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Why young Americans need to start worrying about Social Security · The Financial Exchange Show

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with Chuck Zutta and Paul Lane.
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Speaker 2: Chuck, Paul and Tucker kicking off another week here on
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the Financial Exchange. It's a busy one that we've got
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for you this week. Not so much on the economic
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data front. A couple key pieces of data that we're
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gonna be looking at. Thursday we get retail sales and
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jobless claims. Friday we're gonna be getting building permits and
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housing starts. So little bit of data, but we are
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right in to earning season. Paul, Tomorrow, here's let's let's
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let's go through some of the names. I'm only going
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to do companies with market caps above one hundred and
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fifty billion, because below that, what are you really you know? Tomorrow,
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United Health, Johnston and Johnson, Bank of America, Goldman Sachs. Wednesday,
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Abbott Labs, Morgan Stanley, Thursday, Netflix, Blackstone, Intuitive Surgical, Friday,
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Procter and Gamble, American Express. So getting right into some
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big names, and then next week is just the monster one.
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Next week is where all of the action is at.
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Next Tuesday, October twenty second, Microsoft Alphabet, Visa, General Electric, Danaher,
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Texas Instruments, Philip Morris, Verizon, rayth the On, Lockheed Martin.
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That's just next Tuesday, Wednesday, October twenty third, Meta, Tesla,
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Coca Cola, T Mobile, thermofitsh Er Scientific, McDonald's IBM service
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now next Era Energy, at and T still somehow above
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one hundred and fifty billion dollars in market cap Thursday,
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October twenty fourth, Golly g Willkers, we got Apple, Amazon, MasterCard, Caterpillar,
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S and P Global, Union Pacific.
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Speaker 3: Honeywell, I mean, good day for a live broadcasts.
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Speaker 2: If you can't get excited about this, then you are
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just not a nerd. You are just not a nerd.
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But this is the kind of stuff that gets us
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all excited. And you know, looking at where we are
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right now, Paul has the S and P five hundred
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fallen apart in September, No, it did not exactly.
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Speaker 3: We're two weeks.
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Speaker 2: Into October now and continuing to make new all time highs.
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The S and P five hundred over fifty eight hundred
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on Friday for the first time ever.
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Speaker 3: At the close.
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Speaker 2: And look, I know that there is a lot of
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fear out there in markets. I can't tell you how
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many people are you know, freaking out all chuck, what's
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gonna happen to the markets because this election, Guys, the
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next time that an election causes a bear market will
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be the first, at least in the United States.
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Speaker 3: It's just not how it works.
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Speaker 2: And like, this is not a statement on either political party,
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because look, I got friends who were Republicans Democrats into
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and I don't know if I know anyone in the
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Green Party, but.
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Speaker 3: I'm sure they exist too. It would be a good
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time that grabs the people. I'm sure they're real people.
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Speaker 2: But here's my point is, I look back at the
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last several elections twenty eight, twenty twelve. I can't tell
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you how many Republicans I knew that said, hey, if
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Obama wins, market's gonna crash and this is gonna be horrible.
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And you know what, that's not what happened to either time.
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Both Obama turns terms had positive returns in the stock market.
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I can't tell you how many people I know who
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were Democrats who said back in twenty sixteen, hey, if
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Trump wins, it's over like that that's gonna be it
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for markets. And it wasn't again positive returns over the
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course of the term. Twenty twenty, Joe Biden. Can't tell
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you how many Republicans said, Hey, if Biden wins, it's over,
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and markets continuing to hit all time high. So I
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don't know who's gonna win the election in three weeks.
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I'm not a political prognosticator. I don't do polls. I
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don't have any scientific input into any of that. But
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what I can tell you is, look, when there is
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fear in markets about something, it's rarely the thing that
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actually ends up causing problems in markets, because once the
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market knows about it, it can be afraid of it. Okay, well,
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everyone's prepared their portfolio for it, and you get on
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with your day. It's the unexpected stuff that freaks markets out. Hey,
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you know what, We're shutting down flights to everywhere and
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shutting down the whole world. Back in twenty twenty, no
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one had that on their bingo card, and so market's
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freaked out. Twenty twenty two, Hey, guess what. Price inflation's
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running nine percent right now. And by the way, Russia
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just invaded Ukraine, and so commodity prices are through the roof.
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Gee stocks and bonds get hammered because it was not expected. Like,
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I know people were about inflation, but you still don't
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expected it nine percent.
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Speaker 3: No, definitely not the stuff that spooks markets.
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Speaker 2: Hey, Bank of Japan earlier this summer, late July early
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August unexpectedly decides to raise interest rates S and P
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five hundred seals off ten percent because no one's positioned
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for it. The bond market's freaking out, Like, what the
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heck do we do here? Remember all the talk about
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that back then.
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Speaker 3: Carried interest trade was that it Yeah, it was the
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the what is that? The carry trade? Carry trade?
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Speaker 2: You know, everyone in their grandmother learned about the carry
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trade that day. Like, that's this stuff that freaks markets out?
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Is the stuff that people aren't expecting when everyone is
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nervous about the election happening. That's very rarely the proximate
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cause of a sell off. Now, you could certainly, don't
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get me wrong. You get an escalation of something in
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the Middle East or something else unexpected happening. The banker
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Japan decides that it's taken interest rates to the moot. Sure,
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we could have something here, but ultimately, what powers markets
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in the long term, it's not who's in office.
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Speaker 3: It's not.
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Speaker 2: Any it's how much stuff can you sell to people
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and how wide are your margins on selling the stuff.
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Speaker 4: The Federal Reserve to us as what we do on
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a data basis has far more impact that we monitor
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than the presidential election. Their decisions are stuff that we
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speak about a lot, prognosticate about it. That is the
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more significant one on our end of things. On the
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economic side.
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Speaker 2: I'll even go so far as to say, look, who
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wins control of Congress is more important? Sure, because absolutely, again,
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a president can't make a budget on his own, president
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can't write legislation on his own. And so like, if
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if you want to say, hey, this is an important election,
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fine focus on Congress because that's where the appropriations actually happen.
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Like I'll make I'll make a case for that. Yeah,
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sure we can say that. So as we look at
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this earning season that is upcoming, and remember, as our
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old friend Larry Kudwell used to say, earnings are the
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mother's milk of stocks, and so that's what drives it.
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Speaker 3: You woke over the history of the s and P.
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Five hundred.
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Speaker 2: The compound annual growth rate of earnings in the S
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and p five hundred is six and a half percent.
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That's how you get the growth in stocks over the
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long term, it's by earnings growing, it's by nothing else.
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And the short term, sure, you can have fluctuations in
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price to earnings and this and that. But when we
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look at this earning season, the thing that is wild
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that we're finally starting to see a little bit of
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earnings growth creeping in aside from those big tech companies.
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Speaker 3: Paul, Yeah, we are.
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Speaker 4: In terms of the numbers that we're looking at for
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this quarter, we're anticipating a four percent growth in profits
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from a year ago. And then really it's the Q
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four numbers that have a lot of analysts quite excited
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with an anticipation of perhaps fourteen and a half percent
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earnings growth coming for the fourth core of the year,
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and that Doublege's number would be tremendous.
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Speaker 3: It's always a little tricky.
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Speaker 4: Check when you have navigating earnings season because of the
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adjustments that are made beforehand, and I think JP Morgan
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and Wells Fargar were good examples of that on Friday,
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where the bar, if you think about hurdling, was lowered
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to let's say about our ankles and you can easily
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clear that. So when you make that adjustment prior to
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it makes the earnings look relatively positive. So obviously the
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numbers I'm quoting here, that's just numbers growth. But I
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always hate when the expectations piece gets brought in when
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they say, oh, seventy percent of companies in the S
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and P five hundred have beaten earnings expectations this quarter,
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because oftentimes those are kind of manipulated a little bit beforehand.
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Speaker 2: They are, I mean like it's consistently manipulated, which is
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something that it's predictable with what you see. Like generally,
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this is actually a great topic to discuss. So generally,
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from the start of the quarter to the end of
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the quarter that you're going to be measuring, you typically
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have anywhere between about it two and a half into
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three and a half percent decline in earnings projections. That's
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completely normal, and it's it's basically the game that gets played.
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So if you know to expect that, then what you
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can do is say, Okay, how much are those they
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called they're called earnings revisions, like the revisions of the
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earnings projections. How much are those revisions actually changing over the.
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Speaker 3: Course of the quarter.
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Speaker 2: When you see larger earnings revisions, it's usually a sign
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that hey, there's a bigger problem than we think. When
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you see smaller earnings revisions, it's a sign that, hey,
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things are actually holding up pretty well and we're not
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overly concerned about where things are going here. Twenty twenty
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two as an example, remember S and P five hundred
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was down. You know, we went into a bear marketing
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twenty twenty two. Yep, the earnings revisions that we were
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seeing in the quarters were like seven or eight percent
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a quarter. They were big, big drops that we were seeing.
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This year as an example, you're running basically kind of
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standard two to three percent over the course of the quarter,
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and so there hasn't been anything that has been concerning
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to analysts over the course of the quarter that would
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lead to those larger projected drops. The question is going
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to be, look, this is a market that's over twenty
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one x forward earnings right now and forward earnings next year,
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by the way projected S and P five hundred projected
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see almost fifteen percent earnings growth next year according to
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data compiled by fact Set. That's a that's a big
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number that you got to hit right it's a big
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number you gotta hit. So it's an expensive market with
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a lot of growth priced in. But counter to this
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is look valuation is a horrible timing tool. You can
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have markets overvalued for years on end before they finally,
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you know, come back down to earth. And just because
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something looks expensive doesn't mean that it has to fall
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apart tomorrow. Let's take a quick break here. When we
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come back, let's talk a little bit about what we
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saw from banks last week as they kicked off earning season,
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talking JP Morgan and Wells Fargo in their view on
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the economy.
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13:07
Speaker 2: Paul, what's your favorite kind of taco? Softer, hard shell,
13:10
soft tucker?
13:12
Speaker 5: Depends on the day, but usually soft.
13:13
Speaker 3: Interesting.
13:14
Speaker 2: I'm a hardshell guy myself. When it comes to the economy.
13:18
The question is soft landing or hard landing?
13:20
Speaker 3: And do you do the standing stuff though? That's the
13:22
question I have for you. No, no, no, So when
13:25
I do the.
13:25
Speaker 5: Hard shells, a normal hard shell, you know, if you
13:28
overload it then it's just gonna collapse in you. To
13:31
standing stuff is like, oh, there's a base here.
13:33
Speaker 2: Two options Number one, Okay, my wife and I may
13:36
actually have You know, when you go to a restaurant
13:38
they got those metal taco trays.
13:40
Speaker 5: Oh yeah, yeah, that's the way to do it, by
13:42
the way, but keep going.
13:43
Speaker 2: You get a couple of those, they're not expensive, they're
13:45
a few bucks each and they're good for the rest
13:47
of your life. So that's way number one is, Hey,
13:50
you have those set up instead of just trying to
13:52
lay them on the plate and then it's spilling and everything.
13:54
Speaker 1: Yeah.
13:54
Speaker 2: Yeah, Also a big fan of the taco salad mash
13:58
that hardshell every Tuesday, actually hardshell up and just get
14:02
it all in there, and.
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Speaker 3: That's the way to go. So about the economy though.
14:07
Speaker 2: About the economy, JP Morgan and Wells Fargo two big banks,
14:11
and why banks matter to the economy is obviously, you know,
14:15
obviously obvious, which is obvious obviously, And I think that
14:21
the big thing is they can tell you a lot
14:24
about what's going on in the lending space, which if
14:26
you look at where that marginal economic growth tends to
14:30
come from, it's from the expansion of credit. You know,
14:32
we a lot of times when when we talk about
14:35
the amount of loans outstanding or the amount of credit outstanding,
14:40
it's done so with an air like an air of concern, like, gee,
14:44
there's a little too much lending. You know, we're kind
14:46
of nervous about this, but ultimately it is successful lending
14:50
that helps to grow the economy. So, Paul, when we
14:53
look at what these banks reported last week, what kind
14:57
of clues and insights did they give us about the
14:59
he health of the lending they've been doing.
15:02
Speaker 3: Some of the.
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Speaker 4: Takeaways that we had is on the multi family side
15:05
of things. GP Morgan mentioned that they're starting to see
15:08
a little bit of an uptick and some encouraging signs
15:10
there in terms of new originations as some of those
15:13
longer interest rates have come down a bit. Granted, you
15:16
can make the argument that they've spiked up a bit
15:18
recently over the course of the last week or so,
15:20
but there was a period of time, certainly on the
15:23
shorter end of the curve where we've seen a pullback there,
15:26
and that's where a lot of those multifamily debts are
15:29
based off of the loans there are based on the
15:31
shorter side of things, So a little bit of resiliency
15:35
on that point. On the multi family side of things.
15:37
We also saw just on the consumer and it's heuse
15:40
in general a little bit different from the loan side
15:42
of things. It seems as if the CEO of JP
15:45
Morgan indicated that the consumer continues to be on a
15:47
solid footing and the speedding patterns that are seeing are
15:51
pretty consistent. They have seen a slight decline in terms
15:54
of card services volume over the course of the last
15:56
three quarters from nine percent growth eight percent and seven
16:00
percent in Q three, so slowing down a little bit,
16:03
but it doesn't seem to be check from any of
16:05
the information that I parssed through overly concerning in terms
16:08
of where the consumer is. And then, like I said,
16:11
Multi family, a little bit of an uptick on the
16:13
lending side.
16:14
Speaker 2: Yeah, it's it's something where we had started to see
16:18
some signs and these might still be here. Over the
16:20
summer where I remember Ali Financial came out and said
16:24
they had some questions about their auto lending business that
16:28
was starting to look a little bit problematic. I can't
16:31
remember if it was Capital One or someone else said
16:33
that they were seeing an uptick in their credit card
16:37
defaults and things like that.
16:39
Speaker 3: But overall the.
16:41
Speaker 2: Big thing is look, credit card defaults and auto loan defaults.
16:46
They're obviously problematic for the individuals who are going through those,
16:49
like anyone who's going through a situation where your budget's
16:52
so stressed that you can't pay those loans. It's a
16:54
real problem from the perspective of the US economy. You've
17:00
got to get to, you know, a really high level
17:03
for that to be the thing that causes enough drag
17:07
for it to slow the US economy. Just because they're
17:10
in the context of the overall economy. They're a fraction
17:14
of the size of the housing loan market, and so
17:17
they just don't drive as much economic activity.
17:20
Speaker 3: To begin with.
17:21
Speaker 2: Both the credit card and auto loan market are about
17:24
a tenth of the size of the mortgage market. They're
17:29
a tenth of the size. So it's not say they
17:31
can't cause problems, but the scale is much smaller, and
17:35
they can be overpowered by something as simple as, hey,
17:39
the housing market is you know, starting to you know,
17:41
pick up steam. I'm not saying it is, but if
17:43
it were okay, that can paper over a lot of
17:46
problems in credit cards and auto loans, just because the
17:50
housing market is so much bigger in terms of the
17:53
dollars involved. So that's what we got going on there.
17:56
Boeing continued bad news for them. They announce they're going
17:59
to be cutting seven it's seen thousand jobs, ten percent
18:01
of their global workforce. They're delaying production on their seven
18:05
seven seven X plane, which is kind of a new
18:10
version of their seven to seven seven. They're gonna be
18:12
booking five billion dollars in total charges as a result
18:17
of this, and this is they try to keep things
18:20
financially stable as they're now in the midst of a
18:23
month long strike that doesn't seem to be getting anywhere
18:26
close to a resolution.
18:28
Speaker 4: You always know it's bad news, Chuck, when you're dumping
18:30
this statement as a company at four point thirty on
18:33
the Friday, heading into a high long weekend where the
18:35
bank the banks are going to be closed on Monday,
18:38
and that's when this information came out. There is a
18:41
million different negative stats that I could quote, but they've
18:44
burned eight and a half billion of cash this year.
18:47
They're on the potential brink of being downgraded to junk
18:51
status from a credit perspective, which would just make things
18:54
even harder as they go through what is a significantly
18:57
high uphill climb to try and get this company in
19:00
the right direction. The strike is only making things more challenging.
19:03
With thirty three thousand machinists being on strike in Seattle
19:06
for more than a month, and as you mentioned, delaying
19:09
their seven seven seven X till twenty twenty six. That
19:12
was supposed to come out in twenty twenty, so there
19:15
are years behind on that front and just in a
19:17
really difficult position heading into this quarter, this couple next quarters.
19:23
Speaker 3: Here, let's take a quick break here.
19:25
Speaker 2: When we come back, it's going to be time for
19:29
Wall Street Watch, and then we're talking about social security
19:34
and gen Z.
19:35
Speaker 3: That's right, not just for boomers, gen Z.
19:38
Speaker 2: How does social security matter to you?
19:44
Speaker 1: Like us on Facebook and follow us on Twitter at
19:47
TFE show. Breaking business news is always first right here
19:52
on the Financial Exchange Radio Network. Time now for Wall
19:57
Street Watch, a complete look at what's moving markets so
20:00
far today right here on the Financial Exchange Radio Network.
20:04
Speaker 5: Markets are in positive territory to begin the week as
20:07
traders ready for a flurry of third quarter corporate earnings
20:11
throughout the week. Right now, the Dow is up by
20:14
thirty five points, SMP five hundred is up nearly three
20:18
quarters of a percent or forty one points, in the
20:20
Nasdaq up by one percent or one hundred and eighty
20:23
eight points one hundred.
20:25
Speaker 3: And eighty two points.
20:25
Speaker 5: Excuse me, Russell two thousand is flat edging higher, and
20:30
crude oil is down by two percent, trading just above
20:35
seventy four.
20:36
Speaker 3: Dollars a barrel.
20:38
Speaker 5: Taking a look at the earnings calendar for this week,
20:41
Bank of America, Goldman Sachs, Johnson Johnson report their latest
20:45
results tomorrow morning ahead of the opening bell, while Morgan
20:49
Stanley United Airlines are set to release results on Wednesday
20:52
and Netflix will follow on Thursday. Meanwhile, bowing down by
20:57
two and a half percent after the playmaker announced on
20:59
fret Day that it plans to slash about ten percent
21:03
of its workforce, amounting to seventeen thousand employees. Boeing also
21:07
pushed off its delivery of its seventy to seventy seven
21:10
X plane and forecasts a wider than expected loss for
21:13
the third quarter as it continues to deal with its
21:16
factory workers' strike elsewhere. Warren Buffett's Berkshire Hathaway disclosed to
21:20
purchase another three point six million shares of Serious XM
21:24
stock last week, bringing in the firm's total holdings of
21:27
the stock to one hundred and eight million shares. Serious
21:31
shares up by seven percent. Wells Fargo upgraded fan duel
21:35
parent company Flutter Entertainment to Overweight, noting a buying opportunity
21:40
following its recent sell off. Flutter shares are up four
21:42
percent and shares and Hymns and Hers Health up by
21:46
nine percent after the FDA said it would allow compounding
21:50
pharmacies to sell their own versions of Eli Lilly's weight
21:53
loss drug. Manjaro, I'm Tucker Silvan. That's Wall Street Watch, Paul.
21:57
Speaker 3: What's your take on Social Security?
22:00
Speaker 4: You know, it's an interesting hypothetical I was thinking about
22:02
in the break here, is if you were given the option, Chuck,
22:06
to just not contribute, not participate in it at this
22:09
point in time. Is that something that I would take
22:11
them up on and then just instead myself try to
22:14
invest those proceeds and save them. And ultimately where I
22:19
land on that is I think I would be a
22:23
little bit more in the camp of just investing it
22:26
on my own, which speaks to the pessimism that younger
22:29
people have for Social Security, just because of the concerns
22:33
that we have as to its funding through twenty thirty five.
22:37
Speaker 2: Do you plan on when when you look in and say, hey,
22:40
when I'm going to retire social securities? Do you think
22:44
that Social Security is going to be a meaningful part
22:47
of retirement when you get there.
22:49
Speaker 4: I never calculated that way. To me, it's I need
22:52
to build a nest egg. My four on K and
22:54
other investment balances need to be at such a level
22:57
that I can cover my monthly expenses. You usually the
23:00
way I frame in my mind. It's so hard to
23:02
gauge with inflation what that number would look like. But
23:05
that's really the major focuses. Are there appropriate percentages going
23:09
to my retirement and regular savings on a monthly or
23:12
an annual basis, rather than if Social Security is going
23:15
to pick up thirty percent of monthly expenses or whatever
23:17
the average.
23:18
Speaker 2: Number is, Tucker, When you think about retirement, do you
23:24
think about Social Security as being what do you think
23:27
about when you think social Security?
23:29
Speaker 5: I hope it's there when i'm bad age, Yeah, I
23:33
think about it absolutely.
23:34
Speaker 2: So Gallup went out and pulled a bunch of people
23:37
and just thirty seven percent of Americans age thirty to
23:40
forty nine expect to receive Social Security benefits when they retire. So,
23:44
quite honestly, the other sixty three percent are just wrong.
23:47
Social Security is not going to pay out nothing at
23:50
that point, like that's just not how the program works.
23:53
If we keep up with the current structure and abide
23:55
by the rules that are set for funding in this
23:58
and that, you can see about a twenty percent drop
24:00
in Social Security benefit payouts starting in eight years, and
24:05
so it just means that the benefit would be smaller.
24:07
Speaker 3: Uh, sixty six.
24:09
Speaker 2: Percent of people age fifty year older think that they
24:11
are going to be receiving Social Security in retirements.
24:15
Speaker 3: Now.
24:15
Speaker 2: I'm guessing that they pulled in such a way that
24:19
we doubt people that aren't eligible, such as people on
24:21
public pensions and things along those lines.
24:23
Speaker 3: But the fact is.
24:28
Speaker 2: Congress is not going to let Social Security break to
24:32
the point where it's just not paying anything, right, that's
24:35
just not realistic. We can talk about, hey, are they
24:39
going to do anything to fix it? Are they just
24:41
gonna you know, run it more debt to fix it?
24:43
Are there going to be changes in the tax structure
24:45
or the payouts? But they're not just going to say, well,
24:49
it's gone, Yeah, I guess we better call it a day.
24:53
So I think that when we look at the initial
24:57
reasons for Social Security, they are very simple and straightforward.
25:01
They're to provide a baseline of income or it's to
25:04
provide a baseline of income so that you don't have
25:07
seniors living in complete poverty with no income like that.
25:10
That's the reason that the program exists. I don't believe
25:14
that it was ever meant to be something where hey,
25:17
this is you know, this should be the only thing
25:19
that you necessarily live on. Though there are a large
25:21
number of retirees where that is the case, where social
25:24
Security makes up their only income. I forget the exact percentage,
25:27
but I think it's generally somewhere around a third of retirees.
25:31
All that they have is social Security and retirement, and
25:34
so there are some who have to just live on
25:36
that and and don't have anything else. So when we
25:40
look at this in the context of this piece from
25:43
the New York Times, it's talking about why social Security
25:47
matters for young people, not just retirees. The big thing is, Look,
25:50
you're paying all these payroll taxes into the program. Ultimately
25:54
that's not going like it's it's not in your social
25:57
Security account. Like the money, the money that we're paying
26:01
right now in uh in payroll taxes, it goes to
26:06
our parents' Social Security. So it's you know, in addition
26:09
to mooching off our Netflix. They get to mooch off
26:11
our payroll taxes, which is again it's it's great like
26:14
every younger generation supports you know, people.
26:16
Speaker 3: When they get they get older. That's like kind of
26:18
how it is.
26:19
Speaker 4: Sure a lot of parents would argue that it can
26:21
go the cut the other way too, with phones and
26:23
things like that.
26:24
Speaker 2: Well, look, honestly, if you're over twenty five and still
26:27
on your parents' phone, it's time man, Like it's it's.
26:31
Speaker 3: Agree with you. I'm just telling you. There's a lot
26:32
of parents out there that are subject to that. I
26:35
get it.
26:36
Speaker 2: But you know, look, every generation mooches off all of
26:39
the other, like we all cross mooch and you know,
26:42
there's there's a lot a lot of cross moochs.
26:44
Speaker 3: Applying, is what I'm getting at. Yeah, would you can
26:47
I ask you that hypothetical?
26:48
Speaker 4: Would you just let's say there, say, Chuck, you can
26:51
either decide whether you want to continue paying the payroll
26:53
tax or you can be on your own from here
26:55
on out or your working career. Where would you land
26:57
on that? I don't know if I have a definitive answer.
26:59
I've kicked it around on my head.
27:00
Speaker 2: So I look at it in that I think Social
27:03
Security provides a valuable service to a large number of Americans,
27:08
And even if it's not necessarily something that I believe
27:11
to be in my best interest, I think that having
27:14
the program exists is something that's important, right, and the
27:18
risk doesn't leave the system, like if if it were
27:20
just gone, Sure, some of us could potentially do great
27:23
investing the money on our own, but it also presents
27:25
a risk where hey, you might end up you know,
27:28
kind of true if it goes badly for you. So
27:33
I think I'm someone who believes that it does serve
27:36
an important role just in backstopping Americans retirements, and I
27:41
believe that risk taking. Risk taking is enabled through having
27:50
a baseline level of safety and security for anything, and
27:52
not just in investing. Let's say you want to start
27:55
a business. You need to have some level of comfort that, hey,
28:00
if this goes badly, I'm going to be able to
28:02
figure it out.
28:03
Speaker 3: And this is where, just.
28:05
Speaker 2: Like the overall, you know, even like starting a business,
28:09
you think about the stuff that that we don't even
28:12
think about on a daily basis, like what I call
28:14
what's called basis risk. Like let's say that you decide
28:18
to start a business. How do you know that someone's
28:22
not going to come in and rob that business tomorrow?
28:25
How do you know that the rules aren't going to
28:26
change tomorrow and your business is going to be shut down?
28:29
How do you These are things that I think we
28:31
take for granted an awful lot. But having the baseline
28:34
level of safety, stability, and security in these things is
28:39
what allows us to risk take and actually go forward there.
28:43
So even though I might personally believe, hey, I could
28:48
probably get a you know, hopefully get a better rate
28:51
of return than what you know, what the Social Security
28:53
Trust Fund returns for you know, all of us, I
28:57
also believe that it provides that baseline, say, and security
29:00
in retirement that is important because if it weren't there,
29:05
I know, there's an awful lot of people who would
29:07
be in a real pickle. Sure, and so I think
29:10
that it's important where where we can sometimes say, look,
29:13
this might not be best for me, but it's best
29:15
for society. And as such, I think it should still
29:19
you know, exist in that format, and I'm okay paying
29:22
into it even if I don't think it's the best
29:24
for me. Sure, it's kind of where I land. I guess,
29:27
let's see. So we want to talk about this piece
29:31
from market Watch why raising more cash is a smart
29:34
portfolio move even with stocks at record highs.
29:38
Speaker 3: I just love, not sure if I'm ready to go there.
29:40
Speaker 2: I just love when publications, you know, put these pieces
29:44
out and you know, give all kinds of investment advice
29:49
that they don't give on a daily basis. And so
29:52
then you make a move based on this, and now
29:53
you're like, oh, now what do I do? When do
29:55
I move it away from cash? Like when do I
29:57
move back into the market this? It falls that category
30:00
for me. Of Look, if you're taking investment advice from
30:04
any financial publication CNBC, Bloomberg, the Wall Street Journal, market Watch,
30:10
whoever it is, I'm dropping all my stuff on the ground.
30:12
I don't even know where that thing went. If you're
30:15
taking financial advice from any of these places, how do
30:20
you know when it's time to change course if they're
30:22
not publishing something, you know. That's kind of where I
30:26
tend to land on this, And ultimately, how you build
30:30
your investment strategy, it has to be based on two
30:33
main things. How much risk and volatility are you will
30:36
in the stomach and how long do you have before
30:39
you need to spend the money you've saved. If you
30:41
can answer those two questions, then you can figure out
30:43
the right thing for your situation without needing MarketWatch to
30:47
tell you whether or not now is a good time
30:48
to raise cash.
30:49
Speaker 3: I'm with you. Just take a quick.
30:51
Speaker 2: Break when we come back. Hmm, do you want to
30:55
talk about Okay, we got a couple options, Paul, small
30:58
cap versus large cap or China.
31:01
Speaker 3: Small cap versus large cap. Okay, we'll do that when
31:03
we return.
31:06
Speaker 1: Banking, business and financial news first throughout the day, only
31:10
here on the Financial Exchange Radio Network. Text us six
31:15
one seven three six two thirteen eighty five with your
31:18
comments and questions about today's show, and let us know
31:21
what you think about the stories we are covering. This
31:24
is the Financial Exchange Radio Network, all right, Paul.
31:37
Speaker 2: So the S and P five hundred. In October twenty
31:40
twenty two, it found its bear market bottom and has
31:44
since risen sixty three percent, including reaching a new all
31:49
time high last Friday and additional all time highs today
31:53
on Monday. It just it's been up, up, up, up up.
31:57
Some brief interruptions, but it's generally been on an upward
32:00
trend for really the last two years. Now the small
32:04
cap Russel two thousand, home to well forty two percent
32:09
of its constituents aren't profitable, correct, which is kind of
32:14
a problem when you're a stock.
32:17
Speaker 3: It's an issue.
32:18
Speaker 2: And so the Russell two thousand is only up thirty
32:22
five percent from it's low, and it's still nine percent
32:25
short of its all time high that it hit in
32:27
November of twenty twenty one. It's not just the last
32:31
couple of years though, that this is the trend, including
32:34
twenty twenty four. So far, the S and P five
32:36
hundred is now outperformed the Russell twenty twelve of the
32:39
last fifteen years.
32:41
Speaker 3: That was staggering. That was staggering to read. Now.
32:43
Speaker 2: Typically it's thought of that small cap stocks have something
32:47
called the small cap premium, which is, hey, small caps
32:50
are typically more volatile, but what you receive for that
32:55
volatility is expected to be greater returns. Thus, the question
32:59
is raised, Hey, if small cap stocks are going to
33:03
underperform the S and P five hundred for twelve out
33:06
of the last fifteen years, why would one own small
33:10
cap stocks? And the answer is found in every disclosure.
33:15
Ever in the investment world, past performance is not predictive
33:18
of future success. If you looked at the fifteen year
33:21
period before, this wasn't the case, right, Like the last
33:25
ten years have been dominated by the S and P
33:27
five hundred, But if you look at the early two thousands,
33:31
emerging markets and international did way better than the S
33:35
and P. So just because something has done well, even
33:38
for what feels like a lifetime, doesn't mean that you
33:41
might not be reaching an inflection point where things can change.
33:44
Speaker 3: Totally fairpoint.
33:45
Speaker 4: I do wonder if the way that capital markets have
33:49
changed over the course of the last decade plus or so,
33:51
where there is a lot of venture capital financing that
33:55
you can get a lot of private equity financing, and
33:57
you have these companies that are delaying IPOs further than
34:01
they would have in past market cycles, does that lead
34:04
to the makeup of some of these small cap companies
34:07
you pointed out the profitability piece there. Does it lead
34:10
them to have a different sort of makeup that they
34:13
are not no longer as attractive as they once were,
34:17
just because you have companies like Facebook back in twenty
34:20
twelve or others who wait till they reach these meteoric
34:24
valuations before they go public. So something that I continue
34:26
to kick around, but like you said, we will see folks.
34:30
Speaker 2: The Armstrong Advisory Group is hosting a seminar at the
34:34
Double Tree Resort and Suites in Hyannis on October twenty fourth.
34:38
Ed Lambert, host of the WXTK Morning Show, is going
34:42
to be joining us there. We're going to be doing
34:45
a live broadcast of the financial exchange followed by an
34:49
educational lunch with the Armstrong Advisory Group. What are we
34:53
going to be talking about. We've got the upcoming election,
34:57
We've got different economic policies that both candidates have proposed,
35:00
the current macroeconomic landscape, what does it look like? And
35:04
how different market volatility that we're seeing might influence investment decisions.
35:09
You can sign up for the event by going to
35:12
Armstrong Advisory dot com slash Events. Again, it's at the
35:16
Double Tree Resort in Suites on Hyanas on October twenty fourth,
35:21
and again you go to Armstrong Advisory dot com slash Events.
35:25
Just fill out the form that's Armstrongadvisory dot com Slash Events.
35:31
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
35:34
registered investment advisor. Nothing in the ad or in any
35:36
Armstrong guide a specific financial legal or tax advice. Consult
35:39
your own financial tax into state planning advisors before making
35:42
any investment decisions. Armstrong may contact you to offer investment
35:45
advisory services.
35:47
Speaker 2: China has been rolling out almost daily stimulus announcements for
35:53
the last several weeks. There was a brief period during
35:56
Golden Week where Chinese markets were closed and we didn't
35:59
hear anything. But we keep hearing about, hey, there's gonna
36:03
be you know, more stimulus, and just wait till we
36:05
roll you see.
36:06
Speaker 3: What we roll out next.
36:08
Speaker 2: And yet we're still not getting a ton of details
36:11
as to what's coming next. But I'm also kind of wondering,
36:15
like why don't you just do this all at once
36:18
and tell people like what's going on?
36:20
Speaker 3: Like what's with the daily roll out? Like keep you guessing,
36:24
keep the optimism going. I don't get it, man, I
36:27
don't get it.
36:28
Speaker 4: Maybe they're still trying to figure out what to do
36:30
because a lot of these moves, I would argue, and
36:34
maybe you dispute this that they're on the margins. These
36:37
aren't really the biggest problem that the Chinese economy has, well,
36:41
they have many, but is getting the consumer back out
36:44
there and building back up their confidence and getting some
36:47
spending on that side of things. And to me, through
36:49
the measures that I've read through, none of these are
36:51
particularly stimilar than that fashion that would really increase consumer consumption. Yes,
36:56
they've made some changes on the housing front, a property
36:59
market that's been absolutely demolished over the course of the
37:02
last five years or so. But to me, I'm waiting
37:05
for something that perhaps would create stimulus and create an
37:09
initiative out there for households to get out there and
37:12
spend it. To me, I just haven't really gleaned that
37:14
just yet from some of these changes.
37:16
Speaker 2: Yeah, it's it's still doesn't quite seem like they want
37:22
to pivot away from trying to support the real estate
37:24
market and the manufacturing you know that.
37:27
Speaker 3: They do there, right, and.
37:30
Speaker 2: Ultimately like that that still seems to be a problem
37:32
because there's still too much real estate. And when we're
37:37
talking about supporting you know, Chinese manufacturing, it's okay, here's
37:41
a bunch of money to make stuff that isn't necessarily
37:44
needed anywhere in the world, and then you end up with,
37:46
you know, too much steel, or too many solar panels,
37:49
or hey, here's you know a million evs that who
37:53
knows if people want to buy.
37:54
Speaker 3: Them, and I don't know.
37:57
Speaker 2: I'm I'm struggling to see the Chinese government being able
38:02
to accurately determine from a top down level where to
38:05
invest money, because that's just not how good economies typically work.
38:11
Let's take a quick break here. We got our two
38:13
coming up in just a little bits