February 12, 2026 • 38 mins
Mike Armstrong and Marc Fandetti react to market weakness following the latest jobs data and ahead of a key inflation report. The conversation dives into what current unemployment and inflation trends mean for Federal Reserve policy and whether a potential AI-driven productivity boom should change the rate outlook. Mike and Marc also examine who really bears the cost of tariffs, why the middle class “feels poor” despite rising incomes, and how housing affordability has evolved relative to wages.
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Speaker 1 (00:00):
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(01:07):
and Mark Vandetti.
Speaker 2 (01:10):
Good morning, Welcome back to the Financial Exchange. It's Mike,
Mark and Tucker with you on a Thursday, post jobs report,
pre inflation report coming out tomorrow. Market sliding in early
trading here as we open up the eleven o'clock hour.
The NASDAK currently down two hundred and ninety two points
one and a quarter percent, the SMP off seven tenths
(01:32):
of a percent in the Dow. I think seeing some
of that tech outflow down only one quarter of one percent.
Oil prices moving down again to sixty three dollars sixty
cents per barrel. Take a look at what's going on
in commodity markets that they have been pretty wild, but
relatively muted today, Gold pretty much flat, Silver down one
(01:54):
and a third percent. In the bond markets, we've got
the yield on the ten year Treasury edging lower down
to four point one three five percent, and nothing interesting
happening in crypto, so i'll skip it.
Speaker 3 (02:08):
One item of no.
Speaker 2 (02:09):
We've been talking a bit about interest rates as of late,
and the UH average thirty year fixed rate mortgage ticked
down back in early January after the President announced that
UH was it. Fanny and Freddy would go out and
buy some longer term bonds to try and artificially bring
down interest rates dropped pretty substantially down from six where
(02:31):
were we here six' two down to about six. Even
we've now bumped back. Up the average thirty year fixed
rate mortgage, yesterday according To Mortgage News, daily was six
point one four, percent bumping up a little bit on
the heels of that hot and expected unemployment. Report looking forward, Tomorrow,
mark we've got that consumer price index. Reading expectations from
(02:53):
What i'm, seeing would be for year over year prices
to hit at two and a half, percent a month
of a month increase at point three. PERCENT i guess
my question for you would be with interest rates where
they are right, now with the state of the labor
market and the state of, inflation and knowing that you
have A i won't say a, bias but a a
(03:19):
view of.
Speaker 4 (03:22):
Inflation THAT i do on unemployment Because i'm not confident
in the fedsibility to find.
Speaker 2 (03:26):
Tune so my question for you would, be where we
got the unemployment report, yesterday where do you need inflation
to settle out for you to be comfortable that rates
are at the perfect level that they are where they
are right.
Speaker 4 (03:39):
Now i'll answer that question a little bit. Differently you
could infer a more specific, answer.
Speaker 3 (03:43):
But just PRETEND i asked a different. Question that'd be.
Speaker 4 (03:45):
Great USUALLY i usually. Do Now i'm going to answer,
it but it's not going to be specific. Enough, probably
inflation is. Elevated it's not as high as it, was
but it's close to three. Percent if you look at
measures that try to capture the trend in, inflation the
trend in inflation or the long term component of inflation
is what The fed can. Control that's what it. Does
(04:07):
it lowers interest rates to stimulate demand more accurately prints,
money in turn lowering interest, rates in turn hopefully stimulating.
Demand each link in that chain gets a little weaker
as you proceed.
Speaker 1 (04:17):
Along it's.
Speaker 4 (04:19):
Elevated so is The fed doing its job on that? Score? Arguably.
Speaker 3 (04:22):
No what about?
Speaker 4 (04:23):
Unemployment if that were really, high you'd, say, well it's
worth a little inflation to get more people. Employed there
are long term benefits to keeping the labor force as
close to maximum. Employment whatever that is also a moving
target is, possible And, mike you could make both an
argument that unemployment is unnaturally low and unemployment and low
fors four point three percent is of, yesterday is on
(04:44):
the very low end of historical observations at any other
period in the modern. Era if you told me inflation
was close to three and unemployment was in the low,
fours and you'd ask me or, anybody what's THE fed
going to do, next ninety nine point nine out of
one hundred respondents would have, said they got a titan
that's unnaturally.
Speaker 2 (05:03):
Lower so let me ask this because a lot's been
made of, it especially by the Incoming Federal Reserve, Chair
kevin worsh whose WORDS i know you, discount BUT i.
Speaker 4 (05:13):
DON'T i don't discount them because he's the incoming chair
of The Federal, Reserve so they mean a. Lot it's
his understanding of monetary economics THAT i discount because he's
not an. ECONOMIST i think he's a. LAWYER i think
he's A. Jd he might have AN mba. Too they
do some econ in THE.
Speaker 2 (05:28):
Nba but so the question THAT i have is what
if we, are in fact on the precipice of a
technological productivity shift the license which we saw during the Later.
Speaker 4 (05:39):
So what should that mean FOR fed? Policy, yeah let
me first say if, you not many people subscribe to
The Financial times because it's. Expensive Jason, furman who teaches
over At, harvard has a fantastic article commentary on that
Very he answers that very question, today and he answers
it very, conventionally is the way anybody who's trained formally
would answer. It so what happens if we do have
(06:00):
AN ai induced productivity? Boom does that mean a lower
so called neutral, rate the rate that balances those tension
that those forces that we talked about inflation and, unemployment
or higher? One actually all sql it, means and this
might surprise, you a higher not a lower neutral. Rate
it means more demand for loanable, funds for. Example and
there are other consequences of a higher rate of productivity
(06:23):
growth that dictate a, higher not a lower neutral. Rate
so it's not entirely clear how THE fed should. Respond
if you assume THAT ai is gonna send the economy
going like, gangbusters maybe WHEN i put it the WAY
i just, did it's more. Intuitive well said's gotta got
the productivity.
Speaker 2 (06:40):
Boom while it could make all of us more effective
and therefore not as much pressure on the labor, market
the end effect would be an economy that booms so
much that it still has a risk towards.
Speaker 3 (06:51):
Inflation is that the.
Speaker 4 (06:53):
It would increact the WAY i think About furman doesn't
quite put it this way this, morning BUT i think
he'd agree with the Way i'm putting. It it will
increase the demand for loanable funds for. Investment we're seeing
that the several hundred billion in so called CAP x
capital expenditures that where does that come? From it comes from?
Investors where would it have gone otherwise to other? Projects
(07:13):
how does it go TO ai and not to other? Projects,
well the market sends price signals in the form of interest,
rates all else, Equal, mike IF ai is the cornucopia
that AND i don't know That i'm using. THAT i like,
analogy but it's supposed to this bountiest thing that's going
to make us All and that may be. True by the,
Way i'm not pooh pooing. It that means higher not
(07:36):
lower neutral. Rates The fed's got to be, Uh The
fed's got to be careful here because it's it's it's
it's it's. Ill it's not advisable to try to guess
about the productivity effects OF ai because we don't know
what's happening. Elsewhere it could boost. Productivity in, fact it
sounds stupid to say it. Won't but what's. Happening if
the service, sector like we talked about, earlier is, growing
(07:58):
that's a that's that is a productivity that is a
languid productivity. Sector you can't scale what healthcare workers, do
so if that's been, growing maybe there's a dre even WITH.
Ai And furman has actually made this point separately since
Since i'm crushing On Jason furman right, now he's pointed
out that you don't know what's happening elsewhere in the.
Economy WHEN ai boosts, productivity it could be falling. Elsewhere,
(08:22):
again this ties into the services. Conversation we add. Later
it's very very risky For, wosh Who i'm going to
continue to hammer for however long you keep me employed,
here and however long he's chaired The Federal. Reserve for
not being able to read a paper in monetary. ECONOMICS
i think that is. Key he, is as a, consequence
going to garble terms and approach this with an incoherent,
framework and he's Already, UNFORTUNATELY i know this didn't start
(08:43):
out as a bash fsh bash fest about, warsh but
he's already misstated the relationship between productivity and neutral. Rates
and what's even worse is that he's. Speculating he's speculating
about something then getting his optimal, reaction LIKE i got
a problem with?
Speaker 3 (09:01):
That seems.
Speaker 2 (09:03):
Reasonable let's take a quick. Break when we come, Back
why the Middle Class feels? Poor ross may be playing trivia.
Speaker 3 (09:09):
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Speaker 1 (10:32):
Com i'p ed.
Speaker 2 (10:33):
Piece in The Wall Street journal today why the middle
class feels. Poor and this is not something. NEW i think,
we you, know social, MEDIA i think is kind of
dominated by desire for the yester years when things were
so much better in the. Economy AND i think we
spend a lot of time on this, show uh debating
that and contradicting that point, that, oh it is so
(10:55):
much better in nineteen. Seventy BUT i do understand why
people feel. Poor and they call it the decompression. EFFECT
i would call it to keep it up with the
keeping up with The joneses. Effect but here are the
stats THAT i think are. Important so in nineteen seventy,
five the median income for married couples with children was
fifteen thousand. Dollars if you were in the eightieth percentile
(11:17):
of incomes back in nineteen seventy, five for the same,
group your income was twenty two, thousand six hundred. Dollars
so the eightieth percentile earned fifty one percent more than
the median family last year that same. Statistics so if
you were median family with, children you were earning one
hundred and thirty three thousand dollars as a, household well
(11:39):
and above what was you know in nineteen seventy, five
even in inflation adjusted.
Speaker 3 (11:43):
DOLLARS i do believe.
Speaker 2 (11:46):
The eightieth percentile came in at two hundred and forty two,
thousand which is eighty five percent. More and so what
the author points out is that you have seen arise
in all. Incomes you've seen a general increase in inflation
adjusted earnings over the course of that, time whether you're
looking at average or. Median but the growth for the
(12:07):
top twenty, percent the top ten, percent and especially the
top five percent has far exceeded what we have seen
at the median. Level it has grown far, faster and
we see that THROUGH i mean other things we've talked,
about like The genie, Coefficient, right how is income distributed
across our? Economy it is less equally distributed today than
it has been pretty much anytime in modern. History and
(12:30):
so to, me more than anything, else you, know when
we talk about why are people? Dissatisfied why do they
feel like they're falling? BEHIND i know we point to
a lot of things like student loan debt and gambling
and everything, Else but more than much, ELSE i think
this income distribution is bigger than it was in the,
past and much, easily much more easily visible.
Speaker 3 (12:53):
Today than it was in the. Past.
Speaker 2 (12:55):
RIGHT i don't want to discount to The facebook And
instagram effect of you constantly see your, friends family and
coworkers who are you, know flaunting their wealth in different
ways than was possible in the nineteen. Seventies anything THAT
i got wrong there in terms of the you, know
inflation adjusted income or anything along those, LINES i.
Speaker 3 (13:17):
Think that's generally the.
Speaker 2 (13:18):
CASE i think it's pretty tough to argue that the
average person is worse off than they.
Speaker 3 (13:22):
Were in nineteen seventy. Five the Average, american.
Speaker 4 (13:25):
Well when you look at the big purchases homes and,
cars they've grown faster than income the cost of.
Speaker 3 (13:31):
Them, yes, yeah so.
Speaker 4 (13:34):
Said, differently it costs more salary years to buy a,
house like sixty percent, more, well forty percent. More i've
got the median the way to do this if you're,
interested BECAUSE i just did it in like thirty, seconds
SO i wouldn't call this rigorous or particularly well thought. Out, Sorry, mark.
Speaker 3 (13:51):
What's easy for you is not easy for all the
rest of. Us But i'll Leave, Well i'm.
Speaker 4 (13:54):
Just saying you, could like what you could Ask gemini
or whatever to do this for you and they'd give
you a similar result if if you're, interested just don't
take my. Word if you don't like my opinion on
tariffs or, something so you want to discount this. TOO
i get that eighty four nineteen eighty four median sales
price of a home, sold and don't adjust this for.
Inflation just leave the nominal series in, there divided by median.
(14:16):
Income that ratio was three point. Five so one way
to think about that is it's three point five salary
years to buy a home in nineteen eighty. Four as
of twenty twenty, two that was almost. SIX i, mean holy,
moly almost. Double it's come down to five is of
the end of twenty twenty. Four but these, are you,
know kind of noisy, series particularly the median sales price,
(14:38):
series because it's an asset and it. Bounce home price
have got a lot more volatile since THE fed really
started to screw things, Up i'll say about a generation
ago and let its attention wander from inflation into other. Things,
anyway it's a lot more expensive by can salaries to
buy a, home and we all know the story with
buying a. Car these obscene seven ten year, loans these
(14:59):
knocks shoose thousand dollars, payments AND i Know i'm quoting
nominal dollars, there but you don't even have to do
the inflation adjustment to know car prices have far outpaced
the general price general price level increases measured by something LIKE.
Speaker 2 (15:13):
Cpi cars absolutely have as have clearly homes based on
the data that you just put. OUT i do want
to once, AGAIN i don't think you were doing the
show with me the day THAT i brought this, up
but the car's piece remains entirely our, fault AND i
just want to bring that piece up once again that.
Speaker 4 (15:33):
Some of it was government mandated safety, stuff not not
all of, It. Mike i'm not trying to contradict, you.
Speaker 3 (15:38):
But, no that's.
Speaker 2 (15:40):
Fair, like, yes there are you, know where your fuel
emission standards and all sorts of things that go into the.
Speaker 4 (15:44):
Price so you're saying that our appetite for nicer cars is.
Speaker 3 (15:47):
Our appetite for SUVs has just.
Speaker 2 (15:49):
FLIPPED i think it was just two decades ago that
half of all vehicles sold in The United states were,
sedans and today it's like twenty. Percent, yeah we want
bigger and bigger, cars, frankly in most cases for no
darn good. Reason and it's NOT i, mean are we
having bigger families than we did twenty years?
Speaker 3 (16:09):
Ago most certainly not.
Speaker 2 (16:12):
So, yeah our appetite for really expensive cars is just
that we like buying really expensive cars with really fancy,
features and it costs.
Speaker 3 (16:20):
A heck of a lot more to do.
Speaker 2 (16:21):
It the housing, piece on the other, HAND i don't
view that as much as individually our, fault as it
is collectively collectively our fault for not liking dense housing
in our.
Speaker 4 (16:33):
Neighborhoods, no house prices have become like publicly traded asset
prices in some ways the appreciations not as severe is
not the right, word because that's it's not like a good,
adjective but you know WHAT i. Mean BUT i would,
still of, course because to, me all society's ills can
be traced back to The Federal reserve and running excessively
(16:53):
loose monetary. Policy and this is WHERE i agree With.
Warsh BUT i was bashing his economica literacy. Earlier that's
kind of a harsh way to put, it but it's
kind of. True but he has and maybe, this this
will compensate for his inability to read an economics, paper
the fact that he seems to want to narrow the
Fids field division a little, bit focus on more on
(17:14):
the price level and changes in it than all this other.
Speaker 2 (17:17):
Stuff speaking of, housing The president has also made public
all of his initiatives on, housing some of WHICH i
think won't go.
Speaker 3 (17:23):
Anywhere others may be more.
Speaker 2 (17:25):
Serious but The New York times had a piece looking
at his position on.
Speaker 3 (17:31):
Institutional buyers of. Homes and remember.
Speaker 2 (17:35):
What he's, proposing which is large corporations shouldn't be able
to buy single family homes for the purpose of renting
them back. Out what The New York times pointed out
here is that he does still want to allow big institutional,
buyer big institutional companies to build no homes for the
purpose of, renting and for some, reason The New York
times thinks that's a bad, idea basically, saying, hey you're
(17:57):
you're saying that you don't want a nation of, renters
but on the other, hand you're willing to allow big
corporations to build new homes specifically for the purpose of.
Renting AND i just we have so many bad ideas about.
Housing and by the, WAY i don't think it's a
great idea to bar corporate buyers from you from buying
homes and competing with home. Buyers but, whatever it's probably
(18:19):
not going to make a big difference. Anyway but if
you want cheaper rent if you want cheaper, houses eventually
you want to allow, corporations anybody to build homes for whatever.
Purpose if it's because they want to rent them, out,
great that'll bring down. Rents, eventually rents will get so
low that it'll make sense for the company to sell
(18:41):
off that home to a homeowner and they will buy
it and it'll be adding to the total inventory of.
Homes SO i just we seem to conflate all of
this and blame big companies for all of our, problems and,
genuinely the problem with the housing market and why it's
so unaffordable has very it'll to do with big corporate
(19:02):
buyers buying or building or not building new.
Speaker 3 (19:05):
Homes quick, Break Wall Street watch coming up.
Speaker 1 (19:08):
Next bringing the latest financial news straight to your. Radio every.
Day it's The Financial exchange on The Financial Exchange Radio.
Network time now For Wall Street. WATCH a complete look
(19:32):
at what's moving markets so far, today right here on
The Financial Exchange Radio.
Speaker 5 (19:37):
Network well after a mixed and mostly quiet start to the,
day markets have suddenly entered sell off, mode with all
three major averages down about one percent right. Now The
dow is down nine tenths of a, percent or four
hundred and forty two, POINTS smp five hundred down over
one percent or seventy five points, lower the tech Heavy
nasdaq down one point seven percent or three hundred and
(20:00):
ninety six, Points russell two thousand selling off one and
a half, Percent Tenure treasure yield is down five basis
points now at four point one two five, percent and
crude oiled down almost two percent. Lower trading at sixty
three dollars and forty eight cents a. Barrel appleven tumbling
nineteen percent despite the mobile advertising company beating quarterly, expectations
(20:23):
as traders are still weary about AI's potential impact on the. Business,
However Apple love AND ceo DOWNPLAYED ai threats to the.
Company newhile McDonald's posted stronger than expected growth in same store,
sales citing success from its value. Campaign during the fourth,
QUARTER us same store sales climbed six point eight, percent
(20:43):
while globally that same metric climbed five point seven. Percent
shares in the fast food jin are up by two,
percent sticking with that space Where Burger king parent company
restaurant brands beat on the top and bottom lines for
the previous, quarter lifted by strong international. Growth, however that
stock is down by four. Percent, Elsewhere cisco shares sinking eleven,
(21:05):
percent even after the networking equipment company reported higher revenue
due to INCREASING ai hyperscaler. Demand beer Maker Anheuser busch
IN bev beat fourth quarter earnings and revenue, forecast sending
that stock up by five, percent and after today's closing,
bill we'll see earnings from applied materials In Vertex. Pharmaceuticals
(21:26):
I'm Tucker silva and that Is Wall Street. Watch and
the trivia question we asked in the previous segment Was
Abraham lincoln is in The hall Of fame for which
sport that would be. Wrestling steve From, yarmouthport mass is
our winner today taking on The Financial Exchange show t.
Shirt congrats To steve and we play trivia every day
here on The Financial Exchange see complete contest rules At
(21:48):
Financial Exchange show dot.
Speaker 2 (21:49):
Com Uh texter got in on our conversation on housing
talking about, regulation AND i do put this in the
overall category of why homes are so. EXPENSIVE i THINK
i put zoning in there as another. Regulation but, yeah
there are far more regulations that go into building a
home today that are much more strict than we were
(22:10):
used to in the.
Speaker 3 (22:11):
Past it's extra.
Speaker 2 (22:13):
Textan it was somewhat easier to build and get more
done with the property you owned back then comparatively because
regulations have gotten more. Strict it's not our. Grandfathers it's
not that our grandfathers had it so much. BETTER i
just think that a lot of their success was related
to an easier time in their regulatory history of The United.
Speaker 3 (22:30):
STATES i don't know IF i blame it all on.
Speaker 2 (22:32):
REGULATION i mean it was also in the nineteen, seventies for,
example a heck of a lot easier to get a
job without a college.
Speaker 3 (22:39):
Education we were a much back to the.
Speaker 2 (22:41):
Manufacturings so, YEAH i, mean there's a lot of things
that are. DIFFERENT i just continue to ask myself WOULD
i rather be born at a different point in?
Speaker 4 (22:51):
Time anybody who answers yes to that, question forgive me
if you just answered yes in your, Head but you
need to have your head, examined you really. Do any
who was alive in the seventies and eighties AS i,
was and part of that, PERIOD i wasn't like a
keen economic, observer but for most of IT i. Was
and they know that would you rather be sick in
(23:12):
the seventies or? Today is there even a? Question would
you rather eat in a restaurant in the seventies where
the smoking section infringed on your? Section or would you
rather eat a? Restaurant is there any? Drugs, everything with
the exception of some life saving, drugs which is which makes,
this which which which makes the which exposes the cruel
(23:33):
side of, Innovation everything is cheaper no matter how you
want to measure it relative to, income life expectancies are
longer per CAPITA GDP n, say, oh there he goes
with there's economic. Statistics, well it's a lot, higher AND
i don't have a better measure of standards of. Living
it's basically it's increased by like fifty sixty percent since
then by any.
Speaker 5 (23:53):
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Speaker 2 (24:55):
Com in the latest publication of misunderstanding of how housing,
Works New York times, polishers Maybe america needs some new
cities sub. Headline it sounds a bit kooky to promise
a whole city from, scratch but it's been done before
and might just help solve the housing. Crisis so they
bring up the city Of, Irvine, california which was largely
(25:15):
built by The Irvine, company most for most of its
one hundred and sixty year. History that was amazingly, farming
and then they transformed it into a center for employment
and housing in a whole bunch of. THINGS i guess
my point would be. HERE i don't think the way
to solve our housing crisis is by trying to erect
(25:36):
new cities out of. Nothing AND i also really Hope
New York times doesn't get into how you would go
about doing, This But i'm especially concerned if our government
has anything to do with the planning of. It if
you want some idea of what planned cities look, LIKE
i encourage you to just do a quick search from
(25:56):
some reliable sources on some ghost cities In china which
are entertaining but also kind of scary about what can
happen when central planning at the government level kind of goes.
Wrong and it's not that building a bunch of cities
Across china was unproductive from an employment AND gdp, perspective
(26:17):
but it turned out they built way more cities than anybody,
needed and now they're populations on the verge of, shrinking
and so they have a bunch of cities that are.
Unoccupied so we keep coming up with these creative ideas like,
hey we'll, just you, know go out to the middle
of nowhere and build an entirely new city out of,
nothing when there are simpler. Fixes there are a bunch
(26:38):
of places that people want to live because there are
jobs there. Today we don't need to create an entire
new economic.
Speaker 3 (26:45):
Hub we just need to.
Speaker 2 (26:46):
Allow those places where people want to live to build
more houses more. Easily it's really all it. Takes AND
i understand why you don't want that if you already live,
there it by definition means that your house becomes, cheaper
so that kind of thinks for.
Speaker 3 (27:04):
You but that is the trade, off.
Speaker 2 (27:06):
Right there is no way to, say, hey we're going
to build more affordable housing and at the same, Time,
johnny you who already owns a, home it's going to
get more valuable under that. Plan those two are in direct.
Conflicts they will never fix each. Other but if you
want to build more affordable, housing don't don't tell me
we're going to build a new city out in middle of, Nowhere.
(27:30):
Vermont that's not going to be successful in my. Estimation
what you need to do is set up cities that
are existing and desirable and where people want to live
to be able to build more dense. Housing AND i
fully comprehend why people don't like.
Speaker 4 (27:46):
That, YEAH i thought their argument was going to go
in a different, direction AND i don't think the economists
they cite would would agree with the use to which
their work is being. Put cities are responsible for the
vast majority major metropolitan, areas So i'm talking like if
you're from The boston area like we are, Here i'm
Talking Metro west if you're familiar with. It BUT i
(28:07):
know people are listening all over the. Country you know
WHAT i mean by a major metro. Area the vast
majority of economic, activity like ninety percent occurs in major metro,
areas the nicest places that you'd want to, live like
in the, Villages florida if that's your, lifestyle or somewhere
in The dakotas if you want, TO i don't, know
run a dude ranch or something. Like there's nobody. There
(28:28):
they not responsible for any of THE, gdp And god
help you if you get.
Speaker 1 (28:32):
Sick not in the.
Speaker 4 (28:32):
Villages i'm sure they have terrific health. Care so things
happen not in not in, urban not in very rural
places here in The United. States they happen in. Cities
SO i thought their argument was because of just. Generally
we made this point kind of in the earlier in the.
Show if you want to increase your, wages go work
(28:54):
for someone who's. Wealthy in a wealthy, area everything gets
scaled up those you could call those extern things that
just kind of spill. OVER i thought that's where this
article was going not like we need more, houses so
let's build seventy, story you, know concrete abominations like you
Know britain did with public, housing and like we. Tried
(29:16):
that wasn't my sense of where this story should.
Speaker 2 (29:18):
Go, sorry let's say a quick. Break when we come.
Back Stack roulette is.
Speaker 3 (29:22):
Next text us.
Speaker 1 (29:24):
Six one, seven three six two one three eight five
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Speaker 5 (29:44):
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Speaker 3 (30:29):
Boston, hey it's time for a wee bit of stack.
Roulette what do you have for? Us so we were.
Speaker 4 (30:32):
Talking earlier about the purpose of. Tariffs who bears the
cost of? TARIFFS i don't want to belabor it too. Much,
yeah you're talking about Every, yeah everybody that's looked at
it has concluded that consumers bear the cost of. Tariff
that's kind of the, point, Right if you want people
to switch away from foreign, goods, sure you want to
make it more painful to buy foreign. Goods SO i
don't know why you would deny, that but, anyway some people.
(30:55):
Do New York, fed maybe, coincidentally earlier today released a
study that concluded yet, again so this isn't exactly like breaking,
news because it's the same result that anybody who's ever
looked at this from time immemorial has. Reached The New
York fed study has looked at the most Recent i'll
just call them rounds of, tariffs even though some of
(31:16):
them are, tweets, this, that and the, other so it's
hard to make them into a coherent. Policy but, anyway
ninety four percent of the tariff, incidents which by which
they mean cost was borne by The United states in
the First they just looked at the first eight months
of twenty twenty five because that's when they were doing the. Study,
so you, know.
Speaker 3 (31:34):
Does it breakout by business versus consumer or does?
Speaker 4 (31:37):
It they, do but it gets a little tricky to,
read So i'm not sure my understanding of the way
they're presenting this data is. Correct but whether it's a,
company mic or a, person you, know pack profits passed
through their, owners passed through to us through the stock,
market for. Example so, yeah consumers bear the cost of,
tariffs it's not like foreign. Governments that's a little bit
(31:59):
of a different subject than we're talking.
Speaker 3 (32:00):
About, no that's.
Speaker 4 (32:01):
EARLIER i GUESS i want to.
Speaker 2 (32:04):
Talk about the smart. Money uh we wh when when
people refer to the smart money, mark who are they
generally Referring.
Speaker 4 (32:11):
Usually, institute usually investment what used to be called investment,
banks So Golden sachs Or Morgan.
Speaker 2 (32:16):
Chaser do you think private equity would fit into that?
Bucket they, Do, yeah they. Don't they don't stock. Market
BUT i think, generally like if you're talking smart, hey
where's the smart money? GOING a lot of you, know
institutional investors have been placing money into private equity over
the last few, years AND i think you would generally
(32:37):
describe some of that money as going towards private, equity
maybe private equity.
Speaker 3 (32:40):
Itself. Pension, Yeah i've been tossing a ton of money.
Speaker 4 (32:44):
Cheese, yeah since roughly two.
Speaker 2 (32:45):
Thousand, Yeah SO i want to talk about how that
smart money is not always the. Smartest we've seen this
over and over again with private equity over the course
of the last, year.
Speaker 3 (32:56):
And it seemingly.
Speaker 2 (32:57):
Continues but first last year where the number of cases
of fraud and bankruptcies specific to some private equity. Companies,
fortunately we haven't seen that explode into a whole bunch
more discoveries of companies that are funded by private equity
that are just blowing. Up and you, know there was a,
(33:18):
QUESTION i, think as to whether this was a real systemic,
issue and we, said, hey we just need to wait
a few months and see if these continue to blow,
up and by and large correct If i'm. WRONG i
don't think we have seen that be the.
Speaker 3 (33:29):
Case talking about the private, debt, yeah we've talked about
the private credit mark automotive.
Speaker 2 (33:35):
Industry in automotive as well as in, telecom you had
some fraud and we were sitting there, thinking, well if
if you smell, smoke might there be a fire? Here
and by and, large you, know it's now been six
months or so and we haven't seen.
Speaker 4 (33:49):
No other shoot hasn't.
Speaker 2 (33:51):
Dropped it has not but one other area here where,
again you, know it's really tough to be correct one
hundred percent into the.
Speaker 3 (34:00):
Time one of the.
Speaker 2 (34:01):
Other big areas that private equity has put a lot
of their funds, into both in the way of loans
and investment over the past decade has been software software companies,
specifically and they've been a desirable, target. Right these are low,
expense high margin businesses that have seen a tremendous amount
(34:23):
of growth over the last. Decade and as, such you,
know giant companies Like blackstone, AREAS kkr And Blue owl
have poured money into those types of. Companies and with
a you, know brand new software From anthropic that gets
released two weeks, ago all of a, sudden all of
(34:44):
those investments are looking very questionable. Today these companies that
previously had these massive barriers to entry because guess, what
not a lot of people have the coding and design
skills to be able to design something as user friendly
as TurboTax Or expedia or you, know name your favorite
(35:05):
website that you actually use to do. Things and guess,
what it was really really hard to design something like
that that worked well and actually accomplished what people wanted to.
Do the narrative that is now dominating is, well that
just GOT i don't, know one hundred times easier than
it was five years ago to design all of that.
(35:25):
Stuff and so now all of those same companies that
have been pouring money into these offerings are not falling,
apart but they are facing the same investor pressure that
the software companies themselves have Been over the last couple
of weeks on this renewed thinking of, okay maybe there's
another problem in private.
Speaker 4 (35:44):
Equity undoubtedly it's not A i was gonna say it's
not a big part doesn't have to. BE i think
these are mostly venture capital focused managers as opposed to
the biggest whitcher buyout type firms that focus on very traditional.
Industries SO i wouldn't say it's, dominant but it could
be enough to CAUSE i, mean there's not going to
(36:06):
be like a run on the, bank because that's not
the nature of private. Equity when and a sophisticated investor
gives them their. Capital they know they're not they're not
going to back a return for years until you, know
the investments have to be, made the improvements have to be,
made depending on what the business, is and then it
becomes cash flow positive after like several, years and then
you get everything back and hopefully then some after like
(36:26):
as long as a decade or even more hard to, Say,
mike what their ramifications would be if a lot of
these investments suddenly become. Obsolete maybe not.
Speaker 3 (36:35):
Quite the right, word but, YEAH i doubt they've become.
Speaker 2 (36:37):
Obsolete and it's certainly not, overnight but it's just Been
i've been pouring over it over the last week and
thinking about it in terms of my own, life my own,
business and looking, at you, know the amount of money
that my own business spends on, software everything from antivirus
to customer relationship management to financial planning and investment summary
(37:02):
and trading, Right, like all of those things are big
software expenses that any corporation. BUYS i, think for you,
know one like, ours maybe twenty five grand a month
in software. Costs IF i can replace any single one of,
those like how dramatically does that change the financial, Picture
not for. Us for, us it's a relatively minor. Change
(37:24):
for the customers, themselves it's a relatively minor. Shift but
for those companies that offer that, software your stock price
is entirely dependent on the growth rates that you have,
seen AND i think those growth rates are what's in question.
Now that's the piece to me THAT i find. Fascinating
all the time that we have for, today will be
right back at tomorrow with an Inflation friday markets remain
(37:47):
in negative, TERRITORY nasdac leading the way down one point six.
Speaker 3 (37:51):
Percent we'll be back.
Speaker 2 (37:52):
TOMORROW i have a great rest of, day, folks
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(01:07):
and Mark Vandetti.
Speaker 2 (01:10):
Good morning, Welcome back to the Financial Exchange. It's Mike,
Mark and Tucker with you on a Thursday, post jobs report,
pre inflation report coming out tomorrow. Market sliding in early
trading here as we open up the eleven o'clock hour.
The NASDAK currently down two hundred and ninety two points
one and a quarter percent, the SMP off seven tenths
(01:32):
of a percent in the Dow. I think seeing some
of that tech outflow down only one quarter of one percent.
Oil prices moving down again to sixty three dollars sixty
cents per barrel. Take a look at what's going on
in commodity markets that they have been pretty wild, but
relatively muted today, Gold pretty much flat, Silver down one
(01:54):
and a third percent. In the bond markets, we've got
the yield on the ten year Treasury edging lower down
to four point one three five percent, and nothing interesting
happening in crypto, so i'll skip it.
Speaker 3 (02:08):
One item of no.
Speaker 2 (02:09):
We've been talking a bit about interest rates as of late,
and the UH average thirty year fixed rate mortgage ticked
down back in early January after the President announced that
UH was it. Fanny and Freddy would go out and
buy some longer term bonds to try and artificially bring
down interest rates dropped pretty substantially down from six where
(02:31):
were we here six' two down to about six. Even
we've now bumped back. Up the average thirty year fixed
rate mortgage, yesterday according To Mortgage News, daily was six
point one four, percent bumping up a little bit on
the heels of that hot and expected unemployment. Report looking forward, Tomorrow,
mark we've got that consumer price index. Reading expectations from
(02:53):
What i'm, seeing would be for year over year prices
to hit at two and a half, percent a month
of a month increase at point three. PERCENT i guess
my question for you would be with interest rates where
they are right, now with the state of the labor
market and the state of, inflation and knowing that you
have A i won't say a, bias but a a
(03:19):
view of.
Speaker 4 (03:22):
Inflation THAT i do on unemployment Because i'm not confident
in the fedsibility to find.
Speaker 2 (03:26):
Tune so my question for you would, be where we
got the unemployment report, yesterday where do you need inflation
to settle out for you to be comfortable that rates
are at the perfect level that they are where they
are right.
Speaker 4 (03:39):
Now i'll answer that question a little bit. Differently you
could infer a more specific, answer.
Speaker 3 (03:43):
But just PRETEND i asked a different. Question that'd be.
Speaker 4 (03:45):
Great USUALLY i usually. Do Now i'm going to answer,
it but it's not going to be specific. Enough, probably
inflation is. Elevated it's not as high as it, was
but it's close to three. Percent if you look at
measures that try to capture the trend in, inflation the
trend in inflation or the long term component of inflation
is what The fed can. Control that's what it. Does
(04:07):
it lowers interest rates to stimulate demand more accurately prints,
money in turn lowering interest, rates in turn hopefully stimulating.
Demand each link in that chain gets a little weaker
as you proceed.
Speaker 1 (04:17):
Along it's.
Speaker 4 (04:19):
Elevated so is The fed doing its job on that? Score? Arguably.
Speaker 3 (04:22):
No what about?
Speaker 4 (04:23):
Unemployment if that were really, high you'd, say, well it's
worth a little inflation to get more people. Employed there
are long term benefits to keeping the labor force as
close to maximum. Employment whatever that is also a moving
target is, possible And, mike you could make both an
argument that unemployment is unnaturally low and unemployment and low
fors four point three percent is of, yesterday is on
(04:44):
the very low end of historical observations at any other
period in the modern. Era if you told me inflation
was close to three and unemployment was in the low,
fours and you'd ask me or, anybody what's THE fed
going to do, next ninety nine point nine out of
one hundred respondents would have, said they got a titan
that's unnaturally.
Speaker 2 (05:03):
Lower so let me ask this because a lot's been
made of, it especially by the Incoming Federal Reserve, Chair
kevin worsh whose WORDS i know you, discount BUT i.
Speaker 4 (05:13):
DON'T i don't discount them because he's the incoming chair
of The Federal, Reserve so they mean a. Lot it's
his understanding of monetary economics THAT i discount because he's
not an. ECONOMIST i think he's a. LAWYER i think
he's A. Jd he might have AN mba. Too they
do some econ in THE.
Speaker 2 (05:28):
Nba but so the question THAT i have is what
if we, are in fact on the precipice of a
technological productivity shift the license which we saw during the Later.
Speaker 4 (05:39):
So what should that mean FOR fed? Policy, yeah let
me first say if, you not many people subscribe to
The Financial times because it's. Expensive Jason, furman who teaches
over At, harvard has a fantastic article commentary on that
Very he answers that very question, today and he answers
it very, conventionally is the way anybody who's trained formally
would answer. It so what happens if we do have
(06:00):
AN ai induced productivity? Boom does that mean a lower
so called neutral, rate the rate that balances those tension
that those forces that we talked about inflation and, unemployment
or higher? One actually all sql it, means and this
might surprise, you a higher not a lower neutral. Rate
it means more demand for loanable, funds for. Example and
there are other consequences of a higher rate of productivity
(06:23):
growth that dictate a, higher not a lower neutral. Rate
so it's not entirely clear how THE fed should. Respond
if you assume THAT ai is gonna send the economy
going like, gangbusters maybe WHEN i put it the WAY
i just, did it's more. Intuitive well said's gotta got
the productivity.
Speaker 2 (06:40):
Boom while it could make all of us more effective
and therefore not as much pressure on the labor, market
the end effect would be an economy that booms so
much that it still has a risk towards.
Speaker 3 (06:51):
Inflation is that the.
Speaker 4 (06:53):
It would increact the WAY i think About furman doesn't
quite put it this way this, morning BUT i think
he'd agree with the Way i'm putting. It it will
increase the demand for loanable funds for. Investment we're seeing
that the several hundred billion in so called CAP x
capital expenditures that where does that come? From it comes from?
Investors where would it have gone otherwise to other? Projects
(07:13):
how does it go TO ai and not to other? Projects,
well the market sends price signals in the form of interest,
rates all else, Equal, mike IF ai is the cornucopia
that AND i don't know That i'm using. THAT i like,
analogy but it's supposed to this bountiest thing that's going
to make us All and that may be. True by the,
Way i'm not pooh pooing. It that means higher not
(07:36):
lower neutral. Rates The fed's got to be, Uh The
fed's got to be careful here because it's it's it's
it's it's. Ill it's not advisable to try to guess
about the productivity effects OF ai because we don't know
what's happening. Elsewhere it could boost. Productivity in, fact it
sounds stupid to say it. Won't but what's. Happening if
the service, sector like we talked about, earlier is, growing
(07:58):
that's a that's that is a productivity that is a
languid productivity. Sector you can't scale what healthcare workers, do
so if that's been, growing maybe there's a dre even WITH.
Ai And furman has actually made this point separately since
Since i'm crushing On Jason furman right, now he's pointed
out that you don't know what's happening elsewhere in the.
Economy WHEN ai boosts, productivity it could be falling. Elsewhere,
(08:22):
again this ties into the services. Conversation we add. Later
it's very very risky For, wosh Who i'm going to
continue to hammer for however long you keep me employed,
here and however long he's chaired The Federal. Reserve for
not being able to read a paper in monetary. ECONOMICS
i think that is. Key he, is as a, consequence
going to garble terms and approach this with an incoherent,
framework and he's Already, UNFORTUNATELY i know this didn't start
(08:43):
out as a bash fsh bash fest about, warsh but
he's already misstated the relationship between productivity and neutral. Rates
and what's even worse is that he's. Speculating he's speculating
about something then getting his optimal, reaction LIKE i got
a problem with?
Speaker 3 (09:01):
That seems.
Speaker 2 (09:03):
Reasonable let's take a quick. Break when we come, Back
why the Middle Class feels? Poor ross may be playing trivia.
Speaker 3 (09:09):
Here next on The Financial.
Speaker 1 (09:10):
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hit that subscribe. Button time for trivia here on The
Financial exchange and Today's Abraham lincoln's. Birthday the Sixteenth president
is well known for his political, accomplishments but many don't
realize he was an accomplished. Athlete so our trivia question,
Today Abraham lincoln is in The hall Of, fame for
which sport once. Again Abraham lincoln is in The hall
(10:04):
Of fame for which? Sport be the third person today
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(10:27):
win THAT t. Shirt see complete contest rules At Financial
Exchange show dot.
Speaker 1 (10:32):
Com i'p ed.
Speaker 2 (10:33):
Piece in The Wall Street journal today why the middle
class feels. Poor and this is not something. NEW i think,
we you, know social, MEDIA i think is kind of
dominated by desire for the yester years when things were
so much better in the. Economy AND i think we
spend a lot of time on this, show uh debating
that and contradicting that point, that, oh it is so
(10:55):
much better in nineteen. Seventy BUT i do understand why
people feel. Poor and they call it the decompression. EFFECT
i would call it to keep it up with the
keeping up with The joneses. Effect but here are the
stats THAT i think are. Important so in nineteen seventy,
five the median income for married couples with children was
fifteen thousand. Dollars if you were in the eightieth percentile
(11:17):
of incomes back in nineteen seventy, five for the same,
group your income was twenty two, thousand six hundred. Dollars
so the eightieth percentile earned fifty one percent more than
the median family last year that same. Statistics so if
you were median family with, children you were earning one
hundred and thirty three thousand dollars as a, household well
(11:39):
and above what was you know in nineteen seventy, five
even in inflation adjusted.
Speaker 3 (11:43):
DOLLARS i do believe.
Speaker 2 (11:46):
The eightieth percentile came in at two hundred and forty two,
thousand which is eighty five percent. More and so what
the author points out is that you have seen arise
in all. Incomes you've seen a general increase in inflation
adjusted earnings over the course of that, time whether you're
looking at average or. Median but the growth for the
(12:07):
top twenty, percent the top ten, percent and especially the
top five percent has far exceeded what we have seen
at the median. Level it has grown far, faster and
we see that THROUGH i mean other things we've talked,
about like The genie, Coefficient, right how is income distributed
across our? Economy it is less equally distributed today than
it has been pretty much anytime in modern. History and
(12:30):
so to, me more than anything, else you, know when
we talk about why are people? Dissatisfied why do they
feel like they're falling? BEHIND i know we point to
a lot of things like student loan debt and gambling
and everything, Else but more than much, ELSE i think
this income distribution is bigger than it was in the,
past and much, easily much more easily visible.
Speaker 3 (12:53):
Today than it was in the. Past.
Speaker 2 (12:55):
RIGHT i don't want to discount to The facebook And
instagram effect of you constantly see your, friends family and
coworkers who are you, know flaunting their wealth in different
ways than was possible in the nineteen. Seventies anything THAT
i got wrong there in terms of the you, know
inflation adjusted income or anything along those, LINES i.
Speaker 3 (13:17):
Think that's generally the.
Speaker 2 (13:18):
CASE i think it's pretty tough to argue that the
average person is worse off than they.
Speaker 3 (13:22):
Were in nineteen seventy. Five the Average, american.
Speaker 4 (13:25):
Well when you look at the big purchases homes and,
cars they've grown faster than income the cost of.
Speaker 3 (13:31):
Them, yes, yeah so.
Speaker 4 (13:34):
Said, differently it costs more salary years to buy a,
house like sixty percent, more, well forty percent. More i've
got the median the way to do this if you're,
interested BECAUSE i just did it in like thirty, seconds
SO i wouldn't call this rigorous or particularly well thought. Out, Sorry, mark.
Speaker 3 (13:51):
What's easy for you is not easy for all the
rest of. Us But i'll Leave, Well i'm.
Speaker 4 (13:54):
Just saying you, could like what you could Ask gemini
or whatever to do this for you and they'd give
you a similar result if if you're, interested just don't
take my. Word if you don't like my opinion on
tariffs or, something so you want to discount this. TOO
i get that eighty four nineteen eighty four median sales
price of a home, sold and don't adjust this for.
Inflation just leave the nominal series in, there divided by median.
(14:16):
Income that ratio was three point. Five so one way
to think about that is it's three point five salary
years to buy a home in nineteen eighty. Four as
of twenty twenty, two that was almost. SIX i, mean holy,
moly almost. Double it's come down to five is of
the end of twenty twenty. Four but these, are you,
know kind of noisy, series particularly the median sales price,
(14:38):
series because it's an asset and it. Bounce home price
have got a lot more volatile since THE fed really
started to screw things, Up i'll say about a generation
ago and let its attention wander from inflation into other. Things,
anyway it's a lot more expensive by can salaries to
buy a, home and we all know the story with
buying a. Car these obscene seven ten year, loans these
(14:59):
knocks shoose thousand dollars, payments AND i Know i'm quoting
nominal dollars, there but you don't even have to do
the inflation adjustment to know car prices have far outpaced
the general price general price level increases measured by something LIKE.
Speaker 2 (15:13):
Cpi cars absolutely have as have clearly homes based on
the data that you just put. OUT i do want
to once, AGAIN i don't think you were doing the
show with me the day THAT i brought this, up
but the car's piece remains entirely our, fault AND i
just want to bring that piece up once again that.
Speaker 4 (15:33):
Some of it was government mandated safety, stuff not not
all of, It. Mike i'm not trying to contradict, you.
Speaker 3 (15:38):
But, no that's.
Speaker 2 (15:40):
Fair, like, yes there are you, know where your fuel
emission standards and all sorts of things that go into the.
Speaker 4 (15:44):
Price so you're saying that our appetite for nicer cars is.
Speaker 3 (15:47):
Our appetite for SUVs has just.
Speaker 2 (15:49):
FLIPPED i think it was just two decades ago that
half of all vehicles sold in The United states were,
sedans and today it's like twenty. Percent, yeah we want
bigger and bigger, cars, frankly in most cases for no
darn good. Reason and it's NOT i, mean are we
having bigger families than we did twenty years?
Speaker 3 (16:09):
Ago most certainly not.
Speaker 2 (16:12):
So, yeah our appetite for really expensive cars is just
that we like buying really expensive cars with really fancy,
features and it costs.
Speaker 3 (16:20):
A heck of a lot more to do.
Speaker 2 (16:21):
It the housing, piece on the other, HAND i don't
view that as much as individually our, fault as it
is collectively collectively our fault for not liking dense housing
in our.
Speaker 4 (16:33):
Neighborhoods, no house prices have become like publicly traded asset
prices in some ways the appreciations not as severe is
not the right, word because that's it's not like a good,
adjective but you know WHAT i. Mean BUT i would,
still of, course because to, me all society's ills can
be traced back to The Federal reserve and running excessively
(16:53):
loose monetary. Policy and this is WHERE i agree With.
Warsh BUT i was bashing his economica literacy. Earlier that's
kind of a harsh way to put, it but it's
kind of. True but he has and maybe, this this
will compensate for his inability to read an economics, paper
the fact that he seems to want to narrow the
Fids field division a little, bit focus on more on
(17:14):
the price level and changes in it than all this other.
Speaker 2 (17:17):
Stuff speaking of, housing The president has also made public
all of his initiatives on, housing some of WHICH i
think won't go.
Speaker 3 (17:23):
Anywhere others may be more.
Speaker 2 (17:25):
Serious but The New York times had a piece looking
at his position on.
Speaker 3 (17:31):
Institutional buyers of. Homes and remember.
Speaker 2 (17:35):
What he's, proposing which is large corporations shouldn't be able
to buy single family homes for the purpose of renting
them back. Out what The New York times pointed out
here is that he does still want to allow big institutional,
buyer big institutional companies to build no homes for the
purpose of, renting and for some, reason The New York
times thinks that's a bad, idea basically, saying, hey you're
(17:57):
you're saying that you don't want a nation of, renters
but on the other, hand you're willing to allow big
corporations to build new homes specifically for the purpose of.
Renting AND i just we have so many bad ideas about.
Housing and by the, WAY i don't think it's a
great idea to bar corporate buyers from you from buying
homes and competing with home. Buyers but, whatever it's probably
(18:19):
not going to make a big difference. Anyway but if
you want cheaper rent if you want cheaper, houses eventually
you want to allow, corporations anybody to build homes for whatever.
Purpose if it's because they want to rent them, out,
great that'll bring down. Rents, eventually rents will get so
low that it'll make sense for the company to sell
(18:41):
off that home to a homeowner and they will buy
it and it'll be adding to the total inventory of.
Homes SO i just we seem to conflate all of
this and blame big companies for all of our, problems and,
genuinely the problem with the housing market and why it's
so unaffordable has very it'll to do with big corporate
(19:02):
buyers buying or building or not building new.
Speaker 3 (19:05):
Homes quick, Break Wall Street watch coming up.
Speaker 1 (19:08):
Next bringing the latest financial news straight to your. Radio every.
Day it's The Financial exchange on The Financial Exchange Radio.
Network time now For Wall Street. WATCH a complete look
(19:32):
at what's moving markets so far, today right here on
The Financial Exchange Radio.
Speaker 5 (19:37):
Network well after a mixed and mostly quiet start to the,
day markets have suddenly entered sell off, mode with all
three major averages down about one percent right. Now The
dow is down nine tenths of a, percent or four
hundred and forty two, POINTS smp five hundred down over
one percent or seventy five points, lower the tech Heavy
nasdaq down one point seven percent or three hundred and
(20:00):
ninety six, Points russell two thousand selling off one and
a half, Percent Tenure treasure yield is down five basis
points now at four point one two five, percent and
crude oiled down almost two percent. Lower trading at sixty
three dollars and forty eight cents a. Barrel appleven tumbling
nineteen percent despite the mobile advertising company beating quarterly, expectations
(20:23):
as traders are still weary about AI's potential impact on the. Business,
However Apple love AND ceo DOWNPLAYED ai threats to the.
Company newhile McDonald's posted stronger than expected growth in same store,
sales citing success from its value. Campaign during the fourth,
QUARTER us same store sales climbed six point eight, percent
(20:43):
while globally that same metric climbed five point seven. Percent
shares in the fast food jin are up by two,
percent sticking with that space Where Burger king parent company
restaurant brands beat on the top and bottom lines for
the previous, quarter lifted by strong international. Growth, however that
stock is down by four. Percent, Elsewhere cisco shares sinking eleven,
(21:05):
percent even after the networking equipment company reported higher revenue
due to INCREASING ai hyperscaler. Demand beer Maker Anheuser busch
IN bev beat fourth quarter earnings and revenue, forecast sending
that stock up by five, percent and after today's closing,
bill we'll see earnings from applied materials In Vertex. Pharmaceuticals
(21:26):
I'm Tucker silva and that Is Wall Street. Watch and
the trivia question we asked in the previous segment Was
Abraham lincoln is in The hall Of fame for which
sport that would be. Wrestling steve From, yarmouthport mass is
our winner today taking on The Financial Exchange show t.
Shirt congrats To steve and we play trivia every day
here on The Financial Exchange see complete contest rules At
(21:48):
Financial Exchange show dot.
Speaker 2 (21:49):
Com Uh texter got in on our conversation on housing
talking about, regulation AND i do put this in the
overall category of why homes are so. EXPENSIVE i THINK
i put zoning in there as another. Regulation but, yeah
there are far more regulations that go into building a
home today that are much more strict than we were
(22:10):
used to in the.
Speaker 3 (22:11):
Past it's extra.
Speaker 2 (22:13):
Textan it was somewhat easier to build and get more
done with the property you owned back then comparatively because
regulations have gotten more. Strict it's not our. Grandfathers it's
not that our grandfathers had it so much. BETTER i
just think that a lot of their success was related
to an easier time in their regulatory history of The United.
Speaker 3 (22:30):
STATES i don't know IF i blame it all on.
Speaker 2 (22:32):
REGULATION i mean it was also in the nineteen, seventies for,
example a heck of a lot easier to get a
job without a college.
Speaker 3 (22:39):
Education we were a much back to the.
Speaker 2 (22:41):
Manufacturings so, YEAH i, mean there's a lot of things
that are. DIFFERENT i just continue to ask myself WOULD
i rather be born at a different point in?
Speaker 4 (22:51):
Time anybody who answers yes to that, question forgive me
if you just answered yes in your, Head but you
need to have your head, examined you really. Do any
who was alive in the seventies and eighties AS i,
was and part of that, PERIOD i wasn't like a
keen economic, observer but for most of IT i. Was
and they know that would you rather be sick in
(23:12):
the seventies or? Today is there even a? Question would
you rather eat in a restaurant in the seventies where
the smoking section infringed on your? Section or would you
rather eat a? Restaurant is there any? Drugs, everything with
the exception of some life saving, drugs which is which makes,
this which which which makes the which exposes the cruel
(23:33):
side of, Innovation everything is cheaper no matter how you
want to measure it relative to, income life expectancies are
longer per CAPITA GDP n, say, oh there he goes
with there's economic. Statistics, well it's a lot, higher AND
i don't have a better measure of standards of. Living
it's basically it's increased by like fifty sixty percent since
then by any.
Speaker 5 (23:53):
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Speaker 2 (24:55):
Com in the latest publication of misunderstanding of how housing,
Works New York times, polishers Maybe america needs some new
cities sub. Headline it sounds a bit kooky to promise
a whole city from, scratch but it's been done before
and might just help solve the housing. Crisis so they
bring up the city Of, Irvine, california which was largely
(25:15):
built by The Irvine, company most for most of its
one hundred and sixty year. History that was amazingly, farming
and then they transformed it into a center for employment
and housing in a whole bunch of. THINGS i guess
my point would be. HERE i don't think the way
to solve our housing crisis is by trying to erect
(25:36):
new cities out of. Nothing AND i also really Hope
New York times doesn't get into how you would go
about doing, This But i'm especially concerned if our government
has anything to do with the planning of. It if
you want some idea of what planned cities look, LIKE
i encourage you to just do a quick search from
(25:56):
some reliable sources on some ghost cities In china which
are entertaining but also kind of scary about what can
happen when central planning at the government level kind of goes.
Wrong and it's not that building a bunch of cities
Across china was unproductive from an employment AND gdp, perspective
(26:17):
but it turned out they built way more cities than anybody,
needed and now they're populations on the verge of, shrinking
and so they have a bunch of cities that are.
Unoccupied so we keep coming up with these creative ideas like,
hey we'll, just you, know go out to the middle
of nowhere and build an entirely new city out of,
nothing when there are simpler. Fixes there are a bunch
(26:38):
of places that people want to live because there are
jobs there. Today we don't need to create an entire
new economic.
Speaker 3 (26:45):
Hub we just need to.
Speaker 2 (26:46):
Allow those places where people want to live to build
more houses more. Easily it's really all it. Takes AND
i understand why you don't want that if you already live,
there it by definition means that your house becomes, cheaper
so that kind of thinks for.
Speaker 3 (27:04):
You but that is the trade, off.
Speaker 2 (27:06):
Right there is no way to, say, hey we're going
to build more affordable housing and at the same, Time,
johnny you who already owns a, home it's going to
get more valuable under that. Plan those two are in direct.
Conflicts they will never fix each. Other but if you
want to build more affordable, housing don't don't tell me
we're going to build a new city out in middle of, Nowhere.
(27:30):
Vermont that's not going to be successful in my. Estimation
what you need to do is set up cities that
are existing and desirable and where people want to live
to be able to build more dense. Housing AND i
fully comprehend why people don't like.
Speaker 4 (27:46):
That, YEAH i thought their argument was going to go
in a different, direction AND i don't think the economists
they cite would would agree with the use to which
their work is being. Put cities are responsible for the
vast majority major metropolitan, areas So i'm talking like if
you're from The boston area like we are, Here i'm
Talking Metro west if you're familiar with. It BUT i
(28:07):
know people are listening all over the. Country you know
WHAT i mean by a major metro. Area the vast
majority of economic, activity like ninety percent occurs in major metro,
areas the nicest places that you'd want to, live like
in the, Villages florida if that's your, lifestyle or somewhere
in The dakotas if you want, TO i don't, know
run a dude ranch or something. Like there's nobody. There
(28:28):
they not responsible for any of THE, gdp And god
help you if you get.
Speaker 1 (28:32):
Sick not in the.
Speaker 4 (28:32):
Villages i'm sure they have terrific health. Care so things
happen not in not in, urban not in very rural
places here in The United. States they happen in. Cities
SO i thought their argument was because of just. Generally
we made this point kind of in the earlier in the.
Show if you want to increase your, wages go work
(28:54):
for someone who's. Wealthy in a wealthy, area everything gets
scaled up those you could call those extern things that
just kind of spill. OVER i thought that's where this
article was going not like we need more, houses so
let's build seventy, story you, know concrete abominations like you
Know britain did with public, housing and like we. Tried
(29:16):
that wasn't my sense of where this story should.
Speaker 2 (29:18):
Go, sorry let's say a quick. Break when we come.
Back Stack roulette is.
Speaker 3 (29:22):
Next text us.
Speaker 1 (29:24):
Six one, seven three six two one three eight five
with your comments and questions about today's. Show this is
The Financial Exchange Radio. Network The Financial Exchange show podcast
drops every day On, Apple, spotify And. iHeartRadio hit that
subscribe button then leave us a five star. Review you're
listening to The Financial Exchange Radio.
Speaker 5 (29:44):
Network The Financial exchange is a proud partner of The
Decision American Veterans department Of. Massachusetts THE dav FIVE k
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(30:07):
but we still need your. Help you can support our
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Speaker 3 (30:29):
Boston, hey it's time for a wee bit of stack.
Roulette what do you have for? Us so we were.
Speaker 4 (30:32):
Talking earlier about the purpose of. Tariffs who bears the
cost of? TARIFFS i don't want to belabor it too. Much,
yeah you're talking about Every, yeah everybody that's looked at
it has concluded that consumers bear the cost of. Tariff
that's kind of the, point, Right if you want people
to switch away from foreign, goods, sure you want to
make it more painful to buy foreign. Goods SO i
don't know why you would deny, that but, anyway some people.
(30:55):
Do New York, fed maybe, coincidentally earlier today released a
study that concluded yet, again so this isn't exactly like breaking,
news because it's the same result that anybody who's ever
looked at this from time immemorial has. Reached The New
York fed study has looked at the most Recent i'll
just call them rounds of, tariffs even though some of
(31:16):
them are, tweets, this, that and the, other so it's
hard to make them into a coherent. Policy but, anyway
ninety four percent of the tariff, incidents which by which
they mean cost was borne by The United states in
the First they just looked at the first eight months
of twenty twenty five because that's when they were doing the. Study,
so you, know.
Speaker 3 (31:34):
Does it breakout by business versus consumer or does?
Speaker 4 (31:37):
It they, do but it gets a little tricky to,
read So i'm not sure my understanding of the way
they're presenting this data is. Correct but whether it's a,
company mic or a, person you, know pack profits passed
through their, owners passed through to us through the stock,
market for. Example so, yeah consumers bear the cost of,
tariffs it's not like foreign. Governments that's a little bit
(31:59):
of a different subject than we're talking.
Speaker 3 (32:00):
About, no that's.
Speaker 4 (32:01):
EARLIER i GUESS i want to.
Speaker 2 (32:04):
Talk about the smart. Money uh we wh when when
people refer to the smart money, mark who are they
generally Referring.
Speaker 4 (32:11):
Usually, institute usually investment what used to be called investment,
banks So Golden sachs Or Morgan.
Speaker 2 (32:16):
Chaser do you think private equity would fit into that?
Bucket they, Do, yeah they. Don't they don't stock. Market
BUT i think, generally like if you're talking smart, hey
where's the smart money? GOING a lot of you, know
institutional investors have been placing money into private equity over
the last few, years AND i think you would generally
(32:37):
describe some of that money as going towards private, equity
maybe private equity.
Speaker 3 (32:40):
Itself. Pension, Yeah i've been tossing a ton of money.
Speaker 4 (32:44):
Cheese, yeah since roughly two.
Speaker 2 (32:45):
Thousand, Yeah SO i want to talk about how that
smart money is not always the. Smartest we've seen this
over and over again with private equity over the course
of the last, year.
Speaker 3 (32:56):
And it seemingly.
Speaker 2 (32:57):
Continues but first last year where the number of cases
of fraud and bankruptcies specific to some private equity. Companies,
fortunately we haven't seen that explode into a whole bunch
more discoveries of companies that are funded by private equity
that are just blowing. Up and you, know there was a,
(33:18):
QUESTION i, think as to whether this was a real systemic,
issue and we, said, hey we just need to wait
a few months and see if these continue to blow,
up and by and large correct If i'm. WRONG i
don't think we have seen that be the.
Speaker 3 (33:29):
Case talking about the private, debt, yeah we've talked about
the private credit mark automotive.
Speaker 2 (33:35):
Industry in automotive as well as in, telecom you had
some fraud and we were sitting there, thinking, well if
if you smell, smoke might there be a fire? Here
and by and, large you, know it's now been six
months or so and we haven't seen.
Speaker 4 (33:49):
No other shoot hasn't.
Speaker 2 (33:51):
Dropped it has not but one other area here where,
again you, know it's really tough to be correct one
hundred percent into the.
Speaker 3 (34:00):
Time one of the.
Speaker 2 (34:01):
Other big areas that private equity has put a lot
of their funds, into both in the way of loans
and investment over the past decade has been software software companies,
specifically and they've been a desirable, target. Right these are low,
expense high margin businesses that have seen a tremendous amount
(34:23):
of growth over the last. Decade and as, such you,
know giant companies Like blackstone, AREAS kkr And Blue owl
have poured money into those types of. Companies and with
a you, know brand new software From anthropic that gets
released two weeks, ago all of a, sudden all of
(34:44):
those investments are looking very questionable. Today these companies that
previously had these massive barriers to entry because guess, what
not a lot of people have the coding and design
skills to be able to design something as user friendly
as TurboTax Or expedia or you, know name your favorite
(35:05):
website that you actually use to do. Things and guess,
what it was really really hard to design something like
that that worked well and actually accomplished what people wanted to.
Do the narrative that is now dominating is, well that
just GOT i don't, know one hundred times easier than
it was five years ago to design all of that.
(35:25):
Stuff and so now all of those same companies that
have been pouring money into these offerings are not falling,
apart but they are facing the same investor pressure that
the software companies themselves have Been over the last couple
of weeks on this renewed thinking of, okay maybe there's
another problem in private.
Speaker 4 (35:44):
Equity undoubtedly it's not A i was gonna say it's
not a big part doesn't have to. BE i think
these are mostly venture capital focused managers as opposed to
the biggest whitcher buyout type firms that focus on very traditional.
Industries SO i wouldn't say it's, dominant but it could
be enough to CAUSE i, mean there's not going to
(36:06):
be like a run on the, bank because that's not
the nature of private. Equity when and a sophisticated investor
gives them their. Capital they know they're not they're not
going to back a return for years until you, know
the investments have to be, made the improvements have to be,
made depending on what the business, is and then it
becomes cash flow positive after like several, years and then
you get everything back and hopefully then some after like
(36:26):
as long as a decade or even more hard to, Say,
mike what their ramifications would be if a lot of
these investments suddenly become. Obsolete maybe not.
Speaker 3 (36:35):
Quite the right, word but, YEAH i doubt they've become.
Speaker 2 (36:37):
Obsolete and it's certainly not, overnight but it's just Been
i've been pouring over it over the last week and
thinking about it in terms of my own, life my own,
business and looking, at you, know the amount of money
that my own business spends on, software everything from antivirus
to customer relationship management to financial planning and investment summary
(37:02):
and trading, Right, like all of those things are big
software expenses that any corporation. BUYS i, think for you,
know one like, ours maybe twenty five grand a month
in software. Costs IF i can replace any single one of,
those like how dramatically does that change the financial, Picture
not for. Us for, us it's a relatively minor. Change
(37:24):
for the customers, themselves it's a relatively minor. Shift but
for those companies that offer that, software your stock price
is entirely dependent on the growth rates that you have,
seen AND i think those growth rates are what's in question.
Now that's the piece to me THAT i find. Fascinating
all the time that we have for, today will be
right back at tomorrow with an Inflation friday markets remain
(37:47):
in negative, TERRITORY nasdac leading the way down one point six.
Speaker 3 (37:51):
Percent we'll be back.
Speaker 2 (37:52):
TOMORROW i have a great rest of, day, folks
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