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Americans still don't have enough emergency savings · The Financial Exchange Show

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Speaker 1: a donation Today. Face is the Financial Exchange with Mike
1:06
Speaker 1: Armstrong and Mark Vandetti.
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Speaker 2: Well, the news has been rolling in the last couple
1:14
Speaker 2: of days and frankly this whole week.
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Speaker 3: I mean, we started this week off all eyes.
1:19
Speaker 2: Focused on the Israel Iran conflict in the US strikes
1:22
Speaker 2: on Iran over the weekend, and barely even a mention
1:26
Speaker 2: of it today given everything that's been going on. It's Mike,
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Speaker 2: Mark and Tucker with you on a Friday morning here
1:31
Speaker 2: where we've got China trade deals to discuss, inflation readings
1:35
Speaker 2: that are out, the final reading on consumer sentiment from
1:38
Speaker 2: the University of Michigan, and a stock market reaching new
1:42
Speaker 2: all time highs this Friday. So I'll take it all.
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Speaker 2: Let's starting off with the China trade deal that was
1:49
Speaker 2: announced and confirmed by both Chinese state media as well
1:53
Speaker 2: as Howard Lutnik here domestically that a deal has been inked.
1:57
Speaker 2: Unclear precisely what that means other than very likely more
2:03
Speaker 2: precious metals, rare earth materials coming into the precious metals,
2:07
Speaker 2: no rare earth materials coming into the United States, and
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Speaker 2: the form of magnets that many manufacturers need. To me
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Speaker 2: and to Mark as well, it does not look significantly
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Speaker 2: different than the state of play prior to the announcement
2:19
Speaker 2: of all these tariffs. But we shall see just what
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Speaker 2: else is part of this deal and how it develops,
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Speaker 2: of course too, because I don't think the House is
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Speaker 2: going to start waving the tariffs until we actually get
2:28
Speaker 2: the magnets, So anyway has investors excited.
2:32
Speaker 3: We will see.
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Speaker 2: On the inflation side of things, we received a PCE
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Speaker 2: Price Index, the Personal Consumption Expenditures Index report on both
2:40
Speaker 2: spending as well as expenses in the month of May,
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Speaker 2: largely found to be in line with expectations on the
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Speaker 2: inflation side, and still getting continuing reports from different sources
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Speaker 2: that any of the tariff effect on consumer prices has
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Speaker 2: yet to show up. There is that a fair summary
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Speaker 2: when it comes to tariffs and inflation thus far absolutely
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Speaker 2: separately on the income side of things, and these.
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Speaker 4: Well unless inflation would have been lower but for the tariffs.
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Speaker 4: But companies are telling us they're not passing prices along,
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Speaker 4: price increases along, yet they're eating it, which by the way,
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Speaker 4: would be bad for earnings. Ye, you can't get off
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Speaker 4: scott free here. Either companies eat it, which is bad
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Speaker 4: for earnings on the stocks, or consumers eat it, which
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Speaker 4: is bad for inflation and standard of living.
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Speaker 3: Yeah, I'll just add a caveat that.
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Speaker 2: It depends which company eats it, because there's also been
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Speaker 2: the reports of, hey, we want the supplier over in
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Speaker 2: China to eat some of it, and there's been allegedly
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Speaker 2: some success in negotiating some of that.
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Speaker 4: Yeah, it could be I'm sorry companies globally. It could
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Speaker 4: get profits profits globally, right, right.
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Speaker 2: But the only other caveat to this report, you know,
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Speaker 2: the Federal Reserve as they are facing mounting pressure, facing
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Speaker 2: some disagreement within the Board of Governors of the Federal Reserve.
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Speaker 2: Maybe that's real disagreement. Maybe it's just posturing to be
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Speaker 2: the next pick of the be the chair of the
4:00
Speaker 2: Federal Reserve. We will see, but there's further disagreement in
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Speaker 2: terms of where the path of interest rates should be
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Speaker 2: from here. As a reminder, the Fed cut interest rates
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Speaker 2: four times a full percentage point last year starting in September.
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Speaker 2: They took a pause at the end of the year
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Speaker 2: and said we're gonna wait to see what the effects
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Speaker 2: were of these cuts. By and large, I'm trying to summarize,
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Speaker 2: you know, days upon days of press conferences and announcements
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Speaker 2: within a quick sentence. In the light of the tariffs
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Speaker 2: that have been ticking up, the FED has said we're
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Speaker 2: taking a pause on any further cuts until we see
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Speaker 2: how all of this plays out, and kind of trying
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Speaker 2: to read the tea leaves in terms of what is
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Speaker 2: possibly breaking in the economy. Here, the evidence for today,
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Speaker 2: I would say, is lining up more in the camp
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Speaker 2: of weakness on growth is the evidence that we have
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Speaker 2: today rather than indications of inflation.
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Speaker 4: Yeah, the Fed has not lowered rates yet because there
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Speaker 4: are other components to the inflation process. Inflation dynamics, if
5:03
Speaker 4: you want to use the fancy term, then just whether
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Speaker 4: the economy is running hot, neutral, or cold relative to
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Speaker 4: its potential. There's inflation expectations which have gone up. They're
5:13
Speaker 4: a big driver of the inflation process. That was the
5:15
Speaker 4: big lesson coming out of the nineteen seventies that caused
5:18
Speaker 4: all economists to basically change the way they think about
5:20
Speaker 4: inflation and change their models for how inflation works. So
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Speaker 4: there's inflation expectations which have spiked according to most surveys,
5:28
Speaker 4: some differ. And then there's the what are called supply
5:32
Speaker 4: shocks that could be an oil pricing increase. It could
5:34
Speaker 4: be tariffs. Those are negative in the sense that they
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Speaker 4: hurt people because they push inflation up. There are positive
5:41
Speaker 4: variations on supply shocks. We've actually been experiencing some positive
5:45
Speaker 4: and I'm using positive in the normative sense here, as
5:47
Speaker 4: in people think it's a good thing. An economist would
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Speaker 4: say a positive supply shock pushes up prices, So it
5:52
Speaker 4: gets a little confusing. Sorry about that. We've been the
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Speaker 4: beneficiary of favorable supply shocks in the past few months
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Speaker 4: with respect to, for example, energy price I've refer specifically
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Speaker 4: to energy prices coming down. The FED is worried that
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Speaker 4: the real inflation rate, the trend and inflation underlying inflation,
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Speaker 4: those terms are all interchangeable, is higher than the month
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Speaker 4: over month headline readings over the past few months suggest.
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Speaker 4: So you've got the administration pounding the FED, calling the
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Speaker 4: FED chair stupid almost on a daily basis. But he's not.
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Speaker 4: I wasn't a fan of his performance during COVID. I'm
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Speaker 4: not a fan of picking FED chairs who can't read
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Speaker 4: a paper in economics. That's sort of where we are today.
6:31
Speaker 4: Looks like the next FED chair might not be able
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Speaker 4: to either, So that's not exactly new. That said, the
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Speaker 4: FED did manage to navigate post COVID inflation pretty deftly.
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Speaker 4: They didn't seem to overdo it.
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Speaker 3: So Mark Fandaddy summary monetary whimp, but not stupid.
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Speaker 4: I don't think powus no, I don't think he's stupid.
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Speaker 4: And he made Look, the FED is always making decisions
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Speaker 4: between goosing the forces that push up growth and restraining
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Speaker 4: the forces that push up inflation. To decide where on
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Speaker 4: that spectrum of trade off, that trade off spectrum, excuse me,
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Speaker 4: you fall. They could have squashed inflation earlier in twenty
7:09
Speaker 4: twenty two, yep, at the expense of growth, at the
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Speaker 4: expense of buyer unemployment, yep. The FED made a choice.
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Speaker 4: Did they make the right choice? Well, political results would
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Speaker 4: suggest they did not. The voters were very, very angry.
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Speaker 4: But in real time, if you had to choose between
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Speaker 4: higher unemployment and slightly higher prices, be honest with yourselves,
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Speaker 4: which would you pick. I've had asked myself that question.
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Speaker 4: As I revisit my own harsh, initial harsh assessment of
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Speaker 4: the way Powell handled COVID inflation, I can't say he
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Speaker 4: didn't make the right choice, even though the political process
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Speaker 4: is punishing him. For that.
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Speaker 2: There's been a lot written about the treasury market this year,
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Speaker 2: mainly the context of it has been the US government
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Speaker 2: debt load and the foreign buyers of that debt. And
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Speaker 2: we cover a story yesterday of institutional funds dipping dumping
7:57
Speaker 2: longer term treasuries. Today we've got, you know, treasuries relatively muted,
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Speaker 2: and in fact, the yield and the ten year is
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Speaker 2: down to about four four point three, let's call it,
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Speaker 2: down from a high of about four point six. What
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Speaker 2: do you see or a tribute to the common treasury
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Speaker 2: in markets that we've seen most recently.
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Speaker 4: The recovery in prices and the slight drop in yields.
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Speaker 4: It could just be noise, Mike. By noise, I just
8:19
Speaker 4: mean random forces that push stocks or bonds or any
8:23
Speaker 4: publicly traded, widely held asset class up or down on
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Speaker 4: a given day or week. I don't consider a four
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Speaker 4: point two percent yield on the ten year materially different
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Speaker 4: than and that's a slippery phrase. Yeah, that's exactly true.
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Speaker 4: I was going to say. So this strikes me as
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Speaker 4: just noise. I don't think any fundamental, anything fundamental? Am
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Speaker 4: I missing anything? Is anything fundamental? Change in the past
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Speaker 4: few weeks that our fiscal situation looks increasingly atrocious, unmanageable,
8:48
Speaker 4: and unsustainable. This Republican tax bill will make the deficit worse,
8:52
Speaker 4: says every independent person who's looked at it, i e.
8:55
Speaker 4: People who aren't paid to say differently, uniformly think it's
8:59
Speaker 4: going to make the fiscal situation worse. I don't have
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Speaker 4: a solution, but this doesn't help. That shouldn't theory OLSEQL
9:05
Speaker 4: push up not down yields longer term treasury yields. We'll
9:10
Speaker 4: know in a year or so, how much our fiscal situation,
9:14
Speaker 4: that is, how much the deficit has grown, how much
9:19
Speaker 4: is deteriorated relative to right now, and then you might
9:22
Speaker 4: see an abrupt step up in yields when eventually the
9:26
Speaker 4: risk of high inflation to effectively default on this deck
9:30
Speaker 4: gets priced.
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Speaker 2: In one could We're gonna take a quick break when
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Speaker 2: we come back. Greg McBride from Bank Rate joining us
9:36
Speaker 2: to talk about their emergencies. Savings Report will also play
9:39
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Speaker 4: Joining us now is bank Rates Greg McBride to talk
10:57
Speaker 4: about bank Rates twenty twenty five Emergency Savings Report. Greg.
11:01
Speaker 4: Good morning, Thanks for being with.
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Speaker 6: Us, Happy Friday. Great to be with you.
11:06
Speaker 4: Hey, Greg, So this is our annual self flagellation exercise,
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Speaker 4: right and lamenting how people how unprepared people are for
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Speaker 4: a financial emergency. It seems like it's an annual ritual.
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Speaker 7: Yes, emergency savings has long been the achilles all of
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Speaker 7: Americans and their personal finances. You know, we've seen changes
11:26
Speaker 7: in terms of attitudes toward it. There's now a very
11:29
Speaker 7: widespread recognition people know they don't have enough, they want
11:34
Speaker 7: to have more.
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Speaker 6: What hasn't changed is we just really haven't seen the
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Speaker 6: needle move very much.
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Speaker 4: What do you attribute that enhanced awareness to. Is it
11:43
Speaker 4: the fact that four oh one k providers have moved
11:46
Speaker 4: into this area and they're aggressively educating on the subject.
11:49
Speaker 4: Is it articles like like this. I know you've been
11:52
Speaker 4: doing this writing on this subject and related subjects for
11:55
Speaker 4: a long time. What's your sense of how things have
11:58
Speaker 4: evolved in terms of the public mind.
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Speaker 7: I think it really goes back to the Great Financial Crisis.
12:03
Speaker 7: I remember in the years prior to the Financial crisis,
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Speaker 7: it was largely dismissed because it was, you know, the
12:10
Speaker 7: idea at the time Hong Kong prices were going Gangbusters.
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Speaker 7: You didn't have to have emergency savings. Your home was
12:16
Speaker 7: doing the saving for you. The Great Financial Crisis, the
12:19
Speaker 7: spike in unemployment, the jobless recovery that we saw thereafter,
12:24
Speaker 7: that really shifted the attitudes and shifted it quickly. So
12:27
Speaker 7: people recognized that, oh, yeah, you do need that, and
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Speaker 7: I don't have enough. And so that was the big change,
12:33
Speaker 7: and I think it was underscored again during the pandemic.
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Speaker 7: We saw unemployment quickly spike as twenty two million people
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Speaker 7: lost their jobs, and it took a while before things
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Speaker 7: like enhanced unemployment compensation kicked in. Well, what bridged that
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Speaker 7: gap emergency savings. Those that had it were in much
12:52
Speaker 7: better shape than those that didn't. So I think, you know,
12:54
Speaker 7: it's definitely, you know, drove home that point once again,
12:58
Speaker 7: you know, even especially for those that maybe are newer
13:01
Speaker 7: to the workforce and didn't appreciate fully what happened during
13:05
Speaker 7: the Great Financial Crisis.
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Speaker 4: So what about this year's survey as any are you
13:10
Speaker 4: seeing any changes in the law. I'll call it a
13:12
Speaker 4: long term trend, that's not quite the right way to
13:14
Speaker 4: describe it. But what's what's changed and is it changed
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Speaker 4: for the better or for the worse.
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Speaker 7: You know, one change that is notable is the comfort
13:24
Speaker 7: level or lack thereof with emergency savings.
13:27
Speaker 6: You know, we saw over the past couple of years.
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Speaker 7: Since since inflation spiked in twenty twenty two, those that
13:34
Speaker 7: say they're comfortable with the level of emergency savings they have,
13:37
Speaker 7: it's fluctuated between forty and forty three percent. That's down
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Speaker 7: notably twenty twenty and twenty twenty one that was over
13:44
Speaker 7: fifty percent. And so what happened is we saw that
13:48
Speaker 7: when inflation spiked all of a sudden, it really eroded
13:51
Speaker 7: the comfort level that people had. We didn't necessarily see
13:55
Speaker 7: big changes in terms of having emergency savings, you know,
13:59
Speaker 7: those that had none at all versus those that had
14:02
Speaker 7: sufficient emergency savings.
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Speaker 6: We didn't see big shifts there.
14:06
Speaker 7: What we saw the shift was the comfort level with
14:08
Speaker 7: what you had and higher inflation environment. It means that
14:12
Speaker 7: that savings you have doesn't go as far. And in
14:15
Speaker 7: tune with that, when we ask consumers, what's the biggest
14:18
Speaker 7: reason you haven't been able to build up that emergency savings?
14:22
Speaker 7: Inflation and high prices have been head and shoulders above
14:24
Speaker 7: everything else past few years.
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Speaker 4: Interesting, Hey, one question. You note here that fewer Americans
14:30
Speaker 4: have more credit card debt than emergency savings. Why compare
14:35
Speaker 4: these two? Is it well, rather than guess, I'll ask you.
14:39
Speaker 7: Yeah, it's just you know, that's another sort of measure
14:42
Speaker 7: of financial well being or financial stress. If you're in
14:45
Speaker 7: the situation where you have more credit card debt than
14:48
Speaker 7: emergency savings, you know, that's lights and sirens going that
14:53
Speaker 7: you know you need to fix something from a financial perspective.
14:55
Speaker 6: The good news is.
14:56
Speaker 7: More than half of Americans have more emergency savings than
14:59
Speaker 7: credit card debt, but.
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Speaker 6: We still find that a third of households on.
15:04
Speaker 7: The opposite side of that, they have more credit card
15:05
Speaker 7: debt than they do emergency.
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Speaker 4: Any other results you want to highlight, Greg before we
15:08
Speaker 4: let you go.
15:10
Speaker 7: Yeah, just at that point about having more credit card
15:12
Speaker 7: debt and emergency savings, it's down from where it was
15:15
Speaker 7: the past couple of years, but it's still notably higher
15:18
Speaker 7: than it was pre pandemic and pre inflation spike. So
15:22
Speaker 7: you know, again, the hangover of that really continues, continuing
15:27
Speaker 7: to stretch out some all budgets and leave higher debt
15:30
Speaker 7: loads and less savings in its way.
15:32
Speaker 4: Greg McBride, great data, superior analysis is always Thanks so
15:36
Speaker 4: much for being with us, Thanks for having me, have
15:39
Speaker 4: a great weekend.
15:39
Speaker 5: All right, time for trivia here on the Financial Exchange
15:42
Speaker 5: and on this day. In nineteen ninety four, Errorsmith became
15:46
Speaker 5: the first major band to let fans download a full
15:50
Speaker 5: new track for free from the Internet. In nineteen ninety nine,
15:54
Speaker 5: downloading music off the Internet became mainstream with the launch
15:59
Speaker 5: of Napster. Trivia question today, how many years did Napster
16:03
Speaker 5: operate before being shut down? Once again? How many years
16:07
Speaker 5: did Napster operate before being shut down? Be the fourth
16:11
Speaker 5: person today to text us at six one seven three
16:14
Speaker 5: six two thirteen eighty five with the correct answer, and
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Speaker 5: you went a Financial Exchange showed T shirt once again
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Speaker 5: the second court excuse me. The fourth correct response to
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Speaker 5: text us to the number six one seven three six
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Speaker 5: complete contest rules at Financial Exchange Show dot com.
16:32
Speaker 3: What a weird stage of the Internet that was.
16:34
Speaker 2: It's kind of awesome too, just parents having no idea
16:39
Speaker 2: whatsoever what was going on on the internet. Like you're
16:44
Speaker 2: perpetuating music theft on the internet.
16:47
Speaker 3: That's right, Uh, Yeah, that was a very strange stage
16:51
Speaker 3: of the internet back then.
16:53
Speaker 4: I don't know, I was I was self policing, so
16:55
Speaker 4: I was find Yeah, apparently there was some miscreants, so
16:58
Speaker 4: we're abusing intellectual property.
16:59
Speaker 5: Law metallic gutless as well they should.
17:03
Speaker 3: I mean, people were stealing their music.
17:07
Speaker 4: One analogy is what chat chat GPT does today. It
17:11
Speaker 4: doesn't know anything. It steals your stuff. So if we
17:14
Speaker 4: put some content from our day job at Armstrong Advisors
17:18
Speaker 4: about on the web, we do a nice piece on
17:20
Speaker 4: this or that, if somebody asksod and they're not attribute.
17:23
Speaker 3: It to you, right, Yeah, it's really good at that.
17:29
Speaker 3: It's really really, really good.
17:30
Speaker 4: It's almost like it's it's designers intended to do that
17:33
Speaker 4: and hope to get away with it because people are
17:36
Speaker 4: accustomed to it. And strange that that's legal though, Yeah
17:39
Speaker 4: they might because there's like the alternative and everybody say
17:41
Speaker 4: is in dispensing that we would.
17:45
Speaker 3: Yeah, because it's really tough to stuff something back in
17:48
Speaker 3: the box.
17:48
Speaker 2: I guess if they make enough money then they might
17:50
Speaker 2: eventually make them pay for what they did, like actually
17:54
Speaker 2: pay money for what they did. But yeah, it's, uh,
17:56
Speaker 2: it's really tough to stuff that back in the box
17:59
Speaker 2: and say no, go recreate chat GPT and make sure
18:02
Speaker 2: you pay everybody for the data first. Yeah, it gonna happen, right,
18:06
Speaker 2: It's not gonna happen. Speaking of Americans financial wellbeing, CNBC
18:13
Speaker 2: reports that student loan borrowers are facing a default cliff
18:17
Speaker 2: as late payments climb. So the cliff that they are
18:20
Speaker 2: talking about here is that there are now five point
18:24
Speaker 2: eight million newly delinquent borrowers on student loans, and one
18:30
Speaker 2: third of that five point eight million could reach default
18:33
Speaker 2: status in July if they don't fix their delinquent status
18:37
Speaker 2: by then.
18:38
Speaker 3: And so that is a incredibly discouraging number.
18:43
Speaker 2: And the more and more we look at this whole
18:46
Speaker 2: plan that was initially done by President Trump and then
18:49
Speaker 2: followed on for far too long by President Biden and
18:51
Speaker 2: Democrats of pausing student loan payments, the more I look
18:56
Speaker 2: at that, the more of a disaster that whole thing was.
18:59
Speaker 2: There were so many people who were very seriously talking
19:01
Speaker 2: about how their student loans were going to be entirely
19:03
Speaker 2: wiped out.
19:04
Speaker 3: Or forgiven and genuinely believed that that.
19:06
Speaker 2: Was going to happen. Shame on them for buying into
19:10
Speaker 2: that when that has not when that had not been
19:12
Speaker 2: written in law. But shame on lawmakers for floating the
19:17
Speaker 2: idea and putting together this disastrous policy because it led
19:20
Speaker 2: to people getting used to not making these payments and
19:24
Speaker 2: are now facing huge problems with their personal financial situation.
19:29
Speaker 2: Quick Break, Wallstreet Watches next.
19:41
Speaker 1: Bringing the latest financial news straight to your radio. Every day,
19:46
Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
19:51
Speaker 1: Time now for Wall Street Watch a complete look at
19:55
Speaker 1: what's moving market so far today right here on the
19:58
Speaker 1: Financial Exchange Radio Network.
20:00
Speaker 5: Markets in positive territory yet again today with the SMP
20:04
Speaker 5: five hundred to hitting a new record high. Traders are
20:07
Speaker 5: reacting to news on the trade front. After Commerce Secretary
20:10
Speaker 5: Howard Lutnik told Bloomberg that a framework between China and
20:14
Speaker 5: the US on trade had been finalized. China's Ministry of
20:18
Speaker 5: Commerce also confirmed it. On top of that, the Personal
20:22
Speaker 5: Consumption Expenditures Price Index, the fed's preferred measure of inflation,
20:26
Speaker 5: roses seasonally adjusted zero point one percent for the month,
20:31
Speaker 5: putting the annual inflation rate at two point three percent.
20:34
Speaker 5: Right now, the Dow up by nearly one percent. SMP
20:38
Speaker 5: five hundred is up by six tens of one percent,
20:41
Speaker 5: and the Nasdaq also up by six tenths of one percent,
20:44
Speaker 5: or one hundred and twenty eight points. RUSSA two thousand
20:48
Speaker 5: is up nearly half a percent higher, ten year treasureeled
20:51
Speaker 5: up one basis point now at four point two six percent,
20:54
Speaker 5: and crude oil up about one percent higher, trading just
20:57
Speaker 5: below sixty six dollars barrel. Nike stock surging over fifteen
21:03
Speaker 5: percent now after the sneaker giant reported fiscal fourth quarter
21:07
Speaker 5: earnings that beat expectations and said it expects profits and
21:11
Speaker 5: sales declinents to moderate in the future. Nike also said
21:15
Speaker 5: it expects tariffs to raise its annual cost by one
21:18
Speaker 5: billion dollars this fiscal year, and The New York Times
21:22
Speaker 5: is reporting Uber is in talks with Travis Khalanik, the
21:25
Speaker 5: company's co founder who was forced out eight years ago
21:29
Speaker 5: to help fund his acquisition of the US subsidiary of
21:32
Speaker 5: a Chinese autonomous vehicle company, pony Ai. I'm Tucker Silva,
21:37
Speaker 5: and that is Wall Street Watch. In the previous segment,
21:40
Speaker 5: we asked the trivia question how many years did Napster
21:43
Speaker 5: operate before being shut down? That would be two in
21:47
Speaker 5: its original form. Napster operated for only two years before
21:51
Speaker 5: being shut down. Two years after being shut down, Napster
21:55
Speaker 5: was reborn as a subscription service. Mark from Barnstable Masses
22:00
Speaker 5: are winner today taking home a Financial Exchange Show t shirt.
22:04
Speaker 5: Congrats to Mark and we play trivia every day here
22:07
Speaker 5: on the Financial Exchange See complete contest rules at Financial
22:11
Speaker 5: Exchange Show dot com.
22:12
Speaker 2: Mark, I want to go in a bit in the
22:14
Speaker 2: weeds here for a moment because Senator Ted Cruz has
22:17
Speaker 2: a new idea for the Federal Reserve. So, first off,
22:20
Speaker 2: in two thousand and eight, during the Great Financial Crisis,
22:23
Speaker 2: Congress passed a rule that allowed the FED to do
22:27
Speaker 2: something new, which was pay interest on reserves. And again,
22:33
Speaker 2: to get a big technical here, can you Mark go
22:36
Speaker 2: and put money at the Fed and get interest on
22:38
Speaker 2: your reserves?
22:39
Speaker 4: Not to my knowledge this is ride, but mainly reserve.
22:42
Speaker 3: For giant banks is who can put their money on.
22:45
Speaker 2: The fun reserve at the Fed apply The FED now
22:48
Speaker 2: pays interest on it, and Senator Ted Cruz wants to
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Speaker 2: limit their ability. I'm guessing due to well lawmakers in general,
22:57
Speaker 2: especially probably honestly.
22:59
Speaker 4: They have terrible mind minitary policy ideas. This new crop
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Speaker 4: of politicians on both sides of the aisle impinging on
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Speaker 4: FED independence to this hair brained idea that is done
23:08
Speaker 4: under the guise of wanting to cut spending. Hey, guys,
23:10
Speaker 4: if you want to cut spending, stop spending to cut spending,
23:13
Speaker 4: that's the.
23:14
Speaker 3: Way to do it.
23:15
Speaker 4: The interest on reserves helps the FED by inducing banks
23:20
Speaker 4: to keep more reserves with the FED or not. It
23:22
Speaker 4: helps the FED to hit its FED funds rate target,
23:25
Speaker 4: which I think we all would agree is a valuable
23:28
Speaker 4: enhancement of that instrument.
23:30
Speaker 3: It also can encourage banks to keep reserves.
23:33
Speaker 4: And not lend them to another bank at a rate
23:37
Speaker 4: lower than they could get at it in there's counterparty
23:40
Speaker 4: risk there. So let me back up and say, if
23:42
Speaker 4: the FED is going to pay me five percent, I'm
23:44
Speaker 4: not going to loan it to another bank at five
23:47
Speaker 4: percent because there's no risk in the FED trend. It's
23:50
Speaker 4: very small the risk premium, but it's there.
23:52
Speaker 2: And furthermore, if the FED is going to pay me
23:55
Speaker 2: five percent, I'm not going to loan it out to
23:59
Speaker 2: sign you can't afford a mortgage for you six percent.
24:04
Speaker 2: I'm not going to make risky loans for a number.
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Speaker 4: Yeah, So it's a good way to control their primary instrument,
24:11
Speaker 4: which right now is FED funds. It doesn't have to
24:12
Speaker 4: be Historically it's been other things. It doesn't have to
24:14
Speaker 4: be FED funds, but it is right now, and this
24:17
Speaker 4: is a good way, really economical cost. Every method they
24:23
Speaker 4: used to target FED funds has a cost. By the way,
24:25
Speaker 4: It's just really explicit here and again I sort of resent, boy,
24:30
Speaker 4: the lack of depth that goes into some of these
24:33
Speaker 4: off the cuff. I think this is where Twitter or
24:35
Speaker 4: social media generally just has just a diminished a base
24:40
Speaker 4: is a better word. I think the dialogue to the
24:42
Speaker 4: point where every stupid idea that gets an airing, people
24:46
Speaker 4: need to stop and think. Now, as I just talk
24:49
Speaker 4: off the cuff here this but this is live radio.
24:52
Speaker 4: It's different when you're tweeting something. I keep saying tweeting,
24:55
Speaker 4: but we all know I just mean social media posting. Boy,
24:58
Speaker 4: there's just this tendency to not think too deeply about it.
25:00
Speaker 4: I want to see Tucker Carlson grill Cruz on this
25:03
Speaker 4: the way he did on the war in Iran. Mister Senator,
25:07
Speaker 4: what is the federal funds?
25:08
Speaker 1: Right?
25:08
Speaker 4: Define it? What are the FED subjectives? Where is that enshrined,
25:12
Speaker 4: give me definitions of My guess is these guys who
25:15
Speaker 4: are Ivy League trained lawyers, but I use lawyers advisedly here,
25:19
Speaker 4: they don't know what they're talking about when it comes
25:21
Speaker 4: to monetary policy. They really need to butt out because,
25:23
Speaker 4: as you could tell, it's getting on my nerves.
25:26
Speaker 2: I can tell that it is getting on your nerves.
25:29
Speaker 2: And I think the most important thing that you said
25:31
Speaker 2: with all this, lawmakers, if you want to control the deficit,
25:35
Speaker 2: if you want to fix these massive societal problems that
25:39
Speaker 2: we are creating via spending way more money than we
25:43
Speaker 2: are taking it in revenue, go attack the things that matter.
25:48
Speaker 2: Go look at defense, Go look at source security, Go
25:50
Speaker 2: look at medicare, Go look at medicaid. And I recognize
25:52
Speaker 2: that they are taking a look at medicaid as part
25:54
Speaker 2: of this most recent bill, although the Senate parliamentarian just
25:57
Speaker 2: struck part of that down. But stop pushing out more
26:02
Speaker 2: benefits while cutting taxes at the same time and actually
26:05
Speaker 2: address the issues of this economy. This type of stuff
26:10
Speaker 2: gets to your point tweets, and it gets you know, retweets,
26:13
Speaker 2: and you get to play it on your.
26:15
Speaker 3: Campaign video, but it doesn't Actually it's not serious.
26:19
Speaker 4: I would reform the FED too. I'm for more transparency,
26:23
Speaker 4: maybe even linking money issuance to gold or some sort
26:27
Speaker 4: of rule. Gold's a little too volatile for my so
26:29
Speaker 4: I'm sort of an old fashioned hard money person myself.
26:32
Speaker 4: What I don't get is why the new Conservatives, as
26:35
Speaker 4: distinguished from me being an old fashioned one, embrace every
26:38
Speaker 4: hair brained idea to come down the pike and feel
26:41
Speaker 4: and this. So I'm making a very general statement here,
26:42
Speaker 4: but they've been doing it so much with respect to
26:45
Speaker 4: monetary policy, specifically FED independence lately, something which I would
26:49
Speaker 4: have thought would be sacrisank to the Republican Party of
26:51
Speaker 4: all parties because they used to be the party of
26:53
Speaker 4: monetary responsibility. They embrace every flaky idea that comes down
26:57
Speaker 4: the pike because they think it'll play with whoever follows
26:59
Speaker 4: them on social media or get them a ten minute
27:02
Speaker 4: spot on Fox News.
27:03
Speaker 3: That's that I'll put Democrats, says Justice.
27:05
Speaker 4: Yes, yeah, bad ideas there too.
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Speaker 1: The proceeding was paid for and the views expressed are
28:08
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28:16
Speaker 2: Boston historians are up in arms about a new board
28:20
Speaker 2: game that was created by a man in New Jersey
28:23
Speaker 2: called Escape the Flood, and according to them, it makes
28:26
Speaker 2: light of the tragic molasses disaster of nineteen nineteen that
28:32
Speaker 2: killed twenty one people and injured one hundred and fifty
28:35
Speaker 2: And folks, if we cannot make jokes about and create
28:40
Speaker 2: board games about a molasses disaster from over one hundred
28:44
Speaker 2: years ago, then I think we need to stop being
28:48
Speaker 2: a little bit too uptight. If if you want to
28:50
Speaker 2: criticize somebody for making like a nine to eleven board
28:53
Speaker 2: game all on board, that is inappropriate. But we can
28:56
Speaker 2: make jokes about the molasses disaster of nineteen nineteen at
29:00
Speaker 2: this point, I think that is fair game.
29:01
Speaker 3: Now, let's take a quick break.
29:03
Speaker 2: When we come back, Paul Lamonica from Barons joins us
29:06
Speaker 2: next to talk about the stock that Berkshire Hathaway is
29:10
Speaker 2: loading up on.
29:10
Speaker 3: We'll be right back.
29:12
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Speaker 1: Financial Exchange radio network, Ladies and Gentlemen the weekend.
29:56
Speaker 2: Joining us now is Paul la Monica from Baron's to
30:00
Speaker 2: talking to us about Constellation Brands and Paul. Before we
30:03
Speaker 2: get there, I have to say, sitting on our kitchen
30:07
Speaker 2: island right now is a bottle of zero proof gin.
30:10
Speaker 2: I think my wife made an impulse purchase after her
30:12
Speaker 2: doctor talked about some recent studies on alcohol consumption. It's
30:16
Speaker 2: also an unopened bottle of zero proof gin because we
30:19
Speaker 2: have not touched it yet. But there's been a trend
30:22
Speaker 2: and a push towards less alcohol consumption. There's been a
30:26
Speaker 2: few big studies recently about it, and yet Berkshire Hathaway
30:29
Speaker 2: appears to have loaded up on Constellation shares.
30:31
Speaker 3: Talk to me about what they might be seeing out there.
30:35
Speaker 8: Yeah, it's fascinating. There is definitely, I think, among younger
30:40
Speaker 8: consumers in particular, a move away from alcoholic beverages to
30:46
Speaker 8: either low alcohol or zero alcohol. But that being said,
30:51
Speaker 8: Berkshire Hathaway made a big investment in Constellation Brands in
30:55
Speaker 8: the fourth quarter last year, boosted that stake to about
30:59
Speaker 8: twelve million shares in the first quarter, so now it's
31:02
Speaker 8: about you know, a little under seven percent of the
31:04
Speaker 8: available stock. It's the third largest shareholder. So I think,
31:10
Speaker 8: you know, partly it's because it's a great value right now.
31:13
Speaker 8: I mean, you could argue whether or not growth is
31:16
Speaker 8: ever going to come back to the levels it was
31:19
Speaker 8: you know, a few years ago. But you know, shares
31:21
Speaker 8: are now only trading about twelve times estimates for the
31:26
Speaker 8: next fiscal year. That's well below its ten year average,
31:32
Speaker 8: you know, of about twenty. And I think the case
31:37
Speaker 8: that a lot of investors are, a lot of animals
31:38
Speaker 8: are making is that, Okay, the stock's probably not going
31:42
Speaker 8: to get back to twenty times earnings estimates anytime soon,
31:44
Speaker 8: because that assumes that everyone starts drinking a lot more again.
31:47
Speaker 8: But say it just gets back to fourteen fifteen sixteen
31:51
Speaker 8: and earnings don't collapse, You've got significant upside there.
31:54
Speaker 3: I don't know where.
31:55
Speaker 2: It might just be one good recession from that from
31:58
Speaker 2: that uptick and consumption again, we'll have to see.
32:00
Speaker 3: But talk to me about the brand itself.
32:02
Speaker 2: So I think Constellation is becoming more of a household
32:05
Speaker 2: name given their longevity in the space and just the
32:07
Speaker 2: size of them. But what sort of brands they own?
32:09
Speaker 2: Are they in one specific area of the alcohol market.
32:11
Speaker 2: Are they pretty diversified?
32:13
Speaker 8: Yeah, I mean they are diverse. I mean beer kind
32:16
Speaker 8: of is the big, you know, one that everyone knows. Corona.
32:21
Speaker 6: I mean, you know, if you're.
32:23
Speaker 8: Still watching TV, particularly sports events, you can't avoid ads
32:27
Speaker 8: with Eli Manning, Snoop others, you know, sitting on the beach,
32:31
Speaker 8: Laplia Awaits if you Will, I think is one of
32:34
Speaker 8: their taglines right now, you know. But they own other
32:38
Speaker 8: brands that are you know, gaining a little bit more
32:42
Speaker 8: market share. Medello is one Pacifico, But they also own
32:46
Speaker 8: a couple of higher end wine brands they're selling or
32:50
Speaker 8: just recently sold their discounted wine portfolio to try and
32:55
Speaker 8: focus on the premium end. And they do own some
32:58
Speaker 8: spirits brands as well. But I think the excitement is
33:02
Speaker 8: about hoping to catch the momentum in some of these
33:07
Speaker 8: non alcoholic beverage brands that are growing pretty rapidly. They
33:11
Speaker 8: have a minority steak and a tonic maker called Hyo
33:16
Speaker 8: that's a non alcoholic, as well as an alcohol free
33:19
Speaker 8: sparkling beverage maker named toast that has a tost with
33:25
Speaker 8: the little um lat over the O.
33:27
Speaker 2: Now, Paul, I know we're all talking about tariffs a
33:30
Speaker 2: lot less than we were three months ago, but every
33:33
Speaker 2: time tariffs get announced, specifically with Europe, the immediate threat
33:37
Speaker 2: is usually to American whiskey brands. Constellation owns High West
33:41
Speaker 2: as well as some others Buffalo Trace. I think what
33:45
Speaker 2: sort of risks are out there if you're taking a
33:46
Speaker 2: look at this company in terms of that trade risk.
33:50
Speaker 8: Yeah, I think there are definitely tariff risks. You know,
33:53
Speaker 8: a company like Brown Format, obvious, I think has more
33:57
Speaker 8: tariff related risk because of the spirit nature of their
34:01
Speaker 8: business owning Jack Daniels, which is, you know about its
34:04
Speaker 8: quintessential American brand as you can get, but also would
34:07
Speaker 8: for the Reserve. You know, Constellation does have some you know,
34:11
Speaker 8: whiskey of you know, and other spirits brands that could
34:13
Speaker 8: get hit by European tariffs. I think the bigger issue
34:16
Speaker 8: might be Mexico and you know, imports of Coroona Pacifico Medello.
34:22
Speaker 8: But it does seem as if the Trump administration has
34:25
Speaker 8: backed off a little bit on on on tariffs on
34:28
Speaker 8: Mexico being as high as we're suggested around Liberation Day,
34:33
Speaker 8: so analysts are a little less concerned about tariffs right now.
34:37
Speaker 8: But I don't think anyone in their right mind in
34:40
Speaker 8: any company that you know, exports and imports a lot
34:45
Speaker 8: of foreign goods needs to be still worried about what's
34:48
Speaker 8: going to happen on July ninth, even though there's optimism
34:51
Speaker 8: today about you know, the US and China and potentially
34:54
Speaker 8: other trade deals coming.
34:55
Speaker 3: Most important question, what's your go to summer beverage?
34:58
Speaker 1: Paul?
35:00
Speaker 8: I mean Friday nights. I'm a brown liquor guy, so
35:04
Speaker 8: I'll be having some bourbon or rye this evening. But hey,
35:08
Speaker 8: it's the summer. You can't beat a nice cold beer.
35:12
Speaker 8: Maybe not a corona necessarily, but a cold beer.
35:16
Speaker 2: Paula Monica from Baron's joining us today to talk about
35:18
Speaker 2: Constellation Brands and the the uptick and shares from UH.
35:24
Speaker 2: I can't say Warren Buffett's Berkshire Hathaway anymore? Can I
35:27
Speaker 2: from Warren Buffetts Berkshire Hathaway. Paul, thanks so much for
35:31
Speaker 2: going to be around.
35:32
Speaker 6: He's still gonna bed.
35:33
Speaker 2: He's still be going to be around. Paula Monica joining
35:35
Speaker 2: us today. Thanks so much appreciate it. Have a great
35:37
Speaker 2: weekend and talk to you next weeks same.
35:39
Speaker 6: Do you have a good one?
35:40
Speaker 3: What do you have for us? For stack roulette, there.
35:42
Speaker 4: Mark a mix of a good and indifferent maybe your neutral.
35:47
Speaker 4: News from the University of Michigan's consumer survey sentiment jumped
35:52
Speaker 4: last month. People felt I'm not going to give you
35:54
Speaker 4: the numbers because without a long term perspective and reference pointed,
35:59
Speaker 4: they're really am material. But consumer sentiment bounce back, and
36:01
Speaker 4: this is good.
36:03
Speaker 2: I was going to say, this is after a fall
36:04
Speaker 2: that is epic fall. It's really substantial in the beginning
36:08
Speaker 2: part of twenty twenty five. I mean, we saw this
36:10
Speaker 2: fall similar to this back in twenty twenty two when
36:12
Speaker 2: inflation was spiking. But outside of those events, we rarely
36:16
Speaker 2: get drops like.
36:17
Speaker 4: We saw cinement collapsed and at the same time sentiment collapsed,
36:20
Speaker 4: we saw inflation expectations explode. Not a good combination obviously.
36:26
Speaker 4: So sentiment has recovered somewhat and hopefully that will be
36:29
Speaker 4: followed on by in a bounce back. In the series,
36:32
Speaker 4: we talked about earlier personal consumption expenditures, which is we
36:36
Speaker 4: saw retrenched. I was gonna say dramatically notably last month.
36:43
Speaker 4: Inflation expectations have also come down from now these numbers
36:47
Speaker 4: are more relatable, so I'll use them. It was one
36:50
Speaker 4: year ahead inflation expectation according to this survey, the University
36:54
Speaker 4: of Michigan's Consumer Survey, six point six percent in a
37:00
Speaker 4: In May, it dropped to five percent, still very very high,
37:04
Speaker 4: still near all time highs, unprecedented outside of the dramatic
37:09
Speaker 4: spike in that ended the Great Inflation in the early
37:13
Speaker 4: nineteen eighties. So the administration retreating a bit on tariff
37:19
Speaker 4: seems to have brought down inflation expectations a bit, but
37:21
Speaker 4: it's still a big problem for the Fed MIC as
37:23
Speaker 4: we've been talking about.
37:25
Speaker 3: No doubt.
37:25
Speaker 2: As we finish up the show here on the Financial
37:29
Speaker 2: Exchange on this Friday ahead of July fourth week, there'll
37:33
Speaker 2: be a shortened trading week next week with the July
37:35
Speaker 2: fourth holiday, but markets also close early on Thursday, July third.
37:39
Speaker 2: We've got the Dow Jones Industrial average up four hundred
37:42
Speaker 2: and eighty five points more than one point one percent,
37:45
Speaker 2: the S and P five hundred up forty three points,
37:47
Speaker 2: seven tenths of a percent, NASDAK mirroring that up one
37:49
Speaker 2: hundred and forty points, or seven tenths of one percent.
37:53
Speaker 2: Taking a look at oil markets, which were all over
37:55
Speaker 2: the place this week, we've got West Texas Cruise sitting
37:58
Speaker 2: at sixty five dollars for barrel after getting up to
38:01
Speaker 2: that seventy five dollars range in reaction to tension in
38:04
Speaker 2: the Middle East. That is all the time we have
38:06
Speaker 2: for today. Have a great weekend. We'll see you back
38:08
Speaker 2: here on Monday.