October 13, 2025 • 38 mins
Chuck Zodda and Mike Armstrong discuss the steep market sell-off on Friday and why markets reacting as strongly as they did. China's new export curbs may level a heavy blow world wide. From Tri Color to Saks, bonds are now crashing at breakneak speed. Why the next CPI report is important for Social Security checks, bonds, and 401(k)s. More working-class Americans than ever are investing in the stock market.
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Episode Transcript
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Speaker 1 (00:00):
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(00:42):
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(01:06):
and Mike Armstraw.
Speaker 2 (01:11):
Monday here on the Financial Exchange. Normally this would be
a pretty busy week ahead for economic data and earnings.
This week still busy week for earnings. But here's the
economic data that we are not going to be getting
because of the government's shutdown. We're not gonna be getting
retail sales. We're not going to be getting producer price indecks,
(01:31):
we're not gonna be getting weekly jobless claims. We're not
gonna be getting building permits and housing starts, and we're
not gonna be getting consumer price indecks.
Speaker 3 (01:40):
So building permits are a federal data.
Speaker 2 (01:42):
Yes they are Census Bureau. So overall we've got a
bunch of stuff that we're not getting. So instead we
have to excite ourselves over Jay Powell is going to
give a speech at twelve to twenty pm tomorrow, and
Jamie Diamond's gonna tell us how wow his company performed
in the most recent quarter. I think at least you
can get some interesting signals about, you know, what's going
(02:03):
on in the in the economy. So I do think
that the banks can can tell us something kind of interesting.
But am I gonna get all geared up for you know,
Neil Kashgari to give a speech at six pm on Wednesday.
Speaker 3 (02:16):
Thursday.
Speaker 2 (02:16):
Rather, No, I'm not, I'm I'm over it. You know,
I don't need more FED speakers I need. I was
trying to think of a witty rhyme on the spot,
but I couldn't get anywhere passed.
Speaker 4 (02:30):
I guess said, it's gonna generate the same level of
enthusiasm that my daughter's hockey games.
Speaker 3 (02:34):
Well, immediate family only if Neil's parents in the crowd.
Speaker 2 (02:40):
If Neil's your your son, do you show up to
all of his speeches?
Speaker 3 (02:44):
At this point, I most certainly.
Speaker 4 (02:46):
Would accomplished in his field. Yeah, yeah, I would be
at everyone traveling on the road show.
Speaker 2 (02:53):
If you're the FED chair, do you get to show
up to j Powell? Like, if you're the FED chair's family,
do you get comp tickets to his press conference?
Speaker 3 (03:01):
Oh? Probably not. It's my son up there, but my
son in the game, got the boys play. Come on.
Speaker 4 (03:09):
Markets in the meantime, making up about half the ground
that they lost on Friday, will be covering the US
China tension news today, but markets were down. SMP was
off nearly one point nine percent on No, two point
seven sorry, two point seven percent, one hundred and eighty
seven two points I think so, Yeah, making up about
(03:30):
half of that this morning in early trading as some
announcements there, but those are the big pieces for this
week as we look forward.
Speaker 3 (03:38):
And what day is the are we into the government shutdown?
Speaker 2 (03:41):
Here?
Speaker 3 (03:41):
Tucker? What number is this? Eleven thirteen? Oh good, he knew.
Its an odd number.
Speaker 2 (03:46):
If it started on the first, and today's the thirteenth,
it makes it pretty easy. Day, Like, the math is
not particularly complicated.
Speaker 3 (03:54):
I didn't recall when it started.
Speaker 2 (03:55):
So in any case, Friday, obviously, the big move was
after the Trump post about the potential increase in tariffs
and increased tensions between the US.
Speaker 3 (04:07):
And China got eleven am on Friday, Yeah.
Speaker 2 (04:10):
Just before eleven am, and so you know, you saw
stocks basically fall continuously throughout the day. The real damage,
quite honestly, was not in equity markets. Do either of
you know anyone who is big into crypto?
Speaker 3 (04:24):
No, yes, but no, didn't talk to them on Friday.
Probably a good thing.
Speaker 2 (04:30):
The folks that I've talked to in the crypto world
have said that Friday was basically the biggest liquidation event
that they have ever seen. Like I don't know exactly,
you know, what precipitated in this and that, but in particular,
when you get past some of the more well known
cryptocurrencies and towards some of the you know, off brand
(04:53):
the so called alt coins and stuff like that, there
was some real damage with like some intra day moves
being you know, nine percent plus down, and like the
stories that you've heard and seen are you know, people
losing millions of dollars in a single day and and
people just being entirely wiped out in a number of cases.
(05:15):
So I think the interesting thing to me when we
look at markets and this China situation, markets have not
cared about this in any real way since May. I
know that the market bottomed in April, but it's really
been since May. In that first round of you know, negotiations,
(05:35):
and I think it was Geneva at the time where
those take place. We've had subsequent rounds. I think maybe
another one engine even then one in Madrid, I think
it was Again. I'm just trying to you know, keep
track of all this, but ultimately it's been still about
five months since markets cared about this, and I think
the biggest reason is there hasn't really been much of
(05:56):
a threat you know, out there from either China to
the US in direct fashion since then, or any response
from the US either, right.
Speaker 4 (06:05):
I mean, it's not to say that there haven't been
real impacts on the ground. Go talk to anyone in
the farming community, and you're not having basically any Chinese
purchases of American agricultural goods. There are other effects and
impacts throughout the economy, but in terms of the stuff
that's driven markets, it's been pretty quiet between the US
and China.
Speaker 2 (06:24):
So why did market suddenly pick up on this on Friday?
And I have a couple theories as to why. The
first is, look, this is the first you know, kind
of re escalation that we've seen in a public facing
manner in a few months. So I think that, you know,
maybe that's meaningful in some way, shape or form. But
it's not like markets have really cared about tariffs a
(06:46):
whole lot over the last few months, even where there
have been other sporadic you know changes and things like that.
We had you know, higher tariff rates that went into
effect in August. The market didn't really care about those.
They weren't directed to China, which is obviously a major
US trading partner, But the market didn't really care about
the August ones, some of the sector specific ones market
(07:06):
hasn't really cared about the last month or two.
Speaker 3 (07:08):
So I think some of this.
Speaker 2 (07:11):
Obviously is just you know, overall, when you talk about
the two biggest economies in the world, if they start
to be more on you know, a collision course, yeah,
markets take notice a little bit. The other thing, quite honestly, is,
and this is gonna sound weird to begin with, but
what if this wasn't actually about China, but just where
the market was at this particular point in time, and
(07:33):
just kind of any catalyst could have caused this.
Speaker 3 (07:35):
And what I mean by this is.
Speaker 2 (07:39):
This has been a very very calm market over the
last five or six months, almost historically calm in terms
of actual realized volatility in markets. And the big reason
why this has been the case has been what we
can call dispersion, which is a fancy way of saying
not everything in the index is been moving in the
(08:00):
same direction. In fact, it's been moving in really different directions.
If you've watched this market for the for the last
six months, or so. It's been something where you say, hey,
you know, tech stocks are up and bank stocks are
lagging today, and but still we're moving up. And then
the next day, hey, industrials are up, and we've got
you know, utilities lagging, but the you know, industrials are
(08:21):
dragging the index up.
Speaker 3 (08:23):
So ultimately, this dispersion.
Speaker 2 (08:24):
Has resulted in a really calm market, even though under
the surface individual stocks have been moving a decent amount.
And one of the things that we then saw in
the last week and a half or so is, as
you started to see the last two weeks progressing for markets,
(08:45):
the way that markets typically progresses by climbing a wall
of worry, and the way that you can measure that
wall of worries through something called the VIX. VIX is
all often called the fear index, but it basically measures, hey,
what is the implied volatility of the S and P
five hundred over the next month based on options that
are out there. How much do market participants think the
market's gonna move on any particular day or over any
(09:07):
particular month. And generally what you see is when stocks
climb the wall of whorrer its stocks up vics down.
That's what you generally see because as stocks do better,
people think, okay, stocks are going to continue to do better, sure,
which is generally how they perform all time highs, beget
more all time highs. That's the general trend. For the
(09:27):
last couple of weeks, we saw this kind of weird
thing in markets where it was stock's moving up, but
the vix moving up as well. And where this starts
to cause problems is there's an awful lot of money
that is traded in what we call systematic fashion. And
this is a fancy way of saying it's rules based trading.
I'm not talking about high frequency trading, but rules based
(09:50):
trading where there are these funds that are out there
called volatility control funds, or you also have trend following
strategies and things like that, but a lot of it
is based off of, hey, how much volatility is in markets,
and when volatility goes up, we pull back in order
to protect our investors from moves and markets. That's how
volatility control funds typically work. And eventually you get to
(10:13):
a breaking point where if the vix goes up enough,
they start selling and things start moving. And so I
guess my question on this is is, Yes, like the
China thing could have been the initial catalyst, but the
rest of the move isn't necessarily related to investors being like,
oh no, this is you know, this huge, you know
China thing. But maybe the market was just primed for
(10:34):
this because of how the underlying market structure was set up.
Speaker 3 (10:39):
And I suppose, but you still needed the news for
it to be.
Speaker 2 (10:41):
You needed some kind of catalyst. I guess my point
is if it wasn't, this might have been something.
Speaker 3 (10:46):
It could have been.
Speaker 2 (10:47):
Something else, you know, something else comes out on first
brands today, or something comes out, you know, on a
financial earnings report this week, and that's the impetus for
this move.
Speaker 3 (10:55):
Anyway, I guess I just.
Speaker 4 (10:56):
Find it intriguing that. Look, when it comes to tensions
between the US and China, takes two to tango.
Speaker 3 (11:01):
The you would kick off, but occasionally you can tangle
by yourself.
Speaker 4 (11:05):
You would kick you kick this off on what was
it Wednesday night when the Chinese announced these new restrictions.
Speaker 3 (11:10):
Yeah, and I have markets didn't react at all.
Speaker 4 (11:14):
No, it took the post from the president at eleven
am just spark this sell off in markets. And so
again this is kind of why I don't take it
all that fundamentally seriously at the end of the day,
and why I hope and think that it's ends up
being more posturing than much else, because.
Speaker 3 (11:33):
Which is what we speculated at the time.
Speaker 4 (11:35):
Yeah, we speculated that on Thursday, that yeah, you're posturing
ahead of a negotiation. And frankly, the commentary from the
President of the United States over the weekend seem to
insinuate the same.
Speaker 2 (11:46):
Let's take a quick break when we return. Let's see
should we talk rare earths after this?
Speaker 1 (11:54):
Oh?
Speaker 3 (11:54):
I think we should.
Speaker 1 (11:58):
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Speaker 5 (12:28):
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Speaker 2 (13:02):
So the center of all the hubbub last week between
the US and China is China's new export restrictions on
rare earth materials, and specifically, basically what China is putting
in place here is it says, Look, if you have
any product that uses more than point one percent of
(13:22):
rare earth's in its construction.
Speaker 3 (13:24):
I think it is.
Speaker 4 (13:24):
More if the value of the product is more than
point one percent derived from those rare earths.
Speaker 2 (13:29):
But then we have the ability to restrict your sales
of that product worldwide.
Speaker 4 (13:35):
Is it the sales the productor or your ability to
get the No, we will like not necessarily license you
to be able to sell your product worldwide, meaning you
can sell whatever you want, but we won't give you
any new rare earth.
Speaker 3 (13:47):
That's a nice business you've got.
Speaker 2 (13:49):
There would be a shame if anything happened to your
rare earth supply, right is basically the sign here no
over the weekend, they've tried to you know, soften that
stance too. Well, we're likely going to app I prove
most of these it's really just for military applications and
this and that, to which then you get into okay,
like some of this stuff you see and you say, okay,
here's a clear military application. But there's a very easy
(14:13):
way that you could say that semiconductors are being used
for you know, military applications because they are and it's
it's impossible to prove exactly where they go. This is
also now a critical problem for the United States because
one would imagine, hey, even if you know, China is
approving rare earth exports for you know, GM or Forward
(14:35):
or whoever you know is building cars and whatever, they're
probably gonna be a little bit stringent about it when
it comes to oh, I don't know, raytheon. And you
do need this stuff when you're building Patriot missiles because
in order to build a motor that doesn't melt when
you need to turn the missile very quickly in a
short period of time, you need these rare earths. Yes,
(14:55):
so what does this actually mean. We're gonna have to
see what the implementation is. But this is why it's
potentially a devastating blow to you know, the ability for
companies across a wide range of industries to operate if
they can't get the rare earths that they want.
Speaker 4 (15:12):
And now all the posturing back and forth, you know,
you've had many US lawmakers coming out and saying that
the United States is far more leverage on China than
they do on US. I really would encourage everybody just
turn that stuff off, because it's a game of chicken.
Speaker 3 (15:30):
It doesn't matter. It does not matter first.
Speaker 4 (15:33):
It's about who is more will yeah, who blinks first,
who is more willing to accept more pain.
Speaker 3 (15:39):
The whole It's the whole game.
Speaker 4 (15:41):
And I would argue, by the way, that we won't
get there because all of this looks to me like
a bunch of posturing ahead of a scheduled meeting between
the two presidents so that each of them is able
to soften their position during that.
Speaker 2 (15:53):
Negotiation and come aways saying Yep, we got concessions on
this and everything's great.
Speaker 3 (15:58):
That's if we're being honest. That's probably the most likely outcome.
Speaker 2 (16:01):
But yeah, you don't know, because there is no stable
equilibrium in a game of chicken. Now, we also then
get this piece this morning, JP Morgan to invest ten
billion dollars in US company's critical to national security. The
subheadter Bank pledges to take stakes in companies such as
mineral producers, artificial intelligence firms, and others. Let me say
(16:23):
something when it comes to like rare earths and anything
related to them, even tangentially or even just like general
mining related. While I do think that over the next
couple of years, you like, like pricing on this stuff
could get nuts as everyone competes for it, doesn't it
(16:43):
feel like we're ultimately heading for a massive oversupply on
this stuff, like five to seven years from now, like
because now that everyone's talking about it, there's all this
money that's gonna seek it out and say, yes, like
we let's do this, Let's figure out how to do this,
let's chase this.
Speaker 3 (16:59):
There is a.
Speaker 4 (17:00):
Path for the US government basically saying that there is
now a price floor for certain rareer It's coming out
of the United States totally right, like that that is
very likely where this could all And I'm not saying
this is a bad thing.
Speaker 3 (17:10):
Sure, what I am saying is terrible business.
Speaker 2 (17:14):
It's not necessarily good for the overall business of rare earths,
because eventually, if you overproduce this stuff, then the US
government's gonna say, okay, let's pump the brakes. And if
your business is dependent on the US government to be
the buyer of last resorts, once you reach that oversupply
and you have you know, a national neobidium supply, you know,
(17:35):
that's you know, stuck aside. I think that's one of
the rares. I might have just made that name up,
but it sounded good.
Speaker 3 (17:41):
Good.
Speaker 2 (17:42):
Yeah, you know, like you're you're going to reach a
point where you overproduce this stuff even if US, which
is fine, I'll add it's it's because the risk of
underproducing Yeah, pretty bad we're seeing right now.
Speaker 4 (17:56):
Even if the US doesn't overproduce it for our own
domestic consumption needs, you can be sure that the Chinese
have the ability to. And so again, if this is,
if this reaches a point where for profit companies are
trying to compete with Chinese ones on rare earth materials,
(18:17):
which I don't think is what we're going towards but
you know, in a free capital market, at least on
the US side, they'll be put out of business by
Chinese counterparts because they will flood the market like they
have done with many other items, which is how we
ended up here in the first place. Right, Like, if
you look at the defining characteristics of the US and
Chinese economies, the US we've never met a debt. We
(18:40):
didn't like China, we can always sell more of it
cheaper than you.
Speaker 3 (18:45):
Yeah, Like that's those.
Speaker 2 (18:47):
Are like the defining characteristics in terms of where the
excess comes from.
Speaker 3 (18:52):
The US.
Speaker 2 (18:53):
Well, we can buy more than you can China, yeah,
but we can produce more than you can.
Speaker 3 (18:58):
Yeah.
Speaker 2 (18:58):
That's that's kind of the tension that you have between
the two systems and the way that they are set up.
Speaker 4 (19:04):
Which is great for TVs and bad for rare earth materials.
Speaker 2 (19:09):
What about rare earth TVs? A TV that spins because
of a magnet in it sounds like it'd cause cancer
or just dizziness.
Speaker 3 (19:18):
Let's take a quick break.
Speaker 2 (19:19):
When one returns, one will do Wall Street watch after this.
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 market so
far today right here on the Financial Exchange Radio Network.
Speaker 5 (20:00):
It's a rebounding to begin the week after Friday's selloff,
after President Trump followed up his social media post yesterday
saying don't worry about China, it will all be fine.
Trump's initial post on Friday was critical of China threatening
massive tariffs. Right now, the Dow is up nearly one percent,
are four hundred and twenty points higher. S and P
(20:20):
five hundred up one point two percent or eighty three
points higher, Nasdaq up one point eight percent or four
hundred and eight points. Hire Russell two thousand is up
over two percent. Bond market closed today in observance of
the holiday, and crude oil up one and a half
percent today, treating a fifty nine dollars in seventy seven
(20:41):
cents a barrel m B excuse me. NP Material stocks
surging twenty percent after the Pentagon recently took a stake
in the rare Earth's producer, adding to its recent rally
last week. China tightened rare earth export controls other miners,
including US A rare earth critical metals in energy fuels
are also seeing strong gains on the day. Meanwhile, shares
(21:04):
in Broadcom rallying nearly nine percent following news that OpenAI
signed a multi year packed with Broadcom to collaborate on
custom chips and networking equipment, where the two companies will
jointly build and deploy ten gigawatts of custom AI accelerators. Elsewhere,
Shares in Warner Brothers Discovery rising over four percent following
(21:24):
reports that the company had rejected Paramount Skydance's proposed buyout
of roughly twenty dollars a share. Furthermore, reports also say
that Paramount CEO David Ellison is making a play to
buy all of Warner before it splits. It may take
his offer directly two shareholders, JP Morgan Chase up over
two percent after the bank said it would directly invest
(21:46):
ten billion dollars in companies it deems critical to national security,
speaking of which JP Morgan Chase and other major banks
including Wells Fargo, Goldman, Sachs, Blackrock, and City Group will
post their third quarter earn ahead of tomorrow's open Outside
of banks Johnson and Johnson, Ericsson, Dominoes, and Alpertson's will
also report their third quarter results ahead of the opening bell.
(22:10):
I'm Tucker Silva and that is Walltree watch.
Speaker 3 (22:13):
Piece here from US. This is Bloomberg.
Speaker 2 (22:15):
Yeah, from Tricolor to Sacks, bonds are now crashing at
breakneck speed.
Speaker 3 (22:22):
Well, I mean, I think that's.
Speaker 2 (22:24):
Kind of broad. I mean, bonds as a whole are
generally fine. In fact, the ten year Treasury had a
nice little bid to it on Friday and all.
Speaker 3 (22:31):
Of the commotion and hubbub.
Speaker 2 (22:33):
But yes, I think that the general stance of hey,
if your company has way more debt than investors thought
and you declare bankruptcy, your bonds are going to crash
is a pretty like respectable place to.
Speaker 4 (22:48):
Land, by the way, I mean, yeah, crashing to me
implies something different than what we see. I'm taking a
look at data from Saint Louis Fan. It's the b
of a US High Yield Index option adjusted spread, so
that they're looking at junk versus risk free asset, and
we were sitting at a spread of two and three
(23:11):
quarters last Monday.
Speaker 3 (23:14):
We're up to two nine five.
Speaker 4 (23:17):
It doesn't seem like spreads have blown out on the
riskier bucket now. I will acknowledge for a minute here
that many are arguing that the junk market, which is
what we're actually measuring here, has been partly de risked
by this exact factor of private credit, and so maybe
that's not where the risk lives and we should be
more focused on this private credit industry. That you can't
(23:39):
meaning clean measure. But yeah, it does not at the
very least, it is not a risk off everything type
of trade right now in bonds.
Speaker 3 (23:49):
No.
Speaker 2 (23:49):
Now, that also doesn't mean that you're going to be fine.
As an example, if you look at the historical spreads
on triple seed debt, just as an example, which is
basically like the lowest quality of junk debt before you
get to defaulting. In May of two thousand and five,
(24:10):
the spreads on triple ceed debt were nine and a
half percent, So you got paid have to, you know,
a nice little margin to do that to endo those companies. Again,
that's the spread between treasuries of a certain of a
similar maturity, Yes.
Speaker 3 (24:24):
Got it.
Speaker 2 (24:25):
By June of seven that spread was down to four
point one percent. Well, we all know what happened afterwards.
Those spreads blew out during the financial crisis and in
November of two thousand and eight, that spread was north
of forty four percent. So I do think that credit
spreads are not usually they're not usually a great leading indicator.
(24:49):
They're often a coincident indicator. Now, they did start to
show problems. So from June of seven through March of eight,
that triple C spread went from four up to twelve. Yeah,
so like you started to see it building towards the
financial crisis there, and then obviously when everything happened in
the fall of eight, like they went, you know, just
just nutty.
Speaker 3 (25:10):
But so what if that signal's gone now?
Speaker 2 (25:13):
And this is the problem is the private credit industry
has taken a lot of below investment grade debt and
taken it out of public markets where you get accurate
price discovery on a daily basis, and instead it might
be just one company that's holding all of that debt,
and so it doesn't reprice. It might be a few,
but it still doesn't reprice because there's no secondary market
(25:34):
for it and it doesn't trade. And so the two
questions that are out there. Number one is, hey, have
we lost you know, an aspect of price discovery in
the junk bond market because so much of it is
held privately as opposed to in publicly traded bonds. Now
and the second piece there, and this is the part
(25:55):
to me that is reminiscent of seven is it's in
a different area. In O seven it was, hey, we're
holding all of this, these mortgage backed securities? Are these
worth anything?
Speaker 3 (26:08):
Was the question?
Speaker 2 (26:08):
Then now the question is, realistically, hey, we're holding all
of these, you know, privately made loans. What if there's
more first brands? And if there are, is what we're
holding worth anything?
Speaker 3 (26:23):
Right? And who is left holding?
Speaker 2 (26:25):
And so these are the questions that every private credit
lender is asking right now, and they don't have answers.
Speaker 4 (26:33):
I'll be the first say that SMP, as a rating
agency frequently gets some things wrong here and there. But
Financial Time is reporting that the rating agency SMP has
warned us ensures of the risks of the complexity and
lack of disclosure in the private credit market.
Speaker 3 (26:50):
So if you're wondering, again, what is one holder of.
Speaker 4 (26:54):
All this debt that you interact with very frequently, it
might be your insurance company.
Speaker 2 (26:59):
Not just one, Michael, a massive one. Insurers over the
last three to five years have been some of the
biggest buyers of collateralized loan obligations from private credit. And
the reason why is simple. If you are in a
competition to you know, keep the lowest rates possible and
(27:20):
you know, not raise your rates because of you know,
all of the things going on in the world over
the last five six years and also look attractive to
your investors from a growing profitability standpoint.
Speaker 3 (27:30):
Correct.
Speaker 2 (27:30):
One of the best ways that you can do that
is say, yeah, if I can go out and buy
a pool of private credit that's yielding twelve percent instead
of holding treasuries yielding five.
Speaker 3 (27:38):
With your premiums.
Speaker 2 (27:39):
By the way, sure like of course insurers are going
to say yeah, like it's you know, highly rated.
Speaker 3 (27:44):
Why wouldn't I do that?
Speaker 2 (27:46):
And this is the part where there are some real
echoes of the financial crisis, right and you just don't
know what the scales, you don't know what the scope
of it is.
Speaker 4 (27:56):
It is that would really suck if we took it
out of the uh, you know, too big to feel,
too big to fail banks, we took all the risk
out of there, and we put it into a bunch
of insurance companies who are also too big to fail. Well,
and it's what if what if three insurers went down
in the United States and it would sink the entire market,
And it's all.
Speaker 2 (28:13):
The this whole mechanism is, Hey, the banks aren't making
these loans. It's all non bank lending that's going on.
It's all you know, these asset managers that said, yeah,
we have these vehicles that we're setting up in order
to lend money to companies, and you're gonna get yields
of you know, eight to twelve percent on this.
Speaker 3 (28:32):
But don't worry.
Speaker 2 (28:33):
It's it's it's fine, like it's you know, it's safer
than public markets because it doesn't trade.
Speaker 3 (28:39):
Well.
Speaker 2 (28:39):
No, that just means there's no mark to market efficiency
that you get there, and so you don't know what
the value is.
Speaker 4 (28:44):
And it'd be one thing if the insurance company's businesses
were relatively stable in the first place, which they're which
they're not.
Speaker 2 (28:52):
Look, I I gotta tell you, I hope I'm wrong
about this, but I'm getting this not great feeling about
this whole space now.
Speaker 3 (29:01):
And it's it's not that everything's gonna be a mess.
Speaker 2 (29:03):
It's not that it's gonna be you know, financial crisis
two point zero, but it's rare that you just see
like two defaults in the auto sector and then everything else.
Speaker 3 (29:13):
Is fine, hunky dory like.
Speaker 2 (29:15):
That that doesn't really feel like what's happening here? And
I'm just like, my spidy sense is just tingling a
little bit in this whole space right now. And of
course then you also get the piece in the Wall
Street Journal Jeffrey seeks to calm worries over First Brands
because hey, when First Brands has ten billion dollars in
(29:36):
debt and Jeffries, you know one of their investment funds
point benit a capital investment held like seven percent of
that in one fund. You're like, do you guys understand
the principles of diversification amongst poorly rated like lending risks?
Speaker 3 (29:56):
Now, next question, and this is where his.
Speaker 2 (29:59):
Story, like, you give banks a lot of credit because
aside from like two thousand and eight, the thing about
banks is normally they're really conservative. Like the biggest problem
that you get with banks especially you can even make
the case since then banks don't really like making loans,
like they're scared to make loans for a number of
(30:20):
different reasons. This here, when you look at what's going
on in private credit. It's just the wild West. It's
oh sure, I can underwrite that for you know this,
of course we can do that for you. And it
just gives me the willies. Right now, I've got the willies.
Let's take a quick break here, and when we come back,
(30:42):
we'll talk about the September CPI report that we're actually
going to get next Friday.
Speaker 1 (30:46):
Right after this, the latest news on inflation, the Fed,
the economy, and how the markets are reacting. Every morning
right here on the Financial Exchange Radio Network, tanks US
six one seven to thirteen eighty five, with your comments
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(31:07):
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Speaker 3 (31:24):
All right.
Speaker 2 (31:24):
So late last week we did get word from the
BOS that they were calling their CPI staff. Imagine being like,
if you're running that reporter, you the director of inflation.
Speaker 3 (31:37):
Oh yeah, what does it say on your business card?
Director of Inflation, I would hope.
Speaker 2 (31:44):
But in any case, they were calling the staff in
order to make them essential from non essential, the reason
being the September CPI report directly feeds into the cost
of living adjustment for Social Security next year. And so
this is obviously some thing that you need to get
in a timely fashion just because there's you know, a
lot that goes into then making that work. I don't
(32:07):
think you just like go in and, you know, say,
inflate everything by x percent and it works immediately. I
think there's probably a little bit of a process to
it there. So we aren't going to be getting CPI
this week as we were supposed to. It's gonna be
next Friday, on the twenty fourth instead, which will be
ahead of the FED meeting, yep, ahead of.
Speaker 3 (32:23):
The FED meeting.
Speaker 2 (32:24):
And so still I think a valuable data point for us,
who are you know, kind of starved for data points
amongst the series that we're used to. But also means
that we will know that Social Security cost of living
adjustment in short order as well.
Speaker 4 (32:37):
Yeah, you'll get all sorts of other adjustments that are
used for tax filence. I think we already got the brackets,
but things like for one K contribution limits and items
like that would would come in as part of this
as well.
Speaker 3 (32:49):
But I think the important.
Speaker 4 (32:52):
Piece of all this chuck is it does feel right
now as though there are some increased concerns among vesters,
all while experiencing an absence of reliable data about this economy,
which has not really led to anything terribly dramatic, and
I don't really expect that it will during the government
(33:12):
shutdown itself. But when you have this absence of information,
investors are more and more reliant upon you know, tweets
and announcements, earnings reports that are going to be ongoing.
And if you are finding yourself in a position where
you're trying to sort these things through, we would love
for you to join us. You know, obviously you're listening
(33:33):
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at our live event this Thursday in Chestnut Hill. We
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in a really fun time. Spoke to the you know,
got to speak to people during the program, during the
breaks during the program, but got to speak to people
during the program and talk about these subjects on a
real one on one basis. It led to a really
(33:53):
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(34:14):
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(34:36):
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Speaker 3 (34:36):
Advisory dot Com.
Speaker 4 (34:38):
All the details right at the top of the page there,
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Speaker 1 (34:46):
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Speaker 2 (35:01):
Piece in the Wall Street Journal more working class Americans
than ever are investing in the stock market.
Speaker 3 (35:07):
Great news long term, terrible news short term. Why is
it terrible news short term? Ah? I guess it hasn't
been for the last four years.
Speaker 4 (35:13):
But my guess would be that many of them jumped
in over the course the last few years during COVID
and other events and invest on. There's probably a lot
more investors as a percentage of the total that are
not terribly experienced with market downturns, would be my guess.
Speaker 3 (35:32):
That's fair.
Speaker 2 (35:33):
And look, every investor at some point goes through some
kind of large drawdown, usually due to their own poor
risk management and setup of their accounts. I know when
I was starting out, I certainly had my days where
I'm like, oh boy, that really sucks, Like that's not great.
You're not supposed to see, you know, that kind of loss.
But you hopefully, you know, learn from me mistakes. Don't
(35:54):
make the same one twice. And look, I'm a big
believer in this because ultimately, when when we at the
playing field between labor and capital over the last forty years,
can we all agree that capital buy and large has
been winning. Yes, Doesn't it make sense then to play
on the same side as capital hundred percent and isn't
investing in equity markets the way to do that, Yes,
(36:15):
so long as you can stick with it when times
get rough correct because they will not just be linear.
They're not always just going to go up. And especially look,
we have not had a prolonged bear market in fifteen
years or so.
Speaker 3 (36:28):
Yeah, you know it's.
Speaker 4 (36:30):
Short ones, but you know the ones people need remind
you of this, Like the eight bear market took four
and a half years before it got back to its
base level.
Speaker 2 (36:39):
Forget that one, Mike, the tech bubble the Nasdaq took
like fourteen years to get back to its previous level,
So that might be more relevant to folks that are
not in such a diversified portfolio. Just understand these things
have ups and downs, they are not linear, and volatility
is the price of admission to.
Speaker 3 (36:58):
Equity markets.
Speaker 4 (36:59):
Before we move on to the next story, Chuck, I've
been thinking about them calling back the CPI staff, and
all I've been going to is Keanu Reeves and the replacements.
And I know it's not replacement staff, but I do
like the idea of a ragtag group of statisticians being
called in to put together the CPI report on next week.
I don't think that's gonna happen.
Speaker 1 (37:19):
Though.
Speaker 2 (37:19):
If if you covered the CPI for the BLS, what
would you like to cover?
Speaker 3 (37:24):
Like? What what section? If food?
Speaker 4 (37:27):
Because the most relatable I would like to be the
Minister of eggs, although then I'd probably be one thousand
pounds constantly.
Speaker 3 (37:33):
You don't have to pay the prices in order to know.
They might just be constantly talking about food. This takes
so expensive and I'm already fall No, no, no, off me.
I'm starving New England. Theer's are fed up with leaf
keeping tourists ruining their fall. Get over yourselves.
Speaker 2 (37:51):
You can't bite the hand that feeds you, like, I'm sorry.
If tourism is what supplies you know, the the revenue
four your town, that's kind of how it is. Yeah,
Like it's I don't really know what else to say
about that.
Speaker 3 (38:06):
That's it.
Speaker 4 (38:06):
Tourists are terrible and I get that they shouldn't be
trespassing on your lawn, but yeah, that comes with the Yeah, territory.
Speaker 2 (38:14):
It's it's just what it is. Let's take a quick
break when we return. Hour two coming up
The Financial Exchange is produced by Money Matters Radio and
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(00:20):
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(01:06):
and Mike Armstraw.
Speaker 2 (01:11):
Monday here on the Financial Exchange. Normally this would be
a pretty busy week ahead for economic data and earnings.
This week still busy week for earnings. But here's the
economic data that we are not going to be getting
because of the government's shutdown. We're not gonna be getting
retail sales. We're not going to be getting producer price indecks,
(01:31):
we're not gonna be getting weekly jobless claims. We're not
gonna be getting building permits and housing starts, and we're
not gonna be getting consumer price indecks.
Speaker 3 (01:40):
So building permits are a federal data.
Speaker 2 (01:42):
Yes they are Census Bureau. So overall we've got a
bunch of stuff that we're not getting. So instead we
have to excite ourselves over Jay Powell is going to
give a speech at twelve to twenty pm tomorrow, and
Jamie Diamond's gonna tell us how wow his company performed
in the most recent quarter. I think at least you
can get some interesting signals about, you know, what's going
(02:03):
on in the in the economy. So I do think
that the banks can can tell us something kind of interesting.
But am I gonna get all geared up for you know,
Neil Kashgari to give a speech at six pm on Wednesday.
Speaker 3 (02:16):
Thursday.
Speaker 2 (02:16):
Rather, No, I'm not, I'm I'm over it. You know,
I don't need more FED speakers I need. I was
trying to think of a witty rhyme on the spot,
but I couldn't get anywhere passed.
Speaker 4 (02:30):
I guess said, it's gonna generate the same level of
enthusiasm that my daughter's hockey games.
Speaker 3 (02:34):
Well, immediate family only if Neil's parents in the crowd.
Speaker 2 (02:40):
If Neil's your your son, do you show up to
all of his speeches?
Speaker 3 (02:44):
At this point, I most certainly.
Speaker 4 (02:46):
Would accomplished in his field. Yeah, yeah, I would be
at everyone traveling on the road show.
Speaker 2 (02:53):
If you're the FED chair, do you get to show
up to j Powell? Like, if you're the FED chair's family,
do you get comp tickets to his press conference?
Speaker 3 (03:01):
Oh? Probably not. It's my son up there, but my
son in the game, got the boys play. Come on.
Speaker 4 (03:09):
Markets in the meantime, making up about half the ground
that they lost on Friday, will be covering the US
China tension news today, but markets were down. SMP was
off nearly one point nine percent on No, two point
seven sorry, two point seven percent, one hundred and eighty
seven two points I think so, Yeah, making up about
(03:30):
half of that this morning in early trading as some
announcements there, but those are the big pieces for this
week as we look forward.
Speaker 3 (03:38):
And what day is the are we into the government shutdown?
Speaker 2 (03:41):
Here?
Speaker 3 (03:41):
Tucker? What number is this? Eleven thirteen? Oh good, he knew.
Its an odd number.
Speaker 2 (03:46):
If it started on the first, and today's the thirteenth,
it makes it pretty easy. Day, Like, the math is
not particularly complicated.
Speaker 3 (03:54):
I didn't recall when it started.
Speaker 2 (03:55):
So in any case, Friday, obviously, the big move was
after the Trump post about the potential increase in tariffs
and increased tensions between the US.
Speaker 3 (04:07):
And China got eleven am on Friday, Yeah.
Speaker 2 (04:10):
Just before eleven am, and so you know, you saw
stocks basically fall continuously throughout the day. The real damage,
quite honestly, was not in equity markets. Do either of
you know anyone who is big into crypto?
Speaker 3 (04:24):
No, yes, but no, didn't talk to them on Friday.
Probably a good thing.
Speaker 2 (04:30):
The folks that I've talked to in the crypto world
have said that Friday was basically the biggest liquidation event
that they have ever seen. Like I don't know exactly,
you know, what precipitated in this and that, but in particular,
when you get past some of the more well known
cryptocurrencies and towards some of the you know, off brand
(04:53):
the so called alt coins and stuff like that, there
was some real damage with like some intra day moves
being you know, nine percent plus down, and like the
stories that you've heard and seen are you know, people
losing millions of dollars in a single day and and
people just being entirely wiped out in a number of cases.
(05:15):
So I think the interesting thing to me when we
look at markets and this China situation, markets have not
cared about this in any real way since May. I
know that the market bottomed in April, but it's really
been since May. In that first round of you know, negotiations,
(05:35):
and I think it was Geneva at the time where
those take place. We've had subsequent rounds. I think maybe
another one engine even then one in Madrid, I think
it was Again. I'm just trying to you know, keep
track of all this, but ultimately it's been still about
five months since markets cared about this, and I think
the biggest reason is there hasn't really been much of
(05:56):
a threat you know, out there from either China to
the US in direct fashion since then, or any response
from the US either, right.
Speaker 4 (06:05):
I mean, it's not to say that there haven't been
real impacts on the ground. Go talk to anyone in
the farming community, and you're not having basically any Chinese
purchases of American agricultural goods. There are other effects and
impacts throughout the economy, but in terms of the stuff
that's driven markets, it's been pretty quiet between the US
and China.
Speaker 2 (06:24):
So why did market suddenly pick up on this on Friday?
And I have a couple theories as to why. The
first is, look, this is the first you know, kind
of re escalation that we've seen in a public facing
manner in a few months. So I think that, you know,
maybe that's meaningful in some way, shape or form. But
it's not like markets have really cared about tariffs a
(06:46):
whole lot over the last few months, even where there
have been other sporadic you know changes and things like that.
We had you know, higher tariff rates that went into
effect in August. The market didn't really care about those.
They weren't directed to China, which is obviously a major
US trading partner, But the market didn't really care about
the August ones, some of the sector specific ones market
(07:06):
hasn't really cared about the last month or two.
Speaker 3 (07:08):
So I think some of this.
Speaker 2 (07:11):
Obviously is just you know, overall, when you talk about
the two biggest economies in the world, if they start
to be more on you know, a collision course, yeah,
markets take notice a little bit. The other thing, quite honestly, is,
and this is gonna sound weird to begin with, but
what if this wasn't actually about China, but just where
the market was at this particular point in time, and
(07:33):
just kind of any catalyst could have caused this.
Speaker 3 (07:35):
And what I mean by this is.
Speaker 2 (07:39):
This has been a very very calm market over the
last five or six months, almost historically calm in terms
of actual realized volatility in markets. And the big reason
why this has been the case has been what we
can call dispersion, which is a fancy way of saying
not everything in the index is been moving in the
(08:00):
same direction. In fact, it's been moving in really different directions.
If you've watched this market for the for the last
six months, or so. It's been something where you say, hey,
you know, tech stocks are up and bank stocks are
lagging today, and but still we're moving up. And then
the next day, hey, industrials are up, and we've got
you know, utilities lagging, but the you know, industrials are
(08:21):
dragging the index up.
Speaker 3 (08:23):
So ultimately, this dispersion.
Speaker 2 (08:24):
Has resulted in a really calm market, even though under
the surface individual stocks have been moving a decent amount.
And one of the things that we then saw in
the last week and a half or so is, as
you started to see the last two weeks progressing for markets,
(08:45):
the way that markets typically progresses by climbing a wall
of worry, and the way that you can measure that
wall of worries through something called the VIX. VIX is
all often called the fear index, but it basically measures, hey,
what is the implied volatility of the S and P
five hundred over the next month based on options that
are out there. How much do market participants think the
market's gonna move on any particular day or over any
(09:07):
particular month. And generally what you see is when stocks
climb the wall of whorrer its stocks up vics down.
That's what you generally see because as stocks do better,
people think, okay, stocks are going to continue to do better, sure,
which is generally how they perform all time highs, beget
more all time highs. That's the general trend. For the
(09:27):
last couple of weeks, we saw this kind of weird
thing in markets where it was stock's moving up, but
the vix moving up as well. And where this starts
to cause problems is there's an awful lot of money
that is traded in what we call systematic fashion. And
this is a fancy way of saying it's rules based trading.
I'm not talking about high frequency trading, but rules based
(09:50):
trading where there are these funds that are out there
called volatility control funds, or you also have trend following
strategies and things like that, but a lot of it
is based off of, hey, how much volatility is in markets,
and when volatility goes up, we pull back in order
to protect our investors from moves and markets. That's how
volatility control funds typically work. And eventually you get to
(10:13):
a breaking point where if the vix goes up enough,
they start selling and things start moving. And so I
guess my question on this is is, Yes, like the
China thing could have been the initial catalyst, but the
rest of the move isn't necessarily related to investors being like,
oh no, this is you know, this huge, you know
China thing. But maybe the market was just primed for
(10:34):
this because of how the underlying market structure was set up.
Speaker 3 (10:39):
And I suppose, but you still needed the news for
it to be.
Speaker 2 (10:41):
You needed some kind of catalyst. I guess my point
is if it wasn't, this might have been something.
Speaker 3 (10:46):
It could have been.
Speaker 2 (10:47):
Something else, you know, something else comes out on first
brands today, or something comes out, you know, on a
financial earnings report this week, and that's the impetus for
this move.
Speaker 3 (10:55):
Anyway, I guess I just.
Speaker 4 (10:56):
Find it intriguing that. Look, when it comes to tensions
between the US and China, takes two to tango.
Speaker 3 (11:01):
The you would kick off, but occasionally you can tangle
by yourself.
Speaker 4 (11:05):
You would kick you kick this off on what was
it Wednesday night when the Chinese announced these new restrictions.
Speaker 3 (11:10):
Yeah, and I have markets didn't react at all.
Speaker 4 (11:14):
No, it took the post from the president at eleven
am just spark this sell off in markets. And so
again this is kind of why I don't take it
all that fundamentally seriously at the end of the day,
and why I hope and think that it's ends up
being more posturing than much else, because.
Speaker 3 (11:33):
Which is what we speculated at the time.
Speaker 4 (11:35):
Yeah, we speculated that on Thursday, that yeah, you're posturing
ahead of a negotiation. And frankly, the commentary from the
President of the United States over the weekend seem to
insinuate the same.
Speaker 2 (11:46):
Let's take a quick break when we return. Let's see
should we talk rare earths after this?
Speaker 1 (11:54):
Oh?
Speaker 3 (11:54):
I think we should.
Speaker 1 (11:58):
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Speaker 2 (13:02):
So the center of all the hubbub last week between
the US and China is China's new export restrictions on
rare earth materials, and specifically, basically what China is putting
in place here is it says, Look, if you have
any product that uses more than point one percent of
(13:22):
rare earth's in its construction.
Speaker 3 (13:24):
I think it is.
Speaker 4 (13:24):
More if the value of the product is more than
point one percent derived from those rare earths.
Speaker 2 (13:29):
But then we have the ability to restrict your sales
of that product worldwide.
Speaker 4 (13:35):
Is it the sales the productor or your ability to
get the No, we will like not necessarily license you
to be able to sell your product worldwide, meaning you
can sell whatever you want, but we won't give you
any new rare earth.
Speaker 3 (13:47):
That's a nice business you've got.
Speaker 2 (13:49):
There would be a shame if anything happened to your
rare earth supply, right is basically the sign here no
over the weekend, they've tried to you know, soften that
stance too. Well, we're likely going to app I prove
most of these it's really just for military applications and
this and that, to which then you get into okay,
like some of this stuff you see and you say, okay,
here's a clear military application. But there's a very easy
(14:13):
way that you could say that semiconductors are being used
for you know, military applications because they are and it's
it's impossible to prove exactly where they go. This is
also now a critical problem for the United States because
one would imagine, hey, even if you know, China is
approving rare earth exports for you know, GM or Forward
(14:35):
or whoever you know is building cars and whatever, they're
probably gonna be a little bit stringent about it when
it comes to oh, I don't know, raytheon. And you
do need this stuff when you're building Patriot missiles because
in order to build a motor that doesn't melt when
you need to turn the missile very quickly in a
short period of time, you need these rare earths. Yes,
(14:55):
so what does this actually mean. We're gonna have to
see what the implementation is. But this is why it's
potentially a devastating blow to you know, the ability for
companies across a wide range of industries to operate if
they can't get the rare earths that they want.
Speaker 4 (15:12):
And now all the posturing back and forth, you know,
you've had many US lawmakers coming out and saying that
the United States is far more leverage on China than
they do on US. I really would encourage everybody just
turn that stuff off, because it's a game of chicken.
Speaker 3 (15:30):
It doesn't matter. It does not matter first.
Speaker 4 (15:33):
It's about who is more will yeah, who blinks first,
who is more willing to accept more pain.
Speaker 3 (15:39):
The whole It's the whole game.
Speaker 4 (15:41):
And I would argue, by the way, that we won't
get there because all of this looks to me like
a bunch of posturing ahead of a scheduled meeting between
the two presidents so that each of them is able
to soften their position during that.
Speaker 2 (15:53):
Negotiation and come aways saying Yep, we got concessions on
this and everything's great.
Speaker 3 (15:58):
That's if we're being honest. That's probably the most likely outcome.
Speaker 2 (16:01):
But yeah, you don't know, because there is no stable
equilibrium in a game of chicken. Now, we also then
get this piece this morning, JP Morgan to invest ten
billion dollars in US company's critical to national security. The
subheadter Bank pledges to take stakes in companies such as
mineral producers, artificial intelligence firms, and others. Let me say
(16:23):
something when it comes to like rare earths and anything
related to them, even tangentially or even just like general
mining related. While I do think that over the next
couple of years, you like, like pricing on this stuff
could get nuts as everyone competes for it, doesn't it
(16:43):
feel like we're ultimately heading for a massive oversupply on
this stuff, like five to seven years from now, like
because now that everyone's talking about it, there's all this
money that's gonna seek it out and say, yes, like
we let's do this, Let's figure out how to do this,
let's chase this.
Speaker 3 (16:59):
There is a.
Speaker 4 (17:00):
Path for the US government basically saying that there is
now a price floor for certain rareer It's coming out
of the United States totally right, like that that is
very likely where this could all And I'm not saying
this is a bad thing.
Speaker 3 (17:10):
Sure, what I am saying is terrible business.
Speaker 2 (17:14):
It's not necessarily good for the overall business of rare earths,
because eventually, if you overproduce this stuff, then the US
government's gonna say, okay, let's pump the brakes. And if
your business is dependent on the US government to be
the buyer of last resorts, once you reach that oversupply
and you have you know, a national neobidium supply, you know,
(17:35):
that's you know, stuck aside. I think that's one of
the rares. I might have just made that name up,
but it sounded good.
Speaker 3 (17:41):
Good.
Speaker 2 (17:42):
Yeah, you know, like you're you're going to reach a
point where you overproduce this stuff even if US, which
is fine, I'll add it's it's because the risk of
underproducing Yeah, pretty bad we're seeing right now.
Speaker 4 (17:56):
Even if the US doesn't overproduce it for our own
domestic consumption needs, you can be sure that the Chinese
have the ability to. And so again, if this is,
if this reaches a point where for profit companies are
trying to compete with Chinese ones on rare earth materials,
(18:17):
which I don't think is what we're going towards but
you know, in a free capital market, at least on
the US side, they'll be put out of business by
Chinese counterparts because they will flood the market like they
have done with many other items, which is how we
ended up here in the first place. Right, Like, if
you look at the defining characteristics of the US and
Chinese economies, the US we've never met a debt. We
(18:40):
didn't like China, we can always sell more of it
cheaper than you.
Speaker 3 (18:45):
Yeah, Like that's those.
Speaker 2 (18:47):
Are like the defining characteristics in terms of where the
excess comes from.
Speaker 3 (18:52):
The US.
Speaker 2 (18:53):
Well, we can buy more than you can China, yeah,
but we can produce more than you can.
Speaker 3 (18:58):
Yeah.
Speaker 2 (18:58):
That's that's kind of the tension that you have between
the two systems and the way that they are set up.
Speaker 4 (19:04):
Which is great for TVs and bad for rare earth materials.
Speaker 2 (19:09):
What about rare earth TVs? A TV that spins because
of a magnet in it sounds like it'd cause cancer
or just dizziness.
Speaker 3 (19:18):
Let's take a quick break.
Speaker 2 (19:19):
When one returns, one will do Wall Street watch after this.
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 market so
far today right here on the Financial Exchange Radio Network.
Speaker 5 (20:00):
It's a rebounding to begin the week after Friday's selloff,
after President Trump followed up his social media post yesterday
saying don't worry about China, it will all be fine.
Trump's initial post on Friday was critical of China threatening
massive tariffs. Right now, the Dow is up nearly one percent,
are four hundred and twenty points higher. S and P
(20:20):
five hundred up one point two percent or eighty three
points higher, Nasdaq up one point eight percent or four
hundred and eight points. Hire Russell two thousand is up
over two percent. Bond market closed today in observance of
the holiday, and crude oil up one and a half
percent today, treating a fifty nine dollars in seventy seven
(20:41):
cents a barrel m B excuse me. NP Material stocks
surging twenty percent after the Pentagon recently took a stake
in the rare Earth's producer, adding to its recent rally
last week. China tightened rare earth export controls other miners,
including US A rare earth critical metals in energy fuels
are also seeing strong gains on the day. Meanwhile, shares
(21:04):
in Broadcom rallying nearly nine percent following news that OpenAI
signed a multi year packed with Broadcom to collaborate on
custom chips and networking equipment, where the two companies will
jointly build and deploy ten gigawatts of custom AI accelerators. Elsewhere,
Shares in Warner Brothers Discovery rising over four percent following
(21:24):
reports that the company had rejected Paramount Skydance's proposed buyout
of roughly twenty dollars a share. Furthermore, reports also say
that Paramount CEO David Ellison is making a play to
buy all of Warner before it splits. It may take
his offer directly two shareholders, JP Morgan Chase up over
two percent after the bank said it would directly invest
(21:46):
ten billion dollars in companies it deems critical to national security,
speaking of which JP Morgan Chase and other major banks
including Wells Fargo, Goldman, Sachs, Blackrock, and City Group will
post their third quarter earn ahead of tomorrow's open Outside
of banks Johnson and Johnson, Ericsson, Dominoes, and Alpertson's will
also report their third quarter results ahead of the opening bell.
(22:10):
I'm Tucker Silva and that is Walltree watch.
Speaker 3 (22:13):
Piece here from US. This is Bloomberg.
Speaker 2 (22:15):
Yeah, from Tricolor to Sacks, bonds are now crashing at
breakneck speed.
Speaker 3 (22:22):
Well, I mean, I think that's.
Speaker 2 (22:24):
Kind of broad. I mean, bonds as a whole are
generally fine. In fact, the ten year Treasury had a
nice little bid to it on Friday and all.
Speaker 3 (22:31):
Of the commotion and hubbub.
Speaker 2 (22:33):
But yes, I think that the general stance of hey,
if your company has way more debt than investors thought
and you declare bankruptcy, your bonds are going to crash
is a pretty like respectable place to.
Speaker 4 (22:48):
Land, by the way, I mean, yeah, crashing to me
implies something different than what we see. I'm taking a
look at data from Saint Louis Fan. It's the b
of a US High Yield Index option adjusted spread, so
that they're looking at junk versus risk free asset, and
we were sitting at a spread of two and three
(23:11):
quarters last Monday.
Speaker 3 (23:14):
We're up to two nine five.
Speaker 4 (23:17):
It doesn't seem like spreads have blown out on the
riskier bucket now. I will acknowledge for a minute here
that many are arguing that the junk market, which is
what we're actually measuring here, has been partly de risked
by this exact factor of private credit, and so maybe
that's not where the risk lives and we should be
more focused on this private credit industry. That you can't
(23:39):
meaning clean measure. But yeah, it does not at the
very least, it is not a risk off everything type
of trade right now in bonds.
Speaker 3 (23:49):
No.
Speaker 2 (23:49):
Now, that also doesn't mean that you're going to be fine.
As an example, if you look at the historical spreads
on triple seed debt, just as an example, which is
basically like the lowest quality of junk debt before you
get to defaulting. In May of two thousand and five,
(24:10):
the spreads on triple ceed debt were nine and a
half percent, So you got paid have to, you know,
a nice little margin to do that to endo those companies. Again,
that's the spread between treasuries of a certain of a
similar maturity, Yes.
Speaker 3 (24:24):
Got it.
Speaker 2 (24:25):
By June of seven that spread was down to four
point one percent. Well, we all know what happened afterwards.
Those spreads blew out during the financial crisis and in
November of two thousand and eight, that spread was north
of forty four percent. So I do think that credit
spreads are not usually they're not usually a great leading indicator.
(24:49):
They're often a coincident indicator. Now, they did start to
show problems. So from June of seven through March of eight,
that triple C spread went from four up to twelve. Yeah,
so like you started to see it building towards the
financial crisis there, and then obviously when everything happened in
the fall of eight, like they went, you know, just
just nutty.
Speaker 3 (25:10):
But so what if that signal's gone now?
Speaker 2 (25:13):
And this is the problem is the private credit industry
has taken a lot of below investment grade debt and
taken it out of public markets where you get accurate
price discovery on a daily basis, and instead it might
be just one company that's holding all of that debt,
and so it doesn't reprice. It might be a few,
but it still doesn't reprice because there's no secondary market
(25:34):
for it and it doesn't trade. And so the two
questions that are out there. Number one is, hey, have
we lost you know, an aspect of price discovery in
the junk bond market because so much of it is
held privately as opposed to in publicly traded bonds. Now
and the second piece there, and this is the part
(25:55):
to me that is reminiscent of seven is it's in
a different area. In O seven it was, hey, we're
holding all of this, these mortgage backed securities? Are these
worth anything?
Speaker 3 (26:08):
Was the question?
Speaker 2 (26:08):
Then now the question is, realistically, hey, we're holding all
of these, you know, privately made loans. What if there's
more first brands? And if there are, is what we're
holding worth anything?
Speaker 3 (26:23):
Right? And who is left holding?
Speaker 2 (26:25):
And so these are the questions that every private credit
lender is asking right now, and they don't have answers.
Speaker 4 (26:33):
I'll be the first say that SMP, as a rating
agency frequently gets some things wrong here and there. But
Financial Time is reporting that the rating agency SMP has
warned us ensures of the risks of the complexity and
lack of disclosure in the private credit market.
Speaker 3 (26:50):
So if you're wondering, again, what is one holder of.
Speaker 4 (26:54):
All this debt that you interact with very frequently, it
might be your insurance company.
Speaker 2 (26:59):
Not just one, Michael, a massive one. Insurers over the
last three to five years have been some of the
biggest buyers of collateralized loan obligations from private credit. And
the reason why is simple. If you are in a
competition to you know, keep the lowest rates possible and
(27:20):
you know, not raise your rates because of you know,
all of the things going on in the world over
the last five six years and also look attractive to
your investors from a growing profitability standpoint.
Speaker 3 (27:30):
Correct.
Speaker 2 (27:30):
One of the best ways that you can do that
is say, yeah, if I can go out and buy
a pool of private credit that's yielding twelve percent instead
of holding treasuries yielding five.
Speaker 3 (27:38):
With your premiums.
Speaker 2 (27:39):
By the way, sure like of course insurers are going
to say yeah, like it's you know, highly rated.
Speaker 3 (27:44):
Why wouldn't I do that?
Speaker 2 (27:46):
And this is the part where there are some real
echoes of the financial crisis, right and you just don't
know what the scales, you don't know what the scope
of it is.
Speaker 4 (27:56):
It is that would really suck if we took it
out of the uh, you know, too big to feel,
too big to fail banks, we took all the risk
out of there, and we put it into a bunch
of insurance companies who are also too big to fail. Well,
and it's what if what if three insurers went down
in the United States and it would sink the entire market,
And it's all.
Speaker 2 (28:13):
The this whole mechanism is, Hey, the banks aren't making
these loans. It's all non bank lending that's going on.
It's all you know, these asset managers that said, yeah,
we have these vehicles that we're setting up in order
to lend money to companies, and you're gonna get yields
of you know, eight to twelve percent on this.
Speaker 3 (28:32):
But don't worry.
Speaker 2 (28:33):
It's it's it's fine, like it's you know, it's safer
than public markets because it doesn't trade.
Speaker 3 (28:39):
Well.
Speaker 2 (28:39):
No, that just means there's no mark to market efficiency
that you get there, and so you don't know what
the value is.
Speaker 4 (28:44):
And it'd be one thing if the insurance company's businesses
were relatively stable in the first place, which they're which
they're not.
Speaker 2 (28:52):
Look, I I gotta tell you, I hope I'm wrong
about this, but I'm getting this not great feeling about
this whole space now.
Speaker 3 (29:01):
And it's it's not that everything's gonna be a mess.
Speaker 2 (29:03):
It's not that it's gonna be you know, financial crisis
two point zero, but it's rare that you just see
like two defaults in the auto sector and then everything else.
Speaker 3 (29:13):
Is fine, hunky dory like.
Speaker 2 (29:15):
That that doesn't really feel like what's happening here? And
I'm just like, my spidy sense is just tingling a
little bit in this whole space right now. And of
course then you also get the piece in the Wall
Street Journal Jeffrey seeks to calm worries over First Brands
because hey, when First Brands has ten billion dollars in
(29:36):
debt and Jeffries, you know one of their investment funds
point benit a capital investment held like seven percent of
that in one fund. You're like, do you guys understand
the principles of diversification amongst poorly rated like lending risks?
Speaker 3 (29:56):
Now, next question, and this is where his.
Speaker 2 (29:59):
Story, like, you give banks a lot of credit because
aside from like two thousand and eight, the thing about
banks is normally they're really conservative. Like the biggest problem
that you get with banks especially you can even make
the case since then banks don't really like making loans,
like they're scared to make loans for a number of
(30:20):
different reasons. This here, when you look at what's going
on in private credit. It's just the wild West. It's
oh sure, I can underwrite that for you know this,
of course we can do that for you. And it
just gives me the willies. Right now, I've got the willies.
Let's take a quick break here, and when we come back,
(30:42):
we'll talk about the September CPI report that we're actually
going to get next Friday.
Speaker 1 (30:46):
Right after this, the latest news on inflation, the Fed,
the economy, and how the markets are reacting. Every morning
right here on the Financial Exchange Radio Network, tanks US
six one seven to thirteen eighty five, with your comments
and questions about today's show, and let us know what
you think about the stories we are covering. This is
(31:07):
the Financial Exchange Radio Network.
Speaker 3 (31:24):
All right.
Speaker 2 (31:24):
So late last week we did get word from the
BOS that they were calling their CPI staff. Imagine being like,
if you're running that reporter, you the director of inflation.
Speaker 3 (31:37):
Oh yeah, what does it say on your business card?
Director of Inflation, I would hope.
Speaker 2 (31:44):
But in any case, they were calling the staff in
order to make them essential from non essential, the reason
being the September CPI report directly feeds into the cost
of living adjustment for Social Security next year. And so
this is obviously some thing that you need to get
in a timely fashion just because there's you know, a
lot that goes into then making that work. I don't
(32:07):
think you just like go in and, you know, say,
inflate everything by x percent and it works immediately. I
think there's probably a little bit of a process to
it there. So we aren't going to be getting CPI
this week as we were supposed to. It's gonna be
next Friday, on the twenty fourth instead, which will be
ahead of the FED meeting, yep, ahead of.
Speaker 3 (32:23):
The FED meeting.
Speaker 2 (32:24):
And so still I think a valuable data point for us,
who are you know, kind of starved for data points
amongst the series that we're used to. But also means
that we will know that Social Security cost of living
adjustment in short order as well.
Speaker 4 (32:37):
Yeah, you'll get all sorts of other adjustments that are
used for tax filence. I think we already got the brackets,
but things like for one K contribution limits and items
like that would would come in as part of this
as well.
Speaker 3 (32:49):
But I think the important.
Speaker 4 (32:52):
Piece of all this chuck is it does feel right
now as though there are some increased concerns among vesters,
all while experiencing an absence of reliable data about this economy,
which has not really led to anything terribly dramatic, and
I don't really expect that it will during the government
(33:12):
shutdown itself. But when you have this absence of information,
investors are more and more reliant upon you know, tweets
and announcements, earnings reports that are going to be ongoing.
And if you are finding yourself in a position where
you're trying to sort these things through, we would love
for you to join us. You know, obviously you're listening
(33:33):
to this program now and we'd love to see you
at our live event this Thursday in Chestnut Hill. We
did one of these last week. It was well attended
in a really fun time. Spoke to the you know,
got to speak to people during the program, during the
breaks during the program, but got to speak to people
during the program and talk about these subjects on a
real one on one basis. It led to a really
(33:53):
great series of conversations. And we're doing another one of
these this Thursday again in Chestnut Hill at the show
case Super Lucks. It's free to attend. It's a live
broadcast of this show followed by lunch and a chat
with Chuck, myself and the staff of Armstrong Advisory Group
really focused on our own outlook of what's going on
in markets, what's going on the economy, and what does
(34:14):
it mean for average investors of all different types. So
we would love for you to join us. You do
have to register ahead of time. Obviously we're closing in
here on the date. It's this Thursday at the showcase
Super Lucks and Chestnut Hill. The numbers eight hundred three
nine three four zero zero one. If you're driving around
right now, don't have time to call check us out
when you get home or when you get to work
(34:36):
at Armstrong.
Speaker 3 (34:36):
Advisory dot Com.
Speaker 4 (34:38):
All the details right at the top of the page there,
but this Thursday Showcase, super Lucks Chestnut Hill eight hundred
three nine three for zero zero one to reserve your spot.
Speaker 1 (34:46):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal or tax advice. Consult
your own financial, tax into state planning advisors before making
any investment decisions. Armstrong may contact you to offer advisory services.
Speaker 2 (35:01):
Piece in the Wall Street Journal more working class Americans
than ever are investing in the stock market.
Speaker 3 (35:07):
Great news long term, terrible news short term. Why is
it terrible news short term? Ah? I guess it hasn't
been for the last four years.
Speaker 4 (35:13):
But my guess would be that many of them jumped
in over the course the last few years during COVID
and other events and invest on. There's probably a lot
more investors as a percentage of the total that are
not terribly experienced with market downturns, would be my guess.
Speaker 3 (35:32):
That's fair.
Speaker 2 (35:33):
And look, every investor at some point goes through some
kind of large drawdown, usually due to their own poor
risk management and setup of their accounts. I know when
I was starting out, I certainly had my days where
I'm like, oh boy, that really sucks, Like that's not great.
You're not supposed to see, you know, that kind of loss.
But you hopefully, you know, learn from me mistakes. Don't
(35:54):
make the same one twice. And look, I'm a big
believer in this because ultimately, when when we at the
playing field between labor and capital over the last forty years,
can we all agree that capital buy and large has
been winning. Yes, Doesn't it make sense then to play
on the same side as capital hundred percent and isn't
investing in equity markets the way to do that, Yes,
(36:15):
so long as you can stick with it when times
get rough correct because they will not just be linear.
They're not always just going to go up. And especially look,
we have not had a prolonged bear market in fifteen
years or so.
Speaker 3 (36:28):
Yeah, you know it's.
Speaker 4 (36:30):
Short ones, but you know the ones people need remind
you of this, Like the eight bear market took four
and a half years before it got back to its
base level.
Speaker 2 (36:39):
Forget that one, Mike, the tech bubble the Nasdaq took
like fourteen years to get back to its previous level,
So that might be more relevant to folks that are
not in such a diversified portfolio. Just understand these things
have ups and downs, they are not linear, and volatility
is the price of admission to.
Speaker 3 (36:58):
Equity markets.
Speaker 4 (36:59):
Before we move on to the next story, Chuck, I've
been thinking about them calling back the CPI staff, and
all I've been going to is Keanu Reeves and the replacements.
And I know it's not replacement staff, but I do
like the idea of a ragtag group of statisticians being
called in to put together the CPI report on next week.
I don't think that's gonna happen.
Speaker 1 (37:19):
Though.
Speaker 2 (37:19):
If if you covered the CPI for the BLS, what
would you like to cover?
Speaker 3 (37:24):
Like? What what section? If food?
Speaker 4 (37:27):
Because the most relatable I would like to be the
Minister of eggs, although then I'd probably be one thousand
pounds constantly.
Speaker 3 (37:33):
You don't have to pay the prices in order to know.
They might just be constantly talking about food. This takes
so expensive and I'm already fall No, no, no, off me.
I'm starving New England. Theer's are fed up with leaf
keeping tourists ruining their fall. Get over yourselves.
Speaker 2 (37:51):
You can't bite the hand that feeds you, like, I'm sorry.
If tourism is what supplies you know, the the revenue
four your town, that's kind of how it is. Yeah,
Like it's I don't really know what else to say
about that.
Speaker 3 (38:06):
That's it.
Speaker 4 (38:06):
Tourists are terrible and I get that they shouldn't be
trespassing on your lawn, but yeah, that comes with the Yeah, territory.
Speaker 2 (38:14):
It's it's just what it is. Let's take a quick
break when we return. Hour two coming up
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