January 8, 2026 • 38 mins
Mike Armstrong and Marc Fandetti discuss the recent jobs data releases and how it impacts the broader economy. New data points to a 'slow' job market in Massachusetts. Why Trump's proposal to ban corporations from buying single-family houses and why it won't solve anything. Trump says he will not permit dividends and stock buybacks for defense companies. Goldman sees consumer stocks gaining amid AI valuation worries.
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Speaker 1 (00:00):
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(01:06):
Armstrong and Mark Vandetti.
Speaker 2 (01:10):
Good morning, Happy Thursday, Welcome back to the Financial Exchange.
It is a jobs week here on the Financial Exchange.
Even though that that headline got a bit disrupted this
week from other news that has been making headlines. I'm
not even only talking about Venezuela, because we've got a
bunch of juicy bits from the President yesterday on all
sorts of different areas of the economy, from housing to
(01:32):
to the functioning of the stock market, so we'll be
diving in there. We got the Jolt report yesterday, initial
jobless claims this morning, and we will have a full
on monthly jobs report tomorrow morning. All this with the
backdrop of a labor market that has undoubtedly been weakening
over the last several years, and been showing that throughout
the course of the last several Really, at any data
(01:55):
point you look at, whether it's the unemployment rate, the
pace of job hiring. The only one that really hasn't
consistently flashed warning signs would be the pace of layoffs.
But that oftentimes doesn't. It oftentimes shows up when you're
in a truly.
Speaker 3 (02:09):
Bad uh, you know, and rapping all claims. Yeah, first
time claims for un employment, which you.
Speaker 4 (02:14):
Have been quite low and suggestive of a strong labor market.
Speaker 3 (02:18):
Correct.
Speaker 4 (02:19):
Yeah, so sorry you said that, But that's that's the
real puzzle because of their frequency and their superiority according
to some as a as a forecast.
Speaker 2 (02:28):
Yeah, they are more rapid in terms of when they
come out, and so that that does give you some
more up to date information. But I think if you
take it in the context of what we saw and
what we ended up defining last year when people were
losing their minds over the sum rule recession indicator and
and all these factors, if we take it in the
(02:48):
context of a labor market that, rather than in free fall,
is one that has been normalizing after in exceptionally tight
period of time during twenty twenty one, twenty twenty two,
and most of twenty twenty three, then maybe this is
actually normal for jobless claims and we're still during that
normal still seeing that normalization period. I would love that
(03:10):
answer because it means that we might not be heading
for a recession. It's also pretty abnormal for that to happen.
Speaker 4 (03:15):
Well, there's evidence for that. GDP growth was quite strong
in the second and quite strong as an understatement. It
was unnaturally strong in the second and third quarter. The
JILT report that you refer to that we get data
on yesterday, the ratio of vacancies to people available to
fill those vacancies has come down from about two to
(03:37):
about one. So it's come down by fifty percent. But
in historical terms, Mike, because you know, it's still quite
i'll say robust, it's much higher than it was in
the mid twenty tens, about as high as it was
in the late twenty tens. We got productivity data this
morning that suggests that productivity exploded in the third quarter
(03:59):
roughly five percent annualized rate. Last time we saw that
was a couple of years ago, so it's not unprecedented,
but it's suggestive of a vigorous economy. Trade deficit is falling.
That's a slightly different matter that maybe we'll talk about later.
Speaker 2 (04:16):
So let's talk about the job data that we've gotten
so far and kind of jump in here.
Speaker 3 (04:21):
I just saw a headline flash against a long.
Speaker 2 (04:23):
Bloomberg that futures are falling after a worse than expected
weekly jobless claims report. I don't see anything worse than
expected here. Initial claims did increase slightly by eight thousand.
They came in a two hundred and eight thousand for
the week ending January third. Previous level was revised up
slightly from one hundred and ninety nine to two thousand.
Speaker 3 (04:42):
This is a.
Speaker 2 (04:43):
Very low and slow pace of jobless claims. Just to
be set the context here, this is the lowest level
for this average that we've seen for the last four
weeks since April of twenty twenty four. So this is
a non concerning report.
Speaker 1 (04:59):
I mean to look, I'm not.
Speaker 4 (05:00):
Saying the economy isn't slowing. And another headline is flashing Moran,
the president's puppet on the FED Board of Governors, wants
one hundred and fifty one point five percentage point cut
in the federal funds rate.
Speaker 3 (05:13):
Which is cursively this year triple what markets are using.
Speaker 4 (05:17):
So he's to call it out like. Look, he again
is the president's tody on the FED Board. You could
say you like that or you don't. You could say
you want the president to control monetary policy or you don't.
That's a slightly different matter, but he's an outlier. There's
nothing to suggest the economy needs effectively emergency support from
the Federal reserve right now, especially considering that inflation, though
(05:37):
it has come down a lot in the past couple
of years, remains elevated relative to the Fed goal.
Speaker 3 (05:41):
So the weekly job is claims number no concerns there.
Speaker 2 (05:44):
Layoffs do not appear to be happening in Massa in
spite of challenger grand Christmas predictions all from last year,
of all the announced layoffs hitting the highest levels in years,
we just haven't seen it in the real data. So
I'm going to dismiss that one jolt support out yesterday.
Weakest pace of job openings in fourteen months, I believe it.
Speaker 3 (06:05):
It's a level is.
Speaker 4 (06:06):
We don't really look at that level level. I know
you know that, but yeah, but it's still nearly one
for one. That is the number of vacancies to the
number of unemployed people, which pre COVID would have been
considered indicative of strength.
Speaker 2 (06:21):
So I think on the side of job as claims,
no trend for an indication of layoffs. On the side
of job openings, some indication of a weakening over the
last fourteen months.
Speaker 4 (06:34):
But relative, like your relative, I like your term normalization, Mike.
The labor market was feverishly hot under COVID and that
pushed up helped to push up inflation.
Speaker 2 (06:44):
Final data point we will be getting on the labor
market is tomorrow, So tomorrow we'll be getting that jobs report,
the all important Jobs report. Two surveys that get put
together will tell us information about how many people are
looking for work, what is the unemployment rate. They're going
to be doing a household or they've already conducted a
household of surveys, a separate household sorry, a separate survey
(07:05):
of households, and then a separate survey of businesses to
get us a combination of how many companies hired people
in the aggregate, how many people were hired in the
month of December, and combine that with how many people
were looking for work, how many people had jobs, give
us that unemployment rate that likes to get focused on
quite a bit, and the FED is quite focused on
(07:28):
expectations that I am seeing median forecast for jobs created
to come in at seventy three thousand for the month
of December, pretty low number compared to where we've been
for the last several years. I think, you know, if
you look at a chart of this, we probably averaged
what three to four hundred thousand back in twenty twenty three,
one hundred and fifty to two hundred thousand and twenty four,
(07:49):
and then you know below one hundred thousand for twenty
twenty five, So clearly a trend line that you can
draw there, and the unemployment rate expected to come at
four and a half percent, coming down slightly actually from
four point six percent of the previous month. Anything else
to say about expectations for tomorrow's jobs report. I think
the context of all of this is it's some of
(08:10):
the first normal reports that we should be getting following
the government shutdown. And while there might be some small
lingering effects of that government shutdown in these reports, generally speaking,
we're getting a normalization.
Speaker 4 (08:21):
I'd say, don't get too bogged down in the details.
The critical thing it depends on what you're using this
data for. If you're just trying to forecast unemployment because
that's your job, and there are some economists who just
do that for big banks, etc. Then you are very
concerned with every tenth of a percentage point. The bigger
picture here is that unemployment in the fours or fives,
(08:43):
assuming it's not going up or down dramatically, is historically speaking,
I was gonna say, good, it's never good that anybody
who wants work can't find it, But that's indicative of
a strongly Anything in the fours or fives would be
consistent with a strong labor market.
Speaker 3 (08:59):
Yeah, and I think that's some context.
Speaker 2 (09:01):
I was spaking with somebody this morning who you know,
was talking to their daughter and their friends are all
struggling to find jobs in their area. And we hear
this repeated a lot that younger Americans right now, especially
in the white collar workforce, are struggling to find work.
AI is getting blamed, But honestly, I really look at
this and think that that is much more indicative of
(09:24):
just what we are experiencing, which is the pace of
change matters. We came off of an extraordinarily tight labor
market a few years ago. It has now loosened. It's
loosened to a point that historically is pretty normal, but
compared to where we were a few years ago, that
is pretty abnormal, and people are feeling the effects.
Speaker 4 (09:44):
Yes, we might have to get used to unemployments being
it may settle down somewhere in the in the fives.
If there is indeed a productivity revolution, propelled by AI underway,
we'll need fewer people to do stuff as the economy
is currently organized, re organize around different goods and services,
and jobs will shift, but that transition could be disruptive.
(10:07):
That sounds like a very cold way of saying that
people may not find jobs as quickly as they'd like.
It sounds callous, but that's just kind of the reality.
And this morning's productivity numbers are supportive. I'm not sure
I buy it, but they're supportive of that idea.
Speaker 3 (10:22):
Let's take a quick break.
Speaker 2 (10:23):
When we come back, a little bit more on the
state of the labor market, minimum wage changes, and then
I want to get over to the housing market after that.
Speaker 3 (10:29):
Next on the Financial Exchange.
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Speaker 2 (11:35):
I always find it interesting, but we are broadcasting right
now from Massachusetts, which has a slightly higher than average
unemployment rate. The average unemployment rate across the country in
November was four point six percent. I'm counting one, two, three, four, five, six, seven,
eight nine ten states sorry, ten states including the District
of Columbia that are over that rate. Massachusetts very slightly
(11:59):
higher at four point seven percent, along with Alaska, Kentucky,
Delaware in at four nine, Michigan and at five, Nevada
at five two, Oregon at five to two, New Jersey
at five four, California at five five, and d c
Up at six point five percent.
Speaker 3 (12:15):
I frankly, you know I talked about at the beginning
of last year.
Speaker 2 (12:18):
How M, some of the policies from the Trump administration
surrounding grants for higher education as well as medical research
out of those universities could hit the Massachusetts economy a
little bit harder than others. I don't know that this
evidence really supports that, right. If we're seeing an unemployment
rate that's one tenth of a percent higher than the
(12:40):
national average, I don't know that it does anything to.
Speaker 4 (12:42):
Do a year you have, Sorry, I don't have the data.
Where was it.
Speaker 3 (12:45):
The pace of change for the Massachusetts unemployment rate has a.
Speaker 4 (12:49):
Change greater, a lot faster, So maybe hard to tease
out other factors though, like you said.
Speaker 3 (12:55):
Yeah, it tends to be.
Speaker 2 (12:57):
But I think you know, when we talk about, hey,
how are you feeling about the state of the economy,
this between gas prices and in the unemployment rate in
your area, those two factors play a big role in
how you're thinking about things. For instance, in Hawaii, South
and North Dakota you've got unemployment rate under three percent.
I'm guessing it feels like a pretty darn good labor
market there, whereas if you're in California you're looking at
(13:19):
something at five and a half percent. It is a
very different situation depending on where you're looking at.
Speaker 4 (13:24):
Yeah, I don't know. It depends Like you said, it
depends on what's typical, And I said tease out and
meant to say control for other factors, like there might
be some weather related event or some industry specific, non
government policy related shock that hits Massachusetts or California especially hard.
California might have a structurally higher unemployment rate because their
(13:44):
benefits are more generous. Europe has a structurally high unemployment rate,
maybe partly for that reason. So I don't know what
the baseline should be like. Is California's unemployment rate of
five point five percent? Is that intolerably high? Policymakers be
doing something or is there something about the structure of
their economy.
Speaker 3 (14:03):
That makes that normal that results.
Speaker 4 (14:05):
In unemployment settling on somewhere.
Speaker 3 (14:07):
Like a twenty dollars fast food minimum wage, for.
Speaker 4 (14:10):
Instance, Something like yeah, we're going to talk about the
minimum wage. Probably doesn't help on him. It may not
hurt employment, the jury will probably always be out on that,
but it almost certainly doesn't help unemployment if your goal
is to get it down.
Speaker 2 (14:23):
So frequently we'll cover policies that get rolled out state
by state level that we find ludicrous and bad for
the economy, and California's fast food minimum wage is one
of them that we've loved to criticize over the last
several years.
Speaker 3 (14:35):
President Trump proposed.
Speaker 2 (14:36):
A new variable in the housing market yesterday, and I'm
going to try and control Mark here, because markets, especially,
I think upset about these types of policies. I'm a fanatic,
especially when they come from Republicans, I.
Speaker 4 (14:51):
Think because I expect more from them. President history, I've
given up on them, but I used to expect more
from Republicans.
Speaker 2 (14:56):
Precise Mark, I think holds Republicans in particular to a
very high bar when it comes to.
Speaker 4 (15:02):
Because I used to give them money because they were
a free market party. Now I want it back.
Speaker 3 (15:07):
Yeah.
Speaker 2 (15:07):
So the President proposed yesterday the idea of preventing large
institutional institutional buyers from being able to purchase single family residences. Okay,
let's just take that policy on its face. It is
not a new idea. It has been floated among many
(15:29):
circles and many politicians for.
Speaker 3 (15:30):
Years, although primarily from pretty far left leaning politicians.
Speaker 2 (15:34):
I've heard this echoed from Bernie Sanders and Elizabeth Warren
for years now, and it is being proposed by the
President at this point in time, which again maybe not
surprising given the populace push within.
Speaker 3 (15:48):
The Republican Party right now. I don't really want to
get into the politics. That's fair but not surprising.
Speaker 2 (15:52):
I don't think let's talk about the merits of the conversation, though,
because that's where I want to go to, because it's
a pretty clear line that I think is trying to
be drawn here on the factors that affect prices, which is,
if you want to bring prices down, generally speaking, you
can find a way to lower demand or you can
(16:12):
increase supply. Is that the I mean, the basic fundamental
of where you get prices supply any market. And the
idea here is, well, this is a pretty easy way,
a pretty populist way to hit at demand.
Speaker 3 (16:27):
So why do you view this as.
Speaker 4 (16:30):
I know, why would you use I mean, my first
reaction was that's probably anyone who's ever looked at institutional activity.
Institutional activity means Goldman, Sachs and Blackstone and others buying
single family homes. Let me say, first of all, I'm
uncomfortable with the idea because we bail these institutions out
every time there's a market downturn, and we're bailing them
out with FED policy every day. So we coddle these institutions,
(16:53):
then we allow them to buy up single family homes.
Ideally they'd fail, like a bunch of them would have
gone out of business in two and eight. You can
tell I'm still indignant about the Great Recession in the
way we coddled big banks. Now they get to go
in and buy up single family homes. Now, on the margin,
they're probably not pushing up prices. Nobody's ever found evidence
of that, but.
Speaker 2 (17:12):
It's estimated that they own about half a percent of
the TNS single family But you know.
Speaker 4 (17:19):
The techniques used to tease out the effects of one
class of buyers versus another aren't perfect, So I find
it hard to believe that on the margin in some
markets they might not be putting a floor under prices
or buying them up. What I want to say, like is,
during the next financial crisis, I want all these institutions
to fail. I don't want to freak and bail them
(17:40):
out again. And I want all these houses to come
on the market and sell for pennies on the dollar
that would make me feel better. That is a first
best solution would be just let the market work, not
start to pick and choose who gets to buy houses
who doesn't. Then who we're going to bail out during
the next crisis, which they brought on in the first place.
It's one damn intervation. And forgive me for using the
(18:02):
radio version of vulgarity during my little diet tribeer, but
one intervention begets another. And if I sound like Rand Paul,
it's because I'm trying to He's absolutely right with respect
to this stuff. Government's just got to stop futzing with
things because it just creates more problems for government to
step in and solve.
Speaker 2 (18:20):
So one, I go back to my same thesis. Americans
don't want cheaper houses because if you make houses cheaper,
it means that the value of your current home goes down.
Speaker 3 (18:34):
I want that, though, because.
Speaker 2 (18:36):
I want to sell my home someday my kids.
Speaker 3 (18:39):
To have a more valuable home. Like we see this
in the way people vote over and over again.
Speaker 4 (18:44):
Some of us who plan on staying in our homes
for a while don't care about the value, not certainly,
not today. I want some appreciation ideally I'd like to
recoup some of my I don't want to. Yeah, well,
the word investment was on the tip of my tongue,
but I'm not sure I think about my house that way.
I think about it as a source of income. I'm
paying myself rent.
Speaker 1 (19:03):
Go ahead.
Speaker 2 (19:03):
Suffice to say, I don't think we did this story
justice yet. I think we have to come back to it.
But we're hard up against a break. We're gonna take
a quick break. Wall Street Watch is coming up next
that I want to continue to debate this topic of
should large corporations be able to buy single family homes?
Is there some merit to what the president is talking
(19:24):
about and what would be the effects on the housing market.
That's next on the Financial Exchange.
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Speaker 5 (19:59):
After yesterday's pullback, Marc is today are mixed as traders
digest jobless claims data and ready for tomorrow's all important
jobs report for the month of December. Right now, the
Dow is up three tenths of a percent, or one
hundred and forty three points. SMP five hundred is now
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(20:20):
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(20:41):
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(21:04):
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(21:24):
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(21:46):
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Speaker 2 (21:54):
So back to the housing market for a moment again. Yesterday,
the President floated the idea of banning law our institutional
buyers from owning single family or I don't know if
it's owning or buying single family homes.
Speaker 3 (22:06):
I think it might have been buying single family homes
to diest.
Speaker 2 (22:11):
I would think not that'd be an extreme that'd be
an extreme.
Speaker 3 (22:14):
Measure, although that would be interesting.
Speaker 2 (22:18):
You have until December thirty, first of this year to
divest of all of your single Yeah, that that'd be
pretty messy. So in the aggregate, this is a a
government cost free method of reducing demand in the housing market. Right.
It doesn't cost the government to anything to say hey,
(22:38):
if you are a corporation with more than X number
of dollars or employees or however they determine large corporate buyer,
to say you can't do this anymore. So I'm guessing
it appeals from that perspective. It certainly appeals from a
populist area where Okay, if I'm you know, if I'm
trying to buy a home and I lose out to Blackstone,
I probably don't feel all that good, and so I
(23:01):
might be in favor of this. I don't know what
it does to home builder sentiment, but it can't be
anything good.
Speaker 1 (23:07):
Right.
Speaker 2 (23:08):
We've seen the likes of lenaar and other big home
builders as of late saying hey, we are really pulling
back on home building because we just do not see
any good scenarios for pricing. If you immediately eliminate one
of the large buyers of homes, then that's not going
to help with sentiments. You might have a slower pace
of home building. So I'm not convinced that this method
(23:31):
immediately brings down home prices. I would be very hesitant
to believe that that's the case. The other thing I'm
just wondering about is I wonder how big of a
role these corporate institutional buyers of homes actually played in
times like twenty ten. Because that's what immediately came to
mind for me, is I know Plenty has been criticized
(23:53):
by what was the firm that Manuchin led back during
the Great Financial Crisis was buying up properties like crazy on,
you know, for pennies on the dollar.
Speaker 3 (24:04):
I don't recall, but I don't remember.
Speaker 2 (24:06):
It certainly led to some stability back in the twenty
tens of Hey, here is a buyer that actually has
cash to go out and buy homes, whereas the overall
market was a free fall. And so I do just wonder, Hey,
by removing a potential buyer of homes, do you create
more I guess, more volatility and more downward pressure? Is
(24:27):
it a less liquid market? And I think the answer
would be would have to be yes. If you're removing
a potential buyer, you were creating a less liquid market.
Speaker 3 (24:34):
For homes. Do I think it's the worst idea in housing?
Speaker 2 (24:38):
No, I guess I think this is less bad than say,
the government subsidizing the cost for mortgages, or you know
something else that's been floated around there, artificially bringing down
interest rates for buyers for a period of time. I
think this is less responsible or less irresponsible than that idea.
But we keep going back to housing affordability and what
(25:00):
are the problems? And the problems are that we don't
build enough homes for the number of people that want
to own them, and so I go back to this
over and over. We need less regulation in housing, not more.
This is more regulation in housing. I don't think it
fixes any of the problems that we're experiencing. I don't
think it leads to more home construction, which is what
we ultimately need. And if you want to make homes
(25:22):
more affordable, then the method is create the conditions for
a freer market where builders want to build more homes.
Speaker 4 (25:31):
Yeah. I mean, I'm looking frantically here for recent some data,
just academic quality, you know, peer reviewed studies on the
impact of institutional buyers, and the results are as they
often are with statistical analyzes ambiguous. It's not even clear
what your best guess would be, what your best guess
(25:52):
should be if you were told a large potential buyer
will be removed from the market, because you can't just
Pauline and I were talking about this yesterday. When you're
analyzing the effects of any policy or the action of
any one participant in a market, you can't just look
at that in isolation, because other things are changing too.
If we did remove institutional buyers from the market, it's
(26:13):
possible others I don't know, sovereign wealth funds would step in,
or some difficult to anticipate change in the way other
participants in the market behave would take place. So it's
very hard to say x Anti beforehand how things will
turn out. So I don't really know, Mike, I mean
the free market Iatola in me says, stop messing with
(26:39):
the decisions of individuals, whether that be corporations or people
like us, and just let markets work. If you think
houses are unaffordable, then make it easier for people to
afford everything by say, shifting the tax burden from income
to consumption or something. Now that would push up the
prices of some goods, So maybe that's in perfect solution,
(27:01):
so that the economic prediction, what prediction you should make
if you're using an economic framework here is just not
clear to me, nor is it clear to some of
the research that I'm again frantically standing here no, because
I mean, this is added but you're a you're adding
rental supply by letting institutional investors buy. They're adding rental supply,
so it helps renters.
Speaker 2 (27:22):
But my point would be blocking the institutional buyers to me,
is additional regulatory burden in a housing market that all
arguably already has too much.
Speaker 4 (27:30):
And also, how do you do that legally? How do
you tell one class of buyers you can participate in
this market, but another class of buyers who happen to
be corporations, which under the law have are afforded the
same privilegeous protections, et cetera. Right corporations, whether we like
it or not, do possess the same economic rights as people.
You can't stop them from going. So how exactly what
(27:52):
are you gonna And doesn't Congress the president can't.
Speaker 3 (27:54):
I know, the Congress would have to do. Maybe maybe
you like the.
Speaker 4 (27:56):
Way the president rules, like Henry the eighth, Maybe you don't,
but I mean, we're not a medieval monarchy here. You're
going to have to get the people's proxies i e.
Speaker 2 (28:06):
Congress peoples, which, by the way, would be so fascinating
because again, the biggest supporters of the policy like this
have been the likes of Bernie Sanders and others of
that economic mindset, and so the voting block on something
like this, to me would be absolutely fascinating. I personally
don't think it goes anywhere, but it is very much
(28:26):
a populist economic proposal, and frankly, I just don't think
if you're going to get serious about solving the home
affordability problem, I don't think there's any evidence that this
does it for you.
Speaker 3 (28:38):
I don't if there's.
Speaker 2 (28:39):
Any evidence that this improves any of the situations in
the intermediate term. I think it just is probably something
that helps you at the voting booth a little bit
because it is probably a pretty popular policy to say no,
no corporations can buy new homes. You won't need to
be competing with Blackstone when you go submit your.
Speaker 4 (28:56):
Offer again, but think about what that does to the
rental market. There are people who have benefited from institutional buying,
and as you said during the financial crisis, which is
when Blackstone initially stepped in and scooped up thousands of
homes that were in under distressed circumstances that provided a
floor for the rest of us in some ways, so.
Speaker 2 (29:17):
Beware unarguably prevented more foreclosures during the early twenty ten stage.
Was these institutional buyers buying homes at foreclosure and at
distressed sales.
Speaker 4 (29:28):
And I'll say again, Mike, this is a government that
governs least governs best types. I know I'm a wild
eye libertarian here, but the last resort should be some
heavy handed government intervention. Maybe we're at that point because
people think we've tried everything else, or maybe, like you said,
it's an election year and politicians are looking for expedients.
Speaker 3 (29:47):
Let's take a quick break.
Speaker 2 (29:48):
When we come back, one more proposal from the Trump administration,
this time about functioning of the stock market and specifically
with defense companies. We'll be talking about that next Financial Exchange.
Speaker 1 (29:58):
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Speaker 5 (30:18):
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Speaker 3 (30:22):
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Speaker 5 (30:23):
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Speaker 2 (30:39):
President Trump saying he will not permit dividends and stock
buybacks for defense companies. I read this headline and I
saw some coverage of it yesterday, and I think it
was a little bit miscategorized. What he was really saying
is that many of the defense companies that he has
grown frustrated he does not believe have invested enough in their.
Speaker 3 (30:58):
Ability to quickly roll.
Speaker 2 (31:00):
Out new products for the military and to more quickly quote,
defense companies are not producing our great military equipment rapidly enough,
and once produced, not maintaining it properly or quickly. So
he's using this as a seeming threat or incentive to
get these companies to invest more heavily back into themselves,
(31:20):
rather than saying, hey, I want to permanently prohibit defense
companies from being able to pay dividends or stock buybacks,
which I view as sorry, slightly differently, because when I
viewed that initial thing, I said, Okay, what are you
doing here? And are you going to do the same
thing for Amazon or SpaceX or other major companies.
Speaker 4 (31:39):
He's on a Henry the eighth trip. Forget about that
for a second. I mean, the legality of that is
something I'm not qualified to comment on, but sure, you know,
if that's legal, then you know, I don't know what
the hell being an American is about. That said, why
would you buy the share of any company for which
the any the the the political authority can limit returns
(32:02):
to shareholders? The only reason you buy a stock. Some
people buy it in the hopes of it going up,
and then you pass it along. You pass the bag
along to a greater fool. That's a little bit unkind.
But some people don't really care whether or not there's
great earnings potential in the future. They just think people
will want it more in the future than they do
today and the price will therefore go up. But most
of us buy companies because we're going to get cash back.
Speaker 2 (32:24):
They think their profits are going to grow and therefore
the company will have.
Speaker 3 (32:30):
Payback a larger portion of the profits.
Speaker 4 (32:32):
That that that payback could come in the forms of
increased earnings per share, which is what share buybacks do,
or of course, dividends. If you prohibit share buybacks and dividends,
why would I buy a defense and industrial company? Effectively
makes it now. I know they're going bonkers today because
while he's taking something away with one hand, the president
(32:53):
is or seems to be, or wants to.
Speaker 3 (32:55):
It's floating a fifty percent increase to the.
Speaker 4 (32:57):
A massive none of which you'll be able to share
with shareholders, though, because you can't increase your dividend and
you can't increase repurchases.
Speaker 2 (33:04):
So one, I do believe, like you said, that this
would most certainly require an Act of Congress to actually
prohibit that. Said, the President has shown that he has
quite a bit of influence. I look at this and
compare it to the agreement that he struck with in
Vidia to say, hey, we are going to pay the
US government twenty five percent of chip sales from China
(33:26):
as a kind of voluntary contribution. If the President says, hey,
we are going to review defense contracts with Raytheon, Lockheed,
Martin and all these unless they eliminate their dividend, then.
Speaker 4 (33:38):
Take our business where right I don't.
Speaker 3 (33:41):
Know where else you go to.
Speaker 2 (33:43):
There is no other defense company I think is the
difference here.
Speaker 4 (33:46):
I assume they'll comply just to get him off their backs.
But again, as a shareholder, that's not a very appealing problem.
How do I recoup my investment? How do I even
calculate what my reward is likely to be?
Speaker 2 (34:00):
General Dynamics, Lockheed Martin, and North of Grumman each fell
around three percent following the president's comments. Like Mark mentioned,
there is also a carrot there, with a massive increase
to the defense budget being proposed.
Speaker 4 (34:11):
By the Yeah, now that I think about it, though
I don't know how much of it does alleviate the
sting of not being able to benefit from any of
those revenues or eventually earnings if I can't get them
in the form of a dividend.
Speaker 3 (34:24):
To me, it wouldn't.
Speaker 2 (34:24):
But I also wouldn't fundamentally take the president's statement about
this seriously.
Speaker 3 (34:28):
Oh, okay, don't.
Speaker 2 (34:30):
I don't think that's heart warming or or or anything,
but I wouldn't take it.
Speaker 3 (34:35):
You're supposed to.
Speaker 4 (34:35):
Be like entertainment. I'm not supposed to actually process any
of this.
Speaker 2 (34:39):
For watch investment. Watch what I do not what I say.
Okay is my takeaway, folks. A new guide available from
the Armstrong Advisory Group here in January, is the subject
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Speaker 1 (35:44):
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Speaker 2 (36:00):
I don't know what Goldman was doing yesterday that got
the attention of every reporter out there, But they simultaneously
say that high valuations are putting equities at risk, and
they see consumer stocks gaining amid.
Speaker 3 (36:14):
AI valuation worries. I know these are just the headlines.
Speaker 4 (36:18):
Well, it could they could do relative They could both fall,
but consumer stocks could do relatively better.
Speaker 3 (36:22):
Is that what I think?
Speaker 4 (36:23):
That's what they are a little generous here, But yeah,
I could see those two things not being totally contradicting.
Speaker 3 (36:27):
I just find this to be I mean, like day
late and Buck shortly.
Speaker 2 (36:32):
Yes, US stock valuations are quite high and everyone should
be concerned about it, and I guess so is Goldman.
Speaker 4 (36:40):
Well, yeah, you sound like an idiot if you just
dismissed them, because and maybe we could pick this up
because it's a big topic. But you can't assume that
people will be willing to pay more for future earnings
that the pace of that willingness to pay, the growth
of that willingness to pay, which is the P and
PE will outpace earnings in Deathfinitely said differently, you can't
(37:01):
believe PE ratios will go up and up and up FOREU.
Speaker 2 (37:04):
So is this just something that every major bank has
to say, otherwise they look like an idiot when the
market crash.
Speaker 4 (37:08):
If I came I work for you. If I came
into you and said, Mike, I don't think these elevated
p's are probable. I think they're just going to continue
to go up in definitely maybe for the rest of
my career, until you stop paying me, you'd said, well,
you're not a serious person. That's that's lazy and stupid.
So yes, I think that it's it's it's a perfunctory
it's it's a it's a it's a gesture.
Speaker 2 (37:24):
I guess my point would be that it's not worthy
of publishing. Well, it's Goldman said, if you're if you
are unfamiliar, stock market valuations are exceptionally high today, that
does not mean that the markets will necessarily crash tomorrow.
They have been exceptionally high for an extended period of time.
Really since twenty twenty three. Uh, Historically, when they have
(37:46):
gotten as high as they are, it does not spell
terribly good news for what I deem to be the
intermediate term.
Speaker 4 (37:53):
Yeah, expect turns should be a little tempered, so all.
We're not saying anything's going to crash. Just expect lower
returns than the you know, fifteen percent we've had over
the last ten years.
Speaker 3 (38:02):
Good summary.
Speaker 2 (38:03):
Glad we covered that for the ten thousandth time in
the last two years.
Speaker 3 (38:08):
Quick break. A lot more to cover in the second
hour of the Financial Exchange. We'll be right back, folks.
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
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(00:20):
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(01:06):
Armstrong and Mark Vandetti.
Speaker 2 (01:10):
Good morning, Happy Thursday, Welcome back to the Financial Exchange.
It is a jobs week here on the Financial Exchange.
Even though that that headline got a bit disrupted this
week from other news that has been making headlines. I'm
not even only talking about Venezuela, because we've got a
bunch of juicy bits from the President yesterday on all
sorts of different areas of the economy, from housing to
(01:32):
to the functioning of the stock market, so we'll be
diving in there. We got the Jolt report yesterday, initial
jobless claims this morning, and we will have a full
on monthly jobs report tomorrow morning. All this with the
backdrop of a labor market that has undoubtedly been weakening
over the last several years, and been showing that throughout
the course of the last several Really, at any data
(01:55):
point you look at, whether it's the unemployment rate, the
pace of job hiring. The only one that really hasn't
consistently flashed warning signs would be the pace of layoffs.
But that oftentimes doesn't. It oftentimes shows up when you're
in a truly.
Speaker 3 (02:09):
Bad uh, you know, and rapping all claims. Yeah, first
time claims for un employment, which you.
Speaker 4 (02:14):
Have been quite low and suggestive of a strong labor market.
Speaker 3 (02:18):
Correct.
Speaker 4 (02:19):
Yeah, so sorry you said that, But that's that's the
real puzzle because of their frequency and their superiority according
to some as a as a forecast.
Speaker 2 (02:28):
Yeah, they are more rapid in terms of when they
come out, and so that that does give you some
more up to date information. But I think if you
take it in the context of what we saw and
what we ended up defining last year when people were
losing their minds over the sum rule recession indicator and
and all these factors, if we take it in the
(02:48):
context of a labor market that, rather than in free fall,
is one that has been normalizing after in exceptionally tight
period of time during twenty twenty one, twenty twenty two,
and most of twenty twenty three, then maybe this is
actually normal for jobless claims and we're still during that
normal still seeing that normalization period. I would love that
(03:10):
answer because it means that we might not be heading
for a recession. It's also pretty abnormal for that to happen.
Speaker 4 (03:15):
Well, there's evidence for that. GDP growth was quite strong
in the second and quite strong as an understatement. It
was unnaturally strong in the second and third quarter. The
JILT report that you refer to that we get data
on yesterday, the ratio of vacancies to people available to
fill those vacancies has come down from about two to
(03:37):
about one. So it's come down by fifty percent. But
in historical terms, Mike, because you know, it's still quite
i'll say robust, it's much higher than it was in
the mid twenty tens, about as high as it was
in the late twenty tens. We got productivity data this
morning that suggests that productivity exploded in the third quarter
(03:59):
roughly five percent annualized rate. Last time we saw that
was a couple of years ago, so it's not unprecedented,
but it's suggestive of a vigorous economy. Trade deficit is falling.
That's a slightly different matter that maybe we'll talk about later.
Speaker 2 (04:16):
So let's talk about the job data that we've gotten
so far and kind of jump in here.
Speaker 3 (04:21):
I just saw a headline flash against a long.
Speaker 2 (04:23):
Bloomberg that futures are falling after a worse than expected
weekly jobless claims report. I don't see anything worse than
expected here. Initial claims did increase slightly by eight thousand.
They came in a two hundred and eight thousand for
the week ending January third. Previous level was revised up
slightly from one hundred and ninety nine to two thousand.
Speaker 3 (04:42):
This is a.
Speaker 2 (04:43):
Very low and slow pace of jobless claims. Just to
be set the context here, this is the lowest level
for this average that we've seen for the last four
weeks since April of twenty twenty four. So this is
a non concerning report.
Speaker 1 (04:59):
I mean to look, I'm not.
Speaker 4 (05:00):
Saying the economy isn't slowing. And another headline is flashing Moran,
the president's puppet on the FED Board of Governors, wants
one hundred and fifty one point five percentage point cut
in the federal funds rate.
Speaker 3 (05:13):
Which is cursively this year triple what markets are using.
Speaker 4 (05:17):
So he's to call it out like. Look, he again
is the president's tody on the FED Board. You could
say you like that or you don't. You could say
you want the president to control monetary policy or you don't.
That's a slightly different matter, but he's an outlier. There's
nothing to suggest the economy needs effectively emergency support from
the Federal reserve right now, especially considering that inflation, though
(05:37):
it has come down a lot in the past couple
of years, remains elevated relative to the Fed goal.
Speaker 3 (05:41):
So the weekly job is claims number no concerns there.
Speaker 2 (05:44):
Layoffs do not appear to be happening in Massa in
spite of challenger grand Christmas predictions all from last year,
of all the announced layoffs hitting the highest levels in years,
we just haven't seen it in the real data. So
I'm going to dismiss that one jolt support out yesterday.
Weakest pace of job openings in fourteen months, I believe it.
Speaker 3 (06:05):
It's a level is.
Speaker 4 (06:06):
We don't really look at that level level. I know
you know that, but yeah, but it's still nearly one
for one. That is the number of vacancies to the
number of unemployed people, which pre COVID would have been
considered indicative of strength.
Speaker 2 (06:21):
So I think on the side of job as claims,
no trend for an indication of layoffs. On the side
of job openings, some indication of a weakening over the
last fourteen months.
Speaker 4 (06:34):
But relative, like your relative, I like your term normalization, Mike.
The labor market was feverishly hot under COVID and that
pushed up helped to push up inflation.
Speaker 2 (06:44):
Final data point we will be getting on the labor
market is tomorrow, So tomorrow we'll be getting that jobs report,
the all important Jobs report. Two surveys that get put
together will tell us information about how many people are
looking for work, what is the unemployment rate. They're going
to be doing a household or they've already conducted a
household of surveys, a separate household sorry, a separate survey
(07:05):
of households, and then a separate survey of businesses to
get us a combination of how many companies hired people
in the aggregate, how many people were hired in the
month of December, and combine that with how many people
were looking for work, how many people had jobs, give
us that unemployment rate that likes to get focused on
quite a bit, and the FED is quite focused on
(07:28):
expectations that I am seeing median forecast for jobs created
to come in at seventy three thousand for the month
of December, pretty low number compared to where we've been
for the last several years. I think, you know, if
you look at a chart of this, we probably averaged
what three to four hundred thousand back in twenty twenty three,
one hundred and fifty to two hundred thousand and twenty four,
(07:49):
and then you know below one hundred thousand for twenty
twenty five, So clearly a trend line that you can
draw there, and the unemployment rate expected to come at
four and a half percent, coming down slightly actually from
four point six percent of the previous month. Anything else
to say about expectations for tomorrow's jobs report. I think
the context of all of this is it's some of
(08:10):
the first normal reports that we should be getting following
the government shutdown. And while there might be some small
lingering effects of that government shutdown in these reports, generally speaking,
we're getting a normalization.
Speaker 4 (08:21):
I'd say, don't get too bogged down in the details.
The critical thing it depends on what you're using this
data for. If you're just trying to forecast unemployment because
that's your job, and there are some economists who just
do that for big banks, etc. Then you are very
concerned with every tenth of a percentage point. The bigger
picture here is that unemployment in the fours or fives,
(08:43):
assuming it's not going up or down dramatically, is historically speaking,
I was gonna say, good, it's never good that anybody
who wants work can't find it, But that's indicative of
a strongly Anything in the fours or fives would be
consistent with a strong labor market.
Speaker 3 (08:59):
Yeah, and I think that's some context.
Speaker 2 (09:01):
I was spaking with somebody this morning who you know,
was talking to their daughter and their friends are all
struggling to find jobs in their area. And we hear
this repeated a lot that younger Americans right now, especially
in the white collar workforce, are struggling to find work.
AI is getting blamed, But honestly, I really look at
this and think that that is much more indicative of
(09:24):
just what we are experiencing, which is the pace of
change matters. We came off of an extraordinarily tight labor
market a few years ago. It has now loosened. It's
loosened to a point that historically is pretty normal, but
compared to where we were a few years ago, that
is pretty abnormal, and people are feeling the effects.
Speaker 4 (09:44):
Yes, we might have to get used to unemployments being
it may settle down somewhere in the in the fives.
If there is indeed a productivity revolution, propelled by AI underway,
we'll need fewer people to do stuff as the economy
is currently organized, re organize around different goods and services,
and jobs will shift, but that transition could be disruptive.
(10:07):
That sounds like a very cold way of saying that
people may not find jobs as quickly as they'd like.
It sounds callous, but that's just kind of the reality.
And this morning's productivity numbers are supportive. I'm not sure
I buy it, but they're supportive of that idea.
Speaker 3 (10:22):
Let's take a quick break.
Speaker 2 (10:23):
When we come back, a little bit more on the
state of the labor market, minimum wage changes, and then
I want to get over to the housing market after that.
Speaker 3 (10:29):
Next on the Financial Exchange.
Speaker 1 (10:31):
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Speaker 5 (11:02):
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Speaker 2 (11:35):
I always find it interesting, but we are broadcasting right
now from Massachusetts, which has a slightly higher than average
unemployment rate. The average unemployment rate across the country in
November was four point six percent. I'm counting one, two, three, four, five, six, seven,
eight nine ten states sorry, ten states including the District
of Columbia that are over that rate. Massachusetts very slightly
(11:59):
higher at four point seven percent, along with Alaska, Kentucky,
Delaware in at four nine, Michigan and at five, Nevada
at five two, Oregon at five to two, New Jersey
at five four, California at five five, and d c
Up at six point five percent.
Speaker 3 (12:15):
I frankly, you know I talked about at the beginning
of last year.
Speaker 2 (12:18):
How M, some of the policies from the Trump administration
surrounding grants for higher education as well as medical research
out of those universities could hit the Massachusetts economy a
little bit harder than others. I don't know that this
evidence really supports that, right. If we're seeing an unemployment
rate that's one tenth of a percent higher than the
(12:40):
national average, I don't know that it does anything to.
Speaker 4 (12:42):
Do a year you have, Sorry, I don't have the data.
Where was it.
Speaker 3 (12:45):
The pace of change for the Massachusetts unemployment rate has a.
Speaker 4 (12:49):
Change greater, a lot faster, So maybe hard to tease
out other factors though, like you said.
Speaker 3 (12:55):
Yeah, it tends to be.
Speaker 2 (12:57):
But I think you know, when we talk about, hey,
how are you feeling about the state of the economy,
this between gas prices and in the unemployment rate in
your area, those two factors play a big role in
how you're thinking about things. For instance, in Hawaii, South
and North Dakota you've got unemployment rate under three percent.
I'm guessing it feels like a pretty darn good labor
market there, whereas if you're in California you're looking at
(13:19):
something at five and a half percent. It is a
very different situation depending on where you're looking at.
Speaker 4 (13:24):
Yeah, I don't know. It depends Like you said, it
depends on what's typical, And I said tease out and
meant to say control for other factors, like there might
be some weather related event or some industry specific, non
government policy related shock that hits Massachusetts or California especially hard.
California might have a structurally higher unemployment rate because their
(13:44):
benefits are more generous. Europe has a structurally high unemployment rate,
maybe partly for that reason. So I don't know what
the baseline should be like. Is California's unemployment rate of
five point five percent? Is that intolerably high? Policymakers be
doing something or is there something about the structure of
their economy.
Speaker 3 (14:03):
That makes that normal that results.
Speaker 4 (14:05):
In unemployment settling on somewhere.
Speaker 3 (14:07):
Like a twenty dollars fast food minimum wage, for.
Speaker 4 (14:10):
Instance, Something like yeah, we're going to talk about the
minimum wage. Probably doesn't help on him. It may not
hurt employment, the jury will probably always be out on that,
but it almost certainly doesn't help unemployment if your goal
is to get it down.
Speaker 2 (14:23):
So frequently we'll cover policies that get rolled out state
by state level that we find ludicrous and bad for
the economy, and California's fast food minimum wage is one
of them that we've loved to criticize over the last
several years.
Speaker 3 (14:35):
President Trump proposed.
Speaker 2 (14:36):
A new variable in the housing market yesterday, and I'm
going to try and control Mark here, because markets, especially,
I think upset about these types of policies. I'm a fanatic,
especially when they come from Republicans, I.
Speaker 4 (14:51):
Think because I expect more from them. President history, I've
given up on them, but I used to expect more
from Republicans.
Speaker 2 (14:56):
Precise Mark, I think holds Republicans in particular to a
very high bar when it comes to.
Speaker 4 (15:02):
Because I used to give them money because they were
a free market party. Now I want it back.
Speaker 3 (15:07):
Yeah.
Speaker 2 (15:07):
So the President proposed yesterday the idea of preventing large
institutional institutional buyers from being able to purchase single family residences. Okay,
let's just take that policy on its face. It is
not a new idea. It has been floated among many
(15:29):
circles and many politicians for.
Speaker 3 (15:30):
Years, although primarily from pretty far left leaning politicians.
Speaker 2 (15:34):
I've heard this echoed from Bernie Sanders and Elizabeth Warren
for years now, and it is being proposed by the
President at this point in time, which again maybe not
surprising given the populace push within.
Speaker 3 (15:48):
The Republican Party right now. I don't really want to
get into the politics. That's fair but not surprising.
Speaker 2 (15:52):
I don't think let's talk about the merits of the conversation, though,
because that's where I want to go to, because it's
a pretty clear line that I think is trying to
be drawn here on the factors that affect prices, which is,
if you want to bring prices down, generally speaking, you
can find a way to lower demand or you can
(16:12):
increase supply. Is that the I mean, the basic fundamental
of where you get prices supply any market. And the
idea here is, well, this is a pretty easy way,
a pretty populist way to hit at demand.
Speaker 3 (16:27):
So why do you view this as.
Speaker 4 (16:30):
I know, why would you use I mean, my first
reaction was that's probably anyone who's ever looked at institutional activity.
Institutional activity means Goldman, Sachs and Blackstone and others buying
single family homes. Let me say, first of all, I'm
uncomfortable with the idea because we bail these institutions out
every time there's a market downturn, and we're bailing them
out with FED policy every day. So we coddle these institutions,
(16:53):
then we allow them to buy up single family homes.
Ideally they'd fail, like a bunch of them would have
gone out of business in two and eight. You can
tell I'm still indignant about the Great Recession in the
way we coddled big banks. Now they get to go
in and buy up single family homes. Now, on the margin,
they're probably not pushing up prices. Nobody's ever found evidence
of that, but.
Speaker 2 (17:12):
It's estimated that they own about half a percent of
the TNS single family But you know.
Speaker 4 (17:19):
The techniques used to tease out the effects of one
class of buyers versus another aren't perfect, So I find
it hard to believe that on the margin in some
markets they might not be putting a floor under prices
or buying them up. What I want to say, like is,
during the next financial crisis, I want all these institutions
to fail. I don't want to freak and bail them
(17:40):
out again. And I want all these houses to come
on the market and sell for pennies on the dollar
that would make me feel better. That is a first
best solution would be just let the market work, not
start to pick and choose who gets to buy houses
who doesn't. Then who we're going to bail out during
the next crisis, which they brought on in the first place.
It's one damn intervation. And forgive me for using the
(18:02):
radio version of vulgarity during my little diet tribeer, but
one intervention begets another. And if I sound like Rand Paul,
it's because I'm trying to He's absolutely right with respect
to this stuff. Government's just got to stop futzing with
things because it just creates more problems for government to
step in and solve.
Speaker 2 (18:20):
So one, I go back to my same thesis. Americans
don't want cheaper houses because if you make houses cheaper,
it means that the value of your current home goes down.
Speaker 3 (18:34):
I want that, though, because.
Speaker 2 (18:36):
I want to sell my home someday my kids.
Speaker 3 (18:39):
To have a more valuable home. Like we see this
in the way people vote over and over again.
Speaker 4 (18:44):
Some of us who plan on staying in our homes
for a while don't care about the value, not certainly,
not today. I want some appreciation ideally I'd like to
recoup some of my I don't want to. Yeah, well,
the word investment was on the tip of my tongue,
but I'm not sure I think about my house that way.
I think about it as a source of income. I'm
paying myself rent.
Speaker 1 (19:03):
Go ahead.
Speaker 2 (19:03):
Suffice to say, I don't think we did this story
justice yet. I think we have to come back to it.
But we're hard up against a break. We're gonna take
a quick break. Wall Street Watch is coming up next
that I want to continue to debate this topic of
should large corporations be able to buy single family homes?
Is there some merit to what the president is talking
(19:24):
about and what would be the effects on the housing market.
That's next on the Financial Exchange.
Speaker 1 (19:40):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch, a complete look at what's moving markets so
far today right here on the Financial Exchange Radio Network.
Speaker 5 (19:59):
After yesterday's pullback, Marc is today are mixed as traders
digest jobless claims data and ready for tomorrow's all important
jobs report for the month of December. Right now, the
Dow is up three tenths of a percent, or one
hundred and forty three points. SMP five hundred is now
completely flat, Nasdaq off by half a percent, one hundred
(20:20):
and twenty two points lower, Russell two thousand is up
seven cents of a percent, ten Your Treasure reeled up
four basis points at four point one seven nine percent,
and crude oil up one and a half percent higher
trading of fifty six dollars and eighty four cents a barrel.
Several defense stocks are rallying after President Trump called for
a one and a half trillion dollar defense budget in
(20:41):
twenty twenty seven, a significant increase from the nine hundred
and one billion dollars approved by Congress in twenty twenty six.
Lockheed Martin and Northrop Grumman are up by seven percent,
while RTX shares are climbing over three percent higher. Meanwhile,
Applied Digital stock is jumping fourteen percent after the AI
in structure company beat earnings expectations for its most recent
(21:04):
quarter and also saw its revenue roughly triple. Elsewhere, the
maker of Modello and Corona Constellation brands reported lower quarterly
sales in profit as customers continued to buy less beer. However,
the results did beat expectations. Shares are up by six percent.
According to Bloomberg, China plans to reprove some imports of
(21:24):
Nvidia's H two hundred SCHIPs as soon as this quarter,
and video shares are down by one percent. CrowdStrike announced
that it is buying identity management startup SGNL and a
deal valued at nearly seven hundred and forty million dollars.
CrowdStrike shares are down by two percent, and Apple shares
they're off by over one percent. Following news that JP
(21:46):
Morgan Chase has reached a deal to take over the
Tech Giants credit card program from Goldman Sachs. I'm Tucker
Silva and that is Wall Street Watch.
Speaker 2 (21:54):
So back to the housing market for a moment again. Yesterday,
the President floated the idea of banning law our institutional
buyers from owning single family or I don't know if
it's owning or buying single family homes.
Speaker 3 (22:06):
I think it might have been buying single family homes
to diest.
Speaker 2 (22:11):
I would think not that'd be an extreme that'd be
an extreme.
Speaker 3 (22:14):
Measure, although that would be interesting.
Speaker 2 (22:18):
You have until December thirty, first of this year to
divest of all of your single Yeah, that that'd be
pretty messy. So in the aggregate, this is a a
government cost free method of reducing demand in the housing market. Right.
It doesn't cost the government to anything to say hey,
(22:38):
if you are a corporation with more than X number
of dollars or employees or however they determine large corporate buyer,
to say you can't do this anymore. So I'm guessing
it appeals from that perspective. It certainly appeals from a
populist area where Okay, if I'm you know, if I'm
trying to buy a home and I lose out to Blackstone,
I probably don't feel all that good, and so I
(23:01):
might be in favor of this. I don't know what
it does to home builder sentiment, but it can't be
anything good.
Speaker 1 (23:07):
Right.
Speaker 2 (23:08):
We've seen the likes of lenaar and other big home
builders as of late saying hey, we are really pulling
back on home building because we just do not see
any good scenarios for pricing. If you immediately eliminate one
of the large buyers of homes, then that's not going
to help with sentiments. You might have a slower pace
of home building. So I'm not convinced that this method
(23:31):
immediately brings down home prices. I would be very hesitant
to believe that that's the case. The other thing I'm
just wondering about is I wonder how big of a
role these corporate institutional buyers of homes actually played in
times like twenty ten. Because that's what immediately came to
mind for me, is I know Plenty has been criticized
(23:53):
by what was the firm that Manuchin led back during
the Great Financial Crisis was buying up properties like crazy on,
you know, for pennies on the dollar.
Speaker 3 (24:04):
I don't recall, but I don't remember.
Speaker 2 (24:06):
It certainly led to some stability back in the twenty
tens of Hey, here is a buyer that actually has
cash to go out and buy homes, whereas the overall
market was a free fall. And so I do just wonder, Hey,
by removing a potential buyer of homes, do you create
more I guess, more volatility and more downward pressure? Is
(24:27):
it a less liquid market? And I think the answer
would be would have to be yes. If you're removing
a potential buyer, you were creating a less liquid market.
Speaker 3 (24:34):
For homes. Do I think it's the worst idea in housing?
Speaker 2 (24:38):
No, I guess I think this is less bad than say,
the government subsidizing the cost for mortgages, or you know
something else that's been floated around there, artificially bringing down
interest rates for buyers for a period of time. I
think this is less responsible or less irresponsible than that idea.
But we keep going back to housing affordability and what
(25:00):
are the problems? And the problems are that we don't
build enough homes for the number of people that want
to own them, and so I go back to this
over and over. We need less regulation in housing, not more.
This is more regulation in housing. I don't think it
fixes any of the problems that we're experiencing. I don't
think it leads to more home construction, which is what
we ultimately need. And if you want to make homes
(25:22):
more affordable, then the method is create the conditions for
a freer market where builders want to build more homes.
Speaker 4 (25:31):
Yeah. I mean, I'm looking frantically here for recent some data,
just academic quality, you know, peer reviewed studies on the
impact of institutional buyers, and the results are as they
often are with statistical analyzes ambiguous. It's not even clear
what your best guess would be, what your best guess
(25:52):
should be if you were told a large potential buyer
will be removed from the market, because you can't just
Pauline and I were talking about this yesterday. When you're
analyzing the effects of any policy or the action of
any one participant in a market, you can't just look
at that in isolation, because other things are changing too.
If we did remove institutional buyers from the market, it's
(26:13):
possible others I don't know, sovereign wealth funds would step in,
or some difficult to anticipate change in the way other
participants in the market behave would take place. So it's
very hard to say x Anti beforehand how things will
turn out. So I don't really know, Mike, I mean
the free market Iatola in me says, stop messing with
(26:39):
the decisions of individuals, whether that be corporations or people
like us, and just let markets work. If you think
houses are unaffordable, then make it easier for people to
afford everything by say, shifting the tax burden from income
to consumption or something. Now that would push up the
prices of some goods, So maybe that's in perfect solution,
(27:01):
so that the economic prediction, what prediction you should make
if you're using an economic framework here is just not
clear to me, nor is it clear to some of
the research that I'm again frantically standing here no, because
I mean, this is added but you're a you're adding
rental supply by letting institutional investors buy. They're adding rental supply,
so it helps renters.
Speaker 2 (27:22):
But my point would be blocking the institutional buyers to me,
is additional regulatory burden in a housing market that all
arguably already has too much.
Speaker 4 (27:30):
And also, how do you do that legally? How do
you tell one class of buyers you can participate in
this market, but another class of buyers who happen to
be corporations, which under the law have are afforded the
same privilegeous protections, et cetera. Right corporations, whether we like
it or not, do possess the same economic rights as people.
You can't stop them from going. So how exactly what
(27:52):
are you gonna And doesn't Congress the president can't.
Speaker 3 (27:54):
I know, the Congress would have to do. Maybe maybe
you like the.
Speaker 4 (27:56):
Way the president rules, like Henry the eighth, Maybe you don't,
but I mean, we're not a medieval monarchy here. You're
going to have to get the people's proxies i e.
Speaker 2 (28:06):
Congress peoples, which, by the way, would be so fascinating
because again, the biggest supporters of the policy like this
have been the likes of Bernie Sanders and others of
that economic mindset, and so the voting block on something
like this, to me would be absolutely fascinating. I personally
don't think it goes anywhere, but it is very much
(28:26):
a populist economic proposal, and frankly, I just don't think
if you're going to get serious about solving the home
affordability problem, I don't think there's any evidence that this
does it for you.
Speaker 3 (28:38):
I don't if there's.
Speaker 2 (28:39):
Any evidence that this improves any of the situations in
the intermediate term. I think it just is probably something
that helps you at the voting booth a little bit
because it is probably a pretty popular policy to say no,
no corporations can buy new homes. You won't need to
be competing with Blackstone when you go submit your.
Speaker 4 (28:56):
Offer again, but think about what that does to the
rental market. There are people who have benefited from institutional buying,
and as you said during the financial crisis, which is
when Blackstone initially stepped in and scooped up thousands of
homes that were in under distressed circumstances that provided a
floor for the rest of us in some ways, so.
Speaker 2 (29:17):
Beware unarguably prevented more foreclosures during the early twenty ten stage.
Was these institutional buyers buying homes at foreclosure and at
distressed sales.
Speaker 4 (29:28):
And I'll say again, Mike, this is a government that
governs least governs best types. I know I'm a wild
eye libertarian here, but the last resort should be some
heavy handed government intervention. Maybe we're at that point because
people think we've tried everything else, or maybe, like you said,
it's an election year and politicians are looking for expedients.
Speaker 3 (29:47):
Let's take a quick break.
Speaker 2 (29:48):
When we come back, one more proposal from the Trump administration,
this time about functioning of the stock market and specifically
with defense companies. We'll be talking about that next Financial Exchange.
Speaker 1 (29:58):
Breaking business news as it happens only here on the
Financial Exchange Radio Network. The Financial Exchange streams live on YouTube.
Like our page and stay up to date on breaking
business news all morning. Loan Base is the Financial Exchange
Radio Network.
Speaker 5 (30:18):
Hey, if you missed any of our shows this week,
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Speaker 3 (30:22):
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Speaker 5 (30:23):
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Speaker 2 (30:39):
President Trump saying he will not permit dividends and stock
buybacks for defense companies. I read this headline and I
saw some coverage of it yesterday, and I think it
was a little bit miscategorized. What he was really saying
is that many of the defense companies that he has
grown frustrated he does not believe have invested enough in their.
Speaker 3 (30:58):
Ability to quickly roll.
Speaker 2 (31:00):
Out new products for the military and to more quickly quote,
defense companies are not producing our great military equipment rapidly enough,
and once produced, not maintaining it properly or quickly. So
he's using this as a seeming threat or incentive to
get these companies to invest more heavily back into themselves,
(31:20):
rather than saying, hey, I want to permanently prohibit defense
companies from being able to pay dividends or stock buybacks,
which I view as sorry, slightly differently, because when I
viewed that initial thing, I said, Okay, what are you
doing here? And are you going to do the same
thing for Amazon or SpaceX or other major companies.
Speaker 4 (31:39):
He's on a Henry the eighth trip. Forget about that
for a second. I mean, the legality of that is
something I'm not qualified to comment on, but sure, you know,
if that's legal, then you know, I don't know what
the hell being an American is about. That said, why
would you buy the share of any company for which
the any the the the political authority can limit returns
(32:02):
to shareholders? The only reason you buy a stock. Some
people buy it in the hopes of it going up,
and then you pass it along. You pass the bag
along to a greater fool. That's a little bit unkind.
But some people don't really care whether or not there's
great earnings potential in the future. They just think people
will want it more in the future than they do
today and the price will therefore go up. But most
of us buy companies because we're going to get cash back.
Speaker 2 (32:24):
They think their profits are going to grow and therefore
the company will have.
Speaker 3 (32:30):
Payback a larger portion of the profits.
Speaker 4 (32:32):
That that that payback could come in the forms of
increased earnings per share, which is what share buybacks do,
or of course, dividends. If you prohibit share buybacks and dividends,
why would I buy a defense and industrial company? Effectively
makes it now. I know they're going bonkers today because
while he's taking something away with one hand, the president
(32:53):
is or seems to be, or wants to.
Speaker 3 (32:55):
It's floating a fifty percent increase to the.
Speaker 4 (32:57):
A massive none of which you'll be able to share
with shareholders, though, because you can't increase your dividend and
you can't increase repurchases.
Speaker 2 (33:04):
So one, I do believe, like you said, that this
would most certainly require an Act of Congress to actually
prohibit that. Said, the President has shown that he has
quite a bit of influence. I look at this and
compare it to the agreement that he struck with in
Vidia to say, hey, we are going to pay the
US government twenty five percent of chip sales from China
(33:26):
as a kind of voluntary contribution. If the President says, hey,
we are going to review defense contracts with Raytheon, Lockheed,
Martin and all these unless they eliminate their dividend, then.
Speaker 4 (33:38):
Take our business where right I don't.
Speaker 3 (33:41):
Know where else you go to.
Speaker 2 (33:43):
There is no other defense company I think is the
difference here.
Speaker 4 (33:46):
I assume they'll comply just to get him off their backs.
But again, as a shareholder, that's not a very appealing problem.
How do I recoup my investment? How do I even
calculate what my reward is likely to be?
Speaker 2 (34:00):
General Dynamics, Lockheed Martin, and North of Grumman each fell
around three percent following the president's comments. Like Mark mentioned,
there is also a carrot there, with a massive increase
to the defense budget being proposed.
Speaker 4 (34:11):
By the Yeah, now that I think about it, though
I don't know how much of it does alleviate the
sting of not being able to benefit from any of
those revenues or eventually earnings if I can't get them
in the form of a dividend.
Speaker 3 (34:24):
To me, it wouldn't.
Speaker 2 (34:24):
But I also wouldn't fundamentally take the president's statement about
this seriously.
Speaker 3 (34:28):
Oh, okay, don't.
Speaker 2 (34:30):
I don't think that's heart warming or or or anything,
but I wouldn't take it.
Speaker 3 (34:35):
You're supposed to.
Speaker 4 (34:35):
Be like entertainment. I'm not supposed to actually process any
of this.
Speaker 2 (34:39):
For watch investment. Watch what I do not what I say.
Okay is my takeaway, folks. A new guide available from
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Speaker 2 (36:00):
I don't know what Goldman was doing yesterday that got
the attention of every reporter out there, But they simultaneously
say that high valuations are putting equities at risk, and
they see consumer stocks gaining amid.
Speaker 3 (36:14):
AI valuation worries. I know these are just the headlines.
Speaker 4 (36:18):
Well, it could they could do relative They could both fall,
but consumer stocks could do relatively better.
Speaker 3 (36:22):
Is that what I think?
Speaker 4 (36:23):
That's what they are a little generous here, But yeah,
I could see those two things not being totally contradicting.
Speaker 3 (36:27):
I just find this to be I mean, like day
late and Buck shortly.
Speaker 2 (36:32):
Yes, US stock valuations are quite high and everyone should
be concerned about it, and I guess so is Goldman.
Speaker 4 (36:40):
Well, yeah, you sound like an idiot if you just
dismissed them, because and maybe we could pick this up
because it's a big topic. But you can't assume that
people will be willing to pay more for future earnings
that the pace of that willingness to pay, the growth
of that willingness to pay, which is the P and
PE will outpace earnings in Deathfinitely said differently, you can't
(37:01):
believe PE ratios will go up and up and up FOREU.
Speaker 2 (37:04):
So is this just something that every major bank has
to say, otherwise they look like an idiot when the
market crash.
Speaker 4 (37:08):
If I came I work for you. If I came
into you and said, Mike, I don't think these elevated
p's are probable. I think they're just going to continue
to go up in definitely maybe for the rest of
my career, until you stop paying me, you'd said, well,
you're not a serious person. That's that's lazy and stupid.
So yes, I think that it's it's it's a perfunctory
it's it's a it's a it's a gesture.
Speaker 2 (37:24):
I guess my point would be that it's not worthy
of publishing. Well, it's Goldman said, if you're if you
are unfamiliar, stock market valuations are exceptionally high today, that
does not mean that the markets will necessarily crash tomorrow.
They have been exceptionally high for an extended period of time.
Really since twenty twenty three. Uh, Historically, when they have
(37:46):
gotten as high as they are, it does not spell
terribly good news for what I deem to be the
intermediate term.
Speaker 4 (37:53):
Yeah, expect turns should be a little tempered, so all.
We're not saying anything's going to crash. Just expect lower
returns than the you know, fifteen percent we've had over
the last ten years.
Speaker 3 (38:02):
Good summary.
Speaker 2 (38:03):
Glad we covered that for the ten thousandth time in
the last two years.
Speaker 3 (38:08):
Quick break. A lot more to cover in the second
hour of the Financial Exchange. We'll be right back, folks.
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