and doing another show, and you can tune into us
then if you liked what you heard today,
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