November 11, 2025 • 38 mins
Chuck Zodda and Paul Lane discuss the Senate taking the first step in reopening the government. What could be the economic fallout from the shutdown? US household debt hits a new record, NY Fed finds. Why did SoftBank sell its entire stake in Nvidia? Is a 50-year mortgage a terrible idea? Many would-be buyers are frozen out of the housing market.
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Episode Transcript
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Speaker 1 (00:00):
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(01:06):
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Speaker 2 (01:11):
Welcome to this Tuesday edition of the Financial Exchange, and
a happy Veterans Day to all our listeners out there,
and a big thank you to all of those who
have served and protected our country. We have a busy
day today and the Financial Exchange a lot of stories
to cover here. Certainly the one that will kick off
the program with is the continued updates on where the
(01:33):
US federal government shutdown sits. At the moment, we are
about forty plus days in. However, we did get news
last night, and some of this was kind of teased
out yesterday. The Senate did in fact pass a past
a measure to end the government shutdown through.
Speaker 3 (01:49):
A sixty to forty vote.
Speaker 2 (01:50):
It was approved to move along to the House of
Representatives where they will vote on it, I believe, as
early as Wednesday at four o'clock, and it's very likely
that the Republican controlled House will move that on to
the President's desk after and we could be looking at
the end of the government shutdown, likely Thursday or Friday
(02:11):
of this week. So certainly welcome news here. Mark that
this will likely be put to bed here over the
course the next couple of days. The agreement that is
set in place will extend funding for the federal government
until January thirtieth, and then myself and Mark and Chuck
and Mike will be talking about this, probably all over
again in a couple of months from now, where we
(02:32):
can look forward to using some of our old material
on potential looming government shutdown. But hopefully this buys us
some time for now, and we'll see what the end
of January will look like as long as all this
stuff moves through over the course of the next couple
of years.
Speaker 4 (02:48):
Yeah, I think the longer term lesson here is many
of you have seen the comparisons of the lengths of
recent shutdowns relative to shutdowns in the more distant past.
They were brief because the issues weren't And this is
common sense, I guess, but I had to stop and
think about it. The issues just weren't as a vital
(03:10):
We have no fiscal space left, is what I'm trying
to say. That wasn't true In the eighties and nineties.
Debt to GDP was forty fifty percent at most, so
there was room to run, and we did. We did,
indeed run. We're out arguably of fiscal runway. God forbid,
we have an emergency, another pandemic, a war absent printing money,
(03:34):
which is not unusual even in America. We did it
in the forties, we did it in the eighteen Going
back a little farther, we did in the eighteen sixties.
We had very high bursive infleetion, tough time during those Yeah. Yeah,
well we all we all scrimpt and saved. I guess
we shouldn't be joking about the Civil War, but well
maybe it's maybe it's I think maybe you keep out enough,
(03:54):
maybe enough time has passed. But you know, look, my
point is we're out of fiscal we're fiscal leg room now,
so every little dispute is amplified.
Speaker 2 (04:05):
Right, and now we sit with a government that seems
to be well positioned, I guess for the next couple months. So,
but you're right, these issues will be Yeah, these issues
have gone on for the last several years. And this
this arbitrary ceiling that we set and then bump into
and then we have to do this whole song and
dance over and over again. It just seems like that
(04:27):
is not going anywhere anytime soon. So that's one aspect
of things, is that this is resolved, But from a
longer term perspective physical discipline we were talking on yesterday's show,
it's just not something that either political party has shown
really any desire to get under control.
Speaker 4 (04:43):
It's really been horrendous.
Speaker 2 (04:45):
For twenty five or thirty years, it hasn't been an issue.
So from our standpoint, this is going to be continued
to be issue, you know, whether or not the government
continues to run into these cliffs. What this means in
terms of the impact on federal employees, they would be
back paid for the period of time that they were
not getting paid for. And then really with the.
Speaker 4 (05:07):
You don't save any money. None of this was about
saving oh no, no, no really or even cutting spending, no not,
None of it was about any of those fiscal.
Speaker 2 (05:15):
Really more about smaller deal points regarding the American Affordable
Care Act and some of its credits and subsidies there.
Speaker 3 (05:23):
That was head of the dispute.
Speaker 2 (05:26):
You also had just some debates regarding government workers and
potential firings of those. But anyway, all this gets put
to the back burner for the moment here. The next
thing that we moved to is just trying to gain
sort of any determination as to what the economic impact
could be of the government being shut down for six
(05:46):
weeks or so. There are some pieces that have been
written comparing it back to some other shutdowns that we've
seen and potentially what it could do in terms of
shaving off GDP growth. The Congressional Budget Office had estimated
that if the shutdown where it last for six weeks,
we're going to come in right around that time frame here,
relatively close, that it would reduce the annualized growth of
(06:08):
Q four GDP by one and a half percent. I've
seen other estimates out there from Oxford Economics that it
would only shave off one percent of GDP growth in
Q four. Where do you kind of ligne on the side.
I know it's not really clear data evidence one way
or another, but rather muted impact is sort of where
I would lean mark in terms of its economic impact
(06:31):
the shutdown that we've just experienced here, I'm kind of
jumping ahead by saying that we will have this resolved
by Friday.
Speaker 3 (06:37):
So under that assumption, yeah, I'll go with the.
Speaker 4 (06:43):
Being counters who keep track of the components of GDP,
which GDP is just overall spending, so it's consumption, which
is what we spend investment, which is partly what we spend,
partly what businesses spend, and housing is included in that.
Government spending is the other component of GDP, and then
there's a little adjustment for net exports because you don't
want to double out them. So it's a short term
accounting based measure of how much we have spent in
(07:06):
a given period. GDP is a quarterly statistic that's different
than growth. It's easy to confuse the two. I wouldn't
expect any impact on the long term productive capacity of
the US economy trend growth. In the short term, it
could be a little bit disruptive, and maybe if you're
on the cusp of recession then it does become more concerning.
(07:26):
But generally speaking, using history as a precedent, you make
up for these shutdowns pretty quickly because once again, no
spending was actually cut, no employees were actually fired. I'm
not saying they should have been, but this was not
about shoring up our fiscal situation. It was fought over
different considerations.
Speaker 2 (07:45):
And the other key consideration will be economic data. We
have had a freeze in terms of any economic data
that we've received, whether it be the jobs report, retail
sales inflationary data, and so the next thing that we
turned to is just trying to get a sense for
when some of that data will be released. The first
report that we will most likely receive, I would imagine
(08:06):
by early next week, is the September Jobs and Inflation
report that was basically already fully baked in and was
ready to go prior to the government shutting down on
October first, So we will likely get that very early
next week because all of that data had been accumulated.
When it comes to some of these other reports for
the month of October and November, when you look at
(08:29):
the key categories that us on the show and many
economists investors look at on a monthly basis, whether it's
retail sales or inflatia, there's been some projections that have
been thrown out there based on other instances when the
government was shut down and not collecting this type of data.
December eighth is a projection that I saw thrown out
there for the October and November jobs report. It's important
(08:51):
to note that the Federal Reserve will get together for
its next meeting on the ninth and tenth of December,
so it's very likely that they will not have many
of these months of economic data. When they do get together,
it's going to be difficult for all these estimates to
be compiled and be put together. So it's just going
to be sort of a wait and see and they'll
(09:12):
be kind of going in blindly.
Speaker 3 (09:13):
Very likely. Yeah, if you think.
Speaker 4 (09:14):
About the FED, I say this every time I'm on,
but I think it's a helpful analogy. It's the economy's thermostat.
The economy gets too hot, and specifically, what I mean
by that is demand exceeds the economy's productive capacity. Demand
overall demand sometimes called aggregate demand. You hear economist stow
that term around, exceeds aggregate supply. When that happens, you
(09:35):
get up with pressure on prices. It's unavoidable. The Fed's
job is to the extent that when demand the extent
that demand exceeds supply because it has overstimulated, because it
is effectively printed too much money. The FED job is
to cool the economy down. That's why make the thermostat analogy,
and vice versa. When the economy is not living up
to its productive potential, the Fed's job is to give.
Speaker 3 (09:59):
It a boost.
Speaker 4 (10:00):
It's tough it would be like asking your HVAC system
to function properly without inputting the right room temperature. Should
I be calling for heat? Should I be calling for AC?
Should I be calling for nothing for the thermostat? I
guess could ask those questions. That's what it would be asking.
That's what the Fed's asking right now. It doesn't have
a good reading on the ambient temperature.
Speaker 2 (10:21):
Yeah, it just was thinking of my son who's four
years old. In the car will sometimes just say, you know,
he'll say turn on the heat, but he means put
on the cool air and just doesn't know the expression.
It still needs to learn the air conditioning.
Speaker 4 (10:33):
So maybe a career as an HVACT technician is.
Speaker 2 (10:35):
Not He's still young. He'll figure it out. We're going
to take a quick break here on the financial distange.
When we come back, I want to talk specifically about
the government shutdown and the impact on the labor market
and the lack of data that we've seen and do
we have the prerequisite data that will give us a
good sense for where is the labor market at this point.
We're going to talk about that right after this break
(10:56):
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Speaker 3 (11:57):
All right, come back from break here.
Speaker 2 (11:58):
We are talking in the prior segment about the US
labor market, and in particular, one of the things that's
been really challenging with the labor market over the course
of the last month or so is we've had really
no economic data from a federal government perspective to get
a sense for where is the labor market at this
point in time. So as a result, we've been forced
to look at some of the private payroll data providers
(12:21):
and other just economists out there for other resources to
get a sense for where is the labor market at
this point in time. The unemployment rate sits about four
point three percent. It's projected that perhaps it had ticked
up to four point three six percent in October. But
what we're seeing now is some different charts that we're
(12:42):
put together in a piece by Barons here. And the
question I have to you, Mark is is how much
stock do you put into some of these You know,
private payroll data aggregators ADP is a big one, and
oftentimes when they were released in conjunction with government data,
we largely ignore I think their reference perhaps in passing.
(13:03):
But now they've had their time in the sun over
the course of the last month or so. How much
stock do you put into some of these reports and
some of these data points that are coming out on
the private side of things.
Speaker 4 (13:12):
I think different bits of information from the private sector
could be helpful if you're forecasting, if you're.
Speaker 3 (13:20):
Trying to do.
Speaker 4 (13:21):
Let me back up and just state it plainly, and
then you tell me if this makes sense, Paul. If
you're doing forecasting and most of us are not, I mean,
I do it sort of as a hobby, but it's
you know, it's not really part of my most urgent
day to day duties in my day job at Armstrong
Advisory Group because we're not a macroeconomic advisory for them,
and I'm not a labor economist. But I have found
(13:41):
that if you're trying to do your little forecast of
what the payroll change is going to be, and you
do that using statistical methods in computer software, if you
add to whatever your little model is what ADP reported
this month, which usually comes out within a few days
of the DL's official report, you can improve your forecast
a little bit. So I have found, and I'm sure
others have found this too. Again, I'm not a labor
(14:02):
economist and it's not my kind of full time job,
so I'll just call myself a hobbyist.
Speaker 3 (14:08):
I found that it's helpful. It does not just.
Speaker 4 (14:10):
I've found through month over month experience, if you go
back and test it, you can improve your forecasting a
little bit, so there's information in there, Paul. Now, should
you and I as sort of uh, in this context
labor are commentators economic and financial market commentator? Should we
get all hung up on it?
Speaker 3 (14:27):
I don't know.
Speaker 4 (14:28):
This is where I struggle with with economic data and
the way people use it.
Speaker 3 (14:31):
There are.
Speaker 4 (14:33):
Like, you know, like a lot of really spicy ingredients.
They're sort of good in very small quantities if you
know how to deploy them, but you shouldn't take them
out of context, you know.
Speaker 3 (14:43):
That's that's the That's I think the best I could
say about it.
Speaker 2 (14:46):
If a family member were to ask you a Thanksgiving
in a couple.
Speaker 4 (14:51):
I'm gonna stop you right there.
Speaker 5 (14:53):
I'm already If they were to to chat.
Speaker 2 (14:55):
With you over some turkey and stuff and say, hey, Mark,
you know how is how has the labor market? Ben?
Speaker 3 (15:01):
You know what?
Speaker 2 (15:01):
What would you give to them as a generic sort
of summation of where where do we stand at this point?
Recognizing that, yeah, the data has been murky I guess
over the last month. Is so, how would you summarize
that to them in sort of the lay terms for
just someone sitting at the table, look.
Speaker 4 (15:19):
The economy based on the last snapshot we had appears
to be good.
Speaker 3 (15:23):
Yep.
Speaker 4 (15:23):
Growth is and what I mean by that very simply
one concept. Growth is at or above trend, which is
about as good as it gets. Is the most you
can ask for, and it's been the case, by the way,
for the past few years. Policies have changed a lot,
tariff policy and monetary policies changing. We can get into that,
I think we will a little bit later in the
(15:44):
stack that Tucker Silov will put together. But it's amazing
how under the hood the economy doesn't change much, or
changes only very slowly, even in response to big policy changes.
Speaker 3 (15:55):
So it's good, Paul.
Speaker 4 (15:56):
It's hard to deny that are their concerns.
Speaker 3 (15:58):
Sure you you ticked off a bunch YEP.
Speaker 2 (16:01):
Labor market, I would say specifically, I know you have
kind of specifically the economy in general labor market. What
I would say, for you know, a key couple of
bullet points is that you have an unemployment rate that
has remained relatively steady at four point three percent. Yes,
at the lows it was three and a half percent,
so we're higher than we were there, but it has
(16:21):
stayed very stable at this four point three percent. And
historically I would be telling this person at the Thanksgiving table,
that is a very good rate of unemployment, very very
full rate there on the hiring shut On the hiring front,
then we've seen a bit of a slowdown. There hasn't
been this tremendous amount of job growth that we've seen
(16:43):
in twenty one twenty two. To be fair, those were
extremely robust periods of labor growth that were well beyond
what you've seen historically. You've also seen more anecdotal evidence
that there seems to be an uptick in layoffs. Unclear
if that is wide spread that we've seen significant layoffs.
You just are starting to see some big headline companies
(17:05):
Amazon comes to mind, and others that are sort of
cutting headcount a little bit. And then you've heard also
just that those new entrants into the labor market are
having a little more difficulty.
Speaker 3 (17:14):
So that's also that I what does all that mean though?
What does all that mean? Is that is the lad
I think you.
Speaker 4 (17:20):
Know the answer to this. You're wrong, right, I don't
know that, But I'm not talking to you. I'm talking
to people.
Speaker 2 (17:25):
Well, what I would say to investors or friends and
family out there. The big focus that the federal Reserve
has very clearly indicated that they are going to be
most focused on for the next six to twelve months
or however period of time. It is less so inflation
that we talked about a lot over the course of
the last year or so, particularly around April with the
implementation of TERRAS. There was a lot of thought put
(17:46):
behind this idea that was going to lead to increased prices.
No evidence to that just yet. It's really the labor market.
Does it trend into a negative direction where that unemployment
rate increases and we see a true slowdown. No evidence
to point to that just yet. The next six months
or so, that seems to be the Federal Reserve's biggest focus. Unfortunately,
(18:06):
the challenging part is going to be it's going to
be likely not until January or February that you could
say you'll have a good grasp and we'll kind of
be back running at the regularly scheduled deployment of all
this economic data because of the glut that we've sort
of created with this government.
Speaker 4 (18:22):
Yeah, we just don't know, which is why it's puzzling
that some people are clamoring really loudly for interest rate cuts,
big interest rate cuts. You know, some of them have
political most of them have political motivations. That's always the case.
But you never really know the true state of the economy.
These figures that we're talking about, even when we get them,
they'll still just be statistics, which means it's an estimate,
(18:45):
and that estimate could be high low. It's never spot on.
Speaker 3 (18:50):
We just don't know.
Speaker 2 (18:51):
Taking a look at markets, we've got the Dow up
about eighty five points at the moment, the S and
P five hundred is slightly a negative territory, down about
a quarter percent, and the Nasdaq is down about two
thirds of a percent. Here we're going to take a
quick break here on the finish this change, but when
we come back, we're be talking a little bit about
US household debt hitting a new record according to the
(19:14):
New York Fed. We'll also be talking about SoftBank, who
sold its stake in Nvidia for a whopping five point
eight billion dollars. That and Wall Street rotch right after
this break.
Speaker 1 (19:40):
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Speaker 5 (19:59):
Following yesterday's strong rebound, Marcus today are mixed after the
Senate officially passed a bill to end the historic government shutdown,
sending it to the House. Right now, the Dow is
up three tenths of one percent or one hundred and
forty three points. SMP five hundred down over third of
a percent or twenty four points lower at NASDAC down
(20:21):
by eight tenths of one percent or one hundred and
ninety points. Rusted two thousand is down just over a
third of a percent. Ten year Treasure Bil no movement
today because the bomb market is closed in observance of
the Veteran Day holiday, and crude oil up one on
a third percent, trading just below sixty one dollars a barrel,
(20:42):
and Vidia shares pulling back by three percent after Soft
Bank disclosed it sold its entire five point eight billion
dollar stake in the chip maker in Ai Giant back
in October, where the firm said it looks to capitalize
on it's all in bet on chat GPT maker open Aiyes,
sticking with that sector where core weave stock is plunging
(21:03):
thirteen percent after the AI Infrastructure Company posted a disappointing
full year guidance incited a delay by a third party
data center developer. Core We've saw its revenue more than
double in the previous quarter, driven by the AI boom,
while its net loss narrowed. Meanwhile, Plant based protein company
and recent meme stock Beyond Meat saw its loss. Wide
(21:26):
in sales declined last quarter as demand from customers and
restaurants fell, beyond stock sinking six percent. Today Elsewhere, Paramount
reported growth from its streaming division, its first quarterly report
since its merger with Skydance. Paramount also raised its cost
cutting target to at least three billion dollars. That stock
(21:47):
is rallying eleven percent at the moment. Occidental Petroleum reported
mixed third quarter results, beating on adjusted earnings but missing
on revenue estimates. Shares are up over two percent, and
shares in Sony in Japan after the electronics and entertainment
company hiked its annual earnings forecasts and projected a smaller
(22:09):
tariff hit. I'm Tucker Silva and that is Wall Street
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Speaker 3 (22:31):
US household debt hits a new record.
Speaker 2 (22:34):
The New York Fed finds the data that came out
in the most recent quarter here was that United States
citizens had eighteen point five to nine trillion of debt
in Q three that was rising by one hundred and
nine seven billion. And the issue that I always have
mark with these pieces that use dollar values to indicate
(22:55):
the rising record that is reached is that inflation and
no adjustment for inflation, these numbers are always going to
continue to get higher and higher yea. And they do
this with credit card pieces, the news publications that we
cover a lot in the program, and ultimately, I just
(23:16):
to me, there's not a lot to do with these
type of pieces. To me, the bigger focus if you
want to look at household debt is delinquencies. Those are
the most important in my mind, whether it's on student
loans or credit card debt or mortgages. That to me,
is a much better indicator of how is the US
household faring? If those delinquencies start to uptick significantly, then
(23:39):
that's an area of concern certainly and is worth mentioning.
But this idea that numerically we're just going higher in
terms of the debt that this country have is not
something that concerns me. And from a delinquency standpoint, to
kind of answer the point that I posed, sure, we're
seeing a little bit of uptick on delinquencies on credit cards,
(24:00):
but in terms of the mortgage debt that we're seeing
really low rates of delinquencies there and nothing that I
would lose sleepover at this pot.
Speaker 4 (24:09):
Yeah, I don't. Again, I'll go back to a point
I try to make in the last segment, which is
it depends on what you're using the data for. If
you're a forecaster, some of these statistics might be useful
in your modeling. That's sort of a complex point, but
I think it's important to keep in mind. I don't
know whether some of these help people predict the change
and say the broad direction of the broader economy stuff
(24:31):
like that. So I get we're given an article like
this in a publication meant for a popular consumption, so
we're expected to do something with it.
Speaker 3 (24:40):
I think the.
Speaker 4 (24:41):
Point you made about the trend. You didn't quite put
it this way. But the way I would put it
is household debt will move in in close union with
the overall economy. Is the economy gros soul, Well, debt,
that's normal. So look at debt not in an absolute sense,
but as a percentage of say, disposable income. And if
(25:03):
that fraction is growing, you might have a problem because
at some point people won't be able to service it.
Household debt is a percentage of disposable income, has no
long term trend. I'm looking at the series right now.
If you google it, you'll find what I'm looking at.
And we're not anywhere near all time highs or even local.
Speaker 2 (25:20):
What do we get in seven or eight, just to
give up a basis of comparison as to probably when
it I would imagine got quite high.
Speaker 4 (25:27):
Yeah, because of the burden or mortgage debt. It was
in the metric again, is debt service payments as a
percentage of disposable personal income. That's the series I'm looking at.
There are others, but they'll all give you broadly the
same conclusion. Was twice roughly twice the well, now I'm
sorry it was fifteen six call it sixteen percent, rounding
(25:50):
up a little bit versus eleven point two percent today
and high elevens. Again, debt is a percentage of disposable debt.
Service payments is a percentage of disposable personal income nearly
twelve percent throughout the twenty tens. So we're not at
right our eyes, We're not at at red flag levels
(26:12):
relative to the more recent era of data. I'm not
saying that changes in this might not be predictive of trouble.
And if we go into recession, obviously this is going
to be a problem.
Speaker 3 (26:23):
Sure, but so's.
Speaker 2 (26:24):
Everything soft Bank sells It's Nvidia steak for five point
eight million billion dollars to fund open Ai.
Speaker 3 (26:32):
This is a.
Speaker 2 (26:34):
Very interesting trajectory that soft Bank has had here. It's
the head of it, Masha Masayoshi Sun, and you really
needed to study there with that pronunciation.
Speaker 3 (26:46):
But I think I did it all right.
Speaker 2 (26:47):
They have made some huge bets over their timeframe. Where
they had bet big on we Work, which famously crossed
and burned, they invested four point four billion dollars in
that in twenty sixteen. They've also made big bets now,
most recently in open Ai committing close to thirty billion
dollars of investment into the company behind chach GPT. The
(27:08):
sale of Nvidia by SoftBank was not an indication necessarily.
It seems that they were pessimistic on in Vidia and
its future, but more so they needed the cash to
fund some of the huge bets that they're making in
open Ai. This particular fund, the Vision Fund that is
behind soft bake. They are just the blank check company.
They write huge bets to a lot of big tech
(27:32):
companies out there with the hopes that they cash in
big They've had some massive successes with Yahoo and Ali Baba,
and they've had some massive failures with we Work, and
particularly in twenty twenty two and twenty twenty three, they
just lost their shirt in terms of how the fund
is performed. But they have a whole lot of money
behind them, and they better hope that this open Ai
(27:52):
bet hits because they are the biggest investor in open
Ai at this point behind chatchipt.
Speaker 3 (27:58):
With that thirty billion dollar commit.
Speaker 4 (28:00):
Are they publicly traded? Forgive me, I don't. I don't
follow Japanese financially.
Speaker 3 (28:03):
I do think that they are okay, all right?
Speaker 4 (28:06):
You know you don't have to squirm, So they're basically
you know, you're not squirming, but you know what I mean,
I could have looked that up. Sorry. So they're basically
they're they're an investment bank. They're like a Goldman what
we used to call investment banks here, they're like a
Goldman SAX, but a lot narrower soft bank. I'm just
what I'm trying to get at here is why should
people care? I get I mean, these guys just they're
(28:28):
sort of they're just like a growth shop.
Speaker 3 (28:30):
They just crazy growth. Yeah, they just make huge bets.
Speaker 2 (28:32):
And in particularly the reason that this gets them to
the writer is that it's a sale of the video,
which has done tremendously well for them. They had lamented
a selling in video before it really rose to prominence
over the last few years or so. But again really
piling all of their resources into open air. We'll see
how that plays out for them. We're going to take
(28:52):
a quick break here on.
Speaker 3 (28:54):
The Financial Exchange.
Speaker 2 (28:55):
But when we come back, when we're talking about the
idea of a fifty year mortgage, is that a terrible idea?
We'll talk about that right after this break.
Speaker 1 (29:05):
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Speaker 2 (30:05):
Piece here from Bloomberg by Aliston Straeger. A fifty year mortgage.
It's not a terrible idea. I'm gonna tell you why
I think it is a terrible idea. For many years,
most of us are accustomed to the thirty year fixed
mortgage out there, and when you're talking about the thirty
year fixed mortgage, typically the way that that rate is
(30:28):
determined is by using the US Tenure Treasury as a
benchmark to dictate what rate that a bank is going
to assess you when you borrow the money to buy
a house and put a mortgage together. There are very
few securities. You can make some arguments perhaps on a
twenty year treasury or a little bit shorter than that,
(30:48):
that could be used to price a fifty year mortgage.
And oh, by the way, if you're the bank, imagine
lending out money for a fifty year period. You're taking
on a whole lot of risk as a lender to
commit to thirty years to thirty years, but to commit
to fifty almost twice that period of time is the
significant risk You run into all sorts of complications as
(31:09):
the lender. If I'm the borrower Paul Lane takes a
fifty year fixed mortgage, I could lose my job, get
to void thank you.
Speaker 3 (31:16):
This now, right.
Speaker 4 (31:17):
They just wouldn't be federally. They're going to lavish it
with federal substance. Is the issue here. I think like
as a private lender, you do whatever you want correct
me if I'm wrong.
Speaker 3 (31:24):
You could.
Speaker 4 (31:25):
Yes, they just don't because they all want to conform
and they want to they ultimately they want to securitize
their Sorry, this is just off the top of my head,
not my area, but as far as I know, everybody
conforms to the thirty year structure because it's it's easier
to move a loane off your books if you want
to sell it for example.
Speaker 2 (31:43):
Yeah, the mortgage backed securities market far more liquid for
that than a fifty year one.
Speaker 4 (31:47):
That's so they would the government would have to actively
aid and abt this practice, right.
Speaker 3 (31:52):
Correct, SIMI liquidity for it.
Speaker 2 (31:53):
And then you know you have the other issues here
that if you lend, you know really low rates of interest,
and interest rates run up as the lender, you're missing
out on that opportunity cost there by being locked in
for a significant period of time.
Speaker 4 (32:12):
Yeah, so banks may not want to hold onto these suckers.
Speaker 2 (32:14):
To me, that's the biggest thing is for a consumer,
what are some of the downsize to it? I mean, yes,
your monthly payment gets lower, just like the trick that
they'll do to you if you go buy a car,
they'll stretch you out on monthly payment. By just making
the loan longer. Same thing would be applying here. Oh
don't worry, Mark, we can get you in this car
for two hundred and fifty bucks, you know, five hundred
bucks a month. Oh yeah, we're just you're just gonna
(32:34):
have to have a ten year auto loan that you're
paying interest on. Same sort of concept here. The fifty
year mortgage spam is going to be pretty low relative
to the thirty one year one. You're not building a
lot of equity by doing that, and you're not making
a significant progress paying down the principle.
Speaker 4 (32:51):
Yeah, if you if you stay up at night worrying
about the potential for negative equity, now you'll be warring
about that potential for potentially your whole working life under
a fifty I'm not saying it's a bad thing. I'm
willing to let the market sort this out. But that's
not really actually what's happening here. The government will be
actively encouraged or will be uh facilitating the development of
(33:12):
this market through again subsidies and regulations and uhgar makes
some good. Stragger makes good. I mean, I'm in her
camp as a sort of libertarian leaning occasional economists. She
she's that's her full time job, and she's a PhD.
So she she knows her stuff. She outlines the pros
and cons pretty clearly. There's no way consumers will understand
(33:36):
what they're getting into here, though, to your point, car
dealers find it very easy to trick us, as you
put it, because most of us can't do myself included.
Speaker 3 (33:43):
I have to spreadsheeted out or I have to have
the calculator.
Speaker 1 (33:46):
Yeah you do.
Speaker 4 (33:47):
We have our little financial calculators, so we know what
we're paying an interest over the life right alone. But
it is not straightforward. It is complex, and it's it's
fully disclosed when you take one of these suckers out,
I guess, but a little.
Speaker 3 (33:58):
Bit, and again important to note here this is all
theoretical chatter.
Speaker 2 (34:02):
There is not imminately going to be a fifty year
mortgage issue, but it's just something that has been I guess.
Speaker 4 (34:09):
For the housing we haven't talked about implications for the
larger market, though presumably it increases demand that's going to
push prices up equal right, and my house is more affordable.
Speaker 2 (34:18):
The altruistic idea behind this is trying to get more
people in houses because of the affordability issue. But to me,
this is not attacking the right part of the problem.
It's the supply side that you should be attacking. I
don't think that really Washington, DC has any real fixes
to fix the supply side. So that's why perhaps you
turn to the financial instruments as a way to combat that.
(34:40):
But I don't know if this really solves it all.
Speaker 4 (34:44):
No, if you're lament to if you lament that home
prices are too high, this is not a prescription for that.
This will push prices. I assume all else equal. By
making houses more affordable, by enabling a as you pointed out,
people to stretch their payments out, will we'll make it
easier to buy house and thereby again all else will
push up prices.
Speaker 3 (35:05):
Yep, we'll see.
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Speaker 2 (36:19):
One last note on the housing market, first time home
buyers have had a very difficult time over the course
of the last few years, a combination of prices rising
significantly and mortgage rates ticking up pretty significantly as well
from the lows that they were in twenty one or
twenty twenty two. The first time home buyers represented only
one fifth of home sold during a twelve month period
(36:42):
ending in June. That was a record low. There was
also some coverage on a story from the National Association
of Realtors where the median home age for a buyer
has reached forty in this country. Just four or five
years ago, the median age for a first time home
buyer was thirty three years old, and if you go
back to the nineties, that was twenty eight or twenty nine,
(37:03):
and that sort of speaks to mark some of the
issues that we were covering with the fifty year mortgage
or some of those considerations. It's trying to address the
fact that for the first time home buyer it's a
really difficult market on the.
Speaker 3 (37:17):
Housing side of things here.
Speaker 2 (37:19):
So we'll see if anything can be done there, but
not too optimistic that any fix comes anytime soon here.
Taking a look around at markets as we head towards
the bottom of the hour here, the Dow Jones is
up close to two hundred points, the S and P
five hundred is off about a third of a percent,
and the Nasdaq is off close to one percent after
(37:40):
a pretty significant rally yesterday on some of the optimism
regarding the government shutdown. Wrapping up here. The bond market
is closed today, so no real action on the US
Treasury market today. Will be reopened tomorrow. And we've got
oil and gas US Texas up about one point three
three percent. That's all the time that we have for
(38:03):
the first hour of the program here, but stick with us.
Speaker 3 (38:05):
We'll be right back after this break.
Speaker 2 (38:07):
We've got a lot more to color here on the
financial exchange.
The Financial Exchange is produced by Money Matters Radio and
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and Mark vandetty.
Speaker 2 (01:11):
Welcome to this Tuesday edition of the Financial Exchange, and
a happy Veterans Day to all our listeners out there,
and a big thank you to all of those who
have served and protected our country. We have a busy
day today and the Financial Exchange a lot of stories
to cover here. Certainly the one that will kick off
the program with is the continued updates on where the
(01:33):
US federal government shutdown sits. At the moment, we are
about forty plus days in. However, we did get news
last night, and some of this was kind of teased
out yesterday. The Senate did in fact pass a past
a measure to end the government shutdown through.
Speaker 3 (01:49):
A sixty to forty vote.
Speaker 2 (01:50):
It was approved to move along to the House of
Representatives where they will vote on it, I believe, as
early as Wednesday at four o'clock, and it's very likely
that the Republican controlled House will move that on to
the President's desk after and we could be looking at
the end of the government shutdown, likely Thursday or Friday
(02:11):
of this week. So certainly welcome news here. Mark that
this will likely be put to bed here over the
course the next couple of days. The agreement that is
set in place will extend funding for the federal government
until January thirtieth, and then myself and Mark and Chuck
and Mike will be talking about this, probably all over
again in a couple of months from now, where we
(02:32):
can look forward to using some of our old material
on potential looming government shutdown. But hopefully this buys us
some time for now, and we'll see what the end
of January will look like as long as all this
stuff moves through over the course of the next couple
of years.
Speaker 4 (02:48):
Yeah, I think the longer term lesson here is many
of you have seen the comparisons of the lengths of
recent shutdowns relative to shutdowns in the more distant past.
They were brief because the issues weren't And this is
common sense, I guess, but I had to stop and
think about it. The issues just weren't as a vital
(03:10):
We have no fiscal space left, is what I'm trying
to say. That wasn't true In the eighties and nineties.
Debt to GDP was forty fifty percent at most, so
there was room to run, and we did. We did,
indeed run. We're out arguably of fiscal runway. God forbid,
we have an emergency, another pandemic, a war absent printing money,
(03:34):
which is not unusual even in America. We did it
in the forties, we did it in the eighteen Going
back a little farther, we did in the eighteen sixties.
We had very high bursive infleetion, tough time during those Yeah. Yeah,
well we all we all scrimpt and saved. I guess
we shouldn't be joking about the Civil War, but well
maybe it's maybe it's I think maybe you keep out enough,
(03:54):
maybe enough time has passed. But you know, look, my
point is we're out of fiscal we're fiscal leg room now,
so every little dispute is amplified.
Speaker 2 (04:05):
Right, and now we sit with a government that seems
to be well positioned, I guess for the next couple months. So,
but you're right, these issues will be Yeah, these issues
have gone on for the last several years. And this
this arbitrary ceiling that we set and then bump into
and then we have to do this whole song and
dance over and over again. It just seems like that
(04:27):
is not going anywhere anytime soon. So that's one aspect
of things, is that this is resolved, But from a
longer term perspective physical discipline we were talking on yesterday's show,
it's just not something that either political party has shown
really any desire to get under control.
Speaker 4 (04:43):
It's really been horrendous.
Speaker 2 (04:45):
For twenty five or thirty years, it hasn't been an issue.
So from our standpoint, this is going to be continued
to be issue, you know, whether or not the government
continues to run into these cliffs. What this means in
terms of the impact on federal employees, they would be
back paid for the period of time that they were
not getting paid for. And then really with the.
Speaker 4 (05:07):
You don't save any money. None of this was about
saving oh no, no, no really or even cutting spending, no not,
None of it was about any of those fiscal.
Speaker 2 (05:15):
Really more about smaller deal points regarding the American Affordable
Care Act and some of its credits and subsidies there.
Speaker 3 (05:23):
That was head of the dispute.
Speaker 2 (05:26):
You also had just some debates regarding government workers and
potential firings of those. But anyway, all this gets put
to the back burner for the moment here. The next
thing that we moved to is just trying to gain
sort of any determination as to what the economic impact
could be of the government being shut down for six
(05:46):
weeks or so. There are some pieces that have been
written comparing it back to some other shutdowns that we've
seen and potentially what it could do in terms of
shaving off GDP growth. The Congressional Budget Office had estimated
that if the shutdown where it last for six weeks,
we're going to come in right around that time frame here,
relatively close, that it would reduce the annualized growth of
(06:08):
Q four GDP by one and a half percent. I've
seen other estimates out there from Oxford Economics that it
would only shave off one percent of GDP growth in
Q four. Where do you kind of ligne on the side.
I know it's not really clear data evidence one way
or another, but rather muted impact is sort of where
I would lean mark in terms of its economic impact
(06:31):
the shutdown that we've just experienced here, I'm kind of
jumping ahead by saying that we will have this resolved
by Friday.
Speaker 3 (06:37):
So under that assumption, yeah, I'll go with the.
Speaker 4 (06:43):
Being counters who keep track of the components of GDP,
which GDP is just overall spending, so it's consumption, which
is what we spend investment, which is partly what we spend,
partly what businesses spend, and housing is included in that.
Government spending is the other component of GDP, and then
there's a little adjustment for net exports because you don't
want to double out them. So it's a short term
accounting based measure of how much we have spent in
(07:06):
a given period. GDP is a quarterly statistic that's different
than growth. It's easy to confuse the two. I wouldn't
expect any impact on the long term productive capacity of
the US economy trend growth. In the short term, it
could be a little bit disruptive, and maybe if you're
on the cusp of recession then it does become more concerning.
(07:26):
But generally speaking, using history as a precedent, you make
up for these shutdowns pretty quickly because once again, no
spending was actually cut, no employees were actually fired. I'm
not saying they should have been, but this was not
about shoring up our fiscal situation. It was fought over
different considerations.
Speaker 2 (07:45):
And the other key consideration will be economic data. We
have had a freeze in terms of any economic data
that we've received, whether it be the jobs report, retail
sales inflationary data, and so the next thing that we
turned to is just trying to get a sense for
when some of that data will be released. The first
report that we will most likely receive, I would imagine
(08:06):
by early next week, is the September Jobs and Inflation
report that was basically already fully baked in and was
ready to go prior to the government shutting down on
October first, So we will likely get that very early
next week because all of that data had been accumulated.
When it comes to some of these other reports for
the month of October and November, when you look at
(08:29):
the key categories that us on the show and many
economists investors look at on a monthly basis, whether it's
retail sales or inflatia, there's been some projections that have
been thrown out there based on other instances when the
government was shut down and not collecting this type of data.
December eighth is a projection that I saw thrown out
there for the October and November jobs report. It's important
(08:51):
to note that the Federal Reserve will get together for
its next meeting on the ninth and tenth of December,
so it's very likely that they will not have many
of these months of economic data. When they do get together,
it's going to be difficult for all these estimates to
be compiled and be put together. So it's just going
to be sort of a wait and see and they'll
(09:12):
be kind of going in blindly.
Speaker 3 (09:13):
Very likely. Yeah, if you think.
Speaker 4 (09:14):
About the FED, I say this every time I'm on,
but I think it's a helpful analogy. It's the economy's thermostat.
The economy gets too hot, and specifically, what I mean
by that is demand exceeds the economy's productive capacity. Demand
overall demand sometimes called aggregate demand. You hear economist stow
that term around, exceeds aggregate supply. When that happens, you
(09:35):
get up with pressure on prices. It's unavoidable. The Fed's
job is to the extent that when demand the extent
that demand exceeds supply because it has overstimulated, because it
is effectively printed too much money. The FED job is
to cool the economy down. That's why make the thermostat analogy,
and vice versa. When the economy is not living up
to its productive potential, the Fed's job is to give.
Speaker 3 (09:59):
It a boost.
Speaker 4 (10:00):
It's tough it would be like asking your HVAC system
to function properly without inputting the right room temperature. Should
I be calling for heat? Should I be calling for AC?
Should I be calling for nothing for the thermostat? I
guess could ask those questions. That's what it would be asking.
That's what the Fed's asking right now. It doesn't have
a good reading on the ambient temperature.
Speaker 2 (10:21):
Yeah, it just was thinking of my son who's four
years old. In the car will sometimes just say, you know,
he'll say turn on the heat, but he means put
on the cool air and just doesn't know the expression.
It still needs to learn the air conditioning.
Speaker 4 (10:33):
So maybe a career as an HVACT technician is.
Speaker 2 (10:35):
Not He's still young. He'll figure it out. We're going
to take a quick break here on the financial distange.
When we come back, I want to talk specifically about
the government shutdown and the impact on the labor market
and the lack of data that we've seen and do
we have the prerequisite data that will give us a
good sense for where is the labor market at this point.
We're going to talk about that right after this break
(10:56):
here on the financial exchange stick with.
Speaker 1 (10:57):
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(11:18):
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Speaker 5 (11:22):
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Speaker 3 (11:57):
All right, come back from break here.
Speaker 2 (11:58):
We are talking in the prior segment about the US
labor market, and in particular, one of the things that's
been really challenging with the labor market over the course
of the last month or so is we've had really
no economic data from a federal government perspective to get
a sense for where is the labor market at this
point in time. So as a result, we've been forced
to look at some of the private payroll data providers
(12:21):
and other just economists out there for other resources to
get a sense for where is the labor market at
this point in time. The unemployment rate sits about four
point three percent. It's projected that perhaps it had ticked
up to four point three six percent in October. But
what we're seeing now is some different charts that we're
(12:42):
put together in a piece by Barons here. And the
question I have to you, Mark is is how much
stock do you put into some of these You know,
private payroll data aggregators ADP is a big one, and
oftentimes when they were released in conjunction with government data,
we largely ignore I think their reference perhaps in passing.
(13:03):
But now they've had their time in the sun over
the course of the last month or so. How much
stock do you put into some of these reports and
some of these data points that are coming out on
the private side of things.
Speaker 4 (13:12):
I think different bits of information from the private sector
could be helpful if you're forecasting, if you're.
Speaker 3 (13:20):
Trying to do.
Speaker 4 (13:21):
Let me back up and just state it plainly, and
then you tell me if this makes sense, Paul. If
you're doing forecasting and most of us are not, I mean,
I do it sort of as a hobby, but it's
you know, it's not really part of my most urgent
day to day duties in my day job at Armstrong
Advisory Group because we're not a macroeconomic advisory for them,
and I'm not a labor economist. But I have found
(13:41):
that if you're trying to do your little forecast of
what the payroll change is going to be, and you
do that using statistical methods in computer software, if you
add to whatever your little model is what ADP reported
this month, which usually comes out within a few days
of the DL's official report, you can improve your forecast
a little bit. So I have found, and I'm sure
others have found this too. Again, I'm not a labor
(14:02):
economist and it's not my kind of full time job,
so I'll just call myself a hobbyist.
Speaker 3 (14:08):
I found that it's helpful. It does not just.
Speaker 4 (14:10):
I've found through month over month experience, if you go
back and test it, you can improve your forecasting a
little bit, so there's information in there, Paul. Now, should
you and I as sort of uh, in this context
labor are commentators economic and financial market commentator? Should we
get all hung up on it?
Speaker 3 (14:27):
I don't know.
Speaker 4 (14:28):
This is where I struggle with with economic data and
the way people use it.
Speaker 3 (14:31):
There are.
Speaker 4 (14:33):
Like, you know, like a lot of really spicy ingredients.
They're sort of good in very small quantities if you
know how to deploy them, but you shouldn't take them
out of context, you know.
Speaker 3 (14:43):
That's that's the That's I think the best I could
say about it.
Speaker 2 (14:46):
If a family member were to ask you a Thanksgiving
in a couple.
Speaker 4 (14:51):
I'm gonna stop you right there.
Speaker 5 (14:53):
I'm already If they were to to chat.
Speaker 2 (14:55):
With you over some turkey and stuff and say, hey, Mark,
you know how is how has the labor market? Ben?
Speaker 3 (15:01):
You know what?
Speaker 2 (15:01):
What would you give to them as a generic sort
of summation of where where do we stand at this point?
Recognizing that, yeah, the data has been murky I guess
over the last month. Is so, how would you summarize
that to them in sort of the lay terms for
just someone sitting at the table, look.
Speaker 4 (15:19):
The economy based on the last snapshot we had appears
to be good.
Speaker 3 (15:23):
Yep.
Speaker 4 (15:23):
Growth is and what I mean by that very simply
one concept. Growth is at or above trend, which is
about as good as it gets. Is the most you
can ask for, and it's been the case, by the way,
for the past few years. Policies have changed a lot,
tariff policy and monetary policies changing. We can get into that,
I think we will a little bit later in the
(15:44):
stack that Tucker Silov will put together. But it's amazing
how under the hood the economy doesn't change much, or
changes only very slowly, even in response to big policy changes.
Speaker 3 (15:55):
So it's good, Paul.
Speaker 4 (15:56):
It's hard to deny that are their concerns.
Speaker 3 (15:58):
Sure you you ticked off a bunch YEP.
Speaker 2 (16:01):
Labor market, I would say specifically, I know you have
kind of specifically the economy in general labor market. What
I would say, for you know, a key couple of
bullet points is that you have an unemployment rate that
has remained relatively steady at four point three percent. Yes,
at the lows it was three and a half percent,
so we're higher than we were there, but it has
(16:21):
stayed very stable at this four point three percent. And
historically I would be telling this person at the Thanksgiving table,
that is a very good rate of unemployment, very very
full rate there on the hiring shut On the hiring front,
then we've seen a bit of a slowdown. There hasn't
been this tremendous amount of job growth that we've seen
(16:43):
in twenty one twenty two. To be fair, those were
extremely robust periods of labor growth that were well beyond
what you've seen historically. You've also seen more anecdotal evidence
that there seems to be an uptick in layoffs. Unclear
if that is wide spread that we've seen significant layoffs.
You just are starting to see some big headline companies
(17:05):
Amazon comes to mind, and others that are sort of
cutting headcount a little bit. And then you've heard also
just that those new entrants into the labor market are
having a little more difficulty.
Speaker 3 (17:14):
So that's also that I what does all that mean though?
What does all that mean? Is that is the lad
I think you.
Speaker 4 (17:20):
Know the answer to this. You're wrong, right, I don't
know that, But I'm not talking to you. I'm talking
to people.
Speaker 2 (17:25):
Well, what I would say to investors or friends and
family out there. The big focus that the federal Reserve
has very clearly indicated that they are going to be
most focused on for the next six to twelve months
or however period of time. It is less so inflation
that we talked about a lot over the course of
the last year or so, particularly around April with the
implementation of TERRAS. There was a lot of thought put
(17:46):
behind this idea that was going to lead to increased prices.
No evidence to that just yet. It's really the labor market.
Does it trend into a negative direction where that unemployment
rate increases and we see a true slowdown. No evidence
to point to that just yet. The next six months
or so, that seems to be the Federal Reserve's biggest focus. Unfortunately,
(18:06):
the challenging part is going to be it's going to
be likely not until January or February that you could
say you'll have a good grasp and we'll kind of
be back running at the regularly scheduled deployment of all
this economic data because of the glut that we've sort
of created with this government.
Speaker 4 (18:22):
Yeah, we just don't know, which is why it's puzzling
that some people are clamoring really loudly for interest rate cuts,
big interest rate cuts. You know, some of them have
political most of them have political motivations. That's always the case.
But you never really know the true state of the economy.
These figures that we're talking about, even when we get them,
they'll still just be statistics, which means it's an estimate,
(18:45):
and that estimate could be high low. It's never spot on.
Speaker 3 (18:50):
We just don't know.
Speaker 2 (18:51):
Taking a look at markets, we've got the Dow up
about eighty five points at the moment, the S and
P five hundred is slightly a negative territory, down about
a quarter percent, and the Nasdaq is down about two
thirds of a percent. Here we're going to take a
quick break here on the finish this change, but when
we come back, we're be talking a little bit about
US household debt hitting a new record according to the
(19:14):
New York Fed. We'll also be talking about SoftBank, who
sold its stake in Nvidia for a whopping five point
eight billion dollars. That and Wall Street rotch right after
this break.
Speaker 1 (19:40):
Like us on Facebook and follow us on Twitter at
TFFE 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 (19:59):
Following yesterday's strong rebound, Marcus today are mixed after the
Senate officially passed a bill to end the historic government shutdown,
sending it to the House. Right now, the Dow is
up three tenths of one percent or one hundred and
forty three points. SMP five hundred down over third of
a percent or twenty four points lower at NASDAC down
(20:21):
by eight tenths of one percent or one hundred and
ninety points. Rusted two thousand is down just over a
third of a percent. Ten year Treasure Bil no movement
today because the bomb market is closed in observance of
the Veteran Day holiday, and crude oil up one on
a third percent, trading just below sixty one dollars a barrel,
(20:42):
and Vidia shares pulling back by three percent after Soft
Bank disclosed it sold its entire five point eight billion
dollar stake in the chip maker in Ai Giant back
in October, where the firm said it looks to capitalize
on it's all in bet on chat GPT maker open Aiyes,
sticking with that sector where core weave stock is plunging
(21:03):
thirteen percent after the AI Infrastructure Company posted a disappointing
full year guidance incited a delay by a third party
data center developer. Core We've saw its revenue more than
double in the previous quarter, driven by the AI boom,
while its net loss narrowed. Meanwhile, Plant based protein company
and recent meme stock Beyond Meat saw its loss. Wide
(21:26):
in sales declined last quarter as demand from customers and
restaurants fell, beyond stock sinking six percent. Today Elsewhere, Paramount
reported growth from its streaming division, its first quarterly report
since its merger with Skydance. Paramount also raised its cost
cutting target to at least three billion dollars. That stock
(21:47):
is rallying eleven percent at the moment. Occidental Petroleum reported
mixed third quarter results, beating on adjusted earnings but missing
on revenue estimates. Shares are up over two percent, and
shares in Sony in Japan after the electronics and entertainment
company hiked its annual earnings forecasts and projected a smaller
(22:09):
tariff hit. I'm Tucker Silva and that is Wall Street
Watch and as a reminder, subscribe to our YouTube page.
Will you find daily interviews in full shows of the
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Speaker 3 (22:31):
US household debt hits a new record.
Speaker 2 (22:34):
The New York Fed finds the data that came out
in the most recent quarter here was that United States
citizens had eighteen point five to nine trillion of debt
in Q three that was rising by one hundred and
nine seven billion. And the issue that I always have
mark with these pieces that use dollar values to indicate
(22:55):
the rising record that is reached is that inflation and
no adjustment for inflation, these numbers are always going to
continue to get higher and higher yea. And they do
this with credit card pieces, the news publications that we
cover a lot in the program, and ultimately, I just
(23:16):
to me, there's not a lot to do with these
type of pieces. To me, the bigger focus if you
want to look at household debt is delinquencies. Those are
the most important in my mind, whether it's on student
loans or credit card debt or mortgages. That to me,
is a much better indicator of how is the US
household faring? If those delinquencies start to uptick significantly, then
(23:39):
that's an area of concern certainly and is worth mentioning.
But this idea that numerically we're just going higher in
terms of the debt that this country have is not
something that concerns me. And from a delinquency standpoint, to
kind of answer the point that I posed, sure, we're
seeing a little bit of uptick on delinquencies on credit cards,
(24:00):
but in terms of the mortgage debt that we're seeing
really low rates of delinquencies there and nothing that I
would lose sleepover at this pot.
Speaker 4 (24:09):
Yeah, I don't. Again, I'll go back to a point
I try to make in the last segment, which is
it depends on what you're using the data for. If
you're a forecaster, some of these statistics might be useful
in your modeling. That's sort of a complex point, but
I think it's important to keep in mind. I don't
know whether some of these help people predict the change
and say the broad direction of the broader economy stuff
(24:31):
like that. So I get we're given an article like
this in a publication meant for a popular consumption, so
we're expected to do something with it.
Speaker 3 (24:40):
I think the.
Speaker 4 (24:41):
Point you made about the trend. You didn't quite put
it this way. But the way I would put it
is household debt will move in in close union with
the overall economy. Is the economy gros soul, Well, debt,
that's normal. So look at debt not in an absolute sense,
but as a percentage of say, disposable income. And if
(25:03):
that fraction is growing, you might have a problem because
at some point people won't be able to service it.
Household debt is a percentage of disposable income, has no
long term trend. I'm looking at the series right now.
If you google it, you'll find what I'm looking at.
And we're not anywhere near all time highs or even local.
Speaker 2 (25:20):
What do we get in seven or eight, just to
give up a basis of comparison as to probably when
it I would imagine got quite high.
Speaker 4 (25:27):
Yeah, because of the burden or mortgage debt. It was
in the metric again, is debt service payments as a
percentage of disposable personal income. That's the series I'm looking at.
There are others, but they'll all give you broadly the
same conclusion. Was twice roughly twice the well, now I'm
sorry it was fifteen six call it sixteen percent, rounding
(25:50):
up a little bit versus eleven point two percent today
and high elevens. Again, debt is a percentage of disposable debt.
Service payments is a percentage of disposable personal income nearly
twelve percent throughout the twenty tens. So we're not at
right our eyes, We're not at at red flag levels
(26:12):
relative to the more recent era of data. I'm not
saying that changes in this might not be predictive of trouble.
And if we go into recession, obviously this is going
to be a problem.
Speaker 3 (26:23):
Sure, but so's.
Speaker 2 (26:24):
Everything soft Bank sells It's Nvidia steak for five point
eight million billion dollars to fund open Ai.
Speaker 3 (26:32):
This is a.
Speaker 2 (26:34):
Very interesting trajectory that soft Bank has had here. It's
the head of it, Masha Masayoshi Sun, and you really
needed to study there with that pronunciation.
Speaker 3 (26:46):
But I think I did it all right.
Speaker 2 (26:47):
They have made some huge bets over their timeframe. Where
they had bet big on we Work, which famously crossed
and burned, they invested four point four billion dollars in
that in twenty sixteen. They've also made big bets now,
most recently in open Ai committing close to thirty billion
dollars of investment into the company behind chach GPT. The
(27:08):
sale of Nvidia by SoftBank was not an indication necessarily.
It seems that they were pessimistic on in Vidia and
its future, but more so they needed the cash to
fund some of the huge bets that they're making in
open Ai. This particular fund, the Vision Fund that is
behind soft bake. They are just the blank check company.
They write huge bets to a lot of big tech
(27:32):
companies out there with the hopes that they cash in
big They've had some massive successes with Yahoo and Ali Baba,
and they've had some massive failures with we Work, and
particularly in twenty twenty two and twenty twenty three, they
just lost their shirt in terms of how the fund
is performed. But they have a whole lot of money
behind them, and they better hope that this open Ai
(27:52):
bet hits because they are the biggest investor in open
Ai at this point behind chatchipt.
Speaker 3 (27:58):
With that thirty billion dollar commit.
Speaker 4 (28:00):
Are they publicly traded? Forgive me, I don't. I don't
follow Japanese financially.
Speaker 3 (28:03):
I do think that they are okay, all right?
Speaker 4 (28:06):
You know you don't have to squirm, So they're basically
you know, you're not squirming, but you know what I mean,
I could have looked that up. Sorry. So they're basically
they're they're an investment bank. They're like a Goldman what
we used to call investment banks here, they're like a
Goldman SAX, but a lot narrower soft bank. I'm just
what I'm trying to get at here is why should
people care? I get I mean, these guys just they're
(28:28):
sort of they're just like a growth shop.
Speaker 3 (28:30):
They just crazy growth. Yeah, they just make huge bets.
Speaker 2 (28:32):
And in particularly the reason that this gets them to
the writer is that it's a sale of the video,
which has done tremendously well for them. They had lamented
a selling in video before it really rose to prominence
over the last few years or so. But again really
piling all of their resources into open air. We'll see
how that plays out for them. We're going to take
(28:52):
a quick break here on.
Speaker 3 (28:54):
The Financial Exchange.
Speaker 2 (28:55):
But when we come back, when we're talking about the
idea of a fifty year mortgage, is that a terrible idea?
We'll talk about that right after this break.
Speaker 1 (29:05):
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. Long Base is the Financial Exchange
Radio Network.
Speaker 5 (29:29):
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Speaker 2 (30:05):
Piece here from Bloomberg by Aliston Straeger. A fifty year mortgage.
It's not a terrible idea. I'm gonna tell you why
I think it is a terrible idea. For many years,
most of us are accustomed to the thirty year fixed
mortgage out there, and when you're talking about the thirty
year fixed mortgage, typically the way that that rate is
(30:28):
determined is by using the US Tenure Treasury as a
benchmark to dictate what rate that a bank is going
to assess you when you borrow the money to buy
a house and put a mortgage together. There are very
few securities. You can make some arguments perhaps on a
twenty year treasury or a little bit shorter than that,
(30:48):
that could be used to price a fifty year mortgage.
And oh, by the way, if you're the bank, imagine
lending out money for a fifty year period. You're taking
on a whole lot of risk as a lender to
commit to thirty years to thirty years, but to commit
to fifty almost twice that period of time is the
significant risk You run into all sorts of complications as
(31:09):
the lender. If I'm the borrower Paul Lane takes a
fifty year fixed mortgage, I could lose my job, get
to void thank you.
Speaker 3 (31:16):
This now, right.
Speaker 4 (31:17):
They just wouldn't be federally. They're going to lavish it
with federal substance. Is the issue here. I think like
as a private lender, you do whatever you want correct
me if I'm wrong.
Speaker 3 (31:24):
You could.
Speaker 4 (31:25):
Yes, they just don't because they all want to conform
and they want to they ultimately they want to securitize
their Sorry, this is just off the top of my head,
not my area, but as far as I know, everybody
conforms to the thirty year structure because it's it's easier
to move a loane off your books if you want
to sell it for example.
Speaker 2 (31:43):
Yeah, the mortgage backed securities market far more liquid for
that than a fifty year one.
Speaker 4 (31:47):
That's so they would the government would have to actively
aid and abt this practice, right.
Speaker 3 (31:52):
Correct, SIMI liquidity for it.
Speaker 2 (31:53):
And then you know you have the other issues here
that if you lend, you know really low rates of interest,
and interest rates run up as the lender, you're missing
out on that opportunity cost there by being locked in
for a significant period of time.
Speaker 4 (32:12):
Yeah, so banks may not want to hold onto these suckers.
Speaker 2 (32:14):
To me, that's the biggest thing is for a consumer,
what are some of the downsize to it? I mean, yes,
your monthly payment gets lower, just like the trick that
they'll do to you if you go buy a car,
they'll stretch you out on monthly payment. By just making
the loan longer. Same thing would be applying here. Oh
don't worry, Mark, we can get you in this car
for two hundred and fifty bucks, you know, five hundred
bucks a month. Oh yeah, we're just you're just gonna
(32:34):
have to have a ten year auto loan that you're
paying interest on. Same sort of concept here. The fifty
year mortgage spam is going to be pretty low relative
to the thirty one year one. You're not building a
lot of equity by doing that, and you're not making
a significant progress paying down the principle.
Speaker 4 (32:51):
Yeah, if you if you stay up at night worrying
about the potential for negative equity, now you'll be warring
about that potential for potentially your whole working life under
a fifty I'm not saying it's a bad thing. I'm
willing to let the market sort this out. But that's
not really actually what's happening here. The government will be
actively encouraged or will be uh facilitating the development of
(33:12):
this market through again subsidies and regulations and uhgar makes
some good. Stragger makes good. I mean, I'm in her
camp as a sort of libertarian leaning occasional economists. She
she's that's her full time job, and she's a PhD.
So she she knows her stuff. She outlines the pros
and cons pretty clearly. There's no way consumers will understand
(33:36):
what they're getting into here, though, to your point, car
dealers find it very easy to trick us, as you
put it, because most of us can't do myself included.
Speaker 3 (33:43):
I have to spreadsheeted out or I have to have
the calculator.
Speaker 1 (33:46):
Yeah you do.
Speaker 4 (33:47):
We have our little financial calculators, so we know what
we're paying an interest over the life right alone. But
it is not straightforward. It is complex, and it's it's
fully disclosed when you take one of these suckers out,
I guess, but a little.
Speaker 3 (33:58):
Bit, and again important to note here this is all
theoretical chatter.
Speaker 2 (34:02):
There is not imminately going to be a fifty year
mortgage issue, but it's just something that has been I guess.
Speaker 4 (34:09):
For the housing we haven't talked about implications for the
larger market, though presumably it increases demand that's going to
push prices up equal right, and my house is more affordable.
Speaker 2 (34:18):
The altruistic idea behind this is trying to get more
people in houses because of the affordability issue. But to me,
this is not attacking the right part of the problem.
It's the supply side that you should be attacking. I
don't think that really Washington, DC has any real fixes
to fix the supply side. So that's why perhaps you
turn to the financial instruments as a way to combat that.
(34:40):
But I don't know if this really solves it all.
Speaker 4 (34:44):
No, if you're lament to if you lament that home
prices are too high, this is not a prescription for that.
This will push prices. I assume all else equal. By
making houses more affordable, by enabling a as you pointed out,
people to stretch their payments out, will we'll make it
easier to buy house and thereby again all else will
push up prices.
Speaker 3 (35:05):
Yep, we'll see.
Speaker 5 (35:06):
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Speaker 1 (36:08):
The proceeding was paid for and the views expressed are
solely those of Cushing and Dolan. Cushing and Dolan and
or Armstrong Advisory may contact you offering legal or investment services.
Cushing and Armstrong did not endorse each other and are
not affiliated.
Speaker 2 (36:19):
One last note on the housing market, first time home
buyers have had a very difficult time over the course
of the last few years, a combination of prices rising
significantly and mortgage rates ticking up pretty significantly as well
from the lows that they were in twenty one or
twenty twenty two. The first time home buyers represented only
one fifth of home sold during a twelve month period
(36:42):
ending in June. That was a record low. There was
also some coverage on a story from the National Association
of Realtors where the median home age for a buyer
has reached forty in this country. Just four or five
years ago, the median age for a first time home
buyer was thirty three years old, and if you go
back to the nineties, that was twenty eight or twenty nine,
(37:03):
and that sort of speaks to mark some of the
issues that we were covering with the fifty year mortgage
or some of those considerations. It's trying to address the
fact that for the first time home buyer it's a
really difficult market on the.
Speaker 3 (37:17):
Housing side of things here.
Speaker 2 (37:19):
So we'll see if anything can be done there, but
not too optimistic that any fix comes anytime soon here.
Taking a look around at markets as we head towards
the bottom of the hour here, the Dow Jones is
up close to two hundred points, the S and P
five hundred is off about a third of a percent,
and the Nasdaq is off close to one percent after
(37:40):
a pretty significant rally yesterday on some of the optimism
regarding the government shutdown. Wrapping up here. The bond market
is closed today, so no real action on the US
Treasury market today. Will be reopened tomorrow. And we've got
oil and gas US Texas up about one point three
three percent. That's all the time that we have for
(38:03):
the first hour of the program here, but stick with us.
Speaker 3 (38:05):
We'll be right back after this break.
Speaker 2 (38:07):
We've got a lot more to color here on the
financial exchange.
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