Moneybeat: Jobs and GDP

MARY REICHARD, HOST: Next up on The World and Everything in It, the Monday Moneybeat.

NICK EICHER, HOST: It's time now for our weekly conversation on business markets and the economy with financial analyst and advisor David Bahnsen. David is head of the wealth management firm, the Bahnsen group, and he joins us now. David. Good morning.

DAVID BAHNSEN, GUEST: Good morning. Nick. Good to be with you.

EICHER: Well, a couple of quick data points. David, the BLS—Bureau of Labor Statistics—reported found 260,000 plus new jobs added, which was well above expectations. So pretty good report, wasn't it?

BAHNSEN: Yeah, I thought it was a very good number. It was primarily focused in leisure and hospitality. So the sector that was most unfairly punished during COVID has continued to see a lot of job recovery, which I love seeing. I'm heavily invested personally and with clients in the hotel space, and there's no question demand is very high. And therefore you need a lot of workers. And that's a good thing, though the area where you were seeing some job loss was more on the retail side. But overall net numbers were strong. The household survey, again, was much lower, but the Bureau of Labor Statistics was quite strong above expectations. Again, the one piece I continue to bring up is that labor participation force not getting better. The percentage of people looking for work, I still wish were higher.

EICHER: Right. Right. And then the government's gross domestic product for third quarter GDP revised up in the estimate released last week, almost 3% growth, how do you read it?

BAHNSEN: Well, just that, I mean, I don't really do this a lot. But I do think it really vindicates the position I had back during Q1 and Q2, and in fact, wrote a piece for world about the definition of recession. And I just think you had a couple of real kind of idiosyncratic statistical things that polled the GDP number negative for two quarters in a row. And those same things around inventories and around import export volume, lead to Q3 being much higher, and it was projected to be 2.6% annualized. And now they've revised that up to 2.9%. So I think that we're still kind of in a ambiguous state for the US economy.

EICHER: Hey, I did want to hit the congressional action last week on the possible rail strike, averting the rail strike by by imposing a deal on the holdout unions, you got to be happy to avoid the hit to the economy, we probably would have felt if those rails had shut down?

BAHNSEN: Well, that's the answer is I'm happy that a rail strike is not going to happen. There's a whole lot of things packed into this story that I probably am not happy with. But you're right, it's a very good thing to not have the rail strike happen.

EICHER: Right, and so not happy, I'm guessing with a government imposed deal and what you think ought to be sorted out directly between labor and management instead of the third party getting involved—the government coming in and dictating terms.

BAHNSEN: It's a tricky dynamic, Nick, it's complicated, because the Congress got the power, the unions gave it to them. And so the legislatively they have the authority, I don't happen to think they should. And I'm uncomfortable in general, if there's supposedly a dispute between management and workers, I do as an advocate of a market economy prefer that management and workers figure that out. And the idea that the government is in a position to override an agreement and even influence an agreement to this degree, you're right, I'm uncomfortable with it. So it's an odd situation, because in one hand, I think President Biden did the right thing by signing this into law, despite the fact that four of the 12 unions wanted more sick days. I think that the workers were getting a 23% pay increase and better health benefits, I think, Sure sounds to me like a deal that the workers ought to have taken. But again, I'm not in the deal. And President Biden is not in the deal. And so I am a little uncomfortable with generally speaking, I really like parties to a transaction negotiating a transaction.

EICHER: All right, David. Well, let's get to questions. First up, we have listener Rob Bailey of Austin, Texas.

BAILEY: Right now, home mortgage rates are around 7%. Now, in a recent Moneybeat segment, I heard David say that interest rates would actually be under 4%, if they were set by the market, and not by an activist fed. But I've also heard a few pretty famous economists say they think mortgage rates could even go up to 10% or in the low teens for the upcoming years, maybe even a decade. But as we're starting to see the Feds signal that they see interest rates are achieving their goals, are mortgage rates that high really a reasonable expectation. So, where do you see interest rates and home mortgage rates in the next two to five years?

BAHNSE: So let me first clarify that when we're being asked what the interest rate would be, and I gave my answer that I don't think rates can be imposed there to be discovered and market forces, but I was referring to what the rate would be, we call it a reference interest rate, it's the’ risk free rate’ or mortgage as risk to the lender, right? The borrower might not pay it back. The risk free rate is a reference rate from which other rates will be set. So right right now, for example, you have a three and a half percent 10 year Treasury, and you have credit card rates that are 18%. Why are they different? Because there's a large risk for the credit card issuer, and there's a big profit margin in that spread.

Well mortgages are similar, the rate I'm referring to is the risk free rate, a 10 year treasury, that's going to be one rate that is a reference and then you have a mortgage rate from which banks are going to compete with one another to get lending business for home borrowers. And so I don't know who's predicting 10% plus mortgages, they're dead wrong, it is not going to happen. I haven't read any credible analysis suggesting that. But I would suggest that wherever the 10 year goes, or the five year Treasury goes, that you can expect to see mortgage rates approximately 3% higher than that, some could be 2%, higher, some could be, you know, 4% higher, but somewhere in the range of 3% above what the five and 10 year Treasury will be. That's basically a combination of the reference rate, and then the spread or profit margin to the lender. And I do believe as the reference rate goes lower, that mortgage rates will go lower, but they will stay higher than they were at the preposterously low level of two, two and a half percent that they were back during COVID.

EICHER: Okay, David, here is Seth Simmons of Kansas City.

SIMMONS: Hi, David. I have a Bitcoin question. And for the record, I distinguish between Bitcoin and the rest of the quote unquote, crypto world, with its rampant speculation and fraud. I'm deeply interested in the underlying philosophy of hard money, particularly one which cannot be manipulated or controlled by nation states. Do you believe that Bitcoin has the potential to become a stable long term store of value? Is it possible it could replace the dollar as the global reserve currency? Or perhaps even the SWIFT network? And if so, would that be a net good? Thanks.

BAHNSEN: The first thing I want to say is I don't disagree that you could argue Bitcoin has some differences versus the rest of the crypto network, primarily in the fact that it was there first. But he brought up stability, and this is a kind of really obvious way to answer. If Bitcoin was somehow immune from instability in the crypto space, then why is Bitcoin gone down with everything else at the same degree? So Bitcoin itself has been subject to rampant speculation up and it's been subject to rampant depreciation down down right now about 70 75% from highs. And it's done this up and down several times.

The other piece, he said is really fascinating. Do you believe that it can become a substitute currency that is not subject to manipulation and control by a nation state? And not only what I point out that for all of the manipulation and all of the control nation states have over fiat currency, that hasn't kept Bitcoin from being more volatile and more unstable, the dollar can be subject to really reckless policies from central banks, but Bitcoin seems to be susceptible to tweets. So I don't accept the argument that it is has an inherently greater stability function.

But let's just say we did. Well, how does the cryptocurrency world, Bitcoin being on a ledger, immunize it from nation state control? I'll give you one example. What if they passed a law outlawing Bitcoin? Now, they're not going to do that. They don't need to do that. But is there going to be more regulation? There sure is, is there going to be more controls, they're going to be more reporting? Now they can say you can't do it, we can hold it in cold storage, and it's on the ledger, there's nothing they can do. But if they criminalize it, how many people are going to use it and that further regulation, so I just simply believe it'll end up being something that some people do use hopefully, at some point, it'll be people who aren't criminals and hackers. And it will be a medium of exchange, but never come remotely close to being a broadly accepted medium of exchange for its embedded instability, and the fact that there are other, whether people like it or not, there are other crypto alternatives. So the idea that it has exclusivity on the blockchain is totally untrue. And therefore, that destroys the supply argument. So the government can squash this like a bug if it wants to, it hasn't yet because it hasn't needed to.

EICHER: Well, thank you to Rob Bailey and Seth Simmons for good questions this week. Maybe you have something on your mind, something you heard here that prompts a question or something you read or heard somewhere else. calls, and you'd like to have David's response to it. If so, send your question to feedback@worldandeverything.com. If you email your question, I'm more than happy to ask it of David, but I'd much prefer to hear your questions in your voice. Just as you heard Rob and Seth today, takes just an extra minute. If you open your Voice Memo app on your phone, ask your question. Then you can attach the file to an email and send it again to feedback@worldandeverything.com.

David Bahnsen is founder managing partner and chief investment officer of the Bahnsen Group. His personal website is bahnsen.com. David, thank you, and we'll see you next time.

BAHNSEN: Thanks so much, Nick.

WORLD Radio transcripts are created on a rush deadline. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of WORLD Radio programming is the audio record.