December 15, 2025 • 39 mins
Chuck Zodda and Mike Armstrong discuss what's really going on in the job market and if we will get some answers on Tuesday. What can break investor skepticism of AI spending? The stock market is rotating out of Big Tech. Is this a good thing? Why everyone got the Trump tariffs wrong. Should you freak out about a possible recession? The bond market will not be fooled...oh really?
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Episode Transcript
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Speaker 1 (00:00):
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(00:42):
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(01:05):
Zada and Mike Armstrong.
Speaker 2 (01:15):
Chuck, Mike and Tucker with you here, kicking off another
full week of stuff. And as we kick things off,
we've got markets, you know, kind of mixed trying to
find their footing after a down day on Friday. But
quite honestly, the next eight days a trading days before
(01:35):
the Christmas holiday, I think I have the potential to
be a little bit unique here in that tomorrow we're
going to be getting a jobs report for the month
of November, also a partial jobs report for the month
of October. We normally get the November jobs report about
a week and a half ago, Like if you look
at the schedule, it would have come out on Friday
(01:58):
the fifth, So this is a as late as we've
ever gotten one due to the shutdown, and so markets,
I think, to a certain extent, don't quite know what
to do with a jobs report that's coming out this
late in the month, because normally, like all your bags
are packed, you're ready to go heading into the holidays,
there's nothing else that's usually that important in markets this
(02:21):
late in the year. We're also going to be getting
retail sales data on Tuesday as well. That is a
delayed report for the month of October, so again kind
of just some some weirdness creeping into the calendar. Then
on Thursday we get CPI four November we also get
weekly jobless claims, and Friday we're going to get existing
(02:42):
home sales. So we've got a full calendar this week
in terms of economic data that is coming out, and
then it's a shortened week next week because of the holiday.
On Thursday, you obviously do not have markets open for Christmas,
and so it's it's kind of this battle here between hey,
(03:05):
is there economic data that can shake things up a
little bit, or does the lack of trading sessions available
in the next several weeks between the Christmas and New
Year's holidays does that bring some calm to market simply
because well there's there's an old Flemish saying markets cannot
fall on a day where they are closed, and you know,
(03:25):
I think that kind of gets us to uh to
where we are today.
Speaker 3 (03:28):
Oh yeah, that's that's definitely very common Flemish saying. Is
what would you point to most important here? I'm looking
at the jobs report, You've got multiple months of releases.
I know it's still quite backwards looking but in terms
of potential change to the overall narrative, that's that's the
one that I'm looking at. I don't think you can
get too surprised from this inflation report.
Speaker 2 (03:49):
Now, the the inflation data, I don't think it's going
to give us, you know, much in any direction. I
think it's going to be pretty consistent with what we've seen.
But the job's report is interesting to me in that
if you look at what's priced in right now, expectations
are for twenty five thousand to forty thousand jobs added,
the unemployment rate is going to be anywhere between four
(04:10):
point four and four point six percent, which is a
pretty big range, you know, heading into the day of
average hourly earnings expected to grow somewhere around point two percent.
And so I think the big thing here, if you
think about the two ways that you can be surprised,
you know, up or down, it's basically, Hey, if you
(04:32):
have another jobs report that has faster payroll growth than
people are expecting, Okay, then you've got a case out
there where the FED is very likely on hold for
the foreseeable future, because if there is no sign of
further deterioration in the labor markets. What specifically, as it
(04:54):
relates to the unemployment rate, remember that's what they look at.
It's going to be something that makes it very hard
for the FED to cut at any point in the
near future, given that they've already cut another you know,
three quarters of a percent this fall. On the other hand,
what happens if we get you know, forty thousand jobs
(05:15):
lost and the unemployment rate goes to four to six. Oh,
that starts to look you know, a little bit dodgy here.
FED is probably back on for January then, So I
think that there's some uncertainty there.
Speaker 3 (05:27):
And by the way, is this a good news bad news?
Good news is bad news jobs report.
Speaker 2 (05:31):
It's we're getting close to the territory where historically bad
news would start to be bad news. You know, when
when you start seeing actually, you know, net job losses
and the unemployment rate going up. The FED generally when
you get to that point too late, they again, there's
a reason why we talk about monetary policy having these lags.
(05:54):
It just doesn't kick in quickly enough. And so this
is something that bears watching here right now. The prevailing
wisdom for the January FED meeting, which is gonna be
on January twenty eighth, seventy three percent chance of a
rate I'm sorry of no change in rates, twenty six
point six percent chance of a quarter percent cut. So yeah,
(06:14):
there's you know, a hurdle that has to be you know,
gotten over in order to see a cut. A week
jobs report, would you know, start to kind of lay
the groundwork there, because you would have another one in
early January before then, Whereas if this comes in, let's
say we get another one hundred and ten thousand jobs
added and unemployment stays at four.
Speaker 4 (06:34):
To four, Yeah, they ain't moving.
Speaker 2 (06:35):
It's you're you're probably not getting anywhere for that January
meeting now.
Speaker 3 (06:39):
That we're a few months out from it. I know
we called this at the time too, but I'm kind
of marking the tape back to late October early November,
and to me, since that point in time, there has
been a shift in the mentality of investors towards artificial
intelligence related companies, and I think it's worthy of continuing
to bring up. It's what sank markets on Friday last
(07:00):
week with Broadcom's earnings. You know, mid October was when
Oracle went through their first bout of volatility. Following all
their stock market increases in video stock topped out right
around late October early November, and since that point in
time it has not been a sell off of AI
related companies. You know, you could make the argument that no,
(07:21):
you just shifted from one company to another, right with
Alphabet's release of the new AI tools and the discussion there.
But since that point in time, I think the thing
that has shifted in my mind at least, has been
investors actually expressing skepticism about the spending on artificial intelligence.
And so I don't know what exactly it takes to
(07:43):
break that trend if we were hoping for a rebound
back to where we were in say the summer of
last year when it came to these companies, but I'm
kind of marking it as that point in time where
investors started expressing skepticism about the debt, about the monetization
of the products, and just about how long it can
continue this way. And so, you know, in light of that,
(08:07):
things like broadcome Stellar earnings that came out on Thursday
night have not been enough to lift those companies. And
so what will be the next leg that will either
move that up or down?
Speaker 4 (08:17):
Is my question?
Speaker 2 (08:18):
Let's take a quick break here, and when we come back,
let's talk exactly. Let's talk about that specific phenomenon, because
there's a piece in Barren specifically about this rotation out
of tech and into other things. Let's discuss is that good, bad,
or ugly? Let's do that.
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Speaker 2 (10:03):
All right. We got a couple different pieces about the
stock rotation that's happening right now. One from a good
friend of the show, Paul Monica, the stock market is
rotating out of big tech a December data deluge triple
D might I add could dictate the next move? Another
one from market Watch, investors are dumping stock market winners
in buying almost everything else. Why that's a good sign?
(10:27):
And the question that I will ask Michael, is it
a good sign?
Speaker 4 (10:33):
Well?
Speaker 3 (10:34):
I don't think that you can say in and of
itself that a broadening out of winners in the stock
market is a bad thing, right. I mean, when you
have a very narrow market, people tend to get a
bit apprehensive about it, and Carl call towards things like
a bubble. When you have the broadening out effect of
you know, companies that have just been kind of ignored
(10:54):
getting some attention towards the upside, I think you can
call that a good thing. If people are just simply
taking their gains and refusing to exit stocks and buying
things blindly as you saw. Well, the rust of two
thousand move the other day was probably more dictated by
interest rate policy than anything else. But that would be
(11:15):
the concerning question is are people just saying, hey, you know,
I'm dumping my AI stocks and just jumping into anything
else blindly. That's of concern. Whereas a general broadening out
I don't think is a bad thing.
Speaker 2 (11:32):
The problem is that for the last two years, anytime
we've had a broadening out attempted, it's ended badly for stocks.
Speaker 4 (11:40):
Give me some examples here.
Speaker 2 (11:42):
Last July we saw this rotation start happening between tech
and small caps and banks and stuff, and it basically
broke the markets. And remember we came in on a Monday,
and like the yen had like gone haywire and the
vis had gone to sixty despite the market barely moving,
and everyone's like what happened here? So you literally had
markets break last you know, July for about you know,
(12:06):
one two week period. We had another attempt at this
in the first half of this year. Now, granted there
were some other things going on from a tariff related perspective,
but the first three months of the year saw a
similar rotation and markets really struggled to find a way forward. So, yes,
(12:27):
like in theory, you want to see a broadening out.
The problem is with the levels of concentration that you've
gotten to with these tech names, I'm not really convinced
you can have a successful broadening out of this market
without experiencing some pain concurrent to that broadening. Yeah, so
(12:48):
I think there's maybe a problem there. Now. The other
piece is markets have tried this, trying to you know
again kind of front run. Hey, here's where we think
the economy going to be going, and ultimately the other
pieces the economy never went there. And so it's something
where oh, like, yes, this is going to broaden out
(13:09):
and do this and do that, and here's the thing
that I come back to, and any of like the
any of the small business owners or any of the
people that work for small businesses will tell you this,
because this is what I hear almost unanimously is look,
if if you pull out the AI companies and look
at actual businesses that need to you know, operate in
(13:32):
the real world buying and selling things to you know,
real humans, they've basically been hanging on for dear life
for the last couple of years. Margins have been compressing
in a lot of those areas. If you look at
you know, the SMP as a whole, X Tech, I'm sorry,
x AI. It's basically, hey, margins are holding steady, but
(13:54):
companies are having to pull every trick out of their
you know bag in order to do so. And so
I think that this is the case here, which is
real world companies have really been you know, struggling to
make you know, headway for the last couple of years.
And the only way that I will believe that a
(14:16):
broadening out can be successful is if it happens with earnings,
not just with stock prices. Because this is the problem
is that, aside from big tech, the actual earnings growth
has been more muted the last couple of years, and
so I am a big believer in what Larry Cudlow
(14:38):
always said every single time we talked to him. Profits
are the mother's milk of stock prices. Look, if you
cannot find a way to consistently generate profit growth, yeah,
we're gonna have some some problems with that broadening out
actually sticking.
Speaker 4 (14:54):
Yeah.
Speaker 3 (14:55):
Yeah, So I mean again, I go back to over
and over there. The only forget about the you know,
earnings growth numbers, forget about what the profit margins on
for non AI related companies. The only real shift that
I can detect in the way that people are talking
about things is very much renewed skepticism about the breadth
(15:17):
and permanence of this AI trade. Since October, I think
there's been a marked shift in attitude towards it. And
so precisely what is going to bring that back or
make it worse?
Speaker 2 (15:30):
Is?
Speaker 3 (15:30):
I think really the question that matter is because there's
just not enough great stuff going on outside of AI
to keep this market excited.
Speaker 2 (15:40):
I think, yeah, it's it's just something where it's it's
challenging in you know, a lot of other areas of
the economy to be able to operate. I'm just going
to pull the data from a fact set here, who's
an aggregator, and let's look at Let's see that that's
not that's by a year. I want bi sector. Here
(16:02):
we go, S and P five hundred earnings growth calendar
year twenty twenty five. Infotech earnings have grown twenty three
percent Yahoo, not Yahoo, actually Google, but in any case,
twenty three percent. Communication services, which yes it does include
you know, AT and T and Verizon and you know
(16:26):
those companies, but communication services two biggest companies, Google and
Meta Communication Services earnings up seventeen point seven percent this year,
mostly on the back of them. Financial is up thirteen percent.
A lot more trading m and as picked up, so
you'll get it, and you're like, okay, this is good.
Healthcare earnings up twelve point four percent. Well so is
(16:47):
our you know, renewal for health insurance. Okay, yeah, I
get it. And then you get to like the what
I call kind of like the real economy, the stuff
that makes everything actually tick. Utilities earnings up seven point
nine again, like we're feeling this with utility bills and
stuff like that, but again a slower growth rate. Industrials
earnings up seven point three percent, materials up six point six,
(17:10):
consumer discretionary which includes Amazon by the way, up five
to five, real estate up three four, consumer staples flat,
energy down nine point six. Like you look at that,
and everything else is you know, earning's growth is slower
than ten percent. And this is kind of the story
that I'm getting at, which is, aside from big tech,
(17:31):
everything else is you know, just moving more slowly. And
it's been a more challenging operating environment, especially on the
consumer side, consumer staples and discretionary, Like what people are
actually like buying five point five and zero point two percent.
That is not strong earnings growth.
Speaker 3 (17:49):
So bring it back to the same thing we've been saying.
This entire market and a good chunk of the economy
is heavily reliant on how quickly AI can grow and
be monetized.
Speaker 2 (18:01):
And this is the other problem that we're going to
have to sort through. If this AI bubble bursts, how
much of our consumer spending is being driven by market strength,
and if AI sees a pullback, how much downstream impact
is there then to those other sectors.
Speaker 3 (18:19):
We've covered this few times, but I think we need
to thoroughly explain that what Chuck is pointing out is
that the traditional things that historically have driven consumer spending,
such as income growth and employment growth, have not seemingly
been the ones driving spending this time. We theorize that
a bigger chunk of spending is now coming from the
(18:39):
wealth effect. People feeling wealthier, especially retirees because the value
of their investment portfolio. And so, in spite of all
the AI talk that we've been having, this economy as
a whole is still driven by the consumer. And so,
drawing that out a little bit further, if stock prices
were to fall in some meaningful way, would consumers bend
(19:00):
like they have been? They always pull back a little
bit during a stock market crash, But is it different
this time when it comes to the waiting of those consumers,
the waiting of wealth, the distribution of wealth, insofar as
stock prices fall, and especially retired folks, would they pull
back on their spending in a dramatic fashion. That's a
(19:20):
pretty big question.
Speaker 2 (19:22):
So, yeah, it's the open question that is out there,
and I think it's going to be one that bears
watching as we see how this You see how AI
spending and revenue evolves over the next couple of years. Again,
(19:42):
I understand why Mark Zuckerberg says I'm going to spend
two hundred and fifty billion dollars to build out data
centers because he sees the upside there. But eventually that
upside has to be realized in the form of, Hey,
here's the revenue that's going to then pay for those
data centers. Right, let's take a quick break. When we
come back, we got Wall Street Watch and then why
everyone got Trump Trump's tariffs wrong?
Speaker 1 (20:10):
Liked 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 markets so
far today right here on the Financial Exchange Radio Network.
Speaker 6 (20:29):
After a positive start at the opening bell markets and
now in negative territory to begin the week, as Wall
Street awaits a flurry of economic data duout, including the
November jobs report tomorrow morning, in addition to the October
retail sales report, and we also have a Consumer Price
Index on Thursday for the month of November. Right now,
(20:51):
the Dow is down only nineteen points, SMP five hundred
is off a tenth of a percent. NASDAC down just
over four tenths of a percent, Center ninety nine points lower.
Russell two thousand is off over a third of a percent.
A ten year Treasure reeled down three basis points at
four point one five nine percent. In crude oil down
(21:12):
nearly nine tenths of one percent, trading just below fifty
seven dollars a barrel. Well Rumba maker i Robot. I
Robot declared bankruptcy over the weekend, sending shares in the
company plunging seventy one percent. The Massachusetts based i Robot
said its customer service and app functionality will continue normally
(21:33):
during the restructuring and if you recall or proposed sale
to Amazon fell through back in twenty twenty four due
to regulatory concerns. Meanwhile, space linked stocks including rocket Lab,
down seven percent, while Ecostar shares are up modestly following
reports that SpaceX intends to go public in twenty twenty
(21:54):
six after notching an eight hundred billion dollar valuation in
its latest funding round. Elsewhere, the US listed shares of
Chinese e commerce companies Ali, Baba and Baidu falling over
four excuse me three percent after data this morning showed
the Chinese economy is weakening. Goldman Sachs upgraded both Las
Vegas Sands and Marriott International, sending shares in both of
(22:17):
those stocks up about two percent. In Dollar General was
upgraded by JP Morgan too Overweight, where the bank also
lifted its price target to one hundred and sixty six
dollars per share, up from one twenty eight. However, Dollar
General shares are down about half percent at the moment.
I'm Tucker Soil and that is Wall Street Watch and
(22:38):
just a reminder, The Financial Exchange streams every day live
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Just starts the Financial Exchange on YouTube and hit that
subscribe button.
Speaker 2 (22:55):
Piece in the Wall Street Journal why everyone got Trump's
tariffs wrong. Predictions of the duties impact on the economy
were either buoyant or dire. Here's the reality.
Speaker 3 (23:05):
So they give the reality. They don't say why everybody
got it wrong. So I've got an answer to that part.
But they run through all the estimates about employment prices,
tariff revenue, and they point out that you know it
was on the downside, on the on the bad side,
overestimated how bad it would be, and on the positives
(23:27):
also overestimated how how good the tariffs would be.
Speaker 4 (23:31):
But go ahead.
Speaker 3 (23:34):
I think the article does a fair job of explaining, like, hey,
this was the consensus estimate and this is where we
actually landed.
Speaker 2 (23:40):
Let's talk just about some of those areas. So I
think if you look at areas where the let let's
look at just kind of different areas of impact for
the economy, pricing. When we look at inflation, inflation has
gone up in the second half of the year relative
to where it was in the first half. It's gone
up modestly were it's still kind of high twos, low threes,
(24:01):
depending on the metric that you look at. And so, yes,
you have not seen any significant jump in inflation. It's
been a modest move up there. On the labor market
side of things, we've seen a continued slowing of the
labor market, but it hasn't deviated from the trend it
was on prior to April either. It's just been a
(24:22):
continuation of a slowing that started in twenty twenty two
and is moving at the same pace there. So there's
been no acceleration to this point in the deterioration of
the labor market. When you look at economic growth, you're
basically seeing no meaningful shift. Either it's continuing at the
same clip that we were at or roughly the same
(24:44):
as before this. And so I think ultimately my takeaway
in terms of why everyone got this wrong, quite honestly,
I think that the biggest thing is the tariffs have
evolved in ways that have made them less impactful than
initially people thought they were going to be. The biggest things.
(25:06):
Number one, pretty significant exemptions that are out there, whether
you're talking about you know, some of the new ones
that were just put in place on you know, some
imported foods and things like that, or the big one,
in my opinion, most technology products are exempted from tariffs.
And when you look at what we import, in particular
from China, there's a small device that many of you
(25:28):
listening have in your pocket on a daily basis. It's
called a smartphone, and most of them are made in China.
If you are not going to apply a thirty to
fifty percent tariff too said smartphone, that's a pretty big exemption.
When you look at the dollar value of exports from China.
Speaker 3 (25:47):
In terms of where we've started and where we've gone.
So on liberation day, not knowing what would be exempted
or not, the average effect of tariff right was guessed
to be around twenty to twenty five percent if all
that stuff went into place, and could be a lot
higher depending on you know, where did we reach with China,
like one hundred and thirty percent teriff rates basically never
(26:08):
went into effect effected. Yeah, we've settled now somewhere in
the twelve percent range.
Speaker 2 (26:14):
Yeah, the last month that we had for tariff collection
was around eleven and we might creep a little bit higher,
but it's not going to be too different from where
we are right now.
Speaker 3 (26:24):
Less than half of the high end concern when it
came to teriff rates. So if you're wondering, like why
do people get it wrong, Well, because they were basing
assumptions on the announcement, which we've now come you know,
nine what is it six months later? Seven months later,
and the announcement versus what's actually been implemented, they're unrecognizable,
(26:47):
the exemption and the other piece too. Right, Like when
there have been discovers around items that would dramatically reshape
the economy or make things very painful for Americans. That's
when the administration is stepped in to say, okay, we're
going to create exemptions for those products you mentioned smartphones.
There's a bunch of produce items where you know, again,
people were making a pretty big deal of how pricey
(27:09):
some of this stuff was. They exempted a whole bunch
of produce. And so that's the other piece of this.
It's not just where the settlements have gone, but it's
also been when there are pain points for specific industries, companies,
or households, the administration has stepped in and said, okay,
we are going to create a work around or an
exemption for this type of thing. The auto industry has
(27:30):
seen several of these for examples. So yeah, I think
the lesson there is take a big step back at
the initial announcement and a little bit more of watch
what I do, not what I say.
Speaker 2 (27:45):
Piece from Bloomberg titled Don't Freak Out about a Recession
love the title. Here's the thing. I think there's two
different ways to look at this. If a recession actually happens,
God hosly, most people should kind of freak out because
I think we've forgotten how much recessions actually suck. They're
awful and they're horrible.
Speaker 3 (28:06):
Furthermore, the average American is really bad at preparing their
personal finances for a recession.
Speaker 2 (28:12):
If you also want to have a separate title, which is, hey,
don't predict one hundred recessions before one actually occurs. Yes,
because people have been trying to predict a recession, quite honestly,
ever since I got into this business sixteen years ago.
It feels like everyone always wants to say that recession
is like on the verge of happening. And I don't
(28:35):
know if it's always been that way, but it just
feels like it's to me. And I remember all the
double dip recession fears in twenty eleven and twenty twelve.
I remember in twenty fifteen and sixteen when the US
shale patch was blowing up. Hey, you know, is this
going to cause a recession? I remember in eighteen when
stocks were falling into the end of the year. Oh,
it is like, there're gonna be a recession here. Every
(28:57):
single year since twenty twenty in the pandemic, Oh, is
this going to be a recession? Is that going to
be a recession does that, and like it's easily.
Speaker 3 (29:04):
One of the most commonly asked questions I get when
talking about an investment portfolio is, well, what are we
going to do if we feel like a recession's coming?
And the answer is, we felt like there's a recession coming,
you know, hundreds of times over the course. We don't
rely on feelings. Not a useful thing that if you acted.
Speaker 4 (29:24):
Upon them, it was a terrible idea.
Speaker 2 (29:26):
Yes, the economy wiggles on a regular basis. It does.
It does this little shimmy like it's just you know,
it's it's it's never The economy is not just always
moving at one speed. It is on a road that
is turning and unpredictable, and so the speed is changing
as you go through, navigating that path that you don't
(29:49):
have GPS for.
Speaker 3 (29:50):
Here's the useful thing to do about preparing for a recession.
Assume that you will not see it coming, and ask yourself,
what would I do if I found myself in one suddenly.
Speaker 2 (30:01):
No preparation for it?
Speaker 3 (30:02):
Right, Like, if I can't see it coming, if I
acknowledge that they're unpredictable, what happens if I suddenly find
that I'm out of a job for nine months and
the stock market is down by thirty percent?
Speaker 4 (30:17):
What does that do to me personally?
Speaker 2 (30:20):
Yeah, it's the good way to think about it is
in terms of what can I do to make my
day to day easier and what can I do to
make sure that I'm not making dumb portfolio decisions in
the middle of a downturn because you can address all
these things before the recession actually comes, not that you
(30:40):
know when it's going to happen. But again, the reason
why an older investor might have a portfolio that's a
sixty forty split between stocks and bonds is not because
there's a recession every year. It's because you don't know
when it's going to occur. And by using that framework,
you say, Okay, if one shows up, it's going to
(31:01):
minimize my volatility during that recession and I can make
it through. You don't say, Hey, I'm gonna hold one
hundred percent stocks and when recession starts, I'm gonna move
to you know, one hundred percent bonds. Well, if you've
got that kind of intuition, then you should be charging someone. Yeah,
(31:22):
you should be charging someone if you have that kind
of intuition, because I don't and most people don't. But
if you can accurately predict recession, you know, like in
that way.
Speaker 4 (31:35):
People pay you a lot of money for that.
Speaker 2 (31:37):
Yeah, people will pay you lots and lots of money
for that. And if they're doing that, then you don't
need to worry about your portfolio. True. Let's take a
quick break when we come back. Piece in Bloomberg, The
bond Market will not be fooled. Well, actually it gets
fooled a lot. We'll discuss when we return.
Speaker 1 (31:54):
Miss any of the show, catch up at your convenience
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(32:16):
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Radio Network.
Speaker 2 (32:39):
Got a piece in Bomberg here It's titled The Bond
Market will Not be Fooled Michael. I remember at the
beginning of twenty twenty two, the bond market was predicting
three interest rate hikes and instead of end up getting
like fifteen to eighteen for the I can't remember exactly
now how many. It shall not be fooled. So the
bond market was fooled. I know people cannot it will
not the bond markets. This mott money, the equity guys
(33:02):
of the dumb money.
Speaker 3 (33:05):
It can all be dumb or smart at different times
depending on the content.
Speaker 2 (33:08):
The money's not sentient, true, you know it doesn't think.
So what's the crux of this piece here? The bond
market will not be fool the ideas that the bond
market will look through temporary benefits or drawbacks to the economy,
it'll really see through all of that and focus on
(33:30):
the longer term trends when it comes to inflation and
interest rates.
Speaker 3 (33:35):
And the answer is very purely that it's not the case. Right, Like,
the bond market will interpret what the maybe average viewpoint
is on things and may look through a politician's bologney
when they talk about the deficits and how they're going
to treat them. But again, you gave an example, I'll
give another one. Did the bond market appropriately price in
(33:59):
that we would be racing nearly nine percent inflation in
twenty point two, and the Fed would have to dramatically
increase interest rates. No, of course not they nobody did,
or you know, very few people rather expected inflation to
get up that high and therefore the Fed to have
to raise interest rates. By where did we go five
percent in a year?
Speaker 2 (34:20):
Yeah?
Speaker 3 (34:20):
So No, the bond market does not look through everything.
It is not always accurate, and arguably I'm not sure
that it does a better job of predicting recession or
anything else than many other indicators. Right, We've talked about
yield curve, inversion and other bond market phenomenons that have broken,
just like everything else of the course, the last few years, well.
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Speaker 2 (35:57):
So I gotta talk a little bit about I Robot
declaring bankruptcy. First, It's sad that during a time in
which you know, we're starting to see the real potential
concern of robots taking over the human race, a company
named I Robot will not be around to do so.
(36:18):
I mean, Isaac Asimov would be a little upset by that.
But it's neither here nor there. What I do have
to say about this is I Robot tried to get
bought a couple of years ago by Amazon, Yes, and
the Biden administration said no.
Speaker 4 (36:34):
No, no, and it didn't actually.
Speaker 2 (36:36):
Got a court right or maybe didn't even get I
don't even think it like got there. They would just
like basically signal no, you're not gonna be able to
do this. And here's the problem that I have is
you also had during the same time, the Biden administration
said no to the Spirit Jet Blue merger ye and
Spirit Frontier saying no, like this isn't going to work.
And now you've got like three of those companies that
(36:57):
have since declared bankruptcy because they can't operate in industries
that are so concentrated aside from them. And so this
is where I have a problem with the selective enforcement
of basically anything related to anti trust and that we
find these like small companies, we're like, no, we're not
(37:17):
gonna allow you to get bought, and then meanwhile it's like, oh,
but hey, if Microsoft wants to buy Activision Blizzard, it's
absolutely totally cool and no problems. So I just have
a real problem here because we continue to allow further
and further consolidation of these mega companies. But then for
(37:38):
companies that are smaller that might not have the you know,
the lobbying efforts of the legal teams to be able
to push back on this stuff, they're not allowed to
merge and they end up having to go out of business.
So I just don't know where we are from an
anti trust perspective other than what we're doing is not
working because the bigger companies are becoming more and more
(37:59):
entrenched and the smaller ones are not able to compete.
Speaker 4 (38:03):
As a result.
Speaker 3 (38:04):
Yeah, there's also a bigger story here where Hey, Rumba's
biggest competition is coming from Shark Ninja, a Chinese based
company that has he ripped off some ip over the years,
and all sorts of issues around that too. But again,
if you're going to deny an anti trust case and
(38:24):
then just allow the company to go bankrupt, then you
are furthering the anti competitive industry consolidation.
Speaker 2 (38:31):
You're not helping. And this is even before we get
to the fact that Rumba's or I Robot's bankruptcy plan
is to be acquired by their Chinese producer, meaning that
now that company will be mapping your house cool great, awesome,
Just take a quick break. Hour two coming up in
a bit.
The Financial Exchange is produced by Money Matters Radio and
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a donation today. This is the Financial Exchange with Chuck
(01:05):
Zada and Mike Armstrong.
Speaker 2 (01:15):
Chuck, Mike and Tucker with you here, kicking off another
full week of stuff. And as we kick things off,
we've got markets, you know, kind of mixed trying to
find their footing after a down day on Friday. But
quite honestly, the next eight days a trading days before
(01:35):
the Christmas holiday, I think I have the potential to
be a little bit unique here in that tomorrow we're
going to be getting a jobs report for the month
of November, also a partial jobs report for the month
of October. We normally get the November jobs report about
a week and a half ago, Like if you look
at the schedule, it would have come out on Friday
(01:58):
the fifth, So this is a as late as we've
ever gotten one due to the shutdown, and so markets,
I think, to a certain extent, don't quite know what
to do with a jobs report that's coming out this
late in the month, because normally, like all your bags
are packed, you're ready to go heading into the holidays,
there's nothing else that's usually that important in markets this
(02:21):
late in the year. We're also going to be getting
retail sales data on Tuesday as well. That is a
delayed report for the month of October, so again kind
of just some some weirdness creeping into the calendar. Then
on Thursday we get CPI four November we also get
weekly jobless claims, and Friday we're going to get existing
(02:42):
home sales. So we've got a full calendar this week
in terms of economic data that is coming out, and
then it's a shortened week next week because of the holiday.
On Thursday, you obviously do not have markets open for Christmas,
and so it's it's kind of this battle here between hey,
(03:05):
is there economic data that can shake things up a
little bit, or does the lack of trading sessions available
in the next several weeks between the Christmas and New
Year's holidays does that bring some calm to market simply
because well there's there's an old Flemish saying markets cannot
fall on a day where they are closed, and you know,
(03:25):
I think that kind of gets us to uh to
where we are today.
Speaker 3 (03:28):
Oh yeah, that's that's definitely very common Flemish saying. Is
what would you point to most important here? I'm looking
at the jobs report, You've got multiple months of releases.
I know it's still quite backwards looking but in terms
of potential change to the overall narrative, that's that's the
one that I'm looking at. I don't think you can
get too surprised from this inflation report.
Speaker 2 (03:49):
Now, the the inflation data, I don't think it's going
to give us, you know, much in any direction. I
think it's going to be pretty consistent with what we've seen.
But the job's report is interesting to me in that
if you look at what's priced in right now, expectations
are for twenty five thousand to forty thousand jobs added,
the unemployment rate is going to be anywhere between four
(04:10):
point four and four point six percent, which is a
pretty big range, you know, heading into the day of
average hourly earnings expected to grow somewhere around point two percent.
And so I think the big thing here, if you
think about the two ways that you can be surprised,
you know, up or down, it's basically, Hey, if you
(04:32):
have another jobs report that has faster payroll growth than
people are expecting, Okay, then you've got a case out
there where the FED is very likely on hold for
the foreseeable future, because if there is no sign of
further deterioration in the labor markets. What specifically, as it
(04:54):
relates to the unemployment rate, remember that's what they look at.
It's going to be something that makes it very hard
for the FED to cut at any point in the
near future, given that they've already cut another you know,
three quarters of a percent this fall. On the other hand,
what happens if we get you know, forty thousand jobs
(05:15):
lost and the unemployment rate goes to four to six. Oh,
that starts to look you know, a little bit dodgy here.
FED is probably back on for January then, So I
think that there's some uncertainty there.
Speaker 3 (05:27):
And by the way, is this a good news bad news?
Good news is bad news jobs report.
Speaker 2 (05:31):
It's we're getting close to the territory where historically bad
news would start to be bad news. You know, when
when you start seeing actually, you know, net job losses
and the unemployment rate going up. The FED generally when
you get to that point too late, they again, there's
a reason why we talk about monetary policy having these lags.
(05:54):
It just doesn't kick in quickly enough. And so this
is something that bears watching here right now. The prevailing
wisdom for the January FED meeting, which is gonna be
on January twenty eighth, seventy three percent chance of a
rate I'm sorry of no change in rates, twenty six
point six percent chance of a quarter percent cut. So yeah,
(06:14):
there's you know, a hurdle that has to be you know,
gotten over in order to see a cut. A week
jobs report, would you know, start to kind of lay
the groundwork there, because you would have another one in
early January before then, Whereas if this comes in, let's
say we get another one hundred and ten thousand jobs
added and unemployment stays at four.
Speaker 4 (06:34):
To four, Yeah, they ain't moving.
Speaker 2 (06:35):
It's you're you're probably not getting anywhere for that January
meeting now.
Speaker 3 (06:39):
That we're a few months out from it. I know
we called this at the time too, but I'm kind
of marking the tape back to late October early November,
and to me, since that point in time, there has
been a shift in the mentality of investors towards artificial
intelligence related companies, and I think it's worthy of continuing
to bring up. It's what sank markets on Friday last
(07:00):
week with Broadcom's earnings. You know, mid October was when
Oracle went through their first bout of volatility. Following all
their stock market increases in video stock topped out right
around late October early November, and since that point in
time it has not been a sell off of AI
related companies. You know, you could make the argument that no,
(07:21):
you just shifted from one company to another, right with
Alphabet's release of the new AI tools and the discussion there.
But since that point in time, I think the thing
that has shifted in my mind at least, has been
investors actually expressing skepticism about the spending on artificial intelligence.
And so I don't know what exactly it takes to
(07:43):
break that trend if we were hoping for a rebound
back to where we were in say the summer of
last year when it came to these companies, but I'm
kind of marking it as that point in time where
investors started expressing skepticism about the debt, about the monetization
of the products, and just about how long it can
continue this way. And so, you know, in light of that,
(08:07):
things like broadcome Stellar earnings that came out on Thursday
night have not been enough to lift those companies. And
so what will be the next leg that will either
move that up or down?
Speaker 4 (08:17):
Is my question?
Speaker 2 (08:18):
Let's take a quick break here, and when we come back,
let's talk exactly. Let's talk about that specific phenomenon, because
there's a piece in Barren specifically about this rotation out
of tech and into other things. Let's discuss is that good, bad,
or ugly? Let's do that.
Speaker 1 (08:36):
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Speaker 2 (10:03):
All right. We got a couple different pieces about the
stock rotation that's happening right now. One from a good
friend of the show, Paul Monica, the stock market is
rotating out of big tech a December data deluge triple
D might I add could dictate the next move? Another
one from market Watch, investors are dumping stock market winners
in buying almost everything else. Why that's a good sign?
(10:27):
And the question that I will ask Michael, is it
a good sign?
Speaker 4 (10:33):
Well?
Speaker 3 (10:34):
I don't think that you can say in and of
itself that a broadening out of winners in the stock
market is a bad thing, right. I mean, when you
have a very narrow market, people tend to get a
bit apprehensive about it, and Carl call towards things like
a bubble. When you have the broadening out effect of
you know, companies that have just been kind of ignored
(10:54):
getting some attention towards the upside, I think you can
call that a good thing. If people are just simply
taking their gains and refusing to exit stocks and buying
things blindly as you saw. Well, the rust of two
thousand move the other day was probably more dictated by
interest rate policy than anything else. But that would be
(11:15):
the concerning question is are people just saying, hey, you know,
I'm dumping my AI stocks and just jumping into anything
else blindly. That's of concern. Whereas a general broadening out
I don't think is a bad thing.
Speaker 2 (11:32):
The problem is that for the last two years, anytime
we've had a broadening out attempted, it's ended badly for stocks.
Speaker 4 (11:40):
Give me some examples here.
Speaker 2 (11:42):
Last July we saw this rotation start happening between tech
and small caps and banks and stuff, and it basically
broke the markets. And remember we came in on a Monday,
and like the yen had like gone haywire and the
vis had gone to sixty despite the market barely moving,
and everyone's like what happened here? So you literally had
markets break last you know, July for about you know,
(12:06):
one two week period. We had another attempt at this
in the first half of this year. Now, granted there
were some other things going on from a tariff related perspective,
but the first three months of the year saw a
similar rotation and markets really struggled to find a way forward. So, yes,
(12:27):
like in theory, you want to see a broadening out.
The problem is with the levels of concentration that you've
gotten to with these tech names, I'm not really convinced
you can have a successful broadening out of this market
without experiencing some pain concurrent to that broadening. Yeah, so
(12:48):
I think there's maybe a problem there. Now. The other
piece is markets have tried this, trying to you know
again kind of front run. Hey, here's where we think
the economy going to be going, and ultimately the other
pieces the economy never went there. And so it's something
where oh, like, yes, this is going to broaden out
(13:09):
and do this and do that, and here's the thing
that I come back to, and any of like the
any of the small business owners or any of the
people that work for small businesses will tell you this,
because this is what I hear almost unanimously is look,
if if you pull out the AI companies and look
at actual businesses that need to you know, operate in
(13:32):
the real world buying and selling things to you know,
real humans, they've basically been hanging on for dear life
for the last couple of years. Margins have been compressing
in a lot of those areas. If you look at
you know, the SMP as a whole, X Tech, I'm sorry,
x AI. It's basically, hey, margins are holding steady, but
(13:54):
companies are having to pull every trick out of their
you know bag in order to do so. And so
I think that this is the case here, which is
real world companies have really been you know, struggling to
make you know, headway for the last couple of years.
And the only way that I will believe that a
(14:16):
broadening out can be successful is if it happens with earnings,
not just with stock prices. Because this is the problem
is that, aside from big tech, the actual earnings growth
has been more muted the last couple of years, and
so I am a big believer in what Larry Cudlow
(14:38):
always said every single time we talked to him. Profits
are the mother's milk of stock prices. Look, if you
cannot find a way to consistently generate profit growth, yeah,
we're gonna have some some problems with that broadening out
actually sticking.
Speaker 4 (14:54):
Yeah.
Speaker 3 (14:55):
Yeah, So I mean again, I go back to over
and over there. The only forget about the you know,
earnings growth numbers, forget about what the profit margins on
for non AI related companies. The only real shift that
I can detect in the way that people are talking
about things is very much renewed skepticism about the breadth
(15:17):
and permanence of this AI trade. Since October, I think
there's been a marked shift in attitude towards it. And
so precisely what is going to bring that back or
make it worse?
Speaker 2 (15:30):
Is?
Speaker 3 (15:30):
I think really the question that matter is because there's
just not enough great stuff going on outside of AI
to keep this market excited.
Speaker 2 (15:40):
I think, yeah, it's it's just something where it's it's
challenging in you know, a lot of other areas of
the economy to be able to operate. I'm just going
to pull the data from a fact set here, who's
an aggregator, and let's look at Let's see that that's
not that's by a year. I want bi sector. Here
(16:02):
we go, S and P five hundred earnings growth calendar
year twenty twenty five. Infotech earnings have grown twenty three
percent Yahoo, not Yahoo, actually Google, but in any case,
twenty three percent. Communication services, which yes it does include
you know, AT and T and Verizon and you know
(16:26):
those companies, but communication services two biggest companies, Google and
Meta Communication Services earnings up seventeen point seven percent this year,
mostly on the back of them. Financial is up thirteen percent.
A lot more trading m and as picked up, so
you'll get it, and you're like, okay, this is good.
Healthcare earnings up twelve point four percent. Well so is
(16:47):
our you know, renewal for health insurance. Okay, yeah, I
get it. And then you get to like the what
I call kind of like the real economy, the stuff
that makes everything actually tick. Utilities earnings up seven point
nine again, like we're feeling this with utility bills and
stuff like that, but again a slower growth rate. Industrials
earnings up seven point three percent, materials up six point six,
(17:10):
consumer discretionary which includes Amazon by the way, up five
to five, real estate up three four, consumer staples flat,
energy down nine point six. Like you look at that,
and everything else is you know, earning's growth is slower
than ten percent. And this is kind of the story
that I'm getting at, which is, aside from big tech,
(17:31):
everything else is you know, just moving more slowly. And
it's been a more challenging operating environment, especially on the
consumer side, consumer staples and discretionary, Like what people are
actually like buying five point five and zero point two percent.
That is not strong earnings growth.
Speaker 3 (17:49):
So bring it back to the same thing we've been saying.
This entire market and a good chunk of the economy
is heavily reliant on how quickly AI can grow and
be monetized.
Speaker 2 (18:01):
And this is the other problem that we're going to
have to sort through. If this AI bubble bursts, how
much of our consumer spending is being driven by market strength,
and if AI sees a pullback, how much downstream impact
is there then to those other sectors.
Speaker 3 (18:19):
We've covered this few times, but I think we need
to thoroughly explain that what Chuck is pointing out is
that the traditional things that historically have driven consumer spending,
such as income growth and employment growth, have not seemingly
been the ones driving spending this time. We theorize that
a bigger chunk of spending is now coming from the
(18:39):
wealth effect. People feeling wealthier, especially retirees because the value
of their investment portfolio. And so, in spite of all
the AI talk that we've been having, this economy as
a whole is still driven by the consumer. And so,
drawing that out a little bit further, if stock prices
were to fall in some meaningful way, would consumers bend
(19:00):
like they have been? They always pull back a little
bit during a stock market crash, But is it different
this time when it comes to the waiting of those consumers,
the waiting of wealth, the distribution of wealth, insofar as
stock prices fall, and especially retired folks, would they pull
back on their spending in a dramatic fashion. That's a
(19:20):
pretty big question.
Speaker 2 (19:22):
So, yeah, it's the open question that is out there,
and I think it's going to be one that bears
watching as we see how this You see how AI
spending and revenue evolves over the next couple of years. Again,
(19:42):
I understand why Mark Zuckerberg says I'm going to spend
two hundred and fifty billion dollars to build out data
centers because he sees the upside there. But eventually that
upside has to be realized in the form of, Hey,
here's the revenue that's going to then pay for those
data centers. Right, let's take a quick break. When we
come back, we got Wall Street Watch and then why
everyone got Trump Trump's tariffs wrong?
Speaker 1 (20:10):
Liked 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 markets so
far today right here on the Financial Exchange Radio Network.
Speaker 6 (20:29):
After a positive start at the opening bell markets and
now in negative territory to begin the week, as Wall
Street awaits a flurry of economic data duout, including the
November jobs report tomorrow morning, in addition to the October
retail sales report, and we also have a Consumer Price
Index on Thursday for the month of November. Right now,
(20:51):
the Dow is down only nineteen points, SMP five hundred
is off a tenth of a percent. NASDAC down just
over four tenths of a percent, Center ninety nine points lower.
Russell two thousand is off over a third of a percent.
A ten year Treasure reeled down three basis points at
four point one five nine percent. In crude oil down
(21:12):
nearly nine tenths of one percent, trading just below fifty
seven dollars a barrel. Well Rumba maker i Robot. I
Robot declared bankruptcy over the weekend, sending shares in the
company plunging seventy one percent. The Massachusetts based i Robot
said its customer service and app functionality will continue normally
(21:33):
during the restructuring and if you recall or proposed sale
to Amazon fell through back in twenty twenty four due
to regulatory concerns. Meanwhile, space linked stocks including rocket Lab,
down seven percent, while Ecostar shares are up modestly following
reports that SpaceX intends to go public in twenty twenty
(21:54):
six after notching an eight hundred billion dollar valuation in
its latest funding round. Elsewhere, the US listed shares of
Chinese e commerce companies Ali, Baba and Baidu falling over
four excuse me three percent after data this morning showed
the Chinese economy is weakening. Goldman Sachs upgraded both Las
Vegas Sands and Marriott International, sending shares in both of
(22:17):
those stocks up about two percent. In Dollar General was
upgraded by JP Morgan too Overweight, where the bank also
lifted its price target to one hundred and sixty six
dollars per share, up from one twenty eight. However, Dollar
General shares are down about half percent at the moment.
I'm Tucker Soil and that is Wall Street Watch and
(22:38):
just a reminder, The Financial Exchange streams every day live
on YouTube. Subscribe to our page and follow market activity
all morning long only here in the Financial Exchange Radio Network.
Just starts the Financial Exchange on YouTube and hit that
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Speaker 2 (22:55):
Piece in the Wall Street Journal why everyone got Trump's
tariffs wrong. Predictions of the duties impact on the economy
were either buoyant or dire. Here's the reality.
Speaker 3 (23:05):
So they give the reality. They don't say why everybody
got it wrong. So I've got an answer to that part.
But they run through all the estimates about employment prices,
tariff revenue, and they point out that you know it
was on the downside, on the on the bad side,
overestimated how bad it would be, and on the positives
(23:27):
also overestimated how how good the tariffs would be.
Speaker 4 (23:31):
But go ahead.
Speaker 3 (23:34):
I think the article does a fair job of explaining, like, hey,
this was the consensus estimate and this is where we
actually landed.
Speaker 2 (23:40):
Let's talk just about some of those areas. So I
think if you look at areas where the let let's
look at just kind of different areas of impact for
the economy, pricing. When we look at inflation, inflation has
gone up in the second half of the year relative
to where it was in the first half. It's gone
up modestly were it's still kind of high twos, low threes,
(24:01):
depending on the metric that you look at. And so, yes,
you have not seen any significant jump in inflation. It's
been a modest move up there. On the labor market
side of things, we've seen a continued slowing of the
labor market, but it hasn't deviated from the trend it
was on prior to April either. It's just been a
(24:22):
continuation of a slowing that started in twenty twenty two
and is moving at the same pace there. So there's
been no acceleration to this point in the deterioration of
the labor market. When you look at economic growth, you're
basically seeing no meaningful shift. Either it's continuing at the
same clip that we were at or roughly the same
(24:44):
as before this. And so I think ultimately my takeaway
in terms of why everyone got this wrong, quite honestly,
I think that the biggest thing is the tariffs have
evolved in ways that have made them less impactful than
initially people thought they were going to be. The biggest things.
(25:06):
Number one, pretty significant exemptions that are out there, whether
you're talking about you know, some of the new ones
that were just put in place on you know, some
imported foods and things like that, or the big one,
in my opinion, most technology products are exempted from tariffs.
And when you look at what we import, in particular
from China, there's a small device that many of you
(25:28):
listening have in your pocket on a daily basis. It's
called a smartphone, and most of them are made in China.
If you are not going to apply a thirty to
fifty percent tariff too said smartphone, that's a pretty big exemption.
When you look at the dollar value of exports from China.
Speaker 3 (25:47):
In terms of where we've started and where we've gone.
So on liberation day, not knowing what would be exempted
or not, the average effect of tariff right was guessed
to be around twenty to twenty five percent if all
that stuff went into place, and could be a lot
higher depending on you know, where did we reach with China,
like one hundred and thirty percent teriff rates basically never
(26:08):
went into effect effected. Yeah, we've settled now somewhere in
the twelve percent range.
Speaker 2 (26:14):
Yeah, the last month that we had for tariff collection
was around eleven and we might creep a little bit higher,
but it's not going to be too different from where
we are right now.
Speaker 3 (26:24):
Less than half of the high end concern when it
came to teriff rates. So if you're wondering, like why
do people get it wrong, Well, because they were basing
assumptions on the announcement, which we've now come you know,
nine what is it six months later? Seven months later,
and the announcement versus what's actually been implemented, they're unrecognizable,
(26:47):
the exemption and the other piece too. Right, Like when
there have been discovers around items that would dramatically reshape
the economy or make things very painful for Americans. That's
when the administration is stepped in to say, okay, we're
going to create exemptions for those products you mentioned smartphones.
There's a bunch of produce items where you know, again,
people were making a pretty big deal of how pricey
(27:09):
some of this stuff was. They exempted a whole bunch
of produce. And so that's the other piece of this.
It's not just where the settlements have gone, but it's
also been when there are pain points for specific industries, companies,
or households, the administration has stepped in and said, okay,
we are going to create a work around or an
exemption for this type of thing. The auto industry has
(27:30):
seen several of these for examples. So yeah, I think
the lesson there is take a big step back at
the initial announcement and a little bit more of watch
what I do, not what I say.
Speaker 2 (27:45):
Piece from Bloomberg titled Don't Freak Out about a Recession
love the title. Here's the thing. I think there's two
different ways to look at this. If a recession actually happens,
God hosly, most people should kind of freak out because
I think we've forgotten how much recessions actually suck. They're
awful and they're horrible.
Speaker 3 (28:06):
Furthermore, the average American is really bad at preparing their
personal finances for a recession.
Speaker 2 (28:12):
If you also want to have a separate title, which is, hey,
don't predict one hundred recessions before one actually occurs. Yes,
because people have been trying to predict a recession, quite honestly,
ever since I got into this business sixteen years ago.
It feels like everyone always wants to say that recession
is like on the verge of happening. And I don't
(28:35):
know if it's always been that way, but it just
feels like it's to me. And I remember all the
double dip recession fears in twenty eleven and twenty twelve.
I remember in twenty fifteen and sixteen when the US
shale patch was blowing up. Hey, you know, is this
going to cause a recession? I remember in eighteen when
stocks were falling into the end of the year. Oh,
it is like, there're gonna be a recession here. Every
(28:57):
single year since twenty twenty in the pandemic, Oh, is
this going to be a recession? Is that going to
be a recession does that, and like it's easily.
Speaker 3 (29:04):
One of the most commonly asked questions I get when
talking about an investment portfolio is, well, what are we
going to do if we feel like a recession's coming?
And the answer is, we felt like there's a recession coming,
you know, hundreds of times over the course. We don't
rely on feelings. Not a useful thing that if you acted.
Speaker 4 (29:24):
Upon them, it was a terrible idea.
Speaker 2 (29:26):
Yes, the economy wiggles on a regular basis. It does.
It does this little shimmy like it's just you know,
it's it's it's never The economy is not just always
moving at one speed. It is on a road that
is turning and unpredictable, and so the speed is changing
as you go through, navigating that path that you don't
(29:49):
have GPS for.
Speaker 3 (29:50):
Here's the useful thing to do about preparing for a recession.
Assume that you will not see it coming, and ask yourself,
what would I do if I found myself in one suddenly.
Speaker 2 (30:01):
No preparation for it?
Speaker 3 (30:02):
Right, Like, if I can't see it coming, if I
acknowledge that they're unpredictable, what happens if I suddenly find
that I'm out of a job for nine months and
the stock market is down by thirty percent?
Speaker 4 (30:17):
What does that do to me personally?
Speaker 2 (30:20):
Yeah, it's the good way to think about it is
in terms of what can I do to make my
day to day easier and what can I do to
make sure that I'm not making dumb portfolio decisions in
the middle of a downturn because you can address all
these things before the recession actually comes, not that you
(30:40):
know when it's going to happen. But again, the reason
why an older investor might have a portfolio that's a
sixty forty split between stocks and bonds is not because
there's a recession every year. It's because you don't know
when it's going to occur. And by using that framework,
you say, Okay, if one shows up, it's going to
(31:01):
minimize my volatility during that recession and I can make
it through. You don't say, Hey, I'm gonna hold one
hundred percent stocks and when recession starts, I'm gonna move
to you know, one hundred percent bonds. Well, if you've
got that kind of intuition, then you should be charging someone. Yeah,
(31:22):
you should be charging someone if you have that kind
of intuition, because I don't and most people don't. But
if you can accurately predict recession, you know, like in
that way.
Speaker 4 (31:35):
People pay you a lot of money for that.
Speaker 2 (31:37):
Yeah, people will pay you lots and lots of money
for that. And if they're doing that, then you don't
need to worry about your portfolio. True. Let's take a
quick break when we come back. Piece in Bloomberg, The
bond Market will not be fooled. Well, actually it gets
fooled a lot. We'll discuss when we return.
Speaker 1 (31:54):
Miss any of the show, catch up at your convenience
by visiting Financial Exchange Show dot com and clicking the
on demand icon, where you'll find all of our interviews
in full showers. This is your home for the latest
business and financial news in New England and around the country.
This is the Financial Exchange Radio Network. This is your
home for the most comprehensive coverage of the economy and
(32:16):
the trends on Wall Street. This is the Financial Exchange
Radio Network.
Speaker 2 (32:39):
Got a piece in Bomberg here It's titled The Bond
Market will Not be Fooled Michael. I remember at the
beginning of twenty twenty two, the bond market was predicting
three interest rate hikes and instead of end up getting
like fifteen to eighteen for the I can't remember exactly
now how many. It shall not be fooled. So the
bond market was fooled. I know people cannot it will
not the bond markets. This mott money, the equity guys
(33:02):
of the dumb money.
Speaker 3 (33:05):
It can all be dumb or smart at different times
depending on the content.
Speaker 2 (33:08):
The money's not sentient, true, you know it doesn't think.
So what's the crux of this piece here? The bond
market will not be fool the ideas that the bond
market will look through temporary benefits or drawbacks to the economy,
it'll really see through all of that and focus on
(33:30):
the longer term trends when it comes to inflation and
interest rates.
Speaker 3 (33:35):
And the answer is very purely that it's not the case. Right, Like,
the bond market will interpret what the maybe average viewpoint
is on things and may look through a politician's bologney
when they talk about the deficits and how they're going
to treat them. But again, you gave an example, I'll
give another one. Did the bond market appropriately price in
(33:59):
that we would be racing nearly nine percent inflation in
twenty point two, and the Fed would have to dramatically
increase interest rates. No, of course not they nobody did,
or you know, very few people rather expected inflation to
get up that high and therefore the Fed to have
to raise interest rates. By where did we go five
percent in a year?
Speaker 2 (34:20):
Yeah?
Speaker 3 (34:20):
So No, the bond market does not look through everything.
It is not always accurate, and arguably I'm not sure
that it does a better job of predicting recession or
anything else than many other indicators. Right, We've talked about
yield curve, inversion and other bond market phenomenons that have broken,
just like everything else of the course, the last few years, well.
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Speaker 2 (35:57):
So I gotta talk a little bit about I Robot
declaring bankruptcy. First, It's sad that during a time in
which you know, we're starting to see the real potential
concern of robots taking over the human race, a company
named I Robot will not be around to do so.
(36:18):
I mean, Isaac Asimov would be a little upset by that.
But it's neither here nor there. What I do have
to say about this is I Robot tried to get
bought a couple of years ago by Amazon, Yes, and
the Biden administration said no.
Speaker 4 (36:34):
No, no, and it didn't actually.
Speaker 2 (36:36):
Got a court right or maybe didn't even get I
don't even think it like got there. They would just
like basically signal no, you're not gonna be able to
do this. And here's the problem that I have is
you also had during the same time, the Biden administration
said no to the Spirit Jet Blue merger ye and
Spirit Frontier saying no, like this isn't going to work.
And now you've got like three of those companies that
(36:57):
have since declared bankruptcy because they can't operate in industries
that are so concentrated aside from them. And so this
is where I have a problem with the selective enforcement
of basically anything related to anti trust and that we
find these like small companies, we're like, no, we're not
(37:17):
gonna allow you to get bought, and then meanwhile it's like, oh,
but hey, if Microsoft wants to buy Activision Blizzard, it's
absolutely totally cool and no problems. So I just have
a real problem here because we continue to allow further
and further consolidation of these mega companies. But then for
(37:38):
companies that are smaller that might not have the you know,
the lobbying efforts of the legal teams to be able
to push back on this stuff, they're not allowed to
merge and they end up having to go out of business.
So I just don't know where we are from an
anti trust perspective other than what we're doing is not
working because the bigger companies are becoming more and more
(37:59):
entrenched and the smaller ones are not able to compete.
Speaker 4 (38:03):
As a result.
Speaker 3 (38:04):
Yeah, there's also a bigger story here where Hey, Rumba's
biggest competition is coming from Shark Ninja, a Chinese based
company that has he ripped off some ip over the years,
and all sorts of issues around that too. But again,
if you're going to deny an anti trust case and
(38:24):
then just allow the company to go bankrupt, then you
are furthering the anti competitive industry consolidation.
Speaker 2 (38:31):
You're not helping. And this is even before we get
to the fact that Rumba's or I Robot's bankruptcy plan
is to be acquired by their Chinese producer, meaning that
now that company will be mapping your house cool great, awesome,
Just take a quick break. Hour two coming up in
a bit.
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