September 25, 2025 • 38 mins
Chuck Zodda and Mike Armstrong discuss initial jobless claims tumble for second consecutive week. US economy grew faster than expected in the second quarter. Too many still don't understand the tax ramifications of the Big, Beautiful Bill. CarMax sees unexpected drop in used-car sales. White House to pursue mass firings if government shuts down. How the H1B visa fee could reshape workforces.
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Episode Transcript
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Speaker 1 (00:00):
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(00:42):
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(01:06):
and Mike Armstrong.
Speaker 2 (01:09):
Chuck, Mike and Tucker with you.
Speaker 3 (01:11):
And it's a little stinky out there in markets today,
just kind of your nose gets all turned up with
what you're seeing as we you know, continue to see
stocks selling off modestly. Three days that we've seen now
stocks in the red. Obviously we'll have to see if
that continues over the course of the day here, but again,
(01:33):
just kind of a little bit of a gnarly start
to the day. Stocks were covering a little bit now,
and you know, we'll keep an eye on them. But
obviously we have yet to see any kind of protracted,
you know, downturn in stocks. The longest that we've gone
has been you know, maybe like four or five days.
Occasionally in the last you know, four or five months,
(01:54):
where yeah, it looked like things were getting dodgy and
the S and P fell you know, two, three, four percent,
and then things bounced right back. We have not even
had a five percent dip inequities since April, so I.
Speaker 4 (02:05):
Was gonna ask that I was guessing we haven't seen
one since the tariff announcements.
Speaker 2 (02:08):
No, we haven't.
Speaker 3 (02:10):
The the last time that we saw a five percent dip,
was it was that kind of secondary bottom on April
twenty first that we got, and other than that, it's
just been these little two three Oh we're a little
nervous for a couple of days, and then you know,
we kind of bounced right back. So we'll see what
we get with this one. But at this point stock's
under a little bit of pressure, and you know, we'll
(02:31):
just kind of have to see how it goes. We
did get a bunch of economic data this morning. I'd
like to start with the jobbles claims data, if that's
cool with you, Michael, A fantastic two weeks ago, we
flagged that jobbles claims weekly new ones new initial ones
were elevated, and we specifically pointed out, hey, a lot
of this looks like it's due to some kind of
(02:51):
anomaly in Texas. We don't really expect it to repeat,
but claims have generally been climbing, you know, for a
few weeks, and so let's see what happens. But we
don't think this is going to turn into anything. The
subsequent two weeks, including today's report, have pretty much confirmed
that on the initial jobbles claims front, a further decline
in initial jobles claims to two hundred and eighteen thousand,
(03:12):
and so we continue to be in a situation where, hey,
even though there are some concerns about the slow pace
of hiring, there is nothing out there that suggests any
pickup in firings or layoffs right now, Mike, And that's
good news for the labor market.
Speaker 2 (03:29):
It is.
Speaker 4 (03:29):
And I have to try and wonder and contextualize, Like,
I can be concerned about the pace of hiring, but
I have a very difficult time having a perspective like
the feed is taking right now of grave concern about
I wouldn't say grave concern, but legitimate concern about the
labor market when you're just not seeing the layoffs right Like,
(03:53):
I just don't know if that is really an indication, Hey,
week hiring for what are we on now, three or
four month is genuinely an indication that the labor market
is so weak that the FED should be doing what
they're doing right now. Obviously they feel that it is,
but without corresponding upticks in these jobless claims, these folks
filing for unemployment, I just remain unconvinced that we have
(04:15):
a really weak labor market right now.
Speaker 3 (04:17):
So I think the case that the FED will make,
And this is the case I would make at the FED.
And by the way, I don't think they're off base
in you know, starting a cutting cycle here just to see,
you know, kind of how things develop. I don't think
there's a problem with what they did last week. I
think the case that they will make is number one.
(04:37):
Labor is typically a lagging indicator. Yeah, it's not something like.
We have never had a recession where everything's just been
humming along and then companies say, you know what, let's
lay a bunch of people off and that triggers the recession.
We've never had that layoffs are an ancillary effect because
ultimately what we see is consumption leads employment. And what
(05:01):
I mean by that is, let's say that you are
a Mike You you are, you know, a business. I'm
you are going to, you know, transform yourself into a company.
Speaker 2 (05:09):
You're like, whole hole.
Speaker 4 (05:10):
Hole.
Speaker 2 (05:10):
Here I go.
Speaker 4 (05:11):
So I'm not the president of a company. I just
am now a business.
Speaker 2 (05:14):
You are Mike Armstrong Incorporated. Got it, okay, And you're
walking around going whole whole whole business. Good whole hole.
Because that's what sound ll season. You know, corporations make.
Speaker 3 (05:24):
Sound a lot like Santa Okay, I bet he has
a corporation. You know, someone's got to pay the elves
to make the toys. So ultimately, what happens is you
see an uptick in your business and instead of needing
to make one hundred widgets for the month, you have
to make one hundred and ten. That extra demand that
you see causes you to go out and say I
(05:44):
need to go and hire people. The converse of that is, hey,
you're selling one hundred widgets a month, and you don't
suddenly just say no, I'm going to get rid of
people because you know I'm not making enough money. What
you say is, gee, now I only have demand for
ninety widgets a month. I don't need all my staff
because of that decrease in consumption, I'm gonna go layoff
(06:04):
you know, X number of people. And so this is
why labor tends to be a lagging indicator, whereas consumption
and you know, housing tend to be forward to looking indicators.
They're leading indicators because ultimately, it is the demand that
historically has you know, led to either hirings or firings,
you know, rising and changing at any particular point in time.
(06:28):
So I think the case that the FED would make
is yes, like it's it's true that there's nothing huge
that we're seeing in terms of layoffs right now, Like
there's there's no meaningful uptick quite honestly in layoffs. The
case that the FED will make is, hey, we can
tell the labor market is weakening though, because unemployment's moving up.
And usually when it starts to move up, aside from
(06:50):
a couple instances, one of which was last year, by
the way, yeah, it doesn't usually just have this spontaneous,
you know stop that It goes through where it's like now, gee,
we're we're okay, we've laid off enough people and now
let's continue on. It usually keeps rising until additional demand intercedes.
And that's what the FED tries to do through cutting rates,
is produce additional demand.
Speaker 4 (07:13):
So I think that's amas it's a reasonable perspective. And
you know, as business, in this example, you're right, you
are pretty hesitant. I would say, you're more hesitant to
lay off that person than you are to hire that
new one. In most cases, that propensity to fire that
person and deal with all the implications of it, deal
(07:33):
with all the risk of it, deal with the benefits
that you need to pay. It's complicated. It's also just,
you know, from a human perspective, frustrating and disappointing and
sad sometimes and so yes, that propensity to do layoff
does come last in the business cycle.
Speaker 2 (07:48):
And so.
Speaker 4 (07:50):
You know, a good jobless claims reading like we're getting
this morning does not necessarily indicate a strong labor market.
I can see what you're saying.
Speaker 3 (07:57):
The other thing that's kind of interesting, just that I
think about as it relates to the labor market, is
I wonder how much of this is being influenced by
what we went through in the last five years with labor,
where like you could see this the case being made
on both sides. Where in your twenty twenty one and
twenty two when unemployment was just pummeting and it would
remember a heart, it was like, how much of an
(08:18):
employees or a job seeker's.
Speaker 4 (08:20):
Market was Walmart was offering six figure truck driver jobs.
McDonald's was offering, you know, thousand dollars signing bonuses. You
had a very unique labor market that we haven't seen
in a long time.
Speaker 3 (08:31):
So I think, in two different respects, I think companies
today might say, man, it was really hard to hire
people the last few years. I'm gonna hold on to
my employees as long as I can because I don't
want to go through that again, because that's their recent
experience hiring has been. Man, this is really hard, right yep.
The other piece is there are a lot of companies
(08:54):
that did admittedly hire too many people because they thought
that the demand and growth from twenty one to twenty
two was just going to continue forever. And so there
are other companies out there that are like, I hired
way too many people in twenty one and twenty two.
I don't want to go and hire more people now
unless I absolutely have to, because I don't want to
(09:17):
go through that again, that over hiring. And so I
think you can make a case that some of the
stagnation in the labor market could be because companies are
looking at what happened two three years ago and they're like,
not going to make the same mistake I made.
Speaker 4 (09:28):
Yeah, But I think generally speaking, when you look at
the aggregation of all the data, you can come up
with a compelling argument that, yeah, businesses are in a
contraction type stage right now, and that is taking the
form out of hiring, freezing new hiring, maybe reducing hours
here and there, but not quite to the point of
(09:49):
pain where they say we are laying people off. That
that seems pretty definitive. And you know, they're trying to
read this labor market right now, and I think it's
a very different labor market depending on what sector you
are hiring in. If you're looking for that new entry
level investment banker, it might be pretty easy to find them,
whereas if you are looking for the trades person to
(10:12):
go help you build a new data center, good luck.
Speaker 2 (10:16):
Now.
Speaker 3 (10:17):
The other piece here is even though the initial claims
data continues to be fine, like there's no sign of
stress in there at all, the continuing claims data is
still problematic, but not really worsening.
Speaker 2 (10:29):
It's just this steady eddy hey.
Speaker 3 (10:31):
Continuing claims are rising five to six percent year over year,
which isn't good. Like that's the evidence of the labor
market weakness that you have, is that continuing claims continue
to move up on a year over year basis at
a pretty decent clip. But they're not accelerating to that
ten percent plus where you start to really get nervous,
nor are they showing any signs of improvement. So you're
(10:53):
kind of like, yeah, no one's one's getting fired here,
not no one, But you know, firings are low, hirings
are low, and hirings are low enough that continuing claims
continue to move up. And that's the problematic piece that
the Fed's trying to get ahead of.
Speaker 2 (11:07):
I think yep.
Speaker 3 (11:09):
So we've covered weekly job as claims. To take a
quick break. When we come back, let's talk GDP and
existing home sales. That's the other one. We'll talk those
data points when we return.
Speaker 1 (11:22):
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Speaker 2 (11:28):
All morning.
Speaker 1 (11:29):
Long Face is the Financial Exchange Radio Network. The latest
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Speaker 2 (11:50):
A couple other data points from this morning. We got
a third.
Speaker 3 (11:54):
Update on Q two GDP and we got existing home
sales data for August one.
Speaker 2 (12:00):
Would you like to continue with Michael?
Speaker 4 (12:02):
The GDP was I guess a little bit more surprising
than the existing home sales I think, so you want
to jump right in there. We saw inflation adjusted GDP
coming in at a revised three point eight percent annualized pace. Again,
this isn't massively surprising. The last reading was at three
point three percent. But that's a fairly significant uptick if
(12:24):
you're talking about a half percent annualized uptick in GDP
and coming off of the previous quarter, which was defined
by a lot of tariff related rushing of activity. What's
your overall read check on this surprise to the upside, Yeah.
Speaker 3 (12:39):
The big jump seems to be in consumer spending that
came in stronger than previously reported, jumping from one point
six percent growth in the quarter to two point five
So that seems to be like the main driver of it.
Speaker 2 (12:52):
It's obviously good news.
Speaker 3 (12:53):
It doesn't affect anything that's going on in markets or
the economy today. Again, this is three months backward looking
at this point, which is why no one really gets
too excited about this. But it is something where look
if if you are looking for questions as to Fed policy, Hey,
if you have consumer spending that's stronger than you previously
(13:15):
thought it was. Again, remember consumption leads employment and things
like that, Hey, it makes the Fed's case weaker in
this case that they should be, you know, cutting significantly
if consumer spending is still moving along at that kind
of clip. Yeah, it is really really tough to digest
all of this right on the Fed side, on the
(13:36):
White House side, you seem to have a real push
to lower interest rates, certainly on the White House side,
certainly on Steven Meyern, the new appointee to the Fed,
calling for I think it's now like one hundred bases
points of cuts between now and year end to readjust
things to normal. And you can get that because you
see how weak the hiring was in this quarter the
(13:58):
GDP is reporting on on the April May June quarter
we had, was it May, June July hiring that was
really bad, chuck, June, July, August, June July August was
particularly weak. Okay, So I guess we don't have a
real solid sense of where consumer spending came in after
the fact. But look, you know, even at a time
when people were reportedly concerned about the state of the economy,
(14:19):
reportedly concerned about what tariffs we're going to do to prices,
they were still buying stuff at a pretty hefty clip. Now,
maybe the argument is just they're trying to front run
the tariff still, but I don't know. The more time
that goes on that consumer spending keeps up, I have
a tough time calling it as hey, this is.
Speaker 4 (14:38):
Going to be the leader into a recession.
Speaker 2 (14:40):
Yeah.
Speaker 3 (14:40):
And if you look just at where we are in
Q three right now, the estimates that I've seen on
Q three GDP are anywhere between like two two and
three five. So like take the midpoint of that, it's okay,
we're probably coming in you know, high twos for GDP growth.
That's better than expected as well. A lot of people
were thinking that you'd be somewhere in the range of
know hw to mid ones, and so it looks like
(15:03):
Q three GDP is going to be coming in stronger
as well. Based on the data that we have so far,
we're still waiting on you know, quite a bit of
we don't have any data for September yet, so we
don't know how things have evolved through the last.
Speaker 2 (15:16):
Three four weeks.
Speaker 3 (15:18):
And one of the interesting questions that we do have
to watch for is, hey, if there is a government shutdown,
we're not going to get a whole lot of economic
data during that time because the agencies that are responsible
for it are generally deemed non essential, and so you
might not get a jobs report next week if there
is a shutdown, so we might not know how the
(15:38):
economy is evolving during that time necessarily right.
Speaker 4 (15:41):
One other piece about not the immediate future, but the
not so distant future that I'll be interested to see.
I don't really get the sense that many people have
digested what the One Big Beautiful Bill Act actually means
for their tax situation. I talked to retirees over the
age of sixty five almost everything. Very few of them
have really put together how that is going to work
(16:03):
out on their tax refund I speak a little bit
less frequently to people that are affected by the tips
the tax on tips piece, But both of these things
I think are going to be a pretty legitimate surprise
to the upside in terms of tax refunds next year.
And that's just going to be another big jolt I think,
especially on the senior side, you know, those over sixty
(16:24):
five years old who aren't reliant on the labor market
to really drive their spending in the first place. I'll
interest say where that comes in, because a whole lot
of people are going to be saving a boatload of
taxes when they go to file in April of next year.
Speaker 3 (16:39):
And the other piece that you have to watch on
that is also you know, you've got the bonus appreciation
that kicks in for businesses that is going to allow
them to you know, expense a larger portion of you know,
any capex next year as well. And so that's something
where you sit there and you say, as businesses are
getting their twenty twenty six plans in order, are they know,
(17:00):
planning for additional expansion next year? That could drive additional
economic activity too. So there's there's quite a bit out
there when you look at it. That in my mind
that like the window for you know, any kind of
economics slow down to take hold probably like again, it's
it's it's really short now, you know, it's maybe the
(17:21):
next three to five months or something like that.
Speaker 2 (17:24):
You get through that and you kind of.
Speaker 3 (17:25):
Look at the situation and you go, there's not really
you know, just because the fiscal side is going to
be stimulative once you start getting into you know, late
Q one of next year, and so it's it's tough
to see a situation where even if there is a
recession or downturn, it's unclear that it lasts very long
in my opinion.
Speaker 4 (17:44):
Right, Yeah, I'm with I'm with you.
Speaker 3 (17:46):
So that's what we're seeing for the GDP numbers. Uh,
the one number that continues to just not really be great.
Existing home sales came in at a four million annualized clip.
We've just been hovering around that four million number for
quite a while.
Speaker 2 (17:59):
And it's it.
Speaker 3 (18:00):
The story is really simple. It's people can't afford houses
the way they are currently priced by the market. And
the interesting thing, Mike, the inventory that's out there. We've
been seeing in the last few months an uptick in
the number of units that are being withdrawn from the
market rather than seeing price cuts. Yeah, and I saw
an interesting piece on this. I forget who put it
(18:21):
out today, so I have no source on it. But
apparently the big reason for those with drawn sales, a
large chunk of them are properties that were purchased in
the last couple of years. And because of that, especially
if you're talking places like Florida and Texas and you
know that Sun Belt area, prices have been falling there,
(18:41):
people might not have the equity to be able to
sell at lower prices than what they're trying to sell
at today.
Speaker 4 (18:48):
Yeah, it'd be surprising to be talking about underwater homes,
but yes, in some parts of the country that is
a legitimate possibility.
Speaker 3 (18:56):
So that's something I think that bears watching. But I
can tell you, yeah, we were talking about this on
the show yesterday.
Speaker 2 (19:03):
It's tough to see.
Speaker 3 (19:04):
A bounce in housing unless mortgage rates get down into
the mid fives, especially since again the FETs started cutting
interest rates. You know last week. Hey, quarter percent down, Great,
this will help the housing market. Not so fast, you know,
it's you're a situation now. The thirty year fixed rate
mortgage nationally, according to Mortgage News Daily, up a full
(19:25):
quarter percent since this time last week. Quick break here
Wall Street watches Next.
Speaker 1 (19:40):
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 5 (20:00):
Are on the red at the moment, as Wall Street
digests a new batch of economic data points, including better
than expected jobless claims in an upperly revised second quarter
GDP reading. We also have existing home sales streaming in
about half an hour ago. Right now, the Dow is
down by nearly a tenth of a percent, or thirty
six points lower. S P five hundred is down four
(20:22):
tenths of one percent. NASDAK down about a half a
percent lower one hundred and five points, Rusted thousands down
over nine tenths one percent. Tenure Treasure reeled up three
basis points this morning at four point one eight three percent.
DAN Crude Oil down over one percent lower, trading right
around sixty four dollars a barrel. Shares in Starbucks dipping
(20:45):
modestly after the coffee chain announced a one billion dollars
restructuring plan that involves closing some of its North American stores. Furthermore,
about nine hundred non retail employees will also be laid off,
marking CEO O'Brien Nicol's second round of layoffs since he
took over. Meanwhile, Oracle shares are slumping another four percent
(21:06):
today as worries around the AI trade continue to pressure
the stocks. Separately, Rothstrial and co Redburn initiated coverage of
Oracle with Accelerating, seeing the market is materially overestimating Oracle's
cloud revenues. Sticking with tech where Bloomberg reported that Intel
has approached Apple about investing in the chip maker. However,
(21:27):
the report notes that talks are in the early stages.
Earlier this month, and Video said it would invest five
billion dollars in Intel. Intel shares are up five percent now,
while Apple shares are up over half a percent. A
CarMax sinking twenty four percent lower at the moment, after
the used car retailer saw its quarterly results come in
(21:50):
below estimates. I'm Tucker Silva and that is Wall Street Watch.
Speaker 2 (21:54):
Mike. Can we take a.
Speaker 4 (21:55):
Quick detour, Let's do it, Chuck, where are we going? Argentina?
Speaker 2 (22:00):
Oh? Okay, autos Argentina lovely, it's it's springtime.
Speaker 4 (22:05):
Yeah.
Speaker 2 (22:06):
So I want to talk.
Speaker 3 (22:08):
About what's going on in the auto sector because something stinks.
Speaker 4 (22:14):
Is it diesel?
Speaker 3 (22:16):
There's a problem there and it's Look, the auto sector
is not the size of housing. It's about a tenth
of the size. So like, you can never have an
auto bubble that looks anything like the housing bubble did
for you know a whole number of reasons.
Speaker 2 (22:32):
But I gotta tell you, you.
Speaker 3 (22:35):
Know you had this bankruptcy of Tricolor. When was that
like a month ago? Two three weeks ago.
Speaker 4 (22:42):
I think I missed that was I maybe I was
on vacation. What's Tricolor?
Speaker 2 (22:47):
Oh?
Speaker 3 (22:47):
You so Tricolor is a they're a huge subprime auto lender.
They so they they ended up going belly up. I'm
trying to see when it was. This was yeah, early September.
They are break mostly out of the Southeast and through Texas,
and basically they do.
Speaker 2 (23:06):
A ton of subprime auto financing.
Speaker 3 (23:08):
And it turns out that, you know, a lot of
banks were holding loans that they had initiated. Just as
an example, Fifth Third Bank Corp. Declared a two hundred
million dollar loss from a quote alleged fraudulent activity in
an unnamed commercial Barwards probably Tricolor got it. But they
they filed for Chapter seven bankruptcy, not Chapter eleven, which
means they're doing a full liquidation. Everything must go. They
(23:30):
can't restructure the company. It's just no, like get everything out.
And so I look at that and I say, okay,
like there's a problem that's you know that that happened
there is it?
Speaker 2 (23:41):
Is it isolated? You know?
Speaker 3 (23:42):
Ones kind of okay, like see what's happening. You start
see a couple other signs popping up and you go, Okay,
maybe there's more here. So this CarMax thing I look
at today and I'm like, oh, that doesn't really feel
great either. You've got the story yesterday about Ford saying, hey,
we're gonna, so you know, start trying to offer you know,
less qualified barrow wers lower interest rates in order to
(24:06):
move F one fifties good car. And I kind of
just look at, you know, what's going on in the
news flow out of the auto sector, and something stinks.
Speaker 2 (24:18):
And I don't know.
Speaker 4 (24:19):
My question is why now, right, I mean, because we've
been talking about subprime and extended auto loans out for
seven eight years for quite some time now. The I
guess the answer in terms of what's different is that
we're now three years into those interest rates being a
lot higher than they previously were, and and that could
(24:41):
explain some real problems going on in the sector because right, like,
I think a lot of these same issues probably existed
back in twenty nineteen, but you were still getting auto
loan rate even if you were subprime in the six
or seven percent range, which is now like twelve percent.
Speaker 2 (24:58):
And trycar.
Speaker 3 (24:59):
They allo operated a set of dealers as well, so
it wasn't just you know, an auto loan company like that,
they operated dealers too, And so I guess, like, I'm
just looking at this here, and it feels like something
ugly is happening with the auto sector, right but I
(25:21):
don't know where it goes, and I don't know how
big it is, but like, something stinks here, and and
you don't get two stories like this in two weeks
where you've got the Tricolor thing and now CarMax, you know,
with with what's going on there. These are not isolated
incidents in my opinion, like something stinks in the auto
(25:42):
sector and I don't know what it is.
Speaker 4 (25:44):
The counterpoint would be that the the underlying collateral is
not bad, right, Like just thinking that through for a
minute here, Like we're sitting on cars that are still
holding their value fairly. I mean, look, every car loses
value pretty cool quickly, but these are not exactly having
a tough time reselling F one fifties right now.
Speaker 3 (26:07):
So the counterpoint to that is the repos for like again,
because you're looking at this right now, and again, if
you've got a liquidation event going on here, you've got
a whole bunch of repos that need to go into
action in order to you know, start making creditors whole.
Speaker 2 (26:22):
Sure what happens when that inventory hits the market.
Speaker 3 (26:29):
Like, I'm just thinking through this here, and I don't
know what the situation looks like on it right so
I just think there's something weird that's happening with the
auto sector right now.
Speaker 2 (26:43):
I don't know what it is. I don't know how
big it is.
Speaker 3 (26:46):
But like it it feels like there's something there. Like
you you don't get a random bankruptcy that comes out
of nowhere and you know, just say okay, like everything's
you know, hunky dory. And then again you've got you know,
Carmack's coming out and being like, yeah, you know, things
were really not good, you know, in our earnings. These
(27:07):
things fit together, like there's a story that's developing there
and it seems like it's going to cause some problems here.
Speaker 4 (27:14):
Yeah, so well, yeah, I mean, it's been immensely unhealthy
for quite some time. But like, I mean, let's just
compare it to something that will not have the same impact.
But this was the entire threat that the economy was
under and that the housing market was under leading up
to the subprime mortgage crisis. Yes, it's all the banks
(27:34):
suddenly realized, hey, we're holding all this debt, and if
the interest on that debt starts increasing, then nobody can
afford the payments anymore. And so what is the actual
value of these things? Again, the auto loan space does
not have the ability to sink the economy in the
way that the sub prime mortgage crisis does. But it's
we're talking about the same things.
Speaker 3 (27:56):
It's it's just a problem, just a it's again you're
talking about something that a tenth of the size and
relative terms.
Speaker 4 (28:02):
So then the curious question about all that is who
actually owns this garbage?
Speaker 2 (28:07):
No idea?
Speaker 4 (28:07):
Right, like some some banks, probably some private credit companies.
Undoubtedly it's probably all over the place. But yeah, you
could have more banks and other financial institutions talking about
these loans going going sour over the next few months.
Speaker 3 (28:24):
You know, like I've seen there was something else. There's
a parts manufacturer that said that they were going through
something as well. So it's like, I'll see if I
can pull up the name of them. But there's again
there's a few things here that just look dodgy. I'll
see if I can get the name of that parts manufacturering,
what's going on? Government shutdown? Good news Wednesday of next week.
(28:44):
Wednesday of next week, and I'd say the odds on
this are pretty likely at this point.
Speaker 4 (28:52):
I always hesitate to say, but yeah, the way that
things are being talked about, it seems quite possible.
Speaker 2 (28:56):
How long does it last? You know? Is this something
that lasts ten minutes or ten days? Who knows?
Speaker 3 (29:01):
I mean, these never last forever. The big questions are
going to be how long does it last? If there
is one? And the second piece, which is an interesting wrinkle,
is that the Office of Management and Budget is advising
agencies to potentially look to permanently reduce any or portions
(29:24):
of workforce that are furloughed during any potential shutdown. So
basically saying, look, if you have people that are gonna
be furloughed during the shutdown, draw procedures so that you
can make those furloughs into permanent layoffs, because we could
use this as a chance to reduce headcount within the
federal government.
Speaker 4 (29:44):
Right, So we'll see if that actually yeah, I just
don't know if that's a bunch of bluster or if
that is a legitimate threat.
Speaker 2 (29:52):
Yeah, it's again.
Speaker 3 (29:54):
We're gonna have to see how this develops over the
next week or so, but these are just the things
that are being talked about as it relates to a
potential shutdown. Here, take a quick break. When we come back,
we'll talk H one B visas after this.
Speaker 1 (30:07):
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Speaker 3 (31:06):
Mike, I found the uh, the autoparts story that I
wanted to cover as well, because again, this is this
is all dovetailing just into my general unease with what's
going on in the auto sector.
Speaker 2 (31:18):
Please.
Speaker 3 (31:19):
Three days ago, there was a report out that First
Brands Group, who no one has ever heard of, because
does anyone know, like any major autoparts manufacturers.
Speaker 2 (31:30):
No, you don't.
Speaker 3 (31:32):
First Brands Group, they're a big autoparts manufacturer. And there was,
you know, rumors at the beginning of this week that
they may you know, have to declare Chapter eleven bankruptcy,
which would be a restructuring.
Speaker 2 (31:42):
Today.
Speaker 3 (31:43):
This reported three hours ago by the Financial Times. I'll
read from it because it does a great job.
Speaker 2 (31:50):
Here.
Speaker 3 (31:51):
Edy's tied to First Brands Group and his founder Patrick
James have filed for bankruptcy protection in the US, compounding
issues at the car parts supply, so not the company itself,
but entered these tied to it. Carnabie Capital Holdings and
several entities that raised debt linked to First Brands filed
for Chapter eleven proceedings on Wednesday, raising the likelihood that
the business itself is on the brink of bankruptcy. First Brands,
(32:14):
a US maker of windshield wipers and fuel pumps, has
come under intense scrutiny for its use of off balance sheet
debt tied to invoice as in inventory. Some lenders fear
this financing was poorly disclosed, making it difficult for creditors
to know how much debt it had In total. Certain
creditors estimate that First Brands raised as much as ten
billion in debt and off balance sheet financing.
Speaker 2 (32:36):
And here's the.
Speaker 3 (32:36):
Other part that I want to hop forward to. The
group's unraveling could lead to soul searching in the booming
private credit industry, which has raised trillions of dollars from
investors to lend the mid sized companies that tend to
be highly leverged, but with a little public disclosure. And
this to me is like the meat of the entire
thing in two different places. Number One, Look, there's clearly
(33:01):
something happening in the auto space, like this is this
is three things in the span of two weeks that
doesn't just happen. There's something bad that's going on in
the auto space. The private credit angle is one that
I hadn't thought of. But it kind of makes me wonder. Look,
we've been seeing volatility creeping up for the last week
or so, even when stocks were rising. At the end
(33:22):
of last week, volatility like metrics like the VIX was rising,
and you had, you know, concerns that were building under
the hood, and I couldn't quite figure out what it is.
I wonder if there's just like this private credit issue
that's finally coming to a head as part of this,
Because if there's one place that no one has any
idea what's actually going on, it's the debt of these
(33:44):
like mid size companies that are all financing through private credit,
and none of the debt is publicly traded, so you
can't see how it's actually trading. Yeah, no, no, I'm
just speculating. But I'm trying to tie this all together.
And I feel a little bit like Charlie Day and
always sunny. But this this is my.
Speaker 2 (34:05):
Wall of strings.
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Speaker 2 (35:09):
Mike.
Speaker 3 (35:09):
We get a couple of pieces today on the H
one B visa application fee changes and how that may
impact the US workforce. What kinds of things are being
talked about here.
Speaker 4 (35:22):
So we're talking about one hundred thousand dollars new fee,
and here's what it seems to be coming down to
is one a lot of scrutiny on the companies who
are heavy users of these applications. It seems to be
one thing that both Democrats or some Democrats and some
Republicans can agree on is that they want to scrutinize
those companies that use a lot of them and ask
the very obvious question, are you using these the way
(35:43):
they're supposed to be used, which is higher foreigners on
an H one B visa for specific skills and pay
them the going rate for the same employment that it
would cost a hire an American in that role, Or
are you doing what everyone's accusing you of, which is
dramatically lowering your employment costs by using H one B visas?
And my guesses it's more towards it's probably a little
(36:04):
bit of both, but more towards the lowering the cost
of employment. But the other big, you know, kind of
economic question to all this, which I have a tough
time answering, is Okay, so you've put a much higher
value on these H one B visas. If I'm Amazon
and I genuinely need this work done, and I would
(36:26):
have otherwise hired somebody on these visas, who's going to
pay taxes in the US, and you know, work here,
rent a home here. Might I just consider opening a
bigger office in Bangalore and hiring the same person.
Speaker 2 (36:39):
Maybe right now?
Speaker 4 (36:40):
If my real goal here is reducing wages rather than
getting the specific labor, or even if it's both, Do
I really need that person inside the bords of the
United States? For Amazon? Maybe one tenth of the work
that they do? The answers yes, right, Like, Hey, I'm
working on the you know this storage, the cloud storage
(37:02):
for the Pentagon. Yeah, they're not gonna let you do
that out of Bangalore, or at least I really hope
they're not. But for ninety percent of the other work
that Amazon does, do I need that person here today?
I would say the answer is I need that person
in the United States less today than ever before in history,
and now it'll just continue to be the case the
(37:23):
better technology gets.
Speaker 3 (37:24):
Yeah, And the estimates that are out there are that
somewhere in the range of like sixty to seventy percent
of h one B visa holders work in computer related occupations,
so it's like it's a lot of them are potentially
jobs where you don't necessarily need that person in the
United States. There are others where you might say, yeah,
(37:45):
maybe you do need to have like some of these
people need to be here, but it's disproportionately concentrated in
computer related professions at this point.
Speaker 4 (37:57):
Right, And by the way, I'm not saying that I
think it's a bad idea to go this. I think
this is a solution that, in my mind is far
away better than the current solution, So I think it's
an improvement. I'm just interested to see the effects.
Speaker 2 (38:09):
Quick break here.
Speaker 3 (38:10):
Hour two coming up in just a bit.
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(01:06):
and Mike Armstrong.
Speaker 2 (01:09):
Chuck, Mike and Tucker with you.
Speaker 3 (01:11):
And it's a little stinky out there in markets today,
just kind of your nose gets all turned up with
what you're seeing as we you know, continue to see
stocks selling off modestly. Three days that we've seen now
stocks in the red. Obviously we'll have to see if
that continues over the course of the day here, but again,
(01:33):
just kind of a little bit of a gnarly start
to the day. Stocks were covering a little bit now,
and you know, we'll keep an eye on them. But
obviously we have yet to see any kind of protracted,
you know, downturn in stocks. The longest that we've gone
has been you know, maybe like four or five days.
Occasionally in the last you know, four or five months,
(01:54):
where yeah, it looked like things were getting dodgy and
the S and P fell you know, two, three, four percent,
and then things bounced right back. We have not even
had a five percent dip inequities since April, so I.
Speaker 4 (02:05):
Was gonna ask that I was guessing we haven't seen
one since the tariff announcements.
Speaker 2 (02:08):
No, we haven't.
Speaker 3 (02:10):
The the last time that we saw a five percent dip,
was it was that kind of secondary bottom on April
twenty first that we got, and other than that, it's
just been these little two three Oh we're a little
nervous for a couple of days, and then you know,
we kind of bounced right back. So we'll see what
we get with this one. But at this point stock's
under a little bit of pressure, and you know, we'll
(02:31):
just kind of have to see how it goes. We
did get a bunch of economic data this morning. I'd
like to start with the jobbles claims data, if that's
cool with you, Michael, A fantastic two weeks ago, we
flagged that jobbles claims weekly new ones new initial ones
were elevated, and we specifically pointed out, hey, a lot
of this looks like it's due to some kind of
(02:51):
anomaly in Texas. We don't really expect it to repeat,
but claims have generally been climbing, you know, for a
few weeks, and so let's see what happens. But we
don't think this is going to turn into anything. The
subsequent two weeks, including today's report, have pretty much confirmed
that on the initial jobbles claims front, a further decline
in initial jobles claims to two hundred and eighteen thousand,
(03:12):
and so we continue to be in a situation where, hey,
even though there are some concerns about the slow pace
of hiring, there is nothing out there that suggests any
pickup in firings or layoffs right now, Mike, And that's
good news for the labor market.
Speaker 2 (03:29):
It is.
Speaker 4 (03:29):
And I have to try and wonder and contextualize, Like,
I can be concerned about the pace of hiring, but
I have a very difficult time having a perspective like
the feed is taking right now of grave concern about
I wouldn't say grave concern, but legitimate concern about the
labor market when you're just not seeing the layoffs right Like,
(03:53):
I just don't know if that is really an indication, Hey,
week hiring for what are we on now, three or
four month is genuinely an indication that the labor market
is so weak that the FED should be doing what
they're doing right now. Obviously they feel that it is,
but without corresponding upticks in these jobless claims, these folks
filing for unemployment, I just remain unconvinced that we have
(04:15):
a really weak labor market right now.
Speaker 3 (04:17):
So I think the case that the FED will make,
And this is the case I would make at the FED.
And by the way, I don't think they're off base
in you know, starting a cutting cycle here just to see,
you know, kind of how things develop. I don't think
there's a problem with what they did last week. I
think the case that they will make is number one.
(04:37):
Labor is typically a lagging indicator. Yeah, it's not something like.
We have never had a recession where everything's just been
humming along and then companies say, you know what, let's
lay a bunch of people off and that triggers the recession.
We've never had that layoffs are an ancillary effect because
ultimately what we see is consumption leads employment. And what
(05:01):
I mean by that is, let's say that you are
a Mike You you are, you know, a business. I'm
you are going to, you know, transform yourself into a company.
Speaker 2 (05:09):
You're like, whole hole.
Speaker 4 (05:10):
Hole.
Speaker 2 (05:10):
Here I go.
Speaker 4 (05:11):
So I'm not the president of a company. I just
am now a business.
Speaker 2 (05:14):
You are Mike Armstrong Incorporated. Got it, okay, And you're
walking around going whole whole whole business. Good whole hole.
Because that's what sound ll season. You know, corporations make.
Speaker 3 (05:24):
Sound a lot like Santa Okay, I bet he has
a corporation. You know, someone's got to pay the elves
to make the toys. So ultimately, what happens is you
see an uptick in your business and instead of needing
to make one hundred widgets for the month, you have
to make one hundred and ten. That extra demand that
you see causes you to go out and say I
(05:44):
need to go and hire people. The converse of that is, hey,
you're selling one hundred widgets a month, and you don't
suddenly just say no, I'm going to get rid of
people because you know I'm not making enough money. What
you say is, gee, now I only have demand for
ninety widgets a month. I don't need all my staff
because of that decrease in consumption, I'm gonna go layoff
(06:04):
you know, X number of people. And so this is
why labor tends to be a lagging indicator, whereas consumption
and you know, housing tend to be forward to looking indicators.
They're leading indicators because ultimately, it is the demand that
historically has you know, led to either hirings or firings,
you know, rising and changing at any particular point in time.
(06:28):
So I think the case that the FED would make
is yes, like it's it's true that there's nothing huge
that we're seeing in terms of layoffs right now, Like
there's there's no meaningful uptick quite honestly in layoffs. The
case that the FED will make is, hey, we can
tell the labor market is weakening though, because unemployment's moving up.
And usually when it starts to move up, aside from
(06:50):
a couple instances, one of which was last year, by
the way, yeah, it doesn't usually just have this spontaneous,
you know stop that It goes through where it's like now, gee,
we're we're okay, we've laid off enough people and now
let's continue on. It usually keeps rising until additional demand intercedes.
And that's what the FED tries to do through cutting rates,
is produce additional demand.
Speaker 4 (07:13):
So I think that's amas it's a reasonable perspective. And
you know, as business, in this example, you're right, you
are pretty hesitant. I would say, you're more hesitant to
lay off that person than you are to hire that
new one. In most cases, that propensity to fire that
person and deal with all the implications of it, deal
(07:33):
with all the risk of it, deal with the benefits
that you need to pay. It's complicated. It's also just,
you know, from a human perspective, frustrating and disappointing and
sad sometimes and so yes, that propensity to do layoff
does come last in the business cycle.
Speaker 2 (07:48):
And so.
Speaker 4 (07:50):
You know, a good jobless claims reading like we're getting
this morning does not necessarily indicate a strong labor market.
I can see what you're saying.
Speaker 3 (07:57):
The other thing that's kind of interesting, just that I
think about as it relates to the labor market, is
I wonder how much of this is being influenced by
what we went through in the last five years with labor,
where like you could see this the case being made
on both sides. Where in your twenty twenty one and
twenty two when unemployment was just pummeting and it would
remember a heart, it was like, how much of an
(08:18):
employees or a job seeker's.
Speaker 4 (08:20):
Market was Walmart was offering six figure truck driver jobs.
McDonald's was offering, you know, thousand dollars signing bonuses. You
had a very unique labor market that we haven't seen
in a long time.
Speaker 3 (08:31):
So I think, in two different respects, I think companies
today might say, man, it was really hard to hire
people the last few years. I'm gonna hold on to
my employees as long as I can because I don't
want to go through that again, because that's their recent
experience hiring has been. Man, this is really hard, right yep.
The other piece is there are a lot of companies
(08:54):
that did admittedly hire too many people because they thought
that the demand and growth from twenty one to twenty
two was just going to continue forever. And so there
are other companies out there that are like, I hired
way too many people in twenty one and twenty two.
I don't want to go and hire more people now
unless I absolutely have to, because I don't want to
(09:17):
go through that again, that over hiring. And so I
think you can make a case that some of the
stagnation in the labor market could be because companies are
looking at what happened two three years ago and they're like,
not going to make the same mistake I made.
Speaker 4 (09:28):
Yeah, But I think generally speaking, when you look at
the aggregation of all the data, you can come up
with a compelling argument that, yeah, businesses are in a
contraction type stage right now, and that is taking the
form out of hiring, freezing new hiring, maybe reducing hours
here and there, but not quite to the point of
(09:49):
pain where they say we are laying people off. That
that seems pretty definitive. And you know, they're trying to
read this labor market right now, and I think it's
a very different labor market depending on what sector you
are hiring in. If you're looking for that new entry
level investment banker, it might be pretty easy to find them,
whereas if you are looking for the trades person to
(10:12):
go help you build a new data center, good luck.
Speaker 2 (10:16):
Now.
Speaker 3 (10:17):
The other piece here is even though the initial claims
data continues to be fine, like there's no sign of
stress in there at all, the continuing claims data is
still problematic, but not really worsening.
Speaker 2 (10:29):
It's just this steady eddy hey.
Speaker 3 (10:31):
Continuing claims are rising five to six percent year over year,
which isn't good. Like that's the evidence of the labor
market weakness that you have, is that continuing claims continue
to move up on a year over year basis at
a pretty decent clip. But they're not accelerating to that
ten percent plus where you start to really get nervous,
nor are they showing any signs of improvement. So you're
(10:53):
kind of like, yeah, no one's one's getting fired here,
not no one, But you know, firings are low, hirings
are low, and hirings are low enough that continuing claims
continue to move up. And that's the problematic piece that
the Fed's trying to get ahead of.
Speaker 2 (11:07):
I think yep.
Speaker 3 (11:09):
So we've covered weekly job as claims. To take a
quick break. When we come back, let's talk GDP and
existing home sales. That's the other one. We'll talk those
data points when we return.
Speaker 1 (11:22):
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Speaker 2 (11:28):
All morning.
Speaker 1 (11:29):
Long Face is the Financial Exchange Radio Network. The latest
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Exchange Radio Network.
Speaker 2 (11:50):
A couple other data points from this morning. We got
a third.
Speaker 3 (11:54):
Update on Q two GDP and we got existing home
sales data for August one.
Speaker 2 (12:00):
Would you like to continue with Michael?
Speaker 4 (12:02):
The GDP was I guess a little bit more surprising
than the existing home sales I think, so you want
to jump right in there. We saw inflation adjusted GDP
coming in at a revised three point eight percent annualized pace. Again,
this isn't massively surprising. The last reading was at three
point three percent. But that's a fairly significant uptick if
(12:24):
you're talking about a half percent annualized uptick in GDP
and coming off of the previous quarter, which was defined
by a lot of tariff related rushing of activity. What's
your overall read check on this surprise to the upside, Yeah.
Speaker 3 (12:39):
The big jump seems to be in consumer spending that
came in stronger than previously reported, jumping from one point
six percent growth in the quarter to two point five
So that seems to be like the main driver of it.
Speaker 2 (12:52):
It's obviously good news.
Speaker 3 (12:53):
It doesn't affect anything that's going on in markets or
the economy today. Again, this is three months backward looking
at this point, which is why no one really gets
too excited about this. But it is something where look
if if you are looking for questions as to Fed policy, Hey,
if you have consumer spending that's stronger than you previously
(13:15):
thought it was. Again, remember consumption leads employment and things
like that, Hey, it makes the Fed's case weaker in
this case that they should be, you know, cutting significantly
if consumer spending is still moving along at that kind
of clip. Yeah, it is really really tough to digest
all of this right on the Fed side, on the
(13:36):
White House side, you seem to have a real push
to lower interest rates, certainly on the White House side,
certainly on Steven Meyern, the new appointee to the Fed,
calling for I think it's now like one hundred bases
points of cuts between now and year end to readjust
things to normal. And you can get that because you
see how weak the hiring was in this quarter the
(13:58):
GDP is reporting on on the April May June quarter
we had, was it May, June July hiring that was
really bad, chuck, June, July, August, June July August was
particularly weak. Okay, So I guess we don't have a
real solid sense of where consumer spending came in after
the fact. But look, you know, even at a time
when people were reportedly concerned about the state of the economy,
(14:19):
reportedly concerned about what tariffs we're going to do to prices,
they were still buying stuff at a pretty hefty clip. Now,
maybe the argument is just they're trying to front run
the tariff still, but I don't know. The more time
that goes on that consumer spending keeps up, I have
a tough time calling it as hey, this is.
Speaker 4 (14:38):
Going to be the leader into a recession.
Speaker 2 (14:40):
Yeah.
Speaker 3 (14:40):
And if you look just at where we are in
Q three right now, the estimates that I've seen on
Q three GDP are anywhere between like two two and
three five. So like take the midpoint of that, it's okay,
we're probably coming in you know, high twos for GDP growth.
That's better than expected as well. A lot of people
were thinking that you'd be somewhere in the range of
know hw to mid ones, and so it looks like
(15:03):
Q three GDP is going to be coming in stronger
as well. Based on the data that we have so far,
we're still waiting on you know, quite a bit of
we don't have any data for September yet, so we
don't know how things have evolved through the last.
Speaker 2 (15:16):
Three four weeks.
Speaker 3 (15:18):
And one of the interesting questions that we do have
to watch for is, hey, if there is a government shutdown,
we're not going to get a whole lot of economic
data during that time because the agencies that are responsible
for it are generally deemed non essential, and so you
might not get a jobs report next week if there
is a shutdown, so we might not know how the
(15:38):
economy is evolving during that time necessarily right.
Speaker 4 (15:41):
One other piece about not the immediate future, but the
not so distant future that I'll be interested to see.
I don't really get the sense that many people have
digested what the One Big Beautiful Bill Act actually means
for their tax situation. I talked to retirees over the
age of sixty five almost everything. Very few of them
have really put together how that is going to work
(16:03):
out on their tax refund I speak a little bit
less frequently to people that are affected by the tips
the tax on tips piece, But both of these things
I think are going to be a pretty legitimate surprise
to the upside in terms of tax refunds next year.
And that's just going to be another big jolt I think,
especially on the senior side, you know, those over sixty
(16:24):
five years old who aren't reliant on the labor market
to really drive their spending in the first place. I'll
interest say where that comes in, because a whole lot
of people are going to be saving a boatload of
taxes when they go to file in April of next year.
Speaker 3 (16:39):
And the other piece that you have to watch on
that is also you know, you've got the bonus appreciation
that kicks in for businesses that is going to allow
them to you know, expense a larger portion of you know,
any capex next year as well. And so that's something
where you sit there and you say, as businesses are
getting their twenty twenty six plans in order, are they know,
(17:00):
planning for additional expansion next year? That could drive additional
economic activity too. So there's there's quite a bit out
there when you look at it. That in my mind
that like the window for you know, any kind of
economics slow down to take hold probably like again, it's
it's it's really short now, you know, it's maybe the
(17:21):
next three to five months or something like that.
Speaker 2 (17:24):
You get through that and you kind of.
Speaker 3 (17:25):
Look at the situation and you go, there's not really
you know, just because the fiscal side is going to
be stimulative once you start getting into you know, late
Q one of next year, and so it's it's tough
to see a situation where even if there is a
recession or downturn, it's unclear that it lasts very long
in my opinion.
Speaker 4 (17:44):
Right, Yeah, I'm with I'm with you.
Speaker 3 (17:46):
So that's what we're seeing for the GDP numbers. Uh,
the one number that continues to just not really be great.
Existing home sales came in at a four million annualized clip.
We've just been hovering around that four million number for
quite a while.
Speaker 2 (17:59):
And it's it.
Speaker 3 (18:00):
The story is really simple. It's people can't afford houses
the way they are currently priced by the market. And
the interesting thing, Mike, the inventory that's out there. We've
been seeing in the last few months an uptick in
the number of units that are being withdrawn from the
market rather than seeing price cuts. Yeah, and I saw
an interesting piece on this. I forget who put it
(18:21):
out today, so I have no source on it. But
apparently the big reason for those with drawn sales, a
large chunk of them are properties that were purchased in
the last couple of years. And because of that, especially
if you're talking places like Florida and Texas and you
know that Sun Belt area, prices have been falling there,
(18:41):
people might not have the equity to be able to
sell at lower prices than what they're trying to sell
at today.
Speaker 4 (18:48):
Yeah, it'd be surprising to be talking about underwater homes,
but yes, in some parts of the country that is
a legitimate possibility.
Speaker 3 (18:56):
So that's something I think that bears watching. But I
can tell you, yeah, we were talking about this on
the show yesterday.
Speaker 2 (19:03):
It's tough to see.
Speaker 3 (19:04):
A bounce in housing unless mortgage rates get down into
the mid fives, especially since again the FETs started cutting
interest rates. You know last week. Hey, quarter percent down, Great,
this will help the housing market. Not so fast, you know,
it's you're a situation now. The thirty year fixed rate
mortgage nationally, according to Mortgage News Daily, up a full
(19:25):
quarter percent since this time last week. Quick break here
Wall Street watches Next.
Speaker 1 (19:40):
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 5 (20:00):
Are on the red at the moment, as Wall Street
digests a new batch of economic data points, including better
than expected jobless claims in an upperly revised second quarter
GDP reading. We also have existing home sales streaming in
about half an hour ago. Right now, the Dow is
down by nearly a tenth of a percent, or thirty
six points lower. S P five hundred is down four
(20:22):
tenths of one percent. NASDAK down about a half a
percent lower one hundred and five points, Rusted thousands down
over nine tenths one percent. Tenure Treasure reeled up three
basis points this morning at four point one eight three percent.
DAN Crude Oil down over one percent lower, trading right
around sixty four dollars a barrel. Shares in Starbucks dipping
(20:45):
modestly after the coffee chain announced a one billion dollars
restructuring plan that involves closing some of its North American stores. Furthermore,
about nine hundred non retail employees will also be laid off,
marking CEO O'Brien Nicol's second round of layoffs since he
took over. Meanwhile, Oracle shares are slumping another four percent
(21:06):
today as worries around the AI trade continue to pressure
the stocks. Separately, Rothstrial and co Redburn initiated coverage of
Oracle with Accelerating, seeing the market is materially overestimating Oracle's
cloud revenues. Sticking with tech where Bloomberg reported that Intel
has approached Apple about investing in the chip maker. However,
(21:27):
the report notes that talks are in the early stages.
Earlier this month, and Video said it would invest five
billion dollars in Intel. Intel shares are up five percent now,
while Apple shares are up over half a percent. A
CarMax sinking twenty four percent lower at the moment, after
the used car retailer saw its quarterly results come in
(21:50):
below estimates. I'm Tucker Silva and that is Wall Street Watch.
Speaker 2 (21:54):
Mike. Can we take a.
Speaker 4 (21:55):
Quick detour, Let's do it, Chuck, where are we going? Argentina?
Speaker 2 (22:00):
Oh? Okay, autos Argentina lovely, it's it's springtime.
Speaker 4 (22:05):
Yeah.
Speaker 2 (22:06):
So I want to talk.
Speaker 3 (22:08):
About what's going on in the auto sector because something stinks.
Speaker 4 (22:14):
Is it diesel?
Speaker 3 (22:16):
There's a problem there and it's Look, the auto sector
is not the size of housing. It's about a tenth
of the size. So like, you can never have an
auto bubble that looks anything like the housing bubble did
for you know a whole number of reasons.
Speaker 2 (22:32):
But I gotta tell you, you.
Speaker 3 (22:35):
Know you had this bankruptcy of Tricolor. When was that
like a month ago? Two three weeks ago.
Speaker 4 (22:42):
I think I missed that was I maybe I was
on vacation. What's Tricolor?
Speaker 2 (22:47):
Oh?
Speaker 3 (22:47):
You so Tricolor is a they're a huge subprime auto lender.
They so they they ended up going belly up. I'm
trying to see when it was. This was yeah, early September.
They are break mostly out of the Southeast and through Texas,
and basically they do.
Speaker 2 (23:06):
A ton of subprime auto financing.
Speaker 3 (23:08):
And it turns out that, you know, a lot of
banks were holding loans that they had initiated. Just as
an example, Fifth Third Bank Corp. Declared a two hundred
million dollar loss from a quote alleged fraudulent activity in
an unnamed commercial Barwards probably Tricolor got it. But they
they filed for Chapter seven bankruptcy, not Chapter eleven, which
means they're doing a full liquidation. Everything must go. They
(23:30):
can't restructure the company. It's just no, like get everything out.
And so I look at that and I say, okay,
like there's a problem that's you know that that happened
there is it?
Speaker 2 (23:41):
Is it isolated? You know?
Speaker 3 (23:42):
Ones kind of okay, like see what's happening. You start
see a couple other signs popping up and you go, Okay,
maybe there's more here. So this CarMax thing I look
at today and I'm like, oh, that doesn't really feel
great either. You've got the story yesterday about Ford saying, hey,
we're gonna, so you know, start trying to offer you know,
less qualified barrow wers lower interest rates in order to
(24:06):
move F one fifties good car. And I kind of
just look at, you know, what's going on in the
news flow out of the auto sector, and something stinks.
Speaker 2 (24:18):
And I don't know.
Speaker 4 (24:19):
My question is why now, right, I mean, because we've
been talking about subprime and extended auto loans out for
seven eight years for quite some time now. The I
guess the answer in terms of what's different is that
we're now three years into those interest rates being a
lot higher than they previously were, and and that could
(24:41):
explain some real problems going on in the sector because right, like,
I think a lot of these same issues probably existed
back in twenty nineteen, but you were still getting auto
loan rate even if you were subprime in the six
or seven percent range, which is now like twelve percent.
Speaker 2 (24:58):
And trycar.
Speaker 3 (24:59):
They allo operated a set of dealers as well, so
it wasn't just you know, an auto loan company like that,
they operated dealers too, And so I guess, like, I'm
just looking at this here, and it feels like something
ugly is happening with the auto sector, right but I
(25:21):
don't know where it goes, and I don't know how
big it is, but like, something stinks here, and and
you don't get two stories like this in two weeks
where you've got the Tricolor thing and now CarMax, you know,
with with what's going on there. These are not isolated
incidents in my opinion, like something stinks in the auto
(25:42):
sector and I don't know what it is.
Speaker 4 (25:44):
The counterpoint would be that the the underlying collateral is
not bad, right, Like just thinking that through for a
minute here, Like we're sitting on cars that are still
holding their value fairly. I mean, look, every car loses
value pretty cool quickly, but these are not exactly having
a tough time reselling F one fifties right now.
Speaker 3 (26:07):
So the counterpoint to that is the repos for like again,
because you're looking at this right now, and again, if
you've got a liquidation event going on here, you've got
a whole bunch of repos that need to go into
action in order to you know, start making creditors whole.
Speaker 2 (26:22):
Sure what happens when that inventory hits the market.
Speaker 3 (26:29):
Like, I'm just thinking through this here, and I don't
know what the situation looks like on it right so
I just think there's something weird that's happening with the
auto sector right now.
Speaker 2 (26:43):
I don't know what it is. I don't know how
big it is.
Speaker 3 (26:46):
But like it it feels like there's something there. Like
you you don't get a random bankruptcy that comes out
of nowhere and you know, just say okay, like everything's
you know, hunky dory. And then again you've got you know,
Carmack's coming out and being like, yeah, you know, things
were really not good, you know, in our earnings. These
(27:07):
things fit together, like there's a story that's developing there
and it seems like it's going to cause some problems here.
Speaker 4 (27:14):
Yeah, so well, yeah, I mean, it's been immensely unhealthy
for quite some time. But like, I mean, let's just
compare it to something that will not have the same impact.
But this was the entire threat that the economy was
under and that the housing market was under leading up
to the subprime mortgage crisis. Yes, it's all the banks
(27:34):
suddenly realized, hey, we're holding all this debt, and if
the interest on that debt starts increasing, then nobody can
afford the payments anymore. And so what is the actual
value of these things? Again, the auto loan space does
not have the ability to sink the economy in the
way that the sub prime mortgage crisis does. But it's
we're talking about the same things.
Speaker 3 (27:56):
It's it's just a problem, just a it's again you're
talking about something that a tenth of the size and
relative terms.
Speaker 4 (28:02):
So then the curious question about all that is who
actually owns this garbage?
Speaker 2 (28:07):
No idea?
Speaker 4 (28:07):
Right, like some some banks, probably some private credit companies.
Undoubtedly it's probably all over the place. But yeah, you
could have more banks and other financial institutions talking about
these loans going going sour over the next few months.
Speaker 3 (28:24):
You know, like I've seen there was something else. There's
a parts manufacturer that said that they were going through
something as well. So it's like, I'll see if I
can pull up the name of them. But there's again
there's a few things here that just look dodgy. I'll
see if I can get the name of that parts manufacturering,
what's going on? Government shutdown? Good news Wednesday of next week.
(28:44):
Wednesday of next week, and I'd say the odds on
this are pretty likely at this point.
Speaker 4 (28:52):
I always hesitate to say, but yeah, the way that
things are being talked about, it seems quite possible.
Speaker 2 (28:56):
How long does it last? You know? Is this something
that lasts ten minutes or ten days? Who knows?
Speaker 3 (29:01):
I mean, these never last forever. The big questions are
going to be how long does it last? If there
is one? And the second piece, which is an interesting wrinkle,
is that the Office of Management and Budget is advising
agencies to potentially look to permanently reduce any or portions
(29:24):
of workforce that are furloughed during any potential shutdown. So
basically saying, look, if you have people that are gonna
be furloughed during the shutdown, draw procedures so that you
can make those furloughs into permanent layoffs, because we could
use this as a chance to reduce headcount within the
federal government.
Speaker 4 (29:44):
Right, So we'll see if that actually yeah, I just
don't know if that's a bunch of bluster or if
that is a legitimate threat.
Speaker 2 (29:52):
Yeah, it's again.
Speaker 3 (29:54):
We're gonna have to see how this develops over the
next week or so, but these are just the things
that are being talked about as it relates to a
potential shutdown. Here, take a quick break. When we come back,
we'll talk H one B visas after this.
Speaker 1 (30:07):
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(30:29):
This is the Financial Exchange Radio Network.
Speaker 5 (30:34):
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Speaker 3 (31:06):
Mike, I found the uh, the autoparts story that I
wanted to cover as well, because again, this is this
is all dovetailing just into my general unease with what's
going on in the auto sector.
Speaker 2 (31:18):
Please.
Speaker 3 (31:19):
Three days ago, there was a report out that First
Brands Group, who no one has ever heard of, because
does anyone know, like any major autoparts manufacturers.
Speaker 2 (31:30):
No, you don't.
Speaker 3 (31:32):
First Brands Group, they're a big autoparts manufacturer. And there was,
you know, rumors at the beginning of this week that
they may you know, have to declare Chapter eleven bankruptcy,
which would be a restructuring.
Speaker 2 (31:42):
Today.
Speaker 3 (31:43):
This reported three hours ago by the Financial Times. I'll
read from it because it does a great job.
Speaker 2 (31:50):
Here.
Speaker 3 (31:51):
Edy's tied to First Brands Group and his founder Patrick
James have filed for bankruptcy protection in the US, compounding
issues at the car parts supply, so not the company itself,
but entered these tied to it. Carnabie Capital Holdings and
several entities that raised debt linked to First Brands filed
for Chapter eleven proceedings on Wednesday, raising the likelihood that
the business itself is on the brink of bankruptcy. First Brands,
(32:14):
a US maker of windshield wipers and fuel pumps, has
come under intense scrutiny for its use of off balance sheet
debt tied to invoice as in inventory. Some lenders fear
this financing was poorly disclosed, making it difficult for creditors
to know how much debt it had In total. Certain
creditors estimate that First Brands raised as much as ten
billion in debt and off balance sheet financing.
Speaker 2 (32:36):
And here's the.
Speaker 3 (32:36):
Other part that I want to hop forward to. The
group's unraveling could lead to soul searching in the booming
private credit industry, which has raised trillions of dollars from
investors to lend the mid sized companies that tend to
be highly leverged, but with a little public disclosure. And
this to me is like the meat of the entire
thing in two different places. Number One, Look, there's clearly
(33:01):
something happening in the auto space, like this is this
is three things in the span of two weeks that
doesn't just happen. There's something bad that's going on in
the auto space. The private credit angle is one that
I hadn't thought of. But it kind of makes me wonder. Look,
we've been seeing volatility creeping up for the last week
or so, even when stocks were rising. At the end
(33:22):
of last week, volatility like metrics like the VIX was rising,
and you had, you know, concerns that were building under
the hood, and I couldn't quite figure out what it is.
I wonder if there's just like this private credit issue
that's finally coming to a head as part of this,
Because if there's one place that no one has any
idea what's actually going on, it's the debt of these
(33:44):
like mid size companies that are all financing through private credit,
and none of the debt is publicly traded, so you
can't see how it's actually trading. Yeah, no, no, I'm
just speculating. But I'm trying to tie this all together.
And I feel a little bit like Charlie Day and
always sunny. But this this is my.
Speaker 2 (34:05):
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Speaker 2 (35:09):
Mike.
Speaker 3 (35:09):
We get a couple of pieces today on the H
one B visa application fee changes and how that may
impact the US workforce. What kinds of things are being
talked about here.
Speaker 4 (35:22):
So we're talking about one hundred thousand dollars new fee,
and here's what it seems to be coming down to
is one a lot of scrutiny on the companies who
are heavy users of these applications. It seems to be
one thing that both Democrats or some Democrats and some
Republicans can agree on is that they want to scrutinize
those companies that use a lot of them and ask
the very obvious question, are you using these the way
(35:43):
they're supposed to be used, which is higher foreigners on
an H one B visa for specific skills and pay
them the going rate for the same employment that it
would cost a hire an American in that role, Or
are you doing what everyone's accusing you of, which is
dramatically lowering your employment costs by using H one B visas?
And my guesses it's more towards it's probably a little
(36:04):
bit of both, but more towards the lowering the cost
of employment. But the other big, you know, kind of
economic question to all this, which I have a tough
time answering, is Okay, so you've put a much higher
value on these H one B visas. If I'm Amazon
and I genuinely need this work done, and I would
(36:26):
have otherwise hired somebody on these visas, who's going to
pay taxes in the US, and you know, work here,
rent a home here. Might I just consider opening a
bigger office in Bangalore and hiring the same person.
Speaker 2 (36:39):
Maybe right now?
Speaker 4 (36:40):
If my real goal here is reducing wages rather than
getting the specific labor, or even if it's both, Do
I really need that person inside the bords of the
United States? For Amazon? Maybe one tenth of the work
that they do? The answers yes, right, Like, Hey, I'm
working on the you know this storage, the cloud storage
(37:02):
for the Pentagon. Yeah, they're not gonna let you do
that out of Bangalore, or at least I really hope
they're not. But for ninety percent of the other work
that Amazon does, do I need that person here today?
I would say the answer is I need that person
in the United States less today than ever before in history,
and now it'll just continue to be the case the
(37:23):
better technology gets.
Speaker 3 (37:24):
Yeah, And the estimates that are out there are that
somewhere in the range of like sixty to seventy percent
of h one B visa holders work in computer related occupations,
so it's like it's a lot of them are potentially
jobs where you don't necessarily need that person in the
United States. There are others where you might say, yeah,
(37:45):
maybe you do need to have like some of these
people need to be here, but it's disproportionately concentrated in
computer related professions at this point.
Speaker 4 (37:57):
Right, And by the way, I'm not saying that I
think it's a bad idea to go this. I think
this is a solution that, in my mind is far
away better than the current solution, So I think it's
an improvement. I'm just interested to see the effects.
Speaker 2 (38:09):
Quick break here.
Speaker 3 (38:10):
Hour two coming up in just a bit.
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