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Home insurance costs continue to go through the roof · The Financial Exchange Show

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1:03
Speaker 1: Face is the Financial Exchange with Mike Armstrong and Mark Vandetti.
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Speaker 2: Good morning, Welcome back to the Financial Exchange. It's Mike,
1:14
Speaker 2: Mark and Tucker with you on a Tuesday with markets.
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Speaker 2: They're pretty boring today. We don't need to get into
1:21
Speaker 2: it that they're mixed now slightly off has to be
1:23
Speaker 2: a NASDAK slightly positive. But the big story of the
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Speaker 2: day remains President Trump's firing of Federal Reserve official Lisa Cook,
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Speaker 2: who was appointed during the Biden administration, and big questions
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Speaker 2: about FED independence and the president's ability to remove a
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Speaker 2: sitting Federal Reserve governor. For since the existence of the FED,
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Speaker 2: it has been run as an independent agency.
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Speaker 1: No.
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Speaker 3: Nineteen fifty one ish Great. If you're interested in this topic,
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Speaker 3: well go ahead, Mike.
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Speaker 2: Than now please, I want to be corrected.
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Speaker 3: Great recently. The only reason that this is top of
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Speaker 3: mind for me. Great recent paper and your called Journal
2:00
Speaker 3: of Economic Perspectives, not something a lot of people probably
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Speaker 3: typically crack open. But there's very little math in JEP.
2:06
Speaker 3: Journal of Economic Perspectives articles. If you're interested in this
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Speaker 3: most recent, most recent issue came out last week. It
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Speaker 3: chronicles the fed's history, it's fight for independence during and
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Speaker 3: after World War Two. Truman kept pressure on the FED
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Speaker 3: to keep shortterm interest rates low to finance the big debt.
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Speaker 3: There was an explosion in inflation. The FED finally wrestled
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Speaker 3: control away from politicians. It took another few decades to
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Speaker 3: get politicians to stop.
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Speaker 2: Yeah, it was.
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Speaker 3: It was a long fight. And so this idea that
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Speaker 3: the Fed's autonomy is sacrasanct is relatively modern from roughly
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Speaker 3: Vulgar who was a tough bird onward and Clinton kind
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Speaker 3: of enshrined it was. I was gonna say a tough fella,
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Speaker 3: but that that didn't sound right. So tough character an
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Speaker 3: honorary character.
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Speaker 2: So the media is portraying this as another hit on
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Speaker 2: FED independence, and I do think it is based on
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Speaker 2: the way that it is the found done. They were
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Speaker 2: looking for, you know, reasons to be able to excuse
3:14
Speaker 2: members of the FED. They found one here, and the
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Speaker 2: means by which they did so, which is not presenting
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Speaker 2: any evidence of the crime that she allegedly committed, is
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Speaker 2: being I think accurately portrayed as another hit on central
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Speaker 2: bank independence. And the question.
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Speaker 3: Both can be true, right, she could have done something
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Speaker 3: very stupid and left herself open to this, yes, and
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Speaker 3: they can also have been looking for a reason.
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Speaker 2: To hundred percent. So where we land on all this
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Speaker 2: is it's likely end up in courts and we're about
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Speaker 2: to likely find out does a president have the ability
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Speaker 2: to remove a federal reserve governor? And what do they
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Speaker 2: mean by having cause? Because it's pretty clear I believe
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Speaker 2: from the charter that the sitting the president hand remove
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Speaker 2: someone for cause. But is allegation of an unproven crime
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Speaker 2: from some time in the past adequate is a completely
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Speaker 2: unknown answer to me.
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Speaker 3: Yeah, putting that aside, what we talked about in the
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Speaker 3: last hour for those just joining us now, I think
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Speaker 3: is probably more within our wheelhouse, which is why is
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Speaker 3: FED independence important? And the short answer we said Mike
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Speaker 3: in the last hour was because credibility, the belief that
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Speaker 3: if the FED says they're going to squash inflation, they're
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Speaker 3: actually going to do it, come hell or high water.
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Speaker 3: They're going to inflict pain on the economy.
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Speaker 2: Even if it happens right before an election.
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Speaker 3: If you believe they're going to do that, it'll prices
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Speaker 3: will adjust more quickly. Firms will adjust their prices, consumers
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Speaker 3: will adjust their and firms will adjust their inflation expectations
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Speaker 3: and any required disinflation. Think of that as medicine will
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Speaker 3: be more easily tolerated, will occur with fewer side effects.
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Speaker 3: To continue with the analogy, that's why fed into pay
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Speaker 3: and it is important, Mike in a word, credibility.
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Speaker 2: Right. The other side of this that is less important,
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Speaker 2: I think, but easier to understand from just a political perspective,
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Speaker 2: is when it comes to something like this removing and
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Speaker 2: appointing new Federal Reserve governors, are you comfortable with any
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Speaker 2: sitting president having the authority to do that? And my
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Speaker 2: answer is no, even if I am comfortable with this
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Speaker 2: president's ability to do it, I'm just not universally comfortable
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Speaker 2: with it. And that is my I don't know that's
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Speaker 2: been I think one common theme of our views on
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Speaker 2: the past twenty years of executive power expansion is yeah,
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Speaker 2: when you pave the way for this, you are creating
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Speaker 2: new powers for the next president. And historically what's happened
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Speaker 2: is you go from one side to another when it
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Speaker 2: comes to control of the White House.
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Speaker 3: The reason is you want monetary policymakers i e. The
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Speaker 3: people who run the FED, the Federal Reserve. You want
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Speaker 3: them to be focused on both inflation and unemployment. But
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Speaker 3: you want to be confident, and again I'm alluding to
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Speaker 3: credibility here that when the time comes, they'll make the
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Speaker 3: tough decision to get inflation under control. Part of the
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Speaker 3: Fed's issue in twenty twenty one twenty twenty two is
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Speaker 3: that people weren't sure how much emphasis the FED placed
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Speaker 3: on inflation versus unemployment because only a couple of years
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Speaker 3: before they had changed since revised again last week, they
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Speaker 3: had changed their monetary policy framework. It seemed to deemphasize
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Speaker 3: fighting inflation over getting unemployment as low as possible, whatever
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Speaker 3: that means, different subject entirely. So people doubted the Fed's resolved.
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Speaker 3: Their credibility was called into question, which is why Powell
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Speaker 3: adopted that kind of tough guy persona starting in twenty
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Speaker 3: twenty two. He knew expectations were elevated. He had to
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Speaker 3: get them back under control. The problem with letting politicians
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Speaker 3: get more involved and Trump's just a more aggressive version
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Speaker 3: of what every president, as you pointed out in the
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Speaker 3: last hour, Mike would like to be. He wants to
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Speaker 3: dictate interest rates himself. As soon as you believe that
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Speaker 3: political considerations will trump No pun but it's the right word.
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Speaker 3: Inflation considerations expectations become deanchored, so to speak, and fighting
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Speaker 3: inflation when the time comes and it will again, becomes
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Speaker 3: all the more difficult in terms of economic costs.
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Speaker 2: Moving on from the independence argument of the Federal Reserve,
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Speaker 2: we do have an upcoming meeting here in less than
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Speaker 2: a month, September seventeenth, where interest rates are widely expected
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Speaker 2: to be brought down by a quarter of a percent.
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Speaker 2: According to CME Group, we are looking at an eighty
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Speaker 2: seven point three percent probability of rates being a quarter
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Speaker 2: percent lower after that meeting. Where it goes from there, though,
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Speaker 2: I think, is a much more question.
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Speaker 3: Mike, you can't help but bring independence back into the discussion.
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Speaker 3: What the Fed does in September doesn't matter at all
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Speaker 3: compared to the insulation of the Fed from political decisions.
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Speaker 3: Over the long term, It doesn't matter at all. Nobody
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Speaker 3: will remember what the Fed did. Do you remember what A.
8:07
Speaker 3: Vulkar's predecessor, Miller was his name. I believe Carter replaced
8:14
Speaker 3: He brought Miller back to Treasury, put Vulcar at the Fed.
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Speaker 3: Do you remember what his last monetary? Of course not.
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Speaker 3: I'm asking a stupid question, and I don't even remember
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Speaker 3: who succeeded who So I'm obviously clueless myself. This is
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Speaker 3: insignificant in the scheme of things. The independence argument is
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Speaker 3: the issue, the only issue until this gets resolved. Now,
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Speaker 3: not to say we shouldn't and won't discuss other things,
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Speaker 3: but it's impossible to just talk about what's going to
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Speaker 3: happen in September without thinking about what happened last night
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Speaker 3: implies for what happens in subsequent meetings.
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Speaker 2: Yeah, you're right. If we are facing down nine percent
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Speaker 2: inflation again, or if we are facing an economy that
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Speaker 2: was surging in unemployment, we might be having an additional
8:55
Speaker 2: conversation about the FED and its responsibility. But at this
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Speaker 2: point in time, especially, there is no argument other than
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Speaker 2: what happens with central bank independence. Mark's fired up.
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Speaker 3: He's right now because inflation I'm thinking, No, I just
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Speaker 3: I'm actually.
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Speaker 2: Drawing a chart over his Wall Street Journal article.
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Speaker 3: Because inflation remains elevated. The Fed's in a pickle already. Yeah,
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Speaker 3: this just puts the pickle in a pickle jar with
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Speaker 3: a lot of other pickles. I don't know, if Chuck
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Speaker 3: we're here, he'd have a better yeah than a than
9:25
Speaker 3: a jar of pickles. I mean, any five year old
9:27
Speaker 3: would have a better analogy than one I just came
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Speaker 3: up with. Let's be honest, but this makes it all
9:31
Speaker 3: the more difficult. Look, financial markets look forward. As an investor,
9:34
Speaker 3: you buy a stock not because you think it's going
9:36
Speaker 3: to go up over the next few days. Maybe some
9:38
Speaker 3: people do, but most investors are long term investors. They
9:43
Speaker 3: are counting on equities appreciating in excess of the rate
9:46
Speaker 3: of return on bonds or whatever you could own without
9:49
Speaker 3: risk over the next five, ten years or longer. Stocks
9:52
Speaker 3: are thus priced based on what investors think will happen
9:55
Speaker 3: over the long term. It's it's more so than at
9:59
Speaker 3: any point in my adult life. Difficult today to make
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Speaker 3: that assessment because we don't know whether or not the
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Speaker 3: Fed's gonna be independent in a couple of years. Lisa
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Speaker 3: Cook may have done something very stupid, possibly even illegal,
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Speaker 3: in which case, yes, she's been targeted, but you also
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Speaker 3: you know you got caught stupid. That's a little cruel
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Speaker 3: and I'm prejudging, but more important, more important, Trump does
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Speaker 3: want to take the FED over. Nobody doubts that he
10:24
Speaker 3: said it. Take the guy at his word. He thinks
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Speaker 3: he knows interest rates better than anybody else. What does
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Speaker 3: that mean for future inflation? You think it'll be higher
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Speaker 3: or lower than if the Fed were independent. That's a
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Speaker 3: rhetorical question.
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Speaker 1: Of course, it's going to be higher.
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Speaker 3: Whether it's Trump or Vance or President AOC God forbid.
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Speaker 3: As you talked about in the last hour, We're gonna
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Speaker 3: have higher inflation going forward because of all this monkey business.
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Speaker 3: The Pandora's box has been opened.
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Speaker 1: Here.
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Speaker 2: All right, here's what I made you do. Mark, Yes, sir,
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Speaker 2: slap your hands on the table a couple more times.
10:53
Speaker 2: We're gonna take quick break. We're gonna distress. We're gonna
10:55
Speaker 2: talk about home insurance. After this quick break, we were
10:57
Speaker 2: right back.
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12:43
Speaker 2: Mark, I want to turn to a subject we talked
12:45
Speaker 2: a fair bit about, which is homeowners insurance, car insurance.
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Speaker 2: Really really all those types of insurance products that are
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Speaker 2: just skyrocketing and cost over the last few years. And
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Speaker 2: I have to admit, I do know that insurance cost
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Speaker 2: across the country, especially concentrated in a few areas, are
13:05
Speaker 2: through the roof. That part is not debatable. What I
13:09
Speaker 2: am having a really tough time getting a read on
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Speaker 2: is are we through the worst of that now and
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Speaker 2: we are normalizing at these higher prices like I have
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Speaker 2: heard reported on and seen reported on in markets like Florida,
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Speaker 2: or are we on the cusp of seeing this just
13:26
Speaker 2: balloon into a different animal across the country as insurance
13:31
Speaker 2: companies react to a number of factors, not only you know,
13:36
Speaker 2: change in climate and these factors. I honestly I can't
13:41
Speaker 2: get a read on that. I did hear reports recently
13:43
Speaker 2: from Florida that, yeah, it's been a mess for years.
13:46
Speaker 2: The state insured has been having to take on more
13:48
Speaker 2: and more policies. But after the state cracked down on
13:52
Speaker 2: all of these you know, roofing scams and damaged lawsuits,
13:58
Speaker 2: after a Florida allowed prices to adjust quite as dramatically
14:03
Speaker 2: as they have, no insurers are actually re entering the
14:07
Speaker 2: state and finding ways to make money at these higher
14:10
Speaker 2: prices and therefore people are dropping off of those plans.
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Speaker 2: But that's certainly not how this piece would put it.
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Speaker 3: So some of it is the frequency and the magnitude
14:20
Speaker 3: of extreme weather events, whether or not, regardless of how
14:23
Speaker 3: you think what's driving climate change, Rather it's happening. Just
14:28
Speaker 3: look at your insurance bill, or ask somebody in Florida
14:30
Speaker 3: or parts of California or any place that's exposed to
14:34
Speaker 3: extreme weather events. So you have to accept that premise
14:37
Speaker 3: climate change is happening, forget about whether or not humans
14:39
Speaker 3: are causing it. If that bothers you, and it's going
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Speaker 3: to drive extreme weather events that will in turn drive
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Speaker 3: property damage and make some areas too expensive to insure.
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Speaker 2: There's other factors, so yeah, go ahead. There's other factors
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Speaker 2: too that are pointed out right. There are labor shortages
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Speaker 2: for home construction and vehicle reconstruction. There are all sorts
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Speaker 2: of inflation problems.
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Speaker 3: Which makes which makes it more expensive rebuild pairs.
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Speaker 2: Yeah, so you need to rebuild that home that flooded,
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Speaker 2: it's going to be more expensive to do it now
15:11
Speaker 2: than it was previously. In the case of cars, they
15:13
Speaker 2: are a heck of a lot more expensive to repair
15:15
Speaker 2: because of all the sensors and technology that goes into them,
15:19
Speaker 2: because of all of the disruptions elsewhere across the globe,
15:22
Speaker 2: plimate change. Reinsurance is expensive, right, you buy it from Farmers.
15:25
Speaker 2: Farmers then reinsures through a big carrier as well. That
15:28
Speaker 2: reinsurance cost is up, and they do point out I
15:31
Speaker 2: don't know that this one rings true to me. Consumer
15:34
Speaker 2: credit score is dropping due to student debt repayments would
15:37
Speaker 2: drive insurance costs up. But if that's happening across the board,
15:40
Speaker 2: then I don't know that it really results in much
15:42
Speaker 2: of it in overall increase. But to me, I do
15:47
Speaker 2: think that if I am to take all the data
15:50
Speaker 2: that I've seen, I do think that we are getting
15:52
Speaker 2: to a more normalized place. But that normalized place is
15:56
Speaker 2: insurance costs that are way more expensive than they were
15:58
Speaker 2: five years ago. And I'm not but I think it's
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Speaker 2: part of why we're seeing such weakness in the housing
16:04
Speaker 2: market in Florida, for example. It's not just because things
16:08
Speaker 2: are oversupplied. It's because the cost of ensuring your home
16:12
Speaker 2: is literally up three, four, five x compared to where
16:15
Speaker 2: it was just ten years ago.
16:16
Speaker 3: In some cases, Yeah, this is going to sound insensitive
16:19
Speaker 3: and obvious, but people are going to move elsewhere. That's
16:23
Speaker 3: what prices do. Prices or signals, they contain information. It's
16:26
Speaker 3: not obvious. We take that for granted, which is why
16:28
Speaker 3: you let the price mechanism work.
16:31
Speaker 2: Which is also why the dumbest policy that both Florida
16:36
Speaker 2: and California have adopted, if you are trying to look
16:40
Speaker 2: at all this and get a good read on it,
16:42
Speaker 2: is for the state run insurers of last resort to
16:44
Speaker 2: come in and subsidize the cost of insurance.
16:47
Speaker 3: Yeah, because it distorts that mechanism.
16:49
Speaker 2: It distorts that market, right, I mean, the insurance companies
16:51
Speaker 2: are sending you a signal it is really expensive if
16:54
Speaker 2: you want to live in a hurricane alley. It is
16:56
Speaker 2: really expensive if you want to live in the forest
16:58
Speaker 2: where there's always a bunch of forest fires, and so
17:01
Speaker 2: don't do that, or if you do, we're going to
17:03
Speaker 2: make you pay a heck of a lot of money
17:04
Speaker 2: to rebuild your home once it burns down or floods.
17:08
Speaker 3: Yeah, that's the way insurance is, and thats.
17:10
Speaker 2: The way it should work. When when states get involved
17:14
Speaker 2: in saying, oh, well, no, you can't raise prices that
17:16
Speaker 2: much because it'll drive people out of our state. I
17:19
Speaker 2: get why they do it. They need to they're elected
17:22
Speaker 2: officials and they need to be re elected. But you
17:26
Speaker 2: are just causing a bigger problem down the road, as
17:28
Speaker 2: we saw in Florida, where a bunch of insurers just said, Okay,
17:31
Speaker 2: sounds good, see you later. We're not going to be
17:32
Speaker 2: forced to do business in your state, so we'll just
17:36
Speaker 2: find somewhere else to do business.
17:38
Speaker 3: But the question you started with, have prices plateaued as
17:42
Speaker 3: the price of insurance plateaued or will it continue.
17:44
Speaker 2: To go up? That it's really tough.
17:47
Speaker 3: The biggest driver is probably extreme weather event yes, right,
17:50
Speaker 3: of all of those that you cited, there are other contributors,
17:52
Speaker 3: but that's probably the largest.
17:55
Speaker 2: So the statistic I found just really compelling this data
18:01
Speaker 2: bank rate the average annual premium for just a generic
18:06
Speaker 2: three hundred thousand dollars home insurance policy in Louisiana last
18:09
Speaker 2: year six two hundred and seventy four dollars in Vermont,
18:13
Speaker 2: that same play on cost eight hundred and thirty four dollars.
18:16
Speaker 2: Totally understand why it should, but that is such a
18:20
Speaker 2: dramatic difference that I was just a bit taken aback.
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Speaker 3: Yeah, that makes that makes the difference in risks very relatable.
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Speaker 3: That's what prices are supposed to do. Express these things
18:33
Speaker 3: in a common unit that we can all relate.
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Speaker 2: To its Yeah, yeah, it's uncomfortable.
18:38
Speaker 3: But that's the way it's supposed to work.
18:40
Speaker 2: We have got to take a quick break in a
18:43
Speaker 2: minute here. When we come back, we're going to be
18:45
Speaker 2: talking a little bit about wroth accounts. Obviously big growing
18:50
Speaker 2: popularity over the last few years. How does one decide
18:54
Speaker 2: whether or not they should be participating in their wrath
18:57
Speaker 2: versus traditional four oh one k or iro Wall Street
19:01
Speaker 2: Watch next and the trivia winner after that quick break.
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19:30
Speaker 1: Time now for Wall Street Watch a complete look at
19:34
Speaker 1: what's moving markets so far today right here on the
19:37
Speaker 1: Financial Exchange Radio Network.
19:39
Speaker 4: Well, markets are mixed but mostly quiet, as investors mostly
19:42
Speaker 4: shrugging off the latest development between President Trump and the FED,
19:46
Speaker 4: where Trump ordered the removal of FED Governor Lisa Cook. However,
19:50
Speaker 4: Cook said Trump has no authority to fire her and
19:53
Speaker 4: won't resign right now. The Dow is off by only
19:58
Speaker 4: thirty five points, about a tenth of a percent. SMP
20:01
Speaker 4: five hundred is completely flat at the moment, and the
20:04
Speaker 4: Nasdaq is edging thirteen points higher. Russell two thousand is
20:08
Speaker 4: up by six tenths of one percent, ten year treasureel
20:11
Speaker 4: at four point two seven five percent, and crude oil
20:15
Speaker 4: off nearly two percent, now trading at sixty three dollars
20:19
Speaker 4: in fifty eight cents a barrel. Shares an Eli Lilly
20:22
Speaker 4: up about three percent after the pharmaceutical giant's weight loss
20:26
Speaker 4: pill cleared another lay straight stage trial. The higher dose
20:30
Speaker 4: of the pill help patients lose ten point five percent
20:33
Speaker 4: of their weight on average at seventy two weeks, compared
20:37
Speaker 4: to just two point two percent weight loss in the
20:40
Speaker 4: placebo group. Meanwhile, eight and C said it would buy
20:43
Speaker 4: some wireless spectrum licenses from Echo Star for twenty three
20:47
Speaker 4: billion dollars, sending shares an echo Star jumping eighty percent higher,
20:52
Speaker 4: while eight and T stock is down over one percent. Elsewhere,
20:56
Speaker 4: retailers including Canada goose vf Core and Rocky Brands are
21:01
Speaker 4: seeing gains after Baird upgraded the stocks to outperform. Truest
21:06
Speaker 4: upgraded ship maker AMD to buy from hold. Where the
21:09
Speaker 4: analysts noted that Hyperscale customers have been increasingly partnering with
21:14
Speaker 4: the company and expressing trust interest in deploying AMD at scale.
21:18
Speaker 4: AMD shares are climbing over one percent higher. Interactive Brokers
21:23
Speaker 4: will join the S and P five hundred replacing Walgreens,
21:27
Speaker 4: and Digital identity management company Octa will report their earnings
21:32
Speaker 4: after today's closing bill. I'm Tucker Silva and Mattis Wall
21:35
Speaker 4: Street Watch and in the previous segment we asked you
21:38
Speaker 4: the trivia question which Comedy Legends served as a combat
21:41
Speaker 4: engineer during the Battle of the Bulge. That would be
21:45
Speaker 4: mel Brooks. Martin from Berkeley, Mass is our winner today,
21:49
Speaker 4: taking home a Financial Exchange Show t shirt. Congrats to Martin,
21:53
Speaker 4: and we play trivia every day here in the Financial
21:56
Speaker 4: Exchange See complete contest rules at Financial Exchange Show dot com.
22:00
Speaker 2: CNBC asks about roth iras versus roth Flora one ks,
22:04
Speaker 2: and quite honestly, I don't feel as though that's the
22:07
Speaker 2: right question, so it brings up a few points about
22:10
Speaker 2: the two, and I do see people making this mistake.
22:13
Speaker 2: Sometimes many people can contribute to both a roth ira
22:18
Speaker 2: or a wroth for a one K. If you make
22:20
Speaker 2: too much money, you cannot do the IRA option. The
22:25
Speaker 2: IRA offers you, in my mind, at least one piece
22:28
Speaker 2: of additional flexibility, which is early withdrawals. You can go
22:32
Speaker 2: and touch your wroth IRA prior to fifty nine and
22:36
Speaker 2: a half for some of that money in a way
22:39
Speaker 2: that you really can't with your four A one K,
22:41
Speaker 2: And so that does give you some additional flexibility. But
22:45
Speaker 2: my point would be, if you're putting money into a
22:49
Speaker 2: wroth in order to be able to pull it out
22:52
Speaker 2: a few years from now, you maybe shouldn't be considering
22:55
Speaker 2: doing it in the first place. So I'm not sure
22:57
Speaker 2: that that's a huge advantage in my mind. Right, If
22:59
Speaker 2: you're saving money for a home and you want the
23:01
Speaker 2: flexibility of the roth iray like, yeah, that's not a
23:04
Speaker 2: great a great reason to do so For most people,
23:07
Speaker 2: the four to one K option is going to provide
23:09
Speaker 2: far more benefit. You're going to get matching contributions from
23:13
Speaker 2: your employer. In most cases, you're going to get way
23:16
Speaker 2: higher contribution limits, I think because all the plan sponsors
23:19
Speaker 2: have bought their congress people in order to make sure
23:22
Speaker 2: that those contribution limits are much higher for four oh
23:24
Speaker 2: one k's rather than self directed I rays. There are
23:27
Speaker 2: just a ton of advantages to those retirement plans that
23:30
Speaker 2: just don't exist for regular old traditional I rays and
23:35
Speaker 2: wroth IRA rays.
23:36
Speaker 3: So max out on your employer sponsored plan. As a
23:40
Speaker 3: general rule, it's different for everybody, but as a rule,
23:42
Speaker 3: you should consider contributing as much as you can to
23:44
Speaker 3: your employer sponsored plan and then with any excess potential savings.
23:49
Speaker 2: Because there's always exception if you're eligible. Like you know, honestly,
23:52
Speaker 2: there are some really bad employer sponsored plans that are
23:55
Speaker 2: out there. I've seen them, you know, employer sponsored plans
23:58
Speaker 2: that tie up your money for a decade in an annuity.
24:02
Speaker 2: There there are employee sponsored plans that are egregiously expensive
24:05
Speaker 2: to contribute to. But as a rule of thumb, like, yeah,
24:10
Speaker 2: a lot of them are pretty darn good, pretty darn compelling,
24:13
Speaker 2: and come with a bunch of other benefits alongside them
24:17
Speaker 2: that people don't always take advantage of.
24:19
Speaker 3: And not everybody's eligible for a roth IRA.
24:22
Speaker 2: Right for a roth ira and not everybody's even eligible
24:25
Speaker 2: for a traditional iray right. If if you or your
24:27
Speaker 2: spouse make too much, it can it can phase you
24:30
Speaker 2: out of your ability to contribute to it. That all
24:34
Speaker 2: of that haven't been said. Employer sponsored plans, I think
24:39
Speaker 2: people are generally good about enrolling in them because their
24:42
Speaker 2: employers haven't been defaulted in defaulted in, so like positive
24:47
Speaker 2: when it comes to just about everything else traditional versus ROTH.
24:51
Speaker 2: You know, how do I invest in them? What are
24:53
Speaker 2: all these options? What do they mean for me? There
24:56
Speaker 2: is a ton of confusion out there for good reason.
24:59
Speaker 2: They are co complex products, and they are about to
25:02
Speaker 2: become a little bit more complex over the course of
25:03
Speaker 2: the next few years, with the DL taking a look
25:07
Speaker 2: at things like annuities and private equity that can be
25:09
Speaker 2: put into these as options for investors. They won't all
25:13
Speaker 2: happen immediately, but many of them could be included in
25:16
Speaker 2: the future. If you have questions about your employer plan
25:22
Speaker 2: and how it's going to work for you in retirement,
25:24
Speaker 2: which by the way, is a whole subject. We didn't
25:26
Speaker 2: even get into how well or poorly these devices work
25:29
Speaker 2: once you're actually retired and pulling money out of them.
25:32
Speaker 2: Please give our folks at Armstrong Advisory Group a call
25:36
Speaker 2: the numbers eight hundred three nine three for zero zero one.
25:40
Speaker 2: We provide free consultations with folks about their overall financial strategy,
25:44
Speaker 2: which obviously includes the huge junk of portion of their
25:47
Speaker 2: net worth that folks have in those employer plans. And
25:51
Speaker 2: there's all sorts of complexities that go into it. Again,
25:53
Speaker 2: that number eight hundred three nine three for zero zero one.
25:57
Speaker 1: The proceeding was paid for by Armstrong Advisory Groups, a
26:00
Speaker 1: registered investment advisor. Nothing in the ad or in any
26:02
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
26:05
Speaker 1: your own financial tax into state planning advisors before making
26:08
Speaker 1: any investment decisions. Armstrong make contact you to offer investment
26:11
Speaker 1: advisory services.
26:13
Speaker 2: Average annual power bills in the year through May increased
26:19
Speaker 2: at a pace of six percent year over year so far,
26:23
Speaker 2: and it seems as though, according to most experts, it's
26:27
Speaker 2: pretty easy to determine where the blame goes for that,
26:30
Speaker 2: which is the massive new demand that has come online
26:34
Speaker 2: from artificial intelligence.
26:37
Speaker 3: Yeah, this like universal agreement on that, isn't there.
26:39
Speaker 2: It's really not.
26:40
Speaker 3: I've not seen anybody's site. Sometimes a spurt of economic
26:43
Speaker 3: growth would increase demand for electricity for obvious reasons. Economy
26:47
Speaker 3: still seems to be growing out or above a shorts
26:49
Speaker 3: trend rate, but that's probably not the culprit. Every serious
26:53
Speaker 3: attempt at attribution year points to AI data center.
26:58
Speaker 2: It is like a single easiest economic lesson of supply
27:02
Speaker 2: and demand that I think you can come up with.
27:04
Speaker 3: Yeah, surprisingly helpful framework supplying.
27:08
Speaker 2: Very simply put, electricity supply is pretty darn fixed in
27:13
Speaker 2: the short term. You can't easily bring on a nuclear
27:17
Speaker 2: power plant or a new gas powered or coal powered
27:20
Speaker 2: fire power plant. Yeah, and you are suddenly having all
27:25
Speaker 2: of these new online models for artificial intelligence demanding a
27:28
Speaker 2: whole bunch of new electricity in order to generate the
27:31
Speaker 2: responses that are needed to make them work. And so
27:36
Speaker 2: you have electricity electricity costs going up, just as we
27:39
Speaker 2: talked about and predicted at length here. It's again not
27:42
Speaker 2: rocket science on this one. You have supply and demand
27:45
Speaker 2: for electricity and a massive new demand for it without
27:48
Speaker 2: the ability to rapidly increase the supply.
27:50
Speaker 3: Benefits of AI better materialize and soon, or we're gonna
27:55
Speaker 3: have a serious economic hangover. That's not my Yeah, a
28:00
Speaker 3: lot of people are increasingly concerned about the shall we say,
28:04
Speaker 3: over investment in AI and AI related Yeah.
28:08
Speaker 2: We talked about this a little bit briefly yesterday, but
28:10
Speaker 2: I think it is worth mentioning again the amount of
28:13
Speaker 2: investment that these massive behemoths have made so far. While
28:19
Speaker 2: a lot of excitement that it's due, well, it's generated
28:21
Speaker 2: a ton of excitement, it's largely just been a transfer
28:24
Speaker 2: of cash from a bunch of very cash heavy businesses Facebook,
28:27
Speaker 2: Google to name two of them, over to a new
28:31
Speaker 2: emerging company in video. It's been we're going to buy
28:34
Speaker 2: all of your chips and we're going to try and
28:36
Speaker 2: do something cool with it. To this point, I won't
28:40
Speaker 2: say they haven't done anything cool with it, but they
28:42
Speaker 2: certainly haven't done anything profitable with it.
28:45
Speaker 3: Do you see mit study over the weekend?
28:47
Speaker 2: No?
28:48
Speaker 3: The upshot, I'll be quick, just five percent of integrated
28:51
Speaker 3: AI pilots, So experiments with generative AI, working them into
28:55
Speaker 3: your existing workflow software, stuff like that, just five percent?
28:59
Speaker 3: Or extract any value now that maybe that's not unusual.
29:02
Speaker 3: They don't provide a reference point like what percentage of
29:05
Speaker 3: fiber optic investments increased in a measurable way the bottom
29:09
Speaker 3: line of whatever, But the researchers in it have concluded
29:14
Speaker 3: that so far the return on investment is negligible.
29:20
Speaker 2: The upshot to all of this is that many people
29:22
Speaker 2: are making the comparison to I don't even know the
29:26
Speaker 2: names of the companies that invested all the money and
29:28
Speaker 2: laying the fiber optic cable to make the Internet happen.
29:31
Speaker 2: And so the question those companies spent a ton of
29:35
Speaker 2: money and were very highly valued for a long period
29:38
Speaker 2: of time, and then they don't even exist anymore because
29:41
Speaker 2: all they did was build the groundwork for new companies
29:43
Speaker 2: to come around, disrupt and invest. And in the meantime,
29:46
Speaker 2: you had a giant crash in the dot com bubble
29:49
Speaker 2: that sent stocks down a lot in that intermediate period
29:53
Speaker 2: of time. I won't quote the amount because.
29:56
Speaker 3: Eighty three percent was the fall in the Nasdaq. I
29:59
Speaker 3: know you knew that you would just try to shield
30:00
Speaker 3: people from it, but.
30:01
Speaker 2: I didn't remember it is eighty three percent.
30:03
Speaker 3: Eighty two to eighty three percent following lastech.
30:05
Speaker 2: Yeah, so that is the question that's being raised by many,
30:07
Speaker 2: is hey, our Facebook and Google just doing what those
30:10
Speaker 2: companies did back in nineteen ninety something and laying the
30:14
Speaker 2: groundwork from before the native companies to completely disrupt their business.
30:17
Speaker 3: Mind it, it happens over and I know you know this,
30:19
Speaker 3: It happens over and over again. This exuberance over investment
30:22
Speaker 3: followed by a crash railroads come to mind. It's sort
30:25
Speaker 3: of like the textbook example. There was useful infrastructure left over,
30:29
Speaker 3: just as there was after the dot com crash. So
30:31
Speaker 3: maybe this is unavoidable and even in some ways helpful,
30:35
Speaker 3: although you'd like to think we could achieve it without
30:37
Speaker 3: a market bubble followed by a very painful bursting of
30:41
Speaker 3: that bubble. But it's not unusual.
30:43
Speaker 2: Quick break when we come back. Stacker lettas next.
30:46
Speaker 1: The Financial Exchange is now available every day from eleven
30:49
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30:53
Speaker 1: Stay informed about the latest from Wall Street, fiscal policy,
30:56
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31:00
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31:04
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31:20
Speaker 2: A little bit of good news out there for folks,
31:23
Speaker 2: say a tax refund surge likely to be coming next year.
31:27
Speaker 2: The basic story here is the new Trump tax cuts
31:30
Speaker 2: that were put into place, most of them backdated to
31:33
Speaker 2: January first of this year, not all. Several of them
31:36
Speaker 2: go into place in twenty twenty six. But because of that,
31:40
Speaker 2: and because of the amount that people have already withheld
31:44
Speaker 2: plus the IRS coming out and announcing that withholding levels
31:47
Speaker 2: are going to remain the same for the current calendar year.
31:50
Speaker 2: What it's likely to result in is a whole bunch
31:53
Speaker 2: of people who are withholding currently more taxes than they
31:56
Speaker 2: need to, especially when it comes to things like taxes
31:58
Speaker 2: on tips, deductions on not deductions on Social Security. The
32:03
Speaker 2: new sixty five plus age tax deductions likely the resulting
32:08
Speaker 2: a whole bunch of people receiving larger refunds next year
32:12
Speaker 2: than anticipated. The author of this story and MarketWatch makes
32:15
Speaker 2: the argument that that's a good reason for the Fed
32:18
Speaker 2: to hold interest rates steady, and I think that argument's
32:24
Speaker 2: a little bit more convoluted. I mean, I generally think
32:26
Speaker 2: that the Fed should probably be pretty hesitant to lower
32:29
Speaker 2: interest rates in general right now for other reasons. But
32:32
Speaker 2: quite honestly, the amount of refunds going to people wasn't
32:35
Speaker 2: one of them. But it is true. Look, when people
32:38
Speaker 2: get refunds, they tend to spend them, and if those
32:42
Speaker 2: refunds are going to be larger than usual in the
32:45
Speaker 2: beginning March of twenty twenty six, then we might expect
32:49
Speaker 2: a big surgeon.
32:49
Speaker 3: The politicians set it up that way it's an election year.
32:52
Speaker 3: They knew big refunds were going to hit only months
32:53
Speaker 3: before the elections. Some of that, as you say, will
32:56
Speaker 3: be spent. Economic growth is already running at its potential rate,
33:02
Speaker 3: maybe a little bit above. Who knows what it'll be
33:03
Speaker 3: in a year. So yeah, it should be taken into
33:07
Speaker 3: consideration by monetary policy makers. That that all makes sense.
33:11
Speaker 3: I do find economic context.
33:13
Speaker 2: I do find that part of this job exceedingly difficult.
33:17
Speaker 2: Right The job of anybody that's trying to analyze what
33:22
Speaker 2: comes next for the economy and markets is part of
33:26
Speaker 2: it is analyzing, Okay, not only what would I do
33:31
Speaker 2: had I control, like what do I think the FED
33:33
Speaker 2: should do? But what will they actually do? Is an
33:38
Speaker 2: increasingly difficult thing to do, especially you know it's length
33:41
Speaker 2: about independence and stuff like that. But setting aside your
33:44
Speaker 2: own personal views of hey, this is how economics work
33:47
Speaker 2: and this is clearly what's going on the economy, and
33:49
Speaker 2: putting yourself in the shoes of J. Powell and that
33:51
Speaker 2: twelve member board to say, okay, but what would they
33:54
Speaker 2: do in this?
33:55
Speaker 3: This is you've just articulated something called the Lucas critique,
33:57
Speaker 3: named after Bob Lucas, Nobel Laureate died last year. His
34:00
Speaker 3: point is that statistical estimates of responses of say spending
34:05
Speaker 3: to a tax cut or a refund, they can't be
34:08
Speaker 3: relied on in the future because of expectations. People know
34:12
Speaker 3: that if they spend, the FED will leave rates where
34:15
Speaker 3: it is where they are, so they won't spend. What
34:18
Speaker 3: Lucas basically said is that these relationships are not He
34:23
Speaker 3: might have called it policy invariant, meaning if people expect
34:27
Speaker 3: the FED to tighten because they get a tax refund,
34:30
Speaker 3: they won't spend it in the first place. So you
34:33
Speaker 3: end up with this feedback because of expectations. That causes
34:37
Speaker 3: traditional relationships, historical statistical if you will relationships to break down.
34:43
Speaker 3: And I wonder, Mike, if maybe that's what's going on
34:45
Speaker 3: in markets today. There's all this hullabaloo about Trump attacking
34:49
Speaker 3: the FED, which he is. Trump wanted to control interest rates,
34:52
Speaker 3: which he does. He's a boss, he wants to control everything.
34:55
Speaker 2: Well, beyond all that he said, I'm just saying.
34:57
Speaker 3: I'm just explained it's his personality. He wants to control everything,
35:00
Speaker 3: and Constitution maybe says differently. We're gonna find out. That's
35:03
Speaker 3: how I view it. Simple framework. Markets aren't reacting much.
35:06
Speaker 3: Even the bond market. You would think, holy mackerel, the
35:09
Speaker 3: president's about to take control of interest the money supply
35:12
Speaker 3: more accurately, this means high inflation in the future. The
35:16
Speaker 3: yield on very long term government debt is up a bit,
35:19
Speaker 3: but nothing suggesting cataclysm. Why is that? Perhaps because of
35:23
Speaker 3: expectations people don't think he'll follow through, because he's fears
35:28
Speaker 3: rising long term rates. If he does follow through, it
35:31
Speaker 3: gets complicated, is what I'm saying, and there is no
35:34
Speaker 3: solution as a result.
35:35
Speaker 2: It does get complicated, and it just reminds me to
35:38
Speaker 2: not read too much into day to day moves in
35:40
Speaker 2: any market, because they oftentimes make no sense in the
35:43
Speaker 2: context of things. Yeah, it's just, yeah, it's sometimes tough
35:48
Speaker 2: to read what all of these things mean. Markets remain
35:51
Speaker 2: in slightly mixed territory, now currently off four points less
35:56
Speaker 2: than less than one twentieth of one percent to the
36:00
Speaker 2: SMP up by less than two points less than one
36:04
Speaker 2: twenty percent of the NASDAC, with the biggest move of
36:06
Speaker 2: the day here up twenty three points or one tenth
36:09
Speaker 2: of a percent. Checking out the bond market here, as
36:12
Speaker 2: Mark mentioned, we've got the yield on the ten year
36:15
Speaker 2: Treasury now sitting at four point two seven three percent,
36:18
Speaker 2: not a big move either. And heading over to energy
36:21
Speaker 2: markets for a moment, we've got the price of oil
36:24
Speaker 2: down two percent today. That's the biggest move in any
36:26
Speaker 2: market that I've seen so far, down to sixty three
36:29
Speaker 2: forty five a barrel. That is all the time we
36:31
Speaker 2: have for today's financial exchange. We'll be right back at
36:34
Speaker 2: it tomorrow. Folks, have a great rest of your day.