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Why are we getting the same over reactive stories to start the year again? · The Financial Exchange Show

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Speaker 1: This is the Financial Exchange with Mike Armstrong and Paul.
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Speaker 2: Lane, Happy Friday, Happy New Year, Welcome back to the
1:12
Speaker 2: Financial Exchange. If you were disappointed with the way the
1:16
Speaker 2: day ended yesterday during a volatile session, well then we've
1:20
Speaker 2: got good news for you so far this morning, a
1:23
Speaker 2: half hour into trading, with all markets in positive territory
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Speaker 2: here in the United States this morning. But Paul and Tucker,
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Speaker 2: I wanted to start with some immensely concerning news. Yesterday,
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Speaker 2: Tesla's stock was down.
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Speaker 1: My god.
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Speaker 2: But wait, there's more done dun Apple too, So uh,
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Speaker 2: you know, we might as well just turn in our chips,
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Speaker 2: shut it down, and go home. Because for the first
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Speaker 2: day of trading in twenty twenty five, two of the
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Speaker 2: Magnificent seven stocks traded down yesterday, and.
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Speaker 3: I couldn't believe how many outlets were like leading with this.
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Speaker 4: Our heads are falling off.
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Speaker 1: I think text down day.
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Speaker 4: It is the only conclusion here.
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Speaker 2: Don't worry about the fact that Nvidia actually moved up
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Speaker 2: yesterday and the markets were barely off for the day.
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Speaker 2: But big things to know now that Apple and Tesla
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Speaker 2: had a single day of bad market returns. By the way,
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Speaker 2: this morning, Applestock also down in early trading and Tesla.
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Speaker 2: Let's see up to and a quarter percent. So we
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Speaker 2: tend to criticize pieces that come out in the first
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Speaker 2: few days of the year. I recognize there's probably not
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Speaker 2: a lot to write about over at Barns on the
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Speaker 2: first day of the year. But what happens in a
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Speaker 2: single day for any company, market, or anything else is
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Speaker 2: no indication whatsoever of what the rest of the year
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Speaker 2: will look like.
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Speaker 5: I'm going to go against you a little bit here
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Speaker 5: in the sense of totally agree with all that. I
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Speaker 5: actually like the piece because it speaks more to the
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Speaker 5: broader market that we're in right now, where these magnificent
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Speaker 5: seven stocks. Forget what Apple did yesterday or Tesla did yesterday.
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Speaker 5: But more broadly speaking, if you look at last year,
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Speaker 5: if you look at the year before, the reason your
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Speaker 5: four one K listener or someone's portfoliout there has done
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Speaker 5: so well has come on the backs of these seven companies.
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Speaker 5: And I can't reiterate enough. And this piece does a
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Speaker 5: good job laying it out that fifty seven percent of
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Speaker 5: market gains last year, according to Dow Jones market data,
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Speaker 5: came from the seven companies that Mike and I talk
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Speaker 5: about all the time. This show Apple, Apple, Tesla, Amazon, Microsoft, Google, Nvidia,
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Speaker 5: and what's the last one Tesla. I don't know if
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Speaker 5: I mentioned that there, but the seven that we talk
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Speaker 5: about all the time. You look back the year prior
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Speaker 5: in twenty twenty three, sixty five percent of its gains
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Speaker 5: from the market came from these big seven companies. And
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Speaker 5: if you look at under the hood of some of
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Speaker 5: these businesses, there is reason for skepticism based on the valuations.
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Speaker 5: Tesla in particular always makes me scratch my head, but
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Speaker 5: it's been doing that for some years and it still
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Speaker 5: continues to reach, you know, a trillion and a half valuation,
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Speaker 5: where we just covered a story yesterday they sold less
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Speaker 5: cars in twenty twenty four than they did in twenty
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Speaker 5: twenty three. That's problematic because typically they've been doing double
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Speaker 5: digit increases percentage wise on their sales. That didn't happen
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Speaker 5: last year. It dropped by one percent yet first.
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Speaker 2: Ever time, by the way that Tesla reported year over
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Speaker 2: year sales declines.
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Speaker 4: You have a.
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Speaker 5: Business yet that you know was up I believe, fifty
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Speaker 5: sixty percent last year, and you head into this year.
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Speaker 5: All the optimism surrounds this idea that they're going to
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Speaker 5: be rebranded as more focused on robotics and AI, but
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Speaker 5: yet those promises that they're making to deliver on these
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Speaker 5: new initiatives are out in twenty twenty seven for the
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Speaker 5: you know, self driving cybercab, and we know how Tesla
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Speaker 5: does with deadlines, their total bs, I mean, they never
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Speaker 5: hit them and they will delay things five or ten
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Speaker 5: years more. So the reason I like the piece is
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Speaker 5: because you have these two companies, and Apple is another
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Speaker 5: one we should talk about too, that is seeing a
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Speaker 5: little bit of weakness. I'm not as concerned about Apple
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Speaker 5: because I think Buffett has put it well that it's
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Speaker 5: more of a durable consumer brand in terms of how
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Speaker 5: entrenched iPhones are into our lives. But they are seeing
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Speaker 5: some weakness in China. So I think that point is
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Speaker 5: is you know of merriage?
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Speaker 4: Yeah.
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Speaker 2: I think there's plenty of fairness in this piece and
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Speaker 2: plenty of good points they made. For instance, you know
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Speaker 2: the perhaps just the title of the article is what's
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Speaker 2: bothering Me? But the point five hundred has fallen on
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Speaker 2: day one in three of the last four years, but
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Speaker 2: still not more than twenty.
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Speaker 4: Percent annual gains.
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Speaker 2: On the other occasion, in twenty twenty two, it rose
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Speaker 2: the first day, but then fell nineteen percent for the year,
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Speaker 2: So the first day of trading is completely irrelevant as
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Speaker 2: this as this article acknowledges, if you want to make
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Speaker 2: the point to which everyone should understand, that this entire
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Speaker 2: market for the last two years has been buoyed and
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Speaker 2: anchored by seven massive companies whose valuations are astronomical and
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Speaker 2: the likes of which we haven't seen since pre Dot
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Speaker 2: Com bubble.
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Speaker 4: Those are excellent points to.
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Speaker 2: Make, but you also must acknowledge that it doesn't tell
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Speaker 2: you anything about timing, It doesn't tell you anything about
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Speaker 2: when that might fall apart, and so it all comes
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Speaker 2: back to, I think a fundamental question of what's going
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Speaker 2: on with these big companies. So you made a good
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Speaker 2: point about Tesla. Tesla saw year over year sales declines
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Speaker 2: in spite of all the excitement about Elon Musk and
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Speaker 2: the future of that company. I brought it up yesterday.
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Speaker 2: I'm very, very curious to see how they compete in
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Speaker 2: a world where a lot more companies are putting out
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Speaker 2: luxury electric vehicles. Tesla has not gone into the competition
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Speaker 2: space with say the Nissan Leaf by offering a lower
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Speaker 2: price point, and they've probably or Elon Musk's actions and
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Speaker 2: you know, political outspokenness has probably angered many of its customers.
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Speaker 2: Will he attract new customers to the Tesla base? I
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Speaker 2: certainly think there's almost no hope of him competing for
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Speaker 2: his you know, with his company competing in markets outside
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Speaker 2: of Europe and the United States, and so how do
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Speaker 2: you continue to grow that company in spite of those challenges?
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Speaker 2: You mentioned Apple? Very different company, a very different position,
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Speaker 2: much more mature than Tesla, but year over year foreign
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Speaker 2: smartphone sales in China declined by forty seven percent last year.
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Speaker 4: How do you.
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Speaker 2: Continue to compete when the single largest market for a
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Speaker 2: smartphone demand is having a moment of I guess non
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Speaker 2: I guess having a moment of non Apple interest or
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Speaker 2: maybe a little bit nationalism.
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Speaker 5: You know, they want to buy domestic. I mean, look
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Speaker 5: at the two companies we're talking about, Mike, both of
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Speaker 5: them in terms of their you know, sales in China
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Speaker 5: are being undercut by local options. Buid has sold one
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Speaker 5: one point seventy six million cars globally. That's the electric
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Speaker 5: vehicle company out of China. And same thing here with Huawei.
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Speaker 5: They've made a huge inroads in terms of their growth
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Speaker 5: and If you look at Apple's revenue in China, it
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Speaker 5: was about seventy two billion in twenty twenty three, sixty
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Speaker 5: six billion in twenty twenty four. Seventeen percent of its
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Speaker 5: revenue comes from those sales within IPO markets to China,
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Speaker 5: so it's not nothing. And Tim Cook is not making
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Speaker 5: multiple visits over there because he wants to be there.
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Speaker 5: He recognizes that this is an important market and an
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Speaker 5: area that it's worth mentioning as an erear to monitor
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Speaker 5: for Apple.
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Speaker 2: Let's take a quick break when we come back. I
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Speaker 2: want to expand beyond just the Apples and Tesla's of
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Speaker 2: the world and get a view into where this market
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Speaker 2: actually stands and what historical precedent we have to compare
8:51
Speaker 2: it to quick break, Big market Overview.
8:54
Speaker 4: Next here on the Financial Exchange.
8:56
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Speaker 4: So Paul, as we turned to twenty twenty five.
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Speaker 2: We have new Congress, a new president that will be
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Speaker 2: taking office in just a few short weeks, and a
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Speaker 2: new entrance to the stock market.
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Speaker 4: We are entering twenty twenty five with.
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Speaker 2: Following the best two years in the S and P
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Speaker 2: five hundred since the late nineties. The forward priced earnings
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Speaker 2: ratio on the S and P five hundred is sitting
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Speaker 2: at twenty five times the only time in history.
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Speaker 4: It's been more expensive.
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Speaker 2: That was just before the dot com crash in two
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Speaker 2: thousand and then the crash in twenty twenty two. So
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Speaker 2: the evaluations in twenty twenty one we're around these levels.
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Speaker 2: And if you are the average person sitting out there,
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Speaker 2: I don't know. Some are quite excited, some are maybe
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Speaker 2: a bit wary about where valuations are. How do you
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Speaker 2: approach the valuation question when you are speaking with folks
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Speaker 2: these days, because it it's easy to sweep under the
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Speaker 2: rug after the last few years of amazing performance, but
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Speaker 2: probably can't be ignored entirely.
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Speaker 5: The tricky thing about valuations, and it's outlined here, is
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Speaker 5: that they are a good medium to long term way too.
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Speaker 4: What does that mean?
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Speaker 2: Like a medium long term how do we define that
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Speaker 2: like five to ten years, five to.
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Speaker 5: Ten years, and then if you go twenty twenty five years.
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Speaker 5: These price earnings multiples are helpful to use as a
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Speaker 5: guide as from a contact standpoint to see as what
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Speaker 5: a stock is priced at, but from a short term perspective,
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Speaker 5: it's rather useless, useless as to whether or not this
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Speaker 5: twenty five times forward earnings for the S and P
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Speaker 5: five hundred reverts down to its me which I think
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Speaker 5: is around eighteen depending on what time period that you
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Speaker 5: look at. But really the reason that you invest, and
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Speaker 5: I like the way that this was laid out here
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Speaker 5: in this Bloomberg piece, is that ultimately, over our longer
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Speaker 5: period of time, you are banking on that the S
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Speaker 5: and P five hundred and in its constituents, the annual
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Speaker 5: annualized earnings growth for them over since the nineteen fifties
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Speaker 5: has averaged about seven percent. So you are betting on
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Speaker 5: companies that they are going to continue to grow their
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Speaker 5: earnings over time. Valuations will fluctuate over time, sometimes the
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Speaker 5: market will be cheap, sometimes will be expensive, but ultimately
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Speaker 5: you are participating as a shareholder in companies that are
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Speaker 5: going to continue to grow their earnings rather than the
11:43
Speaker 5: alternative being sitting in cash or buying a bond. The
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Speaker 5: rates of return differ greatly in those two categories, and
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Speaker 5: that's what you are doing when you're being an equity investor.
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Speaker 2: Yeah, I mean to speak to that medium to long
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Speaker 2: term view, right. If you go ask some of the
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Speaker 2: largest banks out there who put together their forecast over
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Speaker 2: the medium to long term. Rarely do they put together
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Speaker 2: like thirty year projections for markets, because I can't think
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Speaker 2: of much that's more useless than that. But go ask
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Speaker 2: Golden Sacks what they anticipate for the next decade of
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Speaker 2: equity market returns here in the US. I think they're
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Speaker 2: sitting at three percent a year. Last decade was like fourteen.
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Speaker 2: Go ask JP Morgan, go ask Merrill Lynch, Morgan Stanley.
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Speaker 2: You know, they are all hovering around these levels of
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Speaker 2: zero to three percent per year over the next decade.
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Speaker 2: But when you go ask their people, hey, what do
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Speaker 2: you think about markets for twenty twenty five, it's all
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Speaker 2: ten percent. We'll see markets appreciate by ten percent.
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Speaker 4: And they could be right. Furthermore, valuations getting to these
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Speaker 4: levels is not.
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Speaker 2: Always necessarily a sign of death to come. I'm looking
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Speaker 2: at the piece for Bloomberg that was written back in
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Speaker 2: March of twenty seventeen. What to make of these in
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Speaker 2: history S and P five hundred valuations? Rain in your
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Speaker 2: expectations for returns over the next decade or so. Something
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Speaker 2: happened in the stock market this week that has only
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Speaker 2: occurred twice since eighteen seventy one. Robert Schiller's favorite valuation
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Speaker 2: method for the S and P five hundred, the cyclically
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Speaker 2: adjusted price to earnings ratio reach thirty, is it time
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Speaker 2: to worry? Guess what the next seven years in equity markets?
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Speaker 2: I think did like two hundred percent, probably averaging you
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Speaker 2: fifteen percent per year. So it is simply not the
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Speaker 2: case that you can look at any of these methods
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Speaker 2: of pricing out equity markets and say definitively that, Okay,
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Speaker 2: we're in for a bad ten years. Is it fair
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Speaker 2: to look at two thousand and say, wow, that was
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Speaker 2: a pretty rough decade after we reached those levels back
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Speaker 2: prior to dot com bubble. Yeah, it's fair to make
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Speaker 2: that comparison because history is the only gud we have.
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Speaker 4: But if you're just using.
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Speaker 2: That to judge your portfolio allocation, then guess what you
13:57
Speaker 2: probably missed out on two amazing years of stock market
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Speaker 2: returns in twenty twenty.
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Speaker 4: Three and twenty twenty four.
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Speaker 2: So I guess that's all I can say about it
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Speaker 2: is you certainly can't ignore valuations because historically they've been
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Speaker 2: a pretty good indicator of what's going to come in
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Speaker 2: the medium term. And if you're building out, say your
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Speaker 2: financial strategy, relying on ten percent returns for the next decade,
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Speaker 2: then you might be in real tough time. But that
14:23
Speaker 2: comes back to what we always talk about on the
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Speaker 2: show is aligning your portfolio with your personal needs. Right,
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Speaker 2: Like those target date funds or any of those things
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Speaker 2: are not helpful tools when it comes to aligning with
14:38
Speaker 2: your specific needs. If you look at the next ten
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Speaker 2: years of your life and say, oh, because I'm retiring
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Speaker 2: and I'm not taking of security, I'm gonna be spending
14:45
Speaker 2: a whole boatload of money, then your portfolio needs to
14:48
Speaker 2: look fundamentally different, maybe even from somebody that's older who
14:51
Speaker 2: can afford to be more aggressive based on their specific makeup.
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Speaker 2: And that's what it always comes back to is customizing
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Speaker 2: this to yours and your specific portfolio. Twenty twenty five
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Speaker 2: will be the year of investing dangerously What does Katie
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Speaker 2: Martin from the Financial Times mean in this piece.
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Speaker 4: Here, Paul?
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Speaker 2: It seems to be based on the picture on the
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Speaker 2: front here the year of Trump and Jerome Powell once
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Speaker 2: again getting into it. But I don't know what investing
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Speaker 2: dangerously means.
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Speaker 5: I read through the piece.
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Speaker 4: Always seems a bit dangerous.
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Speaker 5: I read through the piece and I don't really know
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Speaker 5: where she's getting at either here. Ultimately, she's just outlining
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Speaker 5: all the stuff that we talk about so frequently on
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Speaker 5: the show, this idea that there are risks at place
15:43
Speaker 5: in terms of what the political landscape is going to
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Speaker 5: look like, what the economic policies are going to be
15:48
Speaker 5: heading into this year. Obviously, there is a lot of
15:53
Speaker 5: speculation in this market, frothy, whatever word you want to use,
15:57
Speaker 5: particularly whether you look at micro strategies, and it's been
16:00
Speaker 5: on bitcoin or bitcoin just as an asset class in general,
16:03
Speaker 5: on the enthusiasm behind crypto, that there is some potential
16:08
Speaker 5: out there for volatility. But that's the same case for
16:11
Speaker 5: for every year. She basically lines out, you know, these
16:13
Speaker 5: two different scenarios, quoting a portfolio manager, where you know
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Speaker 5: you could see inflation reawakening and concerns for the equity
16:21
Speaker 5: and bond market, or you could see, you know, business
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Speaker 5: as usual on things marching along.
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Speaker 1: It just seemed to kind of circle around.
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Speaker 4: Yeah.
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Speaker 2: I fortunately don't think that, you know, your Robin Hood
16:31
Speaker 2: trading screen is going to try and stab you, So
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Speaker 2: she doesn't mean investing dangerously in that fashion. But I
16:39
Speaker 2: guess as we head into twenty twenty five, I like
16:42
Speaker 2: to think about what the what's the main narrative that's
16:46
Speaker 2: going on there? And I think the main narrative that
16:48
Speaker 2: I'm hearing is you have a very business friendly administration
16:54
Speaker 2: coming into town, and you have an economy that has
16:57
Speaker 2: been surprisingly resilient in twenty If we think about twenty
17:02
Speaker 2: twenty four, leading in, it was, hey, an economy where
17:05
Speaker 2: inflation is looking like it's defeated, but look out because
17:08
Speaker 2: usually when that happens, recession occurs.
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Speaker 4: And the narrative that you overcame.
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Speaker 2: Was, well, recession didn't happen, and so stocks appreciated in
17:17
Speaker 2: twenty twenty five. What's that same narrative, what's the wall
17:20
Speaker 2: of worry to overcome? I suppose it would be that
17:23
Speaker 2: investors are concerned about interest rates going back up and
17:26
Speaker 2: inflation reigniting based on Trump's policies and so should that
17:30
Speaker 2: not occur, then we have this potential wall of worry
17:33
Speaker 2: to overcome and therefore stocks to appreciate based.
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Speaker 4: On that feedback loop. But I don't know if that's
17:39
Speaker 4: the dominant narrative out there right now.
17:41
Speaker 5: Six months ago, I would have said to you the
17:43
Speaker 5: labor market, but that has sort of waned a little
17:46
Speaker 5: bit here, and we'll see as we get some more
17:48
Speaker 5: jobs data coming in is as if that should be
17:51
Speaker 5: a concern anymore. But now I would probably say it
17:55
Speaker 5: is the economic policies that is covering the most amount
17:59
Speaker 5: of worry and skepticism out there in terms of what
18:03
Speaker 5: will they look like and what sort of economic impact
18:05
Speaker 5: will they have on the country. That to me, combined
18:09
Speaker 5: with perhaps on a lesser scale, AI, and it's sort
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Speaker 5: of you know, when will we see material impact from it?
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Speaker 5: Those are the two things to me heading into twenty
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Speaker 5: five view.
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Speaker 4: Yeah, I think that's about right.
18:23
Speaker 2: Obviously, the comparisons between AI and the dot com bubble
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Speaker 2: I think will continue to be made, and depending on
18:29
Speaker 2: how much output and actual results we start seeing from
18:33
Speaker 2: major companies like Microsoft could drive things. But to me,
18:37
Speaker 2: the big question mark is around where FED policy goes
18:41
Speaker 2: and the new narrative is, oh, we thought the Fed
18:44
Speaker 2: was going to be able to cut a lot, they
18:45
Speaker 2: might not be able to cut quite as much. In
18:48
Speaker 2: the bad news camp, If you get a FED that
18:50
Speaker 2: doesn't cut much at all in twenty twenty five and
18:54
Speaker 2: in fact brings rates higher, then you could potentially have
18:57
Speaker 2: a mini or significant repeat of twenty twenty two where
19:00
Speaker 2: investors respond to higher than expected interest rates and inflation.
19:05
Speaker 2: If instead the data just continues the way it has
19:07
Speaker 2: and oil prices continue down and inflation generally remains tepid,
19:12
Speaker 2: and maybe some of the more extreme policies that Donald
19:15
Speaker 2: Trump has proposed that would result in inflation don't come
19:18
Speaker 2: to the forefront, then again you could have this climbing
19:22
Speaker 2: of wall of worry with interest rates lower, taxes lower,
19:25
Speaker 2: and spending keeping up that could support this economy.
19:29
Speaker 4: Quick break. We'll have a full market recap next with
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Speaker 1: Wall Street Watch a complete look at what's moving market
19:57
Speaker 1: so far today right here on the financi shall exchange
20:00
Speaker 1: radio network. All.
20:01
Speaker 3: After a bumpy start to twenty twenty five, markets today
20:05
Speaker 3: are rebounding. The Dow is currently up by two hundred points,
20:10
Speaker 3: just about half a percent. Highre SMP five hundred is
20:13
Speaker 3: up by two thirds of a percent or thirty eight points.
20:16
Speaker 3: NASDAC up nearly nine tenths of a percent to one
20:19
Speaker 3: hundred and sixty seven points. RUSTED two thousand up by
20:22
Speaker 3: about half a percent as well. Ten year Treasury il
20:26
Speaker 3: is flat now at four point five seven percent, and
20:30
Speaker 3: crude oil is up by about two thirds of a percent,
20:34
Speaker 3: trading at seventy three dollars and sixty two cents a barrel.
20:37
Speaker 3: Big news from the White House this morning after President
20:40
Speaker 3: Biden officially blocked Japanese company Nippon Steal's fourteen point nine
20:45
Speaker 3: billion dollar takeover of US Steal. In a statement, Biden
20:48
Speaker 3: said US Steal will remain a proud American company, adding
20:53
Speaker 3: that the domestic steel industry is a national security priority.
20:57
Speaker 3: US steel shares are down by six percent on the news. Meanwhile,
21:01
Speaker 3: the Department of Transportation find Jet Blue two million dollars
21:06
Speaker 3: for chronically delayed flights, the first penalty of its kind.
21:09
Speaker 3: The agency said jet Blue operated four routes that were
21:13
Speaker 3: delayed at least one hundred and forty five times between
21:16
Speaker 3: June of twenty twenty two through November of twenty twenty three.
21:20
Speaker 3: Jet Blue shares down over two percent. Elsewhere, we're seeing
21:23
Speaker 3: several stock grade updates for you.
21:25
Speaker 4: This morning.
21:26
Speaker 3: Chewy was upgraded by Wolf Research to outperform for peer
21:30
Speaker 3: Perform with a firm named the online pet retailer a
21:33
Speaker 3: top pick among Internet stocks, citing expectations for earnings upside,
21:37
Speaker 3: a better macro macro backdrop in product catalysts as reasons
21:42
Speaker 3: for optimism. Chewy up by five percent. Block shares also
21:46
Speaker 3: up by five percent after Raymond James upgraded the stock
21:49
Speaker 3: to outperform for market Perform, saying the fintech company is
21:53
Speaker 3: trading at an attractive valuation even after its recent run,
21:57
Speaker 3: and Hindenberg Research alleged that Carvana's recent turnaround is are
22:02
Speaker 3: mirage supported with unstable loans in accounting manipulation, sending shares
22:07
Speaker 3: an online in the online used car retailer down by
22:10
Speaker 3: two percent. I'm Tucker Silvan, that's Wall Street Watch.
22:14
Speaker 2: There have been a number of things over the last
22:15
Speaker 2: five years that have made the United States a bit
22:18
Speaker 2: remarkable compared to its peers and unique compared to its peers.
22:21
Speaker 2: Going back to the beginning of COVID, the development of UH,
22:25
Speaker 2: the pace of deval of development of drugs and distribution
22:28
Speaker 2: of those to massive amounts of business creation, and now
22:33
Speaker 2: the the the use in generation of artificial intelligence. All
22:38
Speaker 2: you know, largely headed here in the United States have
22:40
Speaker 2: been incredible. But the truly remarkable pieces I see it
22:44
Speaker 2: has been the ability for the United States to see
22:46
Speaker 2: productivity growth that has far surpassed what we've seen historically,
22:51
Speaker 2: as well as what other countries have been experiencing over
22:54
Speaker 2: the last five years. Productivity, as we measure it here
22:57
Speaker 2: is base is very basic. It's how much the average
23:00
Speaker 2: worker gets done in an hour. Just think about it
23:04
Speaker 2: that way.
23:04
Speaker 4: And I know not.
23:06
Speaker 2: Very few of us go out there and produce cars
23:09
Speaker 2: or widgets or anything like that.
23:10
Speaker 4: But you can measure this pretty easily.
23:13
Speaker 2: The total output of the economy divided by the hours
23:16
Speaker 2: worked and come up with a number. And that number
23:19
Speaker 2: in the third quarter of this year rows two percent
23:23
Speaker 2: compared with a year earlier. According to that Labor Department,
23:25
Speaker 2: That marks the fifth quarter in a row with an
23:29
Speaker 2: increase of two percent or better, and in the five
23:32
Speaker 2: years before the pandemic, we've only really had two of
23:35
Speaker 2: those quarters during that entire five year window, and over
23:38
Speaker 2: the longer term have not been seeing productivity growth along
23:41
Speaker 2: these lines. In other times that we've historically gotten pretty
23:44
Speaker 2: solid productivity growth, it's actually come at times of pretty
23:48
Speaker 2: ugly economic periods, because what you end up doing is
23:52
Speaker 2: just reducing the denominator. So you lay off a bunch
23:55
Speaker 2: of people, but stretch the remainder of them to be
23:58
Speaker 2: able to still produce enough stuff for a short period
24:01
Speaker 2: of time, and so you get some I won't call
24:03
Speaker 2: it artificial productivity growth, but temporary productivity growth because you're
24:07
Speaker 2: still hanging on with fewer workers. We're not doing that here, right,
24:11
Speaker 2: We're getting productivity growth at the same time that more
24:13
Speaker 2: people are working, more people are entering the labor market.
24:16
Speaker 2: And that's in my mind, beyond everything else, you know,
24:19
Speaker 2: beyond the stock market returns, beyond the economic growth, beyond
24:23
Speaker 2: the ability to do away with inflation. This is the
24:26
Speaker 2: piece that is all important to me. It doesn't not
24:29
Speaker 2: to say that doesn't come with some downsides. Like I mentioned,
24:31
Speaker 2: one of the key ways that you can get productivity
24:35
Speaker 2: growth is by laying off a bunch of people, and
24:38
Speaker 2: that's not great. But I can't point to a single
24:42
Speaker 2: thing either as the main culprit for right. The easy
24:44
Speaker 2: excuse would be, wow, look at all that artificial intelligence
24:47
Speaker 2: is doing here. But I'm not convinced that's what we
24:50
Speaker 2: are seeing as the main driver of productivity in twenty
24:54
Speaker 2: twenty four and beyond here.
24:56
Speaker 5: No, I think that's too It's too early to say
24:58
Speaker 5: that because it's just not as widespread the use now.
25:01
Speaker 5: It does seem like anecdotally, more and more people I'm
25:05
Speaker 5: speaking with are looking to incorporate the technology or indicating
25:10
Speaker 5: instances where they've seen some productivity come out of it.
25:13
Speaker 5: But to say the paint the overarching brush of just yeah,
25:17
Speaker 5: everybody's betting from it. To me, that is too soon
25:19
Speaker 5: to make that declaration.
25:21
Speaker 4: I don't know.
25:21
Speaker 5: If it's the ability to work the technology within our systems,
25:28
Speaker 5: you able to work anywhere, You're able to complete tasks
25:33
Speaker 5: through technology relatively seamlessly without too much manual initiative. But again,
25:39
Speaker 5: it's hard when you're trying to categorize a whole economy
25:41
Speaker 5: to point to one specific thing. But I would agree
25:44
Speaker 5: with you that the sentiment I said before about the
25:46
Speaker 5: S and P five hundred averaging annualized earnings growth of
25:50
Speaker 5: seven percent over time since the nineteen fifties. This is
25:53
Speaker 5: what you need. You need productivity. You need businesses to
25:56
Speaker 5: be able to work more efficiently and drive their earnings further.
26:00
Speaker 5: That's what you need to be a bullish investor on
26:03
Speaker 5: the United States in general. Because the population growth we
26:06
Speaker 5: talked about this, a little bit of that ain't coming.
26:08
Speaker 5: So it's gonna have to be We're gonna have to
26:10
Speaker 5: do more with less people.
26:12
Speaker 2: Because you can talk to your wife the other day
26:13
Speaker 2: and she said she was signing up for three more kids, Paul.
26:16
Speaker 5: That's not gonna be medically possible. But that's we're not
26:22
Speaker 5: getting the baby boomers are retiring. We're not gonna be
26:24
Speaker 5: able to backfill it. The three of us have done
26:27
Speaker 5: a good job marching the population growth for as best
26:30
Speaker 5: we can, but as we talked about before, we're not
26:33
Speaker 5: gonna get it. So you're gonna have to do more
26:35
Speaker 5: with less. Productivity is the answer to that piece of it.
26:39
Speaker 2: There's a few things that I guess I can point
26:40
Speaker 2: to as potential causes for productivity growth and a lot
26:44
Speaker 2: of them unfortunately look temporary to me. I mean one
26:47
Speaker 2: would just be a forced rapid adapt adoption of technology.
26:52
Speaker 2: In twenty twenty, we just had this forced moment where
26:56
Speaker 2: businesses that had never done anything over video conference, we're
27:00
Speaker 2: forced to do so, right, Like even weird businesses like uh,
27:04
Speaker 2: you know, suddenly electricians were needing to do inspections for
27:08
Speaker 2: the homes that they were doing over video with the
27:11
Speaker 2: with the inspector, right, not an industry that was traditionally
27:14
Speaker 2: used to using technology.
27:15
Speaker 4: And I think that forced adoption maybe applying to other areas.
27:20
Speaker 2: They talk about how restaurants had to start using QR codes,
27:23
Speaker 2: So how businesses started, you know, instead of flying their
27:26
Speaker 2: people all across the country, started doing video conferencing a
27:29
Speaker 2: lot more often. And I think some of that has
27:31
Speaker 2: stuck around and maybe just the learning curve there of saying, hey,
27:36
Speaker 2: we were forced to adopt this technology, so let's just
27:38
Speaker 2: push it and go use this one too because it
27:40
Speaker 2: seems interesting and we did fine with this one.
27:42
Speaker 5: I just think about you know, our firm is a
27:44
Speaker 5: small example of that. We used to have We still
27:46
Speaker 5: have a morning meme, but it used to be everyone
27:48
Speaker 5: came into the office in our need Them headquarters met
27:50
Speaker 5: in a conference room and then head out to respective
27:53
Speaker 5: locations to around offices around the area, like a Wubern office.
27:57
Speaker 5: You'd be coming in to need them just to go
27:58
Speaker 5: to Wubern. Now that that's all held over video, everyone
28:02
Speaker 5: starts at the point of where they're going to be
28:04
Speaker 5: working for that particular day. Also, inter messaging applications. I
28:08
Speaker 5: think that was something that we kind of pulled out
28:10
Speaker 5: during the pandemic as well, the ability to just message
28:13
Speaker 5: someone regarding a task or things like that. So I
28:15
Speaker 5: think that does extrapolate out to other businesses, this idea
28:18
Speaker 5: of forcing to be a little bit more flexible and
28:21
Speaker 5: malleable with your business and incorporate technology sooner than you
28:24
Speaker 5: would have because you had to.
28:26
Speaker 4: And so maybe there's some of that with AI too.
28:28
Speaker 2: Is companies that would have never considered it prior to
28:30
Speaker 2: COVID or saying well, we did find.
28:32
Speaker 4: With this, so let's try that too. There's also been
28:35
Speaker 4: this other piece that I guess.
28:37
Speaker 2: I just would point at the robust strength of the
28:40
Speaker 2: economy of the last few years.
28:42
Speaker 4: New business creation since COVID has been through the roof.
28:45
Speaker 2: Yeah, and when you are starting a new business, you
28:48
Speaker 2: tend to just operate more on a shoestring budget, and
28:51
Speaker 2: maybe there's something to that productivity growth coming from that
28:54
Speaker 2: as well. You take a look at the applications for
28:58
Speaker 2: tax identification number, for example, and it's just been elevated
29:02
Speaker 2: for the last five years compared to the previous five
29:04
Speaker 2: and I think there's potentially something to that. There's certainly
29:07
Speaker 2: a lot of failure in new businesses too, But when
29:10
Speaker 2: you are as this article from the Wall Street Journal
29:13
Speaker 2: interviews a guy who left a finance job to start
29:17
Speaker 2: a gym, and he's doing everything. He's got two salespeople,
29:21
Speaker 2: a few trainers, but other than that, he does HR,
29:23
Speaker 2: he does payroll, He does sales, and you know that's
29:27
Speaker 2: not something that you see when say, Planet Fitness opens
29:31
Speaker 2: a new location. Let's take a quick break when we
29:33
Speaker 2: come back. Something kind of snuck under the radar while
29:37
Speaker 2: we were gone could have big tax and social security implications,
29:41
Speaker 2: especially for workers here in New England. Quick Break will
29:45
Speaker 2: be coming back with the Social Security Fairness Act next
29:48
Speaker 2: on the Financial Exchange.
29:50
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31:00
Speaker 2: Across the country, we have a series of pension systems
31:04
Speaker 2: for state and federal workers that are a mishmash because
31:09
Speaker 2: they're all state run and have changed over the years
31:12
Speaker 2: as well.
31:13
Speaker 4: According to.
31:15
Speaker 2: NASR, approximately two thirds of firefighters, police and other first
31:21
Speaker 2: responders do not pay into Social Security. Forty percent of
31:24
Speaker 2: public school teachers do not pay into Social Security, and
31:28
Speaker 2: instead you contribute to a public retirement system instead of
31:33
Speaker 2: that Social Security. Most to substantially all of the public
31:37
Speaker 2: employees in Alaska, Colorado, Louisiana, Maine, Massachusetts, Nevada, and Ohio
31:43
Speaker 2: do not pay into Social Security at all. And so
31:45
Speaker 2: if you're listening here in Massachusetts or Maine, this is probably.
31:48
Speaker 4: A familiar story to you.
31:50
Speaker 2: You might not have worked as a teacher or a
31:52
Speaker 2: firefighter or a police officer, but probably do know somebody
31:55
Speaker 2: who has, and they might have talked to you about
31:59
Speaker 2: these rules that affect their work and their Social Security benefits.
32:03
Speaker 2: So let me give you an example. Let's imagine here
32:06
Speaker 2: for a moment that actually I have a family member
32:08
Speaker 2: who did this, worked in the private sector for several
32:12
Speaker 2: decades as an architect. Then Great Recession hit, architecture firm
32:20
Speaker 2: went under or dramatically reduced, and he started working for
32:23
Speaker 2: one of the towns in their planning department. And I
32:26
Speaker 2: think when he goes to retire, we'll have ten to
32:28
Speaker 2: fifteen years of work in that job where he is
32:32
Speaker 2: eligible for a pension from the Commonwealth of Massachusetts for
32:36
Speaker 2: work in that role. He worked substantially number of years
32:41
Speaker 2: in the private sector contributed to soci Security. But if
32:43
Speaker 2: he did not work the full thirty years that's required
32:46
Speaker 2: to do so, then even though he paid into Social
32:48
Speaker 2: Security earned that Social Security benefit, the mere fact that
32:52
Speaker 2: he had a period of time during his career that
32:54
Speaker 2: he didn't do that would automatically reduce his Social Security
32:58
Speaker 2: under the current laws. Paul was referring to a family
33:01
Speaker 2: member of his where they worked their entire career in
33:04
Speaker 2: the public sector, say in the teaching job here in
33:09
Speaker 2: one of these states, where they're not covered by Social Security,
33:12
Speaker 2: and they would be eligible for a pension. Because they're
33:16
Speaker 2: getting a pension, they would normally be eligible for spousal
33:20
Speaker 2: Social Security benefits, but those would be eliminated or severely reduced.
33:25
Speaker 2: Usually you're eligible for like a half of your spouse's
33:27
Speaker 2: Social Security benefits, but those could be eliminated or reduced
33:30
Speaker 2: because they had private their public sector work for the state.
33:34
Speaker 2: Both of those rules, the WEB and the GPO as
33:37
Speaker 2: they're being discussed, are likely to be eliminated based on
33:43
Speaker 2: a new bill that passed while we were kind of
33:46
Speaker 2: in the midst of the Christmas and New Year's holidays.
33:49
Speaker 2: It's sitting on Joe Biden's desk. It's likely to be
33:52
Speaker 2: signed by January sixth. While it doesn't affect a lot
33:56
Speaker 2: of employees across the country, it does have a big
34:01
Speaker 2: concentration on teachers, firefighters, police officers, and has a huge
34:04
Speaker 2: concentration here in Massachusetts in Maine, like I talked about,
34:07
Speaker 2: because of the way in which our systems work. The
34:11
Speaker 2: key message that you have to take away from all
34:13
Speaker 2: of this is there could be a big benefit if
34:16
Speaker 2: you're already retired, right this could change automatically a colorating
34:20
Speaker 2: to the Social Security Administration. If you're already filed, you
34:23
Speaker 2: don't need to change anything.
34:24
Speaker 4: Just make sure that.
34:25
Speaker 2: Your address is correct, is what they've put out there.
34:28
Speaker 2: But if you are still working, you know, maybe you
34:30
Speaker 2: are in your forties or fifties and thinking about a
34:32
Speaker 2: career change in one direction or another, this can dramatically
34:36
Speaker 2: affect how much income you're able to bring home in
34:39
Speaker 2: retirement and completely upends the system that we've all been
34:41
Speaker 2: working under for decades. If you have questions along those
34:45
Speaker 2: lines of how these rule changes could change your retirement
34:49
Speaker 2: security or how a career change. If you've been working,
34:54
Speaker 2: say thirty years as a firefighter or a police officer,
34:57
Speaker 2: and your pension isn't growing anymore, or you've been working
35:00
Speaker 2: in the school systems and have been thinking about going
35:03
Speaker 2: to the private schools, or something along those lines. These
35:06
Speaker 2: could have huge ramifications for your choices. If you want
35:10
Speaker 2: to learn more about how that will change and how
35:12
Speaker 2: it might affect your retirement income and safety, give the
35:15
Speaker 2: folks an Armstrong Advisory Group a call. We work with
35:18
Speaker 2: our clients on evaluating their retirement income all the day
35:22
Speaker 2: and we offer free consultations throughout New England. You can
35:25
Speaker 2: call our offices at eight hundred three nine three four
35:29
Speaker 2: zero zero one. Again that's Armstrong Advisory Group at eight
35:33
Speaker 2: hundred three nine three for zero zero one.
35:36
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
35:39
Speaker 1: registered investment advisor. Nothing in the ad or in any
35:41
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
35:45
Speaker 1: your own financial tax into state planning advisors before making
35:47
Speaker 1: any investment decisions. Armstrong make contact you to offer investment
35:50
Speaker 1: advisory services.
35:52
Speaker 2: Paul, you bought your first home two years ago twenty twenty,
35:58
Speaker 2: twenty twenty jeez, five years ago.
36:01
Speaker 4: Now, okay, talk to me about all the stuff that.
36:04
Speaker 2: You didn't plan on spending money on that you've had
36:06
Speaker 2: to spend money on.
36:07
Speaker 5: Oh, since buying the house. Of the biggest surprises, let's see,
36:12
Speaker 5: Uh having to replace the the oil the old tank.
36:18
Speaker 5: That one was a surprise though it was at its
36:24
Speaker 5: end of its life so far into owning the house?
36:26
Speaker 4: Did you have to replace the three or four years?
36:28
Speaker 5: Three or four years? But when I bought it, I
36:31
Speaker 5: knew it was twenty years in they have a twenty
36:33
Speaker 5: five year Oh central air?
36:37
Speaker 4: You know, I knew.
36:38
Speaker 5: I knew buying the house that we're gonna have to
36:40
Speaker 5: deal with it eventually. Once a kid came along, that
36:43
Speaker 5: pressure became immensely challenging.
36:46
Speaker 2: To having had a pregnant wife with twins when we
36:50
Speaker 2: didn't have central air, I can I can vouch for
36:52
Speaker 2: the fact that that could be difficult when you have
36:54
Speaker 2: an August birthday.
36:56
Speaker 5: And then we had looked at doing something with the
36:59
Speaker 5: screen and poor but I got the quote on that
37:01
Speaker 5: and almost fell over. So that's no long or not
37:05
Speaker 5: screen It continues to be screened. Yeah, it continues to
37:09
Speaker 5: be screened, and not any walls to it.
37:13
Speaker 2: So I ask only because it's historically and traditionally been
37:16
Speaker 2: one of the underlooked areas is all these additional cost
37:19
Speaker 2: of ownership. You know, when you go onto redfinnor Zilow,
37:22
Speaker 2: they give you an estimate of the monthly payment, but
37:24
Speaker 2: that does not It can include insurance and property taxes,
37:27
Speaker 2: but almost never does it include utilities or all the
37:30
Speaker 2: other costs that come the lawn stuff.
37:32
Speaker 5: The leaves that that stuff is is either a huge
37:36
Speaker 5: time commitment or a huge commitment.
37:38
Speaker 2: Yeah, And I bring it up too because I think
37:41
Speaker 2: that there's likely to be increased transaction volume in twenty
37:44
Speaker 2: twenty five. Maybe not substantially, but I wouldn't be surprised
37:47
Speaker 2: if ten to fifteen percent more home sold. And these
37:51
Speaker 2: costs around property taxes and insurance especially have been among
37:56
Speaker 2: the highest levels of inflation that we have seen in CPI,
38:00
Speaker 2: And so it's one of those areas that I think
38:03
Speaker 2: there will be more housing activity and you don't want
38:05
Speaker 2: to find yourself underestimating all those fun little costs that
38:09
Speaker 2: creep into home ownership. Quick break a lot more to
38:12
Speaker 2: cover in the second hour of the Financial Exchange.
38:16
Speaker 4: We'll be right back. Stay tuned