00:00Meredith Whitney Advisory Group, one of the most respected voices on the consumer on Wall Street.
00:05Meredith, what's your take, while Mike looks through these confidence numbers on, you know,
00:10the bifurcated consumer, the K-shaped economy, if you will?
00:13We still have a strong 20, 30, 40 percent at the top, right?
00:17But the 60 percent at the bottom are struggling, especially when gas gets to 420.
00:21There's no doubt that people are struggling.
00:24But to Mike's point about labor, one thing I hear in D.C. is that while the administration isn't talking
00:33about making anything more affordable, right?
00:35They've lost that narrative over the last month or nine weeks.
00:40They're pumping every allocated dollar out of the system into the economy.
00:46So employment probably may stay OK through the election.
00:50And that's so the like there's two plus billion dollars in FEMA money that was pre-allocated that's going to
00:57the states.
00:58And that's pretty preparatory funds like that.
01:01That's that may.
01:02And that and other things may keep the employment picture looking OK.
01:05But underneath it all and also looking at the economic data, spending looks good.
01:11But spending is driven two thirds by the high end consumer.
01:15And when the banks report and say the consumer's fine, they're lending to the high end consumer.
01:22And very little credit is actually being extended to the lower end.
01:26By the way, how do you break those up?
01:28Is it 40, 60 or 20, 80 or how does it look?
01:31I do 40, 60.
01:32Some people do 10, 90.
01:33I do 40, 60 because I look at 60 percent of the households.
01:36And this is from the BLS numbers of people who can only basically are spending everything they have.
01:42So they're living paycheck to paycheck.
01:44And if you go underneath that, what you see is, again, since the credit crisis, banks have pulled up away
01:51from subprime.
01:52But more recently, companies like Capital One, which used to be the largest subprime and Discovery, they merged, which used
01:58to be the largest subprime lender, have pulled back dramatically.
02:01So the only subprime credit you see in the system is auto.
02:05And that looks really bad.
02:06But but credit in general looks OK.
02:09And you go one step below that.
02:12And one thing that disturbed me last week was a pawn shop.
02:15The pawn shops have done incredibly well this year.
02:18A pawn shop first cash that reported last week said that, yes, tax refunds are higher than they've been in
02:23a long time.
02:25But that their customers aren't using the money to pay down their pawn loans.
02:29They're just using the money to make ends meet.
02:32That's not a good thing for that bottom 60 percent.
02:35That's got to be a big concern.
02:36How do those how do those comments show up in the survey that you're going through?
02:42Well, it's interesting because at the moment, the current conditions for the labor market are little changed, according to people
02:49who answered these surveys.
02:52But the six months from now, which would put it about Election Day, as Meredith was saying, employment, more jobs.
02:59People think there will be more jobs, 16 percent from 15-4.
03:04And also people think there will be fewer jobs.
03:07It is the unchanged part that is up.
03:11And so people think that the labor market will get a little bit better.
03:15And the same is true with incomes.
03:17They think incomes are going to be about the same, which may get to your point about the government putting
03:22out whatever money it can to try to improve people's views.
03:26More people are going to buy cars.
03:28More people are going to buy homes, they say, and fewer people are going to buy major appliances.
03:33So there's your sales part over the next six months.
03:37I mean, to be honest, the labor market, if it just stays where it is, it's pretty strong, right?
03:42I mean, at least unemployment is relatively low compared to what else I've seen in my lifetime.
03:47No doubt.
03:48No doubt.
03:48It's strong.
03:49And if people want a job, they can largely get one, save for college graduates, which is very, very hard.
03:55I was at an AI event on Friday, and the AI companies talk about, on the one hand, they're firing
04:03a bunch of their own employees, but they talk about this huge, great growth prospect for jobs in the U
04:08.S.
04:09That's how those jobs manifest, because they're skilled jobs, and there's a period where it takes a while.
04:16You know, there's an apprentice period to become an electrician.
04:19There's an apprentice period to become a plumber.
04:21It's not as easy to create those kinds of jobs as people say.
04:26And construction is a big challenge because of labor, and the immigration outlook has not, or situation has not helped
04:33that at all.
04:35When you look at, Mike McKee, oil at $100 or gas at $4 and I think $0.17 is where
04:44we were at the national average yesterday.
04:47Is that as high as you expected it would go with the two-month closure of the Strait of Hormuz?
04:51I mean, it just doesn't seem like things are quite as bad as we would have thought before.
04:56And maybe that's why we're not seeing markets collapse.
05:00I mean, Paul Dobson had a great piece saying, like, you know, so far, AI is allowing us to keep
05:05up with this concern around oil.
05:07Okay, well, I'm not an oil analyst, so I didn't really have an expectation other than that oil prices would
05:13go up and gasoline prices would go up.
05:15I think what has surprised people is that they are not rising in the futures market as much as they
05:22are in the spot market.
05:24And the spot market is what really matters in this case.
05:27In terms of AI, the AI spending to build out is helping.
05:32AI itself hasn't done a lot for the economy yet.
05:35So it's really this six months and beyond what's coming that the conference board tries to capture.
05:42Because the other thing that's coming, and Bloomberg's written about this a lot, is prices are going to rise and
05:47shortages are going to start showing up from this, especially the longer this goes.
05:53There was, I think, a Bloomberg headline the other day that said, you know, a tsunami is on the horizon.
05:59It's hitting Asia right now.
06:00It will be here soon, and people are going to have to rethink their expectations for what's happening with the
06:08economy unless we can solve something very quickly.
06:10Well, that was exactly Paul Dobson's point.
06:13On the MLive blog at like 5.30 this morning out of Singapore, he wrote a great piece saying, like,
06:18this is much worse than the markets are, than U.S. equity markets are reflecting, right?
06:23Or, I mean, Korea now just surpassed the U.K. as the eighth largest equity market in the world.
06:28So even in Asia, people are betting big on AI and memory chips, and meanwhile, they're rationing fuel.
06:35Is that going to catch up to us at some point, Meredith?
06:37Because although we have a lot of energy here, it's a global market, oil.
06:41Well, we also import plenty of oil as well.
06:46So, you know, one more thing to add in terms of consumers, the government was going to, the Treasury was
06:53going to start garnishing wages for all the student debt that was in arrears.
06:58And they stopped that, and they're going to pick that up after the election.
07:02So I think there are a number of things that make the current economy look okay, and then post-midterm,
07:09it could be a very different situation.
07:11So in terms of how everything cuts through, I mean, you've already seen food inflation come through the U.S.
07:19markets.
07:19It's not as bad as it will be.
07:20I just came back from China, I think because China has built up so many reserves, and they have such
07:26a high EV content of their cars,
07:28you don't really feel the inflation there.
07:31But certainly for the emerging markets in Asia, you definitely do.
07:35They've cut down work weeks and definitely suppressed travel.
07:40Your take on whether or not Powell leaves, you're inside the Beltway, and you have your finger on the pulse
07:45there.
07:46And what do you expect from the Fed?
07:48What can the Fed do to help consumers?
07:50I don't think, I think Kathy's right, I don't think the Fed can do much to help consumers,
07:53because the issue is that the credit card debt that they have is not so significant that raising rates or
08:02lowering rates is going to make a difference.
08:04And so it's tough.
08:05I think stimulus is the only thing that could help them.
08:07Similar to COVID, stimulus made a massive difference in their lives.
08:11And then when COVID stopped, stimulus stopped, it was after a year, after they went through all the money, then
08:18it was a dramatic decline.
08:20But my personal view is that Powell leaves.
08:25And here's why, because it's not one vote that matters, right?
08:28There are Fed presidents that, 12 Fed presidents that vote as well.
08:32And to suggest that they're not independent when he's been working with them for how many years would be an
08:39admission that he wasn't,
08:41like his Fed wasn't independent.
08:43And the fact is, I think that all of the Fed presidents and so many of the Fed governors are
08:48really well respected.
08:50And he's leaving the Fed in good hands.
08:53He should be proud of himself.
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