February 9, 2026 • 38 mins
Chuck Zodda and Mike Armstrong preview a crucial week of economic data, debating whether emerging “green shoots” in the labor market are real or just noise ahead of delayed jobs and CPI reports. The hour also dives into violent sector rotation under the surface of flat index performance, AI’s threat to software business models, China’s move to limit bank exposure to U.S. Treasurys, and the risks behind calls for renewed Fed-Treasury coordination under potential Fed Chair Kevin Warsh.
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Episode Transcript
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Speaker 1 (00:00):
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(00:20):
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(00:42):
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(01:06):
and Mike Armstrong.
Speaker 2 (01:11):
Chuck Mike Tucker with you, and we've got a full
slate for the week, some big data points that we're
gonna be uh examining over the course of the week.
On the earning side, we'll start there and kind of
we'll do this is a little bit of a build
up because the earnings.
Speaker 3 (01:31):
It's not last week's blockbuster fine like it's it's it's okay,
like okay.
Speaker 2 (01:36):
Coca Cola reports earnings, to be honest. And again another
one that kind of surprised me when I when I
saw this Coca Cola. If you had to guess, Michael,
how much revenue Coca Cola did in the last twelve months,
what do you think it is?
Speaker 3 (01:55):
Three quarters of an Uber? Pretty cool because you're just
about there.
Speaker 2 (02:01):
Coca Cola did about ninety percent of Uber's revenue in
the last twelve months.
Speaker 3 (02:06):
So what are the dollars? So I don't sound like
a you know.
Speaker 2 (02:09):
Forty eight billion for coke, fifty two billion for Uber.
Speaker 3 (02:12):
Okay, thanks you. So here's the thing we like to
talk about.
Speaker 2 (02:16):
Coke is like this bell weather for something, and it's
just not anymore. It's it's not to say that they're
like useless, Like it's it's a hugely valuable brand and
everything like that. Still a company worth three hundred billion dollars.
But their their revenue grows by like three percent a
year and they keep doing that over and over and over,
(02:40):
and yeah, like they're growing the pie.
Speaker 3 (02:42):
I get that.
Speaker 2 (02:43):
But here's the thing Coke right now, Remember Coke went
through a kind of down period in the twenty tens.
Coke's revenue today is equal to what it was in
twenty thirteen. It's been thirteen years and their revenue hasn't
budged effectively. Yeah, and it's because they're just it's a
saturated market for them. So I'm not really that interested
(03:05):
in Coke earnings because.
Speaker 3 (03:07):
By the way, part of that is a execution problem,
I would think, because if I look at Pepsi, I
have to believe that over the last thirteen years they
have grown their their revenue base, and I think they've
done so by obviously they're a different company than Coca Cola.
The Coca Cola is very purely beverage focused and Pepsi's not.
But that was a choice. Yeah, they did that on purpose, right.
(03:29):
I think about the Super Bowl as PEPSI had two
of them. They had the one, you know, shot across
the bow of Coca Cola. They also had one advertising
their healthy soda brand, Poppy. So there's that.
Speaker 2 (03:40):
Yeah, so Coke, I just it's not to say that
they're irrelevant, because you can't say that one of the
most valuable brands in the world is irrelevant. But from
a market perspective, like, what do we expect Coke to
tell us?
Speaker 3 (03:56):
Ever? Yeah, not much, I guess, you know.
Speaker 2 (04:00):
I just don't expect them to tell us very much,
is what I'm saying. Other companies that we have reporting
earnings this week, Cisco, great, it's you know, two thousand
and one again, Yahoo tell us you know what's going
on there. McDonald's. We've already talked about how you know,
Uber's way bigger than them. So I do think there's
a little bit more signal there than Coke, just in
terms of what they can tell us about Americans buying habits,
(04:22):
just because deciding to go out to a restaurant is
a fundamentally different proposition than whether or not you're going
to buy coke when you're at the grocery store. But
so I think there's still some signal there, even though
it's not as much as there used to be. We've
got on Thursday Airbnb, which I think will be an
interesting one to hear about just from a travel perspective.
(04:45):
But it's again not just not a great week of earnings.
What it is a great week for is economic data,
one of the best because of the government shutdown that
lasted like two and a half days. Tomorrow we get
retail sales data for the month of December. So it
is outdated because we're still catching.
Speaker 3 (05:03):
Up on some of this stuff, but it's a holiday
shopping season retail sales report that in and of itself
will be interesting. It's just backwards. Look, it's still.
Speaker 2 (05:11):
Somewhat relevant, you know, it's not too far out of
date at this point. Tuesday, I'm sorry, Wednesday, we're getting
the jobs report that was supposed to be last Friday.
So this is going to be an important one because
what we have seen in the month of January, continuing
unemployment claims have inflected down. We're now flat year over
(05:31):
year for basically the first few weeks of the year,
And is there a shift happening in the labor market
that is positive? This job's report could start to confirm
that it wouldn't because it's still one month, but maybe
you start to cluster some positive data there and see
an improving labor market. That would be fantastic. Thursday, we've
(05:51):
got more jobless claims data and existing home sales data,
and then the rare double dip Friday. See we get
CPI and jobs in the same week. Shutdown, and so
that is going to be another one that we're gonna
be looking at very closely just to see, Hey, what's
going on with the inflation picture. We've seen some improvement
(06:13):
on the periphery in the last month or two. Does
that continue into the new year or was it just
you know, data collection issues because of the shutdown back
the first shutdown back in last year, not the three
day one this year.
Speaker 3 (06:29):
This was the longer one. So you know, we'll see
what we get.
Speaker 2 (06:32):
But ultimately, I'm pretty excited to see this economic data
come through now that we are through the bulk of earnings,
at least from a does this matter or not perspective.
The only one that's really left out standing from an
earnings perspective is in Vidia, and they report in a
couple of weeks as they always do.
Speaker 3 (06:52):
The contextual backdrop here. Last week you saw the chances
of a rate cut increasing on the heels of really
a new narrative taking over the stock market. I think
that's the only thing I can point to that would
have shifted the focus on the rate cut cycle. That
did see about a ten percentage point swing in terms
(07:13):
of more likely for that rate cut at the next
series of meetings, although still quite unlikely to happen. The
other backdrop obviously, a new Federal Reserve president going to
be a chairperson, going to be taking over once he
can get confirmed and get Frankly, I think once he
gets a confirmation hearing, he will be confirmed. But the
question is when will that hearing actually take place. Also,
(07:35):
you know you mentioned earnings not the most interesting companies
reporting earnings, but I will point out that we did
last week have scheduled some of the most interesting companies
to report earnings, and frankly, the news took a back
seat to kind of breaking AI trends that took over
the market narrative last week. So not that the earnings
reports from Alphabet and Amazon last week, yep, weren't important.
(07:58):
Their stocks got clobbered on them, But the real thing
that mattered to markets last week was not on the calendar.
It was all about this new series of tools from Claude,
and that whole narrative is going to continue to develop
here as investors shake out what it means for whole
segments of the market.
Speaker 2 (08:18):
And this market is just in a really interestingly boring
exciting spot. Can't be both, it can be Can I explain?
It's it's bore sighting. That's what this market is right now.
Speaker 3 (08:31):
In the last sense, bor siding to me sounds like
some sort of Russian oligarch.
Speaker 2 (08:38):
Or No, it's you go and you go bor siding,
you know, like, oh, I'm going down to Texas for
you know, a bor siding trip. In any case, for
the last four months now, since late October, the S
and P five hundred is up a total of fifteen points,
less than a quarter percent, and yet we are less
than one percent off all time highs. So this is
(08:59):
a market that does not really want to move higher.
It's had ample opportunity to and cannot move conclusively higher.
It also has as had ample opportunity during that time
to go splot. I count four different two percent plus
pullbacks during that time. One of which was a five
(09:19):
percent plus pullback.
Speaker 3 (09:21):
And by the way, other markets out there that I
think people talk about in the same way that they
do the stock market have gone splat go. Take a
look at crypto markets, for example, during the same window
of time, and they've experienced all the downside without much
of the upswing.
Speaker 2 (09:35):
And the thing that has been holding this market together
is what's called dispersion, which is basically, hey, even when
markets have been pressured, you haven't had like everything selling
off all at once. It's been confined to a few areas.
And rather than people just rotating out of stocks, they've
just rotated.
Speaker 3 (09:52):
To other parts of the equity markets.
Speaker 2 (09:55):
So, hey, you know software is getting cobvered, but you
know energy is ry, or you've got you know, semiconductors
getting clobbered one day, but consumer staples is rising. And
this is what we've talked about, where we've got this
broadening market now where last year's market leadership is struggling,
that that tech and AI trade is struggling, and everything
(10:17):
else is trying to.
Speaker 3 (10:18):
Lead everything else.
Speaker 2 (10:19):
You know, like Walmart's there and it's like follow me
to freedom. You've got Coca Cola being like I can
do with Verizon even's like, I'm up nineteen percent. Pay
attention to me, I'm Verizon, and yet this market just
struggles to get upside capture. And it's just because the
stuff that has been lagging is just so big and
(10:39):
just so you know, draggy right now.
Speaker 3 (10:41):
So we've talked going into this year, the whole narrative
about the market in twenty twenty six was the rotation,
the rotation out of some of these giant companies into
some of the other laggards in the market. And by
saying you some of that.
Speaker 2 (10:57):
You're seeing a ton of it in my opinion, I mean,
look we're seeing so far this year in terms of performance.
Microsoft is down fifteen percent this year, Oracles down nineteen,
Palenteers down twenty one, Amazon's down seventeen, Tesla's down eight.
Those are the bad ones. The flat ones are Google
and Meta are flat. Apple's flat and videos up two percent,
(11:18):
broad Calms down two percent. Software is getting annihilated, like
you've got all that stuff that just isn't really moving.
And then you look at you, like Verizon's up nineteen
percent this year, Exxon Mobil's up twenty four, Caterpillars up
twenty seven, Walmart's up seventeen, merk is up twelve. What
(11:39):
do we got over here? New Mount Mining's up nineteen?
You got all this just torque on markets, but they're
not really going anywhere. So it's a boor sighting market
in my opinion, under the surface, very exciting, lots of danger,
lots of you know, happiness on the surface is kind
of like, Okay, I get that we made new all
(12:01):
time highs last week, but there by like four points
on the S and P and gosh, I you know,
can't we just go back to the summer of twenty
twenty five when things were just you know, cranking along,
like wouldn't that be nice? And the answer is no, Like,
the market's gonna do what it's gonna do. So I
think it's a really interesting situation right now.
Speaker 3 (12:20):
And we're right in the middle of.
Speaker 2 (12:22):
This you know, rotational torque period in markets that is
pretty cool to watch and presenting some opportunities, but it's
not really getting the broad markets anywhere. Let's take a
quick break. When we return, let's see do we want
to talk about Friday's rebound at all? Or are we
good on stocks?
Speaker 3 (12:40):
I think yes? Or no? I want to talk about
the SaaS entire situations and software generally, and the AI
shake up last week, which includes what happened on Friday.
That's next on the Financial Exchange.
Speaker 1 (12:52):
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Speaker 2 (13:56):
Mike, you want to do a little bit of cleanup
on Friday's market movement where we saw the S and
P rise two percent on basically no news from the
day before.
Speaker 3 (14:05):
Yeah, I was clear by the dip trade. Yes, it's
all it was was people jumping back in and buying
the dip, as we have seen, especially retail investors do
pretty much every time the market has taken a significant
dip over the course of the last three years. I
think a few things on this one. Just because the
market rebounded does not mean the individual components. Did you know,
(14:28):
Alphabet shares are down seven and a half percent over
the course of the last five days. Amazon shares down
fifteen and a half percent over the course of the
last five days. So some of the companies that got
punished in trading last week have not recovered. And certainly
when you take a look at those companies that were
the subject of what actually sparked. Can we talk about
what sparked the market pressure on software companies last week?
(14:49):
It was a report from who actually produced the I
know it was reported by several different outlets, but something
sparked the news that Clauds new tools were so impressive,
and the narrative took over that, Oh, if this really
makes app design and website development and all sorts of
(15:11):
software creation that much easier, then why do any of
these companies that have massive market share and massive profit
margins really matter? And so that narrative I don't think
changed with Friday's news, but I do think probably some
investors looked at all that and said, like you did
(15:32):
on Wednesday, I believe it was maybe Thursday. Am I
really going to go use AI to file my taxes tomorrow? No?
Probably not, But the overall narrative still but still here.
And here's the thing.
Speaker 2 (15:47):
I may not build something myself to go do that, sure,
but there are a bunch of smart people that are
going to be able to build things so quickly and
so cheaply that the fat margins that software companies have
had for their entire existence.
Speaker 3 (16:07):
Are going to get bludgeoned.
Speaker 2 (16:10):
And I want to read part of a piece this
is from I ended up reading this this morning. Was
published by Steve Yeggy or maybe it's yegg y E
g g E. Hard to say for sure, you Gay, Yeah,
Steve Gay, It's probably Yeggy right, I don't know. In
any case, Steve worked at basically a whole bunch of
(16:32):
tech companies over the course of his career. He's just
to give you, like an example, he's ex Amazon, ex Google,
like he knows his stuff in the tech space. And
I found this part very interesting. A little bird from
somewhere in sales told me that all companies are asking
(16:53):
variations of just the two same questions. They bluster and
bluff and try to act in form, but they are
all teared. When you custer their questions, they break down
into will everything be okay? And will we be here
in five years? The default answer, I'm afraid is no.
And he's basically talking about he's looking at what Anthropic
(17:14):
is doing with claud and Cowork and not Copilot, clod
code and things like that, and he says, the default
answer I'm afraid is no. If you do nothing, you
are almost certainly going to get overrun. If you have
an atom moat, then you stand a pretty good chance
of weathering the storm. If you execute well. You might
(17:35):
be like, what's an atom moat?
Speaker 3 (17:36):
Just a chance?
Speaker 2 (17:37):
Mind you, it's a moat, not a force field. But
atoms are a pretty good moat. If you make beer
or work with humans or ship stuff, say, you've got
a bit more time to work with maybe to find
your feet in the AI era. So basically if you
work with stuff other than computers, so basically, the closer
you are to the human being, yes, the better off
you are in this. But if you have a strictly
(17:58):
online or software as a service presence with no atoms
in your product whatsoever, just electrons, then you are candidly
pretty screwed if you don't pivot. And I don't think
there are any recipes for pivoting yet. This is all
new when it's happening very fast, and like the again,
you just look at this and what he's talking about.
(18:20):
He's like, they built clud Cowork apparently ten days. They
launched it ten days after they had the first idea
to do it. And it's partly because the tools that
they're using, these AI tools allow them to build very quickly,
and so it's just iterating very very fast. And so
the idea is not so much that I am going
(18:41):
to code some way for me to file my taxes,
but that some laid off engineer from into it could say, hey,
I've got caud code. I'm gonna get two of my
buddies together. We're gonna code the heck out of this
thing in three days, and we're gonna release super duper
TurboTax that's gonna be a tenth of the cost of TurboTax,
(19:03):
and that's the threat.
Speaker 3 (19:05):
The reason that the dot com era really broke down
in markets, in my mind, was that a cool, new
emergent technology came out and it took a long time
to be monetized. The pace at which some of this
change is changing right now leads to a big question
of will it take so long to be monetized? Given
what you just said about ten day release plan quick break,
(19:26):
Wall Street Watch is coming up next.
Speaker 1 (19:39):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
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 4 (19:58):
After last week's while ride cap by a strong rebound
on Friday, Wall Street's bracing for yet another busy week,
highlighted by a delayed jobs report and CPI reading for
the latest on inflation. In addition to more fourth quarter earnings.
Right now, markets are in positive territory modestly. Dow is
up by only seventeen points, SMP five hundreds up three
(20:20):
tenths of one percent, or nineteen points. NASDAC up nearly
half a percent or one hundred and two points higher.
Russell two thousands up over a tenth of a percent.
Tenure Treasure Real up one basis point at four point
two one point eight percent. In crewde Oil up above
three quarters of a percent, trading just above sixty four
dollars a barrel. Novinorda shares jumping over four percent higher
(20:44):
after Hymns and Hers pulled its we go be copycat
weight loss pill off the market after Novo threatened legal
action against the telehealth firm. Hymns and Her stock by
the way, tumbling twenty six percent on that news. Meanwhile,
chip maker st Microelectronics announced a multi billion dollar deal
with Amazon to support infrastructure for cloud and AI data center.
(21:08):
Shares in the semiconductor company are up by seven percent. Elsewhere.
A Bloomberg report this morning that Alphabet is looking to
raise about fifteen billion dollars from a US high grade
dollar bond sale. Alphabet shares are mostly flat Oracle rising
by about eight percent after the tech company received an
upgrade to buy from neutral from DA Davidson Grocery giant
(21:30):
Kroger named former Walmart executive Greg forn as its foran
as its next CEO. Kroger stock is up by six percent,
while Walmart's shares are dipping. And tomorrow morning, ahead of
the opening bell AstraZeneca, Coca Cola, BPCVS Health, Marriott, and
Spotify are among the names reporting their quarterly earnings. I'm
(21:53):
Tucker Silva and that is Wall Street Watch.
Speaker 2 (21:56):
So, as we noted, we do get the jobs report
for jan were coming out this week in two days
on Wednesday. Expectations are fairly muted, somewhere around forty to
seventy thousand jobs created. Unemployment rate expected to stay either
at four to four move up modestly to four point
five percent.
Speaker 3 (22:15):
Average hourly earnings.
Speaker 2 (22:16):
Expected to come in ato point three percent month over
month growth. And those are really the big ones that
we get, you know, Street estimates for. So you got
a piece here in Bloomberg that's talking about this. The
headline is next to us job support will define just
how much the labor market is slowing down or it won't.
And this is gonna.
Speaker 3 (22:38):
Be my point.
Speaker 2 (22:39):
We have some potential signs of green shoots appearing in
the labor market in the last few weeks. I say
potential because like a few weeks of good data does
not make a trend, and in fact, it's concentrated in
a couple reports, and so I'm not even sure that
you can conclusively say there's anything happening yet, but it's
it's a maybe. And ooh, I think that we just
(23:01):
need to be open to the possibility that this Job's
report may start to show some of that improvement that
we've seen in the weekly jobless claims in payroll tax withholding,
because that data had been not great for really the
last you know, the payroll tax withholding for the last
six months. The continuing jobless claims has been bad for
the last like two and a half three years, And
(23:24):
so I'm open to the possibility that maybe we're starting
to see some improvement, but we need to start seeing
it printing across more data sets than just the ones
that we have had at this point.
Speaker 3 (23:35):
So frankly, let's imagine for a moment that this Job's
report comes in exactly at estimate which is around fifty
thousand jobs created in four point four percent unemployment rate
tells us literally nothing about the pace of change in
the labor market. Sure, I think the percentage number that
unemployment rate, to me is the most important one, as
it has been for some time, because the job creation
(23:56):
or job elimination numbers are difficult to context allies in
the rapidly changing state of the labor market. As we've
talked about, right, you do have far less immigration to
the US, you have a lot of deportations, a lot
of retire reason, so that number is important to the
Federal Reserve when they're creating their models for the future.
(24:17):
But if you're trying to get a read on the
state of the labor market, the unemployment rate is the
most important one. And if it stays right at four
point four percent, which is where it was at the
last read and is around the highest it's been since
the recovery from COVID pandemic, I don't know that that
really tells you much. No, I guess it tells you
(24:37):
it hasn't worsened.
Speaker 2 (24:39):
Yes, I think the reason why the headline job number
matters to me is just because, ultimately, to a certain extent.
We don't know the extent anymore, just because again, the
sources of spending are changing with demographic shifts, in that
there's a larger proportion of people that are retired now
(24:59):
than before, and so their income and their spending isn't
as isn't dependent at all on employment the way that
it used to be. But there still is a large
portion of the population that, Hey, in order to be
able to spend money, you do need to earn it
from a job, and so if you're seeing a slowdown
in payroll growth, it potentially points to a slow down
(25:21):
in spending growth. Is it a one to one ratio, No,
because there are other places that other people in the
population can get spending power from. But it does still matter.
Speaker 3 (25:32):
Yeah. I Mean what I was gonna say is, even
if I got a bad read on that, right, let's
say the unemployment rate stayed at four to four and
the job creation number came in at half, is what
is expected like twenty five thousand? Yeah, I think that
I would still discount it because of what's coming up
here in the next couple of months, which we've talked
about at length, a lot of big tax refunds, and
(25:53):
so while you know, long term, if the trend line
is to no job creation, then yes, obviously we have
some concerns about what people are going to be able
to spend and how they're going to do it, But
not immediately immediately, I'm much more interested in, Okay, what
do people do with those juicy tax refunds that they get? Starting? Yeah,
(26:14):
when did when did the tax filing open? Like a
week and a half ago, So you know, starting in
three weeks, we're going to start to see these really
start pouring in. Yes, and that's going to be more
telling to me than anything we learned in the job support. Uh.
Speaker 2 (26:27):
Then, also, I gotta tell you, like, I'm seeing all
kinds of mixed signals now on hiring in terms of
like how hard or how easy it is to find
a job right now. On one hand, you look at
some of this and you got like a piece in
the Wall Street Journal, this is why it's so hard
to find a job right now. I saw another piece
(26:48):
somewhere this morning I can't remember where that people looking
for jobs have gotten so desperate that they're paying headhunters
to find them jobs. Yeah, later on is that okay? Yeah,
I knew it was so I couldn't remember like where
it was. So in any case, you've got stuff like
this that's like, oh, it's so hard to find a
job right now, and then the same time you've got
(27:12):
job openings by the indeed data ticking up. The Paycheck's
Small Business Jobs index is ticking up a little bit
in January, and so I'm just trying to reconcile these
different things that we're seeing, and where I get to is, again,
I think we may possibly be starting to see green shoots,
(27:32):
but it's just too early for most people to notice.
Speaker 3 (27:35):
Yes, That's where I would land is. I haven't seen
anything written by anybody saying, oh, look how easy it
was to find a job. No, So I think I'm
with you that we could be seeing indications of a
thong in the labor market. Perhaps, you know, the job
openings rate has hit its low and we're going to
see some improvement going forward on there, but it hasn't
(27:57):
been confirmed, and I definitely don't think people are feeling
it in the actual labor market. And so for the
time being, people are still feeling yesterday's news in the
labor market, which is weakening, a weakening job market, especially
for those without a job, and it will take time
to turn that nervous feeling that people are having. Just
(28:18):
take a quick break.
Speaker 2 (28:19):
When we return, we'll talk about what China is talking
about when it comes to US treasuries.
Speaker 1 (28:25):
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Speaker 2 (29:00):
We got a piece in Bloomberg this morning. China urges
banks to curb exposure to US treasuries quote. Chinese regulators
have advised financial institutions to rein in their holdings of
US treasury, citing concerns over concentration risks and market volatility.
According to people familiar with the matter, officials urged banks
to limit purchase of US government bonds and instructed those
(29:23):
with high exposure to pair down their positions. That people said,
asking not to be identified discussing private deliberations. The director
does not apply to China's state holdings of US treasuries.
So few different things as it relates to this. The
first is that US treasuries have actually been remarkably calm
(29:45):
over the last nine months or so, like, there really
has not been very much wiggle in them at all.
Taking a look at the ten year treasury and you know,
you go back to let's say May first, the low
that we've seen is around three to nine four, the
high is around four to six, and for most of
(30:06):
the time we've been between four to one and four four.
That's actually a pretty tight range on treasury. So this
is not really a volatility thing. What this is, in
my opinion, is China setting up another nice little point
of leverage in advance of some negotiations that are going
to be happening in the next month or two.
Speaker 3 (30:28):
They did this exact same thing with rare earths, I
believe it was before the last meeting between Trump, Trump
and Shijingping and the whole again, the whole premise here
is ratchet up, you know, potential conflict ahead of the
meeting so that you have something very easy to negotiate away.
Would the Chinese banks have any real legitimate concerns about
(30:53):
banks buying more treasuries other than the concern everybody has,
which is, well, the US could sanction us and we
might have that problem. I don't think so.
Speaker 2 (31:02):
No, And if they were concerned, they wouldn't be holding
two hundred ninety eight billion dollars worth of them right now.
Speaker 3 (31:07):
So not to say they don't have leverage over the situation,
but this seems to me to be the reason that
they are doing it. They're trying to ratchet up leverage.
Speaker 2 (31:15):
So I don't believe that this means that China actually
thinks that there is a problem with holding US debt,
because if you did think that, you wouldn't put out
a directive like this. You would just sell it and leave.
Speaker 3 (31:28):
People to pick up the pieces later. Yeah.
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Speaker 2 (32:41):
Worsh calls for Fed Treasury accords. Worsh's call for Fed
Treasury accords stirs debate in thirty trillion dollars bond markets.
So what Kevin wars is talking about Worsh being the
new pick for the Chair of the Fed, assuming he
gets confirmed by the Senate is basically hey. The FED
(33:04):
and the US Treasury Department at one point right after
World War two worked together to try to manage the
interest rate situation advantageously for the United States.
Speaker 3 (33:19):
Types of bonds that were issued, what maturity, how much,
et cetera.
Speaker 2 (33:23):
Yes, it was eventually abandoned, largely because in the midst
of trying to manage their way out of the fiscal
largess of financing World War Two in the aftermath of it,
at one point, annualized inflation hit north of twenty percent,
and they said, oh, gee, this isn't really working anymore.
And this ended up being when you know, the Breton
(33:44):
Woods Accord Accord Breton Woods system came into effect, and
so you had this whole post war economic system that
came into effect. Then that worked until it didn't in
the nineteen seventies.
Speaker 3 (33:56):
So is the idea It's been seventy five years, so
we need to test out bad ideas well.
Speaker 2 (34:00):
It's unclear exactly what Worsh is talking about in terms
of specifics here. Yeah, and I'll quote from Bloomberg, Neither
Worsh nor Treasury Secretary Scott Beston has detailed what they
may consider after the former Fed governor takes the helm.
The nominee did say in a CNBC interview last year
that in agreement could describe plainly and with deliberation what
(34:21):
the Fed's balance sheet size would be with the Treasury
laying out its debt issuance plans. So basically, would the
Fed commit to buying certain levels of debt from the Treasury.
The answer is, okay, they could do this. And again,
there's no free lunch on this. There's a reason why,
you know, these things tend to typically happen, and it's
(34:43):
not because everything is all hunky dory.
Speaker 3 (34:45):
Here's one thing I'm pretty sure of. I don't think
the incoming Federal Reserve chair is going to sign on
to a new plan to limit his own ability to
influence policy. Right. That could be one of the outcomes
here is, hey, we want to give some more power
to Treasury and give it away from the Federal Reserve
(35:05):
more in favor of the Treasury. Do you know many
appointed officials who are excited about giving away their own authority. No,
So I don't find it likely that Warsh is going
to go do that.
Speaker 1 (35:16):
No.
Speaker 2 (35:16):
Really, what this is talking about, and this is quote
now from Tim Dewey, who's the chief economist at sgh Macroadvisors.
Tim someone who I've followed on social media for like
fifteen years. He's one of the best FED watchers around
and knows his stuff. Rather than insulating the FED, it
could look more like a framework for yield curve control,
basically where the FED tries to control yields at all
(35:39):
points along the yield curve, not just.
Speaker 3 (35:40):
The short term.
Speaker 2 (35:42):
A public agreement that synchronized the Fed's balance sheet with
treasury financing explicitly ties monetary operations to deficits. And that
was exactly what happened in a nineteen fifty one agreement.
It went what bluh And that's exactly what the nineteen
fifty one agreement brought to an end. F had capped
both short and longer dated treasury yields during World War
(36:03):
Two in its aftermath to hold down borrowing costs. But
that recipe because post war inflation to soar. However, and
so this is the risk is if you already have
enough aggregate demand and now you you know, lower borrowing costs,
either to try to manage, you know, things from an
expense perspective from the US Treasury Department, or to try
(36:24):
to get you know, housing, you know, payments down and
things like that. It potentially unleashes more demand than you
have the constructive capacity to cover, and that's how you
end up with inflation. So that's the potential concern on
this filed in your back pocket. We don't have any specifics.
Worsh is not yet confirmed. We'll take a look at
it if it gets to that point, but this is
(36:44):
just something that's being talked about and we'll see what happens.
I ultimately don't know if anything actually comes of this.
Speaker 3 (36:51):
I think there's just a lot to be said that
we just don't know about what Kevin Worsh is going
to do. He has been a hyper fed critic, but
almost exclusively when Democrats are under you know, are in
control of the White House, and so I just don't
have a firm understanding of what his viewpoint is going
(37:12):
to be as he takes over at the Federal Reserve,
because his philosophy pretty consistently over the last fifteen years
has been for the FED to interfere a little bit
less in overall markets. And he's also, I think arguably
been very much in favor of focusing on the inflation
(37:32):
portion of the dual mandate. I have no idea what
that is going to carry over for twenty twenty six
and KNW Kevin Worship pointed to the chairperson.
Speaker 2 (37:42):
Yeah, I think we're gonna have to see what the
actual activity looks like, what the mix looks like. And again,
so much gets talked about before someone comes into one
of these positions, and ultimately a lot of it tends
to be noise and you have to see how they
actually act as opposed to what they're see saying in
the run up to it.
Speaker 3 (38:01):
Let's take a quick break here.
Speaker 2 (38:03):
We have our two of the Financial Exchange coming up
just a little bit
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Speaker 2 (01:11):
Chuck Mike Tucker with you, and we've got a full
slate for the week, some big data points that we're
gonna be uh examining over the course of the week.
On the earning side, we'll start there and kind of
we'll do this is a little bit of a build
up because the earnings.
Speaker 3 (01:31):
It's not last week's blockbuster fine like it's it's it's okay,
like okay.
Speaker 2 (01:36):
Coca Cola reports earnings, to be honest. And again another
one that kind of surprised me when I when I
saw this Coca Cola. If you had to guess, Michael,
how much revenue Coca Cola did in the last twelve months,
what do you think it is?
Speaker 3 (01:55):
Three quarters of an Uber? Pretty cool because you're just
about there.
Speaker 2 (02:01):
Coca Cola did about ninety percent of Uber's revenue in
the last twelve months.
Speaker 3 (02:06):
So what are the dollars? So I don't sound like
a you know.
Speaker 2 (02:09):
Forty eight billion for coke, fifty two billion for Uber.
Speaker 3 (02:12):
Okay, thanks you. So here's the thing we like to
talk about.
Speaker 2 (02:16):
Coke is like this bell weather for something, and it's
just not anymore. It's it's not to say that they're
like useless, Like it's it's a hugely valuable brand and
everything like that. Still a company worth three hundred billion dollars.
But their their revenue grows by like three percent a
year and they keep doing that over and over and over,
(02:40):
and yeah, like they're growing the pie.
Speaker 3 (02:42):
I get that.
Speaker 2 (02:43):
But here's the thing Coke right now, Remember Coke went
through a kind of down period in the twenty tens.
Coke's revenue today is equal to what it was in
twenty thirteen. It's been thirteen years and their revenue hasn't
budged effectively. Yeah, and it's because they're just it's a
saturated market for them. So I'm not really that interested
(03:05):
in Coke earnings because.
Speaker 3 (03:07):
By the way, part of that is a execution problem,
I would think, because if I look at Pepsi, I
have to believe that over the last thirteen years they
have grown their their revenue base, and I think they've
done so by obviously they're a different company than Coca Cola.
The Coca Cola is very purely beverage focused and Pepsi's not.
But that was a choice. Yeah, they did that on purpose, right.
(03:29):
I think about the Super Bowl as PEPSI had two
of them. They had the one, you know, shot across
the bow of Coca Cola. They also had one advertising
their healthy soda brand, Poppy. So there's that.
Speaker 2 (03:40):
Yeah, so Coke, I just it's not to say that
they're irrelevant, because you can't say that one of the
most valuable brands in the world is irrelevant. But from
a market perspective, like, what do we expect Coke to
tell us?
Speaker 3 (03:56):
Ever? Yeah, not much, I guess, you know.
Speaker 2 (04:00):
I just don't expect them to tell us very much,
is what I'm saying. Other companies that we have reporting
earnings this week, Cisco, great, it's you know, two thousand
and one again, Yahoo tell us you know what's going
on there. McDonald's. We've already talked about how you know,
Uber's way bigger than them. So I do think there's
a little bit more signal there than Coke, just in
terms of what they can tell us about Americans buying habits,
(04:22):
just because deciding to go out to a restaurant is
a fundamentally different proposition than whether or not you're going
to buy coke when you're at the grocery store. But
so I think there's still some signal there, even though
it's not as much as there used to be. We've
got on Thursday Airbnb, which I think will be an
interesting one to hear about just from a travel perspective.
(04:45):
But it's again not just not a great week of earnings.
What it is a great week for is economic data,
one of the best because of the government shutdown that
lasted like two and a half days. Tomorrow we get
retail sales data for the month of December. So it
is outdated because we're still catching.
Speaker 3 (05:03):
Up on some of this stuff, but it's a holiday
shopping season retail sales report that in and of itself
will be interesting. It's just backwards. Look, it's still.
Speaker 2 (05:11):
Somewhat relevant, you know, it's not too far out of
date at this point. Tuesday, I'm sorry, Wednesday, we're getting
the jobs report that was supposed to be last Friday.
So this is going to be an important one because
what we have seen in the month of January, continuing
unemployment claims have inflected down. We're now flat year over
(05:31):
year for basically the first few weeks of the year,
And is there a shift happening in the labor market
that is positive? This job's report could start to confirm
that it wouldn't because it's still one month, but maybe
you start to cluster some positive data there and see
an improving labor market. That would be fantastic. Thursday, we've
(05:51):
got more jobless claims data and existing home sales data,
and then the rare double dip Friday. See we get
CPI and jobs in the same week. Shutdown, and so
that is going to be another one that we're gonna
be looking at very closely just to see, Hey, what's
going on with the inflation picture. We've seen some improvement
(06:13):
on the periphery in the last month or two. Does
that continue into the new year or was it just
you know, data collection issues because of the shutdown back
the first shutdown back in last year, not the three
day one this year.
Speaker 3 (06:29):
This was the longer one. So you know, we'll see
what we get.
Speaker 2 (06:32):
But ultimately, I'm pretty excited to see this economic data
come through now that we are through the bulk of earnings,
at least from a does this matter or not perspective.
The only one that's really left out standing from an
earnings perspective is in Vidia, and they report in a
couple of weeks as they always do.
Speaker 3 (06:52):
The contextual backdrop here. Last week you saw the chances
of a rate cut increasing on the heels of really
a new narrative taking over the stock market. I think
that's the only thing I can point to that would
have shifted the focus on the rate cut cycle. That
did see about a ten percentage point swing in terms
(07:13):
of more likely for that rate cut at the next
series of meetings, although still quite unlikely to happen. The
other backdrop obviously, a new Federal Reserve president going to
be a chairperson, going to be taking over once he
can get confirmed and get Frankly, I think once he
gets a confirmation hearing, he will be confirmed. But the
question is when will that hearing actually take place. Also,
(07:35):
you know you mentioned earnings not the most interesting companies
reporting earnings, but I will point out that we did
last week have scheduled some of the most interesting companies
to report earnings, and frankly, the news took a back
seat to kind of breaking AI trends that took over
the market narrative last week. So not that the earnings
reports from Alphabet and Amazon last week, yep, weren't important.
(07:58):
Their stocks got clobbered on them, But the real thing
that mattered to markets last week was not on the calendar.
It was all about this new series of tools from Claude,
and that whole narrative is going to continue to develop
here as investors shake out what it means for whole
segments of the market.
Speaker 2 (08:18):
And this market is just in a really interestingly boring
exciting spot. Can't be both, it can be Can I explain?
It's it's bore sighting. That's what this market is right now.
Speaker 3 (08:31):
In the last sense, bor siding to me sounds like
some sort of Russian oligarch.
Speaker 2 (08:38):
Or No, it's you go and you go bor siding,
you know, like, oh, I'm going down to Texas for
you know, a bor siding trip. In any case, for
the last four months now, since late October, the S
and P five hundred is up a total of fifteen points,
less than a quarter percent, and yet we are less
than one percent off all time highs. So this is
(08:59):
a market that does not really want to move higher.
It's had ample opportunity to and cannot move conclusively higher.
It also has as had ample opportunity during that time
to go splot. I count four different two percent plus
pullbacks during that time. One of which was a five
(09:19):
percent plus pullback.
Speaker 3 (09:21):
And by the way, other markets out there that I
think people talk about in the same way that they
do the stock market have gone splat go. Take a
look at crypto markets, for example, during the same window
of time, and they've experienced all the downside without much
of the upswing.
Speaker 2 (09:35):
And the thing that has been holding this market together
is what's called dispersion, which is basically, hey, even when
markets have been pressured, you haven't had like everything selling
off all at once. It's been confined to a few areas.
And rather than people just rotating out of stocks, they've
just rotated.
Speaker 3 (09:52):
To other parts of the equity markets.
Speaker 2 (09:55):
So, hey, you know software is getting cobvered, but you
know energy is ry, or you've got you know, semiconductors
getting clobbered one day, but consumer staples is rising. And
this is what we've talked about, where we've got this
broadening market now where last year's market leadership is struggling,
that that tech and AI trade is struggling, and everything
(10:17):
else is trying to.
Speaker 3 (10:18):
Lead everything else.
Speaker 2 (10:19):
You know, like Walmart's there and it's like follow me
to freedom. You've got Coca Cola being like I can
do with Verizon even's like, I'm up nineteen percent. Pay
attention to me, I'm Verizon, and yet this market just
struggles to get upside capture. And it's just because the
stuff that has been lagging is just so big and
(10:39):
just so you know, draggy right now.
Speaker 3 (10:41):
So we've talked going into this year, the whole narrative
about the market in twenty twenty six was the rotation,
the rotation out of some of these giant companies into
some of the other laggards in the market. And by
saying you some of that.
Speaker 2 (10:57):
You're seeing a ton of it in my opinion, I mean,
look we're seeing so far this year in terms of performance.
Microsoft is down fifteen percent this year, Oracles down nineteen,
Palenteers down twenty one, Amazon's down seventeen, Tesla's down eight.
Those are the bad ones. The flat ones are Google
and Meta are flat. Apple's flat and videos up two percent,
(11:18):
broad Calms down two percent. Software is getting annihilated, like
you've got all that stuff that just isn't really moving.
And then you look at you, like Verizon's up nineteen
percent this year, Exxon Mobil's up twenty four, Caterpillars up
twenty seven, Walmart's up seventeen, merk is up twelve. What
(11:39):
do we got over here? New Mount Mining's up nineteen?
You got all this just torque on markets, but they're
not really going anywhere. So it's a boor sighting market
in my opinion, under the surface, very exciting, lots of danger,
lots of you know, happiness on the surface is kind
of like, Okay, I get that we made new all
(12:01):
time highs last week, but there by like four points
on the S and P and gosh, I you know,
can't we just go back to the summer of twenty
twenty five when things were just you know, cranking along,
like wouldn't that be nice? And the answer is no, Like,
the market's gonna do what it's gonna do. So I
think it's a really interesting situation right now.
Speaker 3 (12:20):
And we're right in the middle of.
Speaker 2 (12:22):
This you know, rotational torque period in markets that is
pretty cool to watch and presenting some opportunities, but it's
not really getting the broad markets anywhere. Let's take a
quick break. When we return, let's see do we want
to talk about Friday's rebound at all? Or are we
good on stocks?
Speaker 3 (12:40):
I think yes? Or no? I want to talk about
the SaaS entire situations and software generally, and the AI
shake up last week, which includes what happened on Friday.
That's next on the Financial Exchange.
Speaker 1 (12:52):
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Speaker 2 (13:56):
Mike, you want to do a little bit of cleanup
on Friday's market movement where we saw the S and
P rise two percent on basically no news from the
day before.
Speaker 3 (14:05):
Yeah, I was clear by the dip trade. Yes, it's
all it was was people jumping back in and buying
the dip, as we have seen, especially retail investors do
pretty much every time the market has taken a significant
dip over the course of the last three years. I
think a few things on this one. Just because the
market rebounded does not mean the individual components. Did you know,
(14:28):
Alphabet shares are down seven and a half percent over
the course of the last five days. Amazon shares down
fifteen and a half percent over the course of the
last five days. So some of the companies that got
punished in trading last week have not recovered. And certainly
when you take a look at those companies that were
the subject of what actually sparked. Can we talk about
what sparked the market pressure on software companies last week?
(14:49):
It was a report from who actually produced the I
know it was reported by several different outlets, but something
sparked the news that Clauds new tools were so impressive,
and the narrative took over that, Oh, if this really
makes app design and website development and all sorts of
(15:11):
software creation that much easier, then why do any of
these companies that have massive market share and massive profit
margins really matter? And so that narrative I don't think
changed with Friday's news, but I do think probably some
investors looked at all that and said, like you did
(15:32):
on Wednesday, I believe it was maybe Thursday. Am I
really going to go use AI to file my taxes tomorrow? No?
Probably not, But the overall narrative still but still here.
And here's the thing.
Speaker 2 (15:47):
I may not build something myself to go do that, sure,
but there are a bunch of smart people that are
going to be able to build things so quickly and
so cheaply that the fat margins that software companies have
had for their entire existence.
Speaker 3 (16:07):
Are going to get bludgeoned.
Speaker 2 (16:10):
And I want to read part of a piece this
is from I ended up reading this this morning. Was
published by Steve Yeggy or maybe it's yegg y E
g g E. Hard to say for sure, you Gay, Yeah,
Steve Gay, It's probably Yeggy right, I don't know. In
any case, Steve worked at basically a whole bunch of
(16:32):
tech companies over the course of his career. He's just
to give you, like an example, he's ex Amazon, ex Google,
like he knows his stuff in the tech space. And
I found this part very interesting. A little bird from
somewhere in sales told me that all companies are asking
(16:53):
variations of just the two same questions. They bluster and
bluff and try to act in form, but they are
all teared. When you custer their questions, they break down
into will everything be okay? And will we be here
in five years? The default answer, I'm afraid is no.
And he's basically talking about he's looking at what Anthropic
(17:14):
is doing with claud and Cowork and not Copilot, clod
code and things like that, and he says, the default
answer I'm afraid is no. If you do nothing, you
are almost certainly going to get overrun. If you have
an atom moat, then you stand a pretty good chance
of weathering the storm. If you execute well. You might
(17:35):
be like, what's an atom moat?
Speaker 3 (17:36):
Just a chance?
Speaker 2 (17:37):
Mind you, it's a moat, not a force field. But
atoms are a pretty good moat. If you make beer
or work with humans or ship stuff, say, you've got
a bit more time to work with maybe to find
your feet in the AI era. So basically if you
work with stuff other than computers, so basically, the closer
you are to the human being, yes, the better off
you are in this. But if you have a strictly
(17:58):
online or software as a service presence with no atoms
in your product whatsoever, just electrons, then you are candidly
pretty screwed if you don't pivot. And I don't think
there are any recipes for pivoting yet. This is all
new when it's happening very fast, and like the again,
you just look at this and what he's talking about.
(18:20):
He's like, they built clud Cowork apparently ten days. They
launched it ten days after they had the first idea
to do it. And it's partly because the tools that
they're using, these AI tools allow them to build very quickly,
and so it's just iterating very very fast. And so
the idea is not so much that I am going
(18:41):
to code some way for me to file my taxes,
but that some laid off engineer from into it could say, hey,
I've got caud code. I'm gonna get two of my
buddies together. We're gonna code the heck out of this
thing in three days, and we're gonna release super duper
TurboTax that's gonna be a tenth of the cost of TurboTax,
(19:03):
and that's the threat.
Speaker 3 (19:05):
The reason that the dot com era really broke down
in markets, in my mind, was that a cool, new
emergent technology came out and it took a long time
to be monetized. The pace at which some of this
change is changing right now leads to a big question
of will it take so long to be monetized? Given
what you just said about ten day release plan quick break,
(19:26):
Wall Street Watch is coming up next.
Speaker 1 (19:39):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
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 4 (19:58):
After last week's while ride cap by a strong rebound
on Friday, Wall Street's bracing for yet another busy week,
highlighted by a delayed jobs report and CPI reading for
the latest on inflation. In addition to more fourth quarter earnings.
Right now, markets are in positive territory modestly. Dow is
up by only seventeen points, SMP five hundreds up three
(20:20):
tenths of one percent, or nineteen points. NASDAC up nearly
half a percent or one hundred and two points higher.
Russell two thousands up over a tenth of a percent.
Tenure Treasure Real up one basis point at four point
two one point eight percent. In crewde Oil up above
three quarters of a percent, trading just above sixty four
dollars a barrel. Novinorda shares jumping over four percent higher
(20:44):
after Hymns and Hers pulled its we go be copycat
weight loss pill off the market after Novo threatened legal
action against the telehealth firm. Hymns and Her stock by
the way, tumbling twenty six percent on that news. Meanwhile,
chip maker st Microelectronics announced a multi billion dollar deal
with Amazon to support infrastructure for cloud and AI data center.
(21:08):
Shares in the semiconductor company are up by seven percent. Elsewhere.
A Bloomberg report this morning that Alphabet is looking to
raise about fifteen billion dollars from a US high grade
dollar bond sale. Alphabet shares are mostly flat Oracle rising
by about eight percent after the tech company received an
upgrade to buy from neutral from DA Davidson Grocery giant
(21:30):
Kroger named former Walmart executive Greg forn as its foran
as its next CEO. Kroger stock is up by six percent,
while Walmart's shares are dipping. And tomorrow morning, ahead of
the opening bell AstraZeneca, Coca Cola, BPCVS Health, Marriott, and
Spotify are among the names reporting their quarterly earnings. I'm
(21:53):
Tucker Silva and that is Wall Street Watch.
Speaker 2 (21:56):
So, as we noted, we do get the jobs report
for jan were coming out this week in two days
on Wednesday. Expectations are fairly muted, somewhere around forty to
seventy thousand jobs created. Unemployment rate expected to stay either
at four to four move up modestly to four point
five percent.
Speaker 3 (22:15):
Average hourly earnings.
Speaker 2 (22:16):
Expected to come in ato point three percent month over
month growth. And those are really the big ones that
we get, you know, Street estimates for. So you got
a piece here in Bloomberg that's talking about this. The
headline is next to us job support will define just
how much the labor market is slowing down or it won't.
And this is gonna.
Speaker 3 (22:38):
Be my point.
Speaker 2 (22:39):
We have some potential signs of green shoots appearing in
the labor market in the last few weeks. I say
potential because like a few weeks of good data does
not make a trend, and in fact, it's concentrated in
a couple reports, and so I'm not even sure that
you can conclusively say there's anything happening yet, but it's
it's a maybe. And ooh, I think that we just
(23:01):
need to be open to the possibility that this Job's
report may start to show some of that improvement that
we've seen in the weekly jobless claims in payroll tax withholding,
because that data had been not great for really the
last you know, the payroll tax withholding for the last
six months. The continuing jobless claims has been bad for
the last like two and a half three years, And
(23:24):
so I'm open to the possibility that maybe we're starting
to see some improvement, but we need to start seeing
it printing across more data sets than just the ones
that we have had at this point.
Speaker 3 (23:35):
So frankly, let's imagine for a moment that this Job's
report comes in exactly at estimate which is around fifty
thousand jobs created in four point four percent unemployment rate
tells us literally nothing about the pace of change in
the labor market. Sure, I think the percentage number that
unemployment rate, to me is the most important one, as
it has been for some time, because the job creation
(23:56):
or job elimination numbers are difficult to context allies in
the rapidly changing state of the labor market. As we've
talked about, right, you do have far less immigration to
the US, you have a lot of deportations, a lot
of retire reason, so that number is important to the
Federal Reserve when they're creating their models for the future.
(24:17):
But if you're trying to get a read on the
state of the labor market, the unemployment rate is the
most important one. And if it stays right at four
point four percent, which is where it was at the
last read and is around the highest it's been since
the recovery from COVID pandemic, I don't know that that
really tells you much. No, I guess it tells you
(24:37):
it hasn't worsened.
Speaker 2 (24:39):
Yes, I think the reason why the headline job number
matters to me is just because, ultimately, to a certain extent.
We don't know the extent anymore, just because again, the
sources of spending are changing with demographic shifts, in that
there's a larger proportion of people that are retired now
(24:59):
than before, and so their income and their spending isn't
as isn't dependent at all on employment the way that
it used to be. But there still is a large
portion of the population that, Hey, in order to be
able to spend money, you do need to earn it
from a job, and so if you're seeing a slowdown
in payroll growth, it potentially points to a slow down
(25:21):
in spending growth. Is it a one to one ratio, No,
because there are other places that other people in the
population can get spending power from. But it does still matter.
Speaker 3 (25:32):
Yeah. I Mean what I was gonna say is, even
if I got a bad read on that, right, let's
say the unemployment rate stayed at four to four and
the job creation number came in at half, is what
is expected like twenty five thousand? Yeah, I think that
I would still discount it because of what's coming up
here in the next couple of months, which we've talked
about at length, a lot of big tax refunds, and
(25:53):
so while you know, long term, if the trend line
is to no job creation, then yes, obviously we have
some concerns about what people are going to be able
to spend and how they're going to do it, But
not immediately immediately, I'm much more interested in, Okay, what
do people do with those juicy tax refunds that they get? Starting? Yeah,
(26:14):
when did when did the tax filing open? Like a
week and a half ago, So you know, starting in
three weeks, we're going to start to see these really
start pouring in. Yes, and that's going to be more
telling to me than anything we learned in the job support. Uh.
Speaker 2 (26:27):
Then, also, I gotta tell you, like, I'm seeing all
kinds of mixed signals now on hiring in terms of
like how hard or how easy it is to find
a job right now. On one hand, you look at
some of this and you got like a piece in
the Wall Street Journal, this is why it's so hard
to find a job right now. I saw another piece
(26:48):
somewhere this morning I can't remember where that people looking
for jobs have gotten so desperate that they're paying headhunters
to find them jobs. Yeah, later on is that okay? Yeah,
I knew it was so I couldn't remember like where
it was. So in any case, you've got stuff like
this that's like, oh, it's so hard to find a
job right now, and then the same time you've got
(27:12):
job openings by the indeed data ticking up. The Paycheck's
Small Business Jobs index is ticking up a little bit
in January, and so I'm just trying to reconcile these
different things that we're seeing, and where I get to is, again,
I think we may possibly be starting to see green shoots,
(27:32):
but it's just too early for most people to notice.
Speaker 3 (27:35):
Yes, That's where I would land is. I haven't seen
anything written by anybody saying, oh, look how easy it
was to find a job. No, So I think I'm
with you that we could be seeing indications of a
thong in the labor market. Perhaps, you know, the job
openings rate has hit its low and we're going to
see some improvement going forward on there, but it hasn't
(27:57):
been confirmed, and I definitely don't think people are feeling
it in the actual labor market. And so for the
time being, people are still feeling yesterday's news in the
labor market, which is weakening, a weakening job market, especially
for those without a job, and it will take time
to turn that nervous feeling that people are having. Just
(28:18):
take a quick break.
Speaker 2 (28:19):
When we return, we'll talk about what China is talking
about when it comes to US treasuries.
Speaker 1 (28:25):
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(28:46):
Exchange Radio Network.
Speaker 2 (29:00):
We got a piece in Bloomberg this morning. China urges
banks to curb exposure to US treasuries quote. Chinese regulators
have advised financial institutions to rein in their holdings of
US treasury, citing concerns over concentration risks and market volatility.
According to people familiar with the matter, officials urged banks
to limit purchase of US government bonds and instructed those
(29:23):
with high exposure to pair down their positions. That people said,
asking not to be identified discussing private deliberations. The director
does not apply to China's state holdings of US treasuries.
So few different things as it relates to this. The
first is that US treasuries have actually been remarkably calm
(29:45):
over the last nine months or so, like, there really
has not been very much wiggle in them at all.
Taking a look at the ten year treasury and you know,
you go back to let's say May first, the low
that we've seen is around three to nine four, the
high is around four to six, and for most of
(30:06):
the time we've been between four to one and four four.
That's actually a pretty tight range on treasury. So this
is not really a volatility thing. What this is, in
my opinion, is China setting up another nice little point
of leverage in advance of some negotiations that are going
to be happening in the next month or two.
Speaker 3 (30:28):
They did this exact same thing with rare earths, I
believe it was before the last meeting between Trump, Trump
and Shijingping and the whole again, the whole premise here
is ratchet up, you know, potential conflict ahead of the
meeting so that you have something very easy to negotiate away.
Would the Chinese banks have any real legitimate concerns about
(30:53):
banks buying more treasuries other than the concern everybody has,
which is, well, the US could sanction us and we
might have that problem. I don't think so.
Speaker 2 (31:02):
No, And if they were concerned, they wouldn't be holding
two hundred ninety eight billion dollars worth of them right now.
Speaker 3 (31:07):
So not to say they don't have leverage over the situation,
but this seems to me to be the reason that
they are doing it. They're trying to ratchet up leverage.
Speaker 2 (31:15):
So I don't believe that this means that China actually
thinks that there is a problem with holding US debt,
because if you did think that, you wouldn't put out
a directive like this. You would just sell it and leave.
Speaker 3 (31:28):
People to pick up the pieces later. Yeah.
Speaker 4 (31:31):
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Speaker 2 (32:41):
Worsh calls for Fed Treasury accords. Worsh's call for Fed
Treasury accords stirs debate in thirty trillion dollars bond markets.
So what Kevin wars is talking about Worsh being the
new pick for the Chair of the Fed, assuming he
gets confirmed by the Senate is basically hey. The FED
(33:04):
and the US Treasury Department at one point right after
World War two worked together to try to manage the
interest rate situation advantageously for the United States.
Speaker 3 (33:19):
Types of bonds that were issued, what maturity, how much,
et cetera.
Speaker 2 (33:23):
Yes, it was eventually abandoned, largely because in the midst
of trying to manage their way out of the fiscal
largess of financing World War Two in the aftermath of it,
at one point, annualized inflation hit north of twenty percent,
and they said, oh, gee, this isn't really working anymore.
And this ended up being when you know, the Breton
(33:44):
Woods Accord Accord Breton Woods system came into effect, and
so you had this whole post war economic system that
came into effect. Then that worked until it didn't in
the nineteen seventies.
Speaker 3 (33:56):
So is the idea It's been seventy five years, so
we need to test out bad ideas well.
Speaker 2 (34:00):
It's unclear exactly what Worsh is talking about in terms
of specifics here. Yeah, and I'll quote from Bloomberg, Neither
Worsh nor Treasury Secretary Scott Beston has detailed what they
may consider after the former Fed governor takes the helm.
The nominee did say in a CNBC interview last year
that in agreement could describe plainly and with deliberation what
(34:21):
the Fed's balance sheet size would be with the Treasury
laying out its debt issuance plans. So basically, would the
Fed commit to buying certain levels of debt from the Treasury.
The answer is, okay, they could do this. And again,
there's no free lunch on this. There's a reason why,
you know, these things tend to typically happen, and it's
(34:43):
not because everything is all hunky dory.
Speaker 3 (34:45):
Here's one thing I'm pretty sure of. I don't think
the incoming Federal Reserve chair is going to sign on
to a new plan to limit his own ability to
influence policy. Right. That could be one of the outcomes
here is, hey, we want to give some more power
to Treasury and give it away from the Federal Reserve
(35:05):
more in favor of the Treasury. Do you know many
appointed officials who are excited about giving away their own authority. No,
So I don't find it likely that Warsh is going
to go do that.
Speaker 1 (35:16):
No.
Speaker 2 (35:16):
Really, what this is talking about, and this is quote
now from Tim Dewey, who's the chief economist at sgh Macroadvisors.
Tim someone who I've followed on social media for like
fifteen years. He's one of the best FED watchers around
and knows his stuff. Rather than insulating the FED, it
could look more like a framework for yield curve control,
basically where the FED tries to control yields at all
(35:39):
points along the yield curve, not just.
Speaker 3 (35:40):
The short term.
Speaker 2 (35:42):
A public agreement that synchronized the Fed's balance sheet with
treasury financing explicitly ties monetary operations to deficits. And that
was exactly what happened in a nineteen fifty one agreement.
It went what bluh And that's exactly what the nineteen
fifty one agreement brought to an end. F had capped
both short and longer dated treasury yields during World War
(36:03):
Two in its aftermath to hold down borrowing costs. But
that recipe because post war inflation to soar. However, and
so this is the risk is if you already have
enough aggregate demand and now you you know, lower borrowing costs,
either to try to manage, you know, things from an
expense perspective from the US Treasury Department, or to try
(36:24):
to get you know, housing, you know, payments down and
things like that. It potentially unleashes more demand than you
have the constructive capacity to cover, and that's how you
end up with inflation. So that's the potential concern on
this filed in your back pocket. We don't have any specifics.
Worsh is not yet confirmed. We'll take a look at
it if it gets to that point, but this is
(36:44):
just something that's being talked about and we'll see what happens.
I ultimately don't know if anything actually comes of this.
Speaker 3 (36:51):
I think there's just a lot to be said that
we just don't know about what Kevin Worsh is going
to do. He has been a hyper fed critic, but
almost exclusively when Democrats are under you know, are in
control of the White House, and so I just don't
have a firm understanding of what his viewpoint is going
(37:12):
to be as he takes over at the Federal Reserve,
because his philosophy pretty consistently over the last fifteen years
has been for the FED to interfere a little bit
less in overall markets. And he's also, I think arguably
been very much in favor of focusing on the inflation
(37:32):
portion of the dual mandate. I have no idea what
that is going to carry over for twenty twenty six
and KNW Kevin Worship pointed to the chairperson.
Speaker 2 (37:42):
Yeah, I think we're gonna have to see what the
actual activity looks like, what the mix looks like. And again,
so much gets talked about before someone comes into one
of these positions, and ultimately a lot of it tends
to be noise and you have to see how they
actually act as opposed to what they're see saying in
the run up to it.
Speaker 3 (38:01):
Let's take a quick break here.
Speaker 2 (38:03):
We have our two of the Financial Exchange coming up
just a little bit
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