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Should investors be hoping for a market slump? · The Financial Exchange Show

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Speaker 2: Morning, and welcome back to the Financial Exchange. It's day
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Speaker 2: two of the Trump administration, and much calmer news day
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Speaker 2: than it was yesterday. Maybe there was just nothing going
1:19
Speaker 2: on yesterday other than the inauguration and executive orders, but
1:22
Speaker 2: it seemed like it was coming it just a mile
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Speaker 2: a minute yesterday. A little bit more calm this morning.
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Speaker 2: Markets also quite calm this morning. You have the Dow
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Speaker 2: up about three hundred and sixty points, eight tenths percent,
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Speaker 2: SMP up twenty nine points or half a percent, NASDAK
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Speaker 2: up only thirty one points a little bit more than
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Speaker 2: one tenth of one percent, and a continued rally on
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Speaker 2: the small caps, with the Russell two thousand up about
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Speaker 2: one and a quarter.
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Speaker 3: We talked about this early.
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Speaker 2: But oil prices down nearly two percent, down one point
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Speaker 2: eight six percent after I'm guessing some influence from the
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Speaker 2: statements by the Trump income Trump administer the now Trump
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Speaker 2: administration on oil and bringing prices down. Yield on the
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Speaker 2: ten year treasury moving down as well, in a bit
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Speaker 2: of good news for markets, down to four point five
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Speaker 2: six six percent. That's after we reached a very recent
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Speaker 2: high just last week of more than about four point
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Speaker 2: eight percent on that ten year yield, So moving down
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Speaker 2: quite a bit over the last week or so. National
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Speaker 2: average for a gallon of gas now sitting at three
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Speaker 2: dollars and thirteen cents per gallon. Massachusetts and New Hampshire
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Speaker 2: coming in below that average. Maine, sorry, Rhode Island also
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Speaker 2: coming in below that average, Connecticut, Vermont, Maine, and New
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Speaker 2: York all coming in above that national average. Paul, anything
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Speaker 2: else catching your eyes in terms of markets this morning? Actually,
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Speaker 2: actually one other item that I will mention. The last look,
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Speaker 2: the S ANDP Energy Index was off and still is
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Speaker 2: off about six tents of percent today, while the overall
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Speaker 2: stock market up about half a percent. So again find
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Speaker 2: that interesting and light of the commentary from the Trump
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Speaker 2: administration yesterday on oil.
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Speaker 4: Yeah, US tenure treasury pull him back a bit. Was
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Speaker 4: as high as four point seven four point eight and
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Speaker 4: now sits around four point five to five. So this
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Speaker 4: other thing that I've been launching, perhaps just on some
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Speaker 4: of the policy direction or lack of action on the
3:26
Speaker 4: economic policy front.
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Speaker 2: Spencer Jacob, writing for the Wall Street Journal, says that
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Speaker 2: while he wouldn't welcome, sorry, Donald Trump wouldn't welcome a
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Speaker 2: slump most investors should welcome a slump in the stock market.
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Speaker 2: I have a tough time with that one, Paul, So
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Speaker 2: give me his argument as to why most Americans should
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Speaker 2: welcome a slump in the stock market.
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Speaker 3: The quick and.
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Speaker 4: Dirty on is the stock market is expensive. And this
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Speaker 4: piece has been written over two thousand times, probably over
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Speaker 4: the last six months, by all the major news outlets there.
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Speaker 4: The stock market is really expensive. However you look at it,
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Speaker 4: whatever valuation metric you like to examine, whether it's price
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Speaker 4: to earnings, which we talk about a lot on the show.
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Speaker 4: From evaluation perspective, stocks are eighty three more a three
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Speaker 4: percent more expensive than when Clinton took office, one hundred
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Speaker 4: and forty five percent more expensive than Obama first took office.
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Speaker 4: This is again looking back a decade and adjusting for inflation.
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Speaker 4: What multiple the market is trading at at its price
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Speaker 4: relative to what the company's underneath, it earn this idea
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Speaker 4: that investors should, you know, cheer for this type of thing.
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Speaker 4: He clearly doesn't work with enough clients like I do
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Speaker 4: that would not find this appealing in a way, shape
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Speaker 4: or form. In particular, he ends this piece by saying,
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Speaker 4: if a rough patch for US market is what it
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Speaker 4: takes for that imbalance to right itself. Then it would
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Speaker 4: be a small solace to retirees, much less to President Trump.
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Speaker 4: I can tell you quite certain that it would not
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Speaker 4: be a solace to retirees. If the market were to
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Speaker 4: significantly underperform this year or next year or the next
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Speaker 4: ten years, it would be a huge pain in the neck,
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Speaker 4: and we would hear about it.
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Speaker 2: Here is I think you know the takeaway from his
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Speaker 2: perspective and is correct, is that historically speaking, when equity
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Speaker 2: markets have gotten anywhere near as expensive as they are
5:25
Speaker 2: right now, they faced a really tough five to ten
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Speaker 2: years after that point. Now we've been in these price
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Speaker 2: levels for over a year now and then there hasn't
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Speaker 2: been a slump in stocks. But that I think would
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Speaker 2: be the takeaway is bad short term predictor, But over
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Speaker 2: a five to ten year time period, when you look
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Speaker 2: at other times where markets have been as pricey as
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Speaker 2: they are now, it has not spelled good news for stocks.
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Speaker 2: And so that's what you should care about. The problem.
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Speaker 2: As I think you've successfully pointed out here, Paul, is
5:53
Speaker 2: that still means that if you're going to have stocks
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Speaker 2: get cheaper, that they have to fall and therefore fulfilling
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Speaker 2: that prophecy of stocks having their worse than expected five
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Speaker 2: to ten year outcome. Now, are there some such as
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Speaker 2: a thirty year old in a really secure job that
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Speaker 2: is saving more than their spending who might hope for
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Speaker 2: a cheaper stock market. Yeah, and I think that that
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Speaker 2: would be reasonable. But the other piece that this article
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Speaker 2: seemingly just ignores is that it's fairly rare for us
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Speaker 2: to have a deep market slump like what this author
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Speaker 2: is calling for without a whole bunch of other problems
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Speaker 2: like unemployment going up, like companies laying off workers, like
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Speaker 2: geopolitical tension, because, for instance, we are such a global
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Speaker 2: economy that, historically speaking, at least when the US economy
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Speaker 2: and market has gone through turmoil, literal administrations have fallen
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Speaker 2: in other parts of the world because the turmoil attached
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Speaker 2: to currencies and things along those lines. And so I
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Speaker 2: will not debate with anyone. The stock market is among
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Speaker 2: the most expensive it's ever been in US history, And
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Speaker 2: if you're not aware of that, then make yourself aware
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Speaker 2: and do some reading on it, because, like I said,
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Speaker 2: has spelled pretty bad news for the intermediate term for
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Speaker 2: stocks when it's gotten as expensive as it has now,
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Speaker 2: and we've described it as kind of priced for perfection.
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Speaker 2: So if you don't get that perfection, then there could
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Speaker 2: be far to fall. All hypothetical here, but if you
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Speaker 2: have problems, whether it's the Trump administration's fault or not. Historically,
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Speaker 2: by the way, I don't think there's been much of
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Speaker 2: a tie between what a president does and how the
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Speaker 2: stock market returns. The stock market could have far to fall,
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Speaker 2: but cheering for it I blump it into the same
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Speaker 2: category as what we've seen with people seemingly cheering for
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Speaker 2: the economy to fall apart, and frankly, that's what usually
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Speaker 2: happens when you have again, like let's think about the
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Speaker 2: most recent twenty percent draw downs in stocks twenty twenty two.
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Speaker 2: Anybody grading the economy is having a really good time.
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Speaker 2: Back then, inflation was hitting nine percent, Americans dissatisfied with
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Speaker 2: their you know, financial lives. Like, no, that wasn't a
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Speaker 2: good thing for most people two thousand and eight, No, sorry,
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Speaker 2: twenty twenty stocks drew down by thirty five percent. At
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Speaker 2: one point, we're all locked in our homes and unable
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Speaker 2: to go to work or you know, function our daily lives.
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Speaker 2: Two thousand and eight two thousand and nine stock market
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Speaker 2: produced by fifty percent. Again, does anybody remember talking to
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Speaker 2: their neighbors about how great life was back then? Hey,
8:26
Speaker 2: so stocks are cheap, right, like nobody was pointing.
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Speaker 3: I mean, yes they were.
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Speaker 2: Yeah, some investors were gobbling them up, some investors had
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Speaker 2: shorted the market and were benefiting. But by and large,
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Speaker 2: it was a period of time that was defined by
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Speaker 2: a lot of misery, people losing their homes and not
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Speaker 2: you know, having a great time. So I don't disagree,
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Speaker 2: Like I would love policies that would make America cheap again,
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Speaker 2: if we could have cheaper housing, cheaper electricity, cheaper gas prices.
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Speaker 2: And I think there are plenty of things that Congress
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Speaker 2: and others could do to make that happen, largely on
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Speaker 2: the side of deregulating certain industries. But cheering for a
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Speaker 2: stock market slump again just seems like it might be
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Speaker 2: more damaging than it's worth.
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Speaker 4: I'd like to cheer for an earnings, real resurgence of simit.
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Speaker 3: To make you could make stocks cheap of that.
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Speaker 4: Way too, But that's easier said than done, it sure is.
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Speaker 3: Let's take a quick break here.
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Speaker 2: When we come back going to have a bit of
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Speaker 2: trivia for you, and then I will to talk about
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Speaker 2: food prices because they are on the rise again.
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Speaker 3: What are we seeing at the grocery store? Next? Here
9:27
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10:48
Speaker 2: If you've listened to this program before, you know we
10:50
Speaker 2: talk a fair bit about inflation, and the story today
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Speaker 2: is that food prices are back on the rise and
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Speaker 2: tough to point to any one thing that's contributing when
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Speaker 2: we look at inflation, or at least when the Federal
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Speaker 2: Reserve looks at inflation, they tend to strip out things
11:06
Speaker 2: like the price of food and energy, when at least
11:09
Speaker 2: when developing their own policy, they don't completely ignore it
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Speaker 2: because it obviously affects, I think more than many other
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Speaker 2: goods consumers, views on the economy, and views on inflation.
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Speaker 2: But in terms of being able to develop policy that
11:24
Speaker 2: will actually address food prices and energy prices, it's pretty
11:27
Speaker 2: tough for the Federal Reserve to come up with anything,
11:29
Speaker 2: and so they tend to tend to discount it. But
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Speaker 2: important to understand too that in the Consumer Price Index,
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Speaker 2: at least back in twenty twenty one, food and energy
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Speaker 2: combined we're making up more than a fifth of the
11:42
Speaker 2: total weighting of CPI and so you know, ignore it
11:46
Speaker 2: at your peril, I think is the lesson here. But
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Speaker 2: as we talked about, you're seeing the cost of groceries
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Speaker 2: increasing one point eight percent from a year earlier. Back
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Speaker 2: in December, the cost of food overall was you know,
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Speaker 2: three ten percent higher in December after increasing four tens
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Speaker 2: percent higher in November. And obviously if you were to
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Speaker 2: continue at those paces, you'd have some pretty expensive groceries
12:07
Speaker 2: twelve months from now after you know what, I think
12:11
Speaker 2: already has been a very uncomfortable period for grocery prices.
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Speaker 2: What seems to be contributing factors here? Paul, once again,
12:18
Speaker 2: just to rub this little dirt in the wound, is
12:21
Speaker 2: it price gouging? Are we seeing groceries, grocery store owners
12:24
Speaker 2: really gouging on prices? And you know, is it all
12:27
Speaker 2: effect to the wildfires out there and just people, you know,
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Speaker 2: bumping up prices of water.
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Speaker 3: I have my doubts on that side.
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Speaker 4: Well, wildfire is not those specifically two degrees, but more
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Speaker 4: the broader sense of just climate issues that a lot
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Speaker 4: of these producers have dealt with. You know, specifically, you
12:43
Speaker 4: look at something like the world's coffee growing regions, which
12:47
Speaker 4: have dealt with extreme heat and dry weather over the
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Speaker 4: course of the last couple brewing seasons, which has cost
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Speaker 4: sent the cost of coffee higher. And then most specifically,
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Speaker 4: the one that likely all of us are feeling is
13:00
Speaker 4: the outbreak of avian flu and the bird flu amongst
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Speaker 4: a lot of you know egg producing you know regions
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Speaker 4: and companies out there, where we've seen the cost of
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Speaker 4: eggs rise thirty seven percent from a year ago in
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Speaker 4: the month of December, it now is four dollars and
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Speaker 4: fifteen cents for a dozen large eggs. And interestingly enough,
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Speaker 4: on a small antitype. Note, my wife was at Trader Joe's.
13:24
Speaker 4: I've covered my experience there on another show where I was.
13:28
Speaker 3: Just I was just lost, just lost into a Trader Joe's.
13:31
Speaker 3: His eyes just I'm glad.
13:34
Speaker 4: I'm glad she didn't send me on this particular mission
13:36
Speaker 4: to get eggs because they didn't have them when she
13:39
Speaker 4: she went there recently. She's just like, they're like, we
13:41
Speaker 4: don't have eggs, and it was specific to the issues
13:45
Speaker 4: that they're dealing with with bird flu, and this is
13:47
Speaker 4: why are spread where some are looking at the costs
13:49
Speaker 4: of them, you know, trying to get their hands on
13:51
Speaker 4: them right now. It's really challenging. And that's why you
13:53
Speaker 4: have Kalmaine Foods, one of the biggest ed producers out there.
13:56
Speaker 4: Their stocks doubled over the course of the last year
13:58
Speaker 4: or so.
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Speaker 3: H Yeah, public service announcement.
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Speaker 2: If you ever are walking through a Trader Joe's and
14:03
Speaker 2: see a middle aged man with a button up shirt
14:05
Speaker 2: and brown hair just curled on the floor crying, please
14:08
Speaker 2: help them.
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Speaker 3: It's not gonna be a button up shirt.
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Speaker 4: It's gonna be sweatpants on the weekend.
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Speaker 2: He's lost. He needs your help and please assist him.
14:16
Speaker 2: But it is a real challenge for any administration, and
14:20
Speaker 2: you know, an incoming Trump administration here or already in
14:23
Speaker 2: Trump administration, a new Trump administration. I'm just gonna it's
14:27
Speaker 2: like I write twenty twenty four still on all my papers.
14:29
Speaker 2: I'm gonna misdescribe it every single time. If you could
14:35
Speaker 2: impose some policies to decrease grocery prices, I can't even
14:40
Speaker 2: fathom what they would be.
14:41
Speaker 4: You can absolutely not touch this. There's no you can't
14:44
Speaker 4: have an impact it. You can't control South American coffee production.
14:48
Speaker 4: You cannot control bird flu outbreak. You know, there's just
14:51
Speaker 4: no means of doing that.
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Speaker 2: I suppose there's some things you can do to make
14:54
Speaker 2: groceries more expensive, oh to bring them down. I just
14:57
Speaker 2: can't stream up the tariffs on Canada and Mexico. Yeah,
15:00
Speaker 2: so you know Mexico tariffs. I don't know what food
15:03
Speaker 2: products we import from Canada than maple syrup, so I
15:05
Speaker 2: don't know that that's going to be a big one.
15:07
Speaker 2: But from Mexico, right, Like we see advertisements on our
15:11
Speaker 2: TV about Mexican avocado's from Mexico, Like that would be
15:15
Speaker 2: one area where you could drive those prices higher.
15:17
Speaker 3: And I'll be interested to see.
15:19
Speaker 2: Ay, how does this type of data and Americans very
15:24
Speaker 2: clear attitude towards higher grocery prices. There's only one item
15:28
Speaker 2: that I think has been more dissatisfactory to Americans when
15:32
Speaker 2: the prices go up, and that's gasoline prices. But in
15:34
Speaker 2: terms of grocery prices, we all feel it, right when
15:37
Speaker 2: we fill up that basket of groceries and it's one
15:40
Speaker 2: hundred dollars more expensive than it was five years ago.
15:43
Speaker 2: That's realistic because grocery prices in December were roughly twenty
15:47
Speaker 2: eight percent higher than they were five years ago, and
15:50
Speaker 2: if we see that tick back in the wrong direction again,
15:53
Speaker 2: it could be again a real challenge for Trump administration
15:57
Speaker 2: because I don't really think of any single policy that
15:59
Speaker 2: would actually bring prices down. Was a relatively strong holiday
16:05
Speaker 2: shopping season, Paul, and I wonder if it actually means
16:08
Speaker 2: anything for the upcoming year. In terms of what we saw,
16:12
Speaker 2: we seem to have, well, one, everybody had a job,
16:16
Speaker 2: and so they were willing to spend pretty good at
16:18
Speaker 2: a pretty good clip on items. You saw some purchases
16:22
Speaker 2: being brought to the forefront I think because of inflation
16:25
Speaker 2: and tariff concerns. So car sales, for example, were one
16:29
Speaker 2: data point where we saw in uptick in sales. On
16:32
Speaker 2: the other side of the political aisle, where they don't
16:34
Speaker 2: see a lot of inflation, there seems to just be
16:36
Speaker 2: a lot of confidence about the economy and the labor market,
16:39
Speaker 2: and so a willingness to spend there as well, and hypothetically,
16:43
Speaker 2: all else equal, that could actually lead to a pretty robust,
16:47
Speaker 2: you know, full year of shopping, depending on you know
16:51
Speaker 2: what those expectations continue as right, if you are continuing
16:54
Speaker 2: to see this divergence, for example, that we talked about
16:56
Speaker 2: in the first hour of the show, where Democrats are
16:59
Speaker 2: expecting more than four or percent inflation and Republicans are
17:01
Speaker 2: expecting none. You might have Democrats saying, well, prices are
17:06
Speaker 2: going to go up down the road, I want to
17:07
Speaker 2: buy that thing now. You could have Republicans saying, the
17:10
Speaker 2: economy's perfect, so I'm going to buy this thing now.
17:13
Speaker 4: It's certainly a good sign to see the holiday spending
17:15
Speaker 4: that we saw. In terms of forecasting what it looks
17:18
Speaker 4: like for twenty five, you're not going to get a
17:20
Speaker 4: lot of analysts that are going to point to that
17:22
Speaker 4: as really going to be a contributing factor because it's
17:26
Speaker 4: just so hard to project. We still have so much
17:28
Speaker 4: uncertainty on what policies will look like and what just
17:31
Speaker 4: the economic conditions will be. But in terms of the
17:34
Speaker 4: overall US health and the reason that we've been so
17:37
Speaker 4: resilient compared to our peers, whether you talk about Germany
17:41
Speaker 4: or China or other areas of the global economy, is
17:44
Speaker 4: all because of us. The US can spenders consumer spending.
17:48
Speaker 4: We have continued to get out there and spend, and
17:51
Speaker 4: that's what you need to continue to have in order
17:53
Speaker 4: to keep this economy on good footing. Many economists have
17:57
Speaker 4: projecting recessions for the last several years, and you haven't
18:00
Speaker 4: had those because of the way the US consumer has
18:02
Speaker 4: got out there in the right front.
18:03
Speaker 2: It has been really the saving grace of this economy
18:05
Speaker 2: is the the UH. I guess you could say health
18:09
Speaker 2: of the US consumer. If you didn't want to describe
18:11
Speaker 2: it as health, you could just describe it as the
18:13
Speaker 2: American consumer's willingness to throw everything and anything on those
18:17
Speaker 2: credit cards and just continue to rack up those bills
18:20
Speaker 2: regardless of what they see their financial future as. And
18:24
Speaker 2: I'm sure we'll cover that more in twenty twenty five,
18:26
Speaker 2: but the most recent interview I had with bank rate
18:31
Speaker 2: Ted Ted Rossman joined us and found that, yeah, there
18:35
Speaker 2: was an uptick and Americans carrying balances on those cards
18:38
Speaker 2: after they had benefited from stimulus over the last few years.
18:41
Speaker 2: And I think it was once again something like half
18:45
Speaker 2: of credit card holders carrying a balance from month to
18:49
Speaker 2: month at some point in twenty twenty four, which is
18:54
Speaker 2: great for the economy and terrible for the household carrying
18:58
Speaker 2: that credit card balance from a month to month basis.
19:01
Speaker 2: We've talked about just how damaging that is to your
19:04
Speaker 2: financial future and those effects of compound interest certainly work
19:08
Speaker 2: in both directions. Market's still in positive territory. Nazdak just
19:13
Speaker 2: barely hanging onto a gain here up twenty one points.
19:15
Speaker 2: The SMP is still up about half a percent in
19:17
Speaker 2: the Dow Jones Industrial Average, closing in on up one
19:21
Speaker 2: percent at the moment. Yield on the tenyure treasury down
19:24
Speaker 2: to four point five six eight percent.
19:26
Speaker 3: We're going to take a quick break. We'll have the trivia.
19:29
Speaker 2: Winner when we return, and then four tips for the
19:32
Speaker 2: new year when it comes to making you a millionaire
19:35
Speaker 2: by twenty fifty.
19:35
Speaker 3: We'll be back with that.
19:42
Speaker 1: Bringing the latest financial news straight to your radio every day.
19:47
Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
19:53
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19:55
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20:00
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20:03
Speaker 3: Network, all right.
20:10
Speaker 5: Trivia question today was aside from Domingo, name one of
20:13
Speaker 5: the two others from the three tenors, that'll be Pavaratti
20:17
Speaker 5: and Correas. Lorraine from Westfield, mass is our winner today
20:21
Speaker 5: taking on a Financial Exchange show. T shirt, Ngrats Lorraine,
20:25
Speaker 5: and we play trivia every day here on the Financial Exchange.
20:28
Speaker 5: See complete contest rules at Financial Exchange show dot com.
20:32
Speaker 2: Motley Fool has a piece out today for twenty twenty five.
20:36
Speaker 2: They've got four retirement moves that could make you a
20:40
Speaker 2: millionaire by twenty fifty. I kind of want to grade
20:42
Speaker 2: these poll and see which ones are missing in your
20:44
Speaker 2: mind here, but let me run through there four and
20:48
Speaker 2: then we can discuss them. One would be claim your
20:51
Speaker 2: full four to one K match if you're eligible for one.
20:53
Speaker 2: Two would be choose low cost investments. Three contribute ten
20:57
Speaker 2: to fifteen percent of your income. I'm assuming that's towards retirement,
21:03
Speaker 2: and then for take advantage of catchup contributions if you're
21:06
Speaker 2: able to so.
21:08
Speaker 3: I don't know.
21:09
Speaker 2: I guess that's as useful as any other piece of
21:12
Speaker 2: information that's out there. I think that a ten to
21:15
Speaker 2: fifteen percent contribution rate to your savings is a good
21:18
Speaker 2: target to have to achieve retirement. I'm not sure it's
21:22
Speaker 2: a great goal to have if you want to become
21:24
Speaker 2: a millionaire, because, frankly, if you're earning forty thousand dollars
21:27
Speaker 2: a year and contributing five to ten percent.
21:30
Speaker 3: Per year to your retirement.
21:31
Speaker 2: You might never get there, but I guess as good
21:35
Speaker 2: as any other in terms of goals here. But to me,
21:40
Speaker 2: problems like this article is they presuppose a whole bunch
21:42
Speaker 2: of information about their readers, Like it kind of presupposes
21:46
Speaker 2: that you're already past the debt payoff stage and able
21:50
Speaker 2: to put money into retirement and quite frankly claiming your
21:55
Speaker 2: full four oh one K match if you're eligible for one,
21:57
Speaker 2: or contributing fifteen percent of your income, for example, to
22:00
Speaker 2: retirement at the same time that you have thirty thousand
22:03
Speaker 2: dollars worth of credit card debt out there. I think
22:06
Speaker 2: most you know, informed people would agree pretty bad strategy, sure,
22:11
Speaker 2: And so when I look at things like this, like
22:15
Speaker 2: choosing low cost investments, I think that's another great one,
22:18
Speaker 2: where by and large that is oftentimes really good advice.
22:23
Speaker 2: But if you are blindly going through your investment lineup
22:26
Speaker 2: and saying, oh, these are the lowest cost ones, let's
22:28
Speaker 2: not worry about, for instance, where that thing invests what
22:32
Speaker 2: types of investments they buy, and just choose based on
22:35
Speaker 2: the cheapest available investment option, probably not the only strategy
22:41
Speaker 2: that you should be paying attention to right, If the
22:44
Speaker 2: cheapest investment option out there, the lowest cost investment option
22:47
Speaker 2: out there, results in you having an investment portfolio that
22:51
Speaker 2: is completely misaligned with your long term goals, then that
22:54
Speaker 2: doesn't really.
22:56
Speaker 3: I think check all the boxes for me.
22:58
Speaker 2: And so the message for folks out there is, well,
23:02
Speaker 2: you know, these are four goals that I think are
23:05
Speaker 2: you know, reasonable to have, and specifically if you're uninformed
23:09
Speaker 2: of things like your employer match, how it works, whether
23:13
Speaker 2: or not they do a true up at the end
23:15
Speaker 2: of the year.
23:15
Speaker 3: For example, we've talked about that, you.
23:17
Speaker 2: Know, targeting ten to fifteen percent of your income going
23:21
Speaker 2: towards retirement savings.
23:22
Speaker 3: That's a great goal.
23:23
Speaker 2: But presupposing that you're able to do all of this,
23:28
Speaker 2: you know, makes a bunch of assumptions about where people
23:30
Speaker 2: are in the savings stage of their lives, and I
23:33
Speaker 2: hope that many are. But if you are finding yourself
23:35
Speaker 2: in this position where you maybe you're playing catchup, right,
23:38
Speaker 2: like you're trying to get to that stage where you know,
23:41
Speaker 2: I'm fifty one years old, I've just finished putting my
23:43
Speaker 2: kids through college, and I have no idea if I've
23:46
Speaker 2: saved even remotely enough to afford the lifestyle that I
23:49
Speaker 2: have once I'm done work, or hey, I'm trying to
23:51
Speaker 2: decide do I pay down my mortgage or do I
23:54
Speaker 2: save more in my retirement vehicle? Or you know, am
23:58
Speaker 2: I better off putting money into traditional versus wroth Right?
24:02
Speaker 2: These are complex questions that are also really important. I
24:08
Speaker 2: can't emphasize that enough. Is if you just pour all
24:12
Speaker 2: of your money into your four oh one K, but
24:14
Speaker 2: then run up debt elsewhere in order to afford to
24:17
Speaker 2: do so, that can be a really dangerous strategy to employ.
24:20
Speaker 2: If you have questions like the ones I was just
24:22
Speaker 2: talking about, maybe you have entered a new stage of
24:25
Speaker 2: life and you are more focused in twenty twenty five
24:28
Speaker 2: on getting to that retirement goal. The folks at Armstrong
24:31
Speaker 2: Advisory Group would love to chat with you and work
24:33
Speaker 2: with you to identify those goals and set those savings
24:37
Speaker 2: targets that are individualized in particular to you and your
24:42
Speaker 2: specific situation, because quite frankly, no one's four to one
24:45
Speaker 2: K matching policy is the same, nobody's budget looks exactly
24:49
Speaker 2: the same, and nobody's plans of how long they want
24:50
Speaker 2: to work and where they want to retire looks exactly
24:53
Speaker 2: the same. If we can help you guide through that process,
24:56
Speaker 2: please call the Armstrong Advisory Group today at eight.
24:58
Speaker 3: Hundred three four zero zero one.
25:02
Speaker 2: We offer free in depth consultations across New England via
25:07
Speaker 2: zoom over the phone, whatever your preference is. But that
25:10
Speaker 2: number again for the Armstrong Advisory Group, it's eight hundred
25:13
Speaker 2: three nine three four zero zero one.
25:16
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
25:19
Speaker 1: registered investment advisor. Nothing in the ad or in any
25:21
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
25:24
Speaker 1: your own financial tax into state planning advisors before making
25:27
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
25:30
Speaker 1: advisory services.
25:32
Speaker 2: Paul, do you want to talk about insurance or do
25:35
Speaker 2: you want to get technical in the investment custodian world
25:38
Speaker 2: for a moment.
25:39
Speaker 4: Here, let's talk about the insurance market, because I.
25:41
Speaker 3: Think this is a little bit more front center today. Yeah.
25:44
Speaker 2: So, whether you like it or not, the world is
25:48
Speaker 2: very obviously from a insurable risk perspective, getting riskier. There's
25:54
Speaker 2: a number of reasons for that. A lot of it
25:55
Speaker 2: has to do with just the way that we've treated
25:57
Speaker 2: insurance over the years, and how we have subsidized some things.
26:02
Speaker 2: I'll give an example. I personally live in a one
26:06
Speaker 2: hundred year flood zone. That means that there is I
26:09
Speaker 2: think a one percent probability that my property will flood
26:13
Speaker 2: over the next.
26:15
Speaker 3: One hundred years.
26:15
Speaker 2: Once out of the next one hundred years, that policy
26:19
Speaker 2: that I have for my flood insurance is subsidized by
26:21
Speaker 2: the US government. All of you listening are subsidizing Mike's
26:28
Speaker 2: flood insurance policy because insurance companies basically said, this is
26:31
Speaker 2: too risky for us to understand. We're not going to
26:33
Speaker 2: underwrite it without the US government stepping in and providing
26:35
Speaker 2: a backstop.
26:37
Speaker 3: State governments have done the same state insurers.
26:41
Speaker 2: Insurers have pulled out of areas in California like Altadina,
26:44
Speaker 2: which burned to the ground recently, and the state insurer
26:47
Speaker 2: of last resort has had to step in here and
26:49
Speaker 2: provide insurance policies to those areas.
26:52
Speaker 3: And what we are seemingly.
26:54
Speaker 2: Learning from California and have learned over the years from
26:57
Speaker 2: Florida as well, is that these are really really tricky
27:02
Speaker 2: issues that Americans generally don't seem prepared to pay for
27:08
Speaker 2: when it comes to these increased risks of all sorts
27:10
Speaker 2: of insurance risks. And I'm not just talking about property insurance,
27:13
Speaker 2: right We see this in medicare, we see this in
27:15
Speaker 2: social security, we see this in a number of government
27:18
Speaker 2: technical insurance programs that are having a very difficult time
27:23
Speaker 2: with funding right now.
27:24
Speaker 4: Yeah, it was interesting. I was having this conversation with
27:26
Speaker 4: a client last week where they were asking what the
27:29
Speaker 4: wildfire's impact could have from an economic standpoint, and to me,
27:32
Speaker 4: the quickest thing to point to was the home insurance market.
27:35
Speaker 4: That it's just the home owners insurance market is going
27:37
Speaker 4: to continue to become more and more challenging to operate into.
27:42
Speaker 4: But you're right, there's many different industries out there that
27:46
Speaker 4: utilize the government as a bit of a backstop, whether
27:49
Speaker 4: we like it or not. The FDIC insurance case which
27:51
Speaker 4: came up in March of twenty twenty two with the
27:54
Speaker 4: run on the bank for Silicon Valley Bank as well
27:57
Speaker 4: as First Republic, many people probably got familiar with the
28:01
Speaker 4: idea that you have two hundred and fifty thousand that's
28:04
Speaker 4: backstop through FDICEE insurance on deposits five hundred thousand for
28:07
Speaker 4: a joint couple. The federal reserve had to step in
28:11
Speaker 4: in these instances where balances exceeded those amount to provide coverage,
28:14
Speaker 4: to provide the saws for financial institutions out there and
28:19
Speaker 4: for those depositors. So there's many areas, and Homerge insurance
28:22
Speaker 4: is another one where there's that backstop in place that
28:25
Speaker 4: gets complicated as to who foots the bill from it,
28:28
Speaker 4: and ultimately it's US as a country, and oh, by
28:33
Speaker 4: the way, a country that's already significantly indebted as it is.
28:37
Speaker 2: The California example is just going to be a fascinating one,
28:40
Speaker 2: because again, fascinating is.
28:43
Speaker 3: Probably the wrong word here.
28:44
Speaker 2: It's devastating and it's going to have a devastating economic
28:47
Speaker 2: impacts as well. JP Morgan is now estimating that the
28:50
Speaker 2: fires around LA have inflicted some fifty billion dollars in losses,
28:55
Speaker 2: of which only twenty billion are insured. Now, I was
28:58
Speaker 2: trying to figure out if that thirty billion dollar gap
29:00
Speaker 2: is included in the fact that the Fair Plan, which
29:04
Speaker 2: is California's state runback stop, only has two point five
29:09
Speaker 2: billion dollars in reinsurance and two hundred million dollars in cash,
29:12
Speaker 2: and by all estimates, has incurred more than six plus
29:15
Speaker 2: billion dollars in losses. So I'm not sure if this
29:18
Speaker 2: is reinsurance insurance coverage comes with genuinely no insurance coverage.
29:23
Speaker 3: I'm not entirely sure.
29:24
Speaker 2: But in the case of that fair plan, which was
29:27
Speaker 2: that insure of last resort and is that insure of
29:29
Speaker 2: last resort in California, I hesitate to describe it as uninsured. Right,
29:34
Speaker 2: they have less reinsurance and less cash on hand than
29:38
Speaker 2: is what is going to be required to rebuild. But
29:40
Speaker 2: they also have a state law in California that says,
29:43
Speaker 2: if we go belly up, then we assess every other
29:47
Speaker 2: insurer in the.
29:47
Speaker 3: State for the losses.
29:49
Speaker 2: Yeah, and that and by the way, those insurers that
29:53
Speaker 2: are then allowed to pass along a whole bunch of
29:56
Speaker 2: that cost to the rest of their California customers via
29:59
Speaker 2: special assessment. And so what I'm curious about is how
30:04
Speaker 2: the rest of California reacts to this, because you know,
30:08
Speaker 2: with this, assuming this happens, and these other insurance holders
30:13
Speaker 2: who are probably in a lower risk area, right like
30:18
Speaker 2: I don't you know, I know that there's a large
30:20
Speaker 2: swath of California that's a high risk for wildfires, but
30:22
Speaker 2: clearly the concentration of a lot of these state run
30:26
Speaker 2: insurance policies were because public insurers didn't want to and
30:30
Speaker 2: could not price that risk. And so, if you are
30:33
Speaker 2: in a low risk, low fire risk part of the
30:36
Speaker 2: state and you're being asked by your insurer, told by
30:39
Speaker 2: your insure that you are paying a seven thousand dollars
30:42
Speaker 2: assessment on your insurance policy to cover somebody in Altadena's
30:45
Speaker 2: house burning down, You're not gonna have riots in the street.
30:49
Speaker 2: But it's gonna be a real come to home moment
30:52
Speaker 2: for the California insurance market to figure out, Hey, how
30:55
Speaker 2: do we properly address these areas of our state that
30:59
Speaker 2: are so high risk? And do we finally allow these
31:03
Speaker 2: insurers to price the policies appropriately so that the rest
31:06
Speaker 2: of California isn't picking up the tab.
31:07
Speaker 4: And if you're a private inture similar to what we've
31:09
Speaker 4: talked about with Florida on the hurricane side of things,
31:12
Speaker 4: why even stay in the market, right you know, if
31:14
Speaker 4: you do ensure homes in California, why bother if you're
31:18
Speaker 4: going to have to be the messenger behind delivering that
31:22
Speaker 4: private assessment to some of your right now, some of
31:24
Speaker 4: it you already have coverage, so you can't just abandon that.
31:27
Speaker 3: But just for future the answer is going to need
31:30
Speaker 3: to be economic.
31:31
Speaker 2: The answer is going to need to be that those
31:33
Speaker 2: the state finally allows you to price these policies in
31:36
Speaker 2: a way that is profitable. And in many cases that's
31:38
Speaker 2: going to mean, you know, prices going through the absolute roof,
31:41
Speaker 2: and in many others it's going to mean we're not
31:43
Speaker 2: issuing insurance in this part of the state. And they
31:46
Speaker 2: if they continue to just pick up more stuff on
31:49
Speaker 2: the Fair Plan, then yes, State Farms and others are
31:51
Speaker 2: going to say, you know, not only are we not
31:53
Speaker 2: issuing new stuff, we are abandoning these policies, not because
31:57
Speaker 2: of the fire risk of our policyholders, but because of
31:59
Speaker 2: the rules of the fair Plan and how we're still
32:01
Speaker 2: held liable for stuff that we don't even ensure.
32:03
Speaker 4: And how do you as a home buyer in that area,
32:06
Speaker 4: you know, how do you acquire homes in the area
32:07
Speaker 4: if you're the prospective buyer and you have that unmitigated
32:11
Speaker 4: risk out there of your insurance premiums because not everyone
32:14
Speaker 4: can just walk in and pay one hundred percent down
32:16
Speaker 4: and ride with that home er.
32:17
Speaker 2: I think this is one of the least paid attention
32:19
Speaker 2: to areas of the home owner's market right now. And
32:22
Speaker 2: if you think that it's just a California problem, I
32:26
Speaker 2: think you're missing the boat here.
32:27
Speaker 4: But we felt in the Northeast to the first time
32:30
Speaker 4: in my life with the pricing with well the price
32:33
Speaker 4: increases in the wildfires, So you know, this is an area.
32:36
Speaker 2: This is an area that I think will be a
32:37
Speaker 2: continued focus for years and something that we will deal
32:41
Speaker 2: with across the country even if we're not dealing with
32:44
Speaker 2: the natural disasters. Quick break a little bit stack Roulette.
32:47
Speaker 3: Next on the Financial Exchange.
32:49
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34:06
Speaker 3: Time for bitter stack Roulette. What do you have for
34:08
Speaker 3: us here? Paul?
34:09
Speaker 4: I want to talk a little bit about Netflix, Mike.
34:11
Speaker 4: They are coming off a year where they were up
34:14
Speaker 4: a whopping eighty three percent. Their stock price was in
34:18
Speaker 4: twenty twenty four. The stock now trades at thirty six
34:22
Speaker 4: times it's estimated earnings, so just a very pricey stock,
34:26
Speaker 4: but a stock that has proved quite resilient in an
34:30
Speaker 4: era where a lot of streaming companies have struggled tremendously.
34:34
Speaker 4: Netflix has stood alone as the one beacon of success
34:38
Speaker 4: and hope in the area that they are able to
34:41
Speaker 4: continue to drive profitability or interest in investing in their
34:45
Speaker 4: company because of the way that now more recently, they've
34:49
Speaker 4: pivoted in two different key directions. One is live events.
34:52
Speaker 4: You know, you saw that with the November boxing mass
34:55
Speaker 4: between Mike Tayson and Jake Paul, which drew about sixty
34:58
Speaker 4: five million streams its peak, and it also had two
35:02
Speaker 4: NFL Christmas games that attracted about twenty four million viewers each.
35:06
Speaker 4: That's one part of it. The other part is the
35:09
Speaker 4: advertising story. For many years, Netflix wasn't in the advertising game,
35:13
Speaker 4: but now they have since cracked down on password sharing
35:16
Speaker 4: and also offered lower pricing out to consumers who are
35:20
Speaker 4: willing to consume ads. They now have said that they
35:23
Speaker 4: have combined for seventy million viewers that watch shows with
35:27
Speaker 4: advertising every month, twice as many as it did from
35:30
Speaker 4: May of this past year.
35:32
Speaker 2: Yeah, it reminds me a lot of the Amazon story,
35:36
Speaker 2: and not because of their prime video streaming option. Like,
35:39
Speaker 2: that's that's, you know, a competitor of Netflix. But that's
35:42
Speaker 2: not what I'm talking about. I mean Amazon built themselves
35:45
Speaker 2: on kind of a unprofitable loss leader when it came
35:49
Speaker 2: to web sales and became a dominant market for us
35:52
Speaker 2: with a lot of dedicated customers paying I think, what
35:56
Speaker 2: was I don't know, Tucker, what was when you first
35:59
Speaker 2: signed it for Prime? Do you remember what the annual
36:01
Speaker 2: cost was? I feel like it was like sixty or
36:03
Speaker 2: seventy bucks, And now I think it's up to one.
36:05
Speaker 5: Hundred and forty like the overall Prime product or Prime
36:10
Speaker 5: year Prime membership fee. Oh, I think it's always been
36:12
Speaker 5: ninety nine?
36:13
Speaker 3: Was it always? Now it's like one twenty. Now it's
36:15
Speaker 3: a fair bit more, I think.
36:17
Speaker 2: And you know, they've been successful not because they've just
36:21
Speaker 2: been able to expand dramatically, which they have, but they've
36:24
Speaker 2: also expanded to different business units.
36:25
Speaker 3: Right, they did not have a cloud computing area.
36:27
Speaker 1: I'm sorry.
36:28
Speaker 5: So when Prime launched in Fibered two thousand and five,
36:31
Speaker 5: it was seventy nine dollars a year, Okay, then it
36:33
Speaker 5: went to ninety nine one nineteen. Now it's one thirty nine.
36:36
Speaker 4: Yeah.
36:36
Speaker 2: So Netflix seems to be kind of getting that same
36:42
Speaker 2: model going. They were unprofitable for a number of years
36:45
Speaker 2: in the streaming space, but they now occupy that space
36:48
Speaker 2: of seemingly a platform that has a lot of pricing power.
36:51
Speaker 2: They did not have a lot of cancelations of membership
36:53
Speaker 2: f they've driven those prices up.
36:55
Speaker 3: They've gotten into new business models.
36:58
Speaker 2: Not quite as dramatically as Amazon did, going from retail
37:01
Speaker 2: all the way to cloud computing. But they started as
37:04
Speaker 2: purely a subscription based streamer, a technically DVD rental company,
37:08
Speaker 2: and then into streaming to now they have a massive
37:11
Speaker 2: advertising business and live sports divisions, and so they are
37:16
Speaker 2: doing something similar there. But I do get concerned about
37:19
Speaker 2: the competition.
37:20
Speaker 4: That and you have to have the margins to justify it.
37:22
Speaker 4: I mean, the whole saving grace with Amazon is the
37:24
Speaker 4: AWS platform, the cloud services, one that can operate at
37:27
Speaker 4: high margins, the advertising platform on Netflix. I guess you
37:31
Speaker 4: can make the argument they have a lot of users,
37:33
Speaker 4: they can really spread that cost out, but you need
37:36
Speaker 4: the margin capability. That's how we can get you know,
37:38
Speaker 4: shampoo delivered to your house within two hours. Is because
37:42
Speaker 4: AWS and its profit margins substantiates that cost that they
37:46
Speaker 4: take on by sending Paul, you know, two balls a
37:48
Speaker 4: shampoo on a whim's notice.
37:50
Speaker 3: Not to mention one hundred and forty bucks a year.
37:52
Speaker 3: Yeh four.
37:52
Speaker 4: That free float to work off of two is huge.
37:55
Speaker 3: Sure, Sure is.
37:56
Speaker 2: Markets remain open and in positive territory and moving up
37:59
Speaker 2: as we close out the show today. The Nasdaq is
38:01
Speaker 2: up a quarter of a percent, SMP up six ten percent,
38:04
Speaker 2: now up almost a full percentage point as we close
38:07
Speaker 2: in on the twelve o'clock hour here. We'll be right
38:10
Speaker 2: back at it tomorrow, folks with a full new financial exchange.
38:14
Speaker 3: Have a great rest of your day. We'll talk to
38:15
Speaker 3: you then.