January 7, 2026 • 38 mins
Paul Lane and Marc Fandetti wonder if stocks will crash in 2026. Ted Rossman (Bankrate) joins the show 2026 interest rate forecasts. Emerging markets haven't had the run recently that many expected. OpenAI says AI will free households from chores and boost hidden productivity.
Mark as Played
Transcript
Episode Transcript
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Speaker 1 (00:00):
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(01:06):
Lane and Mark Vandetti.
Speaker 2 (01:12):
Paul Lane, Mark Vendetti, Tucker Silver here with you as
we kick off the eleven o'clock hour, taking a look
around at markets and relatively mixed territory. Not a tremendous
amount of movement either way. Dal Jones off about one
hundred and seventy five points in the S and P's
up about eight points at the moment. The big focus
for today's program, as well as the rest of the
(01:32):
week is the labor market. We're gonna get several reports
that is going to give us a pul says to
where the labor market stands at this point. Most notably
on Friday morning, we will get the Bureau of Labor
Statistics Job support for the month of December. But we
did get some important reports this morning, one of them
being the JOLTS Report, which is the United States Job
(01:53):
Openings and Labor Turnover Survey, and that number came in
lower than expected. This is for data for the month
of November. The job openings in the United States fell
three hundred and three thousand to seven point one four
million in November of twenty twenty five. We also had
a downwardly revised October number which was previously about seven
(02:15):
point six million. That was revised down to about seven
point four five million, so again indicating that there is
not a tremendous amount of job openings out there. There
has been a decline in that number and it is
certainly well off its peaks that we saw three years
ago where that number topped off at about twelve million. There.
(02:36):
We also had a labor report come out from ADP,
which does a focus on the private employment market. In
terms of jobs added, we saw about forty one thousand
jobs that were added for the month of December according
to ADP. That was slightly below expectations of around mid
forty thousands, but higher than the November numbers that we
(02:58):
had seen, which was a loss of twenty nine thousand.
So really what it comes down to you Mark I
highlighted some of those reports that we received this morning.
We're going to get another job. Another labor report I
believe tomorrow as well with some jobless caam's figures, But
the headline is certainly Friday's report where it seems as
if that unemployment rate the percentage is probably going to
(03:21):
be of most significant focus for listeners out there. We
sit at about four point six percent unemployment. The estimates
have that the December jobs report will show that that
has come down to four and a half percent.
Speaker 3 (03:33):
We care mostly because this will drive the fed's estimate
of how much slack there is in the labor market
and how much demand they can risk creating, which is
what they effectively do by printing money lowering interest rates.
It's meant to stimulate demand. You could think of the
FED as controlling, even though I'm being a little bit
(03:53):
fast and loose here, the FED controlling the demand side
of the economy, and structural forces controlling the supply side
of the economy. If FED can't do anything about supply
and shocks to supply, that's a different topic. So the
question is is the labor market merely normalizing. You pointed
out that the ratio of job openings to unemployed people,
(04:13):
which you can think of as a ratio of jobs
demanded to people supplying jobs, that ratio is now about
where it.
Speaker 2 (04:23):
Was before COVID sub one.
Speaker 3 (04:26):
Before that period, though, which was a pretty hot economy's
twenty seventeen, twenty eighteen, twenty nineteen, that was fairly hot.
That ratio went up before that. The ratio is more
zero point seventy five. So the question is like, what's
normal there and our values of that ratio, quotient, whatever
you prefer, there's the thing on top of the thing
on the bottom of dividing them. That's why we keep
(04:47):
saying it's a ratio. What value is consistent with stable inflation?
Is the labor market still hot? Doesn't seem to be
still hot. No, it seems to be cooling down. It
seems to be normalizing. Is it getting too cool? Is
the Fed right to be stimulating the economy right now
in the face of ongoing elevated inflation. Jury's going to
be out on that for a while.
Speaker 2 (05:07):
Where do we fall off the cliff and get to
a point where it's it's too it's too cold. I'm
thinking of like the three little three little bears, the yeah, yeah,
where it's just too it's just too cold. Where does
that point hit? And that's what the Federal Reserve has
to continue to sort of juggle here, is what is
the appropriate monetary policy to, you know, deal with all
(05:30):
those factors. Inflation has sort of moved to the background,
is not at the forefront of their focus. The labor
market is, and so we'll get more information as the
week progresses, and you really do.
Speaker 3 (05:41):
Have to sympathize with the FED. It's it's a very
imprecise tooled. Monetary policy has become the policy of choice
over the past thirty years. Used to be fiscal policy.
Fiscal policy just means spending or taxing, spending more or lesser,
taxing more or less. Monetary policy is what the FED does.
That may sound like too simple a thing to have
to even say, but I'll tell you right now.
Speaker 4 (05:59):
Jack Ken couldn't.
Speaker 3 (06:00):
Remember which was which when he was being briefed on
these things after being elected president. So it's my point is,
I don't think you could be too straightforward when you're
trying to set the terms for a discussion like this.
FED can only control the rate of money printing and
(06:21):
the FED Fund's target rate, and those have effects that
operate with lags. Like Milton Friedman set a very long
time ago, long legs and variable lags. Most economists still
believe that, so not only are they flying blind, it'd
be like deciding what to wear a year from now,
just based on climate forecasts. It could be fifty degrees today,
(06:42):
a year from now it could be minus two degrees today.
You just don't only within very broad contours, can you?
Speaker 2 (06:50):
Can you know it's probably gonna be cold in January?
Won't need to But it could.
Speaker 3 (06:54):
Also be fifty degrees, I guess, is my point. So
the economy could be slowing down. The rise of un
employment rate and falling job openings could be indicative of
something more alarming, or it could just be normalization. We did,
after all, just have two spectacular quarters of GDP growth,
unsustainably high GDP growth, but spectacular.
Speaker 2 (07:13):
Nonetheless, Will stocks crash in twenty twenty six? A fantastic
headline here from the Wall Street Journal. I'm not sure
if the actual content that belies the headline is as fantastic,
but certainly is something that is always on investors' minds
if we will see a crash in the upcoming year,
(07:33):
and I think Mark, you'll be helpful in maybe we're
not sitting here as armchair quarterbacks who are gonna say, well,
I guess it would be not armchair because we're looking
forward to predict. But we're not, no Sradamison going to
predict what's going to happen in twenty twenty six. That
is impossible to do, but really more giving the historical
context in terms of when we have seen on average
(07:55):
drawdowns of a certain percentage when you look back at history.
This piece goes into describe that they ask people to
estimate the chance of a thirty percent drop in the
S and P five hundred over the course of the
next twelve months. The average guess was that there was
a thirty one percent probability percent chance that we would
see a thirty percent drop in the S and P whatever.
(08:18):
You know, The results are that that's I don't really
care if you're just interviewing people from different firms on
their projections, but really what the thing I would take
away more is that if you look at history. Here,
the chief US economists at TS Lumbard, Stephen Blitz, stated
that the probability is more like eight to ten percent,
(08:39):
or every ten to twelve and a half years, from
a historical standpoint, you'll see that type of drop.
Speaker 3 (08:45):
Yeah, I would have said more frequently, but it would
have been off the top of my head, I would
have said a little more frequently. It's possible that when
you take the last twenty five years, which have been
an unusually aside from the recession, in COVID, and I
know those are two big A sides, but stock markets
have become less I'm gonna get in trouble if I
say this, not with anybody listening, because it's it's too obscure.
But if you have a PhD in finance, turn off
(09:06):
your radio for a second, because what I'm gonna say
would not impress you. Last twenty five years have been
a little bit less volatile than the prior period. I
would have said a one in five chance of a
thirty percent draw down. But if you the past, I'll
just say the past several years have been unusually like quiescent,
So it makes it seem like those drawdowns are more
rare than they actually.
Speaker 4 (09:26):
Oh, yes, and right, is.
Speaker 2 (09:28):
That a good hope?
Speaker 4 (09:29):
Is that capture?
Speaker 2 (09:30):
If the finance PhDs kept their radio on to hear
a little.
Speaker 3 (09:34):
They certainly know they know that way, they wouldn't be
appresed to that either. But I think a frequency approach
is the right approach here, because otherwise you're just pulling
stuff out of an orifice. Like just how often has
it happened historically? Like most of the time, annually east
like over seventy percent of the time, or roughly seventy
percent of the time stocks go up, So that should
probably be like, it's a loaded coin seven out of
ten times you flip heads, and he's being good here.
(09:56):
Maybe that's the right way to answer that question. If
you're a financial profe, I should like, what would you
tell a client?
Speaker 2 (10:01):
The best way to encapsulate this this whole piece is
the end of this Wall Street journal piece where they
quote star fund manager Peter Lynch, where he is observed
that far more money has been lost by investors trying
to anticipate corrections or trying to time the market than
has been lost in the corrections themselves. I feel like
that is a pretty good way to sum it up.
Is this idea of trying to time or predict a
(10:23):
crash is often not worth it. It's really it's boloney, Lynch.
Speaker 3 (10:28):
Wait a second, when we've had fifty percent crashes when
stocks started with a market cap of twenty trillion, don't
you can't tell me that people avoiding people mistiming market
cycles has resulted in bigger No. No, no, that can
miss time, Lynch, You miss timing? Didn't I say that? No?
Speaker 2 (10:44):
No, think Lynch.
Speaker 3 (10:46):
I think he's quotable, but he's full of it on
this one. There's no way market timing has cost more
people than the actual drawdowns cost everybody.
Speaker 4 (10:54):
Think about that?
Speaker 2 (10:54):
Oh yes, yeah, think about that well, because you're picking
on the people who sold out, right, which it's a
few Yeah.
Speaker 4 (11:00):
What could that be?
Speaker 3 (11:00):
A trillion dollars out of current market cap of fifty
If we have a fifty percent draw down, twenty five
to thirty trillion gets wiped out. Think about the magnitudes,
is what I'm saying.
Speaker 2 (11:09):
Magnitude, yes, but I think you understand. The point is
more so those people lost out.
Speaker 3 (11:14):
No, it's a sensational point. You remember, it's also good advice.
It's good advice, but the underlying argument is baloney.
Speaker 4 (11:21):
If you dig into it for a second.
Speaker 2 (11:23):
You're tough. You're tough on old Peter Lynch here.
Speaker 3 (11:25):
I love I love him, and I think he's he's
doing the right thing. Just be a good salesman and
tell people to stay invested. But actually, there might be
a better way to make that point that's more numerically correct.
Speaker 2 (11:35):
We'll see what twenty twenty six brings. We're going to
take a quick break here on the financial exchange When
we come back, we're going to be talking with Ted
Rossman from bankrate dot com and he's going to be
going over the twenty twenty six interest rate forecast that's
coming up right after this break on the Financial Exchange.
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Speaker 2 (12:45):
As promised, we are joined by Ted Rossman from bank
rate to give us a preview of twenty twenty six
in terms of an interest rate forecast, Ted, thanks so
much for joining us today. Appreciate it. Good to be here,
Thank you, Ted. Always a very difficult challenge this time
of year. You have a lot of people sort of
pinned down to make projections on what the market's going
to do or an interest rates going to do. And
(13:06):
you acknowledge that here and the piece that it is challenging,
but you look at it from a couple of different realms.
So let's start first with mortgage rates. What are you
seeing in terms of a forecasting from the thirty year
fixed mortgage heading into twenty twenty six. Keeping in mind
that all that should take these predictions with the grain
of salt, right as it's very hard to do this accurately.
Speaker 6 (13:27):
Right now, the average thirty year fixed mortgage rate is
six and a quarter percent. It hasn't been below six
percent since the summer of twenty twenty two. I believe
we will soon go below six percent.
Speaker 2 (13:40):
I think this year we're going to.
Speaker 6 (13:41):
See rates move sometimes a little below six, sometimes a
little over six, maybe trading somewhere in a five and
a half to six and a half percent range.
Speaker 2 (13:51):
Mortgage range tend to.
Speaker 6 (13:52):
Be a bit more volatile than other financial products because
they're tracking ten year treasuries, so they're kind of at
the whims of the markets here. There may be sometimes
that we get a bit of a growth scare rates
may go lower. We also may have times that inflation's
rearing its head or economic factors are pointing to somewhat
(14:13):
higher rates. I believe the Fed's gonna cut three times
this year. I'm forecasting three quarter point cuts from the Fed.
That doesn't directly influence mortgage rates as much as it
does some other products. So I would say kind of
in general, a slow drift downward for mortgage rates could
be volatile, though sometimes higher, sometimes lower, but around six.
Speaker 2 (14:35):
That's an important point to make, and maybe we could
just examine that a little bit further. Just for listeners,
is that you know, when the Federal Reserve is talking
about cutting interest rates, they're cutting the shorter end of
the curve. And from what I've read ten and you
can correct me if I'm wrong, there's not a direct,
of course, one to one correlation that, hey, they cut rates,
all of a sudden, mortgage rates go down, because as
you mentioned, they are tethered more closely to the US
(14:57):
ten year treasury. But is there some sort of impact
that the Federal Reserve cutting interest rates can have on
that longer end.
Speaker 6 (15:05):
Some impact, definitely not as direct as some other products,
like credit card rates, home equity lines of credit. Those
move pretty much directly in line with the FED. Like
if the FED cuts a quarter point, your credit card
rate is going to go down by a quarter point soon.
It's not as direct for mortgage rates. Certainly, the FED
is one of the inputs that investors are weighing when
they set tenure treasury rates. But one of the interesting
(15:27):
things about this year, and one of the things that
makes this year so uncertain, is what happens with the
new FED chair, Jerome Palace. Termins a day. We know
the president's pushing for someone who's going to substantially lower rates.
If the FED moves too fast, though, and lower short
term rates too much too fast, it could actually give
us a headfake with long term rates, things like long
(15:49):
term treasuries mortgage rates, they could actually go up. In
a scenario where the FED cuts too much too fast,
it stokes inflation, It stokes fears that the FED it
may not be as independent from political pressure as it
used to be.
Speaker 2 (16:04):
So we want rates to be falling for the.
Speaker 6 (16:05):
Right reason, namely that inflation's coming down and the economy
is relatively stable. So that's one of the kind of
wildcard factors that we need to watch this year.
Speaker 2 (16:15):
You mentioned some of the areas that would be more
impacted by interest rate cuts, home equilines of credit, money markets,
auto loans. Any commentary that you have on any of
those three, you pick where they would go with the
premise that, hey, perhaps you're projecting three interest rate cuts,
what direction it looks like for any of those three
categories heading into twenty twenty six.
Speaker 6 (16:36):
Here, I believe that rate cuts will have the biggest
influence on the housing market. So we already talked about
mortgage rates. Rates below six could stimulate some buying activity.
Falling rates for home equity borrowing are beneficial for people
that are maybe looking to fund some home improvements or
maybe looking to consolidate debt or use that equity for
(16:57):
other purposes. People are sitting on record amounts of equity,
and these rates, while they're not as low as they
were a few years ago, you're not getting a four
percent home equity line of credit right now. The fact
that you could be looking at one in the sixes,
maybe especially if you have good credit or maybe around
seven percent on average, that actually is spurring some activity.
(17:21):
You contrast that with something like a credit card, where
the rates are high and they're going to stay high.
The average credit card charges almost twenty percent. If that
falls to nineteen percent, people are hardly going to notice.
Auto loans are another area where we're facing high affordability challenges.
It's actually not so much of a rate problem with
(17:43):
cars as it is that prices are high, insurance costs
are high, repairs maintenance. Auto loan delinquencies are at a
fifteen year high, But it's not really loan rates that
are to blame. It's more some of these other factors.
So when we talk about falling rates this year, I'd
say the biggest impacts are likely to be on mortgage
(18:03):
buyers and refinancers and somebody seeking a home equity loan
or line of credit.
Speaker 2 (18:08):
Great information. Ted Rossman from Bank Rate doing a twenty
twenty six interest rate preview with US. Ted, thanks so
much for the time, Really appreciate.
Speaker 6 (18:16):
It, no problem, Thank you.
Speaker 2 (18:19):
Taking a look around here at markets again still relatively
in sort of mixed territory here there really hasn't been
a tremendous amount of movement from the major industries here
as we continue to digest the US and Venezuela and
sort of what that means from a political standpoint. Taking
a look around at some of the major stocks making headlines,
(18:41):
Intel is up over eight percent today, and you've got
the NASDAK in general rallying about ninety points at the moment,
up about zero point four percent. Oil that certainly has
been in the headlines quite a bit recently, has slipped
down a little bit. As we talked about earlier in
the program, we're going to receive an increased supply of
(19:02):
oil from Venezuela. I believe it was was it fifty
million barrels mark that they had said that we're coming
our way, So not a direct cause of that, but
we do have oil West Texas Intermediate down at about
fifty six dollars a barrel. It's off about one in
a third percent today, and the metals continue to make
headlines in terms of their volatility, with gold off close
(19:23):
to a full percent and silver is off about five percent.
We'll have more of this here right after this break
with Wall Street Watch, and we'll also be doing trivia
right after this break on the Financial Exchange. Stick with us.
Speaker 1 (19:41):
Bringing the latest financial news straight to your radio. Every day.
It's the Financial Exchange 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.
Speaker 5 (19:59):
Netw Markets are mixed as investors react to the JILT
report posted earlier this morning, where the number of available
positions decreased to seven point one five million in November
from a downwardly revised seven point four to five million
in the prior month, marking more than one year low.
Right now, the Dow is off by about a third
(20:21):
of a percent, or one hundred and fifty six points lower.
SMP five hundred is up only five points, NASDAC up
over four tenths of a percent or ninety nine points higher.
Russell two thousand is off by about a half a percent.
Ten year Treasure reeled down three basis points at four
point one four to two percent, and crude oil down
just over one percent lower, trading at fifty six dollars
(20:43):
and fifty cents a barrel. The Financial Times reported that
Chevron and Quantum Capital are planning a bid to buy
Luke Oil's international asset. Chevron stock is edging higher on
that news. Meanwhile, Warner Brothers told shareholders to reject Paramount's
amended hostile bid for the company. He's saying its existing
deal with Netflix is stronger. Warner stock is up modestly,
(21:05):
and Intel stock is rallying eight percent after the chip
maker unveiled next gen AIPC processors at the Consumer Electronics
Show in Las Vegas.
Speaker 2 (21:15):
I'm Tucker Silvan.
Speaker 5 (21:16):
That is Wall Street Watch, and we are gonna do trivia.
Now we haven't done that yet, so here we go
on this day. In twenty nineteen, Amazon surpassed Microsoft to
become the most valuable company in the world. At the time,
Amazon was valued at seven hundred and ninety seven billion dollars. Today,
both companies are well into the trillion dollar company list.
(21:38):
So trivia question today, how many US based companies are
worth one trillion dollars? Once again, how many US based
companies are worth one trillion dollars? Be the third person
today to textas at six one, seven, three, six, two
thirteen eighty five with the correct answer along with the
keyword trivia and win a Financial Exchange show T shirt
(22:02):
once again. The third correct response to textas to the
number six one, seven, three, six two thirteen eighty five
with the correct answer along with the keyword trivia will win.
Speaker 4 (22:11):
That T shirt.
Speaker 5 (22:12):
See complete contest rules at Financial Exchange show dot com.
Speaker 2 (22:16):
One trillion or greater. I guess right, would be h yeah, okay.
Speaker 3 (22:21):
Also, as of what twelve thirty one, probably twenty, Tucker's.
Speaker 2 (22:25):
Gonna shut he's no more questions about trivia.
Speaker 3 (22:28):
Yea, Well it's Ben Ben rids they so I'm kind
of directing this to him as of twelve thirty one,
twenty twenty.
Speaker 2 (22:32):
Five, no suit for me.
Speaker 3 (22:35):
If you're googling that, which mostly I would do that
to answer this question.
Speaker 4 (22:39):
It might have some integrity, It might have some please integrity.
Speaker 2 (22:43):
For the sancrety of trivia. It's supposed to be off
the top of your dome. No googling.
Speaker 3 (22:47):
Yeah, I couldn't do it. And also I need to
know as of when, because market cap changes.
Speaker 2 (22:52):
But we'll write our we'll write our guests down. I
think it's.
Speaker 3 (22:55):
A fluid concept here at the Financial Exchange, we're talking
about time is a fluid concept. For Ben Kitchen, we.
Speaker 2 (23:00):
Were talking about US markets but emerging markets have been
in tremendous focus last year, rallying upwards of thirty four percent,
nearly doubling the return of the S and P five hundred,
breaking a trend where the emerging market category had well
underperformed US markets for at least a decade.
Speaker 4 (23:21):
What feels like twenty years.
Speaker 2 (23:22):
Yeah, it feels like twenty years, but I can say
with pretty sound certainty for the last decade. Of course,
this is an area where typically if you talk to
people about portfolio construction, whether it be within a four
or one K or at asset allocating in general, there
has been often this idea that you need to have
global diversification and have a slug of your portfolio, say
(23:45):
twenty twenty five percent as a rough figure, into emerging
markets and international equities.
Speaker 3 (23:51):
International.
Speaker 2 (23:52):
There is you know, counter arguments to be made that
with some of these US companies that you're dealing with
within the S and P five hundred, that they do
have global exposure, that they don't just sell their products domestically.
They sell them. Yeah, half of their products are sold.
I think sales come from overseas, so you are getting
exposure there. In terms of the reasons for the strong
(24:15):
performance last year. One of them is the weakening dollar.
We did see the US dollar weekend relative to foreign
currencies last year. You also had the confluence of areas
like semiconductors in particular. If you look at semiconductor manufacturing,
Taiwan Semiconductor is a company that is really has significant
market share there and they have their stock has done
(24:37):
tremendously well. They represent a very heavy percentage of emerging
market funds out there. That was an area that benefited.
Commodities and materials had a great year too, and that
can loop in some countries like Brazil and Peru and
others that are a little bit more heavy in sort
of the materials side of things. But mark your thoughts
just on emerging market performance and perhaps some drivers for
(25:00):
growth for the twenty twenty six here.
Speaker 3 (25:05):
That's a big topic. We can talk about EM growth,
which has been disappointing. EM company based profitability is a
slightly different story. Historically, the argument for the argument for
any asset class, which is a fancy way of saying
something that's investable. So large cap stocks are an asset class,
and they also have to be distinct in a sort
of a correlation sense the correlation is not perfect, or
(25:26):
it shouldn't be for something to be a distinct asset class.
So large cap stocks US that's the S and P
five hundred, more or less, medium sized company stocks the
S and P six four hundred, excuse me, or the
Russell MidCap twenty five hundred some I think it's twenty
five hundred. International stocks are a distinct asset class, and
then within an international there's developed which is Europe and
(25:49):
in Developed Asia, and then there's emerging. So overall US
stocks are about seventy percent now of global market capitalization.
That's just the total value of the shares of all
US companies, which means thirty cents out of every dollar
invested in equities worldwide is invested in non US companies.
So that's an important asset class because it's big. This
is why if you have a target day fund in
(26:10):
your four one K, one of those kind of set
it and forget it suckers that rebalances and reallocates automatically,
you'll see twenty ten to thirty percent I should say
maybe twenty being an average. In foreign stocks. It's an
important asset class. So last year Gangbusters for em emerging markets.
That is, we've seen this story play out before in
(26:30):
the early two thousands when EM returns were consistently spectacular,
drew a lot of people in, and they've more or
less been disappointing ever since. Really, part of the reason
for that is that the ration I gave a general
portfolio construction to use your phrase rationale for EM, which
is it's out there and it's investable, and it's imperfectly
correlated with US assets, so it should be considered. That
(26:53):
is an uncontroversial statement. You'll find it in any finance textbook.
The story advanced by proponents of VM, people that manage
you money and want your money, is that growth potential
is higher for demographic reasons, right, because for a long
time these were basket cases by rule of low standards,
and they've since gotten their act together. But that higher
(27:15):
growth is not materialized GDP per capita in Mexico, Argentina
and other countries in this hemisphere come to mind, they've
had flat per capita GDP for like ten years.
Speaker 2 (27:26):
Right, right. The valuation is a big part of this
story too, where right now you have the emerging market
equities trading at nearly a forty percent discount to US peers,
one of their lowest for PE differentials, more of than
the decade. Again, price to earnings ratio is what they're
talking about there that has been sold. If you're someone
(27:46):
who is in the emerging markets space, that has been
a big sale. So certainly it'll be interesting back toe
how emerging markets fares for twenty twenty six.
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Speaker 2 (29:03):
Final word on the emerging market value.
Speaker 3 (29:05):
Yeah, the valuation differential was historically chalked up to the US,
of course being the most stable in addition to largest
and consistently among the fastest growing economies in the world,
which is remarkable given our size. The reason why commentators
and some economists wring their hands a lot about the
(29:26):
deficit and about monetary policy independence. The deficit continues to
spiral out of the debt continues to spiral a lot
of controlled deficit was actually was actually down a little
bit like one last year tion yeah, something like that,
but it was actually down because of tariffs. It was
actually down a little bit, so but nevertheless still like hemorrhaging, hemorrhaging,
(29:49):
right ink. So I probably shouldn't make too much of that.
But the reason why we talk so much about monetary
policy independence, like you don't want a president dictating what
interest rate should because any president would want lower interest
rates that don't want to crush the econom the.
Speaker 2 (30:02):
Long term health.
Speaker 3 (30:03):
Only human and natural. The reason economists sound the alarm
about deficits and monetary policy independence and other things consistency
in administering the laws is that those are the factors
that have created the environment which have allowed, arguably allowed
valuations to rise to the level that they've risen to.
In the United States, many people are writing about this
(30:24):
sort of equalization now of standards and norms. Is policy
in the US becomes less stable. You could say you
love it. You want Trump to run monetary policy. You
want him to buy public you want him to take
shares in companies. You want him to reward friends and
punish enemies. You love that style of leadership. That's That's
not what I'm talking about here. I'm just talking about stability.
You can't argue that there's less of it now than
(30:45):
there was. Can we have the same valuation advantage relative
to other economies if they are catching up to us
in terms of I'll just say governance, standards and institutional quality.
That's an important question for a long term investor estimating
capital market returns. It's not a question we're going to
be able to resolve here today.
Speaker 2 (31:03):
Yeah, definitely an interesting question to pose. We're going to
take a break here on the Finished Exchange. When we
come back, a little bit of stack Roulette right after
this break.
Speaker 1 (31:10):
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Speaker 5 (31:47):
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(32:29):
Trivia question in the previous segment was how many US
based companies are worth one trillion dollars? That would be
nine and Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta, Berkshire, Hathway, Broadcom,
and Tesla all worth one trillion dollars. Ben from Belmont,
New Hampshire is our winner today, taking home a Financial
Exchange Show T shirt. Congrats to Ben, and we play
(32:52):
trivia every day here in the Financial Exchange. See complete
contest rules at Financial Exchange Show dot Com.
Speaker 2 (32:59):
Time little Bit of Stock Roulette, Mark, I will let
you beat lead on.
Speaker 4 (33:03):
I'm gonna try to provoke you here.
Speaker 2 (33:04):
Okay from the AI Battle.
Speaker 3 (33:06):
From the Financial Times. AI will free households from chores
and boost hidden productivity, says open AI. You've seen the story.
Speaker 2 (33:15):
Seen the story.
Speaker 3 (33:16):
This doesn't this seem a little so the crux of
the argument, let me see if I can summarize it
in a couple of sentences, is this AI may not
show up in the data anytime soon, but you're gonna
have so much more free time. We got to find
a way to your well being is going to be
so much higher because of AI. We just we we
at open AI are going to find a way to
measure that GDP is not going to do it. Productivity
(33:38):
may not show up. I'm exaggerating a little bit here.
This study was done by Aaron chatter Gee. I think
I'm pronouncing his last name right. He's a Berkeley PhD.
So he knows how to do good research. But doesn't
this seem a little self serving and desperate?
Speaker 2 (33:53):
To you? Yes? It is, what's what's it?
Speaker 4 (33:57):
But you have a different feeling on it.
Speaker 2 (33:59):
So just on this one in particular, Well, the debate
you and I always get into, and I was thinking
about it as you had sent me a piece last
week when we had done the show basically stating what
you just allude to there is that in the data,
and I'm not disagreeing with it. We haven't seen any
significant economic data that points to that AI is leading
(34:20):
to a widespread transformation and productivity or earnings growth for
many companies out there that are trying to incorporate it.
And so heading into twenty twenty six, that is the
big focus, right is are we going to see instances?
And I could point to cherry picking two or three
of them to combat that argument, but you could come
back and meet and say, well, Paul, those are two
(34:41):
or three instances. The broader data set isn't pointing to that,
and so it becomes the argument of I'm taking from
the stance of as a long term equity investor, I
am optimistic about the technologies potential because believing in being
long US stocks or Internet stocks in general, we need
this technology to provide productivity gains.
Speaker 3 (35:03):
I mean, I'm a bullish long term as well on
the economy and of course on equities. But why do
we need this particularly to pay off? Maybe it'll be
something I'm not saying. I don't think it will, by
the way, right, it's probably a seventy percent chance that
it is widespread and transformative is its proponents. I'm not
sure that existing players will be the ones to benefit
from that, but I don't doubt that it'll be pervasive.
But why is it so existential?
Speaker 2 (35:25):
Not existential? But if that is what it's the it's
the dark horse to bet on, right. If you're hoping
for future gains for the market, is if this technology
can be truly transformative and help all sorts of companies,
you know, reduce increase efficiency, reduce costs, generate more profitability.
Speaker 3 (35:46):
So yeah, Or I guess a lot of investment that
goes nowhere that could have been used to I don't know,
cure cancer or.
Speaker 2 (35:52):
Power well hopefully this or invest in.
Speaker 3 (35:54):
More nuclear power plants, which thank god we're moving ahead with.
Or I worry a little bit about it averting too
much from other possible growth engines. Are you putting all
your eggs in one basket?
Speaker 2 (36:05):
Putting all your eggs in one basket is a reasonable
argument there's going to be a significant amount of investment.
But could it be the case It's always lazy to
use kind of the broadbend parallels of the late nineties,
but that does keep I keep coming back to that
example of overinvestment for sure, but then had companies benefits
significantly from the umber investment.
Speaker 3 (36:27):
But the productivity, the broader economic benefits petered out after
arguably well the productivity benefits ended in two thousand and four.
That's well documented. Now you could say economic growth would
have been even slower. This century, economic growth has been
about GDP per capita a little less, that is, per
head overall GDP growth about two percent, about two thirds
(36:50):
as fast as the prior century. I'm obviously not saying
it's because of that bubble. Maybe without those investments, growth
would have been even slower. We can't run that alternative
history type experiment.
Speaker 2 (37:03):
Yeah, I'm just going back to your piece of like, hey,
where would you divert the capital to? And you had
mentioned nuclear in some other areas.
Speaker 4 (37:10):
To seems to be being driven by that, But that's
catching me.
Speaker 2 (37:13):
I could make the argument that there was a piece
the other day that within healthcare there is a tremendous
amount of incorporation of our official intelligence and maybe from
a diagnostic standpoint, that helps people sort of figure out
more of the I thought Tucker was giving me the.
Speaker 4 (37:30):
My eyebrows.
Speaker 2 (37:33):
I have to brush my eyebrows. But there's been a
lot of I was like, what's okay, what's so controversial
about investing artificial because they're giant eyebrows.
Speaker 3 (37:46):
That's not nothing wrong with giant eyebrows.
Speaker 2 (37:50):
I guess we still so. I guess we're not so
different after all? Is the bottom lines you're still optimistic on?
Speaker 4 (37:57):
Oh yeah, I think it's going to be a future transfer, okay.
Speaker 3 (37:59):
I I think it's going to send economic potential GDP
from about two where it is today to three. I
mean maybe, but if it does.
Speaker 4 (38:08):
That, it's going to suck investment from other places. Don't forget.
Speaker 3 (38:10):
You can't just change one thing and not change others.
Speaker 2 (38:13):
That's all the time that Mark and I have for
this debate for this edition of the Financial Exchange, But
we'll be back at it tomorrow at ten am to
discuss more on the economy. Thanks so much for joining us.
The Financial Exchange is produced by Money Matters Radio and
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(00:20):
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(01:06):
Lane and Mark Vandetti.
Speaker 2 (01:12):
Paul Lane, Mark Vendetti, Tucker Silver here with you as
we kick off the eleven o'clock hour, taking a look
around at markets and relatively mixed territory. Not a tremendous
amount of movement either way. Dal Jones off about one
hundred and seventy five points in the S and P's
up about eight points at the moment. The big focus
for today's program, as well as the rest of the
(01:32):
week is the labor market. We're gonna get several reports
that is going to give us a pul says to
where the labor market stands at this point. Most notably
on Friday morning, we will get the Bureau of Labor
Statistics Job support for the month of December. But we
did get some important reports this morning, one of them
being the JOLTS Report, which is the United States Job
(01:53):
Openings and Labor Turnover Survey, and that number came in
lower than expected. This is for data for the month
of November. The job openings in the United States fell
three hundred and three thousand to seven point one four
million in November of twenty twenty five. We also had
a downwardly revised October number which was previously about seven
(02:15):
point six million. That was revised down to about seven
point four five million, so again indicating that there is
not a tremendous amount of job openings out there. There
has been a decline in that number and it is
certainly well off its peaks that we saw three years
ago where that number topped off at about twelve million. There.
(02:36):
We also had a labor report come out from ADP,
which does a focus on the private employment market. In
terms of jobs added, we saw about forty one thousand
jobs that were added for the month of December according
to ADP. That was slightly below expectations of around mid
forty thousands, but higher than the November numbers that we
(02:58):
had seen, which was a loss of twenty nine thousand.
So really what it comes down to you Mark I
highlighted some of those reports that we received this morning.
We're going to get another job. Another labor report I
believe tomorrow as well with some jobless caam's figures, But
the headline is certainly Friday's report where it seems as
if that unemployment rate the percentage is probably going to
(03:21):
be of most significant focus for listeners out there. We
sit at about four point six percent unemployment. The estimates
have that the December jobs report will show that that
has come down to four and a half percent.
Speaker 3 (03:33):
We care mostly because this will drive the fed's estimate
of how much slack there is in the labor market
and how much demand they can risk creating, which is
what they effectively do by printing money lowering interest rates.
It's meant to stimulate demand. You could think of the
FED as controlling, even though I'm being a little bit
(03:53):
fast and loose here, the FED controlling the demand side
of the economy, and structural forces controlling the supply side
of the economy. If FED can't do anything about supply
and shocks to supply, that's a different topic. So the
question is is the labor market merely normalizing. You pointed
out that the ratio of job openings to unemployed people,
(04:13):
which you can think of as a ratio of jobs
demanded to people supplying jobs, that ratio is now about
where it.
Speaker 2 (04:23):
Was before COVID sub one.
Speaker 3 (04:26):
Before that period, though, which was a pretty hot economy's
twenty seventeen, twenty eighteen, twenty nineteen, that was fairly hot.
That ratio went up before that. The ratio is more
zero point seventy five. So the question is like, what's
normal there and our values of that ratio, quotient, whatever
you prefer, there's the thing on top of the thing
on the bottom of dividing them. That's why we keep
(04:47):
saying it's a ratio. What value is consistent with stable inflation?
Is the labor market still hot? Doesn't seem to be
still hot. No, it seems to be cooling down. It
seems to be normalizing. Is it getting too cool? Is
the Fed right to be stimulating the economy right now
in the face of ongoing elevated inflation. Jury's going to
be out on that for a while.
Speaker 2 (05:07):
Where do we fall off the cliff and get to
a point where it's it's too it's too cold. I'm
thinking of like the three little three little bears, the yeah, yeah,
where it's just too it's just too cold. Where does
that point hit? And that's what the Federal Reserve has
to continue to sort of juggle here, is what is
the appropriate monetary policy to, you know, deal with all
(05:30):
those factors. Inflation has sort of moved to the background,
is not at the forefront of their focus. The labor
market is, and so we'll get more information as the
week progresses, and you really do.
Speaker 3 (05:41):
Have to sympathize with the FED. It's it's a very
imprecise tooled. Monetary policy has become the policy of choice
over the past thirty years. Used to be fiscal policy.
Fiscal policy just means spending or taxing, spending more or lesser,
taxing more or less. Monetary policy is what the FED does.
That may sound like too simple a thing to have
to even say, but I'll tell you right now.
Speaker 4 (05:59):
Jack Ken couldn't.
Speaker 3 (06:00):
Remember which was which when he was being briefed on
these things after being elected president. So it's my point is,
I don't think you could be too straightforward when you're
trying to set the terms for a discussion like this.
FED can only control the rate of money printing and
(06:21):
the FED Fund's target rate, and those have effects that
operate with lags. Like Milton Friedman set a very long
time ago, long legs and variable lags. Most economists still
believe that, so not only are they flying blind, it'd
be like deciding what to wear a year from now,
just based on climate forecasts. It could be fifty degrees today,
(06:42):
a year from now it could be minus two degrees today.
You just don't only within very broad contours, can you?
Speaker 2 (06:50):
Can you know it's probably gonna be cold in January?
Won't need to But it could.
Speaker 3 (06:54):
Also be fifty degrees, I guess, is my point. So
the economy could be slowing down. The rise of un
employment rate and falling job openings could be indicative of
something more alarming, or it could just be normalization. We did,
after all, just have two spectacular quarters of GDP growth,
unsustainably high GDP growth, but spectacular.
Speaker 2 (07:13):
Nonetheless, Will stocks crash in twenty twenty six? A fantastic
headline here from the Wall Street Journal. I'm not sure
if the actual content that belies the headline is as fantastic,
but certainly is something that is always on investors' minds
if we will see a crash in the upcoming year,
(07:33):
and I think Mark, you'll be helpful in maybe we're
not sitting here as armchair quarterbacks who are gonna say, well,
I guess it would be not armchair because we're looking
forward to predict. But we're not, no Sradamison going to
predict what's going to happen in twenty twenty six. That
is impossible to do, but really more giving the historical
context in terms of when we have seen on average
(07:55):
drawdowns of a certain percentage when you look back at history.
This piece goes into describe that they ask people to
estimate the chance of a thirty percent drop in the
S and P five hundred over the course of the
next twelve months. The average guess was that there was
a thirty one percent probability percent chance that we would
see a thirty percent drop in the S and P whatever.
(08:18):
You know, The results are that that's I don't really
care if you're just interviewing people from different firms on
their projections, but really what the thing I would take
away more is that if you look at history. Here,
the chief US economists at TS Lumbard, Stephen Blitz, stated
that the probability is more like eight to ten percent,
(08:39):
or every ten to twelve and a half years, from
a historical standpoint, you'll see that type of drop.
Speaker 3 (08:45):
Yeah, I would have said more frequently, but it would
have been off the top of my head, I would
have said a little more frequently. It's possible that when
you take the last twenty five years, which have been
an unusually aside from the recession, in COVID, and I
know those are two big A sides, but stock markets
have become less I'm gonna get in trouble if I
say this, not with anybody listening, because it's it's too obscure.
But if you have a PhD in finance, turn off
(09:06):
your radio for a second, because what I'm gonna say
would not impress you. Last twenty five years have been
a little bit less volatile than the prior period. I
would have said a one in five chance of a
thirty percent draw down. But if you the past, I'll
just say the past several years have been unusually like quiescent,
So it makes it seem like those drawdowns are more
rare than they actually.
Speaker 4 (09:26):
Oh, yes, and right, is.
Speaker 2 (09:28):
That a good hope?
Speaker 4 (09:29):
Is that capture?
Speaker 2 (09:30):
If the finance PhDs kept their radio on to hear
a little.
Speaker 3 (09:34):
They certainly know they know that way, they wouldn't be
appresed to that either. But I think a frequency approach
is the right approach here, because otherwise you're just pulling
stuff out of an orifice. Like just how often has
it happened historically? Like most of the time, annually east
like over seventy percent of the time, or roughly seventy
percent of the time stocks go up, So that should
probably be like, it's a loaded coin seven out of
ten times you flip heads, and he's being good here.
(09:56):
Maybe that's the right way to answer that question. If
you're a financial profe, I should like, what would you
tell a client?
Speaker 2 (10:01):
The best way to encapsulate this this whole piece is
the end of this Wall Street journal piece where they
quote star fund manager Peter Lynch, where he is observed
that far more money has been lost by investors trying
to anticipate corrections or trying to time the market than
has been lost in the corrections themselves. I feel like
that is a pretty good way to sum it up.
Is this idea of trying to time or predict a
(10:23):
crash is often not worth it. It's really it's boloney, Lynch.
Speaker 3 (10:28):
Wait a second, when we've had fifty percent crashes when
stocks started with a market cap of twenty trillion, don't
you can't tell me that people avoiding people mistiming market
cycles has resulted in bigger No. No, no, that can
miss time, Lynch, You miss timing? Didn't I say that? No?
Speaker 2 (10:44):
No, think Lynch.
Speaker 3 (10:46):
I think he's quotable, but he's full of it on
this one. There's no way market timing has cost more
people than the actual drawdowns cost everybody.
Speaker 4 (10:54):
Think about that?
Speaker 2 (10:54):
Oh yes, yeah, think about that well, because you're picking
on the people who sold out, right, which it's a
few Yeah.
Speaker 4 (11:00):
What could that be?
Speaker 3 (11:00):
A trillion dollars out of current market cap of fifty
If we have a fifty percent draw down, twenty five
to thirty trillion gets wiped out. Think about the magnitudes,
is what I'm saying.
Speaker 2 (11:09):
Magnitude, yes, but I think you understand. The point is
more so those people lost out.
Speaker 3 (11:14):
No, it's a sensational point. You remember, it's also good advice.
It's good advice, but the underlying argument is baloney.
Speaker 4 (11:21):
If you dig into it for a second.
Speaker 2 (11:23):
You're tough. You're tough on old Peter Lynch here.
Speaker 3 (11:25):
I love I love him, and I think he's he's
doing the right thing. Just be a good salesman and
tell people to stay invested. But actually, there might be
a better way to make that point that's more numerically correct.
Speaker 2 (11:35):
We'll see what twenty twenty six brings. We're going to
take a quick break here on the financial exchange When
we come back, we're going to be talking with Ted
Rossman from bankrate dot com and he's going to be
going over the twenty twenty six interest rate forecast that's
coming up right after this break on the Financial Exchange.
Speaker 1 (11:52):
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(12:14):
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Speaker 2 (12:29):
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Speaker 2 (12:45):
As promised, we are joined by Ted Rossman from bank
rate to give us a preview of twenty twenty six
in terms of an interest rate forecast, Ted, thanks so
much for joining us today. Appreciate it. Good to be here,
Thank you, Ted. Always a very difficult challenge this time
of year. You have a lot of people sort of
pinned down to make projections on what the market's going
to do or an interest rates going to do. And
(13:06):
you acknowledge that here and the piece that it is challenging,
but you look at it from a couple of different realms.
So let's start first with mortgage rates. What are you
seeing in terms of a forecasting from the thirty year
fixed mortgage heading into twenty twenty six. Keeping in mind
that all that should take these predictions with the grain
of salt, right as it's very hard to do this accurately.
Speaker 6 (13:27):
Right now, the average thirty year fixed mortgage rate is
six and a quarter percent. It hasn't been below six
percent since the summer of twenty twenty two. I believe
we will soon go below six percent.
Speaker 2 (13:40):
I think this year we're going to.
Speaker 6 (13:41):
See rates move sometimes a little below six, sometimes a
little over six, maybe trading somewhere in a five and
a half to six and a half percent range.
Speaker 2 (13:51):
Mortgage range tend to.
Speaker 6 (13:52):
Be a bit more volatile than other financial products because
they're tracking ten year treasuries, so they're kind of at
the whims of the markets here. There may be sometimes
that we get a bit of a growth scare rates
may go lower. We also may have times that inflation's
rearing its head or economic factors are pointing to somewhat
(14:13):
higher rates. I believe the Fed's gonna cut three times
this year. I'm forecasting three quarter point cuts from the Fed.
That doesn't directly influence mortgage rates as much as it
does some other products. So I would say kind of
in general, a slow drift downward for mortgage rates could
be volatile, though sometimes higher, sometimes lower, but around six.
Speaker 2 (14:35):
That's an important point to make, and maybe we could
just examine that a little bit further. Just for listeners,
is that you know, when the Federal Reserve is talking
about cutting interest rates, they're cutting the shorter end of
the curve. And from what I've read ten and you
can correct me if I'm wrong, there's not a direct,
of course, one to one correlation that, hey, they cut rates,
all of a sudden, mortgage rates go down, because as
you mentioned, they are tethered more closely to the US
(14:57):
ten year treasury. But is there some sort of impact
that the Federal Reserve cutting interest rates can have on
that longer end.
Speaker 6 (15:05):
Some impact, definitely not as direct as some other products,
like credit card rates, home equity lines of credit. Those
move pretty much directly in line with the FED. Like
if the FED cuts a quarter point, your credit card
rate is going to go down by a quarter point soon.
It's not as direct for mortgage rates. Certainly, the FED
is one of the inputs that investors are weighing when
they set tenure treasury rates. But one of the interesting
(15:27):
things about this year, and one of the things that
makes this year so uncertain, is what happens with the
new FED chair, Jerome Palace. Termins a day. We know
the president's pushing for someone who's going to substantially lower rates.
If the FED moves too fast, though, and lower short
term rates too much too fast, it could actually give
us a headfake with long term rates, things like long
(15:49):
term treasuries mortgage rates, they could actually go up. In
a scenario where the FED cuts too much too fast,
it stokes inflation, It stokes fears that the FED it
may not be as independent from political pressure as it
used to be.
Speaker 2 (16:04):
So we want rates to be falling for the.
Speaker 6 (16:05):
Right reason, namely that inflation's coming down and the economy
is relatively stable. So that's one of the kind of
wildcard factors that we need to watch this year.
Speaker 2 (16:15):
You mentioned some of the areas that would be more
impacted by interest rate cuts, home equilines of credit, money markets,
auto loans. Any commentary that you have on any of
those three, you pick where they would go with the
premise that, hey, perhaps you're projecting three interest rate cuts,
what direction it looks like for any of those three
categories heading into twenty twenty six.
Speaker 6 (16:36):
Here, I believe that rate cuts will have the biggest
influence on the housing market. So we already talked about
mortgage rates. Rates below six could stimulate some buying activity.
Falling rates for home equity borrowing are beneficial for people
that are maybe looking to fund some home improvements or
maybe looking to consolidate debt or use that equity for
(16:57):
other purposes. People are sitting on record amounts of equity,
and these rates, while they're not as low as they
were a few years ago, you're not getting a four
percent home equity line of credit right now. The fact
that you could be looking at one in the sixes,
maybe especially if you have good credit or maybe around
seven percent on average, that actually is spurring some activity.
(17:21):
You contrast that with something like a credit card, where
the rates are high and they're going to stay high.
The average credit card charges almost twenty percent. If that
falls to nineteen percent, people are hardly going to notice.
Auto loans are another area where we're facing high affordability challenges.
It's actually not so much of a rate problem with
(17:43):
cars as it is that prices are high, insurance costs
are high, repairs maintenance. Auto loan delinquencies are at a
fifteen year high, But it's not really loan rates that
are to blame. It's more some of these other factors.
So when we talk about falling rates this year, I'd
say the biggest impacts are likely to be on mortgage
(18:03):
buyers and refinancers and somebody seeking a home equity loan
or line of credit.
Speaker 2 (18:08):
Great information. Ted Rossman from Bank Rate doing a twenty
twenty six interest rate preview with US. Ted, thanks so
much for the time, Really appreciate.
Speaker 6 (18:16):
It, no problem, Thank you.
Speaker 2 (18:19):
Taking a look around here at markets again still relatively
in sort of mixed territory here there really hasn't been
a tremendous amount of movement from the major industries here
as we continue to digest the US and Venezuela and
sort of what that means from a political standpoint. Taking
a look around at some of the major stocks making headlines,
(18:41):
Intel is up over eight percent today, and you've got
the NASDAK in general rallying about ninety points at the moment,
up about zero point four percent. Oil that certainly has
been in the headlines quite a bit recently, has slipped
down a little bit. As we talked about earlier in
the program, we're going to receive an increased supply of
(19:02):
oil from Venezuela. I believe it was was it fifty
million barrels mark that they had said that we're coming
our way, So not a direct cause of that, but
we do have oil West Texas Intermediate down at about
fifty six dollars a barrel. It's off about one in
a third percent today, and the metals continue to make
headlines in terms of their volatility, with gold off close
(19:23):
to a full percent and silver is off about five percent.
We'll have more of this here right after this break
with Wall Street Watch, and we'll also be doing trivia
right after this break on the Financial Exchange. Stick with us.
Speaker 1 (19:41):
Bringing the latest financial news straight to your radio. Every day.
It's the Financial Exchange 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.
Speaker 5 (19:59):
Netw Markets are mixed as investors react to the JILT
report posted earlier this morning, where the number of available
positions decreased to seven point one five million in November
from a downwardly revised seven point four to five million
in the prior month, marking more than one year low.
Right now, the Dow is off by about a third
(20:21):
of a percent, or one hundred and fifty six points lower.
SMP five hundred is up only five points, NASDAC up
over four tenths of a percent or ninety nine points higher.
Russell two thousand is off by about a half a percent.
Ten year Treasure reeled down three basis points at four
point one four to two percent, and crude oil down
just over one percent lower, trading at fifty six dollars
(20:43):
and fifty cents a barrel. The Financial Times reported that
Chevron and Quantum Capital are planning a bid to buy
Luke Oil's international asset. Chevron stock is edging higher on
that news. Meanwhile, Warner Brothers told shareholders to reject Paramount's
amended hostile bid for the company. He's saying its existing
deal with Netflix is stronger. Warner stock is up modestly,
(21:05):
and Intel stock is rallying eight percent after the chip
maker unveiled next gen AIPC processors at the Consumer Electronics
Show in Las Vegas.
Speaker 2 (21:15):
I'm Tucker Silvan.
Speaker 5 (21:16):
That is Wall Street Watch, and we are gonna do trivia.
Now we haven't done that yet, so here we go
on this day. In twenty nineteen, Amazon surpassed Microsoft to
become the most valuable company in the world. At the time,
Amazon was valued at seven hundred and ninety seven billion dollars. Today,
both companies are well into the trillion dollar company list.
(21:38):
So trivia question today, how many US based companies are
worth one trillion dollars? Once again, how many US based
companies are worth one trillion dollars? Be the third person
today to textas at six one, seven, three, six, two
thirteen eighty five with the correct answer along with the
keyword trivia and win a Financial Exchange show T shirt
(22:02):
once again. The third correct response to textas to the
number six one, seven, three, six two thirteen eighty five
with the correct answer along with the keyword trivia will win.
Speaker 4 (22:11):
That T shirt.
Speaker 5 (22:12):
See complete contest rules at Financial Exchange show dot com.
Speaker 2 (22:16):
One trillion or greater. I guess right, would be h yeah, okay.
Speaker 3 (22:21):
Also, as of what twelve thirty one, probably twenty, Tucker's.
Speaker 2 (22:25):
Gonna shut he's no more questions about trivia.
Speaker 3 (22:28):
Yea, Well it's Ben Ben rids they so I'm kind
of directing this to him as of twelve thirty one,
twenty twenty.
Speaker 2 (22:32):
Five, no suit for me.
Speaker 3 (22:35):
If you're googling that, which mostly I would do that
to answer this question.
Speaker 4 (22:39):
It might have some integrity, It might have some please integrity.
Speaker 2 (22:43):
For the sancrety of trivia. It's supposed to be off
the top of your dome. No googling.
Speaker 3 (22:47):
Yeah, I couldn't do it. And also I need to
know as of when, because market cap changes.
Speaker 2 (22:52):
But we'll write our we'll write our guests down. I
think it's.
Speaker 3 (22:55):
A fluid concept here at the Financial Exchange, we're talking
about time is a fluid concept. For Ben Kitchen, we.
Speaker 2 (23:00):
Were talking about US markets but emerging markets have been
in tremendous focus last year, rallying upwards of thirty four percent,
nearly doubling the return of the S and P five hundred,
breaking a trend where the emerging market category had well
underperformed US markets for at least a decade.
Speaker 4 (23:21):
What feels like twenty years.
Speaker 2 (23:22):
Yeah, it feels like twenty years, but I can say
with pretty sound certainty for the last decade. Of course,
this is an area where typically if you talk to
people about portfolio construction, whether it be within a four
or one K or at asset allocating in general, there
has been often this idea that you need to have
global diversification and have a slug of your portfolio, say
(23:45):
twenty twenty five percent as a rough figure, into emerging
markets and international equities.
Speaker 3 (23:51):
International.
Speaker 2 (23:52):
There is you know, counter arguments to be made that
with some of these US companies that you're dealing with
within the S and P five hundred, that they do
have global exposure, that they don't just sell their products domestically.
They sell them. Yeah, half of their products are sold.
I think sales come from overseas, so you are getting
exposure there. In terms of the reasons for the strong
(24:15):
performance last year. One of them is the weakening dollar.
We did see the US dollar weekend relative to foreign
currencies last year. You also had the confluence of areas
like semiconductors in particular. If you look at semiconductor manufacturing,
Taiwan Semiconductor is a company that is really has significant
market share there and they have their stock has done
(24:37):
tremendously well. They represent a very heavy percentage of emerging
market funds out there. That was an area that benefited.
Commodities and materials had a great year too, and that
can loop in some countries like Brazil and Peru and
others that are a little bit more heavy in sort
of the materials side of things. But mark your thoughts
just on emerging market performance and perhaps some drivers for
(25:00):
growth for the twenty twenty six here.
Speaker 3 (25:05):
That's a big topic. We can talk about EM growth,
which has been disappointing. EM company based profitability is a
slightly different story. Historically, the argument for the argument for
any asset class, which is a fancy way of saying
something that's investable. So large cap stocks are an asset class,
and they also have to be distinct in a sort
of a correlation sense the correlation is not perfect, or
(25:26):
it shouldn't be for something to be a distinct asset class.
So large cap stocks US that's the S and P
five hundred, more or less, medium sized company stocks the
S and P six four hundred, excuse me, or the
Russell MidCap twenty five hundred some I think it's twenty
five hundred. International stocks are a distinct asset class, and
then within an international there's developed which is Europe and
(25:49):
in Developed Asia, and then there's emerging. So overall US
stocks are about seventy percent now of global market capitalization.
That's just the total value of the shares of all
US companies, which means thirty cents out of every dollar
invested in equities worldwide is invested in non US companies.
So that's an important asset class because it's big. This
is why if you have a target day fund in
(26:10):
your four one K, one of those kind of set
it and forget it suckers that rebalances and reallocates automatically,
you'll see twenty ten to thirty percent I should say
maybe twenty being an average. In foreign stocks. It's an
important asset class. So last year Gangbusters for em emerging markets.
That is, we've seen this story play out before in
(26:30):
the early two thousands when EM returns were consistently spectacular,
drew a lot of people in, and they've more or
less been disappointing ever since. Really, part of the reason
for that is that the ration I gave a general
portfolio construction to use your phrase rationale for EM, which
is it's out there and it's investable, and it's imperfectly
correlated with US assets, so it should be considered. That
(26:53):
is an uncontroversial statement. You'll find it in any finance textbook.
The story advanced by proponents of VM, people that manage
you money and want your money, is that growth potential
is higher for demographic reasons, right, because for a long
time these were basket cases by rule of low standards,
and they've since gotten their act together. But that higher
(27:15):
growth is not materialized GDP per capita in Mexico, Argentina
and other countries in this hemisphere come to mind, they've
had flat per capita GDP for like ten years.
Speaker 2 (27:26):
Right, right. The valuation is a big part of this
story too, where right now you have the emerging market
equities trading at nearly a forty percent discount to US peers,
one of their lowest for PE differentials, more of than
the decade. Again, price to earnings ratio is what they're
talking about there that has been sold. If you're someone
(27:46):
who is in the emerging markets space, that has been
a big sale. So certainly it'll be interesting back toe
how emerging markets fares for twenty twenty six.
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Speaker 2 (29:03):
Final word on the emerging market value.
Speaker 3 (29:05):
Yeah, the valuation differential was historically chalked up to the US,
of course being the most stable in addition to largest
and consistently among the fastest growing economies in the world,
which is remarkable given our size. The reason why commentators
and some economists wring their hands a lot about the
(29:26):
deficit and about monetary policy independence. The deficit continues to
spiral out of the debt continues to spiral a lot
of controlled deficit was actually was actually down a little
bit like one last year tion yeah, something like that,
but it was actually down because of tariffs. It was
actually down a little bit, so but nevertheless still like hemorrhaging, hemorrhaging,
(29:49):
right ink. So I probably shouldn't make too much of that.
But the reason why we talk so much about monetary
policy independence, like you don't want a president dictating what
interest rate should because any president would want lower interest
rates that don't want to crush the econom the.
Speaker 2 (30:02):
Long term health.
Speaker 3 (30:03):
Only human and natural. The reason economists sound the alarm
about deficits and monetary policy independence and other things consistency
in administering the laws is that those are the factors
that have created the environment which have allowed, arguably allowed
valuations to rise to the level that they've risen to.
In the United States, many people are writing about this
(30:24):
sort of equalization now of standards and norms. Is policy
in the US becomes less stable. You could say you
love it. You want Trump to run monetary policy. You
want him to buy public you want him to take
shares in companies. You want him to reward friends and
punish enemies. You love that style of leadership. That's That's
not what I'm talking about here. I'm just talking about stability.
You can't argue that there's less of it now than
(30:45):
there was. Can we have the same valuation advantage relative
to other economies if they are catching up to us
in terms of I'll just say governance, standards and institutional quality.
That's an important question for a long term investor estimating
capital market returns. It's not a question we're going to
be able to resolve here today.
Speaker 2 (31:03):
Yeah, definitely an interesting question to pose. We're going to
take a break here on the Finished Exchange. When we
come back, a little bit of stack Roulette right after
this break.
Speaker 1 (31:10):
The Financial Exchange Show podcast drops every day on Apple, Spotify,
and iHeartRadio. Hit that subscribe button and leave us a
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(31:32):
and around the world, and keep up to date on
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Channel one thirty two. Face is the Financial Exchange Radio Network.
Speaker 5 (31:47):
The Financial Exchange is incredibly proud to be a partner
of the Disabled American Veterans Department of Massa Choose It's
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(32:29):
Trivia question in the previous segment was how many US
based companies are worth one trillion dollars? That would be
nine and Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta, Berkshire, Hathway, Broadcom,
and Tesla all worth one trillion dollars. Ben from Belmont,
New Hampshire is our winner today, taking home a Financial
Exchange Show T shirt. Congrats to Ben, and we play
(32:52):
trivia every day here in the Financial Exchange. See complete
contest rules at Financial Exchange Show dot Com.
Speaker 2 (32:59):
Time little Bit of Stock Roulette, Mark, I will let
you beat lead on.
Speaker 4 (33:03):
I'm gonna try to provoke you here.
Speaker 2 (33:04):
Okay from the AI Battle.
Speaker 3 (33:06):
From the Financial Times. AI will free households from chores
and boost hidden productivity, says open AI. You've seen the story.
Speaker 2 (33:15):
Seen the story.
Speaker 3 (33:16):
This doesn't this seem a little so the crux of
the argument, let me see if I can summarize it
in a couple of sentences, is this AI may not
show up in the data anytime soon, but you're gonna
have so much more free time. We got to find
a way to your well being is going to be
so much higher because of AI. We just we we
at open AI are going to find a way to
measure that GDP is not going to do it. Productivity
(33:38):
may not show up. I'm exaggerating a little bit here.
This study was done by Aaron chatter Gee. I think
I'm pronouncing his last name right. He's a Berkeley PhD.
So he knows how to do good research. But doesn't
this seem a little self serving and desperate?
Speaker 2 (33:53):
To you? Yes? It is, what's what's it?
Speaker 4 (33:57):
But you have a different feeling on it.
Speaker 2 (33:59):
So just on this one in particular, Well, the debate
you and I always get into, and I was thinking
about it as you had sent me a piece last
week when we had done the show basically stating what
you just allude to there is that in the data,
and I'm not disagreeing with it. We haven't seen any
significant economic data that points to that AI is leading
(34:20):
to a widespread transformation and productivity or earnings growth for
many companies out there that are trying to incorporate it.
And so heading into twenty twenty six, that is the
big focus, right is are we going to see instances?
And I could point to cherry picking two or three
of them to combat that argument, but you could come
back and meet and say, well, Paul, those are two
(34:41):
or three instances. The broader data set isn't pointing to that,
and so it becomes the argument of I'm taking from
the stance of as a long term equity investor, I
am optimistic about the technologies potential because believing in being
long US stocks or Internet stocks in general, we need
this technology to provide productivity gains.
Speaker 3 (35:03):
I mean, I'm a bullish long term as well on
the economy and of course on equities. But why do
we need this particularly to pay off? Maybe it'll be
something I'm not saying. I don't think it will, by
the way, right, it's probably a seventy percent chance that
it is widespread and transformative is its proponents. I'm not
sure that existing players will be the ones to benefit
from that, but I don't doubt that it'll be pervasive.
But why is it so existential?
Speaker 2 (35:25):
Not existential? But if that is what it's the it's
the dark horse to bet on, right. If you're hoping
for future gains for the market, is if this technology
can be truly transformative and help all sorts of companies,
you know, reduce increase efficiency, reduce costs, generate more profitability.
Speaker 3 (35:46):
So yeah, Or I guess a lot of investment that
goes nowhere that could have been used to I don't know,
cure cancer or.
Speaker 2 (35:52):
Power well hopefully this or invest in.
Speaker 3 (35:54):
More nuclear power plants, which thank god we're moving ahead with.
Or I worry a little bit about it averting too
much from other possible growth engines. Are you putting all
your eggs in one basket?
Speaker 2 (36:05):
Putting all your eggs in one basket is a reasonable
argument there's going to be a significant amount of investment.
But could it be the case It's always lazy to
use kind of the broadbend parallels of the late nineties,
but that does keep I keep coming back to that
example of overinvestment for sure, but then had companies benefits
significantly from the umber investment.
Speaker 3 (36:27):
But the productivity, the broader economic benefits petered out after
arguably well the productivity benefits ended in two thousand and four.
That's well documented. Now you could say economic growth would
have been even slower. This century, economic growth has been
about GDP per capita a little less, that is, per
head overall GDP growth about two percent, about two thirds
(36:50):
as fast as the prior century. I'm obviously not saying
it's because of that bubble. Maybe without those investments, growth
would have been even slower. We can't run that alternative
history type experiment.
Speaker 2 (37:03):
Yeah, I'm just going back to your piece of like, hey,
where would you divert the capital to? And you had
mentioned nuclear in some other areas.
Speaker 4 (37:10):
To seems to be being driven by that, But that's
catching me.
Speaker 2 (37:13):
I could make the argument that there was a piece
the other day that within healthcare there is a tremendous
amount of incorporation of our official intelligence and maybe from
a diagnostic standpoint, that helps people sort of figure out
more of the I thought Tucker was giving me the.
Speaker 4 (37:30):
My eyebrows.
Speaker 2 (37:33):
I have to brush my eyebrows. But there's been a
lot of I was like, what's okay, what's so controversial
about investing artificial because they're giant eyebrows.
Speaker 3 (37:46):
That's not nothing wrong with giant eyebrows.
Speaker 2 (37:50):
I guess we still so. I guess we're not so
different after all? Is the bottom lines you're still optimistic on?
Speaker 4 (37:57):
Oh yeah, I think it's going to be a future transfer, okay.
Speaker 3 (37:59):
I I think it's going to send economic potential GDP
from about two where it is today to three. I
mean maybe, but if it does.
Speaker 4 (38:08):
That, it's going to suck investment from other places. Don't forget.
Speaker 3 (38:10):
You can't just change one thing and not change others.
Speaker 2 (38:13):
That's all the time that Mark and I have for
this debate for this edition of the Financial Exchange, But
we'll be back at it tomorrow at ten am to
discuss more on the economy. Thanks so much for joining us.
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