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What is the danger of a 3% inflation rate? · The Financial Exchange Show

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Veterans Development Corporation. This is the Financial Exchange with Chuck
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Zada and Mike Armstrong.
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Speaker 2: Chuck, Mike and Tucker with you, and we've got some
1:15
additional economic data out this morning to help give us
1:18
a little bit of clarity on what is going on
1:22
with the economy. We'll start right there, because at eight
1:25
thirty am this morning, two sets of data came out.
1:27
The first we got the Producer Price Index data for
1:31
the month of October that came in with a point
1:35
two percent headline and point three percent core number. Mike,
1:39
correct me if I'm wrong. That's the exact same as
1:40
what we saw from CPI yesterday.
1:42
Speaker 3: Is it not amazingly consistent and predictable right now? Which
1:47
I think is the best thing you can say about
1:48
these inflation numbers other than they've obviously come down a
1:51
fair bit compared to a year ago, but stubbornly high.
1:57
Is the downside to all this is? Yeah, we knew
2:00
where it was going to come in, but it's not.
2:04
It's getting to that final mile that is I think
2:06
proving difficult for the Federal Reserve and the economy right now.
2:10
But yeah, it's to your point two and point three
2:13
on those headline numbers month over month for producer prices,
2:16
which perfectly match what we saw out of consumer prices.
2:19
Speaker 2: So continuing to see no real upward movement on the
2:23
inflation side, and also, as you noted, there's no real
2:27
downward movement. We're not seeing anything that is, you know,
2:29
potentially pushing us into a situation where inflation is getting
2:34
much closer to that two percent number. But we're kind
2:37
of just floating around, you know, between two two and
2:41
two six on the headline number depending on the index
2:45
that you're looking at, and you're you're marginally higher on
2:49
the the core numbers, where you're somewhere between like two
2:52
six and three two, And I think in a perfect world, look,
2:56
we've we've talked at lent about how the FED is
2:58
never in the long run achieved the two percent inflation
3:02
target that they have today. They only adopted that target
3:05
in the twenty ten, so it's not like this has
3:07
been a permanent feature of the FED, but it's still
3:10
is something where hey, really you'd like to get that
3:14
core number down into the mid twos a little bit
3:17
more consistently than what we're seeing right now, where yeah,
3:22
sure you can make a case on PCeU at two
3:24
six ' five right now, but realistically you'd like to
3:29
get that number into kind of the low twos at least,
3:31
you know, two three, two four, And I think you're
3:34
fine there as far as you know the headline numbers,
3:36
they they are fine right now. But the higher core
3:40
number suggests this may be driven more by following energy
3:44
prices over the last year than the idea that we're
3:47
sustainably at you know, two and a half percent inflation
3:50
right now.
3:51
Speaker 3: Let me ask you just a again, nothing that we
3:54
can read into the data, and you know, definitively say
3:57
one way or another, but consumers care about inflation when
4:02
it's two and a half percent headline, three point three
4:05
percent core, right, They clearly care when they go when
4:08
prices go up by twenty plus percent.
4:10
Speaker 4: Over four years.
4:11
Speaker 3: Do do people care about prices when they continue up
4:15
in that let's call it three percent range on an
4:19
ongoing basis, Because that's that's kind of the question for
4:22
the Trump administration right now. Right if you're not getting
4:25
it down here and we're talking about tariffs and we're
4:29
talking about tax cuts, can you sustain inflation at this point?
4:34
And do consumers and American voters care when inflation's running
4:37
in that three percent range.
4:39
Speaker 4: No, No, they don't.
4:41
Speaker 5: No.
4:42
Speaker 2: And here's here's my here are my facts that I
4:44
will put into evidence. In the nineteen nineties, I just
4:47
ran the numbers just to make sure the COO.
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Speaker 5: I'm sorry.
4:50
Speaker 2: The headline inflation number USCPI average three point h two percent.
4:56
The bulk of that was in the first you know,
4:58
eight nine years. By the time he got to March
5:00
of ninety seven, inflation dipped below at that point, largely
5:04
because of the Asian currency crisis that was unfolding after that,
5:08
you know, kind of took away any inflation that may
5:11
have been present for the remainder of the decade. But
5:13
when we look at the economy of the nineteen nineties,
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do they want to look back at the nineteen nineties
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aside from again the initial recession in like Gulf War
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and you know, ninety and ninety one, does anyone look
5:23
at the nineteen nineties like, man, that was a bad
5:26
decade because inflation was at three percent.
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Speaker 4: No, that's not the conversation.
5:31
Speaker 1: No.
5:31
Speaker 4: Plenty of people will say, well, you know.
5:33
Speaker 3: Back in my day, I could get a candy bar
5:35
for five cents and now it's but nobody looked at
5:38
the nineties in particular and said what a burdensome decade
5:42
on American households because of prices.
5:44
Speaker 2: No, it just wasn't the case where you saw that
5:48
as you know, a major problem. So I think that
5:53
you know, looking at it, And again, I use the
5:55
nineties just because anyone who's listening right now is alive
5:58
and remembers it. And I know that you know, a
6:00
lot of our you know listeners, you know, might have
6:03
been alive earlier during periods of you know, marginally higher
6:06
inflation than the two percent target. But ultimately, like our
6:10
actual memory of the economy of the nineteen fifties and
6:13
nineteen sixties is skewed by how far far away we
6:18
are from them, Like we just don't remember them as
6:20
well as things that are more recent. And that's why
6:23
I use the nineties is just because hey, it's it's
6:26
you know, only you gotta go back twenty five years,
6:28
not sixty five years to get there. So I think,
6:32
and we've been saying this all year, there's no golden
6:37
rule out there. There's no hard and fast, you know,
6:40
physics explanation that says you need to keep inflation at
6:44
two percent. That's the perfect level as determined by the universe.
6:48
Speaker 3: Sure, it's not the freezing temperature of water. No, it's
6:52
not a kit to that.
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Speaker 2: It is something though, where the danger of having inflation
6:57
settle in around three percent is there's a much quicker
7:01
path up to the areas that can be damaging for
7:04
governments and societies. And that's something that I think we
7:09
need to pay attention to in the context of what
7:12
we just went through for the last five years, where
7:14
we did have an inflationary spike in the middle of it,
7:17
and you can make a case that that inflationary spike
7:21
has been the cause of basically every incumbent in developed
7:27
countries losing share of you know, votes compared to prior.
7:32
Speaker 5: Elections this year.
7:33
Speaker 2: And so I think that this is something that ultimately, yeah,
7:38
whether inflation is running a two, two and a half
7:41
or three, I think quite honestly, human being's ability to
7:46
discern the difference between those is minimal on an annual basis,
7:51
but it puts you into a danger zone where, yeah,
7:55
the path from going to three percent to five percent
7:57
inflation a little bit more dangerous than when you're starting
8:00
from a two percent baseline and you start getting numbers
8:04
up into that four to five percent range, people really
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do start to feel it, and it puts pressures on governments,
8:10
and it's there's a reason why governments really try to
8:15
avoid high inflation.
8:17
Speaker 5: It's because people don't like it. That's it.
8:23
Speaker 4: That is it.
8:24
Speaker 3: Yeah, I mean it gets you voted out of office
8:26
quicker than anything else, and it gets you protests in
8:28
the street, especially when those items that are up in
8:30
price are gasoline and food, which by the way, are
8:33
also you know.
8:34
Speaker 4: Buy and large out of control.
8:36
Speaker 3: Well, I guess in decades past energy more than more
8:40
than anything else, but a lot of these things buy
8:41
and large out of control of the current day legislators.
8:45
Speaker 4: But that'll be the question here.
8:47
Speaker 3: It's tough for me to envision a path based on
8:51
where this economy is to day and then based on
8:54
the Trump priorities for twenty twenty five, where inflation comes
8:58
down substantially. That doesn't necessarily mean it goes up substantially,
9:03
because I think there's a lot of still open questions
9:05
about out there about food prices, about energy prices. But
9:09
if there's no significant path further downwards, what is the
9:13
risk to the upside and what could spark that and
9:16
then what would the reaction be on the part of
9:19
a new Trump administration.
9:20
Speaker 2: Yeah, and I think, look, we all need to keep
9:23
kind of an open mind when it comes to inflation,
9:26
because if you can find me the person who got
9:29
the last five years exactly right in terms of how
9:32
it was going to play out, nobody, I'd love to
9:34
talk to them. Yeah, because I don't think anyone had
9:37
the exact path moving this way, like, hey, inflation's gonna
9:41
go up to nine percent and then come back down
9:45
into the two to three percent range without without triggering
9:51
a recession Like That's that's not something that many people
9:56
had on their Bengo card. There are a few who
9:58
I think were direc actionally, you know, close directionally right
10:02
on this and and had some good thoughts, but by
10:05
and large, the idea that hey, you can have inflation
10:09
come down seven percent and unemployment only has to move up.
10:14
You know, right now we're only point seven percent higher
10:16
than it was at its bottom. That's not something that
10:21
many people who study these things would say, is you know,
10:25
possible or likely? So I think that we do all
10:29
need to remain humble about this and as J. Powell
10:33
once said, I think we all now know how little
10:38
we know about inflation. Well put, so I just think
10:43
that some humilities warranted on this, and we'll see where
10:46
things go over, you know, the next six to twelve months.
10:49
Like sure, there are no major inflationary impulses out there
10:53
right now. It's tough to see, you know, further signs
10:57
of disinflation, given where the economy is at the moment.
11:00
But this thing is always evolving, it's always changing, and
11:04
you're never in the same place, or rarely at least
11:07
in the same place six months from now as you
11:09
are today. So we'll see how things evolve. Take a
11:13
quick break here. When we come back, I do want
11:16
to touch on the other piece of Economic Day that
11:18
we got, the initial jobbless claims, and then we'll talk
11:21
a little bit about the FED and their upcoming December
11:24
meeting after this.
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Speaker 5: Mike.
12:26
Speaker 2: Let's touch on the jobless claims data quickly, just because
12:30
we did see this come out at eight thirty this morning.
12:32
Initial claims fell from two hundred and twenty one thousand
12:35
down to two hundred and seventeen thousand, Continuing claims from
12:39
one point eight eight four million down to one point
12:41
eight seven to three million, So still nothing showing up
12:45
on the jobles claim side indicating any continued weakness or
12:50
any type of concern in the labor market. There we
12:55
continue to see signs that the labor market is internally slowing,
12:59
things like the duration of unemployment going up, the number
13:03
of quits and hires going down, those kinds of things,
13:07
but it's not translating into greater job loss at this point.
13:12
Your thoughts, Yeah, I keep hearing from people, by the
13:15
way that they're just not happy about the state of
13:17
the labor market.
13:18
Speaker 4: And I can get that for new hires.
13:21
Speaker 3: I can get that for people looking for work right
13:23
now that are feeling that long delay of I can't
13:27
find a job in my field. I've been looking for
13:29
a while. It's just not happening. But I guess I
13:33
just keep being a broken record on this. If you're
13:36
unhappy with the labor market of today, then watch out
13:39
for the future, because this is in many ways close
13:43
to as good as the labor market gets. I mean,
13:46
we had some outsized, really really solid years in twenty
13:50
twenty one and things like that when there is just
13:52
a true shortage of labor. But those times don't come
13:56
very frequently, and nor does the market that we're dealing
13:58
with right now in terms of its strength.
14:01
Speaker 5: Yeah, I mean, I think if you.
14:04
Speaker 2: Look at what is well, here's the thing, Mike, so
14:09
I think in terms of like what we've seen historically
14:11
that we have data for, yeah, we're probably still close
14:15
to I think the hottest labor market that's sustainable, which
14:19
was probably like twenty seventeen, twenty eighteen. Yeah, it's it
14:25
still is something where the question that I think is
14:30
worth asking is is there something that is there anything
14:34
that we can do in order to improve it further?
14:36
Because I think that just just saying hey, it's gonna
14:41
be like it was in like twenty fourteen, twenty fifteen,
14:44
and that's what we have to deal with. I don't
14:46
think anyone really looks back at that and is like, yeah,
14:48
that was that was a great labor market, you know.
14:50
So I'm I'm less concerned with top line rates as
14:55
far as unemployment and things like that as the indicators
14:59
and more how do we get people turning over in
15:02
jobs more. I know that sounds like kind of counterintuitive
15:05
because everyone looks at the labor market now and is like,
15:08
the big problem with the labor markets is that nobody
15:12
works in one place anymore for forty years.
15:15
Speaker 5: How can we like That's That's not what I'm talking about.
15:18
Speaker 2: What I'm saying is high turnover is good in the
15:21
labor market, or higher than what we're seeing, is because
15:25
it allows people to get into the jobs they want
15:27
to be in for the long term. And when people
15:30
simply are locked into the jobs they're at out of
15:33
fear of losing a job as evidenced by the quits
15:36
rate declining, that's something that isn't good socially or economically
15:41
in the long run.
15:42
Speaker 5: Right.
15:42
Speaker 3: Yeah, And I think I think when you talk to
15:44
people realistically about their dissatisfaction with the jobs market, I
15:48
think part of that comes from more of a space
15:50
of not the number of jobs or the number of
15:53
people who are working, but the types of jobs that
15:55
are available today and the type of work that's done
15:57
today compared to decades in the past. And and that's
16:00
where certainly policy has been directed over the last few years,
16:03
and I'm sure will be continued to be during under
16:05
the Trump administration, of how do we bring more manufacturing
16:09
and you know, jobs here where people are doing things
16:12
and getting paid as more of a part of the
16:15
middle class, rather than the hollowing out that we've seen
16:17
over the last few decades.
16:19
Speaker 4: And that I get.
16:20
Speaker 3: I understand that I know that there are millions of
16:22
Americans who lost their manufacturing jobs throughout the seventies, eighties,
16:27
and nineties, and maybe that starts to come back a
16:31
little bit. But you know, you mentioned, you know, a
16:35
job market of the twenty fourteen to twenty fifteen type.
16:38
By most stats, we're not there, right, I mean by
16:41
most statistics that you look at, Chuck, whether it's the
16:44
employment to population ratio, the unemployment rate, you know, a
16:47
lot of those things are still churning along at late
16:51
twenty tens levels. And yeah, I think we can improve
16:56
things around the edges, But I go back to there
16:58
have been so many labor markets we've been through that
17:00
are so substantially worse than the one that we are
17:03
dealing with right now.
17:04
Speaker 2: Can we also, I want to touch on the manufacturing piece,
17:07
just because I think there's something interesting there.
17:10
Speaker 5: And I'm not the first person to have this idea.
17:12
Speaker 2: Rusty Gwynn, who was a hedge fund manager for a
17:16
number of years. He runs a firm out of Connecticut
17:20
now that basically studies studies how news tells people what
17:26
to think. I think is kind of the best way
17:28
that I can put it. He had a piece back
17:31
in twenty nineteen that is always top of mind for
17:34
me on this and what he talks about in it
17:36
when it comes to manufacturing is that the thing that
17:40
is the thing that's really redeeming about a manufacturing job
17:45
is when you finish the day and someone asks, hey,
17:48
what'd you do today, you can say, I built this.
17:53
The work is building something, and I pulled it up
17:56
right now just because I want to quote from it.
17:59
He compares, you know, it can instruction worker in a
18:00
banking analyst, and he says, look, the construction worker builds,
18:05
and then he comes home. His job and his worker
18:06
more or less the same. His job is to make,
18:08
and then he makes. He probably has some complaints about
18:10
the hard ass foreman and who you know, and about
18:12
his rotator cuff that keeps giving him issues, but hey,
18:16
he's got a job and he feels like.
18:17
Speaker 5: He's making something.
18:19
Speaker 2: The banking analyst, on the other hand, will have a
18:21
little more difficulty telling you what his work is what
18:23
he produces. If he's got more years of college telling
18:26
him how to answer this question than his experience actually
18:28
doing it, he'll give you something something matching.
18:30
Speaker 5: Capital with those who deploy it.
18:32
Speaker 2: Over time, he comes to understand that his job function
18:34
is one thing to permit his immediate boss to signal
18:38
competence to her immediate boss, a chain of signaling which
18:41
ultimately ends with a client who wants to do something
18:44
while offloading the risk to the bank. And this, I
18:48
think is a big thing. Like not that all of
18:49
us are banking analysts, but so much work today is
18:55
not actually making something, but basically doing something to say, hey,
19:01
this is okay for someone else to do something, And
19:06
so we get kind.
19:06
Speaker 5: Of lost there.
19:07
Speaker 2: And so I know that, you know, sometimes we can
19:09
be critical of, you know, romanticizing manufacturing, but the immediate
19:13
attraction of manufacturing is, hey, I went into work and
19:15
I made something today. When you're in a lot of
19:19
white collar jobs, we've all seen office space, like what
19:23
exactly is it that you do here? Quick Break Wall
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20:01
Speaker 6: Markets are relatively quiet and dipping into negative territories. Investors
20:05
react to another measure of inflation this morning via the
20:08
Producer Price Index, where wholesale prices climb zero point two
20:13
percent last month, in line with expectations. Right now, the
20:18
Dow is off by only twenty points, s and P
20:21
five hundred down by five points, and the Nasdaq is
20:24
off by thirty three points. Russell two thousand is off
20:28
by a third of a percent. Ten year Treasure reeled
20:31
down by two basis points at four point four to
20:35
two percent, and crude oil is up nearly one percent higher,
20:40
trading just above sixty nine dollars a barrel. Disney shares
20:44
rallying by seven percent after the media and entertainment giant
20:48
posted a jump in quarterly net income and higher revenue.
20:52
Disney's streaming business and studio also gained momentum, while it's
20:56
cable and theme park units stumbled. Meanwhile, Cisco Systems beat
21:01
third quarter estimates and also lifted its full year guidance,
21:05
but posted its fourth straight quarter of declining revenue. Shares
21:09
in the networking equipment company are down by two percent. Elsewhere,
21:14
shares in super Microcomputer down another six percent today after
21:18
the AI server maker said it needs more time to
21:22
file its quarterly report. Chinese e commerce company JD posted
21:27
a higher quarterly profit, but revenue missed expectations, sending that
21:31
stock down by three percent. Piper Sandler upgraded Campbell Soup
21:35
to overweight from neutral, with a firm site of continued
21:38
strong growth expectations for the Rowse brand, sending Campbell shares
21:43
up by one percent, and Coach parent company Tapestry officially
21:48
drop plans to buy rival handbag maker Capri after a
21:51
judge last month block the deal from closing. Tapestry shares
21:56
up by eleven percent, while Capri stock is down by
22:00
one percent. I'm Tucker Silvan. That's Wall Street.
22:03
Speaker 2: Watch, and just a reminder every time we discussed that deal,
22:07
Tapestry does not actually make any Tapestries, and Caprice does
22:11
not actually make any Caprice or Caprice sons or Caprice sons.
22:16
Speaker 4: Yeah, yeah, certain distinction.
22:17
Speaker 5: There's that. Mike. Let's talk a little bit about the FED.
22:20
Speaker 2: So we spent the first couple segments today talking about
22:23
inflation and how hey, it's at a level that we've
22:26
seen it at even during extended you know, periods of
22:30
good economic uh tidings growth whatever, you know, even in
22:37
good economies, we've seen inflation in the two and a
22:39
half to three percent range annuals. Yes, the question I
22:43
think that is being asked now of the Fed, and
22:45
that's being asked over and over again. I'm seeing this
22:48
like as a constant refrain day in and day out.
22:51
Right now is Hey, you've previously said, you being the Fed,
22:57
that you think that the long run rate or the
23:00
Fed funds rate right now is like in the high
23:03
twos somewhere. What if you actually need to keep the
23:07
rate higher, the Fed funds rate higher, in order to
23:11
keep the economy from getting too hot again. This is
23:14
the question that I've seen come up time and time
23:16
again in the last four to six weeks with the
23:19
rebound and economic growth that we've seen.
23:21
Speaker 3: Yeah, and it's also going to be the piece that
23:24
is most objected to by President elect Donald Trump. If
23:30
it comes to be concluded that, yeah, rates need to
23:33
stay higher now and they cannot move down as quickly
23:36
as we were hoping. It is setting up for kind
23:39
of a megafight just based on the timing of all this, Right,
23:43
you look at it from this outside perspective, ignoring the
23:45
economic data for a moment, and the drome power fut
23:49
a reserve cut interest rates now three times leading up
23:53
to the election two times, but seventy five basis points
23:57
in total, and depending on where this data comes in,
24:01
you know, they could be taking a pause almost right
24:05
as Donald Trump takes office, and again, looking at from
24:10
the outside perspective, there's actually tremendous justification for doing it
24:14
exactly that way, and it has nothing to do with
24:17
the election. It has everything to do with the data.
24:19
But it's certainly setting up for what could be quite
24:23
a fight here. So there is a meeting coming up
24:26
now on December eighteenth. The odds of a great cut
24:30
have been moving around. A week ago, it was only
24:33
two thirds probability of a twenty five base point rate cut.
24:37
After the last two inflation reports, which again came in
24:40
line almost exactly with expectations. You now at about eighty
24:44
percent for a twenty five base point rate cut and
24:47
twenty percent that the rates stay right where they are.
24:49
But then the further out you get, and there's a
24:51
fair bit more uncertainty in terms of what all that
24:54
looks like.
24:56
Speaker 2: Mike, You know how a lot of times when we're
24:58
talking about the FED, and you know, we look through
25:01
the weekly calendar, like this week, just as an example, today,
25:05
Coogler from the Fed is speaking, Barkin is speaking, Powell
25:10
is speaking, Williams is speaking, the balance sheet is speaking.
25:14
Speaker 5: Now, the balance sheet's just.
25:15
Speaker 2: A release that they do, but that's four speeches in
25:18
a day, and a lot of times we're like, guys,
25:21
just go away and stop talking. I want to turn
25:25
this around a little bit as well, because it's also
25:30
bothersome to me that every little wiggle that we get
25:34
in economic data requires endless commentary from someone saying the
25:44
Fed is wrong.
25:47
Speaker 3: Everyone's got to make a living. Chuck listen, I get it,
25:50
I get it.
25:51
Speaker 2: But I'm gonna rip on Jeremy Siegel again, who's very
25:54
smart and likely has been very well compensated over the
25:57
course of his career, because in September, siegu was the
26:01
guy who went on all the morning shows and said
26:05
we need a seventy five basis point emergency cut now,
26:08
and then another seventy five basis point cut later in September,
26:12
And that was because of basically two maybe three months
26:17
of weakening economic data over the summer. Yes, and now
26:22
you've got everyone in their grandmother after two months of
26:28
better economic data saying, hey, the Fed's not going to
26:32
be able to cut it all like they might have
26:35
already gone too far, maybe they actually need to raise
26:37
the FED funds rate, And it's ultimately just revealing like
26:43
kind of who's biased where in terms of what they
26:45
think the FED should be doing. But maybe we all
26:49
need to just be quiet a little bit. I was
26:52
looking back at it in the nineteen nineties just because
26:54
we were we were talking about inflation, and I was like, Okay,
26:56
let me like see what what the FED was doing
26:59
even in the ninth nineties, Mike, do you know that
27:02
aside from you know, the Gulf War period, for the
27:06
entire rest of the nineteen nineties, the FED funds rate
27:09
basically sat between three percent and six percent. And I'd
27:13
like some little wobbles and jiggles where they decided to
27:15
move it this way and that way, but it was basically, hey,
27:18
the economy did what it did over eight years, and
27:23
in particular, like from from ninety four on you basically
27:28
had alan greenspan do very little. I mean, you were
27:32
basically between like four seven and sixty five, even through
27:36
the tech bubble. So it's like a very narrow range
27:39
that you had, and the idea that, hey, the FED
27:42
needs to be doing a ton man. In a healthy economy,
27:45
we don't obsess about the FED and what the cost
27:48
of money is on a daily basis.
27:51
Speaker 3: Maybe, But I also think that since the Great Recession,
27:53
there has been a giant abdication of I guess financial
27:58
responsibility on the part of Congress and just laying it
28:01
all at the feet of the FED.
28:02
Speaker 4: So I don't want to blame it all on media.
28:05
Speaker 3: I think that there has been a congressional members who
28:09
just throw their hands in the air and say, well,
28:10
it's the Fed's job to worry about all this stuff.
28:13
Speaker 4: You know, we're not going to deal with it.
28:16
Speaker 5: Let's to get on that.
28:17
Speaker 2: Though, Like, what do you mean, was was Congress that
28:20
responsive to economic conditions in the nineteen nineties that they
28:23
were constantly tinkering with economic policy?
28:27
Speaker 4: No, I guess.
28:29
Speaker 3: I guess it's not so much that they were passing
28:33
laws and actually taking action, but I think that there
28:38
was a lot more questions and answers.
28:41
Speaker 4: About what are you going to do about inflation?
28:43
Speaker 3: And these days, when asked about it, I think almost
28:46
universally the answer has been, well, that's really the Fed's job,
28:49
and you know, we don't we don't need to be
28:52
as involved in.
28:53
Speaker 5: This Yeah, I guess it's Look, don't get me wrong.
28:59
Speaker 2: I've said time time again, the FED has more gravity
29:02
towards what happens in the economy than any other institution
29:07
or person on the planet because they can literally push
29:11
a button and change things, and basically either route, they
29:16
could ruin the economy in any number of ways through
29:19
the wrong button push. And I think it's you know,
29:23
worthy to respect that power. But I think it also
29:26
means that, hey, just because you get a set of
29:29
data for a month or a quarter, it doesn't mean
29:33
that we need to pretend that the economy is gonna
29:35
be permanently doing what it did for that quarter. You know,
29:42
like we can just say, hey, let's let's wait and
29:46
see before we do anything. Now, there are times to
29:48
not wait and see again Q one to twenty twenty two.
29:52
I was the dude who's like, yeah, just raise rates
29:54
five percent and get it over with. I still take
29:57
credit for that because it would have been a great move,
30:00
a great move, But there's other times where it's just
30:03
kind of, hey, maybe we don't need to do anything
30:06
right now, and getting swayed by a quarter of economic
30:10
data might be the wrong thing, And hey, maybe that
30:15
fifty basis point rate cut in September. You're hearing an
30:19
awful lot of potential regret expressed about that right now,
30:22
And so maybe even for the FED, Yeah, maybe you
30:25
don't need to be, you know, quite as in tune
30:29
with what the data is doing right now unless you
30:33
know that right now is also going to be exactly
30:36
what you get in the future. And Mike, do any
30:37
of us know exactly what we're gonna get in the future? Yes,
30:41
which people me, Oh, only me. I'm so happy that,
30:44
I'm so happy we do this together. Then it's uh,
30:47
it's great.
30:47
Speaker 4: Yep, that crystal ball that I keep my back pocket.
30:50
Perfect score.
30:51
Speaker 5: So that's kind of where I'm at on this. Let's
30:53
take a quick break here.
30:54
Speaker 2: When we come back, let's talk about why the Wall
30:57
Street Journal has a piece today title the twenty five
31:00
thousand dollars Reason to Buy a used Car.
31:03
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31:33
Speaker 2: Mike, there's a piece in the Wall Street Journalists title
31:35
the twenty thousand dollars reason to buy a used car,
31:40
and the big reason is, Hey, right now, on average,
31:43
there's a twenty thousand dollars difference between the price of
31:46
new vehicles purchased and the price of used vehicles purchased.
31:51
But isn't that kind of not in apples to apples comparison?
32:00
Speaker 4: Plane, I'm not following you. Why it's not Apple staples?
32:02
Speaker 2: Okay, so you look at the average price of two things, right, Sure,
32:07
but we know there's a wide range of car prices,
32:11
including a number of new cars that you can get
32:13
for under twenty seven thousand dollars. Sure, So simply saying, hey,
32:18
you should buy a used car because you'll save twenty
32:20
thousand dollars, I don't think is actually giving people the
32:26
info that they want, especially because when you look at
32:29
new vehicles, they often have features, drive trains, or whatever
32:34
they may be that might not exist in older used vehicles.
32:39
Speaker 3: Yeah, I guess it's not perfectly Apples staples, but I
32:41
would suspect, right. I mean we talk about how what's
32:44
the average new transaction price on a vehicle forty five
32:46
forty seventy thousand. Yeah, and it's you know, largely being
32:50
driven upwards by SUVs and trucks. But that's not a
32:54
new phenomenon, right, you know, I would imagine that the
32:56
class of used vehicle when purchased is probably pretty similar
33:00
to the class of new vehicle. Certainly if you're gonna
33:02
do a more thorough analysis than what you need to
33:04
do is compare the new Tesla Model three to the
33:07
twenty twenty one Tesla Model three and see what the
33:09
discount is, and then do the same.
33:10
Speaker 4: For every other vehicle out there.
33:12
Speaker 3: But the point that they make that I think contextualizing
33:16
is helpful here is that that gap between used and
33:19
new has never been larger.
33:21
Speaker 2: True, But I I'd be curious, and look, I haven't
33:24
done the legwork on this. I'd be curious how large
33:27
the gap is if you adjust for inflation. Sure, again,
33:31
twenty thousand dollars today is not what twenty thousand dollars
33:33
was ten years ago.
33:34
Speaker 5: Agreed. There are some.
33:36
Speaker 2: Vehicles they point out, like the Tesla Model three, where
33:40
the new price, and again you talk about what you get,
33:43
you know, in the same model. The new price right
33:45
now is you know, forty two thousand change. You could
33:48
buy a three year old one that is in the
33:51
twenty fives. But it's something where hey, there's you know,
33:56
reasons for that, and it's it's basically been that. Because
34:00
Tesla has a history now of trying to cut prices,
34:03
your resale value down the road may also be lower,
34:07
and so it's something that you have to pay attention to.
34:09
Speaker 3: Yeah, so look, I mean this is a big reversal
34:12
from just a couple of years ago when I myself
34:15
had never bought a new car before, and I went
34:17
and bought a new car because the used car prices
34:19
were so outrageous that if you could actually get your
34:21
hands on a new one, it was a comparatively again
34:24
still in hindsight, a crap deal, but a comparatively a
34:28
good deal. The other piece of this, though, in general,
34:31
is just the high cost of cars and car ownership
34:35
in general, and one of the things that I keep
34:37
running into more and more now because of rates where
34:40
they are are high interest car loans, and specifically on
34:43
the used car side of things. Chuck I mean, we've
34:45
talked about the wide range there, but you're seeing car
34:47
loans on the use side of in excess of ten percent.
34:51
And a common thing that I continue to get questions
34:54
on is, you know, I've got this loan, but it's
34:58
fixed and I can afford or did why should I
35:01
try and pay it off faster?
35:03
Speaker 5: Right?
35:03
Speaker 3: Like, I've got this money in my portfolio that in
35:06
many cases grew twenty percent over the last nine months.
35:09
Why would I take anything out of that in order
35:11
to pay off alone? Even if it is at five
35:13
six seven percent interest? I'm doing so well with my investments.
35:17
Do you encounter that a lot?
35:18
Speaker 2: Yeah, it's it certainly is something where there are a
35:22
number of things that you have to sort through there
35:25
in terms of, hey, the rates that you're potentially earning
35:27
on savings or investments versus what you're paying. But I
35:31
do think look to it's something where that stuff matters.
35:35
But also how you think about it in the stress
35:39
that a loan might cause you is something worth having
35:42
in the conversation as well, because look, people often make
35:47
decisions that might not be in their financial best interest,
35:50
you know, taking out you know, credit card debt or whatever.
35:53
But sure, Hey, you have to do it because you
35:55
know the alternative otherwise is whatever. If you know you're
35:59
dealing with the situation where you're like, hey, my investments,
36:02
maybe I've got you know, CDs that are earning four percent,
36:05
and I got a car loan you know that's only
36:07
at six Like what do I do with the car loans?
36:09
Speaker 5: Causing me stress?
36:11
Speaker 2: Hey, maybe you might actually end up just being in
36:13
a happier place even though it's not financially best for
36:16
you to pay that car loan off.
36:18
Speaker 3: Yeah, I think I think there's a lot of psychological
36:20
barriers when it comes to this type of planning, and
36:22
I get questions about it all the time. But that's
36:24
what a financial planner is there to help you guide through,
36:27
is Hey, this is mathematically where it's going to be
36:31
in your best interest to do something, and then psychologically,
36:33
how do how do we get you there so that
36:35
you're not damaging your own financial future. If you have
36:38
questions along those lines, maybe it's a mortgage, maybe it's
36:41
student loans, maybe it's a car loan, and you're trying
36:43
to figure out how do I get myself in the
36:45
better financial position from my future? Please give the folks
36:48
at Armstrong Advisory Group, a ring we work with our
36:51
clients one on one to budget to work towards their
36:54
retirement future, and we can help you too. That phone
36:57
number is eight hundred three nine three four four zero
37:00
zero one. Again free consultations in person throughout in New
37:03
England at eight hundred three nine three four zero zero one.
37:07
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
37:10
registered investment advisor. Nothing in the ad or in any
37:12
Armstrong guide a specific financial, legal or tax advice. Consult
37:15
your own financial tax into state planning advisors before making
37:18
any investment decisions. Armstrong may contact you to offer investment
37:21
advisory services.
37:23
Speaker 2: Mike, speaking of a credit card debt which I just
37:25
mentioned briefly, the FED has a new quarterly report that
37:29
they just published on the dead outstanding from Americans, and
37:32
Americans now a one point one to seven trillion dollars
37:35
on their credit cards, rising by twenty four billion dollars
37:39
during the third quarter. That's eight point one percent higher
37:42
than a year ago. But despite that increase, delinquency rates
37:47
actually improved from nine point one percent down to eight
37:50
point eight percent. So even as credit card balances are
37:53
growing again, not showing signs of continued deterioration as far
38:00
as the delinquency rates and things like that.
38:02
Speaker 3: Yeah, that is the ultimately important piece. But even inflation
38:05
adjusted terms, I believe that's a brand new record for
38:08
credit card debt. So that's frightening. Let's take a quick
38:11
break here.
38:11
Speaker 2: We got our two coming up in just a little
38:14
bit on the Financial Exchange,