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What are the biggest risks post Fed rate cut? · The Financial Exchange Show

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Veterans Development Corporation. This is the financial exchange with Chuck
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Zatda and Mike Armstrong.
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Speaker 2: Chuck, Mike and Tucker with you. The day after J.
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Powell strapped on the purple tie and said, Hey, all, y'all,
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people who borrow money in American dollars, I hereby lower
1:27
the Federal Funds rate half a percentage point to four
1:31
point seventy five to five percent, because we still can't
1:35
get back to just calling it five percent or four
1:39
point seventy five, because they instituted arranged several years ago
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and we're still maintaining it for reasons that no one knows,
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quote unquote, that's what I did, exactly what he said, sincerely,
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J Powell.
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Speaker 3: Yeah, yeah, your thoughts, Michael.
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Speaker 4: So let's start off with the actual action, which I
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think everybody's heard it this point. But they did cut
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by fifty basis points a half a percent cut on
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the Fed Funds rate. And as we talked about going
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into this meeting, it was a lot less certain than
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is usual the day before a meeting. Usually it's like
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ninety some odd percent priced in that they're gonna go
2:17
one direction another. This time it was like sixty forty
2:20
or sixty five, thirty five, they had the first descent
2:23
of a voting member on the Federal Reserve since I
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believe it was two thousand and five, nineteen years, nineteen years,
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first time that they had a voting memory of the FED,
2:35
just a.
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Speaker 3: Glimmer in his father's eye.
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Speaker 4: And it was again, this is a big move. You
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don't typically see a fifty basis point cut outside of
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times when they're very, very nervous about the economy. And
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so Jerome Powell spent a lot of time at the
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press conference in front of the podium trying to convince
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everybody that it wasn't because the economy was.
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Speaker 3: In free fall, and that they were worried about it.
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Speaker 4: And I mean, at least according to markets today, I
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think he succeeded to some extent.
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Speaker 3: I do think.
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Speaker 2: There are some pretty clear signs that it's not because
3:13
the Fed is panicked that.
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Speaker 3: The economy is imminently falling apart.
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Speaker 2: The first thing is that as part of this FED meeting,
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we received what is called the Summary of Economic Projections,
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or the SEP as it is referred to by those
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in the biz, the SEP, and in that the Fed
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details five different things, what they expect GDP to be,
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what they expect the unemployment rate to be, what they
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expect headline inflation to be, core inflation, and the federal
3:48
funds rate.
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Speaker 3: So they tell us basically, how fast is the.
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Speaker 2: Economy going to grow, how many people are gonna lose jobs,
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what are costs going to do, and how are we
3:56
gonna handle it. That's pretty much what they lay outright,
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do this for you know, the next several years, and
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then they give long run projections as well.
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Speaker 3: But part of.
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Speaker 2: This is, hey, they say, look, this is where we
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think these rates are gonna be at your end. And
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the projected Fed funds rate at the end of the
4:13
year is four point four percent, which if you do
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the math, you say, okay, they just cut to between
4:20
four seven, five and five, so four nine because again
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this stupid freaking range that they give now instead of
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just saying this is.
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Speaker 3: Where we're gonna put them, which, by.
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Speaker 2: The way, they instituted during periods where interest rates were
4:33
very low and markets were very stressed in order to
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give them wiggle rooms to where they would keep them.
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But that's not the case now, so you can just
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go back to saying, hey, we want to cut it
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to five or four and a half or whatever it is.
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Speaker 3: Don't give us a range. It's fine. I'm just heat
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it up about this.
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Speaker 4: It's he's not such a technicality.
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Speaker 3: I'm sorry. Like, you're the freaking Federal Reserve.
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Speaker 2: Tell us where you're gonna put the rates, you know, like,
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if you can't control it, then no one can.
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Speaker 3: Okay. You know that'd be.
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Speaker 2: Like the the electric company being like, well, your lights
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are gonna be, you know, getting powers somewhere between you know,
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X wattage and what No, like you suld.
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Speaker 3: Supply the power. Supply the power.
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Speaker 4: The cost per gallons gonna be between three sixty two
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and three eighty two, depending on how I'm feeling about it.
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When you pull up, you show up to the grocery store,
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how much does that meat costs? It's between three point
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fifty and three seventy five a pound.
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Speaker 3: Well, which is it? Come on? Anyways?
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Speaker 2: FED funds are right projected four to four right now,
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it's at four nine call it yeah, half percent by
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year end. Two more meetings, two twenty five basis point
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cuts priced into those meetings, so one a single cut
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at each meeting. Sure, if the FED really thought the
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wheels were falling off, they wouldn't price it that way.
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They would have said, no, we think this is gonna
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be going down to uh, you know, four point two
5:58
or something along those lines are four point one. And
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in fact, when you look at the dot plot, which
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tells you, hey, all of the voting and non voting members,
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where did they actually specify they were going to have
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rates at the end of this year? There was only
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one person who had rates being below four point four
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percent at the end of this year. So there was
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basically no one on the FED, either voting or non voting,
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who said, yeah, we're gonna have to be more aggressive
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at those next two meetings as well. So I think
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that tells you, hey, we don't it's Pal saying, look,
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I don't think we need to do more, which raises
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the question, not begs, but raises the question, So why'd
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you go fifty here?
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Speaker 4: And I've got I've got an attempt at an answer,
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but you go ahead.
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Speaker 3: No.
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Speaker 4: No, So he was asked specifically about this and asked
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to consider this was a question from Victoria with agreeda
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with Politico.
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Speaker 3: Get to the exact part of question, do.
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Speaker 4: You see today day's fifty basis point move as partially
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a response to the fact that you didn't cut in July,
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and that sort of gets you to the same place.
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And so here's the context of what she's talking about.
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The Federal Reserve met on July thirtieth and thirty first.
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Their press conference was on the thirty first. That was
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the last time.
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Speaker 3: They did it.
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Speaker 4: The following week, I'm gonna take a look at my
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calendar here, but the following week you had a jobs report,
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and that job's report was the one that freaked everybody out.
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If everybody remembers the two days off, yeah, if two
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days in August, that Job's report came out, let's say
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two days later on that Friday, August second, and indicated
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that an unemployment raised up to four point three percent,
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we had a PSALM rule trigger. And so what she
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was asking is, Hey, had you had that information at
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your meeting, do you think you would have cut by
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twenty five basis points? And his answer was, really, you know,
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as clear as the Fed does answer if you ask,
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you know, if we'd gotten the July report before the meeting.
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Speaker 3: Would we have cut, Well, we might well have.
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Speaker 4: And so in that context, I look at this fifty
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basis point cut, not as an emergency, but rather a
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response to data that they just didn't have at their
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last meeting. If it were truly emergency, by the way,
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they don't wait for the next meeting. No, there's plenty
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of instances where the FED says, this is an emergency,
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we're not meeting right now, but we called the special meeting,
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and rates are getting cut by a full percentage.
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Speaker 3: Right.
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Speaker 2: If you want the last time this happened, you don't
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have to go back very far. I can go back
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to March of twenty twenty. Yeah, might have even been February.
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I don't remember like the exact date that they decided,
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but they were like, nope, we're taking rates to zero.
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Speaker 3: Right, so bye.
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Speaker 4: So I think there's plenty of evidence to indicate this
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wasn't viewed as an emergency. It was not viewed as
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the sky is falling. And I think Powell actually did
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a fairly successful job of conveying that. Maybe he didn't
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get you also had at the same time market selling
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off while he was speaking, and so I have to
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kind of put those two together. But I think that
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was largely because it isn't emergency, and so don't expect
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us to do another fifty later this year.
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Speaker 2: Now getting back to the SEP, because this is again
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I said before this meeting that hey, what they do
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with that meeting isn't the important thing.
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Speaker 3: The important thing.
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Speaker 2: Is what they guide is going to happen, like that's
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the big juicy steak that you actually get to eat.
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And here's what's really interesting about the SEP is the
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SEP and not surprising in some respects because if the
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FED didn't believe that its policy would get the outcome
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they wanted, then they wouldn't conduct that policy. But the
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FED is pretty much saying, look, we're gonna cut interest
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rates a couple more times by the end of this year.
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We're planning to cut rates another one percent by the
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end of next year. And if we do that, we're
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gonna stem the tide of unemployment. We're gonna stop it
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at four point four percent. So it might go up
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a little bit more just because it's in transit, sure,
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but we're not gonna let it go up further than that.
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We are going to be able to do so without
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GDP going below two percent, and we are going to
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be able to do it with PCE of e inflation
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can continuing to decline to two point one in core
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PCEE continuing to decline to two point two. That, my friends,
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ladies and gentlemen, children of all ages, boys and girls,
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that is the soft landing.
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Speaker 3: Yeah, we've talked about this.
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Speaker 2: If they do it now, look our definition at the
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beginning of the year, we said, look, if you get
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to the end of the year and inflation is not
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back above four and a half and unemployment is not
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above four and a half, you can say you got
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the soft landing because things that happened in twenty twenty five,
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like they're not a result of this whole cycle. Like
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it's kind of a new cycle there. And I maintain
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that if we get through the next three months, unemployment
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hasn't gone to four and a half, quite honestly. And
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this is I'm not gonna say it's hard for me
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to do. I mean, look, you go where the data
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takes you. I thought Powell did a rather terrible job
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in twenty twenty two in particular. Yep, you probably tip
10:52
your cap and say, Jay, you've kind of landed this
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thing then, like you you did it. Man, it's a
10:58
good job. It's a job well done. So that's where
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we are if things go right. But let's take a
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quick break, and when we come back, let's talk about
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the odds of things going exactly as the Fed is
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projecting right here in the set. We'll do that when
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we return.
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Speaker 1: The latest news on inflation, the FED, the economy, and
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11:46
Speaker 5: Our economy is strong overall and has made significant progress
11:49
toward our goals. Over the past two years. The labor
11:52
market has cooled from its formerly overheated state. Inflation has
11:55
eased substantially, from a peak of seven percent to an
11:58
estimated two point two percent as of August. We're committed
12:02
to maintaining our economy's strength by supporting maximum employment and
12:06
returning inflation to our two percent goal. Today, the Federal
12:09
Open Market Committee decided to reduce the degree of policy
12:12
restraint by lowering our policy interest rate by a half
12:15
percentage point. This decision reflects our growing confidence that with
12:19
an appropriate recalibration of our policy stance, strength in the
12:23
labor market can be maintained in a context of moderate
12:26
growth and inflation moving sustainably down to two percent.
12:42
Speaker 3: So Jay is obviously taking his victory lap. Now.
12:48
Speaker 4: I wish everyone could see the smile on Tucker's face
12:50
right now.
12:52
Speaker 2: It's well done, well school, right, Oh yeah, fantastic. So
12:58
Jay is sitting there saying, guys, we've done this. Now
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the question is, hey, have you actually gotten across the
13:08
finish line?
13:09
Speaker 3: And we're gonna know pretty quickly, in my.
13:11
Speaker 2: Opinion, because we continue to get more and more economic
13:14
data this week. I don't even know what we've covered
13:18
from this week because honestly, everything's just been like fed fed, FED.
13:21
Speaker 3: Been a whirlwind.
13:23
Speaker 2: But retail sales on Tuesday came in better than expected,
13:27
so that boosted up the Atlanta Fed's prediction not prediction,
13:32
it's now cast of GDP to three percent for the quarter.
13:38
Yesterday we got building permits and housing starts, both of
13:41
which jumped significantly from the prior month. Building permits jumping
13:46
by about a five percent annualized rate, Housing starts jumping
13:50
by a in almost ten percent annualized rate. And today
13:56
this morning, we had weekly jobless claims that came in
14:00
eleven thousand below expectations. The Philly Fed Manufacturing Index came
14:04
out with better than expected survey results. The only place
14:08
where we missed by a little bit was existing home sales,
14:11
which missed by about one percent and continue to be
14:14
sluggish at the moment. But overall, the story behind the
14:20
economic data the last few weeks, aside from you know,
14:24
continued slowing in the labor market, is that data is
14:28
starting to firm up and suggest that a recession is
14:33
a little less likely now than it might have been
14:35
a few weeks ago. You're still not out of the woods.
14:37
There still is, you know, some distance that needs to
14:40
be covered, but the data is starting to improve somewhat.
14:44
So in terms of Jay's two risks to the soft landing,
14:49
unemployment rising or inflation rebounding, at least by your end,
14:55
there is no case at this point for inflation being
14:57
above four and a half percent. Yeah, we've talked about
15:01
the outside ones. It'd be really tough to see it
15:03
by your end. If inflation's four and a half percent
15:05
by year end, the entire Middle East is blown up,
15:08
like something has gone horribly, dreadfully wrong there, and oil
15:12
is at two hundred dollars a barrel.
15:14
Speaker 3: Like that is the only case.
15:16
Speaker 4: Which is really tough to see these days, given both
15:21
US production and the Biden administration's willingness to tap the spr.
15:27
Speaker 3: Correct.
15:28
Speaker 2: Well again, weird, weird things could happen in the Middle
15:32
East that override any short term yep levers that you
15:34
can pull. But like, that's the only way inflation comes
15:37
in over four and a half by year end.
15:40
Speaker 3: Unemployment, on the.
15:41
Speaker 2: Other hand, Hey, look, you're at four to two right now.
15:44
If you just take up a tenth of a percent,
15:46
you know, for the next three months, you're gonna be
15:49
at four and a half, which is not where you
15:51
want to be, because that's more than a one percent
15:53
rise from the previous low that we were at last year.
15:57
Speaker 3: And there's a question that was raised.
16:00
Speaker 2: Ian Powell's press conference yesterday by Gianna Smeelik from The
16:04
New York Times, and yeah, if you have the question,
16:07
and then his answer his answers like it's the shortest answer.
16:10
Speaker 3: J Powell's ever given.
16:12
Speaker 4: Yeah, so you and your colleagues and your economic projections
16:15
today see the unemployment rate climbing to four point four
16:18
percent and staying there. Obviously, historically the unemployment rate climbs
16:22
that much over a relatively short period of time. It
16:24
doesn't typically just stop, it continues increasing. She goes on
16:28
jerme Powell's answer here, which in my opinion was the
16:32
single question and response that he response to a question
16:37
that he gave that was pretty much an admission that
16:42
we don't know, we don't have an answer, and.
16:44
Speaker 2: It wasn't even an admission of that, like he just
16:47
he didn't answer the question.
16:49
Speaker 4: So his response so again the labor market is actually
16:53
in solid condition.
16:54
Speaker 2: Which, by the way, is the exact opposite of this. Really,
17:00
it was really like chafin my wheat.
17:01
Speaker 3: Yesterday when I was looking at the chief in your wheat,
17:04
what century are we in? Who cares?
17:08
Speaker 2: The first thing that Jay Powell says, he gets asked
17:10
a question by Steve Leisman from CNBC, which is a
17:12
good question, like hey, why'd you do this?
17:14
Speaker 3: Guy?
17:14
Speaker 6: Like four questions?
17:15
Speaker 3: But yeah, well this was the first.
17:17
Speaker 2: Yeah, yeou goes okay, that was a bunch of questions
17:24
his quote on it, and I don't have the exact thing.
17:26
He said, the payroll, the report numbers that we're getting
17:29
right now might be artificially high.
17:31
Speaker 3: After the QCW.
17:32
Speaker 2: That's these UH annual adjustment that they did a couple
17:35
of weeks ago or a couple months ago, whenever it was.
17:38
We also got the Beige Book and determined that this
17:40
is the right thing to do. So the first answer
17:42
that Powell gives yesterday markets week, hey, we think the
17:45
labor market is not as strong as it's being indicated, right,
17:48
And then he comes out and Mike, I want you
17:49
to read my parentheses that I put in my notes
17:53
here after he said the labor market is in solid condition.
17:57
Speaker 4: This completely contradicts what he said at the outset and
17:59
totally didn't answer the question about unemployment rising quickly once
18:03
it gets to this point, so like in.
18:05
Speaker 2: Real time, I was basically like, that's the equivalent of
18:07
me screaming at my computer.
18:09
Speaker 3: Yeah.
18:09
Speaker 4: The answer that he gave on this is, well, he
18:12
didn't answer the question, And quite honestly, I know why
18:15
he didn't answer the question because there is no answer
18:18
to that question. Know, if you look at history when
18:21
unemployment goes up by more than half a percent within
18:25
a twelve month period, which it did back in July,
18:28
one hundred percent of the time in modern history, it's
18:31
led to recession.
18:33
Speaker 2: The counter to this is there is absolutely nothing in
18:36
economics that is reliable one hundred percent of the time correct.
18:40
And if there's every business cycle that has broken economic
18:45
indicators more often than any other previous business cycle in history,
18:50
it's this one. There's like a a I could list
18:53
off just the top of my head, like a half
18:55
dozen things that worked in previous cycles, where if you
18:57
used him in this one, you were in a really
19:01
bad spot.
19:02
Speaker 3: So nobody knows is the answer to this in theory.
19:07
Speaker 2: Once unemployment starts rising like this, usually pretty bad things happen,
19:11
and unemployment doesn't stop rising until it gets to like.
19:13
Speaker 3: Five and a half or six percent.
19:15
Speaker 2: Yeah, and you also need like four hundred basis points,
19:18
like three to four percent of rate cuts in order
19:20
to stem the tide there. So we'll see where this
19:24
ends up going. But that's the immediate risk. Let's take
19:27
a quick break here. When we come back, we got
19:29
Wall Street watch, then we're talking more fed because again,
19:32
the all matters, the stakes have been delivered and boy
19:35
are they juicy.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
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TFE show. Breaking business news is always first right here
19:49
on the Financial Exchange Radio Network. Time now for Wall Street.
19:55
Watch a complete look at what's moving markets so far
19:58
today right here on the Financial Exchange Radio Network.
20:01
Speaker 6: Now looks like Wall Street's encouraged by the Fed's half
20:04
percentage point interest rate cut yesterday, With markets now in
20:08
rally mode at the moment, the Dow is up by
20:11
one and a quarter percent, or five hundred and eighteen points,
20:14
SMP five hundred is up by over one and three
20:17
quarters of a percent, or one hundred and three points,
20:20
and the Nasdaq surging by nearly three percent so far today,
20:24
up four hundred and ninety seven points. Russell two thousand
20:27
is up by one and two thirds of percent as well.
20:29
Ten year treasureeled is up by four basis points at
20:33
three points seven three percent, and crude oil up just
20:37
over one percent, trading at seventy one dollars in sixty
20:39
six cents a barrel. Several chip makers are seeing games
20:43
today in the tech rally, and video and ASML shares
20:46
are up by five percent, while Micron up by two
20:49
percent in arm holdings up by about three percent. Aside
20:53
from the fed Darden Restaurants reported second quarter results ahead
20:56
of the open, missing on both earnings and revenue expectation
21:00
as its sales weakened at Olive Garden and its fine
21:03
dining restaurants like the Capitol Grill. However, Darna Anoun's a
21:06
multi year partnership with Uber for on demand delivery later
21:10
this year, Darden shares jumping by seven percent speaking of
21:14
food delivery shares, and door Dash up by four and
21:16
a half percent after the company's stock was upgraded by
21:19
BTIG to buy from neutral, where the investment firms said
21:23
that growth still looks strong in the third quarter despite
21:26
concerns about a weakening consumer. Meanwhile, AT and T agreed
21:30
to remove eight miles of lead covered cables from Lake
21:33
Tahoe following a lengthy legal battle with an environmental group.
21:37
AT and T shares are down by one and a
21:39
half percent, and after today's closing bell, we'll see second
21:43
quarter results from FedEx and Lennar. I'm Tucker Silva.
21:47
Speaker 3: That's Wallstreet Watch, folks.
21:48
Speaker 4: I want to briefly talk to you about a live
21:51
broadcast that we're doing. Actually a series of live broadcasts
21:53
that we are doing in October. The first one's coming
21:57
up on October eighth at the MGMs spring Field. Second
22:00
one is going to be at the Margaritaville Hotel and
22:03
Resort on Hyannas. That one's October twenty fourth. Like I said,
22:06
we're gonna be doing a live broadcast of this show.
22:09
Followed by that will be doing a seminar from the
22:13
Armstrong Advisory Group all about the upcoming election, the impact
22:16
on the economy, markets, different policy that's being discussed from
22:20
either of the two candidates, and what it might all
22:22
mean for you the investor. First, so the MGM Hotel
22:27
in Springfield on Tuesday, October eighth, will be broadcasting from
22:30
the hotel, which is directly connected to the casino. There's
22:33
free parking in the MGM lot. You'll simply take the
22:36
elevator down to the casino floor, short walk to the
22:38
hotel from there, and then at the Margaritaville Hotel and
22:41
Resort in Hyannas. That one's October twenty fourth. Special guest
22:45
Ed Lambert will be joining us as well, the host
22:47
of the XTK Morning Show. So once again a live
22:51
broadcast of the Financial Exchange October eighth and twenty fourth.
22:55
For more information, you can go to Armstrong Advisory dot
22:58
com slash Events. You can learn all about the events
23:01
when we're having them. All the details are right there
23:04
and to register because there is limited availability here, so
23:08
you do need to register for these two events. Again
23:11
it's Armstrong Advisory dot com slash Events. We can also
23:14
help you sign up if you're having any issues. The
23:16
phone number for the Armstrong Advisor Groups eight hundred three
23:19
nine three four zero zero one. But again check it out.
23:22
Two events October eighth, October twenty fourth, Springfield and hyenas
23:26
Armstrong Advisory dot com slash Events.
23:29
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
23:32
registered investment advisor. Nothing in the ad or in any
23:34
Armstrong guide a specific financial, legal or tax advice. Consult
23:37
your own financial, tax into state planning advisors before making
23:40
any investment decisions. Armstrong make contact you to offer investment
23:43
advisory services.
23:45
Speaker 2: So in the last segment, we were talking about the
23:48
paths of the soft landing and we kind of covered
23:50
a look, it's it's pretty unlikely that you see inflation
23:53
become a problem in the next three months unemployment could
23:57
continue to rise, like if there is a recession, there's
23:59
you know, unemployment will rise past four and a half percent.
24:04
Speaker 4: But again, further on that, we get these weekly job
24:08
as claims numbers and it's not showing up yet. There
24:11
something that we've continued to be a little bit surprised by.
24:14
The filings for unemployment have not ticked up. Sope, that
24:18
continues to be a positive signal on the labor market.
24:22
Speaker 2: On the other side of things, the when we look
24:24
out past this year, because again, look, the end of
24:27
the year is three and a third months away now,
24:30
I mean, it's it's getting We're getting down to it.
24:32
We're almost in twenty twenty five. Chucks already, guys, Christmas
24:35
trees out for next year. Noah, I'm a year ahead
24:39
on my trees. That's how excited I am. But no,
24:43
you can't do your Christmas trees before Thanksgiving. You can't
24:46
get decorations out a holiday early.
24:50
Speaker 3: I'm right there with you.
24:51
Speaker 2: It's like no Halloween before Labor Day. That's just problematic.
24:55
Speaker 3: Yeah, not according to Home Depot. I'm aware.
25:00
Speaker 2: But when we look at twenty twenty five, I do
25:03
think there's an interesting thought exercise to be had in
25:05
terms of Okay, we looked at this year and the
25:08
risk is still Hey, the FED might not have done
25:11
enough and that could result in higher unemployment and a
25:15
slower economy. The other side of this is, hey, what
25:19
if the economy is stronger than it showed over the summer,
25:23
because that was the case last year. Remember last year
25:28
the summer, we ended up with about a ten percent
25:30
sell off heading into I think it was either September
25:32
or maybe even early October, and then the market popped
25:36
because the economic data got better and we had another
25:39
quarter of low inflation numbers before it bounced up a
25:42
little bit in Q one of next year of last year,
25:46
and overall the growth rebounded and growth has been good
25:50
in the first half of this year for which we
25:51
have data so far. So here's the question that I
25:55
think is worth exploring. What if we just went through
25:59
another little bit of a summer's growth slow down, and
26:02
what if the data that we're getting now is starting
26:04
to show a bounce similar to last summer, except this
26:07
time the bounce is being aided by lower rates that
26:10
are gonna result in more housing activity, more borrowing activity,
26:14
more buying of different things, and coupled with that, hey,
26:16
this happens globally because emerging market central banks are now
26:20
free to start cutting their interest rates. China might decide, Okay,
26:24
now the US isn't pushing against us as far as
26:26
monetary policy, we can you know, inject some stimulus and
26:29
not feel the same pain. What if we end up
26:33
with a situation where, hey, maybe inflation has bottomed it,
26:38
you know, two and a quarter, two and a half,
26:41
and again, there's nothing out there to suggests we're going
26:44
back to like nine. So like, let's let's keep this realistic.
26:46
And please, if you're someone who thinks that hyperinflation is
26:50
a thing in the United States, it's not. So let's
26:54
not take this out of context here. But but and
26:58
a half, what if there's a chance in flation goes
27:00
back into the three and a half to four range.
27:02
And now those long term treasuries that are at you know,
27:04
three six, three seven, they're off sides And you're saying, okay,
27:08
is this something that we need to worry about. Maybe
27:11
it's again, these are paths that are possibilities. None of
27:15
us know where the heck this is going to end up.
27:17
But both higher unemployment and higher inflation are still possible
27:22
in twenty twenty five, even if there's no immediate impulse
27:26
for higher inflation this year, and the jobs picture is,
27:30
you know, still problematic in the next few y.
27:32
Speaker 4: It's not our job to tell you what to worry about.
27:34
But in terms of the risks that are on my mind,
27:37
the one I'm most concerned of is higher unemployment, right.
27:41
Speaker 2: Exactly, which it's the one that the Fed's most concerned with.
27:44
Two they wouldn't have showing up in the data.
27:46
Speaker 4: They wouldn't have cut unless they were most concerned about that,
27:49
And I think that's the one that sticks in the
27:51
back of my mind when I go out to twenty
27:53
twenty five. That's still the concern that sticks in my mind,
27:56
because you've had this upward trend, and so does it
27:58
push higher. On the other hand, can I imagine an
28:02
economy where interest rates on thirty year mortgages start approaching
28:07
five percent and suddenly there's a whole bunch of optimism
28:10
about borrowing money to go buy that house, or finally
28:14
not feeling so rate locked and selling that house, and
28:16
that resulting in a whole bunch of economic activity which
28:20
may or may not lead to higher inflation. I don't
28:23
think it's a certainty that it does. I can see
28:25
a number of different scenarios. If we avoid that uptick
28:28
in unemployment, it could just be a really strong growth
28:32
scenario with inflation sticking around. It could also mean a
28:36
really strong growth scenario with i'll call it slightly uncomfortable inflation,
28:42
at which point the Fed can't cut quite as much
28:45
as they are currently projected.
28:47
Speaker 2: And there is the possibility that, hey, the Fed is
28:51
right on in what they think is going to happen,
28:52
and we get the soft landing and everything's great like that.
28:55
Speaker 3: That is a possibility too.
28:58
Speaker 2: Remember the beginning of this year, where, by the way,
29:02
before we do that, I got I gotta yell at
29:05
someone else. Do you remember the beginning of this month
29:09
when the S and P five hundred lost four percent
29:12
like the first four or five trading days, and we
29:14
had all those pieces written about well, this is the
29:17
suck that you get in September markets, and we said, hey,
29:21
let's pump the brakes. We're like ten percent through the month,
29:24
like you can't call it out.
29:26
Speaker 3: Okay, Well, we're new.
29:28
Speaker 2: All time highs on the S and P five hundred
29:29
today and there's still is time to go before the
29:33
end of the month. So maybe it all falls apart
29:34
in the next two weeks. Very possible. But this is
29:38
why trying to write pieces about seasonality in your current
29:42
month when you're three days into it is generally for
29:47
clicks and not for anything useful.
29:48
Speaker 6: I believe the headline you were referring to was on
29:51
September ninth. September is once again a tough month for stocks.
29:54
Speaker 3: That's the one Wall Street Journal, that's the one.
29:57
Speaker 2: And if we look at the and P five hundred
30:01
this month thus far, now, uh, the s and P
30:04
five hundred, and I have receipts because I keep them.
30:10
It opened the month at fifty six twenty three. It's
30:12
now at fifty seven to twelve. That is almost a
30:14
two percent rise over the course of the month thus far. Again,
30:19
if it pukes in the next two weeks, then we
30:21
can actually be like, hey, September was another bad month,
30:24
and I'm happy to say that then, But imagine if
30:27
you read those September stories, you know, oh gee, September's
30:31
another bad month. Ten days ago, sold out, you know
30:33
on the sixth when the market bottomed, and we're like, oh, ge,
30:38
like this is gonna be easy, and now the market
30:40
is rallied like six or seven percent from that bottom.
30:44
Speaker 3: That's why I don't like that piece.
30:48
Speaker 2: Right, going back further in time, beginning of the year,
30:52
what was everyone concerned.
30:53
Speaker 3: About after Q one mic inflation? It was high inflation.
30:58
We had, we had a few high inflation rates.
31:00
Speaker 2: And here we are six months later, and the story
31:02
has changed because unemployment has been rising and inflation has
31:05
been coming down, and we're in a different spot. It's
31:08
not hard to envision a world where six months from now,
31:10
in March of next year, hey, maybe unemployment has stopped
31:13
rising and inflation is bottomed, and now might be the
31:16
bigger concern. And I'm not saying it will or won't be,
31:20
but things can change in six months. And this is
31:22
why I don't like long term projections, because even within
31:26
this year, we've been through like three different economic mini cycles,
31:30
and not many cycles, but the sets of narratives regarding
31:35
the economy. Yeah, and to simply go and be like, oh,
31:40
here's where we're gonna be, you know next year for
31:42
certain Please, let's take a quick break here when we
31:47
come here's what I want to do when we come back. Yeah, Yeah,
31:50
We've spent a lot of time talking about, you know,
31:53
a lot of the technicals.
31:54
Speaker 3: Of all of this.
31:55
Speaker 4: Let's assume for a moment that a few of our
31:57
listeners don't follow the market all that closely. I want
32:01
to talk about practical stuff in terms of what yesterday's
32:05
meeting meant for all of us.
32:08
Speaker 3: Good. Great? What are that next?
32:11
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32:34
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33:08
Speaker 2: Mike, I know you wanted to kind of get into Hey,
33:11
for the average person, where's the rubber meet the road
33:13
on these rate cuts. So let's do that and kind
33:17
of get into it. So the first question that I
33:19
have seen asked quite a bit is Okay, does this
33:21
mean that mortgage rates are now half percent less?
33:24
Speaker 3: No, but there's good news there though.
33:27
Speaker 4: It's just had nothing to do with the FED over
33:29
the last something to do with the Yeah, it had something.
33:31
Speaker 3: To do with what the FED was indicating.
33:33
Speaker 4: But over the last let's call it eleven months, mortgage
33:37
rates have come down by almost a full two percentage points.
33:40
You were up over eight percent in October of last year,
33:44
and you are now, according to Origin News Daily on
33:47
the thirty year fixed at six point one five percent.
33:50
Speaker 2: But yesterday that's not looking at points or anything like that,
33:53
so you can easily get that rate into the fives.
33:55
Speaker 4: But yesterday, you know, technically long term rates like the
33:59
ten Treasury from which mortgage rates are derived.
34:03
Speaker 3: They went up, Yep, they went up on you know.
34:06
Speaker 4: Potential growth expectations and the economy doing pretty well.
34:10
Speaker 2: Now, let's say you have a mortgage that's out there already.
34:13
If it's a fixed rate mortgage, what the Fed did
34:15
yesterday doesn't impact your mortgage payment in any way, shape
34:18
or form, of course, doesn't change it.
34:20
Speaker 3: In the case.
34:21
Speaker 2: Of some variable rate mortgages, depending on the terms in
34:25
the contract. And again they're all different in terms of
34:27
the rate that they're indexed to. Some are index to
34:29
Fed Funds rates, some are index to SOFA, some are
34:32
index to the prime rate. There's a million different places
34:35
that you can go, but some of them will adjust
34:38
down if you're through that you know, fixed period and
34:41
into the readjustment period, and so you may see that
34:44
as soon as your next payment, depending on the terms
34:47
of the contract. Again, sometimes they do yearly, sometimes it's
34:50
month to month. You have to look at your specific
34:52
adjustable rate.
34:53
Speaker 4: Mortgage, home equity line of credit likewise should immediately adjust.
34:57
Speaker 2: Correct if you have credit card debt outstanding. Most of
35:00
those are tied to either the Fed Funds rate or
35:02
the prime rate. The prime rate typically moves in lockstep
35:05
with the Fed funds rate. It's hired typically, but it
35:08
usually moves down when the Fed funds rate does as well.
35:12
And so there's a pretty good chance that credit card
35:15
rates are going to adjust as soon as the next
35:17
monthly payment as well. Again, it's by a half percent.
35:20
Remember the average credit card interest rate is now north
35:22
of twenty two percent, so it's not like you're getting
35:24
some huge drop in the interest rate there, but if
35:27
you're carrying a balance on a credit card, it can
35:30
provide a little bit of modest relief in that respect.
35:33
To remember, yeah, is twenty five percent interest now and
35:36
down to twenty four and a half baby steps, baby
35:39
steps other things. Let's say you have a high yield
35:42
savings account or a money market account at a bank.
35:47
More likely than not, the interest rates on those might
35:50
have already been coming down in the last month or two,
35:53
but otherwise a lot of those accounts may be adjusted
35:56
downward by the institutions to better reflect where term rates
36:00
are today. So that's something that you might see on
36:03
that side of things. CD rates are not changed directly
36:08
by the Fed, but again, longer term rates one, two, three,
36:12
four years have been coming down over the course of
36:15
the summer, and as such, CD rates have already dropped
36:18
over the course of the summer. From you know, you
36:21
could get some you know, in the five percent range
36:23
for you know, a couple of years earlier in the summer,
36:27
you're down into the mid.
36:29
Speaker 3: To high threes. Now is that accurate, Mic, Yeah.
36:32
Speaker 4: If you are out on a couple of year CD,
36:35
you're in the high threes. I'm looking now at three
36:38
month CDs and treasuries, which more closest thing to fed funds,
36:41
and you're looking at four and three quarters.
36:43
Speaker 3: Yep.
36:44
Speaker 2: I will say, is as much you know, excitement as
36:46
a rate cut generates for borrowers, I will say, the
36:52
ability to easily go and find you know, products anywhere
36:56
from three months out to five years that were at
36:59
five to five and a quarter percent, I'm gonna miss
37:02
that a little bit. Looking pretty nice, I'm gonna miss
37:04
that a little bit.
37:04
Speaker 4: I got a question yesterday that was a tougher one
37:07
to answer, which is this was specifically from a one
37:10
who is listing her home and hadn't really gotten any bites,
37:13
But what's it mean for the real estate market when
37:16
the FED embarks on a cutting cycle, and I don't
37:20
know that I have an answer, depends on the cycle.
37:22
In two thousand and eight it was still very bad, Yeah,
37:25
because the real estate market was the source of the problems.
37:28
Right in other markets, it's not necessarily you know, in
37:31
other cutting cycles, that's not necessarily the case, because not
37:34
all cutting cycles are caused by overleverage in the housing market.
37:37
Speaker 3: And certainly this one is not this one.
37:40
Speaker 2: If you will get pretty much any metric out there,
37:42
delinquencies and foreclosers are still well below twenty nineteen levels.
37:49
The amount of equity in homes is at an all
37:51
time high right now. So this is not a housing
37:55
caused cutting cycle, and as such there is the potential
37:58
forced some additional activity.
37:59
Speaker 3: But I could see.
38:00
Speaker 4: Some excitement being built on the part of buyers after
38:03
the publicity that yesterday got.
38:05
Speaker 2: Yeah, I mean, and look, it might show up right
38:07
in time for the spring housing season. It has the
38:10
potential to be a very busy spring in housing, But
38:14
it depends on how the next six months go. If
38:16
you get a recession shown up in two months, probably
38:19
not gonna be the busiest housing season.
38:20
Speaker 3: In the spring.
38:21
Speaker 2: Quick break here our two coming up in a little
38:23
bit