December 19, 2025 • 38 mins
Chuck Zodda and Mike Armstrong discuss the Santa Clause rally. 2026 housing outlook. US says price increases eased last month but data may be distorted and Americans aren't feeling it. Jobs could soon replace prices as the focus of anxiety. The Bank of Japan raised rates. Why you should care.
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Speaker 1 (00:00):
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(01:03):
This is the Financial Exchange with Chuck Zada and Mike Armstrong, Chuck,
Mike and Tucker.
Speaker 2 (01:12):
With you here on a Friday, the last full week
of trading for twenty twenty five. As next week we've
got the Christmas holiday, that'll be seeing traders kick their
heels up a little bit in the week after we
got the New Year's holidays, something called New Year's If
you haven't heard of it, now you have. And again
(01:34):
I don't think there's typically not anything crazy that happens,
you know, the last couple of weeks of the year,
just because when you are missing two and a half
days of trading, it's kind of hard for volatility to
get a hold of anything. That's part of the reason
why mechanically you typically see that Santa Claus rally that
tends to happen into year end. And we'll see if
(01:56):
we end up getting that this year, or if Santa
Claus brings a big lump of coal for us.
Speaker 3 (02:01):
But can we define it again, it's the seven trading
days I think post Christmas through the first two last
five of the year, plus first two of the year.
Speaker 2 (02:12):
Right, yeah, so it is final five trading days of
December and first two of January, which again starts when
Friday of next week. Then it starts Tuesday of next week.
Speaker 4 (02:22):
Tuesday of next week right.
Speaker 2 (02:23):
After Tuesday, so Wednesday, yeah, because you've got half day Wednesday,
full day Friday, and then three more days Monday, Tuesday, Wednesday,
the following week, got it, and then Friday and the
subsequent Monday. So the reason why you tend to mechanically
get that rally is it's very simple. Volatility can only
occur when markets are open, and so when you have
(02:47):
days in which the market is closed, you can't have
volatility by definition. The reason this matters to markets is
if you look at the VIX, the volatility index for
the S and P five hundred, it uses a thirty
day calendar thirty calendar day window in which that calculation
is composed, which means that if you have more holidays
(03:10):
during that time period, it's tougher for volatility in a
mechanical sense to actually grab hold. And so this is
a very good mechanical reason why this happens. In addition
to the fact that, hey, most of the time, stocks
tend to be up for the year about seventy percent
of the time, and so given that there's often a
dearth of sellers into the end of the year because
(03:31):
investors want to kick any capital gains, you know, a
couple days down the road, because then they don't have
to deal with them for another twelve months. And so
those are the two big mechanical reasons why you tend
to see the Santa Claus rally. It's not some market
miracle or anything. It's just there are fewer trading days
for volatility calculations actually apply, and investors who might want
(03:54):
to sell a position with a gain tend to want
to wait until the next year, and so you have
fewer people trying to sell in that last week in
a lower vall environment, and that is what typically drives
that Santa Claus rallies.
Speaker 3 (04:08):
So it's like immaculate conception, is what you're saying. Yes,
I didn't really listen to anything you said. I know,
I'm guessing it's just like that. I know, so in it.
We haven't prepared anything on this, but I would find
it interesting then to see if there's any Santa Claus
rally effect in crypto markets, which trade twenty four hours day,
three hundred and sixty five days a week.
Speaker 2 (04:28):
No idea, they haven't been around long enough probably to
be able.
Speaker 4 (04:31):
To say have any sort of de will whatsoever.
Speaker 3 (04:33):
They do tend to correlate pretty heavily towards towards stocks,
so my guess would be recently there has been something
like specifically over the last five years, but not because
of Vanny the mechanics we just talked about.
Speaker 2 (04:45):
So again, this is kind of where we are right now.
We did get a little bit of economic data this
morning at ten am Eastern. Existing home sales came in
at a rate of four point one three million units
per year. Previous read was four point one one, so
no meaningful change. We're continuing to see that series somewhere
between three point nine and four point two five million,
(05:08):
with no meaningful shift there. University of Michigan consumer sentiment
came in at fifty two point nine. That's up modestly
from reading a fifty one in the prior month. Five
year inflation expectations dropping from three to four to three
to two in that report, and one year inflation expectations
dropping from four to five to two four to two,
So overall, some modest improvement there, which I think is
(05:31):
good news. Does it mean anything, I'm not sure because
this series has kind of been broken during this business cycle,
much like a lot of different sentiment series, and so
I don't know that it necessarily means anything.
Speaker 3 (05:46):
While we're on the subject of housing, you brought up
the home sales numbers. You want to just kind of
talk about housing in twenty twenty six as we head
towards the end of the year here and what reasonably
people could expect in different parts of the country, because
I had this conversation with Jim Polito this morning, and
you know, I know it's one that's of interest to folks,
(06:07):
especially when we're talking about rate cuts and everything else. So,
as of yesterday, according to Mortgage News Daily, the thirty
year fixed rate mortgage dropped a little bit down to
six point to two percent, which is down from a
recent tie of six and a third. But we are
still well well above what I think a lot of
(06:28):
buyers are hoping for in order to feel like a
home might be affordable.
Speaker 2 (06:33):
Yeah, And I think that when we look at the
picture again, it's it varies based on the different parts
of the country that you might be in. In the
southeastern part of the country kind of through Texas, you're
very likely to see continued affordability improvements over the next
(06:54):
year or so. As prices have been falling in a
number of those markets for the last twelve to eighteen
months to continue. You have some markets now that are
fifteen to twenty percent off their peak pricing that they've
seen and probably have another ten to fifteen percent to
go in order to get to, you know, kind of
where they locally bottom. That probably happens in the next
(07:14):
twelve to twenty four months. For other parts of the country, namely,
you know, the Northeast and the Midwest, inventory still remain
very low and so not buyers markets by any means
right now, but inventory has started to grow. We were
talking with Mike Simonson from Compass on this earlier this week,
and you've started to see some more inventory growth in
(07:34):
those areas. That probably gets you back to normal levels
of inventory three to four years from now. So it's
going to be a process to get there.
Speaker 3 (07:43):
How does he define that, like.
Speaker 2 (07:45):
Twenty seventeen to twenty nineteen levels of inventory.
Speaker 3 (07:48):
And is that reasonably normal given population growth over the time? Right, Like,
I know population growth hasn't been huge over the course
of the last decade, but you know, really we're just
talking about returning to where we were back in twenty seventeen,
and that's still probably not enough properties to feel normal
in today's environment.
Speaker 2 (08:11):
I think it probably is pretty close, just because the
pricing will adjust.
Speaker 4 (08:15):
Ye.
Speaker 2 (08:15):
And this was the point that he made is, Look,
the only way that you can clear that volume of
properties lower prices is if prices come down. Because the
reason you're seeing thirty percent fewer transactions now than twenty
one or twenty two is because that's the maximum number
that can actually be processed, not processed, that can be
completed with prices at this level. There just aren't enough
(08:38):
human beings who can buy property in the United States
at these prices to drive higher volume. It's Mike, if
if I gave you, If if I was running a
grocery store and I said, hey, Mike, just so you know,
I got three hundred dollars milk, and I got ten
(09:00):
bottles of it, do you want one?
Speaker 4 (09:02):
You'd be like laid in gold.
Speaker 2 (09:04):
And so my volume selling those three hundred dollars milk
bottles will be low because most people would be like, no,
not interested. If I dropped it to two hundred, people
still wouldn't be interesting because it's just not enough to
move the needle. But if I drop that price down
to eight cents a bottle, I would sell out the
first day, because like the volume can be supported. It's
the same thing with housing. There are only so many
(09:26):
people that can buy homes that cost five hundred thousand
dollars or more. Those prices need to either fall in
order to get back to affordability, you know, relative to incomes,
or those prices can pause and incomes can catch up
a few percentage points a year.
Speaker 3 (09:43):
Yeah, and this will look pretty calm when you look
at the national average level, would be My guess is,
oh yeah, maybe you see prices fall one to three
percent in twenty twenty six. At the regional level, it's
gonna look thing like that. At the regional level, you're
going to see some areas of the country where it
(10:05):
is a pretty dramatic drop yer over year in pricing,
and others where I mean, heck, I don't know what
prices in Connecticut are gonna do.
Speaker 4 (10:14):
They could go up for all I know.
Speaker 2 (10:15):
Yeah, And so you know, you look at this Bill McBride,
who runs a website called Calculated Risk. He goes through
and he publishes you know a lot of this data
that's out there. It's not like his data, but I
like to give him credit because it's where I find it.
But if you look at what we are seeing again
in terms of you know, how far off the peak
you are in various areas. There are parts of the
(10:37):
country that have seen You look at Austin, Texas, pricing
is down twenty percent from the peak in Austin, Texas.
You try telling anyone in Belmont, Massachusetts that, oh, yeah,
like home prices are down twenty percent from the peak,
They'll be like, h well, they're not. They're up five
(10:58):
percent from the peak, which makes this the peak. Then,
so yes, on a there's going to be a wide
dispersion of how home prices are moving throughout local markets nationally.
But Mike Simonson got to the point and he was like, basically,
next year, you probably have a small period in the
first half of the year where home prices go negative
year over year nationally, and other than that you probably
(11:21):
are like somewhere flat to one percent price price growth nationally.
But parts of the country will see prices falling five
to ten percent, parts will see prices rising five to
ten percent, and everything in between Let's take a quick break.
When we come back, do a second look at the
inflation data from yesterday right after this.
Speaker 1 (11:40):
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(12:01):
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Speaker 5 (12:10):
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Speaker 2 (12:26):
See yesterday we received CPI data. It was like we
saw with the job support earlier this week, one of
the stranger reports, just because in this case, like you
literally pulled it open a missing It's just like a
bunch of places where there's normally data just have dashes
in them and you're kind of like, Okay, I guess
(12:49):
we're just not going to have that there, and it
creates a big hole in my heart that for like
the rest of time. Now, when I'm looking at these
data series, I'm just going to anything theareh.
Speaker 4 (13:00):
She'll probably get that looked into, Chuck.
Speaker 2 (13:02):
I should, but you know, tis the season. So in
any case, I think that when we look at this report,
a number of economists have pointed out, hey, there are
some things in here about how the BLS calculated that
aren't necessarily wrong. Sure, but present the possibility that subsequent
(13:23):
reports for December, January, February may end up kind of
retracing what we thought were gains that were made on
the inflation fight in November.
Speaker 3 (13:34):
Yeah, And to be clear, what's abnormal about this in
particular is not only the drop in the pace of inflation,
which dropped down to two point seven percent, which is
it's abnormal to see the rate of inflation slow to
that degree. What is also really abnormal is for economists
to get it so wrong, right, Like, if you go
(13:57):
take a look at how many times over the course
of the last few decades economists who look at this
stuff are off by what was the off four tenths
of a percent? Say that again, I think the average
economists polled was talking about three point one percent, Yeah,
and we got two seven. So the number of instances
where the average economists is off by four tenths of
(14:19):
a percent, it's extraordinarily rare. And so there's just a
bunch of things that point to huh, this is an
interesting reading that was done right when the government reopened,
probably with a smaller sample size. Are we going to
get surprised with inflation to the upside once we get
three more months of data, I think is the question
(14:39):
that a lot of people are asking themselves.
Speaker 2 (14:40):
The answer is, it's possible. But the counter to this is,
we have a labor market that the data over the
last three and a half years has shown is slowing. Generally,
when you get a slowing labor market, it typically comes
with slowing inflation. Yes as well. Yeah, so I do
also think it's possible that when we look at, you know,
(15:03):
kind of where inflation you know, is, at this point,
it may have started to turn a corner and improve.
We had seen it, you know, increasing a little bit
over the prior five or six months, but maybe we
are starting to see some improvement in the pace of inflation.
The thing that throws a little bit of a wrench
(15:24):
in the gears there though, is effectively when you look
at what the Bureau of Labor Statistics was putting in
for shelter as a component which remembers shelter makes up
a huge piece of the overall puzzle when it comes
to again the waiting in the CPI. Effectively, basically, you know,
(15:49):
the the BOLS said, yeah, there wasn't any you know,
real measurable you know shift in the rate of you know,
in the cost of shelter during this two month period.
And the problem there is that that doesn't really you know,
match up with what we've seen in recent right, in
recent reports on this, and so that's where economists are saying, yeah,
(16:10):
maybe we end up with some higher shelter readings in December, January,
and February that kick those you know, readings up a
little higher than they would have otherwise been.
Speaker 3 (16:20):
The other thing that I've heard just talked about is
again smaller sample size because the timing of this also
the time in which they took the sample might not
have matched November of last year. Correct, And so if
you're measuring prices at the end of November when retailers
are heavily discounting things because of the holiday shopping season,
then perhaps that also contributes to lower inflation.
Speaker 2 (16:44):
So here's my take on the data from this week,
so specifically on CPI and job support. Job report was
not as good as anyone expected. In particular, some of
the underlying stuff was, you know, meaningfully worse CPI meaningfully
better than people expected. I think I can look at
both of those and say, I'm not sure either one
(17:06):
is really worth the paper it's printed on. I appreciate
the folks at the BLS trying to put something out,
but quite honestly, let's see what the next few months
of data show, because there are enough reasons why each
of these could be skewed, including the fact that the
BLS itself said in a note published on Monday, Hey,
there could be some larger variation than normal in these
(17:27):
reports because of how we collected this and so on
and so forth. And so I kind of look at
these and I say, guys, I appreciate you getting back
to work. Good job, good effort. We'll see you in January.
Speaker 3 (17:39):
I'll also, you know, just put the lid on the
conspiracy theories here for a moment.
Speaker 2 (17:45):
Oh, there's nothing malicious on any of this.
Speaker 3 (17:47):
Yes, one the BLS is an organization of hundreds of economists.
You're not going to be able to manipulate the data
the way you want without people speaking out and resigning.
Speaker 4 (17:58):
Two.
Speaker 3 (17:59):
If you're going to try and make the economy look
better than it is, then you're not going to tell
the American public that the unemployment rate jumped by two
tenths of a percent, No, over two months. It's the
same organization that produces both of these data sets. Yes,
And so if your goal is to say, hey, this
economy's fantastic, then you're not going to disclose a higher
unemployment rate.
Speaker 4 (18:18):
Along with a lower inflation rate.
Speaker 3 (18:20):
So is the data, you know, collection methodology screwed up?
And might we see bounce backs in either direction from
these datas?
Speaker 4 (18:30):
Yeah?
Speaker 3 (18:30):
Quite possibly. And we might look at this in hindsight
and say, you know what, it was a blip on
the radar. It was not intentionally miscategorizing the data. No,
I'm comfortable saying that.
Speaker 2 (18:39):
Yes, I think very much this is a best effort
at what was going on during this period, and we'll
see if it's either confirmed or rejected in subsequent reports
that we get. It's kind of where I tend to land,
So I think overall, I continue to be in the
camp of the labor market is weakening. Generally, when that happens,
(19:04):
inflation is not the biggest threat in the short term,
and so I know the market's not pricing it in
right now, but I'm still of the opinion. Look, if
you cut interest rates the last three FED meetings because
you were concerned about the labor market, I don't know
what would dissuade you from cutting in January. Yeah, I
don't know what would. Let's take a quick break. When
(19:25):
we return, We've got Wall Street Watch, and then let's
talk a little bit more about that labor market.
Speaker 1 (19:41):
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TFE show. Breaking business news is always first here on
the Financial Exchange Radio Network. Time now for Wallstream Watch
a complete look and what's moving market so far today?
Right here on the Financial Exchange Radio Network.
Speaker 5 (20:01):
Market's adding to yesterday's gains and are currently in positive
territory as traders digest existing home sales data for the
month of November, which climbed zero point five percent from
the month prior. Right now, the Dow is up two
thirds of a percent, are three hundred and eleven points,
SMP five hundred up three coreters of percent, fifty two
(20:23):
points higher, NASDAC up nearly one percent or two hundred
and twenty six points. RUSS two thousand also up three
quarters of a percent. Ten Your Treas reeled up two
basis points at four point one three nine percent, and
crude oil up about a half a percent, trading a
fifty six dollars and forty two cents a barrel. FedEx
reported stronger than expected quarterly results, lifted by higher US
(20:47):
package shipments. The company also raised the lower end of
its annual guidance, however, shares pulling back about one percent. Meanwhile,
Nike stock is dropping almost nine percent after the sports
a pair Carl retailer revealed a seventeen percent drop in
China sales for its most recent quarter. Nike's gross margin
(21:07):
also decreased in the quarter as tariffs pushed up product
costs elsewhere. Oracle shares climbing six percent after TikTok parent
company byte Dance agreed to sell its US operations to
a new joint venture that includes Oracle in private equity investors.
Silver Lake home builder KB Homes said it delivered fewer
(21:28):
homes in profit in the previous quarter, weighed by a
stagnant houser, weighed down by a stagnant housing market.
Speaker 2 (21:36):
That stock is.
Speaker 5 (21:38):
Down seven percent. Let me just double check that I
put seven percent. I didn't put a direction silly Goose. Yeah,
down seven percent And Sony will pay more than four
hundred and fifty million dollars to double its steak in
Peanuts Holdings, owner of cartoon Ikon, Snoopy and Charlie Brown,
increasing its ownership to eighty percent. The family of Peanuts
(21:58):
creator Charles N. M. Schaltz will continue to own their
remaining twenty percent steak. I'm Tucker Silva and that is
Wall Street Watching. If you missed any of our shows
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(22:22):
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Speaker 2 (22:24):
We've been talking a little bit about the labor market,
and we've got two pieces in the stack today, one
from the Wall Street Journal jobs could soon replace prices
as focus of anxiety, and another one from Bloomberg. Americans
facing tough job market in twenty twenty five won't get
a break next year.
Speaker 3 (22:40):
So, Chuck, you made the case that yesterday on yesterday's show,
that we've reached peak anxiety when it comes to affordability.
Speaker 4 (22:47):
Yes, and these articles would certainly support.
Speaker 3 (22:50):
That, because if they listen to our show, if people
start losing their jobs, then they will not be focusing
on grocery prices anymore.
Speaker 4 (22:57):
Yeah.
Speaker 2 (22:57):
And this was the point that I think I was
getting out, which is, let's think about this from the
mechanics of why hiring or firing takes place. So let's
say that I am running Chuck's amusement park.
Speaker 4 (23:12):
You're not sticking with the grocery store.
Speaker 2 (23:13):
Huh No, there's a tough business for me. I got
out of it. It wasn't good. I sold to Tucker.
So Kenny opened an amusement park. Yes, I wanted to
ride the roller coasters.
Speaker 3 (23:24):
I'm just going to keep interrupting today. Did you see
that Romania is building a Dracula theme park?
Speaker 2 (23:30):
Sounds great.
Speaker 4 (23:30):
I'm excited about it. Yeah, sorry, thanks.
Speaker 2 (23:32):
For bringing that up. That's where Transylvania actually is spending
like a billion dollars on it.
Speaker 4 (23:36):
I'm excited.
Speaker 3 (23:37):
Cool man, I'm going We're going to do a remote
from there, Tucker, and you can't stop us. Yeah, okay,
we're even going to learn a little bit of Romanian,
which I think they speak Romanian in Romania. Yes, okay,
in any case, amusement park. So I opened this amusement
park and I'm all excited about it. And the first day,
(23:58):
thousands of people come in and I have all of
these people coming, and I can't sell enough cotton candy.
I can't flip enough burgers, and I'm like Dolly g Wilkers,
i gotta hire some help. So I go and I
hire some help, and I keep having thousands of people
coming a day, and so like my help is really
paying off.
Speaker 2 (24:14):
Like they're making money. I'm making money. It's it's a
great world. But all of a sudden, you know, for
some reason, hey, we had like an E Coli scare
at the lettuce wrap station, and so you know what,
our our ridership or our our entrance got cut in half.
(24:35):
And so I'm sitting there and I'm going, gee, I'm
I'm I'm hemorrhaging money.
Speaker 4 (24:39):
Now.
Speaker 2 (24:39):
My sales have gone down. I got my burger flippers
just standing around. They're not flipping anything. My guy's pressing
the button to start the coasters aren't doing anything. What
do I do? I gotta lay some of you off.
And this is what we mean when we say that
sales leads hiring, because the reason that you hire people
is because you have more sales than you can handle
(25:00):
with your current staff. The reason you fire people is
because you don't have enough work for them to do
when you want to maintain margins and not go out
of business. So when we look at the driver of this,
consumer demand is a huge driver. In the United States,
we are a consumer spending based economy.
Speaker 3 (25:16):
Seventy percent of our economy historically driven by that consumer correct.
Speaker 2 (25:21):
And so when I see things like year over year
tax withholding growth slowing from the mid seven percent range
to the high three percent range over the last five
or six months, I say, gee, that means there's less
income growth, which means potentially less spending growth. Now, one
of the things we have talked about this year is
demographically US is getting older. And so if you are
(25:44):
someone who's listening and you happen to be seventy years old,
it's a pretty good chance you're not working and your
income is coming from a combination of social security, pension,
and portfolio. Yep, and so yes, like your tax withholding
for FIKA doesn't change because you don't pay to FAIKA.
So if there are more people that are, you know,
kind of out of that system and that are receiving
(26:07):
their spending power from fixed sources or portfolio, that could
potentially offset weakness and wages. But I still realize that
there are one hundred and sixty million people in the
United States that work, and if their aggregate wage growth
is slowing, it represents a potential threat to sales, which
represents a potential threat to hiring.
Speaker 4 (26:26):
Yeah.
Speaker 3 (26:26):
You know, we've been focused a lot on inflation and
prices over the course of the last three to four
years for very obvious reasons. So we've sucked, and we've
made the case over and over again that while inflation
is the least popular of these things, unemployment is the
far more damaging one. Right if I to a certain extent, right,
(26:47):
we did this exercise where where would you rather see
a two percent uptick prices are unemployment? And my answer
was uniformly, I would prefer to, unfortunately see it on
the price side rather than the employment inside.
Speaker 2 (27:00):
I don't remember what I said.
Speaker 3 (27:02):
I think we I think we found some threshold where
we were like, all right, at a five percent increase,
the price problem might be the bigger problem. But when
you talk about these smaller increases, the problem with the
employment uptick is that it does not affect every single individual,
but those that it does affect it devastates.
Speaker 2 (27:21):
And uh, that's.
Speaker 3 (27:24):
Again, we are seeing these signs that we saw last
year too of a weakening labor market. One that we
haven't brought up in a wild chuck the Psalm rule,
which is no longer a rule because it.
Speaker 4 (27:35):
Broke last year.
Speaker 2 (27:36):
We had a false positive last year for the first
time ever.
Speaker 3 (27:39):
So the Psalm rule, if you're not familiar, it's a
measurement of the increase in the unemployment rate. And what
it found, going back historically since the data existed, was
that once the unemployment rate ticked up by more than
a half a percent of three month average, they do
a fancy average way of doing this here every single
(27:59):
time it coincided with a recession. And so that happened
back in August of twenty twenty four, and then we
all sat there waiting and the recession didn't come we
are now back in that same territory. We're sitting as
of the November reading at point four to three.
Speaker 4 (28:16):
But it's rule.
Speaker 2 (28:17):
But here's the thing. It's complicated because there is no
October unemployment rate correct, So what three months do we
actually use is now a question.
Speaker 3 (28:27):
But to put it plainly, unemployment back in January this
year was four one. It's now four to six. So
if you see a continuation there, you get to the
breaking of the Psalm rule again. Doesn't mean we're gonna
get a recession, no, But man, the more you see
these upticks and put away the whole sam rule thing,
Unemployment historically, once it starts rising, doesn't just pause and
(28:51):
plateau and move on aside from last year. Aside from
last year.
Speaker 2 (28:57):
Yeah, and the other piece, I'm just.
Speaker 4 (28:58):
Not personally willing to test that theory over and over again.
Speaker 2 (29:01):
The other piece just at a more micro level. Historically,
biggest driver of us, you know, marginal demand. Housing. There's
a reason why they say that housing leads the business cycle.
And if I am a builder, so now I've gone from.
Speaker 5 (29:16):
There are a lot of things today.
Speaker 2 (29:17):
Yeah, the first theme park. I am a renaissance man.
I do a little dabbling in everything here.
Speaker 4 (29:26):
Wow.
Speaker 2 (29:26):
So now I run I run a general contractor. Indeed,
and I built twenty homes this year, right, and I
sold them in an average of five hundred thousand dollars
with fifty thousand dollars profit on each one. It's a
million dollars in profit now. But now the problem is
the place where I'm selling my homes. It's in Florida,
and prices are falling. Still. They fell another ten percent,
(29:48):
let's say next year, from where they are. So now
I'm sitting there and I'm going gee, in order for
me to sell these homes, remember I'm not just competing
with other new homes, I'm competing with the existing housing stock.
Speaker 4 (29:57):
I think you mean golly g Whillakers, golly g.
Speaker 2 (29:59):
Will And So now if I want to compete on price,
I've got to say, Okay, I got to sell these
twenty homes at four hundred and fifty thousand. Well, gee,
that's what I it cost me to build them. I'm
gonna make no profit doing that. So instead what I
do is I say, look, I know I can't sell
twenty homes at five hundred K, but I can still
(30:20):
do ten at five hundred k. But I don't need
as many of my subs working as much. And when
those subs get the orders coming in from me saying, hey,
we've got you know, ten plumbing systems to install instead
of twenty this year, and ten electrical systems instead of twenty,
then my sub say, Steve, Bill, don't come in today.
(30:42):
We don't have the work for you.
Speaker 4 (30:43):
Yep.
Speaker 2 (30:44):
And that's the other risk to employment next year is
where you have falling prices coming in the southeast, Southwest,
and west guys. That's that's where the construction happens. It's
it ain't happening in Arlington. I mean it is, but
like not as much. It's not happening in you know,
(31:04):
bangor Maine. It's not happening in.
Speaker 4 (31:08):
Westport, Connecticut.
Speaker 2 (31:09):
Correct, like that A big development in Massachusetts, Like, hey,
we built two hundred units. A big one in Florida
is we built twenty thousand. Yeah, that's where the problem is.
Let's take a quick break when we return, enough about
what's going on in the United States. When we come back,
we're going to Japan.
Speaker 1 (31:29):
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(31:50):
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Speaker 2 (32:07):
All right, Having discussed the US economy for the last
forty five minutes or so, we now turned to Japan
and the Bank of Japan raised interest rates to zero
point seventy five percent. Was a quarter percent hike for
the Bank of Japan. This puts interest rates at the
highest they've been there since nineteen ninety five.
Speaker 4 (32:28):
That is a long time ago.
Speaker 2 (32:30):
Yes, So in any case, there's a piece in the
Wall Street Journal the Bank of Japan raised rates. Here's
why you should care, and ultimately, look, there are two
reasons why you could potentially care what the Bank of
Japan does. The first is rising interest rates in any
major economy can potentially push up interest rates in other
(32:54):
major economies, just because of international investors who may be
seeking out arbitrage options and trying to figure out the
best place to park their money.
Speaker 3 (33:04):
Putting it plainly, if Rana get paid for owning a
government's debt, if other governments start offering more interest, you
might go there. You might go there instead of to
the United States. Current United States needs you because we
are not great at managing our finances.
Speaker 2 (33:20):
To be fair, no one's great at managing nor is Japan.
Speaker 4 (33:23):
No.
Speaker 2 (33:24):
You know the list of countries that are really good
at managing their finances, it's pretty slim. It's a pretty
small list. But so this is one of the reasons
why it matters. The other reason why it matters to
the US is because of the potential impact on equity markets,
because Japanese investors one of the things that they love
to do is they say, okay, we've had, since you know,
(33:45):
the mid two thousands a currency that's been depreciating against
the US dollar. This is Japan. I'm now a Japanese
hedge fund manager. So the Japanese yen has been depreciating
against the US dollar for the better part of the
last fifteen years. Well, I know what, Mike, as a
as a person in Japan, Can I eat dollars noware?
(34:07):
I can't? But what I can do is I can
I can use yen to go and buy food, and
so if I can take my yen convert them over
to dollars, go earn a higher rate of return in dollars,
and then pay myself back with an exchange rate that
has depreciated. I'm coming out with more yen, which means
I can feed myself more good. The wrinkle in this
(34:29):
is if Japanese investors start saying, and this is again
kind of the extension of what we talked about, Hey,
I can earn more in Japan than having to do
that big currency conversion, bring it over and then bring
it back and do this whole thing with a bunch
of you know, currency swaps and everything. Does it impact
flows into US risk asset markets like equities in real
(34:50):
estate as well, not just bonds. And we saw this,
by the way with Jen mcgeddon last year in late
July early August, where basically the yen dollar exchange blew out.
You saw the Vicks go up to sixty in one day,
and everyone's sitting there like, what the heck happened?
Speaker 4 (35:07):
What is the carry trade?
Speaker 3 (35:09):
Yeah, which probably makes Harry why not that likely to
happen again in steach sht time, the.
Speaker 2 (35:13):
Same thing usually doesn't cause problems in short order that way.
But these are reasons why in theory you might want
to care what the Bank of Japan does, even though
most of the time it's not really worth it for
the average person to pay attention to.
Speaker 5 (35:26):
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Speaker 3 (36:34):
Yesterday we were talking on the show about ghost jobs,
and specifically what we're talking about here is job listings
on job boards that companies have really no intention of
actually hiring for, but just like collecting resumes and lazy,
don't take the postings down. A couple comments we got
from listeners that can lead to a person applying to
multiple places never hearing back. That can cause the serious
(36:55):
financial strain, especially if they were laid off or fired
and need to find a job fast. I know several
people who are put in that situation wound up just
about underwater. One of our proposals was, hey, job boards,
like fix this so that the employer at least you
can see the last time they were active on the
job post or interviewed somebody and somebody else exiting. Yeah,
employers will get around that. They'll just touch the job
(37:16):
posting to make it look more active. And you're absolutely right,
which is still where I've come to that there is
no good fixed to this problem.
Speaker 4 (37:25):
Right. There are minor things that you can do to
make it slightly better. But if you.
Speaker 3 (37:29):
Genuinely want employers to not put fake postings up, then
the economic solution would be to raise the cost of posting,
have a tax on job postings.
Speaker 2 (37:40):
Does anyone want that?
Speaker 4 (37:41):
Which is a terrible idea.
Speaker 3 (37:43):
Again, the reasons the terrible idea is because then there's
a tax on job postings, company posts fewer jobs and
hire fewer people.
Speaker 2 (37:48):
So or post fewer jobs but engage in more network
based hiring, which means that, hey, if you don't know
the right people and you're not getting your job, like
it makes that network even more important.
Speaker 3 (37:59):
Though there is no good solution here, I don't think
government intervention is the right one, and I have just
come to accept the suck when it comes to job postings.
Speaker 2 (38:07):
What if ope just gave everyone a job? Oh oprah, Yeah,
you get a job, and you get a job, and
you get a job.
Speaker 4 (38:16):
I don't know it's a solution.
Speaker 2 (38:18):
If we do that a few million times, we'll get there.
Let's take a quick break when we return hour two
coming up
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(01:03):
This is the Financial Exchange with Chuck Zada and Mike Armstrong, Chuck,
Mike and Tucker.
Speaker 2 (01:12):
With you here on a Friday, the last full week
of trading for twenty twenty five. As next week we've
got the Christmas holiday, that'll be seeing traders kick their
heels up a little bit in the week after we
got the New Year's holidays, something called New Year's If
you haven't heard of it, now you have. And again
(01:34):
I don't think there's typically not anything crazy that happens,
you know, the last couple of weeks of the year,
just because when you are missing two and a half
days of trading, it's kind of hard for volatility to
get a hold of anything. That's part of the reason
why mechanically you typically see that Santa Claus rally that
tends to happen into year end. And we'll see if
(01:56):
we end up getting that this year, or if Santa
Claus brings a big lump of coal for us.
Speaker 3 (02:01):
But can we define it again, it's the seven trading
days I think post Christmas through the first two last
five of the year, plus first two of the year.
Speaker 2 (02:12):
Right, yeah, so it is final five trading days of
December and first two of January, which again starts when
Friday of next week. Then it starts Tuesday of next week.
Speaker 4 (02:22):
Tuesday of next week right.
Speaker 2 (02:23):
After Tuesday, so Wednesday, yeah, because you've got half day Wednesday,
full day Friday, and then three more days Monday, Tuesday, Wednesday,
the following week, got it, and then Friday and the
subsequent Monday. So the reason why you tend to mechanically
get that rally is it's very simple. Volatility can only
occur when markets are open, and so when you have
(02:47):
days in which the market is closed, you can't have
volatility by definition. The reason this matters to markets is
if you look at the VIX, the volatility index for
the S and P five hundred, it uses a thirty
day calendar thirty calendar day window in which that calculation
is composed, which means that if you have more holidays
(03:10):
during that time period, it's tougher for volatility in a
mechanical sense to actually grab hold. And so this is
a very good mechanical reason why this happens. In addition
to the fact that, hey, most of the time, stocks
tend to be up for the year about seventy percent
of the time, and so given that there's often a
dearth of sellers into the end of the year because
(03:31):
investors want to kick any capital gains, you know, a
couple days down the road, because then they don't have
to deal with them for another twelve months. And so
those are the two big mechanical reasons why you tend
to see the Santa Claus rally. It's not some market
miracle or anything. It's just there are fewer trading days
for volatility calculations actually apply, and investors who might want
(03:54):
to sell a position with a gain tend to want
to wait until the next year, and so you have
fewer people trying to sell in that last week in
a lower vall environment, and that is what typically drives
that Santa Claus rallies.
Speaker 3 (04:08):
So it's like immaculate conception, is what you're saying. Yes,
I didn't really listen to anything you said. I know,
I'm guessing it's just like that. I know, so in it.
We haven't prepared anything on this, but I would find
it interesting then to see if there's any Santa Claus
rally effect in crypto markets, which trade twenty four hours day,
three hundred and sixty five days a week.
Speaker 2 (04:28):
No idea, they haven't been around long enough probably to
be able.
Speaker 4 (04:31):
To say have any sort of de will whatsoever.
Speaker 3 (04:33):
They do tend to correlate pretty heavily towards towards stocks,
so my guess would be recently there has been something
like specifically over the last five years, but not because
of Vanny the mechanics we just talked about.
Speaker 2 (04:45):
So again, this is kind of where we are right now.
We did get a little bit of economic data this
morning at ten am Eastern. Existing home sales came in
at a rate of four point one three million units
per year. Previous read was four point one one, so
no meaningful change. We're continuing to see that series somewhere
between three point nine and four point two five million,
(05:08):
with no meaningful shift there. University of Michigan consumer sentiment
came in at fifty two point nine. That's up modestly
from reading a fifty one in the prior month. Five
year inflation expectations dropping from three to four to three
to two in that report, and one year inflation expectations
dropping from four to five to two four to two,
So overall, some modest improvement there, which I think is
(05:31):
good news. Does it mean anything, I'm not sure because
this series has kind of been broken during this business cycle,
much like a lot of different sentiment series, and so
I don't know that it necessarily means anything.
Speaker 3 (05:46):
While we're on the subject of housing, you brought up
the home sales numbers. You want to just kind of
talk about housing in twenty twenty six as we head
towards the end of the year here and what reasonably
people could expect in different parts of the country, because
I had this conversation with Jim Polito this morning, and
you know, I know it's one that's of interest to folks,
(06:07):
especially when we're talking about rate cuts and everything else. So,
as of yesterday, according to Mortgage News Daily, the thirty
year fixed rate mortgage dropped a little bit down to
six point to two percent, which is down from a
recent tie of six and a third. But we are
still well well above what I think a lot of
(06:28):
buyers are hoping for in order to feel like a
home might be affordable.
Speaker 2 (06:33):
Yeah, And I think that when we look at the
picture again, it's it varies based on the different parts
of the country that you might be in. In the
southeastern part of the country kind of through Texas, you're
very likely to see continued affordability improvements over the next
(06:54):
year or so. As prices have been falling in a
number of those markets for the last twelve to eighteen
months to continue. You have some markets now that are
fifteen to twenty percent off their peak pricing that they've
seen and probably have another ten to fifteen percent to
go in order to get to, you know, kind of
where they locally bottom. That probably happens in the next
(07:14):
twelve to twenty four months. For other parts of the country, namely,
you know, the Northeast and the Midwest, inventory still remain
very low and so not buyers markets by any means
right now, but inventory has started to grow. We were
talking with Mike Simonson from Compass on this earlier this week,
and you've started to see some more inventory growth in
(07:34):
those areas. That probably gets you back to normal levels
of inventory three to four years from now. So it's
going to be a process to get there.
Speaker 3 (07:43):
How does he define that, like.
Speaker 2 (07:45):
Twenty seventeen to twenty nineteen levels of inventory.
Speaker 3 (07:48):
And is that reasonably normal given population growth over the time? Right, Like,
I know population growth hasn't been huge over the course
of the last decade, but you know, really we're just
talking about returning to where we were back in twenty seventeen,
and that's still probably not enough properties to feel normal
in today's environment.
Speaker 2 (08:11):
I think it probably is pretty close, just because the
pricing will adjust.
Speaker 4 (08:15):
Ye.
Speaker 2 (08:15):
And this was the point that he made is, Look,
the only way that you can clear that volume of
properties lower prices is if prices come down. Because the
reason you're seeing thirty percent fewer transactions now than twenty
one or twenty two is because that's the maximum number
that can actually be processed, not processed, that can be
completed with prices at this level. There just aren't enough
(08:38):
human beings who can buy property in the United States
at these prices to drive higher volume. It's Mike, if
if I gave you, If if I was running a
grocery store and I said, hey, Mike, just so you know,
I got three hundred dollars milk, and I got ten
(09:00):
bottles of it, do you want one?
Speaker 4 (09:02):
You'd be like laid in gold.
Speaker 2 (09:04):
And so my volume selling those three hundred dollars milk
bottles will be low because most people would be like, no,
not interested. If I dropped it to two hundred, people
still wouldn't be interesting because it's just not enough to
move the needle. But if I drop that price down
to eight cents a bottle, I would sell out the
first day, because like the volume can be supported. It's
the same thing with housing. There are only so many
(09:26):
people that can buy homes that cost five hundred thousand
dollars or more. Those prices need to either fall in
order to get back to affordability, you know, relative to incomes,
or those prices can pause and incomes can catch up
a few percentage points a year.
Speaker 3 (09:43):
Yeah, and this will look pretty calm when you look
at the national average level, would be My guess is,
oh yeah, maybe you see prices fall one to three
percent in twenty twenty six. At the regional level, it's
gonna look thing like that. At the regional level, you're
going to see some areas of the country where it
(10:05):
is a pretty dramatic drop yer over year in pricing,
and others where I mean, heck, I don't know what
prices in Connecticut are gonna do.
Speaker 4 (10:14):
They could go up for all I know.
Speaker 2 (10:15):
Yeah, And so you know, you look at this Bill McBride,
who runs a website called Calculated Risk. He goes through
and he publishes you know a lot of this data
that's out there. It's not like his data, but I
like to give him credit because it's where I find it.
But if you look at what we are seeing again
in terms of you know, how far off the peak
you are in various areas. There are parts of the
(10:37):
country that have seen You look at Austin, Texas, pricing
is down twenty percent from the peak in Austin, Texas.
You try telling anyone in Belmont, Massachusetts that, oh, yeah,
like home prices are down twenty percent from the peak,
They'll be like, h well, they're not. They're up five
(10:58):
percent from the peak, which makes this the peak. Then,
so yes, on a there's going to be a wide
dispersion of how home prices are moving throughout local markets nationally.
But Mike Simonson got to the point and he was like, basically,
next year, you probably have a small period in the
first half of the year where home prices go negative
year over year nationally, and other than that you probably
(11:21):
are like somewhere flat to one percent price price growth nationally.
But parts of the country will see prices falling five
to ten percent, parts will see prices rising five to
ten percent, and everything in between Let's take a quick break.
When we come back, do a second look at the
inflation data from yesterday right after this.
Speaker 1 (11:40):
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(12:01):
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Speaker 5 (12:10):
This segment of the Financial Exchange is powered by circle
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Speaker 2 (12:26):
See yesterday we received CPI data. It was like we
saw with the job support earlier this week, one of
the stranger reports, just because in this case, like you
literally pulled it open a missing It's just like a
bunch of places where there's normally data just have dashes
in them and you're kind of like, Okay, I guess
(12:49):
we're just not going to have that there, and it
creates a big hole in my heart that for like
the rest of time. Now, when I'm looking at these
data series, I'm just going to anything theareh.
Speaker 4 (13:00):
She'll probably get that looked into, Chuck.
Speaker 2 (13:02):
I should, but you know, tis the season. So in
any case, I think that when we look at this report,
a number of economists have pointed out, hey, there are
some things in here about how the BLS calculated that
aren't necessarily wrong. Sure, but present the possibility that subsequent
(13:23):
reports for December, January, February may end up kind of
retracing what we thought were gains that were made on
the inflation fight in November.
Speaker 3 (13:34):
Yeah, And to be clear, what's abnormal about this in
particular is not only the drop in the pace of inflation,
which dropped down to two point seven percent, which is
it's abnormal to see the rate of inflation slow to
that degree. What is also really abnormal is for economists
to get it so wrong, right, Like, if you go
(13:57):
take a look at how many times over the course
of the last few decades economists who look at this
stuff are off by what was the off four tenths
of a percent? Say that again, I think the average
economists polled was talking about three point one percent, Yeah,
and we got two seven. So the number of instances
where the average economists is off by four tenths of
(14:19):
a percent, it's extraordinarily rare. And so there's just a
bunch of things that point to huh, this is an
interesting reading that was done right when the government reopened,
probably with a smaller sample size. Are we going to
get surprised with inflation to the upside once we get
three more months of data, I think is the question
(14:39):
that a lot of people are asking themselves.
Speaker 2 (14:40):
The answer is, it's possible. But the counter to this is,
we have a labor market that the data over the
last three and a half years has shown is slowing. Generally,
when you get a slowing labor market, it typically comes
with slowing inflation. Yes as well. Yeah, so I do
also think it's possible that when we look at, you know,
(15:03):
kind of where inflation you know, is, at this point,
it may have started to turn a corner and improve.
We had seen it, you know, increasing a little bit
over the prior five or six months, but maybe we
are starting to see some improvement in the pace of inflation.
The thing that throws a little bit of a wrench
(15:24):
in the gears there though, is effectively when you look
at what the Bureau of Labor Statistics was putting in
for shelter as a component which remembers shelter makes up
a huge piece of the overall puzzle when it comes
to again the waiting in the CPI. Effectively, basically, you know,
(15:49):
the the BOLS said, yeah, there wasn't any you know,
real measurable you know shift in the rate of you know,
in the cost of shelter during this two month period.
And the problem there is that that doesn't really you know,
match up with what we've seen in recent right, in
recent reports on this, and so that's where economists are saying, yeah,
(16:10):
maybe we end up with some higher shelter readings in December, January,
and February that kick those you know, readings up a
little higher than they would have otherwise been.
Speaker 3 (16:20):
The other thing that I've heard just talked about is
again smaller sample size because the timing of this also
the time in which they took the sample might not
have matched November of last year. Correct, And so if
you're measuring prices at the end of November when retailers
are heavily discounting things because of the holiday shopping season,
then perhaps that also contributes to lower inflation.
Speaker 2 (16:44):
So here's my take on the data from this week,
so specifically on CPI and job support. Job report was
not as good as anyone expected. In particular, some of
the underlying stuff was, you know, meaningfully worse CPI meaningfully
better than people expected. I think I can look at
both of those and say, I'm not sure either one
(17:06):
is really worth the paper it's printed on. I appreciate
the folks at the BLS trying to put something out,
but quite honestly, let's see what the next few months
of data show, because there are enough reasons why each
of these could be skewed, including the fact that the
BLS itself said in a note published on Monday, Hey,
there could be some larger variation than normal in these
(17:27):
reports because of how we collected this and so on
and so forth. And so I kind of look at
these and I say, guys, I appreciate you getting back
to work. Good job, good effort. We'll see you in January.
Speaker 3 (17:39):
I'll also, you know, just put the lid on the
conspiracy theories here for a moment.
Speaker 2 (17:45):
Oh, there's nothing malicious on any of this.
Speaker 3 (17:47):
Yes, one the BLS is an organization of hundreds of economists.
You're not going to be able to manipulate the data
the way you want without people speaking out and resigning.
Speaker 4 (17:58):
Two.
Speaker 3 (17:59):
If you're going to try and make the economy look
better than it is, then you're not going to tell
the American public that the unemployment rate jumped by two
tenths of a percent, No, over two months. It's the
same organization that produces both of these data sets. Yes,
And so if your goal is to say, hey, this
economy's fantastic, then you're not going to disclose a higher
unemployment rate.
Speaker 4 (18:18):
Along with a lower inflation rate.
Speaker 3 (18:20):
So is the data, you know, collection methodology screwed up?
And might we see bounce backs in either direction from
these datas?
Speaker 4 (18:30):
Yeah?
Speaker 3 (18:30):
Quite possibly. And we might look at this in hindsight
and say, you know what, it was a blip on
the radar. It was not intentionally miscategorizing the data. No,
I'm comfortable saying that.
Speaker 2 (18:39):
Yes, I think very much this is a best effort
at what was going on during this period, and we'll
see if it's either confirmed or rejected in subsequent reports
that we get. It's kind of where I tend to land,
So I think overall, I continue to be in the
camp of the labor market is weakening. Generally, when that happens,
(19:04):
inflation is not the biggest threat in the short term,
and so I know the market's not pricing it in
right now, but I'm still of the opinion. Look, if
you cut interest rates the last three FED meetings because
you were concerned about the labor market, I don't know
what would dissuade you from cutting in January. Yeah, I
don't know what would. Let's take a quick break. When
(19:25):
we return, We've got Wall Street Watch, and then let's
talk a little bit more about that labor market.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first here on
the Financial Exchange Radio Network. Time now for Wallstream Watch
a complete look and what's moving market so far today?
Right here on the Financial Exchange Radio Network.
Speaker 5 (20:01):
Market's adding to yesterday's gains and are currently in positive
territory as traders digest existing home sales data for the
month of November, which climbed zero point five percent from
the month prior. Right now, the Dow is up two
thirds of a percent, are three hundred and eleven points,
SMP five hundred up three coreters of percent, fifty two
(20:23):
points higher, NASDAC up nearly one percent or two hundred
and twenty six points. RUSS two thousand also up three
quarters of a percent. Ten Your Treas reeled up two
basis points at four point one three nine percent, and
crude oil up about a half a percent, trading a
fifty six dollars and forty two cents a barrel. FedEx
reported stronger than expected quarterly results, lifted by higher US
(20:47):
package shipments. The company also raised the lower end of
its annual guidance, however, shares pulling back about one percent. Meanwhile,
Nike stock is dropping almost nine percent after the sports
a pair Carl retailer revealed a seventeen percent drop in
China sales for its most recent quarter. Nike's gross margin
(21:07):
also decreased in the quarter as tariffs pushed up product
costs elsewhere. Oracle shares climbing six percent after TikTok parent
company byte Dance agreed to sell its US operations to
a new joint venture that includes Oracle in private equity investors.
Silver Lake home builder KB Homes said it delivered fewer
(21:28):
homes in profit in the previous quarter, weighed by a
stagnant houser, weighed down by a stagnant housing market.
Speaker 2 (21:36):
That stock is.
Speaker 5 (21:38):
Down seven percent. Let me just double check that I
put seven percent. I didn't put a direction silly Goose. Yeah,
down seven percent And Sony will pay more than four
hundred and fifty million dollars to double its steak in
Peanuts Holdings, owner of cartoon Ikon, Snoopy and Charlie Brown,
increasing its ownership to eighty percent. The family of Peanuts
(21:58):
creator Charles N. M. Schaltz will continue to own their
remaining twenty percent steak. I'm Tucker Silva and that is
Wall Street Watching. If you missed any of our shows
this week, you can find them on our YouTube page.
We stream the show live every day, but also archive
every hour and all of our most newsworthy interviews. Just
go to YouTube, search the Financial Exchange and hit that
(22:22):
subscribe button.
Speaker 2 (22:24):
We've been talking a little bit about the labor market,
and we've got two pieces in the stack today, one
from the Wall Street Journal jobs could soon replace prices
as focus of anxiety, and another one from Bloomberg. Americans
facing tough job market in twenty twenty five won't get
a break next year.
Speaker 3 (22:40):
So, Chuck, you made the case that yesterday on yesterday's show,
that we've reached peak anxiety when it comes to affordability.
Speaker 4 (22:47):
Yes, and these articles would certainly support.
Speaker 3 (22:50):
That, because if they listen to our show, if people
start losing their jobs, then they will not be focusing
on grocery prices anymore.
Speaker 4 (22:57):
Yeah.
Speaker 2 (22:57):
And this was the point that I think I was
getting out, which is, let's think about this from the
mechanics of why hiring or firing takes place. So let's
say that I am running Chuck's amusement park.
Speaker 4 (23:12):
You're not sticking with the grocery store.
Speaker 2 (23:13):
Huh No, there's a tough business for me. I got
out of it. It wasn't good. I sold to Tucker.
So Kenny opened an amusement park. Yes, I wanted to
ride the roller coasters.
Speaker 3 (23:24):
I'm just going to keep interrupting today. Did you see
that Romania is building a Dracula theme park?
Speaker 2 (23:30):
Sounds great.
Speaker 4 (23:30):
I'm excited about it. Yeah, sorry, thanks.
Speaker 2 (23:32):
For bringing that up. That's where Transylvania actually is spending
like a billion dollars on it.
Speaker 4 (23:36):
I'm excited.
Speaker 3 (23:37):
Cool man, I'm going We're going to do a remote
from there, Tucker, and you can't stop us. Yeah, okay,
we're even going to learn a little bit of Romanian,
which I think they speak Romanian in Romania. Yes, okay,
in any case, amusement park. So I opened this amusement
park and I'm all excited about it. And the first day,
(23:58):
thousands of people come in and I have all of
these people coming, and I can't sell enough cotton candy.
I can't flip enough burgers, and I'm like Dolly g Wilkers,
i gotta hire some help. So I go and I
hire some help, and I keep having thousands of people
coming a day, and so like my help is really
paying off.
Speaker 2 (24:14):
Like they're making money. I'm making money. It's it's a
great world. But all of a sudden, you know, for
some reason, hey, we had like an E Coli scare
at the lettuce wrap station, and so you know what,
our our ridership or our our entrance got cut in half.
(24:35):
And so I'm sitting there and I'm going, gee, I'm
I'm I'm hemorrhaging money.
Speaker 4 (24:39):
Now.
Speaker 2 (24:39):
My sales have gone down. I got my burger flippers
just standing around. They're not flipping anything. My guy's pressing
the button to start the coasters aren't doing anything. What
do I do? I gotta lay some of you off.
And this is what we mean when we say that
sales leads hiring, because the reason that you hire people
is because you have more sales than you can handle
(25:00):
with your current staff. The reason you fire people is
because you don't have enough work for them to do
when you want to maintain margins and not go out
of business. So when we look at the driver of this,
consumer demand is a huge driver. In the United States,
we are a consumer spending based economy.
Speaker 3 (25:16):
Seventy percent of our economy historically driven by that consumer correct.
Speaker 2 (25:21):
And so when I see things like year over year
tax withholding growth slowing from the mid seven percent range
to the high three percent range over the last five
or six months, I say, gee, that means there's less
income growth, which means potentially less spending growth. Now, one
of the things we have talked about this year is
demographically US is getting older. And so if you are
(25:44):
someone who's listening and you happen to be seventy years old,
it's a pretty good chance you're not working and your
income is coming from a combination of social security, pension,
and portfolio. Yep, and so yes, like your tax withholding
for FIKA doesn't change because you don't pay to FAIKA.
So if there are more people that are, you know,
kind of out of that system and that are receiving
(26:07):
their spending power from fixed sources or portfolio, that could
potentially offset weakness and wages. But I still realize that
there are one hundred and sixty million people in the
United States that work, and if their aggregate wage growth
is slowing, it represents a potential threat to sales, which
represents a potential threat to hiring.
Speaker 4 (26:26):
Yeah.
Speaker 3 (26:26):
You know, we've been focused a lot on inflation and
prices over the course of the last three to four
years for very obvious reasons. So we've sucked, and we've
made the case over and over again that while inflation
is the least popular of these things, unemployment is the
far more damaging one. Right if I to a certain extent, right,
(26:47):
we did this exercise where where would you rather see
a two percent uptick prices are unemployment? And my answer
was uniformly, I would prefer to, unfortunately see it on
the price side rather than the employment inside.
Speaker 2 (27:00):
I don't remember what I said.
Speaker 3 (27:02):
I think we I think we found some threshold where
we were like, all right, at a five percent increase,
the price problem might be the bigger problem. But when
you talk about these smaller increases, the problem with the
employment uptick is that it does not affect every single individual,
but those that it does affect it devastates.
Speaker 2 (27:21):
And uh, that's.
Speaker 3 (27:24):
Again, we are seeing these signs that we saw last
year too of a weakening labor market. One that we
haven't brought up in a wild chuck the Psalm rule,
which is no longer a rule because it.
Speaker 4 (27:35):
Broke last year.
Speaker 2 (27:36):
We had a false positive last year for the first
time ever.
Speaker 3 (27:39):
So the Psalm rule, if you're not familiar, it's a
measurement of the increase in the unemployment rate. And what
it found, going back historically since the data existed, was
that once the unemployment rate ticked up by more than
a half a percent of three month average, they do
a fancy average way of doing this here every single
(27:59):
time it coincided with a recession. And so that happened
back in August of twenty twenty four, and then we
all sat there waiting and the recession didn't come we
are now back in that same territory. We're sitting as
of the November reading at point four to three.
Speaker 4 (28:16):
But it's rule.
Speaker 2 (28:17):
But here's the thing. It's complicated because there is no
October unemployment rate correct, So what three months do we
actually use is now a question.
Speaker 3 (28:27):
But to put it plainly, unemployment back in January this
year was four one. It's now four to six. So
if you see a continuation there, you get to the
breaking of the Psalm rule again. Doesn't mean we're gonna
get a recession, no, But man, the more you see
these upticks and put away the whole sam rule thing,
Unemployment historically, once it starts rising, doesn't just pause and
(28:51):
plateau and move on aside from last year. Aside from
last year.
Speaker 2 (28:57):
Yeah, and the other piece, I'm just.
Speaker 4 (28:58):
Not personally willing to test that theory over and over again.
Speaker 2 (29:01):
The other piece just at a more micro level. Historically,
biggest driver of us, you know, marginal demand. Housing. There's
a reason why they say that housing leads the business cycle.
And if I am a builder, so now I've gone from.
Speaker 5 (29:16):
There are a lot of things today.
Speaker 2 (29:17):
Yeah, the first theme park. I am a renaissance man.
I do a little dabbling in everything here.
Speaker 4 (29:26):
Wow.
Speaker 2 (29:26):
So now I run I run a general contractor. Indeed,
and I built twenty homes this year, right, and I
sold them in an average of five hundred thousand dollars
with fifty thousand dollars profit on each one. It's a
million dollars in profit now. But now the problem is
the place where I'm selling my homes. It's in Florida,
and prices are falling. Still. They fell another ten percent,
(29:48):
let's say next year, from where they are. So now
I'm sitting there and I'm going gee, in order for
me to sell these homes, remember I'm not just competing
with other new homes, I'm competing with the existing housing stock.
Speaker 4 (29:57):
I think you mean golly g Whillakers, golly g.
Speaker 2 (29:59):
Will And So now if I want to compete on price,
I've got to say, Okay, I got to sell these
twenty homes at four hundred and fifty thousand. Well, gee,
that's what I it cost me to build them. I'm
gonna make no profit doing that. So instead what I
do is I say, look, I know I can't sell
twenty homes at five hundred K, but I can still
(30:20):
do ten at five hundred k. But I don't need
as many of my subs working as much. And when
those subs get the orders coming in from me saying, hey,
we've got you know, ten plumbing systems to install instead
of twenty this year, and ten electrical systems instead of twenty,
then my sub say, Steve, Bill, don't come in today.
(30:42):
We don't have the work for you.
Speaker 4 (30:43):
Yep.
Speaker 2 (30:44):
And that's the other risk to employment next year is
where you have falling prices coming in the southeast, Southwest,
and west guys. That's that's where the construction happens. It's
it ain't happening in Arlington. I mean it is, but
like not as much. It's not happening in you know,
(31:04):
bangor Maine. It's not happening in.
Speaker 4 (31:08):
Westport, Connecticut.
Speaker 2 (31:09):
Correct, like that A big development in Massachusetts, Like, hey,
we built two hundred units. A big one in Florida
is we built twenty thousand. Yeah, that's where the problem is.
Let's take a quick break when we return, enough about
what's going on in the United States. When we come back,
we're going to Japan.
Speaker 1 (31:29):
Find daily interviews and full shows of the Financial Exchange
on our YouTube page. Subscribe to our page and get
caught up on anything and everything you might have missed.
This is the Financial Exchange Radio Network. This is your
home for the most comprehensive coverage of the economy and
the trends on Wall Street. This is the Financial Exchange
(31:50):
Radio Network.
Speaker 2 (32:07):
All right, Having discussed the US economy for the last
forty five minutes or so, we now turned to Japan
and the Bank of Japan raised interest rates to zero
point seventy five percent. Was a quarter percent hike for
the Bank of Japan. This puts interest rates at the
highest they've been there since nineteen ninety five.
Speaker 4 (32:28):
That is a long time ago.
Speaker 2 (32:30):
Yes, So in any case, there's a piece in the
Wall Street Journal the Bank of Japan raised rates. Here's
why you should care, and ultimately, look, there are two
reasons why you could potentially care what the Bank of
Japan does. The first is rising interest rates in any
major economy can potentially push up interest rates in other
(32:54):
major economies, just because of international investors who may be
seeking out arbitrage options and trying to figure out the
best place to park their money.
Speaker 3 (33:04):
Putting it plainly, if Rana get paid for owning a
government's debt, if other governments start offering more interest, you
might go there. You might go there instead of to
the United States. Current United States needs you because we
are not great at managing our finances.
Speaker 2 (33:20):
To be fair, no one's great at managing nor is Japan.
Speaker 4 (33:23):
No.
Speaker 2 (33:24):
You know the list of countries that are really good
at managing their finances, it's pretty slim. It's a pretty
small list. But so this is one of the reasons
why it matters. The other reason why it matters to
the US is because of the potential impact on equity markets,
because Japanese investors one of the things that they love
to do is they say, okay, we've had, since you know,
(33:45):
the mid two thousands a currency that's been depreciating against
the US dollar. This is Japan. I'm now a Japanese
hedge fund manager. So the Japanese yen has been depreciating
against the US dollar for the better part of the
last fifteen years. Well, I know what, Mike, as a
as a person in Japan, Can I eat dollars noware?
(34:07):
I can't? But what I can do is I can
I can use yen to go and buy food, and
so if I can take my yen convert them over
to dollars, go earn a higher rate of return in dollars,
and then pay myself back with an exchange rate that
has depreciated. I'm coming out with more yen, which means
I can feed myself more good. The wrinkle in this
(34:29):
is if Japanese investors start saying, and this is again
kind of the extension of what we talked about, Hey,
I can earn more in Japan than having to do
that big currency conversion, bring it over and then bring
it back and do this whole thing with a bunch
of you know, currency swaps and everything. Does it impact
flows into US risk asset markets like equities in real
(34:50):
estate as well, not just bonds. And we saw this,
by the way with Jen mcgeddon last year in late
July early August, where basically the yen dollar exchange blew out.
You saw the Vicks go up to sixty in one day,
and everyone's sitting there like, what the heck happened?
Speaker 4 (35:07):
What is the carry trade?
Speaker 3 (35:09):
Yeah, which probably makes Harry why not that likely to
happen again in steach sht time, the.
Speaker 2 (35:13):
Same thing usually doesn't cause problems in short order that way.
But these are reasons why in theory you might want
to care what the Bank of Japan does, even though
most of the time it's not really worth it for
the average person to pay attention to.
Speaker 5 (35:26):
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Speaker 3 (36:34):
Yesterday we were talking on the show about ghost jobs,
and specifically what we're talking about here is job listings
on job boards that companies have really no intention of
actually hiring for, but just like collecting resumes and lazy,
don't take the postings down. A couple comments we got
from listeners that can lead to a person applying to
multiple places never hearing back. That can cause the serious
(36:55):
financial strain, especially if they were laid off or fired
and need to find a job fast. I know several
people who are put in that situation wound up just
about underwater. One of our proposals was, hey, job boards,
like fix this so that the employer at least you
can see the last time they were active on the
job post or interviewed somebody and somebody else exiting. Yeah,
employers will get around that. They'll just touch the job
(37:16):
posting to make it look more active. And you're absolutely right,
which is still where I've come to that there is
no good fixed to this problem.
Speaker 4 (37:25):
Right. There are minor things that you can do to
make it slightly better. But if you.
Speaker 3 (37:29):
Genuinely want employers to not put fake postings up, then
the economic solution would be to raise the cost of posting,
have a tax on job postings.
Speaker 2 (37:40):
Does anyone want that?
Speaker 4 (37:41):
Which is a terrible idea.
Speaker 3 (37:43):
Again, the reasons the terrible idea is because then there's
a tax on job postings, company posts fewer jobs and
hire fewer people.
Speaker 2 (37:48):
So or post fewer jobs but engage in more network
based hiring, which means that, hey, if you don't know
the right people and you're not getting your job, like
it makes that network even more important.
Speaker 3 (37:59):
Though there is no good solution here, I don't think
government intervention is the right one, and I have just
come to accept the suck when it comes to job postings.
Speaker 2 (38:07):
What if ope just gave everyone a job? Oh oprah, Yeah,
you get a job, and you get a job, and
you get a job.
Speaker 4 (38:16):
I don't know it's a solution.
Speaker 2 (38:18):
If we do that a few million times, we'll get there.
Let's take a quick break when we return hour two
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