April 5, 2024 • 38 mins
Chuck Zodda and Mike Armstrong react to the surprising data from the latest jobs report which breezed past expectations. What if the Federal Reserve is wrong? Is the Fed becoming a play-by-play commentator. Oil is hitting its highest level in months, just in time for summer driving season. china shock 2.0 sparks global backlash against flood of cheap goods.
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K Boston is presented by Veterans DevelopmentCorporation. This is the Financial Exchange with
Chuck Zada and Mike Armstrong. Avery Happy Jobs Friday to those who celebrate.
It's Chuck, Mike, and Tuckerwith you in. At eight thirty
this morning, we received the EmploymentSituation Summary from the Bureau of Labor Statistics
(01:29):
colloquially known as the Jobs Report,and it showed gains of three hundred and
three thousand jobs in March and theunemployment rate dropped to three point eight percent.
Those are the headline numbers that everyoneloves to talk about. But listen,
when you tune in to listen tous, you don't tune in for
the headline. You're not just herefor the headlines. No, you're not
(01:49):
here. You're here for what's underthe hood. You want to know what's
under the hood. I do,Chuck, Please tell me what is under
the hood? Not the hood,the HUD. God, I've never been
to the HUD in any case.A couple things first, prior month revisions
January up twenty seven thousand, Februarydown five thousand. So one of the
(02:10):
things that we had that we hadthat some people have been talking about is,
oh, like this is you know, starting to show some signs of
weakness is that you had a couplemonths where there were some downward revisions two
prior months, meaningful ones that stoppedhere on a net basis, you saw
twenty two thousand jobs added for priormonths in revisions, and so you can
(02:30):
put that one to bed and say, Okay, that's not really a thing
here. The other thing that peoplewere talking about as a potential cause of
concern is remember the job's report isactually two different surveys. It's not one
they posted as one, but it'stwo different ones, one in which they
survey about one hundred and twenty thousandhouseholds, the other they survey about sixty
thousand businesses. The household survey hadbeen showing some weakness in job growth,
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and this month that reversed with fourhundred and ninety eight thousand jobs added a
wording to the household survey. That'salso how the unemployment rate dropped from three
point nine to three point eight percent. So those two areas, which are
really the only places that I thoughtyou were seeing any kind of potential weakness,
are off the table in this one. On top of that, again,
(03:16):
three hundred and three thousand jobs createdthirty nine thousand of them in the
construction industry after twenty six thousand outeach of the last two months, which
means, if you do the math, construction has now added ninety thousand jobs
in the last three months. Thatis freaking scorching. That's huge. Healthcare
continues to just be way behind,seemingly, as they added another seventy two
(03:38):
thousand jobs in the month of March. And I don't know about you.
I was meeting with a nurse actuallyyesterday, and the comment that she made
for me, I saw eighty onethousand, I got eighty one to three.
Here, I've got seventy two.So I'm looking at the number.
(04:00):
Do you have establishment survey data?Healthcare added seventy two thousand jobs in March.
Uh, well, one of thosehas to be a typo because I
guess this is healthcare and social assistancethat maybe that's combined. It's eighty one
to three. I don't know whythey listed differently in different parts of the
report. That's kind of stupid.Quite honestly agreed, but I guess the
comment in healthcare would be if you'reworking as an Her comment to me was
(04:23):
like, yeah, I'm working twentyfour hours a week. I get benefits.
If I'm there five years, Iget a pension. And I work
with people all the time who justsay, yeah, it's October, I'm
going south for the winter, andyou know, would you like to hire
me back when I come back inApril? And all the hospitals like,
yes, work for us, whateverdays you want, We don't care.
You can come for the summer,you can come for the winter, you
(04:43):
can come for the fall, whateveryou want. Just please come work.
You just have to be okay withblood. Yeah, which qualifies me immediately.
And actually I'm very okay with blood. I am I'm not at all
No get I pass out immediately.Well, it depends how gruesome it is.
I think paper cut fine. Ialmost cut two fingers off with a
(05:04):
hedge trimmer a few years back onthe floor sounds, and that one I
got a little white Okay. Anyway, moving on, construction and healthcare seem
incredibly robust in terms of hiring,and government has been doing a lot of
catch up over the last several monthsas well, mainly local government is what
you're seeing there. But in anycase, this report continues a shifting narrative
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that has been for the last fewmonths, which is there are just no
real signs of economic weakness in thiseconomy when it comes to growth of the
labor market or spending or growth.Yeah, let's let's be honest. If
you are looking for signs of economicweakness in any data, whether government,
private, whatever, might show itto me. The only thing that I
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can point to is retail sales havebeen garbage the last two months. Okay,
on a net basis, they're downlike a quarter percent each month on
average. Manufacturing surveys. Manufacturing iscranking, housing is cranking. Like you
go down the list, all thestuff that would normally precede a recession is
moving in the opposite direction. Solet's go to the And I'd also like
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to point out that we were onthis ground first. Yeah, we had
it here. First we said,no, there's not a recession coming in
the first half of this year.That's pure poppycock. Poppycock was the word
used, I believe. How aboutearnings, So we talked about average hourly
We talk about the combination of outhours worked and average hourly here's the danger
zone. Yeah, so average hourlyearnings over the last twelve months are now
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up four point one percent if youjust take a look at the month of
March, so average hourly earnings forall employees increase by twelve cents. That's
zero point three percent. We oftentake a look at this and say,
well, yeah, but that canbe a little bit weird because of the
way they do the survey. Soyou want to look at the combination of
average hourly earnings plus the the averagehour work average hours worked in the week,
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and both of those edged up,and so what you end up with
is what we call aggregate payrolls whenyou combine that then with job growth,
which is now running five point threepercent year over year, and aggregate payrolls
is a fancy way of saying,hey, how much money are companies paying
out to their workers in total?Right, So this would be inclusive of
how much are you giving in raisesand how much overtime or whatever it might
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be, plus new employees that arecoming into the workforce. So five point
three is a little bit roasty.It's not a lot bit roasty, but
it's where did we like peak inthe last couple of years in terms of
aggregate how It's funny that you askme that, Michael, because that's exactly
where I was. We really don'tset this stuff. It's almost like we've
done this before. So I'm gonnathrow out April twenty twenty one because that's
a year over year comp That isjust dumb comparing it to April twenty twenty.
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But if you strip that out,we peaked it around eleven and a
half percent. Okay, Inflation duringthat time when we were peaking was running,
you know, nine percent. Sothis was summer of twenty two we
were peaking. Yeah, so thisis this is the concern that you have
on this is yeah, peaked inFebruary of twenty two. Okay. So
the concern that you have on thisis aggregate payrolls I think is a great
proxy for consumer demand because it tellsyou how much money is being paid out
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in wages two households. Yeah.So unless unless people have nowhere to spend
that money, or they are justfrightened to spend that money, then usually
it doesn't get saved. It doesn'tgo towards credit card dead it goes towards
spending correct, lead spending correct.And so if we look at pre pandemic
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numbers, and really what I wantto look at is like twenty twelve through
twenty nineteen. I think that's relevantbecause, like the first couple of years
after the Great Recession were rather bad. This number for aggregate payrolls averaged four
point five percent during that time period. Today it's running five to three,
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So it's it's a little And theconcern is not necessarily that like it runs
at five three, because honestly,in twenty eighteen you saw it running in
that range as well. It wassomething where for twenty eighteen, aggregate payrolls
average five to one. So fiveto three in it of itself isn't bad.
It's hey, we're kind of seeinga bottoming around five percent. And
the concern that I would have personally, and that I do have personally,
(09:20):
is, hey, if aggregate payrollgrowth gets back up to like six to
seven percent, if that's a proxyfor household demand, then you can see,
Remember, because we're a consumer basedeconomy, consumer spending is the engine
that drives us. Still, ifthat's the case, you have a path
to nominal growth in the US beingsomewhere in the ballpark of you know,
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six to seven percent as well.And if that's the case, if all
you can generate is like two percentreal growth. Then you got four to
five percent inflation being tagged on toget you to that you know, seven
percent number. So this is whywhen we look at where we want the
economy to be, there's a balancebetween you know, earning's growth, you
know how much you can you canmake in wages, and you know how
(10:03):
that impacts the economy ultimately the waythat you want to grow the economy.
Sure, you'd love to have wagesrise three to four percent a year,
and you'd love to have prices onlyrise one to two percent a year.
And that's how you get the feelingthat, hey, I can spend more
money and I have more money togo around because you do real wages are
going up. Then yeah, youknow, you take a look at I
(10:26):
know you're just quoting this, butlike a normalized period of time, I
think we might call the late twentytens. There was enough time, you
know, behind us from the GreatRecession, and the aggregate weekly payroll growth
was, you know, averaging aroundfive percent during that period of time.
Sometimes it was a bit lower,sometimes it's a bit higher, but you
know, late twenty tens you werelooking at mid fours to low fives in
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terms of aggurate week with the payrolls, and we did not see a whole
lot of inflation during that period.We're a slight, very slightly elevated from
that. Right now, let's takea quick break here. When we come
back, we'll talk a little bitmore about the job support and then the
ultimate implication about it, which we'vebeen talking about for the last few months.
Now, Hey, what if theFED is wrong? Talk about that
(11:15):
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com. Mike, I want totalk a little bit more jobs. Yeah,
I mean, I guess the justgeneral conclusion here is that whether you
are looking at these this this reportthat we get every month, right,
(12:18):
it's the big jobs reported is somethingthat the Federal serve cares about. We
have other reports on inflation that we'llbe coming out later this month, but
everything that we are looking at pointsto higher growth. And you know we
alluded to this before, but Iwant to emphasize something. This report that
we get is from the Bureau ofLabor Statistics, which you know is probably
(12:39):
aggregated by thousands of government employees thatare lifelong government employees of one sort or
another. But we have other onestoo, right ADP. Just earlier this
week, a private payroll provider gavetheir estimates of payrolls, which also showed
same direction, big wage gains andover nearly two hundred thousand jobs created according
to their own surveys. The manufacturingdata that we that we quote pretty frequently,
(13:05):
all of that non government data thatis all private management, private organization,
a non for profit, And Ithink important to recognize all of that
that when we are talking about thiseconomy growing, it's not relying on any
one piece right. Frequently, infact, we will get data sources that
(13:26):
show conflicting information, and that's whenwe kind of throw our hands up and
say, well, government data isshowing this, some private organization data is
pointing in the other direction. You'llhave to kind of wait and see how
this plays out. Right now,I very much struggle to find any single
data point, whether it's government producedor privately produced, that shows anything on
(13:46):
along the lines of deflation, jobloss, or a slowing economy in the
aggregate. No, if you wantthe thing to point to, it's hey,
inflation's still running hotter than you knowyou'd like to see. Yep.
And that's something that the government datadoes show, and that most other data
shows as well, is that,hey, there's been some trouble kind of
(14:07):
getting it down to where you wantit to be. Yeah. But I
see and I hear people say,look are these numbers made up? Look
these numbers might not be accurate becausethey're surveying, you know, one hundred
and twenty thousand people and trying todo the best they can with it,
but they're not made up. Youdon't have unless you genuinely believe that there
(14:28):
are hundreds of thousands of government workerswho are all in on it to make
the Biden administration look better, whichagain, it's not really how the Bureau
of Labor Statistics works. I justI can't envision a scenario where you have
tens of thousands of government workers allin on the big lie. But you
(14:50):
know, if that's your viewpoint,then yeah, there's nothing that I can
do to contradict that. So thisis where we stand when it comes to
hiring right now, and it doesraise the question here not just this,
but also what we're seeing with afew other things. Hey, the Federal
Reserve has been pretty adamant over thelast three to four months when pressed multiple
(15:11):
times, Yeah, we still thinkwe're gonna cut interest rates three times,
you know, three quarter percent cutsthis year, and there really aren't facts
in evidence that warrant that in myopinion. Number one, let's talk a
little bit just about what we're seeing. I mean, we've talked about the
jobs piece, but let's talk aboutthe inflation piece here. And the inflation
(15:33):
piece is one where hey, youdon't really have any conclusive data that And
I'm gonna look at headline inflation becauseeven though the FED talks about, you
know, targeting core because it canbe predictive of headline, what they're really
concerned about, and what everyone caresabout is headline. Like you don't just
walk down the street and say,hey, you know what, my food
(15:56):
and fuel costs were up this month, but my core costs were down,
and so I feel great. No, you're like gas prices went up to
three fifty five a gallon. Ifeel kind of crappy right now. So
headline inflation, when we look atthe CPI is still running north of three
percent, the core CPI is stillrunning north of three and a half.
(16:17):
PCE is lower. It's both thoseare below three. But you've got inflation
running north of three percent and showingsigns that it's kind of bottoming in that
range. On top of that,you get this manufacturing survey from the Institute
of Supply Management that is starting toshow some signs of life, that manufacturing
is starting to be on a littlebit of an upswing after two years of
(16:40):
downturn in the US. You've gotEurope starting to show signs of life and
its economy. You've got China startingto show signs of life and its economy.
And what this is doing here isthis is starting to put some pressure
on commodity prices that are starting totick back up a little bit. And
the Bloomberg Commodity Index is now yearto date up three point sixty six percent,
(17:07):
and since I don't know, let'sgo back and look at the last
month, it's up four point seventytwo percent. Well, commodities obviously are
input costs to you know, basicallyany good like you need some kind of
raw material to make them. Generallyspeaking, yeah, I believe that's how
it works, according to the lawsof physics. And so if you look
at the data that's coming in andwhat we're seeing in commodity prices, you
(17:32):
kind of look at this and say, I don't really know how the FED
with a straight face can say,yeah, we're gonna We're gonna cut three
times this year. It's starting tobe reflected in the data in that June
now is being priced at about afifty to fifty shot that you're going to
see h a rate cut then,whereas if you were to go back you
(17:56):
know, a couple months it wasyeah, we're you know, seventy eighty
percent sure that we're getting a ratecut. So that's kind of where things
are. But I think ultimately nextweek is now setting up to be pivotal
on this because look, we talkabout how the job support and may influence
the inflation data. Let's see whatthe inflation data shows next week because we
(18:18):
are heading right into CPI on Wednesday. Expectations right now are for both core
and headline to come in at pointthree percent, which, by the way,
again is still hotter than two percentannualized. Well hotter, I've done
the math, it's three point sixpercent annualized. Well, we know that
energy prices are going to show it, right like ave been moving up.
(18:41):
Gas price has been moving up,So you're not going to get disinflation from
that area. And so I doget concerned about all of this. Certainly,
you know, the Wall Street Journalasks what if the Federal Reserve is
wrong? And I guess the firstthing that comes to my mind is that,
well, they face further credibility issuesif they are wrong on this once
(19:02):
more, because they've been so vocalabout their expectations and their plans, But
I do want to talk about whatelse this means, right, I do
want to get to what else itmeans if the Federal Reserve is wrong and
the way that markets are going area little bit more accurate in terms of
where rates end up landing this year, Because yes, there's implications for you
and me, but I think otherindustrial implications for other areas of economy are
(19:26):
important too. Quick break Wall StreetWatch is coming next. Like us on
Facebook and follow us on Twitter.Act TFE show breaking business news is always
(19:48):
first right here on the Financial ExchangeRadio Network. Time now for Wall Street
Watch. A complete look at what'smoving markets so far today, right here
on the Financial Exchange Radio Network.Well after yesterday's volatile ride, markets today
are in positive territory. Is WallStreet sifts through the March jobs report unveiled
(20:10):
earlier this morning, where three hundredand three thousand jobs were added last month,
stronger than estimates of two hundred andfourteen thousand. The unemployment rate also
ticked lower to three point eight percent. Right now, the Dow is up
by over a third of a percent, or one hundred and forty two points.
SMP five hundred is up over halfa percent or thirty points, and
(20:30):
the Nasdaq is up by three quartersof a percent, or one hundred and
twenty seven points. Russell two thousandis edging three points higher. Ten year
treasury yield is up four basis pointsat four point three five percent, and
crude oil ticking higher, trading ateighty six dollars and seventy five cents a
barrel. Johnson and Johnson announced itwould purchase cardiovascular medical device company Shockwave Medical
(20:56):
for thirteen point one billion dollars.Shares in Johnson and Johnson are down by
a quarter percent, while Shockwave Medicalstock is up by one and a half
percent. Meanwhile, according to Californiastate records, Apple is laying off more
than six hundred employees and its firstmajor round of job cuts since the pandemic.
The tech giant recently announced plans tocancel its electric car project that stuck
(21:21):
up a quarter percent, and PiperSandler upgraded donut chain Krispy Kreme to overweight
from neutral, saying the company ison the verge of a major growth move
after brokering a nationwide partnership with McDonald'slast week, where the financial firm deemed
it a game changer Krispy Kreme.Krispy Kreme shares are up by five percent.
(21:42):
I'm Tucker Silvan, that's Wall Street. Watch pick the wrong time to
get out of my seat to goand uh pick up that pen. I
thought you had wandered one. Ithought you had one more to go there,
but I guess not. Let's talkabout the Federal Reserve and those implications
for Hey, what if the FEDis wrong about what happens this year life?
(22:02):
Yeah, Look, there's plenty ofcriticism mounting of the FED. You
need not only listen to this programto hear it. There's a piece and
CNBC from Muhammad al Aaryan. Iheard somebody else on a podcast just this
morning doing the same thing, saying, what exactly is the data that the
FED is looking at to justify continuingtheir expectations for rate cuts today? We've
(22:22):
done that, we don't need torepeat it. There are a lot of
questions that I have. Perhaps they'rejust maintaining this to try and cement expectations
for lower inflation. But again,I think that the way that they are
dealing with this right now is notgreat and you know, a borderline irresponsible
in terms of setting expectations implication ifwe are correct that the data is heating
(22:48):
up and that the economy is justgetting going and there could be more inflation
in the future. The most obviousone is that rates stay higher for longer.
So what is I mean for themmore? Not even just higher for
longer. They could stay higher forlonger, right, I mean we cannot
We can't get the idea. Imean, this is on nobody's bingo card
(23:10):
right now. But that's usually thething that surprises markets the most. Like,
what if the Fed actually has toraise interest rates this year? That's
not impossible. Yeah, play outthe string. And I'm not saying that
this will happen or won't happen.I'm just saying that in anything you do,
it always pays to think about allthe possibilities. What happens if the
(23:32):
ten year treasury has to go tosix percent? Right, I'm not saying
that it will, But what happensif it does? Well? Then commercial
real estate's in for a real Residentialto residential two Yeah, both are in
for a real problem problem if thathappens. Commercial bigger than residential, especially
in some of the spaces that haveRemember the strategy there has just been like
(23:56):
close your eyes and delay as longas possible. Right, That's been the
strategy banks and owners of these buildingshave been employing, is make our payments,
hold on to the keys, andlet's just hope that interest rates come
down or somehow magically people go backto the office at some point. And
you can continue to do that foronly so long. Right, Eventually the
bank says, hey, yeah,this has been nice, but we want
(24:18):
to get paid eventually. And you'vegot all this, you know, there's
been a lot of debt coming dothat. The banks have just been saying,
Okay, we'll delay the refinance ofthis, we'll delay the balloon payment,
we'll push it out a couple ofyears and see what happens. That
works for a while until it doesn'tand the longer rates stay as high as
they are, or again, ifthe banks start thinking, oh boy,
(24:38):
rates are actually going in the otherdirection, then they're gonna call that.
Now. The other piece that youhave to then think of, and again
this is this is just how Itry to think about these different pieces here.
Okay, so let's say that youend up in that situation. Well,
the logical next thing that happens andI do think this is logical at
this point. Then just because ofwhere growth is overall is after that you
(25:00):
probably end up with some kind ofrecession. You probably do. That's sad.
We thought that you probably did aftertwenty twenty two too. There was
too much growth. Like I knowthat it got all eaten up by inflation,
but there's just too much nominal growthand at this point in the world
there just isn't. So you getthis recession that happens whenever it may be.
(25:26):
Now play out this string ten years, goes from six to three.
It's not a very long recession,and it's not a very deep one because
because if you get mortgage rates inthe fives, oh boy, a whole
lot of people who are looking tomove. And so this is the way
(25:48):
that you can think about this isjust in terms of the possibilities for where
things go. Think about it rightnow. Let's say the Fed does end
up cutting rates and markets believe them, and let's say that inflation does come.
Think about think about the potential goodside. Also. I'm just trying
to play, you know, kindof all these situations out just so that
you can see the range of possibilitieslet's say inflation does come down to two
(26:10):
percent by the end of the year, FED cuts three times, mortgage rates
go to yeah, I don't know, six, inflation five and a half.
Yeah, man, think about allthe economic activity that gets unleashed then
and where inflation goes from there.It's it's tough for me to find a
(26:30):
case where inflation just gets zapped completelyfor good, even if it gets down
to two if markets actually believe thatit's gonna stay there, it may actually
be this self fulfilling prophecy that itdoesn't then, because there's so much activity
that can happen with mortgage rates atfive or five and a half percent.
So you wanna you want to riskfor this market and this economy that nobody
(26:52):
is talking about, its rates gohigher right now. If you take a
look at the bird flu, Yeah, bird flu would do it too.
That was on nobody's Bengo card,and I saw that. I saw that
story. A lot of outbreaks rightnow. But by the November meeting of
this year, there is currently azero point one percent chance that rates are
higher than where they are now.Zero point one percent. By December,
(27:14):
it's off the table. It's zero. So you want to talk about a
risk that nobody's pricing in. It'sthe idea that, oh, wow,
not only do you know, we'realready starting to get to the point where
market participants are realizing, Hey,the FED might not have justification to cut
their full three times this year thatthey were planning. Nobody is pricing in
the idea that they need to gohigher. I don't think it's likely,
but it's not getting priced in.If let me let me follow up on
(27:37):
that. If you were pricing it, what would you price the chance that
rates go higher by end of theyear, like that the FED has to
hike by end of year five percent? Oh I go higher? Would you?
Yeah? Man? Twenty seven?Wow? Yeah, I don't see
it as likely because I think anyinflation that you get is still relatively modest
(27:57):
it all things considered. And soagain I'm thinking about it in terms of
this FED. Inflation goes up tofour and a half percent, I don't
think they're hiking inflation goes up tosix percent. I think they will,
but I think that's how how youhave to get for the FED to justify
going rates higher this year. Yeah, I think that four and a half
to five range is where it startsto get awfully tough for them not to
(28:18):
hike, because the general theory is, hey, you need to have the
FED funds rate meaningfully above inflation tobring it down. Yep, Fed funds
is at five and a quarter tofive and a half right now you start
printing annually like four eight, fournine. Again, we are far from
there right now, and I dowant to reiterate that we are far from
there right now. We are atwhat three six in terms of annualized inflation,
(28:42):
three and a half in terms ofyou know, most data points right
now. But all of the datathat we continue to get is about a
economy that continues to heat up.I want to talk a little bit about
this interview with Muhammad Arion, whois a He's the chief economic advisor at
(29:03):
Alliance. He spent a bunch oftime at PIMCO with Bill Gross in the
early two thousands, and the moreI've heard from him recently, the more
I like him. I wasn't reallya huge fan of him earlier in his
career. I didn't think there wasmuch there there, But I'm starting to
believe that I just start I'm kindof liking He agrees with you at the
moment, so he does matter.I like him because he thinks I'm right
(29:27):
and I want to read this quotefrom him. Rather than be strategic,
the FED is overly data dependent andhas turned into a play by play commentator.
That's not the role of the FED. The fetch would be strategic.
The FED scher provide a strategic anchora stabilizer. The mistake that they may
make is that this time they'll endup being too tight, and the two
tight piece I kind of put tothe side. But Larian basically said,
(29:49):
Jay, be quiet, shut up. Yeah, like he said it very
nicely. But he said, guys, stop talking after each data point and
telling us like what you think andwhat you feel about each data point,
especially when your opinion's changing from Fridayto Wednesday. It's not your job.
Your job is to look at thebig picture and say, this is where
(30:11):
we're going and this is how wehave to directionally move. Because the instruments
that you have available to you,they are blunt, broad instruments. They're
not things where you can be like, well, we want to have a
little bit more inflation in the Californiafast food sectors. Not a scalpel it's
not even a hammer, mic,it's a freaking asteroid that you throw at
(30:33):
the Earth to slow things down.Like again, think about it this way,
and I say this with all thelove and respect in the world for
the FED. The tool that theyhave to control how hot the economy is
is whether or not they want tocause a recession. Yeah, they try
not to, but ultimately it's well, there's a recession. Yep. Now,
(30:56):
I'll acknowledge that their tools have gottenmore complicated, but a fair bit
more dynamic and directed over the lastfew years. We can talk about whether
or not these are the right tools, but backing the junk bond market and
buying different types of securities, theplugs that they did during the Silken valid
(31:18):
bank crisis. No, I'm thinkingof the period of time when overnight lending
dried up. What was going onthen? That was the the repo market,
right, that was something that theyhad never done before. And so
yes, the tools are getting alittle bit more intentional and a little bit
less like an asteroid being thrown atthe planet Earth. But not when it
(31:40):
comes to inflation. Right, whenthe deal with inflation, there's only really
one tool that they utilize let's takea quick break here. When we come
back, we're talking oil prices rightafter this. The Financial Exchange streams live
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(32:05):
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All right's talk a little bit aboutoil. Mike Peace in the Wall
(32:27):
Street Journal. Oil is hitting itshighest level of months, just in time
for the summer driving season. Yand this is really like the It's the
Tony Romo oil market, because it'sjust kind of sitting there right now,
going I don't know if we're gonnamake it joom. It's You've got these
tight inventories worldwide. You've got allkinds of different disruptions popping up from Russian
(32:52):
refineries that are being knocked out byUkrainian drones. You've got concerns about upheaval
in the Middle East. You've gotUS product in the premium basins starting to
show signs of rolling over. You'vegot ships that are avoiding major canals either
due to Houthi rebel attacks or droughtin Panama. So I can't imagine a
bridge that fell over in Baltimore.I mean, yeah, there's nothing really
(33:15):
going great for outlook on where oilprices go. OPEC plus has been cutting
production or you know, producing atreduced levels for I think eighteen months now
since their latest they've extended those yearend, and I mean, I could
be wrong, but I can't reallyimagine that there can be any more help
(33:37):
from these strategic petroleum reserve. We'renow looking at levels in the spr that
we haven't seen since the early nineteeneighties. So I mean, I guess
you could empty the thing, butyou know, we're about half the level
of total quantity of oil in thestrategic Petroleum Reserve that we were back during
(33:58):
most of the twenty ten days gades. So I don't really see how you
can potentially justify it like you didduring COVID pumping that back into the economy.
No, So I think that it'ssomething where you've got tight inventories,
tight supply and This remains a reallyfragile market in terms of the potential for
any kind of disruption, throwing priceseven higher prior to your end. Beneficiary
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number again is eight six six eightfour eight five six nine nine, or
you can request it from their websiteLegal exchange show dot com. The proceeding
was paid for and the views expressedare solely those of Cushing and Dolan.
Cushing and Dolan and or Armstrong Advisorymay contact you offering legal or investment services.
Cushing and Armstrong do not endorse eachother and are not affiliated. Mike,
(35:30):
do you want to talk China?Now? Do you want to talk
Apple? Or do you want totalk Ford? I want to go.
I want to go China. Shocktwo point zero. So the Wallster Journal
is making the argument that China isonce again flooding many international markets with cheap
goods and dumping. This time theymight not get away with it, and
I just doubt it. So yeah, it talks about hey, you know,
(35:53):
cars and renewable energy gear and steal, steal all this stuff that they're
done rams And when do I sayceramics, I don't mean like dishware,
I mean industrial grade ceramics. Sothis is undoubtedly happening. We can measure
it pretty easily. I think thequestion is certainly in the United States,
(36:15):
like we're not going to very likelysee any Chinese made cars in the US.
But when you talk about each individualcountry that is at play here,
they have massively different incentive structures,Like the United States has a big car
industry, we're not going to allowcars. In South America might be perfectly
on board with buying a bunch ofreally cheap Chinese made cars, but touch
(36:37):
their oil industry and you could bein big trouble. Uh. India might
be a different story too, rightLike might be very willing to buy very
cheap Chinese steel, but not wantI don't know what you know big industry
in India would the castors, Yeah, Tata, They're not gonna, They're
gonna not gonna take the cars.So I definitely think that country are more
(37:00):
conscientious of this right now. Butalso there are a bunch of countries that
are going to want cheap Chinese madegoods and are going to say, look,
we don't have a domestic industry forthis, so let's let it in.
There are also ones that may wantto push back but can't because they
need something from China as well.Brazil, as an example, might be
sitting there saying, hey, wedon't really want these cars and stuff coming
(37:22):
in, but we need someone tosell our oil to. And you're seeing
this in Argentina already, by theway, where there's seeing a lot of
stuff in Argentina. Yeah, thenew president there who ran on a very
anti Chinese Yeah platform platform basically saida yeah, actually, we can't change
any of the existing trade deals withChina because it'll completely ruin our economy,
(37:44):
which raises the question, not begsit, Hey, what is the path
to changing this? Because if youif you basically throw your hands up and
say we can't do anything, thenI don't think it just repeats itself.
We're just gonna be sitting here havingthe same conversation ten years from now.
Argentina, to be fair, probablyin the weakest negotiating position out of any
(38:07):
country in the world. It's prettyclose the Argentina. The Argentinian economy is
a mess right now. And justfrom a location standpoint, even though the
Turkish economy is a mess, everyonestill needs Turkey to help them with something
because it's in the middle of everything. Not so with Argentina. Let's take
a quick break. Hour two comingup in a bit
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K Boston is presented by Veterans DevelopmentCorporation. This is the Financial Exchange with
Chuck Zada and Mike Armstrong. Avery Happy Jobs Friday to those who celebrate.
It's Chuck, Mike, and Tuckerwith you in. At eight thirty
this morning, we received the EmploymentSituation Summary from the Bureau of Labor Statistics
(01:29):
colloquially known as the Jobs Report,and it showed gains of three hundred and
three thousand jobs in March and theunemployment rate dropped to three point eight percent.
Those are the headline numbers that everyoneloves to talk about. But listen,
when you tune in to listen tous, you don't tune in for
the headline. You're not just herefor the headlines. No, you're not
(01:49):
here. You're here for what's underthe hood. You want to know what's
under the hood. I do,Chuck, Please tell me what is under
the hood? Not the hood,the HUD. God, I've never been
to the HUD in any case.A couple things first, prior month revisions
January up twenty seven thousand, Februarydown five thousand. So one of the
(02:10):
things that we had that we hadthat some people have been talking about is,
oh, like this is you know, starting to show some signs of
weakness is that you had a couplemonths where there were some downward revisions two
prior months, meaningful ones that stoppedhere on a net basis, you saw
twenty two thousand jobs added for priormonths in revisions, and so you can
(02:30):
put that one to bed and say, Okay, that's not really a thing
here. The other thing that peoplewere talking about as a potential cause of
concern is remember the job's report isactually two different surveys. It's not one
they posted as one, but it'stwo different ones, one in which they
survey about one hundred and twenty thousandhouseholds, the other they survey about sixty
thousand businesses. The household survey hadbeen showing some weakness in job growth,
(02:54):
and this month that reversed with fourhundred and ninety eight thousand jobs added a
wording to the household survey. That'salso how the unemployment rate dropped from three
point nine to three point eight percent. So those two areas, which are
really the only places that I thoughtyou were seeing any kind of potential weakness,
are off the table in this one. On top of that, again,
(03:16):
three hundred and three thousand jobs createdthirty nine thousand of them in the
construction industry after twenty six thousand outeach of the last two months, which
means, if you do the math, construction has now added ninety thousand jobs
in the last three months. Thatis freaking scorching. That's huge. Healthcare
continues to just be way behind,seemingly, as they added another seventy two
(03:38):
thousand jobs in the month of March. And I don't know about you.
I was meeting with a nurse actuallyyesterday, and the comment that she made
for me, I saw eighty onethousand, I got eighty one to three.
Here, I've got seventy two.So I'm looking at the number.
(04:00):
Do you have establishment survey data?Healthcare added seventy two thousand jobs in March.
Uh, well, one of thosehas to be a typo because I
guess this is healthcare and social assistancethat maybe that's combined. It's eighty one
to three. I don't know whythey listed differently in different parts of the
report. That's kind of stupid.Quite honestly agreed, but I guess the
comment in healthcare would be if you'reworking as an Her comment to me was
(04:23):
like, yeah, I'm working twentyfour hours a week. I get benefits.
If I'm there five years, Iget a pension. And I work
with people all the time who justsay, yeah, it's October, I'm
going south for the winter, andyou know, would you like to hire
me back when I come back inApril? And all the hospitals like,
yes, work for us, whateverdays you want, We don't care.
You can come for the summer,you can come for the winter, you
(04:43):
can come for the fall, whateveryou want. Just please come work.
You just have to be okay withblood. Yeah, which qualifies me immediately.
And actually I'm very okay with blood. I am I'm not at all
No get I pass out immediately.Well, it depends how gruesome it is.
I think paper cut fine. Ialmost cut two fingers off with a
(05:04):
hedge trimmer a few years back onthe floor sounds, and that one I
got a little white Okay. Anyway, moving on, construction and healthcare seem
incredibly robust in terms of hiring,and government has been doing a lot of
catch up over the last several monthsas well, mainly local government is what
you're seeing there. But in anycase, this report continues a shifting narrative
(05:28):
that has been for the last fewmonths, which is there are just no
real signs of economic weakness in thiseconomy when it comes to growth of the
labor market or spending or growth.Yeah, let's let's be honest. If
you are looking for signs of economicweakness in any data, whether government,
private, whatever, might show itto me. The only thing that I
(05:50):
can point to is retail sales havebeen garbage the last two months. Okay,
on a net basis, they're downlike a quarter percent each month on
average. Manufacturing surveys. Manufacturing iscranking, housing is cranking. Like you
go down the list, all thestuff that would normally precede a recession is
moving in the opposite direction. Solet's go to the And I'd also like
(06:15):
to point out that we were onthis ground first. Yeah, we had
it here. First we said,no, there's not a recession coming in
the first half of this year.That's pure poppycock. Poppycock was the word
used, I believe. How aboutearnings, So we talked about average hourly
We talk about the combination of outhours worked and average hourly here's the danger
zone. Yeah, so average hourlyearnings over the last twelve months are now
(06:41):
up four point one percent if youjust take a look at the month of
March, so average hourly earnings forall employees increase by twelve cents. That's
zero point three percent. We oftentake a look at this and say,
well, yeah, but that canbe a little bit weird because of the
way they do the survey. Soyou want to look at the combination of
average hourly earnings plus the the averagehour work average hours worked in the week,
(07:02):
and both of those edged up,and so what you end up with
is what we call aggregate payrolls whenyou combine that then with job growth,
which is now running five point threepercent year over year, and aggregate payrolls
is a fancy way of saying,hey, how much money are companies paying
out to their workers in total?Right, So this would be inclusive of
how much are you giving in raisesand how much overtime or whatever it might
(07:26):
be, plus new employees that arecoming into the workforce. So five point
three is a little bit roasty.It's not a lot bit roasty, but
it's where did we like peak inthe last couple of years in terms of
aggregate how It's funny that you askme that, Michael, because that's exactly
where I was. We really don'tset this stuff. It's almost like we've
done this before. So I'm gonnathrow out April twenty twenty one because that's
a year over year comp That isjust dumb comparing it to April twenty twenty.
(07:50):
But if you strip that out,we peaked it around eleven and a
half percent. Okay, Inflation duringthat time when we were peaking was running,
you know, nine percent. Sothis was summer of twenty two we
were peaking. Yeah, so thisis this is the concern that you have
on this is yeah, peaked inFebruary of twenty two. Okay. So
the concern that you have on thisis aggregate payrolls I think is a great
proxy for consumer demand because it tellsyou how much money is being paid out
(08:13):
in wages two households. Yeah.So unless unless people have nowhere to spend
that money, or they are justfrightened to spend that money, then usually
it doesn't get saved. It doesn'tgo towards credit card dead it goes towards
spending correct, lead spending correct.And so if we look at pre pandemic
(08:37):
numbers, and really what I wantto look at is like twenty twelve through
twenty nineteen. I think that's relevantbecause, like the first couple of years
after the Great Recession were rather bad. This number for aggregate payrolls averaged four
point five percent during that time period. Today it's running five to three,
(08:58):
So it's it's a little And theconcern is not necessarily that like it runs
at five three, because honestly,in twenty eighteen you saw it running in
that range as well. It wassomething where for twenty eighteen, aggregate payrolls
average five to one. So fiveto three in it of itself isn't bad.
It's hey, we're kind of seeinga bottoming around five percent. And
the concern that I would have personally, and that I do have personally,
(09:20):
is, hey, if aggregate payrollgrowth gets back up to like six to
seven percent, if that's a proxyfor household demand, then you can see,
Remember, because we're a consumer basedeconomy, consumer spending is the engine
that drives us. Still, ifthat's the case, you have a path
to nominal growth in the US beingsomewhere in the ballpark of you know,
(09:41):
six to seven percent as well.And if that's the case, if all
you can generate is like two percentreal growth. Then you got four to
five percent inflation being tagged on toget you to that you know, seven
percent number. So this is whywhen we look at where we want the
economy to be, there's a balancebetween you know, earning's growth, you
know how much you can you canmake in wages, and you know how
(10:03):
that impacts the economy ultimately the waythat you want to grow the economy.
Sure, you'd love to have wagesrise three to four percent a year,
and you'd love to have prices onlyrise one to two percent a year.
And that's how you get the feelingthat, hey, I can spend more
money and I have more money togo around because you do real wages are
going up. Then yeah, youknow, you take a look at I
(10:26):
know you're just quoting this, butlike a normalized period of time, I
think we might call the late twentytens. There was enough time, you
know, behind us from the GreatRecession, and the aggregate weekly payroll growth
was, you know, averaging aroundfive percent during that period of time.
Sometimes it was a bit lower,sometimes it's a bit higher, but you
know, late twenty tens you werelooking at mid fours to low fives in
(10:50):
terms of aggurate week with the payrolls, and we did not see a whole
lot of inflation during that period.We're a slight, very slightly elevated from
that. Right now, let's takea quick break here. When we come
back, we'll talk a little bitmore about the job support and then the
ultimate implication about it, which we'vebeen talking about for the last few months.
Now, Hey, what if theFED is wrong? Talk about that
(11:15):
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(11:35):
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com. Mike, I want totalk a little bit more jobs. Yeah,
I mean, I guess the justgeneral conclusion here is that whether you
are looking at these this this reportthat we get every month, right,
(12:18):
it's the big jobs reported is somethingthat the Federal serve cares about. We
have other reports on inflation that we'llbe coming out later this month, but
everything that we are looking at pointsto higher growth. And you know we
alluded to this before, but Iwant to emphasize something. This report that
we get is from the Bureau ofLabor Statistics, which you know is probably
(12:39):
aggregated by thousands of government employees thatare lifelong government employees of one sort or
another. But we have other onestoo, right ADP. Just earlier this
week, a private payroll provider gavetheir estimates of payrolls, which also showed
same direction, big wage gains andover nearly two hundred thousand jobs created according
to their own surveys. The manufacturingdata that we that we quote pretty frequently,
(13:05):
all of that non government data thatis all private management, private organization,
a non for profit, And Ithink important to recognize all of that
that when we are talking about thiseconomy growing, it's not relying on any
one piece right. Frequently, infact, we will get data sources that
(13:26):
show conflicting information, and that's whenwe kind of throw our hands up and
say, well, government data isshowing this, some private organization data is
pointing in the other direction. You'llhave to kind of wait and see how
this plays out. Right now,I very much struggle to find any single
data point, whether it's government producedor privately produced, that shows anything on
(13:46):
along the lines of deflation, jobloss, or a slowing economy in the
aggregate. No, if you wantthe thing to point to, it's hey,
inflation's still running hotter than you knowyou'd like to see. Yep.
And that's something that the government datadoes show, and that most other data
shows as well, is that,hey, there's been some trouble kind of
(14:07):
getting it down to where you wantit to be. Yeah. But I
see and I hear people say,look are these numbers made up? Look
these numbers might not be accurate becausethey're surveying, you know, one hundred
and twenty thousand people and trying todo the best they can with it,
but they're not made up. Youdon't have unless you genuinely believe that there
(14:28):
are hundreds of thousands of government workerswho are all in on it to make
the Biden administration look better, whichagain, it's not really how the Bureau
of Labor Statistics works. I justI can't envision a scenario where you have
tens of thousands of government workers allin on the big lie. But you
(14:50):
know, if that's your viewpoint,then yeah, there's nothing that I can
do to contradict that. So thisis where we stand when it comes to
hiring right now, and it doesraise the question here not just this,
but also what we're seeing with afew other things. Hey, the Federal
Reserve has been pretty adamant over thelast three to four months when pressed multiple
(15:11):
times, Yeah, we still thinkwe're gonna cut interest rates three times,
you know, three quarter percent cutsthis year, and there really aren't facts
in evidence that warrant that in myopinion. Number one, let's talk a
little bit just about what we're seeing. I mean, we've talked about the
jobs piece, but let's talk aboutthe inflation piece here. And the inflation
(15:33):
piece is one where hey, youdon't really have any conclusive data that And
I'm gonna look at headline inflation becauseeven though the FED talks about, you
know, targeting core because it canbe predictive of headline, what they're really
concerned about, and what everyone caresabout is headline. Like you don't just
walk down the street and say,hey, you know what, my food
(15:56):
and fuel costs were up this month, but my core costs were down,
and so I feel great. No, you're like gas prices went up to
three fifty five a gallon. Ifeel kind of crappy right now. So
headline inflation, when we look atthe CPI is still running north of three
percent, the core CPI is stillrunning north of three and a half.
(16:17):
PCE is lower. It's both thoseare below three. But you've got inflation
running north of three percent and showingsigns that it's kind of bottoming in that
range. On top of that,you get this manufacturing survey from the Institute
of Supply Management that is starting toshow some signs of life, that manufacturing
is starting to be on a littlebit of an upswing after two years of
(16:40):
downturn in the US. You've gotEurope starting to show signs of life and
its economy. You've got China startingto show signs of life and its economy.
And what this is doing here isthis is starting to put some pressure
on commodity prices that are starting totick back up a little bit. And
the Bloomberg Commodity Index is now yearto date up three point sixty six percent,
(17:07):
and since I don't know, let'sgo back and look at the last
month, it's up four point seventytwo percent. Well, commodities obviously are
input costs to you know, basicallyany good like you need some kind of
raw material to make them. Generallyspeaking, yeah, I believe that's how
it works, according to the lawsof physics. And so if you look
at the data that's coming in andwhat we're seeing in commodity prices, you
(17:32):
kind of look at this and say, I don't really know how the FED
with a straight face can say,yeah, we're gonna We're gonna cut three
times this year. It's starting tobe reflected in the data in that June
now is being priced at about afifty to fifty shot that you're going to
see h a rate cut then,whereas if you were to go back you
(17:56):
know, a couple months it wasyeah, we're you know, seventy eighty
percent sure that we're getting a ratecut. So that's kind of where things
are. But I think ultimately nextweek is now setting up to be pivotal
on this because look, we talkabout how the job support and may influence
the inflation data. Let's see whatthe inflation data shows next week because we
(18:18):
are heading right into CPI on Wednesday. Expectations right now are for both core
and headline to come in at pointthree percent, which, by the way,
again is still hotter than two percentannualized. Well hotter, I've done
the math, it's three point sixpercent annualized. Well, we know that
energy prices are going to show it, right like ave been moving up.
(18:41):
Gas price has been moving up,So you're not going to get disinflation from
that area. And so I doget concerned about all of this. Certainly,
you know, the Wall Street Journalasks what if the Federal Reserve is
wrong? And I guess the firstthing that comes to my mind is that,
well, they face further credibility issuesif they are wrong on this once
(19:02):
more, because they've been so vocalabout their expectations and their plans, But
I do want to talk about whatelse this means, right, I do
want to get to what else itmeans if the Federal Reserve is wrong and
the way that markets are going area little bit more accurate in terms of
where rates end up landing this year, Because yes, there's implications for you
and me, but I think otherindustrial implications for other areas of economy are
(19:26):
important too. Quick break Wall StreetWatch is coming next. Like us on
Facebook and follow us on Twitter.Act TFE show breaking business news is always
(19:48):
first right here on the Financial ExchangeRadio Network. Time now for Wall Street
Watch. A complete look at what'smoving markets so far today, right here
on the Financial Exchange Radio Network.Well after yesterday's volatile ride, markets today
are in positive territory. Is WallStreet sifts through the March jobs report unveiled
(20:10):
earlier this morning, where three hundredand three thousand jobs were added last month,
stronger than estimates of two hundred andfourteen thousand. The unemployment rate also
ticked lower to three point eight percent. Right now, the Dow is up
by over a third of a percent, or one hundred and forty two points.
SMP five hundred is up over halfa percent or thirty points, and
(20:30):
the Nasdaq is up by three quartersof a percent, or one hundred and
twenty seven points. Russell two thousandis edging three points higher. Ten year
treasury yield is up four basis pointsat four point three five percent, and
crude oil ticking higher, trading ateighty six dollars and seventy five cents a
barrel. Johnson and Johnson announced itwould purchase cardiovascular medical device company Shockwave Medical
(20:56):
for thirteen point one billion dollars.Shares in Johnson and Johnson are down by
a quarter percent, while Shockwave Medicalstock is up by one and a half
percent. Meanwhile, according to Californiastate records, Apple is laying off more
than six hundred employees and its firstmajor round of job cuts since the pandemic.
The tech giant recently announced plans tocancel its electric car project that stuck
(21:21):
up a quarter percent, and PiperSandler upgraded donut chain Krispy Kreme to overweight
from neutral, saying the company ison the verge of a major growth move
after brokering a nationwide partnership with McDonald'slast week, where the financial firm deemed
it a game changer Krispy Kreme.Krispy Kreme shares are up by five percent.
(21:42):
I'm Tucker Silvan, that's Wall Street. Watch pick the wrong time to
get out of my seat to goand uh pick up that pen. I
thought you had wandered one. Ithought you had one more to go there,
but I guess not. Let's talkabout the Federal Reserve and those implications
for Hey, what if the FEDis wrong about what happens this year life?
(22:02):
Yeah, Look, there's plenty ofcriticism mounting of the FED. You
need not only listen to this programto hear it. There's a piece and
CNBC from Muhammad al Aaryan. Iheard somebody else on a podcast just this
morning doing the same thing, saying, what exactly is the data that the
FED is looking at to justify continuingtheir expectations for rate cuts today? We've
(22:22):
done that, we don't need torepeat it. There are a lot of
questions that I have. Perhaps they'rejust maintaining this to try and cement expectations
for lower inflation. But again,I think that the way that they are
dealing with this right now is notgreat and you know, a borderline irresponsible
in terms of setting expectations implication ifwe are correct that the data is heating
(22:48):
up and that the economy is justgetting going and there could be more inflation
in the future. The most obviousone is that rates stay higher for longer.
So what is I mean for themmore? Not even just higher for
longer. They could stay higher forlonger, right, I mean we cannot
We can't get the idea. Imean, this is on nobody's bingo card
(23:10):
right now. But that's usually thething that surprises markets the most. Like,
what if the Fed actually has toraise interest rates this year? That's
not impossible. Yeah, play outthe string. And I'm not saying that
this will happen or won't happen.I'm just saying that in anything you do,
it always pays to think about allthe possibilities. What happens if the
(23:32):
ten year treasury has to go tosix percent? Right, I'm not saying
that it will, But what happensif it does? Well? Then commercial
real estate's in for a real Residentialto residential two Yeah, both are in
for a real problem problem if thathappens. Commercial bigger than residential, especially
in some of the spaces that haveRemember the strategy there has just been like
(23:56):
close your eyes and delay as longas possible. Right, That's been the
strategy banks and owners of these buildingshave been employing, is make our payments,
hold on to the keys, andlet's just hope that interest rates come
down or somehow magically people go backto the office at some point. And
you can continue to do that foronly so long. Right, Eventually the
bank says, hey, yeah,this has been nice, but we want
(24:18):
to get paid eventually. And you'vegot all this, you know, there's
been a lot of debt coming dothat. The banks have just been saying,
Okay, we'll delay the refinance ofthis, we'll delay the balloon payment,
we'll push it out a couple ofyears and see what happens. That
works for a while until it doesn'tand the longer rates stay as high as
they are, or again, ifthe banks start thinking, oh boy,
(24:38):
rates are actually going in the otherdirection, then they're gonna call that.
Now. The other piece that youhave to then think of, and again
this is this is just how Itry to think about these different pieces here.
Okay, so let's say that youend up in that situation. Well,
the logical next thing that happens andI do think this is logical at
this point. Then just because ofwhere growth is overall is after that you
(25:00):
probably end up with some kind ofrecession. You probably do. That's sad.
We thought that you probably did aftertwenty twenty two too. There was
too much growth. Like I knowthat it got all eaten up by inflation,
but there's just too much nominal growthand at this point in the world
there just isn't. So you getthis recession that happens whenever it may be.
(25:26):
Now play out this string ten years, goes from six to three.
It's not a very long recession,and it's not a very deep one because
because if you get mortgage rates inthe fives, oh boy, a whole
lot of people who are looking tomove. And so this is the way
(25:48):
that you can think about this isjust in terms of the possibilities for where
things go. Think about it rightnow. Let's say the Fed does end
up cutting rates and markets believe them, and let's say that inflation does come.
Think about think about the potential goodside. Also. I'm just trying
to play, you know, kindof all these situations out just so that
you can see the range of possibilitieslet's say inflation does come down to two
(26:10):
percent by the end of the year, FED cuts three times, mortgage rates
go to yeah, I don't know, six, inflation five and a half.
Yeah, man, think about allthe economic activity that gets unleashed then
and where inflation goes from there.It's it's tough for me to find a
(26:30):
case where inflation just gets zapped completelyfor good, even if it gets down
to two if markets actually believe thatit's gonna stay there, it may actually
be this self fulfilling prophecy that itdoesn't then, because there's so much activity
that can happen with mortgage rates atfive or five and a half percent.
So you wanna you want to riskfor this market and this economy that nobody
(26:52):
is talking about, its rates gohigher right now. If you take a
look at the bird flu, Yeah, bird flu would do it too.
That was on nobody's Bengo card,and I saw that. I saw that
story. A lot of outbreaks rightnow. But by the November meeting of
this year, there is currently azero point one percent chance that rates are
higher than where they are now.Zero point one percent. By December,
(27:14):
it's off the table. It's zero. So you want to talk about a
risk that nobody's pricing in. It'sthe idea that, oh, wow,
not only do you know, we'realready starting to get to the point where
market participants are realizing, Hey,the FED might not have justification to cut
their full three times this year thatthey were planning. Nobody is pricing in
the idea that they need to gohigher. I don't think it's likely,
but it's not getting priced in.If let me let me follow up on
(27:37):
that. If you were pricing it, what would you price the chance that
rates go higher by end of theyear, like that the FED has to
hike by end of year five percent? Oh I go higher? Would you?
Yeah? Man? Twenty seven?Wow? Yeah, I don't see
it as likely because I think anyinflation that you get is still relatively modest
(27:57):
it all things considered. And soagain I'm thinking about it in terms of
this FED. Inflation goes up tofour and a half percent, I don't
think they're hiking inflation goes up tosix percent. I think they will,
but I think that's how how youhave to get for the FED to justify
going rates higher this year. Yeah, I think that four and a half
to five range is where it startsto get awfully tough for them not to
(28:18):
hike, because the general theory is, hey, you need to have the
FED funds rate meaningfully above inflation tobring it down. Yep, Fed funds
is at five and a quarter tofive and a half right now you start
printing annually like four eight, fournine. Again, we are far from
there right now, and I dowant to reiterate that we are far from
there right now. We are atwhat three six in terms of annualized inflation,
(28:42):
three and a half in terms ofyou know, most data points right
now. But all of the datathat we continue to get is about a
economy that continues to heat up.I want to talk a little bit about
this interview with Muhammad Arion, whois a He's the chief economic advisor at
(29:03):
Alliance. He spent a bunch oftime at PIMCO with Bill Gross in the
early two thousands, and the moreI've heard from him recently, the more
I like him. I wasn't reallya huge fan of him earlier in his
career. I didn't think there wasmuch there there, But I'm starting to
believe that I just start I'm kindof liking He agrees with you at the
moment, so he does matter.I like him because he thinks I'm right
(29:27):
and I want to read this quotefrom him. Rather than be strategic,
the FED is overly data dependent andhas turned into a play by play commentator.
That's not the role of the FED. The fetch would be strategic.
The FED scher provide a strategic anchora stabilizer. The mistake that they may
make is that this time they'll endup being too tight, and the two
tight piece I kind of put tothe side. But Larian basically said,
(29:49):
Jay, be quiet, shut up. Yeah, like he said it very
nicely. But he said, guys, stop talking after each data point and
telling us like what you think andwhat you feel about each data point,
especially when your opinion's changing from Fridayto Wednesday. It's not your job.
Your job is to look at thebig picture and say, this is where
(30:11):
we're going and this is how wehave to directionally move. Because the instruments
that you have available to you,they are blunt, broad instruments. They're
not things where you can be like, well, we want to have a
little bit more inflation in the Californiafast food sectors. Not a scalpel it's
not even a hammer, mic,it's a freaking asteroid that you throw at
(30:33):
the Earth to slow things down.Like again, think about it this way,
and I say this with all thelove and respect in the world for
the FED. The tool that theyhave to control how hot the economy is
is whether or not they want tocause a recession. Yeah, they try
not to, but ultimately it's well, there's a recession. Yep. Now,
(30:56):
I'll acknowledge that their tools have gottenmore complicated, but a fair bit
more dynamic and directed over the lastfew years. We can talk about whether
or not these are the right tools, but backing the junk bond market and
buying different types of securities, theplugs that they did during the Silken valid
(31:18):
bank crisis. No, I'm thinkingof the period of time when overnight lending
dried up. What was going onthen? That was the the repo market,
right, that was something that theyhad never done before. And so
yes, the tools are getting alittle bit more intentional and a little bit
less like an asteroid being thrown atthe planet Earth. But not when it
(31:40):
comes to inflation. Right, whenthe deal with inflation, there's only really
one tool that they utilize let's takea quick break here. When we come
back, we're talking oil prices rightafter this. The Financial Exchange streams live
on YouTube. Like our page andstay up to date on breaking business news.
All morning. Long Face is theFinancial Exchange Radio Network. Miss any
of the show. Catch up atyour convenience by visiting Financial Exchange Show dot
(32:05):
com and clicking the on demand icon, where you'll find all of our interviews
and full shows. This is yourhome for the latest business and financial news
in New England and around the country. This is the Financial Exchange Radio Network.
All right's talk a little bit aboutoil. Mike Peace in the Wall
(32:27):
Street Journal. Oil is hitting itshighest level of months, just in time
for the summer driving season. Yand this is really like the It's the
Tony Romo oil market, because it'sjust kind of sitting there right now,
going I don't know if we're gonnamake it joom. It's You've got these
tight inventories worldwide. You've got allkinds of different disruptions popping up from Russian
(32:52):
refineries that are being knocked out byUkrainian drones. You've got concerns about upheaval
in the Middle East. You've gotUS product in the premium basins starting to
show signs of rolling over. You'vegot ships that are avoiding major canals either
due to Houthi rebel attacks or droughtin Panama. So I can't imagine a
bridge that fell over in Baltimore.I mean, yeah, there's nothing really
(33:15):
going great for outlook on where oilprices go. OPEC plus has been cutting
production or you know, producing atreduced levels for I think eighteen months now
since their latest they've extended those yearend, and I mean, I could
be wrong, but I can't reallyimagine that there can be any more help
(33:37):
from these strategic petroleum reserve. We'renow looking at levels in the spr that
we haven't seen since the early nineteeneighties. So I mean, I guess
you could empty the thing, butyou know, we're about half the level
of total quantity of oil in thestrategic Petroleum Reserve that we were back during
(33:58):
most of the twenty ten days gades. So I don't really see how you
can potentially justify it like you didduring COVID pumping that back into the economy.
No, So I think that it'ssomething where you've got tight inventories,
tight supply and This remains a reallyfragile market in terms of the potential for
any kind of disruption, throwing priceseven higher prior to your end. Beneficiary
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planning and asset protection go hand inhand, and Cushing and Dolan, the
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(34:45):
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(35:09):
number again is eight six six eightfour eight five six nine nine, or
you can request it from their websiteLegal exchange show dot com. The proceeding
was paid for and the views expressedare solely those of Cushing and Dolan.
Cushing and Dolan and or Armstrong Advisorymay contact you offering legal or investment services.
Cushing and Armstrong do not endorse eachother and are not affiliated. Mike,
(35:30):
do you want to talk China?Now? Do you want to talk
Apple? Or do you want totalk Ford? I want to go.
I want to go China. Shocktwo point zero. So the Wallster Journal
is making the argument that China isonce again flooding many international markets with cheap
goods and dumping. This time theymight not get away with it, and
I just doubt it. So yeah, it talks about hey, you know,
(35:53):
cars and renewable energy gear and steal, steal all this stuff that they're
done rams And when do I sayceramics, I don't mean like dishware,
I mean industrial grade ceramics. Sothis is undoubtedly happening. We can measure
it pretty easily. I think thequestion is certainly in the United States,
(36:15):
like we're not going to very likelysee any Chinese made cars in the US.
But when you talk about each individualcountry that is at play here,
they have massively different incentive structures,Like the United States has a big car
industry, we're not going to allowcars. In South America might be perfectly
on board with buying a bunch ofreally cheap Chinese made cars, but touch
(36:37):
their oil industry and you could bein big trouble. Uh. India might
be a different story too, rightLike might be very willing to buy very
cheap Chinese steel, but not wantI don't know what you know big industry
in India would the castors, Yeah, Tata, They're not gonna, They're
gonna not gonna take the cars.So I definitely think that country are more
(37:00):
conscientious of this right now. Butalso there are a bunch of countries that
are going to want cheap Chinese madegoods and are going to say, look,
we don't have a domestic industry forthis, so let's let it in.
There are also ones that may wantto push back but can't because they
need something from China as well.Brazil, as an example, might be
sitting there saying, hey, wedon't really want these cars and stuff coming
(37:22):
in, but we need someone tosell our oil to. And you're seeing
this in Argentina already, by theway, where there's seeing a lot of
stuff in Argentina. Yeah, thenew president there who ran on a very
anti Chinese Yeah platform platform basically saida yeah, actually, we can't change
any of the existing trade deals withChina because it'll completely ruin our economy,
(37:44):
which raises the question, not begsit, Hey, what is the path
to changing this? Because if youif you basically throw your hands up and
say we can't do anything, thenI don't think it just repeats itself.
We're just gonna be sitting here havingthe same conversation ten years from now.
Argentina, to be fair, probablyin the weakest negotiating position out of any
(38:07):
country in the world. It's prettyclose the Argentina. The Argentinian economy is
a mess right now. And justfrom a location standpoint, even though the
Turkish economy is a mess, everyonestill needs Turkey to help them with something
because it's in the middle of everything. Not so with Argentina. Let's take
a quick break. Hour two comingup in a bit
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