January 9, 2025 • 38 mins
Chuck Zodda and Mike Armstrong discuss high yields stoking fear on the stock market even though it previously embraced those same yields. What did the last Fed minutes tell us about near future rate moves? US companies announced fewest hires in 2024 in nearly a decade. Port strike averted with labor deal days before deadline. California was already in home-insurance crisis before Los Angeles infernos.
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Speaker 1 (00:00):
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(01:06):
and Mike Armstrong.
Speaker 2 (01:10):
Chuck, Mike and Tucker with you here.
Speaker 3 (01:12):
And markets at least equity markets are closed today in
memory of Jimmy Carter. This the last day of his
state funeral, and so the New York Stock Exchange and
Nasdaq both have their equity markets closed. But there are
some sporadic you know, not sporadic, there are some scattered
(01:34):
markets that are open. The bond market has a half day,
I believe, closing at two pm. Agricultural futures Mike is
at one pm or one fifteen that those shut down. Yeah,
something weird like that, something along those lines. So there's
nothing moving in markets except for bonds. I mean, I guess, look,
if Mike, should we do a couple segments on different
(01:56):
agricultural futures.
Speaker 2 (01:57):
Yeah?
Speaker 4 (01:58):
Sure, I mean I'm always curious about you know, chicken
feed and corn, and yeah, might as well, you know,
really dig in there for the next two hours.
Speaker 3 (02:09):
So here's what we have going on right now. Soybeans,
the current contract is down three seventy five per.
Speaker 2 (02:16):
What do you think bushel? I hundred bushels? Sure?
Speaker 3 (02:23):
Hard to say. Rough rice not to be confused with
smooth rice. That is up twenty eight cents per grain.
Probably not, they'll be fourteen dollars a grain. That'd be
a lot for rice. So in any case, we're obviously
not going to go through you know, two hours that
because listen, there's parts of the country where that is
(02:44):
hugely important, if you like, if you go to the Midwest.
I was talking with Chris Ryan on one of our
stations earlier today, and look, if you go through the Midwest,
they actually are reading cattle and wheat and corn futures
on a regular basis on the radio because a lot
of people make their living selling those things, and so
knowing when to sell is really important for most of
(03:08):
us in the United States, and quite honestly almost all
of us if you lol, like the number of people
who actually earn a living through farming, it's in the
you know, a couple million range, as far as like
those who actually own like the farms and are making
those decisions. For the rest of us, the other three
hundred and twenty eight million, we're just not doing that.
It's not wrong, it's not right, it's just not what
we do. But I do find it interesting that there
(03:30):
are parts of the country where, hey, that is a
more regular update than what the Dow is doing or
what the S and.
Speaker 2 (03:36):
P is doing, And I find that kind of cool.
Speaker 4 (03:38):
Actually, yeah, and I always I keep looking for this story.
I think it might actually just be like a legendar
myth of the person who was, you know, trading agricultural
futures or oil futures in markets and accidentally ends up
taking delivery of some of these things. Because that's the weird,
(03:58):
weird thing about ag future or oil futures is if
you trade then this doesn't happen. But you are actually
bidding on a contract to own a physical thing rather
than you know, certificate shares of a corporation. And so
there's these urban myths and legends of people that have
no idea what they're doing accidentally taking delivery of you know,
(04:21):
truck fulls of corn, for example. But I've I've been
unable to find a credible story of it actually occurring.
Speaker 3 (04:27):
Yes, because here's the thing. When when you're trading you know,
futures and you end up taking delivery, you don't trade
futures of like three corn cops. There are minimum sizes,
and the sizes are large enough that generally if it
happens to an individual, You're probably not going to be
able to take delivery just because you won't have anywhere
(04:49):
to store the quantity that they are shipping you kind
of a problem. So in any case, markets largely closed today,
so nothing going on as far as you know, what's
what's happening today really, But one of the main stories
over the last month or so has been the move
towards higher yields in the bond market, not just domestically,
(05:11):
so to anyone who looks at this, uh, you know
that what's what's going on with US treasury rates right
now and says, hey, like, is is this something that
you know is indicative of what's going on with the
amount of you know, US debt? The answer, in my
opinion is we don't know for sure, but probably not.
And the reason that I say probably not is the
(05:33):
UK tenure treasury over the last month, since December twelfth,
has gone from about four three five up to four
eight six. The let's see this is the Japanese tenure
treasury has gone from one oh four to one one eight,
the French tenure treasury has gone from two nine to
three four, and the US tenure treasury has gone from
(05:55):
about four three and change up to four almost four
to seven.
Speaker 4 (05:59):
Yeah, there's more significance in September, by the way, when
we reach lows of about three point six on that
same ten year. So a lot has occurred in the
months surrounding the election. I don't think you can place
it all on the shoulders of that, but big upswings
in yields.
Speaker 3 (06:14):
And so I think that in certain cases. We talked
a little bit yesterday about how with the UK, the
UK does have signs of a potential you know, crisis
of confidence in that typically when yields go up, your
currency appreciates as well, because you have people flocking to
you know, they're attracted by the higher yields and they say, oh,
(06:35):
like g yes, now it makes more sense, you know,
to own that currency.
Speaker 4 (06:39):
And to be clear about this, the reason that happens
is because foreigners jump in and go want to participate
in these yields, and the only way to do so
is to take their euro and you know, translate it
into pounds and go and buy these bonds domestically.
Speaker 3 (06:55):
We talked about this in the summer of last year.
In August, when the yen carry trade broke down. The
premise there was, Hey, you're borrowing in one currency to
go and buy something in another. So this is that
whole principle at work when your currentcy when you have
higher yields than one currency, money tends to flow into that.
The UK is experiencing something right now, same thing it
(07:16):
did during Liz Trust's very short tenure back in twenty
twenty two, where yields are moving up on UK government
bonds the pound is sliding.
Speaker 2 (07:27):
That is an indication that you've got an issue.
Speaker 3 (07:30):
In the United States right now, yields are moving up.
Dollar has strengthened about ten percent over that time as well.
So it's not something where people are looking at the US.
I know, we get so focused on what we're doing
here that it's like it's the only thing that matters.
Speaker 2 (07:44):
But there's a big world out there. It's large, and
we're not the.
Speaker 3 (07:48):
Only ones seeing this, And there are countries where you
actually do have potentially signs of a crisis of confidence
in the currency. The US is not one of those
right now. But what to make of these higher yields.
I talked a little bit about it yesterday. Mike, your
thoughts before I go further.
Speaker 4 (08:04):
Well, I think there's clearly stronger growth expectations than what
we were seeing previously, and very clearly from the FED
meeting minutes as well, they seem to be taking the
threat of inflation a little bit more seriously. So I
don't necessarily point to just one thing, but I think
the general idea of higher growth, the risk of higher terrists,
and other things that could push both growth and inflation
(08:28):
higher might be contributing here. You have a differing view.
Speaker 3 (08:32):
Well, here's the interesting thing is that, you know, while
the thoughts of higher growth may be happening, what we've
actually seen over the last month or so, according to
the data that we've gotten, Atlanta Fed runs their GDP
now now cast and that has seen projections for Q
four GDP growth in the US come in from around
three four to two seven now. So the actual data
(08:53):
that we've been getting has been indicative of lower growth
in the short term. And so you know, hey, why
are these higher yields coming through.
Speaker 2 (09:04):
Again?
Speaker 3 (09:04):
There's anyone will tell you a million stories, and you
know someone's gonna say, oh, it has to be this
has to be that. There's no one clear picture on it.
But what I can tell you is that the divergence
that we are seeing where US growth right now appears
to be slowing a little bit, you know, modestly over
the last month or so, but yields have been moving up.
(09:26):
That's rarely something that lasts for too long because long
term yields tend to track growth over the long run,
and so something has to give here. Either you do
have to see US growth accelerate, in which case the
long end is probably you know, somewhat justified, or you've
got to see, you know, if US growth continues to slow,
(09:48):
then bond yields are probably too high and you're a
little bit offsides there, and they've got to come in
a little bit. I think that's a fair you know,
approach to this, because you know, all the talk right
now that I've been hearing for the last few weeks
is well, it's because you know, the US deficits too high.
And I go, man, the US deficit's been too high
since I've been alive. You know, every year we get that.
(10:11):
And I'm not saying that like it's not a problem necessarily,
But what I'm saying is a year ago, year and
a half now, in October of twenty three, ten year
treasury touch five percent, and all the talk was, well,
you know, there's there's too much debt. And then over
the next nine months or actually eleven months until September
(10:31):
of this of last year of twenty four, yields on
the ten year decline from about five percent to three
point six Mike, did the deficit picture improve meaningfully in.
Speaker 2 (10:40):
The US last I sure didn't. No, didn't.
Speaker 3 (10:43):
So again, if you're gonna ascribe, hey, it's definitely this
when yields are moving up, well, then how do you
explain what happens when yields moved down for you know,
the better part of an eleven month period.
Speaker 4 (10:54):
So your prognosis on it is that something seems off
about the rising yields, right. I think that's kind of
the conclusion temporarily here is either the growth story is
painting a falsely weak picture or the bond market is
painting a overly high interest rate picture.
Speaker 2 (11:19):
Yeah.
Speaker 3 (11:19):
My other theory look on why yields have moved up
and why it's happened. Globally, there's a lot of uncertainty
about what's gonna happen from a trade perspective once Trump
comes into office, and so if you have uncertainty about
what capital flows are gonna look like across different countries,
don't you kind of demand a little extra premium in
order to hold any bond? Maybe, you know, it's like
(11:43):
you don't know what the picture is necessarily gonna look like.
So it could be I don't know, kind of an
uncertainty premium that's being added. I guess is it fair?
Is it warranted? I don't know, but it's there, Like
it's markets don't care whether or not something's fair or not.
It's it's there, and you've got to deal with it.
So the question is, hey, how can the US economy,
(12:04):
you know, manage these higher rates that are in there
right now? Because we are now about thirty days away
from the start of the spring housing season Super Bowls
February ninth. Yeah, it's basically the kickoff for spring housing
season these days. And so if you've still got you know,
thirty year fixed rate mortgages floating around seven and a quarter,
it's seven to one seven according to Mortgage News Daily
(12:25):
right now. Man, that's it's not really the optimistic picture
that you wanted heading into the spring. If you're a
realtor or a potential home Seller. So we'll see where
it all goes on this. But this is something that
that bears watching, and I do think it's it's gonna
be hard for this divergence between growth and yields to
be maintained. We'll just have to see which side ends
(12:47):
up giving. Let's take a quick break. When we come back,
we're talking Federal Reserve after this.
Speaker 1 (12:53):
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Speaker 3 (13:55):
Mike, did we learn anything new from the Federal Reserve
with the release of the Fed meeting minutes yesterday?
Speaker 2 (14:01):
No? Next question.
Speaker 4 (14:04):
I think there is not a ton new other than
confirmation that of a lot of what we've talked about,
which is that the Federal Reserve is going to be
a lot less willing to lower rates without very compelling
data on inflation moving down further cool.
Speaker 3 (14:21):
I want to talk about this piece from Bloomberg, though,
because I got a bone to pick with a certain
mister Christopher Waller, who is one of the Fed governors.
Speaker 4 (14:30):
So to be clear, you didn't find anything terribly useful
from the meeting minutes?
Speaker 2 (14:34):
No, okay, no, no, I'll just leave it at that. Yeah,
this Waller.
Speaker 3 (14:42):
Piece has some meat to it, though. So Waller comes
out and yesterday I'll read his quote. Inflation in twenty
twenty four has largely been driven by increases in imputed
prices such as housing and non market services, which are
estimated rather than directly observed, and I consider a less
reliable guide to the balance of supplying demand across all
(15:03):
goods and services in the economy. So if you're not
familiar with how inflation is calculated, whether it's in PCE
or CPI or any of these different calculations, there are
some places where if you read through the methodology, whether
it's the BOS or whoever's doing them, they basically say, yeah,
we're not really sure how to measure this, but it exists,
(15:26):
and we're gonna give it our best shot, and here's
how we tried to do it.
Speaker 2 (15:29):
And some of them are easier to understand.
Speaker 3 (15:31):
Others owner equivalent rent and things like that, and how
that like, okay, we can see basically how they get
to it. Other stuff with like the cost of health insurance,
they're like, we have no idea how to do this,
and the reason why it's not because they're dumb. But
let's let me just give you two people as an example.
One person has a monthly premium of one thousand dollars
that goes up ten dollars the next year. The next
(15:55):
person has a premium of eight hundred dollars that goes
down twenty the next year. But the the first person
had their deductibles reduced, and so that's part of the
reason why their premiums went up while the other person
had smaller deductible or larger deductibles, or whatever the heck
it is that makes it make sense. So there's so
many moving parts that you just you can't accurately measure
(16:17):
the cost of health insurance, and so they estimate it
just as an example.
Speaker 2 (16:21):
So it gives you this.
Speaker 3 (16:23):
If you pull those things out that are estimated, it
gives you something called quote market based inflation, the stuff
that you can actually measure. And remember when when we
say measure, even that is taken with a grain of
salt because those are estimates. The feeder, the BLS does
not go around to every gas station in the country
(16:44):
saying what are your prices? They sample a large number
of them and they make their numbers based on that.
So even these are estimates, which is part of the
reason that I think this is a crappy metric, because
there's nothing where we don't have an estimate, Like it's
not a census, no, like we're not measure everything every month.
Do you know how much you do? You know how
big the national deficit would be if you had to
(17:05):
do that, my goodness. So you get this market based
inflation and what it says is that for the last
twelve months, market based PCE or market based core PCE
is running at two point four percent while the PCE
price index is at two point eight And so Waller says, hey, this,
(17:26):
this makes us more encouraged. But here's the thing about
market based PCE. The day that I have in this
Bloomberg piece. Let me see if I can find anymore.
I don't know that you can actually find the long
set on this. No you can't, So I have to
just rely on this Bloomberg piece. The data going back
through twenty nineteen, which again was before inflation was even
(17:46):
a twinkle in the economy's eye, it basically always shows
market based PCE below PCE.
Speaker 2 (17:54):
So what does that.
Speaker 4 (17:55):
Tell us nothing? It's it's what it's doing is cherry
pit data to support your pre existing conclusion about inflation.
And that's one thing to hear from, frankly, someone like us,
which we don't do. But it's one thing to hear
it from a news commentator on CNBC or Bloomberg. It's
(18:17):
another thing to hear it from someone as involved in
Federal Reserve policy.
Speaker 2 (18:23):
As Christopher Waller.
Speaker 4 (18:24):
That's very problematic, I think in anyone who takes this
stuff seriously viewpoint here, you don't go about cherry picking
one data point and saying, well, this supports my conclusion,
and therefore it's akin to saying, well, oil prices are down.
(18:46):
So I'm not terribly worried about the fact that housing
and groceries and egg prices are through the roof because
this one data point, in my view, really supports the
argument that lower inflation is coming.
Speaker 3 (18:57):
Now Waller's no dummy. Here's and I think is the
part that's kind of troubling, Like he's no dumb. He's
got a PhD in economics from Washington State, like the
you don't get a PhD in economics unless you really
know what you're talking about. And looks he's been on
the Federal Reserve Board of Governors since twenty twenty. He
was a pointed by Donald Trump then, So don't think
(19:19):
that this is like, hey, I'm trying to cover Joe Biden,
Like no, this is a Trump appointee. So it's not
you know, trying to score political points before you know,
Trump comes into office or something like that, but it
is something where you go man like, is there any
meat there actually to this point, and it's it's hard for.
Speaker 2 (19:35):
Me to see it, quite honestly.
Speaker 3 (19:37):
Quick break here Wall Street watches Next.
Speaker 1 (19:45):
Like us on Facebook and follow us on Twitter at
DFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look at what's moving markets so
far today right here on the Financial Exchange Radio Network.
Speaker 5 (20:05):
Well, following a vulnerable ride to begin the week, markets
yesterday took a breather and closed in mixed territory. US
equity markets closed today to honor former and late president
Jimmy Carter. However, the bond market, which has guarded much
attention from investors this week after hitting four points seven percent,
(20:25):
or its highest level since April, is open today and
will shutter at I think it's two o'clock today early afternoon. Nonetheless,
ten year treasure reeled right now is down by two
basis points now at four point six six percent, and
crude oil is up about one percent higher, trading just
below seventy four dollars a barrel. Meanwhile, some news from
(20:48):
Microsoft last night, where the tech giant confirmed to CNBC
that it is cutting a small percentage of jobs across
departments based on performance. Business Insider previously reported Microsoft plans
on Tuesday. According to one person familiar with the matter,
the company's job cuts will affect less than one percent
(21:09):
of employees, and tomorrow morning, all eyes will turn to
the December jobs report, where economists are anticipating about one
hundred and fifty three thousand jobs were added last month,
which would be a drop from the two hundred and
twenty seven thousand jobs added in November. The unemployment rate
is expected to remain steady at four point two percent.
(21:31):
I'm Tucker Silvan. That's Wall Street Watch, Mike.
Speaker 2 (21:34):
We had peace in Bloomberg today. It's talking about the firm.
Speaker 3 (21:37):
Challenger, Gray and Christmas is an employment firm that conducts
I don't know surveys of different companies in their hiring plans,
and according to them, in twenty twenty four, announced hiring
plans were the smallest in the decade since twenty fifteen,
seven hundred and sixty nine thousand workers announced to have
(21:59):
been and you know, hired by companies. Projected job cuts
also picked up, with employers planning to eliminate seven hundred
and sixty one thousand positions.
Speaker 2 (22:07):
But I don't know what to do with this data either, Chuck.
Speaker 4 (22:12):
I know you're struggling with it because at the end
of the day, in twenty twenty four, how many more
people are working in jobs than compared to twenty twenty three?
Speaker 2 (22:20):
About two million? Yeah, well, I guess more. It's even
beyond that. No one looks at this.
Speaker 3 (22:28):
Like, if if this mattered, the Challenger job data release
would be an important one each month because guess what, Mike,
it is something that was released today, right It showed
thirty eight seven and ninety two job cuts announced in December,
the estimate was for sixty five thousand. Did I know
(22:48):
markets are closed? But even if they were open, no
one talks about this, no one. My view on whether
or not a a data point matters whether you've ever
heard of it. No, it's it's whether the market trades
on it. Because for as much as we poo poo
the jobs report and inflation like oh, these are manipulated
and this and that not saying we do, but like
(23:10):
some people do. Ultimately, the people that are allocating billions
of dollars in capital trade on those things because they
believe they have predictive value to what they own, and
so if they didn't, then you'd kind of say, yeah,
this this doesn't matter and I'm just going to leave it.
I mean, there's tons of reports that get released each
(23:31):
day that no one covers. And some of them, look,
maybe they are useful and it's just no one knows
about them, but the fast majority of them aren't providing
useful signal for what markets care about when it comes
to the state of the economy.
Speaker 4 (23:45):
Yeah, here's my two cents on this for what it's worth.
As of November, the most recent jobs report data that
we have, will get another one tomorrow, but as of November,
there were two point two seven four million more people
working compared to November of twenty twenty three. So, in
spite of this data from Challenger, Gray and Christmas saying
(24:05):
that fewer announcements were made, the worst number of announcements
of jobs since twenty fifteen, we created somewhere around what's
that three x the announcements of jobs. Yes, so, unless
you have some other data point that tells me that
this is in some way predictive of where things are
going to go in twenty twenty five, which Bloomberg does not,
(24:26):
to be clear, extrapolate on any of that. Then this
is useless and in danger of being misinterpreted by vast
numbers of people, because, by the way, that two point
twenty seven four million in terms of job creation exceeded
anything we saw in the late twenty tens in terms
of year over year job creation. Yeah, so let's just
(24:49):
leave it right there and not talk about this piece anymore,
because again it's in danger of being misinterpreted by people
that don't look at this stuff.
Speaker 2 (24:57):
Every day.
Speaker 4 (24:58):
You look at this on its own and you say,
uh oh, look out, we're heading for a recession because
according to this firm that I've never heard of, companies
are announcing fewer hiring plans. Well, it didn't translate into
a lot fewer jobs created.
Speaker 2 (25:12):
Good news.
Speaker 3 (25:13):
When it comes to the ports of the United States,
specifically East coast ones, the International Longshoreman's Association reached an
agreement tentative has still not yet been ratified by the union,
but they reached an agreement with the United States Maritime
Alliance for a finalized six year deal, again pending confirmation
(25:35):
by the Union. That hammered out some of the issues
that still lingered since the October or was it early November,
I can't remember, maybe late October resolution to the strike
that was going on at the time. Remember at the time,
the deal was, Hey, you're going to see more than
a sixty percent raise in wages over the six year
(25:56):
term of the deal, and we'll figure out some of
the other stuff on automation. As we get to the
January fifteenth new deadline. They do appear to have reached
a tentative deal here, And the sense I get reading
through this piece from the New York Times is the
dock workers got guarantees from their employers that if they're
(26:19):
adding automation, they will also be adding doc worker jobs.
Speaker 4 (26:26):
That's the only part that's interesting to me. And we
don't really know what that means quite yet. The compensation
piece kind of whatever, we knew what that was going
to look like. There wasn't much disagreement on this. I'm
very interested in the legal interpretation of the language around automation,
because this piece at least insinuates that the union did
(26:48):
not get what they wanted in terms of forbidding automation,
which I think most of us agreed was never going
to happen in the first place. Instead, they got some
form of job guarantee, and I'm guessing it's some sort
of ratio of workers per I don't know what, and.
Speaker 2 (27:06):
I automated crane or something else. Yeah, I don't know.
Speaker 4 (27:09):
And look, I mean automation does create new jobs, right,
If you're going to put in some form of automated crane,
you're going to need a new person to repair that crane.
And maybe that's the negotiation here, is that person's going
to be part of the union and an employee rather
than some contractor. But I just can't really imagine or
envision in my head what format that takes, so I'll
(27:29):
be intrigued to see all that. But look, I mean
more automation should hopefully mean you're able to move volume
through the ports faster, which would mean you're able to
handle more volume, which might mean you need more employees.
Speaker 3 (27:41):
Could be So that's what's going on with the ports
on the East Coast. Good news, we do not have
a or at least it appears, assuming that this gets
ratified by the union, it appears that we will not
have a port strike as something that we need to
contend with. As we head through the next month or so.
I think that's a good thing. Let's take a quick
(28:02):
break here. When we come back, we'll take you out
to California. Well, we won't take you there. We're not
going anywhere near California right now because you've got some
absolutely horrific wildfires that.
Speaker 2 (28:11):
Are happening there.
Speaker 3 (28:12):
We'll talk about the impact on the California economy, specifically
when it comes to the insurance marketplace out there right
after this.
Speaker 1 (28:21):
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Speaker 2 (28:48):
All right.
Speaker 3 (28:48):
So, we've got a just an absolute disaster unfolding in
the Los Angeles area right now, with multiple fires that
have spread throughout the Los Angeles area.
Speaker 2 (29:01):
This really picked up two nights ago.
Speaker 3 (29:03):
When you had seventy eighty mile an hour winds that
were sweeping through the area. Those were the gusts with
like forty mile an hour baseline winds, and pretty much
what you had was these winds were picking up embers
from old fires and depositing them miles away, starting new
ones in a very dry region at the moment. And
(29:24):
so the estimates right now are that you've had more
than two thousand structures that have been destroyed already, potentially
north of eight billion dollars in damage from an insurance perspective,
and the total economic impact is expected to be at
this point, you know, somewhere in the forty to fifty
billion dollar range. And remember these still are not fully
contained or done with yet, and so you've got a
(29:51):
situation here where the California home insurance market has been
broken even before this. But I think this is just
fresh evidence of Hey, if you are an insurance company,
if you want to cover homes in the California area,
(30:11):
it's almost impossible to do so affordably at this point.
Speaker 4 (30:14):
Mike, Well, it's impossible to do so affordably because regulators
are not allowing increases that insurers request. And I think
that's an important piece here is this is not a
free market. And I'm sure there are insurers, by the way,
that would say, even in a free market, we're pulling
out here, sure, but when you talk about the likes
of State Farm and other major insurers who have decided
(30:36):
in the state of California entirely that they are not
issuing any new policies. It's not because they don't necessarily
know how to price the market. Their comment has been,
the state regulator is not willing to approve the rates
that we would charge, and so see you later. And
so this is if it sounds familiar or a remarkably
similar story to what we've seen in Florida. In Florida
(30:59):
this fortunately, the hurricanes that were bearing down on the
state did not do as much damage as you know
was potentially.
Speaker 2 (31:08):
Modeled as a result of all of that.
Speaker 4 (31:09):
California, we might be seeing the opposite here where you know,
you don't see exactly the forecast from a wildfire like
you do a hurricane, but the damage is tremendous right now,
over two thousand buildings lost. And you know, very different
obviously political views between Florida and California legislatures, but in
(31:30):
both cases we've kind of landed in the same solution.
In Florida they have the Citizens' Insurance. In California, it's
the fair Plan, and in both cases these are state
run insurers of last resort, and in this case that
fair Plan is taking massive losses this time around, in
all likelihood.
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Speaker 3 (32:52):
Now, Mike, you mentioned that previously the California insurance market.
One of the reasons why it's kind of been broken
and people have been moving to the state run insurer
is that the state regulators have not allowed insurers to
increase their policy premiums as much as they've wanted to
potentially cover some of these concerns. Generally, there's been a
(33:14):
seven percent annual cap in terms of how quickly insurers
can raise prices, and so what you do have going
on now is late last year, in order to try
to stem the tide of insurers that we're leaving the
state entirely or just abandoning regions of it, the state
(33:35):
of California issued a new rule. And what it does
is it basically forces insurers, Hey, if you're writing policies
throughout the state, you're going to have to cover these
fire prone areas as well. But what we're going to
give you is the ability to raise your rates much
more quickly. And so just as an example, all state
(33:57):
one approval for an average thirty four percent increas for
California in home insurance in November, and this is something
that you are likely to see from more carriers in
the future there. So I think what it points to
is the home insurance market in California. It's gonna look
(34:17):
a lot like Florida over the next couple of years,
or at least a lot like Florida has in the
last few Where you talk to anyone whose own property
in Florida, their premiums may have doubled or tripled over
the last five years. That's probably where you're heading in
California as well.
Speaker 4 (34:30):
I suspect, can I ask you know, we brought this
up when it came to Florida, and I want to
bring it back home for people that don't have relatives
in Florida, live here on the East Coast.
Speaker 2 (34:40):
Where a lot of our listeners are.
Speaker 4 (34:42):
And why, you know, other than basic human decency financially,
why we should care as Americans when we have at
home insurance market.
Speaker 2 (34:50):
That is.
Speaker 4 (34:52):
Broken in many ways and a state is covering majority
of the policies, Like what is the risk to an
American taxpayer in Massachusetts of California dealing with this in
this way and and of being especially prone to disaster
right now.
Speaker 3 (35:08):
Well, there's a few different possibilities. The first is if
you just say, hey, like regardless, you know, hey, you
don't need to have homeowner's insurance, you know at all,
the first thing that you'll see is that the mortgage
market will completely dry up. And the way you think
about this, let's say that you are going out and
buying a home in California. It's an expensive market, and
you want bank X to lend you a million dollars
(35:32):
to go and buy your place. The reason why that
lender says no, you need to have insurance is because
if the place is destroyed, the lender wants you to
be able to rebuild it, even if you're not going
to live there again, so that even if you abandon
your mortgage, there's money there so that someone can rebuild,
and then the lender can sell the property and recoup
(35:52):
the mortgage value. If that's not in place, lenders are
gonna say no, I'm not going to lend you a
million dollars there with no insurance, because if the place
burns to the ground, then you abandon your mortgage and
I'm stuck with an empty lot that's not going to cover.
Speaker 2 (36:05):
How much I lent you. So that just doesn't make sense.
Speaker 3 (36:08):
And people will say, well, you know, then lenders will
just have to figure out how to make money there.
Guess what, your interest rates probably go up like three
to five percent then from where they are today. If
you want lenders to take on the risk of an
uninsured property, like at least.
Speaker 2 (36:24):
I mean I thought more.
Speaker 4 (36:25):
Yeah, I can't imagine what an insurer would want to
issue a thirty years insurance like good luck.
Speaker 3 (36:31):
The way I look at it basically is that then
you end up with it. You get the notifications if
you ever change your insurance carrier for your homeowner's insurance.
If they don't pass the information onto the lender, to
the lender, the lender says, hey, we'll buy you insurance
at much higher rates. That's basically what would happen. And
so like that's one risk. The other is, hey, you've
(36:52):
got all these people that are on these state plans. Well,
remember the state only has so much money. The state
of California cannot print dollar. The United States can, but
Florida and California cannot. And so if you ever have
a major hurricane or a you know, a firestorm in California,
that's that's worse even than what we're seeing right now.
(37:13):
You get to a point where, hey, if you've exhausted
the money in there, those states might not be able
to find the money themselves, and so they might have
to go to the federal government and say we need
assistance on this. What does that mean more debt from
the United States and ultimately either higher taxes or higher
borrowing costs likely for the United States as a whole
(37:35):
in trying to cover those Yeah, which is why.
Speaker 2 (37:38):
That's the message is.
Speaker 4 (37:39):
You know, this is not just a Florida, Colorado, California problem.
If these states do not fix themselves up, then it's
going to be an US problem.
Speaker 3 (37:47):
And this is why I again, I know this is
not necessarily the most popular thing, but if if your
home is destroyed by a natural disaster, be it fire, earthquake,
you know, whatever it might be, I'm not sure that
the coverage should necessarily mandate replacement in the same same
exact location. I think we have to have real conversations
(38:09):
about yeah, you want to be covered, but especially like that,
there's there's places now that have had, you know, hurricanes
that have destroyed homes.
Speaker 2 (38:15):
Two or three times.
Speaker 3 (38:16):
Yeah, like you start wondering kind of what we're what
we're doing from a large scale there. But I don't
have great answers. Quick Break Hour two coming up in
just a bit.
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Speaker 2 (01:10):
Chuck, Mike and Tucker with you here.
Speaker 3 (01:12):
And markets at least equity markets are closed today in
memory of Jimmy Carter. This the last day of his
state funeral, and so the New York Stock Exchange and
Nasdaq both have their equity markets closed. But there are
some sporadic you know, not sporadic, there are some scattered
(01:34):
markets that are open. The bond market has a half day,
I believe, closing at two pm. Agricultural futures Mike is
at one pm or one fifteen that those shut down. Yeah,
something weird like that, something along those lines. So there's
nothing moving in markets except for bonds. I mean, I guess, look,
if Mike, should we do a couple segments on different
(01:56):
agricultural futures.
Speaker 2 (01:57):
Yeah?
Speaker 4 (01:58):
Sure, I mean I'm always curious about you know, chicken
feed and corn, and yeah, might as well, you know,
really dig in there for the next two hours.
Speaker 3 (02:09):
So here's what we have going on right now. Soybeans,
the current contract is down three seventy five per.
Speaker 2 (02:16):
What do you think bushel? I hundred bushels? Sure?
Speaker 3 (02:23):
Hard to say. Rough rice not to be confused with
smooth rice. That is up twenty eight cents per grain.
Probably not, they'll be fourteen dollars a grain. That'd be
a lot for rice. So in any case, we're obviously
not going to go through you know, two hours that
because listen, there's parts of the country where that is
(02:44):
hugely important, if you like, if you go to the Midwest.
I was talking with Chris Ryan on one of our
stations earlier today, and look, if you go through the Midwest,
they actually are reading cattle and wheat and corn futures
on a regular basis on the radio because a lot
of people make their living selling those things, and so
knowing when to sell is really important for most of
(03:08):
us in the United States, and quite honestly almost all
of us if you lol, like the number of people
who actually earn a living through farming, it's in the
you know, a couple million range, as far as like
those who actually own like the farms and are making
those decisions. For the rest of us, the other three
hundred and twenty eight million, we're just not doing that.
It's not wrong, it's not right, it's just not what
we do. But I do find it interesting that there
(03:30):
are parts of the country where, hey, that is a
more regular update than what the Dow is doing or
what the S and.
Speaker 2 (03:36):
P is doing, And I find that kind of cool.
Speaker 4 (03:38):
Actually, yeah, and I always I keep looking for this story.
I think it might actually just be like a legendar
myth of the person who was, you know, trading agricultural
futures or oil futures in markets and accidentally ends up
taking delivery of some of these things. Because that's the weird,
(03:58):
weird thing about ag future or oil futures is if
you trade then this doesn't happen. But you are actually
bidding on a contract to own a physical thing rather
than you know, certificate shares of a corporation. And so
there's these urban myths and legends of people that have
no idea what they're doing accidentally taking delivery of you know,
(04:21):
truck fulls of corn, for example. But I've I've been
unable to find a credible story of it actually occurring.
Speaker 3 (04:27):
Yes, because here's the thing. When when you're trading you know,
futures and you end up taking delivery, you don't trade
futures of like three corn cops. There are minimum sizes,
and the sizes are large enough that generally if it
happens to an individual, You're probably not going to be
able to take delivery just because you won't have anywhere
(04:49):
to store the quantity that they are shipping you kind
of a problem. So in any case, markets largely closed today,
so nothing going on as far as you know, what's
what's happening today really, But one of the main stories
over the last month or so has been the move
towards higher yields in the bond market, not just domestically,
(05:11):
so to anyone who looks at this, uh, you know
that what's what's going on with US treasury rates right
now and says, hey, like, is is this something that
you know is indicative of what's going on with the
amount of you know, US debt? The answer, in my
opinion is we don't know for sure, but probably not.
And the reason that I say probably not is the
(05:33):
UK tenure treasury over the last month, since December twelfth,
has gone from about four three five up to four
eight six. The let's see this is the Japanese tenure
treasury has gone from one oh four to one one eight,
the French tenure treasury has gone from two nine to
three four, and the US tenure treasury has gone from
(05:55):
about four three and change up to four almost four
to seven.
Speaker 4 (05:59):
Yeah, there's more significance in September, by the way, when
we reach lows of about three point six on that
same ten year. So a lot has occurred in the
months surrounding the election. I don't think you can place
it all on the shoulders of that, but big upswings
in yields.
Speaker 3 (06:14):
And so I think that in certain cases. We talked
a little bit yesterday about how with the UK, the
UK does have signs of a potential you know, crisis
of confidence in that typically when yields go up, your
currency appreciates as well, because you have people flocking to
you know, they're attracted by the higher yields and they say, oh,
(06:35):
like g yes, now it makes more sense, you know,
to own that currency.
Speaker 4 (06:39):
And to be clear about this, the reason that happens
is because foreigners jump in and go want to participate
in these yields, and the only way to do so
is to take their euro and you know, translate it
into pounds and go and buy these bonds domestically.
Speaker 3 (06:55):
We talked about this in the summer of last year.
In August, when the yen carry trade broke down. The
premise there was, Hey, you're borrowing in one currency to
go and buy something in another. So this is that
whole principle at work when your currentcy when you have
higher yields than one currency, money tends to flow into that.
The UK is experiencing something right now, same thing it
(07:16):
did during Liz Trust's very short tenure back in twenty
twenty two, where yields are moving up on UK government
bonds the pound is sliding.
Speaker 2 (07:27):
That is an indication that you've got an issue.
Speaker 3 (07:30):
In the United States right now, yields are moving up.
Dollar has strengthened about ten percent over that time as well.
So it's not something where people are looking at the US.
I know, we get so focused on what we're doing
here that it's like it's the only thing that matters.
Speaker 2 (07:44):
But there's a big world out there. It's large, and
we're not the.
Speaker 3 (07:48):
Only ones seeing this, And there are countries where you
actually do have potentially signs of a crisis of confidence
in the currency. The US is not one of those
right now. But what to make of these higher yields.
I talked a little bit about it yesterday. Mike, your
thoughts before I go further.
Speaker 4 (08:04):
Well, I think there's clearly stronger growth expectations than what
we were seeing previously, and very clearly from the FED
meeting minutes as well, they seem to be taking the
threat of inflation a little bit more seriously. So I
don't necessarily point to just one thing, but I think
the general idea of higher growth, the risk of higher terrists,
and other things that could push both growth and inflation
(08:28):
higher might be contributing here. You have a differing view.
Speaker 3 (08:32):
Well, here's the interesting thing is that, you know, while
the thoughts of higher growth may be happening, what we've
actually seen over the last month or so, according to
the data that we've gotten, Atlanta Fed runs their GDP
now now cast and that has seen projections for Q
four GDP growth in the US come in from around
three four to two seven now. So the actual data
(08:53):
that we've been getting has been indicative of lower growth
in the short term. And so you know, hey, why
are these higher yields coming through.
Speaker 2 (09:04):
Again?
Speaker 3 (09:04):
There's anyone will tell you a million stories, and you
know someone's gonna say, oh, it has to be this
has to be that. There's no one clear picture on it.
But what I can tell you is that the divergence
that we are seeing where US growth right now appears
to be slowing a little bit, you know, modestly over
the last month or so, but yields have been moving up.
(09:26):
That's rarely something that lasts for too long because long
term yields tend to track growth over the long run,
and so something has to give here. Either you do
have to see US growth accelerate, in which case the
long end is probably you know, somewhat justified, or you've
got to see, you know, if US growth continues to slow,
(09:48):
then bond yields are probably too high and you're a
little bit offsides there, and they've got to come in
a little bit. I think that's a fair you know,
approach to this, because you know, all the talk right
now that I've been hearing for the last few weeks
is well, it's because you know, the US deficits too high.
And I go, man, the US deficit's been too high
since I've been alive. You know, every year we get that.
(10:11):
And I'm not saying that like it's not a problem necessarily,
But what I'm saying is a year ago, year and
a half now, in October of twenty three, ten year
treasury touch five percent, and all the talk was, well,
you know, there's there's too much debt. And then over
the next nine months or actually eleven months until September
(10:31):
of this of last year of twenty four, yields on
the ten year decline from about five percent to three
point six Mike, did the deficit picture improve meaningfully in.
Speaker 2 (10:40):
The US last I sure didn't. No, didn't.
Speaker 3 (10:43):
So again, if you're gonna ascribe, hey, it's definitely this
when yields are moving up, well, then how do you
explain what happens when yields moved down for you know,
the better part of an eleven month period.
Speaker 4 (10:54):
So your prognosis on it is that something seems off
about the rising yields, right. I think that's kind of
the conclusion temporarily here is either the growth story is
painting a falsely weak picture or the bond market is
painting a overly high interest rate picture.
Speaker 2 (11:19):
Yeah.
Speaker 3 (11:19):
My other theory look on why yields have moved up
and why it's happened. Globally, there's a lot of uncertainty
about what's gonna happen from a trade perspective once Trump
comes into office, and so if you have uncertainty about
what capital flows are gonna look like across different countries,
don't you kind of demand a little extra premium in
order to hold any bond? Maybe, you know, it's like
(11:43):
you don't know what the picture is necessarily gonna look like.
So it could be I don't know, kind of an
uncertainty premium that's being added. I guess is it fair?
Is it warranted? I don't know, but it's there, Like
it's markets don't care whether or not something's fair or not.
It's it's there, and you've got to deal with it.
So the question is, hey, how can the US economy,
(12:04):
you know, manage these higher rates that are in there
right now? Because we are now about thirty days away
from the start of the spring housing season Super Bowls
February ninth. Yeah, it's basically the kickoff for spring housing
season these days. And so if you've still got you know,
thirty year fixed rate mortgages floating around seven and a quarter,
it's seven to one seven according to Mortgage News Daily
(12:25):
right now. Man, that's it's not really the optimistic picture
that you wanted heading into the spring. If you're a
realtor or a potential home Seller. So we'll see where
it all goes on this. But this is something that
that bears watching, and I do think it's it's gonna
be hard for this divergence between growth and yields to
be maintained. We'll just have to see which side ends
(12:47):
up giving. Let's take a quick break. When we come back,
we're talking Federal Reserve after this.
Speaker 1 (12:53):
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Speaker 3 (13:55):
Mike, did we learn anything new from the Federal Reserve
with the release of the Fed meeting minutes yesterday?
Speaker 2 (14:01):
No? Next question.
Speaker 4 (14:04):
I think there is not a ton new other than
confirmation that of a lot of what we've talked about,
which is that the Federal Reserve is going to be
a lot less willing to lower rates without very compelling
data on inflation moving down further cool.
Speaker 3 (14:21):
I want to talk about this piece from Bloomberg, though,
because I got a bone to pick with a certain
mister Christopher Waller, who is one of the Fed governors.
Speaker 4 (14:30):
So to be clear, you didn't find anything terribly useful
from the meeting minutes?
Speaker 2 (14:34):
No, okay, no, no, I'll just leave it at that. Yeah,
this Waller.
Speaker 3 (14:42):
Piece has some meat to it, though. So Waller comes
out and yesterday I'll read his quote. Inflation in twenty
twenty four has largely been driven by increases in imputed
prices such as housing and non market services, which are
estimated rather than directly observed, and I consider a less
reliable guide to the balance of supplying demand across all
(15:03):
goods and services in the economy. So if you're not
familiar with how inflation is calculated, whether it's in PCE
or CPI or any of these different calculations, there are
some places where if you read through the methodology, whether
it's the BOS or whoever's doing them, they basically say, yeah,
we're not really sure how to measure this, but it exists,
(15:26):
and we're gonna give it our best shot, and here's
how we tried to do it.
Speaker 2 (15:29):
And some of them are easier to understand.
Speaker 3 (15:31):
Others owner equivalent rent and things like that, and how
that like, okay, we can see basically how they get
to it. Other stuff with like the cost of health insurance,
they're like, we have no idea how to do this,
and the reason why it's not because they're dumb. But
let's let me just give you two people as an example.
One person has a monthly premium of one thousand dollars
that goes up ten dollars the next year. The next
(15:55):
person has a premium of eight hundred dollars that goes
down twenty the next year. But the the first person
had their deductibles reduced, and so that's part of the
reason why their premiums went up while the other person
had smaller deductible or larger deductibles, or whatever the heck
it is that makes it make sense. So there's so
many moving parts that you just you can't accurately measure
(16:17):
the cost of health insurance, and so they estimate it
just as an example.
Speaker 2 (16:21):
So it gives you this.
Speaker 3 (16:23):
If you pull those things out that are estimated, it
gives you something called quote market based inflation, the stuff
that you can actually measure. And remember when when we
say measure, even that is taken with a grain of
salt because those are estimates. The feeder, the BLS does
not go around to every gas station in the country
(16:44):
saying what are your prices? They sample a large number
of them and they make their numbers based on that.
So even these are estimates, which is part of the
reason that I think this is a crappy metric, because
there's nothing where we don't have an estimate, Like it's
not a census, no, like we're not measure everything every month.
Do you know how much you do? You know how
big the national deficit would be if you had to
(17:05):
do that, my goodness. So you get this market based
inflation and what it says is that for the last
twelve months, market based PCE or market based core PCE
is running at two point four percent while the PCE
price index is at two point eight And so Waller says, hey, this,
(17:26):
this makes us more encouraged. But here's the thing about
market based PCE. The day that I have in this
Bloomberg piece. Let me see if I can find anymore.
I don't know that you can actually find the long
set on this. No you can't, So I have to
just rely on this Bloomberg piece. The data going back
through twenty nineteen, which again was before inflation was even
(17:46):
a twinkle in the economy's eye, it basically always shows
market based PCE below PCE.
Speaker 2 (17:54):
So what does that.
Speaker 4 (17:55):
Tell us nothing? It's it's what it's doing is cherry
pit data to support your pre existing conclusion about inflation.
And that's one thing to hear from, frankly, someone like us,
which we don't do. But it's one thing to hear
it from a news commentator on CNBC or Bloomberg. It's
(18:17):
another thing to hear it from someone as involved in
Federal Reserve policy.
Speaker 2 (18:23):
As Christopher Waller.
Speaker 4 (18:24):
That's very problematic, I think in anyone who takes this
stuff seriously viewpoint here, you don't go about cherry picking
one data point and saying, well, this supports my conclusion,
and therefore it's akin to saying, well, oil prices are down.
(18:46):
So I'm not terribly worried about the fact that housing
and groceries and egg prices are through the roof because
this one data point, in my view, really supports the
argument that lower inflation is coming.
Speaker 3 (18:57):
Now Waller's no dummy. Here's and I think is the
part that's kind of troubling, Like he's no dumb. He's
got a PhD in economics from Washington State, like the
you don't get a PhD in economics unless you really
know what you're talking about. And looks he's been on
the Federal Reserve Board of Governors since twenty twenty. He
was a pointed by Donald Trump then, So don't think
(19:19):
that this is like, hey, I'm trying to cover Joe Biden,
Like no, this is a Trump appointee. So it's not
you know, trying to score political points before you know,
Trump comes into office or something like that, but it
is something where you go man like, is there any
meat there actually to this point, and it's it's hard for.
Speaker 2 (19:35):
Me to see it, quite honestly.
Speaker 3 (19:37):
Quick break here Wall Street watches Next.
Speaker 1 (19:45):
Like us on Facebook and follow us on Twitter at
DFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look at what's moving markets so
far today right here on the Financial Exchange Radio Network.
Speaker 5 (20:05):
Well, following a vulnerable ride to begin the week, markets
yesterday took a breather and closed in mixed territory. US
equity markets closed today to honor former and late president
Jimmy Carter. However, the bond market, which has guarded much
attention from investors this week after hitting four points seven percent,
(20:25):
or its highest level since April, is open today and
will shutter at I think it's two o'clock today early afternoon. Nonetheless,
ten year treasure reeled right now is down by two
basis points now at four point six six percent, and
crude oil is up about one percent higher, trading just
below seventy four dollars a barrel. Meanwhile, some news from
(20:48):
Microsoft last night, where the tech giant confirmed to CNBC
that it is cutting a small percentage of jobs across
departments based on performance. Business Insider previously reported Microsoft plans
on Tuesday. According to one person familiar with the matter,
the company's job cuts will affect less than one percent
(21:09):
of employees, and tomorrow morning, all eyes will turn to
the December jobs report, where economists are anticipating about one
hundred and fifty three thousand jobs were added last month,
which would be a drop from the two hundred and
twenty seven thousand jobs added in November. The unemployment rate
is expected to remain steady at four point two percent.
(21:31):
I'm Tucker Silvan. That's Wall Street Watch, Mike.
Speaker 2 (21:34):
We had peace in Bloomberg today. It's talking about the firm.
Speaker 3 (21:37):
Challenger, Gray and Christmas is an employment firm that conducts
I don't know surveys of different companies in their hiring plans,
and according to them, in twenty twenty four, announced hiring
plans were the smallest in the decade since twenty fifteen,
seven hundred and sixty nine thousand workers announced to have
(21:59):
been and you know, hired by companies. Projected job cuts
also picked up, with employers planning to eliminate seven hundred
and sixty one thousand positions.
Speaker 2 (22:07):
But I don't know what to do with this data either, Chuck.
Speaker 4 (22:12):
I know you're struggling with it because at the end
of the day, in twenty twenty four, how many more
people are working in jobs than compared to twenty twenty three?
Speaker 2 (22:20):
About two million? Yeah, well, I guess more. It's even
beyond that. No one looks at this.
Speaker 3 (22:28):
Like, if if this mattered, the Challenger job data release
would be an important one each month because guess what, Mike,
it is something that was released today, right It showed
thirty eight seven and ninety two job cuts announced in December,
the estimate was for sixty five thousand. Did I know
(22:48):
markets are closed? But even if they were open, no
one talks about this, no one. My view on whether
or not a a data point matters whether you've ever
heard of it. No, it's it's whether the market trades
on it. Because for as much as we poo poo
the jobs report and inflation like oh, these are manipulated
and this and that not saying we do, but like
(23:10):
some people do. Ultimately, the people that are allocating billions
of dollars in capital trade on those things because they
believe they have predictive value to what they own, and
so if they didn't, then you'd kind of say, yeah,
this this doesn't matter and I'm just going to leave it.
I mean, there's tons of reports that get released each
(23:31):
day that no one covers. And some of them, look,
maybe they are useful and it's just no one knows
about them, but the fast majority of them aren't providing
useful signal for what markets care about when it comes
to the state of the economy.
Speaker 4 (23:45):
Yeah, here's my two cents on this for what it's worth.
As of November, the most recent jobs report data that
we have, will get another one tomorrow, but as of November,
there were two point two seven four million more people
working compared to November of twenty twenty three. So, in
spite of this data from Challenger, Gray and Christmas saying
(24:05):
that fewer announcements were made, the worst number of announcements
of jobs since twenty fifteen, we created somewhere around what's
that three x the announcements of jobs. Yes, so, unless
you have some other data point that tells me that
this is in some way predictive of where things are
going to go in twenty twenty five, which Bloomberg does not,
(24:26):
to be clear, extrapolate on any of that. Then this
is useless and in danger of being misinterpreted by vast
numbers of people, because, by the way, that two point
twenty seven four million in terms of job creation exceeded
anything we saw in the late twenty tens in terms
of year over year job creation. Yeah, so let's just
(24:49):
leave it right there and not talk about this piece anymore,
because again it's in danger of being misinterpreted by people
that don't look at this stuff.
Speaker 2 (24:57):
Every day.
Speaker 4 (24:58):
You look at this on its own and you say,
uh oh, look out, we're heading for a recession because
according to this firm that I've never heard of, companies
are announcing fewer hiring plans. Well, it didn't translate into
a lot fewer jobs created.
Speaker 2 (25:12):
Good news.
Speaker 3 (25:13):
When it comes to the ports of the United States,
specifically East coast ones, the International Longshoreman's Association reached an
agreement tentative has still not yet been ratified by the union,
but they reached an agreement with the United States Maritime
Alliance for a finalized six year deal, again pending confirmation
(25:35):
by the Union. That hammered out some of the issues
that still lingered since the October or was it early November,
I can't remember, maybe late October resolution to the strike
that was going on at the time. Remember at the time,
the deal was, Hey, you're going to see more than
a sixty percent raise in wages over the six year
(25:56):
term of the deal, and we'll figure out some of
the other stuff on automation. As we get to the
January fifteenth new deadline. They do appear to have reached
a tentative deal here, And the sense I get reading
through this piece from the New York Times is the
dock workers got guarantees from their employers that if they're
(26:19):
adding automation, they will also be adding doc worker jobs.
Speaker 4 (26:26):
That's the only part that's interesting to me. And we
don't really know what that means quite yet. The compensation
piece kind of whatever, we knew what that was going
to look like. There wasn't much disagreement on this. I'm
very interested in the legal interpretation of the language around automation,
because this piece at least insinuates that the union did
(26:48):
not get what they wanted in terms of forbidding automation,
which I think most of us agreed was never going
to happen in the first place. Instead, they got some
form of job guarantee, and I'm guessing it's some sort
of ratio of workers per I don't know what, and.
Speaker 2 (27:06):
I automated crane or something else. Yeah, I don't know.
Speaker 4 (27:09):
And look, I mean automation does create new jobs, right,
If you're going to put in some form of automated crane,
you're going to need a new person to repair that crane.
And maybe that's the negotiation here, is that person's going
to be part of the union and an employee rather
than some contractor. But I just can't really imagine or
envision in my head what format that takes, so I'll
(27:29):
be intrigued to see all that. But look, I mean
more automation should hopefully mean you're able to move volume
through the ports faster, which would mean you're able to
handle more volume, which might mean you need more employees.
Speaker 3 (27:41):
Could be So that's what's going on with the ports
on the East Coast. Good news, we do not have
a or at least it appears, assuming that this gets
ratified by the union, it appears that we will not
have a port strike as something that we need to
contend with. As we head through the next month or so.
I think that's a good thing. Let's take a quick
(28:02):
break here. When we come back, we'll take you out
to California. Well, we won't take you there. We're not
going anywhere near California right now because you've got some
absolutely horrific wildfires that.
Speaker 2 (28:11):
Are happening there.
Speaker 3 (28:12):
We'll talk about the impact on the California economy, specifically
when it comes to the insurance marketplace out there right
after this.
Speaker 1 (28:21):
This is your home for the most comprehensive coverage of
the economy and the trends on Wall Street. This is
the Financial Exchange Radio Network. Find daily interviews and full
shows of the Financial Exchange on our YouTube page. Like
us on YouTube and get caught up on anything and
everything you might have missed. This is the Financial Exchange
Radio Network.
Speaker 2 (28:48):
All right.
Speaker 3 (28:48):
So, we've got a just an absolute disaster unfolding in
the Los Angeles area right now, with multiple fires that
have spread throughout the Los Angeles area.
Speaker 2 (29:01):
This really picked up two nights ago.
Speaker 3 (29:03):
When you had seventy eighty mile an hour winds that
were sweeping through the area. Those were the gusts with
like forty mile an hour baseline winds, and pretty much
what you had was these winds were picking up embers
from old fires and depositing them miles away, starting new
ones in a very dry region at the moment. And
(29:24):
so the estimates right now are that you've had more
than two thousand structures that have been destroyed already, potentially
north of eight billion dollars in damage from an insurance perspective,
and the total economic impact is expected to be at
this point, you know, somewhere in the forty to fifty
billion dollar range. And remember these still are not fully
contained or done with yet, and so you've got a
(29:51):
situation here where the California home insurance market has been
broken even before this. But I think this is just
fresh evidence of Hey, if you are an insurance company,
if you want to cover homes in the California area,
(30:11):
it's almost impossible to do so affordably at this point.
Speaker 4 (30:14):
Mike, Well, it's impossible to do so affordably because regulators
are not allowing increases that insurers request. And I think
that's an important piece here is this is not a
free market. And I'm sure there are insurers, by the way,
that would say, even in a free market, we're pulling
out here, sure, but when you talk about the likes
of State Farm and other major insurers who have decided
(30:36):
in the state of California entirely that they are not
issuing any new policies. It's not because they don't necessarily
know how to price the market. Their comment has been,
the state regulator is not willing to approve the rates
that we would charge, and so see you later. And
so this is if it sounds familiar or a remarkably
similar story to what we've seen in Florida. In Florida
(30:59):
this fortunately, the hurricanes that were bearing down on the
state did not do as much damage as you know
was potentially.
Speaker 2 (31:08):
Modeled as a result of all of that.
Speaker 4 (31:09):
California, we might be seeing the opposite here where you know,
you don't see exactly the forecast from a wildfire like
you do a hurricane, but the damage is tremendous right now,
over two thousand buildings lost. And you know, very different
obviously political views between Florida and California legislatures, but in
(31:30):
both cases we've kind of landed in the same solution.
In Florida they have the Citizens' Insurance. In California, it's
the fair Plan, and in both cases these are state
run insurers of last resort, and in this case that
fair Plan is taking massive losses this time around, in
all likelihood.
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Speaker 3 (32:52):
Now, Mike, you mentioned that previously the California insurance market.
One of the reasons why it's kind of been broken
and people have been moving to the state run insurer
is that the state regulators have not allowed insurers to
increase their policy premiums as much as they've wanted to
potentially cover some of these concerns. Generally, there's been a
(33:14):
seven percent annual cap in terms of how quickly insurers
can raise prices, and so what you do have going
on now is late last year, in order to try
to stem the tide of insurers that we're leaving the
state entirely or just abandoning regions of it, the state
(33:35):
of California issued a new rule. And what it does
is it basically forces insurers, Hey, if you're writing policies
throughout the state, you're going to have to cover these
fire prone areas as well. But what we're going to
give you is the ability to raise your rates much
more quickly. And so just as an example, all state
(33:57):
one approval for an average thirty four percent increas for
California in home insurance in November, and this is something
that you are likely to see from more carriers in
the future there. So I think what it points to
is the home insurance market in California. It's gonna look
(34:17):
a lot like Florida over the next couple of years,
or at least a lot like Florida has in the
last few Where you talk to anyone whose own property
in Florida, their premiums may have doubled or tripled over
the last five years. That's probably where you're heading in
California as well.
Speaker 4 (34:30):
I suspect, can I ask you know, we brought this
up when it came to Florida, and I want to
bring it back home for people that don't have relatives
in Florida, live here on the East Coast.
Speaker 2 (34:40):
Where a lot of our listeners are.
Speaker 4 (34:42):
And why, you know, other than basic human decency financially,
why we should care as Americans when we have at
home insurance market.
Speaker 2 (34:50):
That is.
Speaker 4 (34:52):
Broken in many ways and a state is covering majority
of the policies, Like what is the risk to an
American taxpayer in Massachusetts of California dealing with this in
this way and and of being especially prone to disaster
right now.
Speaker 3 (35:08):
Well, there's a few different possibilities. The first is if
you just say, hey, like regardless, you know, hey, you
don't need to have homeowner's insurance, you know at all,
the first thing that you'll see is that the mortgage
market will completely dry up. And the way you think
about this, let's say that you are going out and
buying a home in California. It's an expensive market, and
you want bank X to lend you a million dollars
(35:32):
to go and buy your place. The reason why that
lender says no, you need to have insurance is because
if the place is destroyed, the lender wants you to
be able to rebuild it, even if you're not going
to live there again, so that even if you abandon
your mortgage, there's money there so that someone can rebuild,
and then the lender can sell the property and recoup
(35:52):
the mortgage value. If that's not in place, lenders are
gonna say no, I'm not going to lend you a
million dollars there with no insurance, because if the place
burns to the ground, then you abandon your mortgage and
I'm stuck with an empty lot that's not going to cover.
Speaker 2 (36:05):
How much I lent you. So that just doesn't make sense.
Speaker 3 (36:08):
And people will say, well, you know, then lenders will
just have to figure out how to make money there.
Guess what, your interest rates probably go up like three
to five percent then from where they are today. If
you want lenders to take on the risk of an
uninsured property, like at least.
Speaker 2 (36:24):
I mean I thought more.
Speaker 4 (36:25):
Yeah, I can't imagine what an insurer would want to
issue a thirty years insurance like good luck.
Speaker 3 (36:31):
The way I look at it basically is that then
you end up with it. You get the notifications if
you ever change your insurance carrier for your homeowner's insurance.
If they don't pass the information onto the lender, to
the lender, the lender says, hey, we'll buy you insurance
at much higher rates. That's basically what would happen. And
so like that's one risk. The other is, hey, you've
(36:52):
got all these people that are on these state plans. Well,
remember the state only has so much money. The state
of California cannot print dollar. The United States can, but
Florida and California cannot. And so if you ever have
a major hurricane or a you know, a firestorm in California,
that's that's worse even than what we're seeing right now.
(37:13):
You get to a point where, hey, if you've exhausted
the money in there, those states might not be able
to find the money themselves, and so they might have
to go to the federal government and say we need
assistance on this. What does that mean more debt from
the United States and ultimately either higher taxes or higher
borrowing costs likely for the United States as a whole
(37:35):
in trying to cover those Yeah, which is why.
Speaker 2 (37:38):
That's the message is.
Speaker 4 (37:39):
You know, this is not just a Florida, Colorado, California problem.
If these states do not fix themselves up, then it's
going to be an US problem.
Speaker 3 (37:47):
And this is why I again, I know this is
not necessarily the most popular thing, but if if your
home is destroyed by a natural disaster, be it fire, earthquake,
you know, whatever it might be, I'm not sure that
the coverage should necessarily mandate replacement in the same same
exact location. I think we have to have real conversations
(38:09):
about yeah, you want to be covered, but especially like that,
there's there's places now that have had, you know, hurricanes
that have destroyed homes.
Speaker 2 (38:15):
Two or three times.
Speaker 3 (38:16):
Yeah, like you start wondering kind of what we're what
we're doing from a large scale there. But I don't
have great answers. Quick Break Hour two coming up in
just a bit.
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