December 23, 2025 • 39 mins
Mike Armstrong and Marc Fandetti discuss the GDP report that showed the US economy grow by 4.3% in the third quarter, its fastest rate in years. How does the GDP report impact future Fed rate cuts? Will AI kill off entry-level jobs? Annual reminder to not get too caught in yearly forecasts.
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Speaker 1 (00:00):
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(01:06):
Mike Armstrong and Mark Vandetti.
Speaker 2 (01:11):
Good morning, Happy Tuesday, Welcome back to the Financial Exchange
as we head into our last few shows of the
year here and last show ahead of the Christmas holiday.
We've got a shortened week this week in markets, with
the markets closing tomorrow early and then closed all day Thursday.
Of course, the following week we will see markets close
(01:33):
again on Thursday for the New Year holiday. As we
take a look into that Santa Claus rally, which the
technical time frame on that is the last five trading
days of the year, followed by the first two days
of the next year, so a seven day window for
that Santa Claus rally is the statistical window, so starts tomorrow.
In trading, We've got a few different items to dive
(01:57):
into today, including the Q three release on GDP. We've
got some acquisition news in the AI infrastructure space. And
then also I feel like because all the editors go
on vacation this time of year, we've got a few
just really great prediction stories that aren't going to come true,
such as how there aren't going to be any entry
(02:18):
level jobs anymore, which begs the question, how do you
become a senior experienced person without an entry level job.
Speaker 3 (02:25):
But that's what we're going to be debating as well.
Speaker 2 (02:28):
We got to start with GDP mark released this morning
at eight thirty am, delayed due to the government shutdown.
This is a read on GDP through September thirtieth of
this year, and to you to spoil a surprise, it
was a big beat compared to expectations, pretty substantial beat.
(02:49):
Expectations were to see GDP increase. I think the medium
was three point two percent, but you know, anywhere from
three to three point three percent was where I was
seeing consensus estimates. We came in at four point three percent.
It is fairly rare, outside of pretty volatile periods where
(03:09):
economists models don't really work all that well, to see
beats to the tune of one percent to the upside.
I'm thinking of moments like twenty twenty and twenty twenty
one when the economists were pretty terrible at calculating or
estimating where GDP was going to because they we were
doing a bunch of things that had never been seen before,
shutting down the economy, restarting it, pumping a bunch.
Speaker 3 (03:29):
Of stimulus in.
Speaker 2 (03:30):
So during those periods of time, sure, you have some
pretty substantial beats here, but let's dive into these numbers
first and then we can talk about just how unique
this is. So we did see once again. You know,
we're a consumer based economy, and the consumer picked it
up once again in the third quarter. Despite high interest
(03:50):
rates and everything else, consumer spending grew at a three
point five percent annualized pace in the quarter. That's up
from two and a half percent in the previous and
contributed a large portion of this. Where else did we
see I mean, we saw surprises all over this report,
given how substantial the beat was, But where else did
we see surprises in the GDP?
Speaker 4 (04:11):
So, for context, GDP is spending. There are other ways
to measure output and welfare. GDP is probably the best.
There are criticisms of GDP. They say it doesn't measure happiness,
it doesn't measure life expectancy, but it's not entirely Now,
that's not what it's built for, and it is very
highly correlated with all the things that matter, including stock prices,
which is why it's worth keeping track of. It's also
(04:32):
stale by the time you get it. As you said
that the third quarter, now the second estimate was spectacular,
not exceedingly rare, but pretty rare to get annualized GDPs.
So this is a quarterly number that they effectively multiplied
by four and it is after inflation. So there's your context,
and numbers above four percent in the modern era are
(04:55):
really rare. It didn't happen in twenty twenty four. It
happened in twenty twenty three once though.
Speaker 5 (05:01):
So.
Speaker 2 (05:02):
One time in twenty twenty three we got a quarterly
reading over four percent.
Speaker 4 (05:05):
When you annualize the number, which is the way they
present this for some reason, the Europeans don't do it
that way for some reason, we do. Like you said,
the story was mainly a spending story. If you took
away all other GDP by the way, is government spending
plus investment plus consumer spending with an adjustment for so
called net exports, that's exports minus imports. That adjustment has
made so that you don't double count spending on.
Speaker 3 (05:31):
Imports.
Speaker 4 (05:32):
Yeah, so even if you took out all those other categories,
if you took out government, if you took out investment,
which was flat, by the way, investment was the contribution
there was negligible. Well, we can get into the drag
on investment, that housing represented Housing cratered in the last
two quarters. Maybe not as surprise. Even if you took
out everything else, GDP would have grown at two point
(05:54):
four percent. That is above what most researchers think is
the economy's speed limits. Speak and I bring up the
concept of a speed limit which is driven by structural forces,
by the composition, if you like, of the economy, because
that's what the Fed's got to pay attention to. So
a spectacular report, yes, but one that contradicts the idea
(06:15):
that's been supported by some soft labor market data that
the economy is slowing and needs FED help. This actually
complicates matters if correct, and it may not be upon
further revision. We can get into that too. This complicates
matters for the Fed. Mike, this is a red hot
or was in the third quarter red hot economy.
Speaker 2 (06:35):
So we'll get into implications for the FED. I want
to continue on the report itself and just where we
saw these beats. So we talked about a strong unexpected
consumer business investment.
Speaker 3 (06:44):
Though to your point, in spite of.
Speaker 2 (06:46):
All the hype over AI and all the excitement, there
not exactly a contributor to GDP anything to make of
that beyond the fact that.
Speaker 4 (06:55):
Well housing pulled it down so called residential fixed So
within the investment category you've got gross private domestic investment,
which is everything, and then under that you've got, among
other things, you've got business investment, you've got residential fixed investment.
Speaker 2 (07:08):
If you're listening on radio right now, Mark is doing
an exceptional jib of talking with his hands.
Speaker 4 (07:13):
We're doing it.
Speaker 3 (07:13):
It's really special to tune in on YouTube.
Speaker 4 (07:16):
So I'm just thinking in terms of wine items underneath
the heading of gross private domestic investment, residential investment created
by five percent.
Speaker 2 (07:26):
That's in line with what we've been doing by the
way resident housing. And I think we've made this point
and this is actually more measurable with the GDP report,
is were it not for all this AI investment, we
would be really seeing an economy that is not seeing
much in the way of investment because of the drop
in residential fixed investment. But fortunately AI infrastructure projects and
(07:49):
data projects are making up for some of that, and
so it's not quite the drag that it would otherwise be.
Speaker 4 (07:54):
I said, you know, a spectacular report.
Speaker 3 (07:56):
It was.
Speaker 4 (07:57):
I can't help but be blown away by a top
line number of a above four annualized. That's rare, like
we said, but it raises as many questions as it answers. Mike,
how do you square this with rising unemployment? How do
you square this with the industrial production and capacity utilization
numbers we also got this morning. It was eclipsed by
(08:17):
the eye popping GDP number which show more or less
flat and industrial production was up a little bit, but
nothing like what would support a four percent plus GDP number.
And again the ongoing story in the labor market that
the Fed fields the need to respond to. Again, lots
of questions here that will only be answered with time.
Speaker 2 (08:35):
So quite a rare reading on GDP outside of what
we talked about where turning points in the economy twenty
twenty twenty twenty one was one of those to mention.
It wasn't just the fact that it was over four
percent annualized, which is rare and of itself, but the
fact that estimates were off by more than a percentage
point are interesting. And again, maybe this is not a
great reading due to the government shutdown. Maybe there's some other.
Speaker 4 (08:57):
Something went on with experts too. Experts contributed net exports,
which is exports minus imports. The trade deficit was still
a positive. That is, we spent more on imported goods
than we sent abroad, but net but exports jumped and
that category net exports contributed. It's it's an adjustment. So
(09:18):
this isn't quite the right way to think about it,
but it's fine for this for our purposes. Net exports
contributed one point six percent of the four point three percent,
and I'm talking in percentage points.
Speaker 2 (09:29):
Here, so we're gonna take a quick break when we
come back. I do want to switch over and put
this all into context for what it does mean for
the FED come twenty twenty six, because the FED is
digesting three major data points now. One would be an
uptick in the unemployment rate. Two is a downturn in inflation,
(09:50):
which is a positive for them and it gives them room.
And three is now a pretty exceptionally hot GDP report.
Let's take quick break to talk about the FED next
on The Financial Exchange.
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Speaker 3 (10:46):
Mark. Prior to the break, sorry kind of yelled there.
Speaker 2 (10:48):
Prior to the break, we were discussing the GDP reports
and implications for J. Powell and the folks over at
the Federal Reserve. So I was talking about other data
points that we've received at and some of them were
quite surprising as well. Primarily, the CPI report came as
I think the biggest surprise to investors, and plenty of
people have called in. Everybody who looked at it, Yeah,
(11:11):
how accurate it was or was not. For context, the
inflation report, economists were expecting three point one percent a
year over year inflation. Instead we got two point seven percent.
That is a miss to the downside that is incredibly
rare and doesn't usually happen. So a lot of people
started questioning, like, Okay, what exactly were we comparing here?
(11:34):
Did we do the right data collection, et cetera.
Speaker 4 (11:37):
If you take it at phase value, inflation came to
a grinding halt somehow miraculous maybe maybe not miraculously. The
sarcasm is really not intended. It could have happened. We
needed several more months of data to suggest a change
in the trend. But that report, if you take it
at phase value, suggests inflation came to a full stop
in October like nothing happened, and then eked out a
small prices increased by a very small amount of November
(11:59):
or vice versa, or half and half or whatever.
Speaker 2 (12:02):
And I've seen all sorts of theories, bad data collection,
timing of data collection. If you collected it towards the
end of November, when all the discounts were in for
holiday retailers, maybe there was something to that as well.
I don't have a great answer for it. We will
see when the data plays out of the course of
the next few months. But on the heels of that,
the likelihood of a rate cut at the next meeting
(12:24):
spiked a little bit. You had a week ago basically
a one in four chance of the FED cutting rates
at the next meeting come January twenty eighth. For some context, today,
after this GDP report, the likelihood is now down to
thirteen point three percent, dropping a full six or seven
percentage points compared to where we were yesterday and substantially
(12:46):
dropping from where we were a week ago. And so
to your point, this hot of GDP report, in spite
of a miraculous disinflation report that we got for the
month of November, this GDP report muddies.
Speaker 3 (13:01):
The waters for the folks at the Federal Reserve if.
Speaker 2 (13:04):
They're trying to make an argument that, hey, we need
to get ahead of a slowing economy as evidenced buy.
Speaker 4 (13:10):
It doesn't just muddy the mic in my mind for
what my two cents is worth it, it pours a
dump truck of loan into them.
Speaker 2 (13:17):
I mean the premise, but go ahead, I think I
want to explain why that is.
Speaker 4 (13:23):
Yeah, that's what I want to get into them. For
the way the FED thinks about balancing inflation and growth.
Speaker 3 (13:27):
Really simplify it.
Speaker 2 (13:28):
It would seem to me that it would be impossible
to have an American economy in twenty twenty six that
both grows at four plus percent GDP and experiences inflation
of under three percent.
Speaker 4 (13:41):
The way most economists think about the economy is that
it's got, i'll say again, a speed limit, though that's
not a perfect analogy. If it grows faster than the
growth of the economy's ability to supply goods and services,
then you get inflation. It's if you can grow the
labor supply or increase productivity through investment, of which there
(14:04):
was none in the last quarter, by the way, then
you can keep up with growing demand. But those two forces,
supply and demand in aggregate, determine whether or not inflation
is increasing or decreasing. One way of measuring the slack
in the economy, whether there's enough or not enough supply,
is the unemployment rate that's been going up. That suggests
(14:26):
slack increasing slack, which suggests that the economy is growing
less quickly than its potential growth rate, which gives the
Fed room to cut all else equal. If inflation expectations
are growing, or if the economy is with so called
supply shocks, then the Fed may not want to cut.
They're not worried about those things right now. The economy
has been growing over the last couple of quarters at
(14:47):
around a four percent clip. It grew very fast in
the second, grew very fast in the third. That is
way above what anybody thinks the economy's potential growth rate is.
This suggests that demand suggests I'm not saying I know
for sure the demand is outpacing supply and historically absent
luck pushing inflation in the other direction, like falling energy prices,
(15:08):
which we've had a little bit.
Speaker 3 (15:09):
Of, Yeah, plenty of help from a falling energy press.
Speaker 4 (15:11):
Absent that, Mike, you're gonna get not just inflation at
its current rate, which is by the way, still elevated.
Even if you take November's CPI number at phase value,
you're going to get an increase in that rate, which
puts us right back where we were a few years ago.
Speaker 2 (15:26):
I think what some have written about, and what I
think is an open question, is are we in the
midst of a structural shift or structural turnaround in the
economy for some reason right now?
Speaker 3 (15:39):
Right?
Speaker 2 (15:39):
Is it that moment of the late nineties when a
tech boom is driving productivity and a hotter economy than
we might realize at the moment that's capable of rebounding.
Speaker 4 (15:49):
Possibly, but four verses two, give me a break. If
you said you said two point two, if you said
ten percent more, twenty percent more, two point two, two
point five trend or potential growth rate, I'll can see
that these estimates come with huge errors. So that's possible
even under very even under the most optimistic assumptions, though
(16:10):
it's hard to get to what we're averaging over the
past couple of quarters.
Speaker 2 (16:14):
Yeah, so a lot of weight in this GDP report.
Big surprise again for context, very big surprise on the
GDP report that was released at eight thirty am this morning,
just like the GDPs or sorry, just like the inflation
surprise that we saw last week. And you're just again
(16:36):
we've been saying this a few times now, but you're
going to have to give it a few months to see. Hey,
do future reports confirm what we are seeing in terms
of a slow down in inflation? Do future reports confirm
what we're seeing in the uptick and unemployment? Do they
confirm what we're seeing in an acceleration in GDP? Because
(16:57):
I guess I won't say that it would be impossible,
but it would be if not a first then exceedingly
rare to see those trends continue. And what I mean
by that is unemployment trend continuing upwards, inflation trend continuing downwards,
GDP trend continuing upwards. Those are seemingly in contradiction. The
first two are not right. If if you have unemployment
(17:19):
take up, I could see unemployment, I could see inflation
coming down, but only because GDP.
Speaker 4 (17:23):
Was coming up, unless there's some special factors pushing inflation
down in the short term. I'll use again the example
of an energy an energy press shock energy prices. I
say shock. That sounds negative, but it could actually be
positive for consumers in the short run. That might help
the example. You gave it a late nineties when productivity
was increasing rapidly. We didn't know it at the time.
We only knew it at the very tail end of
the nineties because it takes time to make to get
(17:43):
the data in and to make sense of it. The
telecom and internet, more generally revolution was making workers more productive.
That allowed the FED to keep rates lower than a
four to zero point five percent unemployment rate would have suggested.
Greenspan got that right. We may be going through something
similar here. But it could also be true that rates
(18:04):
are too low the so called natural rate of interest,
which you and Chucks Outa sometimes talk about here is
a moving target. It may be increasing productivity though, would
make that rate higher, not lower. So again, a lot
of contradictions and questions are raised by this mic. We're
certainly not going to resolve it here.
Speaker 3 (18:22):
No, no, we won't.
Speaker 2 (18:23):
But it's just it's so easy to make the comparisons
to the late nineties for a whole slew of Okay,
what you're saying related technology related is but there's so
many easy comparisons to make there that I think it's
it's almost too tempting to do so, and I think
there's some danger in doing so.
Speaker 4 (18:44):
What you're saying is it might be the case that,
like the nineties, there was a productivity boom that allowed
the economy to grow faster than what most people thought
was its speed limit without stoking inflation.
Speaker 3 (18:55):
Right.
Speaker 4 (18:57):
Possibly, Yeah, we won't know. The frustrating thing, this is
why the Fed's job is so hard, is that we
won't know for like years.
Speaker 3 (19:05):
We will not know for quite some time.
Speaker 2 (19:07):
Markets are open on like trading volume after a fairly
decent day yesterday in markets, but we'll be covering what
is moving today up and down, and where we might
be heading led heading into the Christmas holiday next with
Wall Street Watch.
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 (20:00):
Markets are edging highers. Wall Street reacts to a solid
third quarter GDP reading, which had been delayed due to
the government shutdown. The reading showed the economy grew at
four point three percent annuallyzed rate, beating forecasts of three
point three percent. Right now, the Dow is up over
tenth of a percent, or fifty nine points higher. SMP
five hundred also up a tenth of percent, Nasdaq up
(20:23):
ten points higher, Russell two thousand is actually down six
tenths of a percent, Tenure Treasure reeled up one basis
point at four point one eighty two percent, and crude
oil off about a quarter percent, trading a fifty seven
dollars in eighty seven cents a barrel. Novo Nordisk is
among the big winners on the day after the Danish
drug maker said it will begin selling a pill version
(20:46):
of its weight loss medicine we Govi in January after
securing approval from US regulators. Shares a rallying over eight percent. Meanwhile,
shares in shipmaker Huntington Ingalls Industries are climbing about half
a percent after Bloomberg reported that President Trump plans to
meet with several defense industry executives next week to urge
them to spend more on weapons in research and development elsewhere.
(21:09):
Service Now announced it will acquire cybersecurity startup Armists and
a cash deal valued at seven point seventy five billion dollars.
The enterprise software company said the deal will bolster its
cybersecurity capabilities in the age of AI and more than
triple its market opportunity for security and risk solutions. Service
Now stock is actually retreating two percent. Reddit stock falling
(21:33):
two percent, despite equities research analysts at need him a
company adding the social media platform to its top stock
list for twenty twenty six and as a reminder, markets
will close early tomorrow afternoon at one o'clock. I'm Tucker
Silva and that is Wall Street Watch and remember you
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(21:54):
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Speaker 3 (22:11):
Mark.
Speaker 2 (22:12):
I want to talk about this, this piece from the
journal about the AI ending entry level jobs, and I'll
start by acknowledging for a moment, and maybe maybe you
can do better answer than this question than I can.
But in terms of tasks that you have personally found
AI good at, I think a lot of them probably
do fall into an entry level job category. Right, If
(22:34):
you were to categorize things that you see within the
financial services and analysis region of work, what sort of
tasks does AI seem to be good at at this stage?
Speaker 4 (22:48):
If you think about financial services, which is where we work.
So this is going to be a little financial centric, sorry, but.
Speaker 3 (22:53):
In any just the context that we have, and you
can start out.
Speaker 4 (22:57):
And you start out working a lot in spreadsheets. You
maybe you work for an investment manager and your job
is to help reconcile prices or price securities or something
along those lines. You spend most of your day in
Microsoft Excel. At least that's been the dominant spreadsheet program
for the past thirty five years or so. Can AI
do a lot of the basic stuff that you're responsible
(23:21):
for as an entry level analyst. It can do it,
but you've got to check the work. You've got to
check it for reasonability and accuracy. Copilot which is Microsoft's
sidecar AI program, you've all seen it. It's got the
little Copilot icon up or right hand corner. That's what
it is. You can tell it to look at my
spreadsheet for obvious errors. And without deeper knowledge of the
(23:43):
subject matter or context or specific instructions, it's not going
to do as good a job as an experienced person could.
Speaker 2 (23:50):
I have heard, by the way that it's quite bad
at generating formulas based on commands.
Speaker 4 (23:54):
Well, but it depends. I guess you have to tell
it again, you've got to know your stuff, so you've
got to be able to check. Don't because you asked
for the correlation between what's in column A and column
B of your spreadsheet, don't assume it used the right formula.
So you've got to have a subject matter expert checking
the work. They'll always be a place for a human
being with judgment and again expertise to make sure the robot,
(24:19):
so to speak, is doing it right. So you know,
if you're, say a copywriter, or you do a lot
in Microsoft Word, you can use copilot there to prove documents.
But you've got to be specific. You have to say,
and I'm polite to it. So I assume these things
are going to be running the world at some point.
I'm always very polite.
Speaker 3 (24:38):
I'm shut down.
Speaker 4 (24:39):
I thank it right, So hi, and can you you
have to tell it to check these this this document
is intended for someone with a ninth grade, say, reading
level capability. Please check it for spacing, punctuation and unclear sentate.
You've got to be really for the So I'm using
(25:03):
it but giving it very specific prompts and checking and
double checking, and then you're running again with the same prompts,
and it'll sometimes give you point out different things. On average,
it's helpful. It might replace some very junior people in
my experience, Mike.
Speaker 2 (25:17):
So all of that is to say that there can't
be a universe in which AI just ends entry level jobs.
And I think what the article might mean to say
is that a lot of the tasks that are currently
performed by entry level employees, especially in white collar jobs.
Right now, AI is pretty good at if I need
(25:40):
an intern to go through two different spreadsheets and you know,
correct the nine digit zip codes and match them up
with the five digit zip codes. AI can do that,
whereas so could an interurn that I would have hired previously.
Speaker 3 (25:56):
That doesn't mean that.
Speaker 4 (25:58):
There's some will work for you, Mike, You're still you're
still checking it for you would do that with an intern,
of course, sure.
Speaker 2 (26:04):
But my point would be every single technology that we
have ever created as a human race, if it's been
actually useful, has led to new jobs, new productivity, new
products that get created that then require new labor in
order to produce that stuff. I think about the Internet,
(26:28):
right Did we look at the Internet today and say, wow,
that sure put all the entry level mail carriers who
were rushing around New York City out of a job
because we have email, Like, yeah, it definitely did. But
do we say that there's now no jobs for twenty
to twenty four year olds.
Speaker 3 (26:47):
I think not.
Speaker 2 (26:48):
And so I keep seeing these pieces written that AI
is going to destroy the labor market and is going
to make it so that we're all useless, and I
just don't get it. I don't get why anyone thinks
that that's even possible. And yes, so the obvious question is, Okay,
if AI destroys all entry level jobs at big banks,
then where are you going to get your talent ten
(27:10):
years from now, Because every one of your C suite
executives was an entry level employee thirty years ago. So
explain to me how that's going to work, I guess
would be my point in case here. So AI will
change things, it will put certain jobs, it'll destroy certain jobs,
certain jobs will cease to exist in any meaningful way
(27:32):
going forward. I just don't buy the argument that this
technology is so much different that it's going to cause,
for instance, permanent fifteen percent unemployment.
Speaker 4 (27:40):
One fun exercise if you want to convince yourself that
technology has created more jobs than it's destroyed, is to,
for example, google number of typists, and it'll one of
the first links is to a Federal Reserve database. There
used to be a million of them. Now there's like
forty thousand. If you go back to nineteen seventy to today,
or you can look at people employed in the retail trade.
(28:02):
That number peaked in roughly nineteen eighty I may be
off by five or ten years there, but as soon
as barcode scanners came along in automatic checkout and most
of us, let's I'm old enough to remember barcode scanners
being introduced in George W. Bush HW Bush fumbling with them,
marveling at them, and stuff like that. But that little
(28:25):
historical episode is a reminder that they became prevalent. Retail
employment as a percentage of employment topped out just about
that time, and since then it's been declining. So there
are lots of series you can look at to convince you.
But by the larger point is that despite the decline
in typists, the virtual disappearance of typeists, and the decline
(28:46):
in people working in retail as a percentage of the
overall labor force, the unemployment rate is not trended up. Indeed,
it's never, for the most part, never in the history
of recorded unemployment in this country been lower. So your point, Mike,
jobs have shifted.
Speaker 3 (29:02):
Yeah, Now you might not like that.
Speaker 2 (29:03):
You might say that we were better off as society
when there are more people working face to face in
retail compared to now all the people working in warehouses.
And I don't have a comment for you on that.
But the idea that we're all just going to be
unemployed due to AI is just yeah.
Speaker 4 (29:18):
Just is there a scenario where it is more disruptive?
I don't want to poop poo it. By the way,
I'm not saying I know. I'm only saying that history
is encouraging here. It could be fast, and.
Speaker 3 (29:31):
I think it could be especially disruptive.
Speaker 2 (29:33):
I think it could, you know, yeah, not industries faster
than others. But if you're asking me what does it
look like ten years from now, my guess would be
that a continued normal set of business cycles that result
in similar unemployment to what we've had for the last
fifty sixty years.
Speaker 4 (29:48):
If we continue to get GDP annualized real at four
percent plus in conjunction with rising unemployment, MIC, I'll be
a little bit more worried. That would mean productivities increasing rapidly,
which would suggest that something's going on. That's probably nobody's
base case, but it's possible to tie it back to
today's GDP number.
Speaker 3 (30:07):
Let's take a quick break.
Speaker 2 (30:09):
When we come back, everyone and their mother is putting
out forecast for what twenty twenty six is going to
mean for equity markets, so we'll be covering what their
mothers are saying about equity markets come twenty twenty six.
Speaker 3 (30:20):
That's next.
Speaker 1 (30:21):
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Speaker 1 (31:04):
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Speaker 3 (31:18):
High jiet G.
Speaker 2 (31:22):
Bells those holidays, jie G Bells, Mark we spent a
lot of the COVID era talking about the yield curve
and its inversion that I'm looking at the chart here
from the Federal Reserve. The yield curve on the two
ten year looks like it inverted back in July of
(31:43):
twenty twenty two. There was some stuff going on in
twenty twenty two, largely the highest inflation we've seen in
was it fifty years, forty fast years, something in that
general range, and so not spectacularly strange since though in
August of twenty twenty four it's flipped back, and I
(32:06):
think I'm speaking of this inverted yield curve as though
everybody has any idea what I'm talking about when we
talk about the yield curve. What you typically expect in
a normal environment is that if you want to borrow
money for a longer period of time, you're going to
get charged more in interest than if you were to
borrow it for ninety days. So if you go to
your Laran Shark and say, hey, I need money for
(32:27):
ninety days, you would generally expect a lower interest rate
than if you're borrowing it for nine years. Logical makes sense, Hey,
I'm not going to get my money back for nine years,
I would expect more. What happened for a brief period
of time there, and has happened several times in the
past as well, is no. In fact, the borrowing rate
on the short term was higher than in the long term.
(32:49):
And that's I don't know if you have a more
concise definition of why that happens.
Speaker 4 (32:54):
But FED hike to kill inflation and consequently growth, and
let me, it's like when you're trying to kill us.
I hate to draw analogies to diseases people that might
actually be fighting, but some cures for diseases also really
hurt the body. We all know this, and that's effectively
what the fed's remedies are like.
Speaker 2 (33:13):
In any case, we've definitely more normalized now and to
this point, the yield curve is no longer inverted, and
it actually looks more and more normal.
Speaker 3 (33:22):
It is getting steeper as we go out here, and.
Speaker 4 (33:24):
Some are Feds now lowering rates. Long term rates have
pretty much they've come down a little bit, but not much.
Very long term rates have actually gone up, so you
get a more normal, upward sloping term structure.
Speaker 2 (33:35):
And the concern people have when it inverts is, you know,
for the reasons that Mark mentioned. It's often seen as
a signal for a recession in the future when that
yield curve inverts. It did not result in it this
time around, but we had a really bad economy in
twenty twenty two. Now, some specifically those over at the
Wall Street Journal saying that the reverse of this is
(33:57):
clearing the way for a stop and.
Speaker 4 (33:59):
It's not some mistle thing here. The Fed's easing. This
puts upward pressure on longer term interest rates, which we
have seen, and that has typically coincided with not surprisingly
periods of i'll just say above trend economic growth, which
in turn has been good for earnings, which in turn
has been good for stock prices. Yeah, it's very simple.
Speaker 2 (34:21):
Plain and simple. For a number of different reasons. Lower
interest rates across the board tends to drive up asset prices,
tends to drive up drive up economic activity, disincentivizes savings,
and incentivizes investment. The criticism would be it also sometimes
incentivizes speculation and can contribute to bubbles and inflation, push
(34:43):
up things like inflation. But in the short term that's
typically the relationship you see, and we've seen a fair
bit of interest rate cutting over the course of the
last eighteen eighteen months or so.
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Speaker 1 (36:05):
Mark.
Speaker 2 (36:05):
There's a piece in the Globe today about New England
and the kind of almost super commute for many people
that commute into Boston. And I've always kind of known
the differential and incomes from Boston, but not actually been
able to put my hands on it. And I was
speaking with somebody last year who works in healthcare. She
(36:26):
was nurse, and she was doing one of these pretty
hefty commutes. She was going from Rhode Island up into
Boston for a nine to five nursing role. But she
was making a good fifty percent more than she could
find for a similar role in Rhode Island, and it
was exhausting, it was draining on her, but you know,
ultimately she decided for the time being, at least it
(36:48):
was worthwhile. I was pulling some income numbers from twenty
twenty three median income in Boston, ninety five thousand dollars
that compares to sixty seven thousand dollars in Providence, Rhode Island,
and it just kind of made me wonder, like, well,
what have you done one of these daily hour plus
commutes for a job. Sure, yeah, I mean it made
me ask the same question of how much of a
(37:09):
paid differential would I need to get to make that
worth my worth my while I mean most everybody outside
of me, I guess has to deal with a thirty
plus minute commute.
Speaker 4 (37:20):
Well, if you live in a Rhode Island, which which
I did up until about nineteen ninety nine, your choices
are limited. Rhode Island's economy is small. Nothing against it, sure,
but it's not particularly It's small, not particularly well diversified,
and subject to the boom bust cycles associated with manufacturing.
It used to be a manufacturing I'll say hub. That's
a little exaggerated, but anyway, and of course construction. So
(37:42):
if you want to work in financial services, and more accurately,
you want opportunities to to progress in your career in
financial services, Mike, you got to work in a bigger
like if you don't, you don't work in south western Connecticut,
you live there and you commute into the city.
Speaker 2 (38:02):
Yeah, if I could do it again, man, I was
looking at like, for instance, you can take the train
from Pawtucket, Rhode Island, right into Boston. It takes over Tucket, Patucket.
It's one quick paw Pawtucket. It takes a little bit
more than an hour. But you know, you're looking at
real estate prices that are rough.
Speaker 4 (38:18):
That's not a bad commute. The one you're referring to
T stations in Attleborough and you zoom right in. Yeah,
I've done that as well as so I know.
Speaker 3 (38:26):
I know.
Speaker 2 (38:26):
We talk a lot about affordability in the New England
region and it is a problem, but people are finding
solutions to it. And the solution is a miserable commute,
but plenty of people make it work. We got to
take quick Break Markets remain slightly in positive territory as
we close out the last few trading days before the
holiday season.
Speaker 1 (38:46):
Here.
Speaker 3 (38:47):
Quick Break will be back with a lot more in
the second hour
Speaker 1 (39:01):
Five
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(01:06):
Mike Armstrong and Mark Vandetti.
Speaker 2 (01:11):
Good morning, Happy Tuesday, Welcome back to the Financial Exchange
as we head into our last few shows of the
year here and last show ahead of the Christmas holiday.
We've got a shortened week this week in markets, with
the markets closing tomorrow early and then closed all day Thursday.
Of course, the following week we will see markets close
(01:33):
again on Thursday for the New Year holiday. As we
take a look into that Santa Claus rally, which the
technical time frame on that is the last five trading
days of the year, followed by the first two days
of the next year, so a seven day window for
that Santa Claus rally is the statistical window, so starts tomorrow.
In trading, We've got a few different items to dive
(01:57):
into today, including the Q three release on GDP. We've
got some acquisition news in the AI infrastructure space. And
then also I feel like because all the editors go
on vacation this time of year, we've got a few
just really great prediction stories that aren't going to come true,
such as how there aren't going to be any entry
(02:18):
level jobs anymore, which begs the question, how do you
become a senior experienced person without an entry level job.
Speaker 3 (02:25):
But that's what we're going to be debating as well.
Speaker 2 (02:28):
We got to start with GDP mark released this morning
at eight thirty am, delayed due to the government shutdown.
This is a read on GDP through September thirtieth of
this year, and to you to spoil a surprise, it
was a big beat compared to expectations, pretty substantial beat.
(02:49):
Expectations were to see GDP increase. I think the medium
was three point two percent, but you know, anywhere from
three to three point three percent was where I was
seeing consensus estimates. We came in at four point three percent.
It is fairly rare, outside of pretty volatile periods where
(03:09):
economists models don't really work all that well, to see
beats to the tune of one percent to the upside.
I'm thinking of moments like twenty twenty and twenty twenty
one when the economists were pretty terrible at calculating or
estimating where GDP was going to because they we were
doing a bunch of things that had never been seen before,
shutting down the economy, restarting it, pumping a bunch.
Speaker 3 (03:29):
Of stimulus in.
Speaker 2 (03:30):
So during those periods of time, sure, you have some
pretty substantial beats here, but let's dive into these numbers
first and then we can talk about just how unique
this is. So we did see once again. You know,
we're a consumer based economy, and the consumer picked it
up once again in the third quarter. Despite high interest
(03:50):
rates and everything else, consumer spending grew at a three
point five percent annualized pace in the quarter. That's up
from two and a half percent in the previous and
contributed a large portion of this. Where else did we
see I mean, we saw surprises all over this report,
given how substantial the beat was, But where else did
we see surprises in the GDP?
Speaker 4 (04:11):
So, for context, GDP is spending. There are other ways
to measure output and welfare. GDP is probably the best.
There are criticisms of GDP. They say it doesn't measure happiness,
it doesn't measure life expectancy, but it's not entirely Now,
that's not what it's built for, and it is very
highly correlated with all the things that matter, including stock prices,
which is why it's worth keeping track of. It's also
(04:32):
stale by the time you get it. As you said
that the third quarter, now the second estimate was spectacular,
not exceedingly rare, but pretty rare to get annualized GDPs.
So this is a quarterly number that they effectively multiplied
by four and it is after inflation. So there's your context,
and numbers above four percent in the modern era are
(04:55):
really rare. It didn't happen in twenty twenty four. It
happened in twenty twenty three once though.
Speaker 5 (05:01):
So.
Speaker 2 (05:02):
One time in twenty twenty three we got a quarterly
reading over four percent.
Speaker 4 (05:05):
When you annualize the number, which is the way they
present this for some reason, the Europeans don't do it
that way for some reason, we do. Like you said,
the story was mainly a spending story. If you took
away all other GDP by the way, is government spending
plus investment plus consumer spending with an adjustment for so
called net exports, that's exports minus imports. That adjustment has
made so that you don't double count spending on.
Speaker 3 (05:31):
Imports.
Speaker 4 (05:32):
Yeah, so even if you took out all those other categories,
if you took out government, if you took out investment,
which was flat, by the way, investment was the contribution
there was negligible. Well, we can get into the drag
on investment, that housing represented Housing cratered in the last
two quarters. Maybe not as surprise. Even if you took
out everything else, GDP would have grown at two point
(05:54):
four percent. That is above what most researchers think is
the economy's speed limits. Speak and I bring up the
concept of a speed limit which is driven by structural forces,
by the composition, if you like, of the economy, because
that's what the Fed's got to pay attention to. So
a spectacular report, yes, but one that contradicts the idea
(06:15):
that's been supported by some soft labor market data that
the economy is slowing and needs FED help. This actually
complicates matters if correct, and it may not be upon
further revision. We can get into that too. This complicates
matters for the Fed. Mike, this is a red hot
or was in the third quarter red hot economy.
Speaker 2 (06:35):
So we'll get into implications for the FED. I want
to continue on the report itself and just where we
saw these beats. So we talked about a strong unexpected
consumer business investment.
Speaker 3 (06:44):
Though to your point, in spite of.
Speaker 2 (06:46):
All the hype over AI and all the excitement, there
not exactly a contributor to GDP anything to make of
that beyond the fact that.
Speaker 4 (06:55):
Well housing pulled it down so called residential fixed So
within the investment category you've got gross private domestic investment,
which is everything, and then under that you've got, among
other things, you've got business investment, you've got residential fixed investment.
Speaker 2 (07:08):
If you're listening on radio right now, Mark is doing
an exceptional jib of talking with his hands.
Speaker 4 (07:13):
We're doing it.
Speaker 3 (07:13):
It's really special to tune in on YouTube.
Speaker 4 (07:16):
So I'm just thinking in terms of wine items underneath
the heading of gross private domestic investment, residential investment created
by five percent.
Speaker 2 (07:26):
That's in line with what we've been doing by the
way resident housing. And I think we've made this point
and this is actually more measurable with the GDP report,
is were it not for all this AI investment, we
would be really seeing an economy that is not seeing
much in the way of investment because of the drop
in residential fixed investment. But fortunately AI infrastructure projects and
(07:49):
data projects are making up for some of that, and
so it's not quite the drag that it would otherwise be.
Speaker 4 (07:54):
I said, you know, a spectacular report.
Speaker 3 (07:56):
It was.
Speaker 4 (07:57):
I can't help but be blown away by a top
line number of a above four annualized. That's rare, like
we said, but it raises as many questions as it answers. Mike,
how do you square this with rising unemployment? How do
you square this with the industrial production and capacity utilization
numbers we also got this morning. It was eclipsed by
(08:17):
the eye popping GDP number which show more or less
flat and industrial production was up a little bit, but
nothing like what would support a four percent plus GDP number.
And again the ongoing story in the labor market that
the Fed fields the need to respond to. Again, lots
of questions here that will only be answered with time.
Speaker 2 (08:35):
So quite a rare reading on GDP outside of what
we talked about where turning points in the economy twenty
twenty twenty twenty one was one of those to mention.
It wasn't just the fact that it was over four
percent annualized, which is rare and of itself, but the
fact that estimates were off by more than a percentage
point are interesting. And again, maybe this is not a
great reading due to the government shutdown. Maybe there's some other.
Speaker 4 (08:57):
Something went on with experts too. Experts contributed net exports,
which is exports minus imports. The trade deficit was still
a positive. That is, we spent more on imported goods
than we sent abroad, but net but exports jumped and
that category net exports contributed. It's it's an adjustment. So
(09:18):
this isn't quite the right way to think about it,
but it's fine for this for our purposes. Net exports
contributed one point six percent of the four point three percent,
and I'm talking in percentage points.
Speaker 2 (09:29):
Here, so we're gonna take a quick break when we
come back. I do want to switch over and put
this all into context for what it does mean for
the FED come twenty twenty six, because the FED is
digesting three major data points now. One would be an
uptick in the unemployment rate. Two is a downturn in inflation,
(09:50):
which is a positive for them and it gives them room.
And three is now a pretty exceptionally hot GDP report.
Let's take quick break to talk about the FED next
on The Financial Exchange.
Speaker 1 (10:02):
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Speaker 5 (10:32):
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Speaker 3 (10:46):
Mark. Prior to the break, sorry kind of yelled there.
Speaker 2 (10:48):
Prior to the break, we were discussing the GDP reports
and implications for J. Powell and the folks over at
the Federal Reserve. So I was talking about other data
points that we've received at and some of them were
quite surprising as well. Primarily, the CPI report came as
I think the biggest surprise to investors, and plenty of
people have called in. Everybody who looked at it, Yeah,
(11:11):
how accurate it was or was not. For context, the
inflation report, economists were expecting three point one percent a
year over year inflation. Instead we got two point seven percent.
That is a miss to the downside that is incredibly
rare and doesn't usually happen. So a lot of people
started questioning, like, Okay, what exactly were we comparing here?
(11:34):
Did we do the right data collection, et cetera.
Speaker 4 (11:37):
If you take it at phase value, inflation came to
a grinding halt somehow miraculous maybe maybe not miraculously. The
sarcasm is really not intended. It could have happened. We
needed several more months of data to suggest a change
in the trend. But that report, if you take it
at phase value, suggests inflation came to a full stop
in October like nothing happened, and then eked out a
small prices increased by a very small amount of November
(11:59):
or vice versa, or half and half or whatever.
Speaker 2 (12:02):
And I've seen all sorts of theories, bad data collection,
timing of data collection. If you collected it towards the
end of November, when all the discounts were in for
holiday retailers, maybe there was something to that as well.
I don't have a great answer for it. We will
see when the data plays out of the course of
the next few months. But on the heels of that,
the likelihood of a rate cut at the next meeting
(12:24):
spiked a little bit. You had a week ago basically
a one in four chance of the FED cutting rates
at the next meeting come January twenty eighth. For some context, today,
after this GDP report, the likelihood is now down to
thirteen point three percent, dropping a full six or seven
percentage points compared to where we were yesterday and substantially
(12:46):
dropping from where we were a week ago. And so
to your point, this hot of GDP report, in spite
of a miraculous disinflation report that we got for the
month of November, this GDP report muddies.
Speaker 3 (13:01):
The waters for the folks at the Federal Reserve if.
Speaker 2 (13:04):
They're trying to make an argument that, hey, we need
to get ahead of a slowing economy as evidenced buy.
Speaker 4 (13:10):
It doesn't just muddy the mic in my mind for
what my two cents is worth it, it pours a
dump truck of loan into them.
Speaker 2 (13:17):
I mean the premise, but go ahead, I think I
want to explain why that is.
Speaker 4 (13:23):
Yeah, that's what I want to get into them. For
the way the FED thinks about balancing inflation and growth.
Speaker 3 (13:27):
Really simplify it.
Speaker 2 (13:28):
It would seem to me that it would be impossible
to have an American economy in twenty twenty six that
both grows at four plus percent GDP and experiences inflation
of under three percent.
Speaker 4 (13:41):
The way most economists think about the economy is that
it's got, i'll say again, a speed limit, though that's
not a perfect analogy. If it grows faster than the
growth of the economy's ability to supply goods and services,
then you get inflation. It's if you can grow the
labor supply or increase productivity through investment, of which there
(14:04):
was none in the last quarter, by the way, then
you can keep up with growing demand. But those two forces,
supply and demand in aggregate, determine whether or not inflation
is increasing or decreasing. One way of measuring the slack
in the economy, whether there's enough or not enough supply,
is the unemployment rate that's been going up. That suggests
(14:26):
slack increasing slack, which suggests that the economy is growing
less quickly than its potential growth rate, which gives the
Fed room to cut all else equal. If inflation expectations
are growing, or if the economy is with so called
supply shocks, then the Fed may not want to cut.
They're not worried about those things right now. The economy
has been growing over the last couple of quarters at
(14:47):
around a four percent clip. It grew very fast in
the second, grew very fast in the third. That is
way above what anybody thinks the economy's potential growth rate is.
This suggests that demand suggests I'm not saying I know
for sure the demand is outpacing supply and historically absent
luck pushing inflation in the other direction, like falling energy prices,
(15:08):
which we've had a little bit.
Speaker 3 (15:09):
Of, Yeah, plenty of help from a falling energy press.
Speaker 4 (15:11):
Absent that, Mike, you're gonna get not just inflation at
its current rate, which is by the way, still elevated.
Even if you take November's CPI number at phase value,
you're going to get an increase in that rate, which
puts us right back where we were a few years ago.
Speaker 2 (15:26):
I think what some have written about, and what I
think is an open question, is are we in the
midst of a structural shift or structural turnaround in the
economy for some reason right now?
Speaker 3 (15:39):
Right?
Speaker 2 (15:39):
Is it that moment of the late nineties when a
tech boom is driving productivity and a hotter economy than
we might realize at the moment that's capable of rebounding.
Speaker 4 (15:49):
Possibly, but four verses two, give me a break. If
you said you said two point two, if you said
ten percent more, twenty percent more, two point two, two
point five trend or potential growth rate, I'll can see
that these estimates come with huge errors. So that's possible
even under very even under the most optimistic assumptions, though
(16:10):
it's hard to get to what we're averaging over the
past couple of quarters.
Speaker 2 (16:14):
Yeah, so a lot of weight in this GDP report.
Big surprise again for context, very big surprise on the
GDP report that was released at eight thirty am this morning,
just like the GDPs or sorry, just like the inflation
surprise that we saw last week. And you're just again
(16:36):
we've been saying this a few times now, but you're
going to have to give it a few months to see. Hey,
do future reports confirm what we are seeing in terms
of a slow down in inflation? Do future reports confirm
what we're seeing in the uptick and unemployment? Do they
confirm what we're seeing in an acceleration in GDP? Because
(16:57):
I guess I won't say that it would be impossible,
but it would be if not a first then exceedingly
rare to see those trends continue. And what I mean
by that is unemployment trend continuing upwards, inflation trend continuing downwards,
GDP trend continuing upwards. Those are seemingly in contradiction. The
first two are not right. If if you have unemployment
(17:19):
take up, I could see unemployment, I could see inflation
coming down, but only because GDP.
Speaker 4 (17:23):
Was coming up, unless there's some special factors pushing inflation
down in the short term. I'll use again the example
of an energy an energy press shock energy prices. I
say shock. That sounds negative, but it could actually be
positive for consumers in the short run. That might help
the example. You gave it a late nineties when productivity
was increasing rapidly. We didn't know it at the time.
We only knew it at the very tail end of
the nineties because it takes time to make to get
(17:43):
the data in and to make sense of it. The
telecom and internet, more generally revolution was making workers more productive.
That allowed the FED to keep rates lower than a
four to zero point five percent unemployment rate would have suggested.
Greenspan got that right. We may be going through something
similar here. But it could also be true that rates
(18:04):
are too low the so called natural rate of interest,
which you and Chucks Outa sometimes talk about here is
a moving target. It may be increasing productivity though, would
make that rate higher, not lower. So again, a lot
of contradictions and questions are raised by this mic. We're
certainly not going to resolve it here.
Speaker 3 (18:22):
No, no, we won't.
Speaker 2 (18:23):
But it's just it's so easy to make the comparisons
to the late nineties for a whole slew of Okay,
what you're saying related technology related is but there's so
many easy comparisons to make there that I think it's
it's almost too tempting to do so, and I think
there's some danger in doing so.
Speaker 4 (18:44):
What you're saying is it might be the case that,
like the nineties, there was a productivity boom that allowed
the economy to grow faster than what most people thought
was its speed limit without stoking inflation.
Speaker 3 (18:55):
Right.
Speaker 4 (18:57):
Possibly, Yeah, we won't know. The frustrating thing, this is
why the Fed's job is so hard, is that we
won't know for like years.
Speaker 3 (19:05):
We will not know for quite some time.
Speaker 2 (19:07):
Markets are open on like trading volume after a fairly
decent day yesterday in markets, but we'll be covering what
is moving today up and down, and where we might
be heading led heading into the Christmas holiday next with
Wall Street Watch.
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 (20:00):
Markets are edging highers. Wall Street reacts to a solid
third quarter GDP reading, which had been delayed due to
the government shutdown. The reading showed the economy grew at
four point three percent annuallyzed rate, beating forecasts of three
point three percent. Right now, the Dow is up over
tenth of a percent, or fifty nine points higher. SMP
five hundred also up a tenth of percent, Nasdaq up
(20:23):
ten points higher, Russell two thousand is actually down six
tenths of a percent, Tenure Treasure reeled up one basis
point at four point one eighty two percent, and crude
oil off about a quarter percent, trading a fifty seven
dollars in eighty seven cents a barrel. Novo Nordisk is
among the big winners on the day after the Danish
drug maker said it will begin selling a pill version
(20:46):
of its weight loss medicine we Govi in January after
securing approval from US regulators. Shares a rallying over eight percent. Meanwhile,
shares in shipmaker Huntington Ingalls Industries are climbing about half
a percent after Bloomberg reported that President Trump plans to
meet with several defense industry executives next week to urge
them to spend more on weapons in research and development elsewhere.
(21:09):
Service Now announced it will acquire cybersecurity startup Armists and
a cash deal valued at seven point seventy five billion dollars.
The enterprise software company said the deal will bolster its
cybersecurity capabilities in the age of AI and more than
triple its market opportunity for security and risk solutions. Service
Now stock is actually retreating two percent. Reddit stock falling
(21:33):
two percent, despite equities research analysts at need him a
company adding the social media platform to its top stock
list for twenty twenty six and as a reminder, markets
will close early tomorrow afternoon at one o'clock. I'm Tucker
Silva and that is Wall Street Watch and remember you
can watch the show live every day on YouTube. While
(21:54):
at breaking business news and all of our content is
also archives. If you want to look up an interview
or discs about a specific topic, it's all there with
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Speaker 3 (22:11):
Mark.
Speaker 2 (22:12):
I want to talk about this, this piece from the
journal about the AI ending entry level jobs, and I'll
start by acknowledging for a moment, and maybe maybe you
can do better answer than this question than I can.
But in terms of tasks that you have personally found
AI good at, I think a lot of them probably
do fall into an entry level job category. Right, If
(22:34):
you were to categorize things that you see within the
financial services and analysis region of work, what sort of
tasks does AI seem to be good at at this stage?
Speaker 4 (22:48):
If you think about financial services, which is where we work.
So this is going to be a little financial centric, sorry, but.
Speaker 3 (22:53):
In any just the context that we have, and you
can start out.
Speaker 4 (22:57):
And you start out working a lot in spreadsheets. You
maybe you work for an investment manager and your job
is to help reconcile prices or price securities or something
along those lines. You spend most of your day in
Microsoft Excel. At least that's been the dominant spreadsheet program
for the past thirty five years or so. Can AI
do a lot of the basic stuff that you're responsible
(23:21):
for as an entry level analyst. It can do it,
but you've got to check the work. You've got to
check it for reasonability and accuracy. Copilot which is Microsoft's
sidecar AI program, you've all seen it. It's got the
little Copilot icon up or right hand corner. That's what
it is. You can tell it to look at my
spreadsheet for obvious errors. And without deeper knowledge of the
(23:43):
subject matter or context or specific instructions, it's not going
to do as good a job as an experienced person could.
Speaker 2 (23:50):
I have heard, by the way that it's quite bad
at generating formulas based on commands.
Speaker 4 (23:54):
Well, but it depends. I guess you have to tell
it again, you've got to know your stuff, so you've
got to be able to check. Don't because you asked
for the correlation between what's in column A and column
B of your spreadsheet, don't assume it used the right formula.
So you've got to have a subject matter expert checking
the work. They'll always be a place for a human
being with judgment and again expertise to make sure the robot,
(24:19):
so to speak, is doing it right. So you know,
if you're, say a copywriter, or you do a lot
in Microsoft Word, you can use copilot there to prove documents.
But you've got to be specific. You have to say,
and I'm polite to it. So I assume these things
are going to be running the world at some point.
I'm always very polite.
Speaker 3 (24:38):
I'm shut down.
Speaker 4 (24:39):
I thank it right, So hi, and can you you
have to tell it to check these this this document
is intended for someone with a ninth grade, say, reading
level capability. Please check it for spacing, punctuation and unclear sentate.
You've got to be really for the So I'm using
(25:03):
it but giving it very specific prompts and checking and
double checking, and then you're running again with the same prompts,
and it'll sometimes give you point out different things. On average,
it's helpful. It might replace some very junior people in
my experience, Mike.
Speaker 2 (25:17):
So all of that is to say that there can't
be a universe in which AI just ends entry level jobs.
And I think what the article might mean to say
is that a lot of the tasks that are currently
performed by entry level employees, especially in white collar jobs.
Right now, AI is pretty good at if I need
(25:40):
an intern to go through two different spreadsheets and you know,
correct the nine digit zip codes and match them up
with the five digit zip codes. AI can do that,
whereas so could an interurn that I would have hired previously.
Speaker 3 (25:56):
That doesn't mean that.
Speaker 4 (25:58):
There's some will work for you, Mike, You're still you're
still checking it for you would do that with an intern,
of course, sure.
Speaker 2 (26:04):
But my point would be every single technology that we
have ever created as a human race, if it's been
actually useful, has led to new jobs, new productivity, new
products that get created that then require new labor in
order to produce that stuff. I think about the Internet,
(26:28):
right Did we look at the Internet today and say, wow,
that sure put all the entry level mail carriers who
were rushing around New York City out of a job
because we have email, Like, yeah, it definitely did. But
do we say that there's now no jobs for twenty
to twenty four year olds.
Speaker 3 (26:47):
I think not.
Speaker 2 (26:48):
And so I keep seeing these pieces written that AI
is going to destroy the labor market and is going
to make it so that we're all useless, and I
just don't get it. I don't get why anyone thinks
that that's even possible. And yes, so the obvious question is, Okay,
if AI destroys all entry level jobs at big banks,
then where are you going to get your talent ten
(27:10):
years from now, Because every one of your C suite
executives was an entry level employee thirty years ago. So
explain to me how that's going to work, I guess
would be my point in case here. So AI will
change things, it will put certain jobs, it'll destroy certain jobs,
certain jobs will cease to exist in any meaningful way
(27:32):
going forward. I just don't buy the argument that this
technology is so much different that it's going to cause,
for instance, permanent fifteen percent unemployment.
Speaker 4 (27:40):
One fun exercise if you want to convince yourself that
technology has created more jobs than it's destroyed, is to,
for example, google number of typists, and it'll one of
the first links is to a Federal Reserve database. There
used to be a million of them. Now there's like
forty thousand. If you go back to nineteen seventy to today,
or you can look at people employed in the retail trade.
(28:02):
That number peaked in roughly nineteen eighty I may be
off by five or ten years there, but as soon
as barcode scanners came along in automatic checkout and most
of us, let's I'm old enough to remember barcode scanners
being introduced in George W. Bush HW Bush fumbling with them,
marveling at them, and stuff like that. But that little
(28:25):
historical episode is a reminder that they became prevalent. Retail
employment as a percentage of employment topped out just about
that time, and since then it's been declining. So there
are lots of series you can look at to convince you.
But by the larger point is that despite the decline
in typists, the virtual disappearance of typeists, and the decline
(28:46):
in people working in retail as a percentage of the
overall labor force, the unemployment rate is not trended up. Indeed,
it's never, for the most part, never in the history
of recorded unemployment in this country been lower. So your point, Mike,
jobs have shifted.
Speaker 3 (29:02):
Yeah, Now you might not like that.
Speaker 2 (29:03):
You might say that we were better off as society
when there are more people working face to face in
retail compared to now all the people working in warehouses.
And I don't have a comment for you on that.
But the idea that we're all just going to be
unemployed due to AI is just yeah.
Speaker 4 (29:18):
Just is there a scenario where it is more disruptive?
I don't want to poop poo it. By the way,
I'm not saying I know. I'm only saying that history
is encouraging here. It could be fast, and.
Speaker 3 (29:31):
I think it could be especially disruptive.
Speaker 2 (29:33):
I think it could, you know, yeah, not industries faster
than others. But if you're asking me what does it
look like ten years from now, my guess would be
that a continued normal set of business cycles that result
in similar unemployment to what we've had for the last
fifty sixty years.
Speaker 4 (29:48):
If we continue to get GDP annualized real at four
percent plus in conjunction with rising unemployment, MIC, I'll be
a little bit more worried. That would mean productivities increasing rapidly,
which would suggest that something's going on. That's probably nobody's
base case, but it's possible to tie it back to
today's GDP number.
Speaker 3 (30:07):
Let's take a quick break.
Speaker 2 (30:09):
When we come back, everyone and their mother is putting
out forecast for what twenty twenty six is going to
mean for equity markets, so we'll be covering what their
mothers are saying about equity markets come twenty twenty six.
Speaker 3 (30:20):
That's next.
Speaker 1 (30:21):
Find daily interviews in full shows of the Financial Exchange
on o our YouTube page. Subscribe to our page and
get caught up on anything and everything you might have missed.
This is the Financial Exchange Radio Network.
Speaker 6 (30:34):
We're proud to announce that circle K is now the
official convenience store of the dav Department of Massachusetts at
circle K. Supporting those who bravely served our country isn't
just a commitment, it's a heartfelt mission. Circle K is
honored to stand with the DAV Department of Massachusetts to
ensure that veterans receive the care and recognition they deserve.
If you'd like to do your part, please visit DAVMA
(30:55):
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all you've done.
Speaker 1 (31:04):
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.
Speaker 3 (31:18):
High jiet G.
Speaker 2 (31:22):
Bells those holidays, jie G Bells, Mark we spent a
lot of the COVID era talking about the yield curve
and its inversion that I'm looking at the chart here
from the Federal Reserve. The yield curve on the two
ten year looks like it inverted back in July of
(31:43):
twenty twenty two. There was some stuff going on in
twenty twenty two, largely the highest inflation we've seen in
was it fifty years, forty fast years, something in that
general range, and so not spectacularly strange since though in
August of twenty twenty four it's flipped back, and I
(32:06):
think I'm speaking of this inverted yield curve as though
everybody has any idea what I'm talking about when we
talk about the yield curve. What you typically expect in
a normal environment is that if you want to borrow
money for a longer period of time, you're going to
get charged more in interest than if you were to
borrow it for ninety days. So if you go to
your Laran Shark and say, hey, I need money for
(32:27):
ninety days, you would generally expect a lower interest rate
than if you're borrowing it for nine years. Logical makes sense, Hey,
I'm not going to get my money back for nine years,
I would expect more. What happened for a brief period
of time there, and has happened several times in the
past as well, is no. In fact, the borrowing rate
on the short term was higher than in the long term.
(32:49):
And that's I don't know if you have a more
concise definition of why that happens.
Speaker 4 (32:54):
But FED hike to kill inflation and consequently growth, and
let me, it's like when you're trying to kill us.
I hate to draw analogies to diseases people that might
actually be fighting, but some cures for diseases also really
hurt the body. We all know this, and that's effectively
what the fed's remedies are like.
Speaker 2 (33:13):
In any case, we've definitely more normalized now and to
this point, the yield curve is no longer inverted, and
it actually looks more and more normal.
Speaker 3 (33:22):
It is getting steeper as we go out here, and.
Speaker 4 (33:24):
Some are Feds now lowering rates. Long term rates have
pretty much they've come down a little bit, but not much.
Very long term rates have actually gone up, so you
get a more normal, upward sloping term structure.
Speaker 2 (33:35):
And the concern people have when it inverts is, you know,
for the reasons that Mark mentioned. It's often seen as
a signal for a recession in the future when that
yield curve inverts. It did not result in it this
time around, but we had a really bad economy in
twenty twenty two. Now, some specifically those over at the
Wall Street Journal saying that the reverse of this is
(33:57):
clearing the way for a stop and.
Speaker 4 (33:59):
It's not some mistle thing here. The Fed's easing. This
puts upward pressure on longer term interest rates, which we
have seen, and that has typically coincided with not surprisingly
periods of i'll just say above trend economic growth, which
in turn has been good for earnings, which in turn
has been good for stock prices. Yeah, it's very simple.
Speaker 2 (34:21):
Plain and simple. For a number of different reasons. Lower
interest rates across the board tends to drive up asset prices,
tends to drive up drive up economic activity, disincentivizes savings,
and incentivizes investment. The criticism would be it also sometimes
incentivizes speculation and can contribute to bubbles and inflation, push
(34:43):
up things like inflation. But in the short term that's
typically the relationship you see, and we've seen a fair
bit of interest rate cutting over the course of the
last eighteen eighteen months or so.
Speaker 5 (34:54):
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Go to visit USBI dot com and book your trip today.
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Speaker 1 (36:05):
Mark.
Speaker 2 (36:05):
There's a piece in the Globe today about New England
and the kind of almost super commute for many people
that commute into Boston. And I've always kind of known
the differential and incomes from Boston, but not actually been
able to put my hands on it. And I was
speaking with somebody last year who works in healthcare. She
(36:26):
was nurse, and she was doing one of these pretty
hefty commutes. She was going from Rhode Island up into
Boston for a nine to five nursing role. But she
was making a good fifty percent more than she could
find for a similar role in Rhode Island, and it
was exhausting, it was draining on her, but you know,
ultimately she decided for the time being, at least it
(36:48):
was worthwhile. I was pulling some income numbers from twenty
twenty three median income in Boston, ninety five thousand dollars
that compares to sixty seven thousand dollars in Providence, Rhode Island,
and it just kind of made me wonder, like, well,
what have you done one of these daily hour plus
commutes for a job. Sure, yeah, I mean it made
me ask the same question of how much of a
(37:09):
paid differential would I need to get to make that
worth my worth my while I mean most everybody outside
of me, I guess has to deal with a thirty
plus minute commute.
Speaker 4 (37:20):
Well, if you live in a Rhode Island, which which
I did up until about nineteen ninety nine, your choices
are limited. Rhode Island's economy is small. Nothing against it, sure,
but it's not particularly It's small, not particularly well diversified,
and subject to the boom bust cycles associated with manufacturing.
It used to be a manufacturing I'll say hub. That's
a little exaggerated, but anyway, and of course construction. So
(37:42):
if you want to work in financial services, and more accurately,
you want opportunities to to progress in your career in
financial services, Mike, you got to work in a bigger
like if you don't, you don't work in south western Connecticut,
you live there and you commute into the city.
Speaker 2 (38:02):
Yeah, if I could do it again, man, I was
looking at like, for instance, you can take the train
from Pawtucket, Rhode Island, right into Boston. It takes over Tucket, Patucket.
It's one quick paw Pawtucket. It takes a little bit
more than an hour. But you know, you're looking at
real estate prices that are rough.
Speaker 4 (38:18):
That's not a bad commute. The one you're referring to
T stations in Attleborough and you zoom right in. Yeah,
I've done that as well as so I know.
Speaker 3 (38:26):
I know.
Speaker 2 (38:26):
We talk a lot about affordability in the New England
region and it is a problem, but people are finding
solutions to it. And the solution is a miserable commute,
but plenty of people make it work. We got to
take quick Break Markets remain slightly in positive territory as
we close out the last few trading days before the
holiday season.
Speaker 1 (38:46):
Here.
Speaker 3 (38:47):
Quick Break will be back with a lot more in
the second hour
Speaker 1 (39:01):
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