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Warsh Forces Bond Traders to Do Their Job · The Financial Exchange Show

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  Speaker 1: and Mark Vandetti.
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  Speaker 2: Good morning, Happy Tuesday. Welcome back to the Financial Exchange. Mike,
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  Speaker 2: Mark and Tucker with you on a day where markets
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  Speaker 2: are surging, all three major US indices up more than
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  Speaker 2: one percent, with the S and P trailing the other
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  Speaker 2: two up only one point two percent, and as that
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  Speaker 2: can lead at one point seven So more earnings to
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  Speaker 2: come this week, including SpaceX this afternoon after the bell
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  Speaker 2: heavy jobs report week this week, with the Jolt report
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  Speaker 2: out over just over an hour ago, indicating that as
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  Speaker 2: of the end of June anyway, not much change to
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  Speaker 2: the pace of hiring and firing in this US economy,
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  Speaker 2: with job opening sitting unchanged at seven point four million
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  Speaker 2: in the month of June, hires on changed at five
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  Speaker 2: point three million. In total separations which does include both
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  Speaker 2: quits and layoffs also not moving around a whole lot.
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  Speaker 2: So Friday morning at eight thirty, we will get the
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  Speaker 2: monthly jobs report for July.
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  Speaker 3: That's going to give us the.
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  Speaker 2: Unemployment rate estimate as well as you know, the total
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  Speaker 2: hirings rate and some information about wages. I say estimate
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  Speaker 2: because all of the stuff is an estimate. We don't
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  Speaker 2: actually measure any of this. We take surveys and try
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  Speaker 2: and get a sense of things like the unemployment rate,
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  Speaker 2: but they are ultimately guesses. But you're so far has
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  Speaker 2: been defined by an uptick and hiring, also an uptick inflation,
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  Speaker 2: partly to blame on oil prices and energy or mostly.
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  Speaker 3: To blame on energy prices, and.
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  Speaker 2: It has left the Federal Reserve in a position where
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  Speaker 2: they have been and have needed to, you know, frame
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  Speaker 2: the conversation is how tough they are going to be
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  Speaker 2: on inflation. To start the show there, which was last
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  Speaker 2: week's press conference and announcement from the Federal Reserve that
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  Speaker 2: they were not moving on interest rates and that Kevin
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  Speaker 2: worsh was going to talk less and let the markets
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  Speaker 2: do their job in his view, and Mark, you thought
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  Speaker 2: that that was well, let me don't let me not
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  Speaker 2: put words in your mouth. But you were less critical
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  Speaker 2: of that press conference and performance than others were.
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  Speaker 4: Markets are spoiled. Bond markets specifically are spoiled. They're use
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  Speaker 4: to the Fed telling them what short term rates will
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  Speaker 4: be out to a very for for several quarters years.
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  Speaker 4: With that information, you can construct an estimate of what
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  Speaker 4: longer term rates should be as opposed to letting the
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  Speaker 4: market using other sources guess and through price discovery it
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  Speaker 4: arrived at the right yield on the ten and a
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  Speaker 4: thirty year treasury. So bond traders were upset because their
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  Speaker 4: job just became harder, and the people who carry water
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  Speaker 4: for them in the Financial Times, Bloomberg and elsewhere dutifully
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  Speaker 4: report their criticisms of the chairman. An incredible conclusion was
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  Speaker 4: reached in a paper who was written a couple of
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  Speaker 4: years ago but only recently published by Sebastian Hillenbrand at
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  Speaker 4: Harvard Business School. Hill and Brand found, and we all
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  Speaker 4: know that interest rates have come down over the past
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  Speaker 4: forty years.
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  Speaker 3: Yep.
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  Speaker 4: We'll call that the secular long term and it's been
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  Speaker 4: global decline in interest rates. What hill and Brand calls
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  Speaker 4: a striking fact, the entire decline in long term interest
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  Speaker 4: rates over the past forty years has occurred around FED meetings.
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  Speaker 4: Changes in interest rates outside of a couple of days
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  Speaker 4: around FED meetings have not contributed to that decline. That
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  Speaker 4: is a stat When I was blown away by that
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  Speaker 4: observation and by the by the genius insight that led
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  Speaker 4: him to do the statistical work that supports that conclusion.
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  Speaker 4: That to me, and I'm surprised more people haven't connected
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  Speaker 4: this paper and that finding with Warsh's ideological predisposition to
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  Speaker 4: not only say less about what he's thinking, but say
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  Speaker 4: less about the path of short term rates, which in
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  Speaker 4: turn enables bond traders to sort of to to to
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  Speaker 4: make their best guess at what what long term rates
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  Speaker 4: ought to be.
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  Speaker 2: So, so let's say I buy this paper that you
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  Speaker 2: know the Federal Reserve, the Central Bank has effectively guided
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  Speaker 2: interest rates lower over the last forty years.
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  Speaker 3: Is that that's the.
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  Speaker 4: That's actually a really good way to put it.
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  Speaker 2: And I agree that that is a little bit different
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  Speaker 2: than allowing free markets to do so.
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  Speaker 4: And by the way, that's that's through that's through them
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  Speaker 4: telegraphing what they think. Sure, if you think of a
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  Speaker 4: long term bond, all else equal is being a chain
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  Speaker 4: of shorter term instruments. Meaning instead of buying a ten
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  Speaker 4: year treasury, I could buy a one year and in
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  Speaker 4: a year when it matures by another one year. If
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  Speaker 4: there were no risk to holding a ten year treasury
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  Speaker 4: inflation risk and illiquidity risk, and theory, those two rates
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  Speaker 4: should be equal, but they aren't. There's a so called
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  Speaker 4: term premium or risk premium.
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  Speaker 3: If you like so, then tell me what's the problem
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  Speaker 3: with that scenario?
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  Speaker 5: Right?
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  Speaker 3: Is it too much power in one organization?
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  Speaker 2: Is the idea that the FED, for the last decade
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  Speaker 2: at least has pretty much had a policy of let's
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  Speaker 2: not surprise the markets. What problems does that lead to
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  Speaker 2: for the economy that Worsh wants to fix. Is it
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  Speaker 2: that the FED can oftentimes be right that you.
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  Speaker 4: Can't ascertain anything from the level of long term rates,
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  Speaker 4: including the spread between the observable rate on nominal treasuries,
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  Speaker 4: say the ten year that we all read about in
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  Speaker 4: the newspaper four point six to five roughly right now,
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  Speaker 4: maybe a little lower this morning, and the yield the
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  Speaker 4: really yield on a tips security of equal term to maturity.
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  Speaker 4: You can't take that spread and say that's expected inflation.
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  Speaker 4: You probably shouldn't anyway, for other structural reasons, the FED
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  Speaker 4: can't infer anything from long term rates because it's it's
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  Speaker 4: helping to set them. Green Spin identify this problem three
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  Speaker 4: decades ago, he said, oftentimes we're talking in a mirror,
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  Speaker 4: so I'm trying to I'm trying to glean something from market,
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  Speaker 4: but the but markets are responding to to what I'm saying,
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  Speaker 4: so I'm I'm.
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  Speaker 3: I'm circular reference warning from excels.
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  Speaker 4: Yeah, I think that. Yeah, that's that's also a very
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  Speaker 4: good way to put it. Again, I think it's a
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  Speaker 4: fascinating conclusion, and undoubtedly it'll be it'll be picked apart first,
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  Speaker 4: possibly for statistical reasons that Hill and brand as I mentioned,
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  Speaker 4: published recently that the entire decline in interest rates over
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  Speaker 4: the past forty years has occurd around FED beatings everything
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  Speaker 4: else fleeting.
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  Speaker 3: Yeah.
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  Speaker 2: Look, I mean I would love to see if I
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  Speaker 2: out of reserve that does a lot less talking, that
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  Speaker 2: allows markets to guide themselves, and perhaps is only speaking
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  Speaker 2: very publicly in moments of real crisis. I think that
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  Speaker 2: that would be And maybe you debate whether or not
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  Speaker 2: they should be doing that even but you know, I
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  Speaker 2: think there's a place for the FED to step in,
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  Speaker 2: say in March of twenty twenty or in two thousand
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  Speaker 2: and eight, to support the economy in words, if not actions.
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  Speaker 2: But yeah, I think arguably, pardon me, they spend far
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  Speaker 2: too much time talking and guiding through what has been
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  Speaker 2: some fantastic years in the economy and perhaps you know,
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  Speaker 2: holding the leash a little bit too tight.
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  Speaker 4: Rates could be a little bit more volatile as a result,
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  Speaker 4: But I don't think that necessarily translates into more volatility
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  Speaker 4: in real macroeconomic time series GDP, unemployment and stuff like that.
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  Speaker 4: The Great moderation, the reduction in volatility and all those
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  Speaker 4: times series started well before the FED diarrhea of the mouth,
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  Speaker 4: and Warsh knows this be a little more crisp in
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  Speaker 4: his economic explanations.
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  Speaker 2: Yeah.
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  Speaker 4: Could. He's not a trained economist. He doesn't have the
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  Speaker 4: models in his head that allow him to convey something
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  Speaker 4: coherently and like succinctly. I'm a little uncomfortable with the
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  Speaker 4: way he phrases things. Sometimes I was very uncomfortable with
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  Speaker 4: the way Powell phrased things. Sometimes you could tell they're
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  Speaker 4: not trained economists. They don't have a sketch of the
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  Speaker 4: models the Fed's using in their heads, so they can
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  Speaker 4: at least explain clearly to people why they're doing what
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  Speaker 4: they're doing. You don't have to tell people where you
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  Speaker 4: think you'll be in six months, but explaining why you
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  Speaker 4: are where you are today is important. Worsh needs to
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  Speaker 4: do a better job of that, I'll admit, But I
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  Speaker 4: think in a directional way he's making improvements.
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  Speaker 2: In any case, how this affects you is that this
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  Speaker 2: is a very seemingly different set of policies than was
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  Speaker 2: used by Powell, Yellen, and Bernanki before him. It seems
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  Speaker 2: to be a departure from those three at least, and
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  Speaker 2: I name those three only because those the three Fed
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  Speaker 2: chairs that I've really lived amongst, and it might be
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  Speaker 2: for them too, But it's definitely a departure from those three,
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  Speaker 2: and it's something new.
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  Speaker 4: Bernanke implemented a forward guidance as a matter of routine.
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  Speaker 4: We were at the so called zero lower bound rates.
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  Speaker 4: Couldn't they couldn't lower FED funds anymore than they did
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  Speaker 4: a zero lower bound in monetary policy jarget, So he
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  Speaker 4: had to start talking about that. The steps started under Bananky.
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  Speaker 1: So.
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  Speaker 4: And Yellen is an academic, She's a labor economist, but
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  Speaker 4: also an academic cut from a similar cloth. She just
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  Speaker 4: continued those policies, and obviously Powell did as well. So no,
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  Speaker 4: you're right, Greenspan was far less a forthcoming.
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  Speaker 2: Let's take a quick break when we come back. Big
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  Speaker 2: earnings report tonight after the bell in the first one
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  Speaker 2: for this trillion plus dollar publicly traded company would cover
• 10:52
  Speaker 2: that next on the Financial.
• 10:53
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• 11:38
  Speaker 3: So, as we discussed yesterday, SpaceX.
• 11:41
  Speaker 2: Will be reporting their earnings or lack thereof, today after
• 11:45
  Speaker 2: the Bill, the first ever earnings report as a publicly
• 11:48
  Speaker 2: traded company. So while markets are used to having Elon
• 11:53
  Speaker 2: Musk speak to them about his companies, they haven't heard
• 11:56
  Speaker 2: him speak about SpaceX in this fashion before. And I
• 11:59
  Speaker 2: think Barons yesterday kind of put it best. I'm trying
• 12:03
  Speaker 2: to see who wrote this al root from Barons. I'm
• 12:07
  Speaker 2: just going to quote him from yesterday's article. Quote it's
• 12:10
  Speaker 2: going to be wild. When referencing the earnings report. The
• 12:14
  Speaker 2: reasons are fairly obvious. It's a one point four trillion
• 12:17
  Speaker 2: dollar company which was a three trillion dollar company only
• 12:20
  Speaker 2: a few weeks ago, valued at thirty five times estimated
• 12:24
  Speaker 2: twenty twenty six sales, not earnings, led by the world's
• 12:28
  Speaker 2: richest human.
• 12:28
  Speaker 3: Elon Musk.
• 12:30
  Speaker 2: So yeah, I think with that context, a company that
• 12:33
  Speaker 2: is today one point four trillion dollars just a couple
• 12:35
  Speaker 2: of weeks ago was three trillion dollars and is trading
• 12:39
  Speaker 2: at valuations that, if not literally, then nearly no other
• 12:44
  Speaker 2: company in the world is trading at. It is going
• 12:47
  Speaker 2: to be pretty fascinating to watch what he has to
• 12:50
  Speaker 2: say about this company's future.
• 12:52
  Speaker 3: At the same time as he's doing this.
• 12:54
  Speaker 2: More and more buckets of shareholders who were either pre
• 12:59
  Speaker 2: IPO investors or IPO investors are reaching the point that
• 13:03
  Speaker 2: they're able to sell their shares on open markets. And well,
• 13:08
  Speaker 2: I don't want to read too much into how a
• 13:10
  Speaker 2: stock trades in the first what month and a half
• 13:13
  Speaker 2: of its public debut.
• 13:15
  Speaker 3: This one has been exceptionally volatile.
• 13:19
  Speaker 4: Is it going to change anybody's opinion? They're expecting massive
• 13:21
  Speaker 4: losses due to upfront investments. They have probably well informed
• 13:27
  Speaker 4: targets of starlink subscriber growth. For example, AI who that
• 13:33
  Speaker 4: knows he'll even if he makes something up, people will
• 13:36
  Speaker 4: sort of push back. His magic touch has worked in
• 13:39
  Speaker 4: the past.
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  Speaker 3: So I mean, even who is he going to convince
• 13:44
  Speaker 3: if the substance is.
• 13:45
  Speaker 4: Terrible, he's going to spin it positively. Stock might even
• 13:49
  Speaker 4: go up. How horrendous would it have to be for
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  Speaker 4: him not to be able to put some sort of
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  Speaker 4: positive gloss on it or just say ignore that. Let's
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  Speaker 4: talk about the future, which seems to be what investors
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  Speaker 4: in this company are focused on.
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  Speaker 2: Yeah, it is also Remember a pretty massively complicated conglomerate, right,
• 14:08
  Speaker 2: We have a massive space exploration business that is mainly
• 14:14
  Speaker 2: defense contracting with NASA and others. We have another business
• 14:20
  Speaker 2: unit that's related to space, which is sending satellites into
• 14:22
  Speaker 2: orbit in order to beam Internet down into all sorts
• 14:26
  Speaker 2: of homes, planes, cars, in the future, all sorts of
• 14:32
  Speaker 2: different things. And then we have this AI unit as
• 14:35
  Speaker 2: well as a social media unit. I know we've kind
• 14:38
  Speaker 2: of combined those two together at times, with X formerly
• 14:41
  Speaker 2: Twitter and Grock or the other AI business all getting
• 14:46
  Speaker 2: mushed together. But those are all components of SpaceX, which
• 14:50
  Speaker 2: then frequently get commingled and talked about with Tesla and
• 14:53
  Speaker 2: their own assets, such as the fact that Tesla's apparently
• 14:56
  Speaker 2: going to get Starlink Internet service, that perhaps Tesla's research
• 15:03
  Speaker 2: and technology on battery development could be useful in the
• 15:07
  Speaker 2: AI space, and so increasingly so, even more than before,
• 15:12
  Speaker 2: it's becoming more and more confusing. I think, to Elon
• 15:16
  Speaker 2: Musk himself and the general public, which of these companies
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  Speaker 2: does what and how the interminglings work, and which is
• 15:24
  Speaker 2: why ultimately, whether he's successful in it or not, I
• 15:27
  Speaker 2: think it's fairly clear that Elon Musk sees a future
• 15:31
  Speaker 2: where these two companies are merged together under one house
• 15:34
  Speaker 2: and are more efficient as a whole rather than the
• 15:37
  Speaker 2: sum of its parts.
• 15:38
  Speaker 4: Yeah, I'll say again, I don't think anything that happens
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  Speaker 4: today matters. The results are going to be horrendous, probably
• 15:45
  Speaker 4: doesn't matter, does it? Am I am? I being flip here?
• 15:49
  Speaker 2: Yeah?
• 15:50
  Speaker 4: What matters is what he says and what people are
• 15:53
  Speaker 4: willing to believe sounds And he's gonna sound really up.
• 15:58
  Speaker 4: You think he's going to be down beat?
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  Speaker 3: No, No, he doesn't do that. So Yeah, the question
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  Speaker 3: to me is more.
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  Speaker 2: It's less about what the context is of what he
• 16:08
  Speaker 2: has to say. He's going to report terrible results and
• 16:10
  Speaker 2: be really optimistic about what the future holds. The question
• 16:14
  Speaker 2: that I have is does it actually convince anyone? Yes,
• 16:17
  Speaker 2: it will, well, we'll see in the aggregate, does it
• 16:21
  Speaker 2: convince investors enough to drive the.
• 16:23
  Speaker 3: Stocks already down?
• 16:24
  Speaker 4: So yeah, okay, so hey.
• 16:26
  Speaker 2: We have this nice little voting machine that we get
• 16:28
  Speaker 2: to look at every single year. Bay the stocks up
• 16:31
  Speaker 2: three point six percent this morning. So yeah, when Elon
• 16:35
  Speaker 2: starts talking, does the stock price go up or down tomorrow?
• 16:39
  Speaker 2: I think is the relevant voting feature of did he
• 16:43
  Speaker 2: do a good job at this h Because you're right,
• 16:45
  Speaker 2: there's likely maybe we're wrong, but there's likely nothing financial
• 16:49
  Speaker 2: that's new the ES report that's going to surprise any.
• 16:51
  Speaker 4: Of his acolytes. Don't care. They're with him through hell
• 16:54
  Speaker 4: or high water. It's kind of a cult in a
• 16:57
  Speaker 4: positive I don't mean that negatively, just sort of descriptively.
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  Speaker 4: And some people are cynically members of the cult. They
• 17:03
  Speaker 4: just want to pass along their shares to a more
• 17:05
  Speaker 4: gullible cult member at some point at a higher price.
• 17:08
  Speaker 4: Others really believe it, and they have reason too, because
• 17:11
  Speaker 4: he's built tremendous businesses historically.
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  Speaker 3: Yeah.
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  Speaker 2: So we'll see if there's any disruption to the Elon
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  Speaker 2: Musk cult. As we report on earnings this afternoon that
• 17:22
  Speaker 2: will be released, by the way, not the only giant
• 17:25
  Speaker 2: company that's reporting earnings. Another one with just massive valuations
• 17:29
  Speaker 2: attached to it is Advanced micro Devices AMD, which is
• 17:33
  Speaker 2: in itself a three quarters of a trillion dollar company,
• 17:37
  Speaker 2: will be reporting after the bell as well today, which
• 17:42
  Speaker 2: again probably only second in the semiconductor space to Innvidia,
• 17:48
  Speaker 2: massive gains in their AI business and by some measures
• 17:54
  Speaker 2: actually more richly valued than Nvidia at this stage, albeit
• 17:57
  Speaker 2: a fair bit smaller in terms of market cap. A
• 18:00
  Speaker 2: you know very much looked at durings report as well.
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  Speaker 4: You know, just stepping back looking at markets today, the
• 18:06
  Speaker 4: quick run up in equities over the past couple of weeks,
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  Speaker 4: bond yields coming down. This doesn't feel like an environment
• 18:17
  Speaker 4: in which financial conditions are fed funds all use that
• 18:22
  Speaker 4: as I'll use financial conditions to mean more or less
• 18:25
  Speaker 4: fet frunds are restricted back to the Fed for a sec.
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  Speaker 4: I'm just like, what is Warsh thinking is he looks
• 18:31
  Speaker 4: at his Bloomberg and sees all this exuberance. Real rates
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  Speaker 4: are zero right now, Real Fed funds FED funds after
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  Speaker 4: inflation about zero.
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  Speaker 3: I mean what I mentioned.
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  Speaker 2: Mark that didn't feel healthy to me over the course
• 18:45
  Speaker 2: of the last two weeks was the day after price
• 18:49
  Speaker 2: action on these giant behemoth companies Apple, Meta, Microsoft, and Amazon.
• 18:54
  Speaker 3: The day after they reported earnings.
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  Speaker 2: Each of them moved up or down by nearly ten
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  Speaker 2: percent or more.
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  Speaker 3: And yeah, Apple, to say that wasn't deserving.
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  Speaker 2: But to see, you know, two three four trillion dollar
• 19:09
  Speaker 2: companies moving ten percent in a day just doesn't read
• 19:13
  Speaker 2: to me as a terribly healthy or restrictive investing environment
• 19:19
  Speaker 2: that we're in right now. And I don't know that
• 19:20
  Speaker 2: that speaks anything about the future, but in this moment,
• 19:24
  Speaker 2: while the S and P has been relatively flat, the
• 19:26
  Speaker 2: underlying components have been quite volatile. We're gonna take a
• 19:29
  Speaker 2: quick break when we come back. Full market update for
• 19:32
  Speaker 2: you with Wall Street Watching.
• 19:37
  Speaker 1: Bringing the latest financial news straight to your radio. Every day.
• 19:42
  Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
• 19:47
  Speaker 1: I know full World Street Watch treking the stocks, FANDATO
• 19:51
  Speaker 1: and the headlines driving markets. So far today right here
• 19:55
  Speaker 1: on the Financial Exchange Radio Network.
• 19:57
  Speaker 5: We're seeing market stage yet another rally to day following
• 20:00
  Speaker 5: a new flurry of earnings. Also Treasury Secretary Scott Besson
• 20:04
  Speaker 5: told CNBC that the US and Iran could reach a
• 20:07
  Speaker 5: deal to open the Strait of Removes as soon as
• 20:09
  Speaker 5: today or Wednesday, sending oil lower. Right now, the Dow
• 20:13
  Speaker 5: up one and a half percent or eight hundred and
• 20:15
  Speaker 5: one points higher, SMP five hundred up one and a
• 20:18
  Speaker 5: quarter percent or ninety five points hired, NASDAK now up
• 20:21
  Speaker 5: one point eight percent or four hundred and sixty nine
• 20:25
  Speaker 5: points higher, RUSS two thousand's up one and a quarter percent.
• 20:28
  Speaker 5: Tenure Treasure Reel down four basis points at four point
• 20:31
  Speaker 5: sixty three percent, and oil down nearly five percent, trading
• 20:36
  Speaker 5: at seventy six dollars a barrel. Pallenteer surging twenty seven
• 20:40
  Speaker 5: percent after the enterprise software company posted earnings that CEO
• 20:44
  Speaker 5: Alex carp deemed as otherworldly, driven by customer demand for
• 20:48
  Speaker 5: AI sovereign tools. Meanwhile, McDonald said sales at US restaurants
• 20:52
  Speaker 5: climbed only zero point eight percent in the previous quarter,
• 20:55
  Speaker 5: its slowest growth since the start of twenty twenty five.
• 20:59
  Speaker 5: The fast food giant also named Sky Anderson as its
• 21:02
  Speaker 5: new US president, shares her up by over one percent. Elsewhere,
• 21:06
  Speaker 5: Caterpillar handily beat earnings expectations and lifted its profit outlook.
• 21:11
  Speaker 5: Batstock up by five percent, wayfair rallying twenty seven percent
• 21:16
  Speaker 5: after the online furniture retailers saw its strongest US growth
• 21:19
  Speaker 5: since twenty twenty. And after today's close, we'll see AMD
• 21:23
  Speaker 5: and SpaceX report there anticipated second quarter results the stocks.
• 21:28
  Speaker 5: AMD is up by seven percent at the moment, while
• 21:32
  Speaker 5: SpaceX is up over three percent. I'm Tucker Silva, and
• 21:36
  Speaker 5: that is Wall Street.
• 21:37
  Speaker 2: Watch Alison Trager out with a piece today in Bloomberg
• 21:41
  Speaker 2: responding to the kind of founder of the four to
• 21:44
  Speaker 2: oh one k's piece the other day who was critical
• 21:48
  Speaker 2: of it and wanting to float other ideas for retirement
• 21:54
  Speaker 2: stability in the American public. And Allison is a good
• 21:59
  Speaker 2: defense of the four oh one K in this piece
• 22:02
  Speaker 2: and calls it the best retirement plan. And I guess, Mark,
• 22:07
  Speaker 2: we didn't need to have four oh one k's right.
• 22:09
  Speaker 2: The Congress road at loophole, you know, that was able
• 22:14
  Speaker 2: to have a loophole through it and allowed the dramatic
• 22:18
  Speaker 2: expansion into four oh one case.
• 22:20
  Speaker 4: It wasn't intentional either. I think Benna realized that under
• 22:22
  Speaker 4: that code section an employer could sponsor a plan. He
• 22:25
  Speaker 4: put together parts that nobody else had right put together,
• 22:28
  Speaker 4: and others quickly followed.
• 22:30
  Speaker 2: And then subsequently Congress stacked a bunch of rules on
• 22:33
  Speaker 2: top of it, realized what employers were doing.
• 22:35
  Speaker 4: Big firms like Fidelity and others got behind it started
• 22:38
  Speaker 4: selling them to employers. Is free in the nineteen eighties.
• 22:40
  Speaker 4: The rest is history.
• 22:41
  Speaker 3: So let's assume that loophole didn't exist.
• 22:45
  Speaker 2: Is it is the four to one K the best
• 22:47
  Speaker 2: retirement plan?
• 22:48
  Speaker 3: Because we have others, right, it's unclear they got a
• 22:50
  Speaker 3: pension plan.
• 22:51
  Speaker 2: Yeah, you could have a different form of saving, right,
• 22:54
  Speaker 2: So is four one K the best way to do?
• 22:56
  Speaker 4: I mean it depends on what you mean by best,
• 22:57
  Speaker 4: like for whom, For an individual like the American public, Yeah,
• 23:01
  Speaker 4: if you're if you expect to be in a lower
• 23:03
  Speaker 4: tax bracket in retirement, it makes sense.
• 23:05
  Speaker 3: Yeah.
• 23:06
  Speaker 2: So yeah, period, I will say it's a uniquely American
• 23:08
  Speaker 2: way of retirement, you know, retirement saving.
• 23:11
  Speaker 3: Right.
• 23:11
  Speaker 2: It's nobody's going to force you to do anything. It's
• 23:16
  Speaker 2: you have control over your own retirement future. You determine
• 23:22
  Speaker 2: how much you save, how much you need, and no
• 23:24
  Speaker 2: employer or government is going to do it for you.
• 23:27
  Speaker 2: We have other programs like Social Security for that, but
• 23:30
  Speaker 2: it largely replaced the pension system in part for those well,
• 23:35
  Speaker 2: I think mostly replaced the pension system because pensions were
• 23:38
  Speaker 2: expensive and annoying for companies to hold on to, but
• 23:44
  Speaker 2: also arguably to give the individual more control over their
• 23:47
  Speaker 2: own future.
• 23:49
  Speaker 4: Yeah, I mean, I don't think it's a is it
• 23:51
  Speaker 4: a good or bad thing. It's it's the best tax
• 23:57
  Speaker 4: deferred vehicle for an employee to take. A you get
• 24:01
  Speaker 4: a match, you're foolish if you don't at least take it.
• 24:04
  Speaker 4: Most people do. If you don't at least take advantage
• 24:06
  Speaker 4: of your employer match. They tend to be run pretty economically.
• 24:09
  Speaker 4: They're much more they're they're they're much more cost effective
• 24:15
  Speaker 4: than they were twenty five thirty years ago, thanks to
• 24:17
  Speaker 4: index funds, thanks to competition among record keepers. I mean
• 24:22
  Speaker 4: it if you're if you're an employee of a court,
• 24:25
  Speaker 4: if a company that offers one, of course you should participate,
• 24:28
  Speaker 4: unless you're taxes, unless you think you're going to be
• 24:31
  Speaker 4: in a higher bracket in retirement, in which case it
• 24:33
  Speaker 4: wouldn't make sense to pay. Maybe you excuse me, maybe
• 24:36
  Speaker 4: you want to pay the taxes today.
• 24:37
  Speaker 2: They're downsides to any retirement system right as critical as
• 24:40
  Speaker 2: I can be to a four oh one K. The
• 24:41
  Speaker 2: nice thing about it is I'm not reliant on the
• 24:44
  Speaker 2: company's success or failure to fund my own retirement.
• 24:47
  Speaker 4: I mean. Benn's point, though, is that it does favor Look,
• 24:50
  Speaker 4: it's a four oh one KY. It favors people with
• 24:51
  Speaker 4: a job.
• 24:52
  Speaker 2: It favors the rich too. It favors though, those on
• 24:55
  Speaker 2: the highest income spectrum.
• 24:57
  Speaker 4: Uh yeah, I suppose it. Does it be hard to
• 25:00
  Speaker 4: design anything that induced Well, it's not. It doesn't really
• 25:06
  Speaker 4: try to increase savings. Indeed, the fore one K is
• 25:08
  Speaker 4: not increased savings at the aggregate, and are right since
• 25:11
  Speaker 4: it was since it came about, savings have gone down,
• 25:14
  Speaker 4: not up, as a percentage of disposable income.
• 25:17
  Speaker 2: The one thing I'm confident saying about them is that
• 25:19
  Speaker 2: they are while they're widely available now, they've gotten a
• 25:23
  Speaker 2: lot better and cheaper than they.
• 25:25
  Speaker 4: Were thirty year, much more professionally run too.
• 25:27
  Speaker 2: The investment options, I would also say, have gotten generally
• 25:31
  Speaker 2: better light years better. Yeah, generally better than where and
• 25:36
  Speaker 2: I think honestly, the laws that Congress has passed over
• 25:39
  Speaker 2: the years to improve them and for instance, provide some
• 25:44
  Speaker 2: liability protection for companies to for instance, auto enroll people,
• 25:48
  Speaker 2: auto increase people place them into funds of their choosing
• 25:51
  Speaker 2: on their own in the aggregate has benefited people.
• 25:55
  Speaker 4: Yeah, that's been mostly reactive. Yeah, I mean the private
• 25:57
  Speaker 4: sector is innovated, taking a chance applied to the IRS
• 26:00
  Speaker 4: for what they call determination letter. Hey, is what I'm
• 26:02
  Speaker 4: doing here legal? And sometimes the IRS says yes, sometimes
• 26:05
  Speaker 4: it says no. If they say yes and it's popular,
• 26:09
  Speaker 4: Congress gets winds wind of it and enshrines it. So Yeah,
• 26:13
  Speaker 4: Congress has been reactive. The innovation has been happening in
• 26:15
  Speaker 4: the in the private sector.
• 26:17
  Speaker 3: That haven't been said.
• 26:18
  Speaker 2: I'd also say it has made retirement planning a fair
• 26:21
  Speaker 2: bit more complicated than just collecting a pension and social.
• 26:24
  Speaker 4: Letter advisory letter. Pardon me sorry, I.
• 26:26
  Speaker 2: Would argue it's made it a fair bit more complicated
• 26:28
  Speaker 2: than merely collecting social security and a pension. Yeah, Like
• 26:33
  Speaker 2: the in the reasonably few clients that I work with
• 26:35
  Speaker 2: who do receive a pension, building out their retirement strategy
• 26:39
  Speaker 2: is fairly straightforward. You've got this savings, your pension and
• 26:43
  Speaker 2: social security need to cover the vast majority of your expenses,
• 26:46
  Speaker 2: and if they do, then you're in a good spot.
• 26:48
  Speaker 2: If they don't, then you've got some work to do.
• 26:51
  Speaker 3: Doing the same thing.
• 26:52
  Speaker 2: With a four oh one K is more complicated. You
• 26:54
  Speaker 2: have a lot more decisions to make in terms of
• 26:57
  Speaker 2: your enrollment and contribution. You have more decisions these days
• 27:01
  Speaker 2: to make in terms of whether you are contributing pre
• 27:04
  Speaker 2: or post tax. And there are different age thresholds where
• 27:08
  Speaker 2: completely different rules apply at say fifty and then sixty
• 27:11
  Speaker 2: years old that just simply didn't exist with the pension
• 27:17
  Speaker 2: system and now do exist with this more voluntary retirement system. Overall,
• 27:23
  Speaker 2: I tend to agree the expansion of the four oh
• 27:24
  Speaker 2: one K has put retirement in the control of the
• 27:29
  Speaker 2: individual rather than the corporation, and I do like that overall,
• 27:34
  Speaker 2: But it does lead to more planning considerations for the
• 27:37
  Speaker 2: average person that might not be fully equipped to handle them.
• 27:40
  Speaker 2: And in fact, I would say most people are not
• 27:42
  Speaker 2: fully equipped to assess, Hey, what's the right percentage to
• 27:45
  Speaker 2: contribute in order to ensure that I can retire by
• 27:48
  Speaker 2: this age? Should I be doing traditional or wroth If
• 27:50
  Speaker 2: you have questions along those lines about your own retirement
• 27:55
  Speaker 2: plan and your spending future, Armstrong Advisory Group works with
• 27:59
  Speaker 2: our clients every day to sort out these questions. It
• 28:02
  Speaker 2: might not be hey, you need to make massive changes,
• 28:06
  Speaker 2: but hey, am I saving enough for my future to
• 28:08
  Speaker 2: be able to support myself at this age?
• 28:11
  Speaker 3: Hey?
• 28:11
  Speaker 2: I have this much? Do I still need to plan
• 28:14
  Speaker 2: to work for another six years? Or could I potentially
• 28:16
  Speaker 2: pull this off under a different scenario three years earlier.
• 28:20
  Speaker 2: I always tell folks this is it is a lot
• 28:23
  Speaker 2: easier to go to work every day when you have
• 28:25
  Speaker 2: a plan about when you can stop working. If you
• 28:29
  Speaker 2: want to talk to somebody about your financial future, the
• 28:31
  Speaker 2: numbers eight hundred three nine three four zero zero one
• 28:35
  Speaker 2: again eight hundred three nine three for zero zero one
• 28:39
  Speaker 2: or Armstrong Advisory dot Com.
• 28:42
  Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
• 28:44
  Speaker 1: registered investment advisor. Nothing in the ad or in any
• 28:47
  Speaker 1: Armstrong guide a specific financial, legal, or tax advice. Consult
• 28:50
  Speaker 1: your own financial, tax and to state planning advisors before
• 28:52
  Speaker 1: making any investment decisions. Armstrong make contact you to offer
• 28:55
  Speaker 1: investment advisory services.
• 28:57
  Speaker 3: Markets are absolutely surging today.
• 29:00
  Speaker 2: We've got the Dow Jones industrial average up over eight
• 29:03
  Speaker 2: hundred points, more than one and a half percent SMP
• 29:05
  Speaker 2: five hundred up one hundred and three or one to
• 29:08
  Speaker 2: third percent, and the Nasdaq closing in on two percent
• 29:11
  Speaker 2: up for the day. That's after Bessent says that progress
• 29:16
  Speaker 2: has been made to reopen the straight of horror moves.
• 29:19
  Speaker 2: It could come this week oil prices moving down five
• 29:23
  Speaker 2: point two percent in reaction on the West Texas CREUD benchmark,
• 29:27
  Speaker 2: and we will see. The American investor and the global
• 29:31
  Speaker 2: investor has been headfaked on Iran news some nine or
• 29:36
  Speaker 2: so times since the breakout of war in late February.
• 29:39
  Speaker 2: We will see if this happens to be the moment.
• 29:42
  Speaker 2: I have some doubts personally, but investors moving stocks higher
• 29:45
  Speaker 2: on the day early Tuesday. Let's take a quick break
• 29:49
  Speaker 2: when we come back. Bit of stack Roulette is next.
• 29:52
  Speaker 1: Here The Financial Exchange every day from eleven to noon
• 29:55
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• 29:59
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• 30:02
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• 30:05
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• 30:09
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• 30:14
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• 30:23
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• 30:34
  Speaker 5: The twenty twenty six DAV five k Boston is set
• 30:37
  Speaker 5: for Saturday and November seventh at Ford Independence at Castle Island.
• 30:41
  Speaker 5: If you want to participate, now's the time to register.
• 30:44
  Speaker 5: More than eight hundred runners have already signed up, making
• 30:47
  Speaker 5: this the fastest registration pace in history. The event will
• 30:51
  Speaker 5: be a sellout soon, so head to DAV fivek dot
• 30:54
  Speaker 5: Boston for all the information on how you can take part,
• 30:57
  Speaker 5: and if you can't, please consider making a donation. Your
• 31:00
  Speaker 5: gifts help fund free rides to medical appointments for veterans
• 31:04
  Speaker 5: in the nation's first dav led housing initiative providing homes
• 31:07
  Speaker 5: for single veterans and veteran families. Go to DAV five
• 31:11
  Speaker 5: k dot Boston and make your donation today. That's DAV
• 31:15
  Speaker 5: five k dot Boston.
• 31:17
  Speaker 2: Good Old Florida is always just a good provider of
• 31:22
  Speaker 2: news for stackru ladin. Today is no exception. If you're
• 31:25
  Speaker 2: looking for a new dining experience in Florida, Class Soiree
• 31:29
  Speaker 2: Steakhouse in Hollywood is now holding evenings where you can
• 31:37
  Speaker 2: eat your entire meal in the nude. Tickets are two
• 31:40
  Speaker 2: hundred and fifty dollars for men, one hundred and fifty
• 31:42
  Speaker 2: dollars for women, or three hundred dollars for couples. And
• 31:47
  Speaker 2: call me a prude, but I am not interested in
• 31:52
  Speaker 2: eating a full, full meal while sitting in a steakhouse naked.
• 31:57
  Speaker 2: And I also have a lot of questions about the
• 31:59
  Speaker 2: cleaning pres we're going.
• 32:02
  Speaker 3: To for going to the steakhouse.
• 32:07
  Speaker 2: I'm not sure, but yeah, apparently they're doing just fine
• 32:13
  Speaker 2: with it. It's legal because the staff members are required
• 32:16
  Speaker 2: to be clothed at all times, so Hollywood, Florida managed
• 32:21
  Speaker 2: to clarify the legality of the issue here. But yeah,
• 32:27
  Speaker 2: I don't know. I don't find that to be an
• 32:29
  Speaker 2: appetizing environment for me personally. Maybe maybe I'm just not
• 32:33
  Speaker 2: with the times and this is exactly what people are
• 32:36
  Speaker 2: looking for in twenty twenty six, But no, I'm not interesting.
• 32:39
  Speaker 4: Careful too, because steak's like sizzling. You don't want to
• 32:42
  Speaker 4: drop anything.
• 32:42
  Speaker 2: Yeah, I mean, I hope they don't serve it on
• 32:44
  Speaker 2: a hot buttered plate like like I like my steak,
• 32:46
  Speaker 2: because that could lead to some second degree burns in
• 32:49
  Speaker 2: some places that you've never been burned before.
• 32:51
  Speaker 5: Yeah, so it gets here, two hundred and fifty dollars
• 32:53
  Speaker 5: for men, one hundred and fifty four. Well, of course
• 32:55
  Speaker 5: they are.
• 32:58
  Speaker 2: It reminds me of what is that website where it
• 33:02
  Speaker 2: encouraged you to, you know, anonymously cheat on your spouse
• 33:05
  Speaker 2: and it got leaked and it was like ninety men.
• 33:08
  Speaker 4: Oh oh, oh, don't pretend you don't know, Tuck, come on, no.
• 33:13
  Speaker 5: No, no, no, no, no, yeah, I know what you're
• 33:15
  Speaker 5: talking about.
• 33:15
  Speaker 3: Yah.
• 33:16
  Speaker 2: I mean, of course it's two hundred and fifty for men,
• 33:17
  Speaker 2: because it's going to be all men.
• 33:19
  Speaker 5: Ashley Madison, thank you, Ben?
• 33:21
  Speaker 3: Yeah, okay.
• 33:22
  Speaker 2: Uh So, anyway, that's the news out of Hollywood, Florida.
• 33:25
  Speaker 2: If anybody is looking for a dinner reservation this week,
• 33:28
  Speaker 2: what do you have for us?
• 33:29
  Speaker 3: Mark?
• 33:30
  Speaker 4: Something a little more traditional?
• 33:32
  Speaker 3: We were too bad.
• 33:33
  Speaker 4: We're talking about the yen and the dollar earlier, and
• 33:38
  Speaker 4: you and Chuck talked about it yesterday. You know, there
• 33:40
  Speaker 4: are beneficiaries of a relatively weak Yeah. The yena declined
• 33:45
  Speaker 4: about ten percent relative to the dollar, similar other similar
• 33:50
  Speaker 4: performance against other big currencies over roughly the past year
• 33:54
  Speaker 4: but this benefits Japanese companies. Toyota, for example, reports the
• 33:58
  Speaker 4: Financial Times, is going to buy back over six billion
• 34:02
  Speaker 4: dollars of stock because their coffers are filling more quickly
• 34:07
  Speaker 4: because imports are more Uh, your exports become more competitive
• 34:12
  Speaker 4: when your currency gets weaker.
• 34:13
  Speaker 3: This is fairly obvious here.
• 34:16
  Speaker 2: But you know, again, if you are producing something in
• 34:20
  Speaker 2: Japan and trying to sell it to the US consumer,
• 34:23
  Speaker 2: think Toyota car.
• 34:27
  Speaker 3: If you're yeah, if you're.
• 34:30
  Speaker 4: Want a weaker currency, China artificially suppresses the value of
• 34:37
  Speaker 4: the view want to make their exports more competitive, for example.
• 34:41
  Speaker 4: But there are beneficiaries, and they include not just uh,
• 34:46
  Speaker 4: people who work for Toyota, but shareholders too. So not
• 34:51
  Speaker 4: everybody is cheering recent intervention, I'm sure.
• 34:54
  Speaker 2: Interestingly, though, again, if we think that concept all the
• 34:57
  Speaker 2: way through, it does make American sporter is weaker next to.
• 35:02
  Speaker 3: Well, that's some motivation, is it, not?
• 35:04
  Speaker 4: Well, the dollars even though we sold euros. The upshot
• 35:10
  Speaker 4: of these interventions has been to push the dollar relative
• 35:13
  Speaker 4: to the end down. It takes more dollars to buy
• 35:15
  Speaker 4: a yen, if you want to think about it that way.
• 35:17
  Speaker 4: That's the reciprocal of the way it's usually quoted, but
• 35:19
  Speaker 4: you know what I mean. So, yeah, on some level,
• 35:23
  Speaker 4: our motivation is to make American exports more competitive. That's
• 35:27
  Speaker 4: not high on the list. The effect won't be large,
• 35:29
  Speaker 4: but certainly doesn't.
• 35:30
  Speaker 2: Hurt A broken housing market. Soaring costs and Trump two
• 35:34
  Speaker 2: point zero are killing the Massachusetts economy. It's time to
• 35:37
  Speaker 2: do something about it.
• 35:38
  Speaker 3: I got to tell you.
• 35:39
  Speaker 2: So there's this piece in the Globe today about, you know,
• 35:42
  Speaker 2: extolling the Massachusetts economy for being terrible. And look, we've
• 35:47
  Speaker 2: lost one hundred eighty two thousand residents over the last
• 35:51
  Speaker 2: five years to other states. And I recognize that we
• 35:55
  Speaker 2: have a cost of living problem here in this state.
• 35:57
  Speaker 2: I recognize that I think act rates are too high,
• 36:01
  Speaker 2: and we have been losing net nets some portion of
• 36:06
  Speaker 2: our population. But if you had to choose to be
• 36:11
  Speaker 2: born into a household in any state in the country,
• 36:13
  Speaker 2: there aren't to a lot where you could plan on
• 36:16
  Speaker 2: a better outcome from getting an education in this state.
• 36:20
  Speaker 3: And then being.
• 36:21
  Speaker 4: Yeah, it's expensive because wages are high. It's expensive to
• 36:24
  Speaker 4: live here because wages are high, and GDP per person
• 36:27
  Speaker 4: income more or less per person is high. It's like
• 36:31
  Speaker 4: twice as high as your typical southern state. I'm exaggerating
• 36:35
  Speaker 4: only a little bit. Where Massachusetts, California, New York, Connecticut
• 36:40
  Speaker 4: expensive but rich relatives say on average, read Island too.
• 36:44
  Speaker 3: I don't know.
• 36:44
  Speaker 4: Rhode Island is a little bit poorer, but not in
• 36:47
  Speaker 4: an absolute sense, just in a relative sense. Massachusetts is
• 36:51
  Speaker 4: unusually blessed.
• 36:53
  Speaker 2: Now, I do think, like, hey, the trend is what's
• 36:56
  Speaker 2: important here too, right, Like, you can boast at being
• 36:59
  Speaker 2: the number one on education and number one income in
• 37:02
  Speaker 2: the state, but if it's trending in the wrong direction,
• 37:04
  Speaker 2: that's still a problem. And so I think some of
• 37:06
  Speaker 2: these things should be addressed.
• 37:09
  Speaker 3: But you know, the.
• 37:09
  Speaker 2: State's finances aren't as terrible as they once were. We
• 37:13
  Speaker 2: are still, you know, from test scores and things like that,
• 37:17
  Speaker 2: among the best educated in the country. And so I
• 37:21
  Speaker 2: think addressing things here on affordability would definitely be important
• 37:26
  Speaker 2: for the Commonwealth of Massachusetts. But this articles written as
• 37:29
  Speaker 2: though the states falling apart, and I just don't think
• 37:33
  Speaker 2: I see it that way.
• 37:35
  Speaker 4: I don't think most people who live here see it
• 37:37
  Speaker 4: that way. I would prefer much lower taxes and that
• 37:40
  Speaker 4: state government do less like you said, but that's just ideological.
• 37:45
  Speaker 4: I can't complain about quality of life, quality of healthcare.
• 37:48
  Speaker 2: I can pick apart some of the policies, but I
• 37:49
  Speaker 2: have a tougher time picking apart the outcome. We As
• 37:54
  Speaker 2: we close out the show today, markets are strongly in
• 37:57
  Speaker 2: positive territory. We'll have a full recap tomorrow, but NASDAK
• 38:00
  Speaker 2: up two percent now s and P five hundred up
• 38:02
  Speaker 2: one point four in the Dow Jones Industrial Average up
• 38:05
  Speaker 2: nearly one point seven. Will have SpaceX and AMD earnings
• 38:09
  Speaker 2: today after the bell. Stay tuned tomorrow for a full update.