December 16, 2025 • 39 mins
Mike Armstrong and Marc Fandetti discuss how the Fed is positioned heading into 2026. Ford takes $19.5B hit in Detroit's biggest EV bust. October retail sales fell flat. The eerie parallels between AI and dotcom mania. Zillow has a new challenger for real estate listings, Google.
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Episode Transcript
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Speaker 1 (00:00):
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(00:20):
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(00:43):
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a donation today. Face is the Financial Exchange with Mike
(01:06):
Armstrong and Mark Vandetti.
Speaker 2 (01:16):
Happy Tuesday, Mark, Happy Tuesday, Talker, Happy Tuesday. Everybody listening.
We finally have data again after a long government shutdown.
So I'm in a good mood, even if that data
is not very good. In fact, it is pretty bad
in a few ways. I'm just excited that we have
data again, we have actual government statistics to talk about.
It's Mike, Mark and Tucker with you. I already said
(01:38):
that on a Tuesday. And we've got the jobs report
for the months of October and November to dive through
now that they have been officially released, to recap a
few of the highlights. I think, first and foremost the
most important statistic on here. In September we had an
unemployment rate of four point four percent. For October, we
(02:00):
have no unemployment rate because the survey wasn't done because
of the government shutdown. In November, that rate sat at
four point six percent. It's a pretty big increase. Back
in January of this year, we were sitting at for
even and so we've seen a six tense in my
wrong about that. You're frowning one.
Speaker 3 (02:19):
No, I'm trying to find news. I wasn't even listening
to oh, I saw some flash, so I'm trying to
find it. Talking to my I'm doing a producer's job, Michael,
is the post job.
Speaker 2 (02:31):
Don't try and read your facial expressions and guess what
they mean. I'll sit It is a fun game. So
we've seen an uptick in the unemployment rate. It's been
a steady uptick for the last couple of years. The
same question is on our minds that was on our
minds last year. Is this just a natural reshuffling of
the unemployment rate back to what is a longer term
(02:52):
trend of about five percent, or are we heading for
something worse, because typically when unemployment rate increases, it doesn't
just plateau and right.
Speaker 4 (03:01):
This is the question for the Fed. Are we back
to something more sustainable somewhere between four and five which
would be very healthy historically speaking, sustainable in the sense
that it's not pushing the economy beyond its natural limits.
The Fed seems to think the economy is not growing
as fast as it could, or it thinks that the
(03:23):
rate of interest, consistent with just sort of trend growth,
normal growth, if you will, is lower due to long
term structural factors. We don't really we don't really know.
These are questions The Fed doesn't even have the answer
to this. They have to make their best guess.
Speaker 2 (03:37):
The other part of the statistic we got to, the
number of jobs created in the month of November ticked
up to sixty four thousand after a net loss of
one hundred five thousand jobs in the month of October. However,
you know a caveat on the October data. There were
one hundred and fifty seven thousand government jobs that disappeared
from the report in October. That's largely being blamed on
(04:00):
the buyouts that some federal employees took earlier this spring,
so we knew it was coming. September was the last
pay period, and so therefore they're being counted in that
hiring rate for October. So bad looking data for October,
but not quite as bad as it would have been
absent to the government stuff, So it's not that that
(04:20):
doesn't matter. There are one hundred and fifty seven thousand
fewer government workers who are receiving a paycheck now from
that work, but we knew about it. It was coming
at some point, and it dropped in October. During all
this anything else to highlight on the jobs report, its
implications for policy at the FED or anything else regarding
the state of the economy and the unemployment rate.
Speaker 4 (04:41):
No news, But the challenges is in interpreting what we
do know, and that's really hard. Again, if the job
market just normalized after the frantic pace following COVID and
the stimulus that accompanied efforts to combat COVID and the
unnaturally low unemployment rate that resulted. You pointed out in
(05:02):
the last hour we hit three point four percent in
April of twenty twenty three. It's been going up, not uninterrupted,
but it's been pretty much rising steadily since. Is that
just normalization or because there is persistence in the change
in unemployment You could think of that as just like momentum,
when it starts to go up, it generally continues to historically.
(05:22):
Is is that kind of business cycle fact relevant here?
The Fed seems to think it is.
Speaker 2 (05:30):
Right early indications of the bond market. Bond investors don't
seem overly spooked by this rise in unemployment. The yield
them the ten year treasury barely moving. We're sitting at
four point one seven two percent. I find that interesting.
I was theoryizing yesterday with Chuck are we in a
bad news equals good news market cycle, where hey, if
we get allowsy jobs report, it means the Fed's going
(05:50):
to cut rates further and therefore equities jump. We don't
seem to be getting that reaction, uh this morning, at
least from equities. Could be a number of differ and things,
but it is just one month's data point, and so
we will see whether it's confirmed, but whether it's enough
to shift thinking at the FED from where most market
ptystants think they're going, which is a pause in the
(06:12):
January meetings. So we will see and the next job's
report will be out what January fifth is at the date,
or it might be the do we have one on
the third, that's the friday after the New Year's holidays.
So sometime in early January we will get back into
the normal cycle of regularly released jobs reports, and we'll
(06:34):
see if that unemployment rate, which is the main thing
that the FED cares about, is confirmed or goes in
another direction.
Speaker 3 (06:40):
Yeah.
Speaker 4 (06:40):
I mean, the big problem for the FED, and I
don't know that this is the case, but nobody does,
is that the non inflationary rate of unemployment due to
structural changes in the economy has gone up yep. Unemployment
between four and five, historically speaking, is very rare outside
of the sixties nineties, late nineties, late sixties, mid to
late six these late twenty tens, something in the fives
(07:04):
has been considered healthy. It certainly was in the nineteen eighties.
But the economy changes structurally. What unemployment rate is consistent
with stable inflation changes along with the structure of the economy.
And you don't know what the true structure of the
economy is.
Speaker 3 (07:21):
December's jobs report it's going to be January ninth.
Speaker 2 (07:24):
Actually, okay, these.
Speaker 4 (07:25):
Guys are all over the place. Excuse me, but why
are why are we not back? Nobody has well?
Speaker 3 (07:30):
That is a Friday?
Speaker 4 (07:31):
Well, I know, but why why isn't it the first
Friday New Year's.
Speaker 2 (07:33):
New Year's Days is a friday.
Speaker 4 (07:36):
You do your work ahead of you do your work
on New Year's ago. I'm sorry, but why are we
not back to a normal rhythm here?
Speaker 2 (07:40):
I agree?
Speaker 4 (07:40):
I don't care too much, but it's a bit annoying.
Random releases.
Speaker 2 (07:46):
Bl it sounds like New Year's Day.
Speaker 4 (07:49):
It's mildly. I don't care deeply. I'm gonna forget about
it as soon as we move on here, but it's
it's somewhat annoying that we're not back to a normal
rhythm yet.
Speaker 2 (07:56):
So let's move on.
Speaker 4 (07:57):
Do you see today's report their gaps? They didn't sum
it up the way they normally, They didn't list the
change and there was the way they normally do. Is
anybody proofing this or are they just kind of handing
it in at the shaf from the hood enough sh
it does, though, But when you see sloppiness like that,
assuming it's not deliberate and there wasn't a footnote that
I missed, it does sort of make you call into
question the whole thing.
Speaker 2 (08:18):
Ford taking a nineteen and a half billion dollar hit
on their EV business, which since it's starting in twenty
twenty three has lost a good thirteen billion dollars on
their big giant electric vehicles like the Mustang mach E
and the Ford is it the Ford F one to
fifty Lightnings is the name for it? Body just well,
(08:41):
good for him because they're gonna be pretty rare what
it sounds like, quote from the CEO Jim Farley. Instead
of plowing billions into the future knowing these large evs
will never make money, we are pivoting. He goes on
to say, we know we now know enough about the
US market where we have a lot more certainty in
this second inning. So for things first, I will applaud
(09:02):
anytime a CEO is willing to cut losses and walk
away from a failing business, which it appears that Ford's
ev business is one. I will not applaud somebody who
made such a dramatic shift over the course of twenty
one two and twenty twenty three and seemingly didn't know
(09:22):
something about the American consumer just four years. We're not
talking about a decision that was made by a different
CEOs years ago. We are talking about the same CEO
with largely the same customers, who made a massive investment
in evs in order to seemingly appease investors and get
some of the Tesla action in the stock booket that
(09:42):
was going on. And I just you don't see a
lot of large business CEOs making such shortsighted decisions. But man,
this is one for the textbooks.
Speaker 4 (09:54):
I agree. It's it's astonishing I have lost I don't
know about you, but since the financial crisis, I used
to be someone that's kind of deified CEOs put them
on a pedestal. I thought, if they climbed that greasy pole.
And there's some politicking and it's not all merit based. Well,
I guess politicking is a skill. But their behavior during
(10:17):
and after the financial crisis, begging for bailouts, excusing everything away.
Never mind the shenanigans that went on in two thousand
to two thousand and two, embracing the Green Revolution because
it was politically expedient to do so, embracing DEI because
it was politically expedient to do so, now turning their
backs on it, which I have no problem with, by
the way, but it's the one to eighty and there.
(10:37):
I won't even name names, but there are some examples
of people that were champions of this stuff, the Green
Revolution DEI come to mind only three years ago, who
now totally disavow it and act like it was somebody
else that was in charge. People who go to top
business schools will tell you that American CEOs are on
average average I'm gonna choose my words really here, not
(11:00):
paid average, And I didn't I used to defend them
because I was looking at profits and the usual sort
of objective metrics, but I no longer have any confidence
in the people leading American business.
Speaker 2 (11:12):
It leads to another important.
Speaker 4 (11:14):
Question to say on a money show, but I hear you.
Speaker 2 (11:18):
It leads to another interesting question for the US auto
industry generally, which is can it actually compete anywhere other
than the United States. I don't really have a great
answer here because I don't see much proof that they can.
I don't see them making great sales in Latin America
and Europe.
Speaker 4 (11:33):
And it's it's not barriers to trade elsewhere, folks.
Speaker 2 (11:36):
It is that through you know, a bunch of practices
that I disagree with and undoubtedly are government subsidies. China
has pulled way ahead of US in vehicle manufacturing. It's
not a fun thing to say as the country that
invented the darn thing, but that's the reality. Is that
anywhere other than the United States, where China is unable
(11:59):
to vehicles, they are dominating the markets. And it's a
threat to US automakers. It's a threat to German automakers.
But I don't see any real competition coming from this.
And I don't think that Ford's f one point fifty
is going to sell terribly well anywhere other than the
United States. Let's tay a quick break. We've got to
break for trivia here. When we come back, well A,
(12:23):
we're playing a little bit of trivia, and then I
want to talk about retail sales as we head into
the last few days of the year. That's next on
the Financial Exchange.
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Speaker 3 (13:38):
This segment of The Financial Exchange is brought to you
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That's visit USVII dot com. We're gonna continue our Christmas
movie trivia here up till the holiday. Here in nineteen
(14:23):
ninety four, The Santa Claus was released in theaters and
was the fourth highest grossing movie of the year. The
success of The Santa Claus spawned two sequels and a
TV show. So trivia question today is simply which actor
becomes Santa Claus in the Santa Claus series of films?
Once again, which actor becomes Santa Claus in the Santa
(14:46):
Claus series of films? Be the ninth person today to
text us at six one seven three six two thirteen
eighty five with the correct answer along with the keyword
trivia to win a Financial Exchange Show T shirt. Once again,
the ninth correct response to textas to the number six
one seven three six two thirteen eighty five with the
(15:07):
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T shirt. See complete contest rules at Financial Exchange Show
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Speaker 2 (15:15):
I gotta tell you, Tucker, I'm two for two on
this so far, and well, I would love to claim
that that makes me a nineties Christmas movie officionado. I
think it probably means that the trivia question is too easy. Yeah,
it's the letter, Yeah, yeah, we get to start off
on a you know, yeah, Okay, as long as you
get more challenges as we go. Yeah, yeah, okay, fair enough.
(15:35):
By the way, I this past weekend, I think it
was or sometime last week, decided that it'd be acceptable
to show uh National Lampoon's Christmas Vacation to my kids.
Speaker 3 (15:48):
You know, I was debating that I couldn't decide.
Speaker 2 (15:50):
Yeah, they're not quite there a couple of scenes. Forgot
about a few of those scenes and a few of
those curse words that are now being repeated around my house.
And I don't regret it per se, but the look
on my wife's face on a few occasions was less
than enthusiastic. So if anybody's wondering, if no, it's a
A PG thirteen movie is great for a nine year old.
(16:12):
That one didn't quite make the mark in my house.
But I had a great time.
Speaker 3 (16:18):
That's all that matters.
Speaker 2 (16:19):
Right. We'll be getting retail sales later this week. The
October data is expected to confirm a slight consumer slowed down.
Economists are predicting a point one percent rise in October
retail sales from the month of September. Car sales in
particular likely to impact the spending. So apparently we weren't
get well, no, this was October. So yeah, I don't
(16:41):
know anybody that was buying their spouse as a Halloween.
Speaker 3 (16:43):
I thought, we're got retail sales this morning, did we?
Speaker 2 (16:46):
Yeah?
Speaker 4 (16:47):
It was October? Man.
Speaker 2 (16:50):
Ah, Man, Now I'm getting called out on attention of stuff.
I thought this was on Thursday. No, up exactly point
one percent, so economists were right. Came in exactly where
it was expected. I apologize. I thought this was later
this week October twenty twenty five. Adjusted for seasonal variations,
we're seven hundred thirty two point six billion, virtually unchanged
(17:15):
from the previous month, up three and a half percent
from October of twenty twenty four. So pretty much confirmed
what I just said, but I wasn't actually prepared with it.
The follow along pieces, consumers are feeling gloomy about the economy,
but they're spending anyway. Why are they doing that? And
this seems to get asked every year around this time,
and I have a very simple answer. I don't want
(17:36):
to overly complicate this. We have credit cards and we
have jobs, so it might be the worst financial decision
we can possibly make, but Americans are going to keep
spending until one of those two things changes, either the
credit card gets shut down or they lose their job,
and usually it's because of the latter that causes the former.
(17:57):
But I charted this because Mark Fandett has taught me
to do this. I'm looking right now at year over
year percentage changes in retail sales, and I charted against
the unemployment rate. And the only time in history that
you ever have year over year retail sales dropping by
more than like a tenth of a percent is when
(18:18):
the unemployment rate spikes. It happened back in twenty twenty.
It happened back in two thousand and eight. Those are
the only instances where genuinely you see people get financially
disciplined is when they lose their job because they literally
can't spend the money anymore. So, if anyone's predicting a
big drop off in retail sales this holiday season because
(18:40):
everybody's talking about affordability and how it's a problem and
how they're going to finally tighten their wallets and not
spill a bunch of money that they don't have into
the retail sector, I'm Colin Beloney. I'm just not willing conception.
Speaker 4 (18:55):
The media focuses a lot on spending, and there's there's
some pretty high frequency data that comes in like this
report every month, and there are a lot of private
sectors surveys in the space. Media focuses on spending because
it's something we all do, but consumption spending fancy way
of saying it is. Consumption doesn't vary a lot. Even
during recessions, during slowdowns, the culprit's usually investment.
Speaker 2 (19:18):
And by the way, like you know, even in the
dot com bubble where you had a stock market crash,
add recession but not a sizeable uptick in the unemployment
rate now looking at from like four to four to
mid fives, retail sales didn't drop them.
Speaker 4 (19:29):
Yeah. Consumption again, it doesn't really because it's pretty incentive.
Most consumpt most spending. Sorry for using the technical term,
but everybody knows what consumption is. I think is not
very sensitive to the economic We don't all go out
buying truffles or whatever you would consider something that might
be sensitive to the economic cycle.
Speaker 2 (19:48):
No stock market hit all time high, so I loaded
up on fifteen pounds of foie gras and that's all
we're eating this alday season Quick Break Wall Street Watch
coming up next.
Speaker 1 (20:09):
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 on the
Financial Exchange Radio Network.
Speaker 3 (20:28):
Market's seeing a modest sell off as traders react to
the November jobs report posted earlier this morning. Last month,
sixty four thousand jobs were added, stronger than forecasts of
fifty thousand. The unemployment rate ticked higher from four and
a half percent to four point six percent. In data
from October also revealed one hundred and five thousand jobs
(20:51):
were lost. Right now, the Dow is down nearly half
a percent, or two hundred and eighteen points. SMP five
hundred also down near half a percent or thirty two points,
NASDAK down three tenths of one percent or sixty four
points lower. Rusted two thousand is off about nearly half
a percent. A ten year treasure feled is down one
(21:13):
basis point at four point one sixty three percent, and
crude oiled down over two and a half percent, now
trading at fifty five dollars and thirty two cents a barrel.
Ford said it expects about nineteen point five billion dollars
in charges as it scales back its EVY ambitions and
shifts focus to gas powered in hybrid vehicles. Ford stock
(21:35):
is flat. Meanwhile, Pfizer issued a twenty twenty six earnings
guidance that came in below analysts expectations. The pharma giant
also reaffirmed its twenty twenty five outlook. Pfizer shares are
falling five percent. Elsewhere, at Craft, Heines announced former Kelenova
CEO Steve K. Hill Lane will take over as its
(21:55):
chief executive next year as the company prepares to separate
into two publicly traded entities. Craft shares are up nearly
one percent. PayPal shares are up almost two percent after
the payments company said IF filed an application to establish
PayPal Bank that would focus on granting loans and offering
savings accounts to small businesses. And after today's close, we'll
(22:17):
see earnings from home builder Leonar Holdings. I'm Tucker Silva
and that is Wall Street Watch. And on the previous segment,
we asked you the Christmas trivia question, which actor becomes
Santa Claus in the Santa Claus series of films? That
would be Tim Allen. Of course, Tony from Yarmouth, Mass
is our winner today, taking home a Financial Exchange Show teacher.
(22:39):
Congrats to Tony, and we played trivia every day here
in the Financial Exchange See complete contest rules at Financial
Exchange Show dot com.
Speaker 2 (22:48):
The eerie parallels between Aimania and the dot com bubble
is being written about today in the Wall Street Journal,
and it's certainly something that we've been discussing on the program.
It's conversation that I've been having over and over with family,
friends and clients, and I think there, well, there are
a lot of them, and there are differences too, and
(23:09):
I think it's important that we highlight both. Let's start, though,
Mark with the valuation argument, because that, to me is
one of the easiest and most measurable ones to make right.
Everything else is just kind of about how does it feel,
how are people talking about it? But on the valuation stuff,
we can actually measure this and so correct me if
(23:30):
I'm wrong. I don't think it is too difficult for
I don't think it's inaccurate for me to say that
in terms of valuations, pretty much, regardless of which tool
you're using to measure it, the only time in history
that US stocks have been pricier than they are right now.
Was the lead up to the dot com bubble? Is
that is that oversimplifying things?
Speaker 4 (23:51):
No, that's accurate.
Speaker 2 (23:52):
Okay, So there is no time in history when the
price that you are paying for a stock is higher
than it is right now. The investment that's being done
on behalf of companies I find really interesting too. So
in two thousand, Cisco, the maker of routers, you know
that you pretty much needed in order to connect to
(24:13):
the Internet, and then the telecom companies were boosted dramatically
by the investment that they were making. Cisco in nineteen
ninety nine their revenue expanded by more than forty percent.
In two thousand by more than fifty percent. In videos
is even more. You know, Robust and Video in the
past twelve month period managed more than one hundred and
fifty percent in the twelve months to October sixty percent, so,
(24:37):
you know, massive growth rates. But quite honestly, I don't
see these two companies as all that different in the
context of the technology that they are implementing. Right, it's
we are the pick and shovel companies to this modern
day gold rush, Right, we are going to be supplying
(24:57):
the infrastructure you need in order to run AI systems,
and in Cisco's case, it was the infrastructure you need
in order to connect to this brand new thing called
the Internet. The single mindedness of the market, I think,
is a little bit less concentrated than it was in
the dot com era. In nineteen ninety nine, more stocks
in the SMP actually fell than rose. Whereas you know
(25:20):
this year, in twenty twenty five, one hundred and eighty
three stocks are down, so you know, a far smaller
percentage of companies are down, but the concentration is definitely there.
Right the top ten companies in the SMP make up
more than they ever have. The only I don't know
what other similarities or contrasts you have.
Speaker 4 (25:41):
I think, well there's a big one, and it's new era.
As Robert Schiller, the famous financial economist who wrote the
book Irrational Exuberance that Greenspan took the title from when
he testified. Some people associate that quote with green Spin,
but it was Shuller, so he's sort of the godfather
of the valuations. There are others like John Campbell over
(26:01):
at Harvard, but Shiller is kind of the personification of this,
Schiller's main point is that valuations become extreme and valuation
just It's like price per square foot for your house.
It allows you to compare your house today to ten
years ago, your house to your neighbor's house. You want
to know price p on top per square foot on
the bottom. So I got a quotion here, I got
(26:21):
a numerator, I got a denominator. Pe is also a
ratio P on top. The questions what do you use
for e? Shiller uses long term inflation adjusted average, long
term average or smooth earnings adjusted for inflation. And when
you use that, or, like you said, some other measures,
you get the conclusion that valuations have stocks have never
(26:42):
been more expensive. So what does that mean? Why are
we worried about that? Well, because the higher the price
you pay for something, whether it's a bond of stock,
real estate, property, and anything with the yield, the lower
the yield.
Speaker 2 (26:56):
And lower the expected future return.
Speaker 4 (26:58):
Yield in this case would be the equivalent. Right, So
should we be worried? And the main reason to worry
is that it's been seemingly propelled. Maybe not seemingly, maybe
I'm being too cautious. It's definitely been propelled by new
era thinking. The new era thinking in the nineteen twenties
was commercial radio. I'm reading off Shower's paper here. Obviously,
in the nineteen sixties it was television and space travel.
(27:21):
Those were two periods of elevated valuations, extreme valuations in
the nineteen nineties, which we're all more familiar with. Obviously
it was the Internet, all characterized by new era thinking.
The trend and growth is going to change. We've never
seen anything like this. Those are phrases we're hearing again.
We've heard them all before. Does that mean that there's
(27:41):
overinvestment in data centers, that stocks are too expensive? It
probably does mean all those things. The question is the
prices come way down when you get a P and
and E and you'd think the ratio is too high.
That means one of a couple things. The P's going
to come down or the E is going to go up.
Historically after extremes like this, the E has never gone
up to normalize the PE. That's the concern, Mike, folks.
Speaker 2 (28:06):
Here's where it comes down to. There are plenty of
people talking about this being a bubble. Ultimately, only time
will tell, you know, is it a bubble? Does it pop,
does it look similar to the dot com era, or
does it look completely different? The question you need to
be asking yourself is, even if you are utterly convinced
it's not likely to happen i e. A bubble popping,
(28:26):
you have to ask are you prepared for it? Because
ultimately these things are unpredictable by their very nature, and historically,
when equity market bubbles pop, there aren't very safe places
to hide. And so if you are planning out your portfolio,
if you are planning out something important like your retirement,
like your kids going to college, like buying that first home,
(28:48):
and you are not sure whether or not you are
positioned well for a potential bubble pop, I would really
encourage you to take this moment when markets are darn
near their all time highs, to evaluate and do the
work and put in the exercise to understand if you
are prepared for an event like that. If you would
like help with it, please call the Armstrong Advisory Group.
(29:11):
Our numbers eight hundred three nine three for zero zero one.
This is the type of work we do on behalf
of our clients every day. We'd be happy to share
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three for zero zero one.
Speaker 1 (29:30):
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Speaker 2 (29:45):
Mark, I want to go back to the same subject
we just talked about, because you were getting at a
important point, which is price earnings ratios are high, and
historically when they've gotten this high, they've eventually corrected back.
But it is a ratio, and so there's a you know,
when there's a numerator and a dominator, there's two things
that can happen. The numerator can go down or the
(30:07):
denominator can go up, and in either case that fixes
the problem.
Speaker 4 (30:12):
I think look at this to say that earnings will
go up and fix this. Suppose you think shuler pe
for what it is worth, I say shuller pe because
that's how some people refer to it. You could also
call it cyclically adjusted PE or just bring and call
it PE. Who cares right, It could correct, but not
all the way to its historical average. His historical average
is it's uncomfortably below where it is today. I'm not
(30:35):
in that camp. I don't think it's going back to
twenty or fifteen. Might go to thirty, though, which would
be a twenty five percent drop in valuations. How do
we get there, Well, earnings could just grow faster than
prices for the next several years, and that could normalize
the ratio. Unfortunately, it's never happened that way here or elsewhere.
Speaker 2 (30:55):
And that's the piece is if you are buying into
whoever is selling whatever it is they're selling about this
market right now, you have to genuinely believe that it
is different to this time then every time in history.
Speaker 4 (31:08):
And if you say that, you will sound just like
people in other new eras. When radio replaced well nothing,
TV replaced radio, the economy switched from agriculture to manufacturing
to services. These shifts have happened before. Interestingly, none of
them have fundamentally changed the trend in growth, nor have
(31:32):
they permanently pushed up valuations. Now we could be at
a different it could be different, as you said, Mike,
this time, pees may stay at these extreme levels and
they won't look like extreme levels in twenty years. But
that's a little like saying I'm going to improve my
body mass index by growing six inches. I assume the
body mass index is a ratio of some kind, the
(31:55):
BMI right, and I assume that height is somewhere in
that ratio, and I assume he is on top. So
if somebody said that, you laugh, like, you're not going
to improve your cholesterol by doubling your volume, and then
there's less cholesterol to go around. Okay, that's no doctor,
I don't think. Maybe RFK junior, But other than RFK Junior,
nobody thinks you can improve your cholesterol by doubling your
(32:15):
your volume. Similarly, you typically don't grow your way out
of very high valuations.
Speaker 2 (32:20):
Let's take a quick break. When we come back. Stack
Roulette is next.
Speaker 1 (32:25):
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Speaker 3 (33:00):
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Speaker 2 (33:34):
Continued bad news for Zillo investors, I say continued because
in February of twenty twenty one, this stock hit nearly
two hundred dollars per share and is currently training at
seventy bucks a share, So it's been a pretty big
fall for those who have held on to it. But
yesterday the stock was down about seven percent on rumors
that Google might be interested in getting into their game
(33:59):
and completely upending their business model. If you're not familiar
with how Zillow makes money, they put out real estate
listings and then largely realtors pay to advertise on their
platform and hopefully get clients from those advertisements. Hey, you
want to put an offer on this home? You know,
talk to Jeff, I said Jeff. Oh, I did have
(34:21):
a realtor named Jeff's. That was probably why I went
to Jeff. If Google gets into this business, which I
don't know how big of a lift it would be,
you know, the reports are that they are running tests
and putting real estate sale listings into their search results.
If Google Flights and other businesses that they've gotten into
are any indication, my guess is that they would be
(34:44):
pretty darn good at it, undercut the competition, be faster,
more user friendly, and have a pretty good platform. I
don't know that, you know, maybe this one is different,
but history tells me that once they get into one
of these businesses one, their computing power is so much
stronger than all the competition that it tends to be faster.
(35:04):
They're better at building development, you know, developing websites, and
I just think about Google flights is the best example
I can give, right, I mean, anybody out there if
you want to go to Expedia search for a flight
and then do the same thing on Google, and I
can guarantee you the results will come back faster with Google,
(35:25):
and in many cases they will produce more results for
you than the than the other third parties. So if
it's the case, then Zillo might be having some problems.
Here would be my guess. I don't know you have
any take on this mark. Do you do you browse
these sites like I do. I feel like one of
my hobbies is looking at real estate on redfin and
so I'm constantly browsing these things but no no interest.
(35:48):
It's weird.
Speaker 3 (35:49):
I still find myself going on Zillo even though I
have zero interest or any likelihood of buying.
Speaker 2 (35:55):
A house any time soon.
Speaker 4 (35:57):
But it is but I still go on.
Speaker 2 (35:58):
Like whenever we drive, I buy a home that's for sale.
I just if I'm not driving, I can't help myself.
I pull up Redfinn and I go look at the property, like, oh,
that's a nice bedroom.
Speaker 3 (36:07):
I'm just curious to see what the market looks like
in terms of my location.
Speaker 2 (36:11):
But things that Google could probably do better than Zillow
or redfin. You know, they probably can pull in the pictures,
pull in all the same information about the schools and
everything else. I think they'd also do a better job
being able to tell you about nearby attractions, details about
the neighborhood, traffic patterns in the neighborhood.
Speaker 4 (36:27):
None of these guys are doing including open AI. I'm
just going to be very broad here. None are doing
anything that could not be undermined by a clever eighteen
year old at MIT right now who's figured out a
way to write more efficient code.
Speaker 2 (36:40):
This is my sure hope.
Speaker 4 (36:41):
Seeing this is all Googled forgive me, but none of
these people do anything that imparts a sustainable advantage to
their business model, unless you count the scale required to
get to invest in data centers, the capital required to
get these up and run. Any one of these guys
(37:01):
what they do could be knocked off and improved on
tomorrow by some kid working on his laptop.
Speaker 2 (37:06):
I really hope so, because what I've appeared over the
last decade or so is that Google, Amazon, Microsoft, and
Facebook have gotten so large that they can crush any
competition that ever comes about. And I hope I'm wrong
about fifteen twenty. I hope you're right. I do hope
you're right because different form trend recently has been. Anytime
(37:27):
something that looks like competition starts to come along, Google's
just been able to buy it, or Facebook has, or
Amazon has and crush the competition and then roll out
their own products that are cheaper and put the everybody,
all the competition that would have existed out of business.
So I don't love what it means for monopolistic concerns,
(37:49):
but for building a better product. I bet that Google
is able to do it. Got thirty seconds, Mark, got
anything for me?
Speaker 4 (37:55):
I have a Shiller quote. That's what I was scrambling
feverishly for. Is the twenty first century a new era question?
Mark Chiller says in response. Over the past century, the
American economy has been transformed in many fundamental ways. Agriculture
gave way to industry. Industry has given way to services
as the economies leading sector. Automobiles and planes have revolutionized transport,
(38:15):
while radio, television, and now the Internet have transformed communication.
Despite the historical stability of valuation ratio, some observers and
he wrote this twenty five years ago, you can apply
it to today. Some observers have questioned whether these patterns
are a guide and at the time he didn't know markets.
He concludes that they are, and we know what happened subsequently.
Speaker 2 (38:37):
That's all the time we have. Markets are still in
negative territory. We'll have a full recap for you and
more tomorrow here on the Financial Exchange
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
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the hosts. Do not reflect the opinions of Armstrong Advisory
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(00:20):
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(01:06):
Armstrong and Mark Vandetti.
Speaker 2 (01:16):
Happy Tuesday, Mark, Happy Tuesday, Talker, Happy Tuesday. Everybody listening.
We finally have data again after a long government shutdown.
So I'm in a good mood, even if that data
is not very good. In fact, it is pretty bad
in a few ways. I'm just excited that we have
data again, we have actual government statistics to talk about.
It's Mike, Mark and Tucker with you. I already said
(01:38):
that on a Tuesday. And we've got the jobs report
for the months of October and November to dive through
now that they have been officially released, to recap a
few of the highlights. I think, first and foremost the
most important statistic on here. In September we had an
unemployment rate of four point four percent. For October, we
(02:00):
have no unemployment rate because the survey wasn't done because
of the government shutdown. In November, that rate sat at
four point six percent. It's a pretty big increase. Back
in January of this year, we were sitting at for
even and so we've seen a six tense in my
wrong about that. You're frowning one.
Speaker 3 (02:19):
No, I'm trying to find news. I wasn't even listening
to oh, I saw some flash, so I'm trying to
find it. Talking to my I'm doing a producer's job, Michael,
is the post job.
Speaker 2 (02:31):
Don't try and read your facial expressions and guess what
they mean. I'll sit It is a fun game. So
we've seen an uptick in the unemployment rate. It's been
a steady uptick for the last couple of years. The
same question is on our minds that was on our
minds last year. Is this just a natural reshuffling of
the unemployment rate back to what is a longer term
(02:52):
trend of about five percent, or are we heading for
something worse, because typically when unemployment rate increases, it doesn't
just plateau and right.
Speaker 4 (03:01):
This is the question for the Fed. Are we back
to something more sustainable somewhere between four and five which
would be very healthy historically speaking, sustainable in the sense
that it's not pushing the economy beyond its natural limits.
The Fed seems to think the economy is not growing
as fast as it could, or it thinks that the
(03:23):
rate of interest, consistent with just sort of trend growth,
normal growth, if you will, is lower due to long
term structural factors. We don't really we don't really know.
These are questions The Fed doesn't even have the answer
to this. They have to make their best guess.
Speaker 2 (03:37):
The other part of the statistic we got to, the
number of jobs created in the month of November ticked
up to sixty four thousand after a net loss of
one hundred five thousand jobs in the month of October. However,
you know a caveat on the October data. There were
one hundred and fifty seven thousand government jobs that disappeared
from the report in October. That's largely being blamed on
(04:00):
the buyouts that some federal employees took earlier this spring,
so we knew it was coming. September was the last
pay period, and so therefore they're being counted in that
hiring rate for October. So bad looking data for October,
but not quite as bad as it would have been
absent to the government stuff, So it's not that that
(04:20):
doesn't matter. There are one hundred and fifty seven thousand
fewer government workers who are receiving a paycheck now from
that work, but we knew about it. It was coming
at some point, and it dropped in October. During all
this anything else to highlight on the jobs report, its
implications for policy at the FED or anything else regarding
the state of the economy and the unemployment rate.
Speaker 4 (04:41):
No news, But the challenges is in interpreting what we
do know, and that's really hard. Again, if the job
market just normalized after the frantic pace following COVID and
the stimulus that accompanied efforts to combat COVID and the
unnaturally low unemployment rate that resulted. You pointed out in
(05:02):
the last hour we hit three point four percent in
April of twenty twenty three. It's been going up, not uninterrupted,
but it's been pretty much rising steadily since. Is that
just normalization or because there is persistence in the change
in unemployment You could think of that as just like momentum,
when it starts to go up, it generally continues to historically.
(05:22):
Is is that kind of business cycle fact relevant here?
The Fed seems to think it is.
Speaker 2 (05:30):
Right early indications of the bond market. Bond investors don't
seem overly spooked by this rise in unemployment. The yield
them the ten year treasury barely moving. We're sitting at
four point one seven two percent. I find that interesting.
I was theoryizing yesterday with Chuck are we in a
bad news equals good news market cycle, where hey, if
we get allowsy jobs report, it means the Fed's going
(05:50):
to cut rates further and therefore equities jump. We don't
seem to be getting that reaction, uh this morning, at
least from equities. Could be a number of differ and things,
but it is just one month's data point, and so
we will see whether it's confirmed, but whether it's enough
to shift thinking at the FED from where most market
ptystants think they're going, which is a pause in the
(06:12):
January meetings. So we will see and the next job's
report will be out what January fifth is at the date,
or it might be the do we have one on
the third, that's the friday after the New Year's holidays.
So sometime in early January we will get back into
the normal cycle of regularly released jobs reports, and we'll
(06:34):
see if that unemployment rate, which is the main thing
that the FED cares about, is confirmed or goes in
another direction.
Speaker 3 (06:40):
Yeah.
Speaker 4 (06:40):
I mean, the big problem for the FED, and I
don't know that this is the case, but nobody does,
is that the non inflationary rate of unemployment due to
structural changes in the economy has gone up yep. Unemployment
between four and five, historically speaking, is very rare outside
of the sixties nineties, late nineties, late sixties, mid to
late six these late twenty tens, something in the fives
(07:04):
has been considered healthy. It certainly was in the nineteen eighties.
But the economy changes structurally. What unemployment rate is consistent
with stable inflation changes along with the structure of the economy.
And you don't know what the true structure of the
economy is.
Speaker 3 (07:21):
December's jobs report it's going to be January ninth.
Speaker 2 (07:24):
Actually, okay, these.
Speaker 4 (07:25):
Guys are all over the place. Excuse me, but why
are why are we not back? Nobody has well?
Speaker 3 (07:30):
That is a Friday?
Speaker 4 (07:31):
Well, I know, but why why isn't it the first
Friday New Year's.
Speaker 2 (07:33):
New Year's Days is a friday.
Speaker 4 (07:36):
You do your work ahead of you do your work
on New Year's ago. I'm sorry, but why are we
not back to a normal rhythm here?
Speaker 2 (07:40):
I agree?
Speaker 4 (07:40):
I don't care too much, but it's a bit annoying.
Random releases.
Speaker 2 (07:46):
Bl it sounds like New Year's Day.
Speaker 4 (07:49):
It's mildly. I don't care deeply. I'm gonna forget about
it as soon as we move on here, but it's
it's somewhat annoying that we're not back to a normal
rhythm yet.
Speaker 2 (07:56):
So let's move on.
Speaker 4 (07:57):
Do you see today's report their gaps? They didn't sum
it up the way they normally, They didn't list the
change and there was the way they normally do. Is
anybody proofing this or are they just kind of handing
it in at the shaf from the hood enough sh
it does, though, But when you see sloppiness like that,
assuming it's not deliberate and there wasn't a footnote that
I missed, it does sort of make you call into
question the whole thing.
Speaker 2 (08:18):
Ford taking a nineteen and a half billion dollar hit
on their EV business, which since it's starting in twenty
twenty three has lost a good thirteen billion dollars on
their big giant electric vehicles like the Mustang mach E
and the Ford is it the Ford F one to
fifty Lightnings is the name for it? Body just well,
(08:41):
good for him because they're gonna be pretty rare what
it sounds like, quote from the CEO Jim Farley. Instead
of plowing billions into the future knowing these large evs
will never make money, we are pivoting. He goes on
to say, we know we now know enough about the
US market where we have a lot more certainty in
this second inning. So for things first, I will applaud
(09:02):
anytime a CEO is willing to cut losses and walk
away from a failing business, which it appears that Ford's
ev business is one. I will not applaud somebody who
made such a dramatic shift over the course of twenty
one two and twenty twenty three and seemingly didn't know
(09:22):
something about the American consumer just four years. We're not
talking about a decision that was made by a different
CEOs years ago. We are talking about the same CEO
with largely the same customers, who made a massive investment
in evs in order to seemingly appease investors and get
some of the Tesla action in the stock booket that
(09:42):
was going on. And I just you don't see a
lot of large business CEOs making such shortsighted decisions. But man,
this is one for the textbooks.
Speaker 4 (09:54):
I agree. It's it's astonishing I have lost I don't
know about you, but since the financial crisis, I used
to be someone that's kind of deified CEOs put them
on a pedestal. I thought, if they climbed that greasy pole.
And there's some politicking and it's not all merit based. Well,
I guess politicking is a skill. But their behavior during
(10:17):
and after the financial crisis, begging for bailouts, excusing everything away.
Never mind the shenanigans that went on in two thousand
to two thousand and two, embracing the Green Revolution because
it was politically expedient to do so, embracing DEI because
it was politically expedient to do so, now turning their
backs on it, which I have no problem with, by
the way, but it's the one to eighty and there.
(10:37):
I won't even name names, but there are some examples
of people that were champions of this stuff, the Green
Revolution DEI come to mind only three years ago, who
now totally disavow it and act like it was somebody
else that was in charge. People who go to top
business schools will tell you that American CEOs are on
average average I'm gonna choose my words really here, not
(11:00):
paid average, And I didn't I used to defend them
because I was looking at profits and the usual sort
of objective metrics, but I no longer have any confidence
in the people leading American business.
Speaker 2 (11:12):
It leads to another important.
Speaker 4 (11:14):
Question to say on a money show, but I hear you.
Speaker 2 (11:18):
It leads to another interesting question for the US auto
industry generally, which is can it actually compete anywhere other
than the United States. I don't really have a great
answer here because I don't see much proof that they can.
I don't see them making great sales in Latin America
and Europe.
Speaker 4 (11:33):
And it's it's not barriers to trade elsewhere, folks.
Speaker 2 (11:36):
It is that through you know, a bunch of practices
that I disagree with and undoubtedly are government subsidies. China
has pulled way ahead of US in vehicle manufacturing. It's
not a fun thing to say as the country that
invented the darn thing, but that's the reality. Is that
anywhere other than the United States, where China is unable
(11:59):
to vehicles, they are dominating the markets. And it's a
threat to US automakers. It's a threat to German automakers.
But I don't see any real competition coming from this.
And I don't think that Ford's f one point fifty
is going to sell terribly well anywhere other than the
United States. Let's tay a quick break. We've got to
break for trivia here. When we come back, well A,
(12:23):
we're playing a little bit of trivia, and then I
want to talk about retail sales as we head into
the last few days of the year. That's next on
the Financial Exchange.
Speaker 1 (12:30):
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Speaker 3 (13:38):
This segment of The Financial Exchange is brought to you
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That's visit USVII dot com. We're gonna continue our Christmas
movie trivia here up till the holiday. Here in nineteen
(14:23):
ninety four, The Santa Claus was released in theaters and
was the fourth highest grossing movie of the year. The
success of The Santa Claus spawned two sequels and a
TV show. So trivia question today is simply which actor
becomes Santa Claus in the Santa Claus series of films?
Once again, which actor becomes Santa Claus in the Santa
(14:46):
Claus series of films? Be the ninth person today to
text us at six one seven three six two thirteen
eighty five with the correct answer along with the keyword
trivia to win a Financial Exchange Show T shirt. Once again,
the ninth correct response to textas to the number six
one seven three six two thirteen eighty five with the
(15:07):
correct answer along with the keyword trivia, We'll win that
T shirt. See complete contest rules at Financial Exchange Show
dot com.
Speaker 2 (15:15):
I gotta tell you, Tucker, I'm two for two on
this so far, and well, I would love to claim
that that makes me a nineties Christmas movie officionado. I
think it probably means that the trivia question is too easy. Yeah,
it's the letter, Yeah, yeah, we get to start off
on a you know, yeah, Okay, as long as you
get more challenges as we go. Yeah, yeah, okay, fair enough.
(15:35):
By the way, I this past weekend, I think it
was or sometime last week, decided that it'd be acceptable
to show uh National Lampoon's Christmas Vacation to my kids.
Speaker 3 (15:48):
You know, I was debating that I couldn't decide.
Speaker 2 (15:50):
Yeah, they're not quite there a couple of scenes. Forgot
about a few of those scenes and a few of
those curse words that are now being repeated around my house.
And I don't regret it per se, but the look
on my wife's face on a few occasions was less
than enthusiastic. So if anybody's wondering, if no, it's a
A PG thirteen movie is great for a nine year old.
(16:12):
That one didn't quite make the mark in my house.
But I had a great time.
Speaker 3 (16:18):
That's all that matters.
Speaker 2 (16:19):
Right. We'll be getting retail sales later this week. The
October data is expected to confirm a slight consumer slowed down.
Economists are predicting a point one percent rise in October
retail sales from the month of September. Car sales in
particular likely to impact the spending. So apparently we weren't
get well, no, this was October. So yeah, I don't
(16:41):
know anybody that was buying their spouse as a Halloween.
Speaker 3 (16:43):
I thought, we're got retail sales this morning, did we?
Speaker 2 (16:46):
Yeah?
Speaker 4 (16:47):
It was October? Man.
Speaker 2 (16:50):
Ah, Man, Now I'm getting called out on attention of stuff.
I thought this was on Thursday. No, up exactly point
one percent, so economists were right. Came in exactly where
it was expected. I apologize. I thought this was later
this week October twenty twenty five. Adjusted for seasonal variations,
we're seven hundred thirty two point six billion, virtually unchanged
(17:15):
from the previous month, up three and a half percent
from October of twenty twenty four. So pretty much confirmed
what I just said, but I wasn't actually prepared with it.
The follow along pieces, consumers are feeling gloomy about the economy,
but they're spending anyway. Why are they doing that? And
this seems to get asked every year around this time,
and I have a very simple answer. I don't want
(17:36):
to overly complicate this. We have credit cards and we
have jobs, so it might be the worst financial decision
we can possibly make, but Americans are going to keep
spending until one of those two things changes, either the
credit card gets shut down or they lose their job,
and usually it's because of the latter that causes the former.
(17:57):
But I charted this because Mark Fandett has taught me
to do this. I'm looking right now at year over
year percentage changes in retail sales, and I charted against
the unemployment rate. And the only time in history that
you ever have year over year retail sales dropping by
more than like a tenth of a percent is when
(18:18):
the unemployment rate spikes. It happened back in twenty twenty.
It happened back in two thousand and eight. Those are
the only instances where genuinely you see people get financially
disciplined is when they lose their job because they literally
can't spend the money anymore. So, if anyone's predicting a
big drop off in retail sales this holiday season because
(18:40):
everybody's talking about affordability and how it's a problem and
how they're going to finally tighten their wallets and not
spill a bunch of money that they don't have into
the retail sector, I'm Colin Beloney. I'm just not willing conception.
Speaker 4 (18:55):
The media focuses a lot on spending, and there's there's
some pretty high frequency data that comes in like this
report every month, and there are a lot of private
sectors surveys in the space. Media focuses on spending because
it's something we all do, but consumption spending fancy way
of saying it is. Consumption doesn't vary a lot. Even
during recessions, during slowdowns, the culprit's usually investment.
Speaker 2 (19:18):
And by the way, like you know, even in the
dot com bubble where you had a stock market crash,
add recession but not a sizeable uptick in the unemployment
rate now looking at from like four to four to
mid fives, retail sales didn't drop them.
Speaker 4 (19:29):
Yeah. Consumption again, it doesn't really because it's pretty incentive.
Most consumpt most spending. Sorry for using the technical term,
but everybody knows what consumption is. I think is not
very sensitive to the economic We don't all go out
buying truffles or whatever you would consider something that might
be sensitive to the economic cycle.
Speaker 2 (19:48):
No stock market hit all time high, so I loaded
up on fifteen pounds of foie gras and that's all
we're eating this alday season Quick Break Wall Street Watch
coming up next.
Speaker 1 (20:09):
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 on the
Financial Exchange Radio Network.
Speaker 3 (20:28):
Market's seeing a modest sell off as traders react to
the November jobs report posted earlier this morning. Last month,
sixty four thousand jobs were added, stronger than forecasts of
fifty thousand. The unemployment rate ticked higher from four and
a half percent to four point six percent. In data
from October also revealed one hundred and five thousand jobs
(20:51):
were lost. Right now, the Dow is down nearly half
a percent, or two hundred and eighteen points. SMP five
hundred also down near half a percent or thirty two points,
NASDAK down three tenths of one percent or sixty four
points lower. Rusted two thousand is off about nearly half
a percent. A ten year treasure feled is down one
(21:13):
basis point at four point one sixty three percent, and
crude oiled down over two and a half percent, now
trading at fifty five dollars and thirty two cents a barrel.
Ford said it expects about nineteen point five billion dollars
in charges as it scales back its EVY ambitions and
shifts focus to gas powered in hybrid vehicles. Ford stock
(21:35):
is flat. Meanwhile, Pfizer issued a twenty twenty six earnings
guidance that came in below analysts expectations. The pharma giant
also reaffirmed its twenty twenty five outlook. Pfizer shares are
falling five percent. Elsewhere, at Craft, Heines announced former Kelenova
CEO Steve K. Hill Lane will take over as its
(21:55):
chief executive next year as the company prepares to separate
into two publicly traded entities. Craft shares are up nearly
one percent. PayPal shares are up almost two percent after
the payments company said IF filed an application to establish
PayPal Bank that would focus on granting loans and offering
savings accounts to small businesses. And after today's close, we'll
(22:17):
see earnings from home builder Leonar Holdings. I'm Tucker Silva
and that is Wall Street Watch. And on the previous segment,
we asked you the Christmas trivia question, which actor becomes
Santa Claus in the Santa Claus series of films? That
would be Tim Allen. Of course, Tony from Yarmouth, Mass
is our winner today, taking home a Financial Exchange Show teacher.
(22:39):
Congrats to Tony, and we played trivia every day here
in the Financial Exchange See complete contest rules at Financial
Exchange Show dot com.
Speaker 2 (22:48):
The eerie parallels between Aimania and the dot com bubble
is being written about today in the Wall Street Journal,
and it's certainly something that we've been discussing on the program.
It's conversation that I've been having over and over with family,
friends and clients, and I think there, well, there are
a lot of them, and there are differences too, and
(23:09):
I think it's important that we highlight both. Let's start, though,
Mark with the valuation argument, because that, to me is
one of the easiest and most measurable ones to make right.
Everything else is just kind of about how does it feel,
how are people talking about it? But on the valuation stuff,
we can actually measure this and so correct me if
(23:30):
I'm wrong. I don't think it is too difficult for
I don't think it's inaccurate for me to say that
in terms of valuations, pretty much, regardless of which tool
you're using to measure it, the only time in history
that US stocks have been pricier than they are right now.
Was the lead up to the dot com bubble? Is
that is that oversimplifying things?
Speaker 4 (23:51):
No, that's accurate.
Speaker 2 (23:52):
Okay, So there is no time in history when the
price that you are paying for a stock is higher
than it is right now. The investment that's being done
on behalf of companies I find really interesting too. So
in two thousand, Cisco, the maker of routers, you know
that you pretty much needed in order to connect to
(24:13):
the Internet, and then the telecom companies were boosted dramatically
by the investment that they were making. Cisco in nineteen
ninety nine their revenue expanded by more than forty percent.
In two thousand by more than fifty percent. In videos
is even more. You know, Robust and Video in the
past twelve month period managed more than one hundred and
fifty percent in the twelve months to October sixty percent, so,
(24:37):
you know, massive growth rates. But quite honestly, I don't
see these two companies as all that different in the
context of the technology that they are implementing. Right, it's
we are the pick and shovel companies to this modern
day gold rush, Right, we are going to be supplying
(24:57):
the infrastructure you need in order to run AI systems,
and in Cisco's case, it was the infrastructure you need
in order to connect to this brand new thing called
the Internet. The single mindedness of the market, I think,
is a little bit less concentrated than it was in
the dot com era. In nineteen ninety nine, more stocks
in the SMP actually fell than rose. Whereas you know
(25:20):
this year, in twenty twenty five, one hundred and eighty
three stocks are down, so you know, a far smaller
percentage of companies are down, but the concentration is definitely there.
Right the top ten companies in the SMP make up
more than they ever have. The only I don't know
what other similarities or contrasts you have.
Speaker 4 (25:41):
I think, well there's a big one, and it's new era.
As Robert Schiller, the famous financial economist who wrote the
book Irrational Exuberance that Greenspan took the title from when
he testified. Some people associate that quote with green Spin,
but it was Shuller, so he's sort of the godfather
of the valuations. There are others like John Campbell over
(26:01):
at Harvard, but Shiller is kind of the personification of this,
Schiller's main point is that valuations become extreme and valuation
just It's like price per square foot for your house.
It allows you to compare your house today to ten
years ago, your house to your neighbor's house. You want
to know price p on top per square foot on
the bottom. So I got a quotion here, I got
(26:21):
a numerator, I got a denominator. Pe is also a
ratio P on top. The questions what do you use
for e? Shiller uses long term inflation adjusted average, long
term average or smooth earnings adjusted for inflation. And when
you use that, or, like you said, some other measures,
you get the conclusion that valuations have stocks have never
(26:42):
been more expensive. So what does that mean? Why are
we worried about that? Well, because the higher the price
you pay for something, whether it's a bond of stock,
real estate, property, and anything with the yield, the lower
the yield.
Speaker 2 (26:56):
And lower the expected future return.
Speaker 4 (26:58):
Yield in this case would be the equivalent. Right, So
should we be worried? And the main reason to worry
is that it's been seemingly propelled. Maybe not seemingly, maybe
I'm being too cautious. It's definitely been propelled by new
era thinking. The new era thinking in the nineteen twenties
was commercial radio. I'm reading off Shower's paper here. Obviously,
in the nineteen sixties it was television and space travel.
(27:21):
Those were two periods of elevated valuations, extreme valuations in
the nineteen nineties, which we're all more familiar with. Obviously
it was the Internet, all characterized by new era thinking.
The trend and growth is going to change. We've never
seen anything like this. Those are phrases we're hearing again.
We've heard them all before. Does that mean that there's
(27:41):
overinvestment in data centers, that stocks are too expensive? It
probably does mean all those things. The question is the
prices come way down when you get a P and
and E and you'd think the ratio is too high.
That means one of a couple things. The P's going
to come down or the E is going to go up.
Historically after extremes like this, the E has never gone
up to normalize the PE. That's the concern, Mike, folks.
Speaker 2 (28:06):
Here's where it comes down to. There are plenty of
people talking about this being a bubble. Ultimately, only time
will tell, you know, is it a bubble? Does it pop,
does it look similar to the dot com era, or
does it look completely different? The question you need to
be asking yourself is, even if you are utterly convinced
it's not likely to happen i e. A bubble popping,
(28:26):
you have to ask are you prepared for it? Because
ultimately these things are unpredictable by their very nature, and historically,
when equity market bubbles pop, there aren't very safe places
to hide. And so if you are planning out your portfolio,
if you are planning out something important like your retirement,
like your kids going to college, like buying that first home,
(28:48):
and you are not sure whether or not you are
positioned well for a potential bubble pop, I would really
encourage you to take this moment when markets are darn
near their all time highs, to evaluate and do the
work and put in the exercise to understand if you
are prepared for an event like that. If you would
like help with it, please call the Armstrong Advisory Group.
(29:11):
Our numbers eight hundred three nine three for zero zero one.
This is the type of work we do on behalf
of our clients every day. We'd be happy to share
our thoughts with you as well. You can book your
time for us to call you back at Armstrong Advisory
dot com. But that number is eight hundred three nine
three for zero zero one.
Speaker 1 (29:30):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal, or tax advice. Consult
your own financial tax into state planning advisors before making
any investment decisions. Armstrong may contact you to offer investment
advisory services.
Speaker 2 (29:45):
Mark, I want to go back to the same subject
we just talked about, because you were getting at a
important point, which is price earnings ratios are high, and
historically when they've gotten this high, they've eventually corrected back.
But it is a ratio, and so there's a you know,
when there's a numerator and a dominator, there's two things
that can happen. The numerator can go down or the
(30:07):
denominator can go up, and in either case that fixes
the problem.
Speaker 4 (30:12):
I think look at this to say that earnings will
go up and fix this. Suppose you think shuler pe
for what it is worth, I say shuller pe because
that's how some people refer to it. You could also
call it cyclically adjusted PE or just bring and call
it PE. Who cares right, It could correct, but not
all the way to its historical average. His historical average
is it's uncomfortably below where it is today. I'm not
(30:35):
in that camp. I don't think it's going back to
twenty or fifteen. Might go to thirty, though, which would
be a twenty five percent drop in valuations. How do
we get there, Well, earnings could just grow faster than
prices for the next several years, and that could normalize
the ratio. Unfortunately, it's never happened that way here or elsewhere.
Speaker 2 (30:55):
And that's the piece is if you are buying into
whoever is selling whatever it is they're selling about this
market right now, you have to genuinely believe that it
is different to this time then every time in history.
Speaker 4 (31:08):
And if you say that, you will sound just like
people in other new eras. When radio replaced well nothing,
TV replaced radio, the economy switched from agriculture to manufacturing
to services. These shifts have happened before. Interestingly, none of
them have fundamentally changed the trend in growth, nor have
(31:32):
they permanently pushed up valuations. Now we could be at
a different it could be different, as you said, Mike,
this time, pees may stay at these extreme levels and
they won't look like extreme levels in twenty years. But
that's a little like saying I'm going to improve my
body mass index by growing six inches. I assume the
body mass index is a ratio of some kind, the
(31:55):
BMI right, and I assume that height is somewhere in
that ratio, and I assume he is on top. So
if somebody said that, you laugh, like, you're not going
to improve your cholesterol by doubling your volume, and then
there's less cholesterol to go around. Okay, that's no doctor,
I don't think. Maybe RFK junior, But other than RFK Junior,
nobody thinks you can improve your cholesterol by doubling your
(32:15):
your volume. Similarly, you typically don't grow your way out
of very high valuations.
Speaker 2 (32:20):
Let's take a quick break. When we come back. Stack
Roulette is next.
Speaker 1 (32:25):
The Financial Exchange streams live on YouTube. Subscribe to our
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(32:46):
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Speaker 3 (33:00):
Slick Change is a proud partner of the Disabled American
Veterans Department of Massachusetts. Planning as well underway for the
twenty twenty six DAV five K and if you weren't
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(33:22):
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DAV fivek dot Boston. That's DAV fivek dot Boston.
Speaker 2 (33:34):
Continued bad news for Zillo investors, I say continued because
in February of twenty twenty one, this stock hit nearly
two hundred dollars per share and is currently training at
seventy bucks a share, So it's been a pretty big
fall for those who have held on to it. But
yesterday the stock was down about seven percent on rumors
that Google might be interested in getting into their game
(33:59):
and completely upending their business model. If you're not familiar
with how Zillow makes money, they put out real estate
listings and then largely realtors pay to advertise on their
platform and hopefully get clients from those advertisements. Hey, you
want to put an offer on this home? You know,
talk to Jeff, I said Jeff. Oh, I did have
(34:21):
a realtor named Jeff's. That was probably why I went
to Jeff. If Google gets into this business, which I
don't know how big of a lift it would be,
you know, the reports are that they are running tests
and putting real estate sale listings into their search results.
If Google Flights and other businesses that they've gotten into
are any indication, my guess is that they would be
(34:44):
pretty darn good at it, undercut the competition, be faster,
more user friendly, and have a pretty good platform. I
don't know that, you know, maybe this one is different,
but history tells me that once they get into one
of these businesses one, their computing power is so much
stronger than all the competition that it tends to be faster.
(35:04):
They're better at building development, you know, developing websites, and
I just think about Google flights is the best example
I can give, right, I mean, anybody out there if
you want to go to Expedia search for a flight
and then do the same thing on Google, and I
can guarantee you the results will come back faster with Google,
(35:25):
and in many cases they will produce more results for
you than the than the other third parties. So if
it's the case, then Zillo might be having some problems.
Here would be my guess. I don't know you have
any take on this mark. Do you do you browse
these sites like I do. I feel like one of
my hobbies is looking at real estate on redfin and
so I'm constantly browsing these things but no no interest.
(35:48):
It's weird.
Speaker 3 (35:49):
I still find myself going on Zillo even though I
have zero interest or any likelihood of buying.
Speaker 2 (35:55):
A house any time soon.
Speaker 4 (35:57):
But it is but I still go on.
Speaker 2 (35:58):
Like whenever we drive, I buy a home that's for sale.
I just if I'm not driving, I can't help myself.
I pull up Redfinn and I go look at the property, like, oh,
that's a nice bedroom.
Speaker 3 (36:07):
I'm just curious to see what the market looks like
in terms of my location.
Speaker 2 (36:11):
But things that Google could probably do better than Zillow
or redfin. You know, they probably can pull in the pictures,
pull in all the same information about the schools and
everything else. I think they'd also do a better job
being able to tell you about nearby attractions, details about
the neighborhood, traffic patterns in the neighborhood.
Speaker 4 (36:27):
None of these guys are doing including open AI. I'm
just going to be very broad here. None are doing
anything that could not be undermined by a clever eighteen
year old at MIT right now who's figured out a
way to write more efficient code.
Speaker 2 (36:40):
This is my sure hope.
Speaker 4 (36:41):
Seeing this is all Googled forgive me, but none of
these people do anything that imparts a sustainable advantage to
their business model, unless you count the scale required to
get to invest in data centers, the capital required to
get these up and run. Any one of these guys
(37:01):
what they do could be knocked off and improved on
tomorrow by some kid working on his laptop.
Speaker 2 (37:06):
I really hope so, because what I've appeared over the
last decade or so is that Google, Amazon, Microsoft, and
Facebook have gotten so large that they can crush any
competition that ever comes about. And I hope I'm wrong
about fifteen twenty. I hope you're right. I do hope
you're right because different form trend recently has been. Anytime
(37:27):
something that looks like competition starts to come along, Google's
just been able to buy it, or Facebook has, or
Amazon has and crush the competition and then roll out
their own products that are cheaper and put the everybody,
all the competition that would have existed out of business.
So I don't love what it means for monopolistic concerns,
(37:49):
but for building a better product. I bet that Google
is able to do it. Got thirty seconds, Mark, got
anything for me?
Speaker 4 (37:55):
I have a Shiller quote. That's what I was scrambling
feverishly for. Is the twenty first century a new era question?
Mark Chiller says in response. Over the past century, the
American economy has been transformed in many fundamental ways. Agriculture
gave way to industry. Industry has given way to services
as the economies leading sector. Automobiles and planes have revolutionized transport,
(38:15):
while radio, television, and now the Internet have transformed communication.
Despite the historical stability of valuation ratio, some observers and
he wrote this twenty five years ago, you can apply
it to today. Some observers have questioned whether these patterns
are a guide and at the time he didn't know markets.
He concludes that they are, and we know what happened subsequently.
Speaker 2 (38:37):
That's all the time we have. Markets are still in
negative territory. We'll have a full recap for you and
more tomorrow here on the Financial Exchange
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