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Markets Brace for a Fed Showdown in September · The Financial Exchange Show

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  Speaker 1: is The Financial Exchange with Chuck Zotta and Mike Armstrong.
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  Speaker 2: On Friday, we had the Jackson Hole Symposium, and Kevin
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  Speaker 2: Warsh gave his speech at the Jackson Hole Symposium. by
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  Speaker 2: and large, gave a nice hawkish speech that kind of
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  Speaker 2: put things back on track as far as what I
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  Speaker 2: think the bond market wanted to hear, because what we
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  Speaker 2: saw was the long end of the yield curve came
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  Speaker 2: in by about three to four basis points on the
• 1:35
  Speaker 2: 10 to 30 year treasuries. the short end moved up
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  Speaker 2: as markets priced in, that the Fed may be more
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  Speaker 2: willing to hike at their September meeting than they previously thought.
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  Speaker 2: And then we came in this morning, and all of
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  Speaker 2: that was undone as the 30-year Treasury is now up
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  Speaker 2: six basis points, the 10-year's up four, and the one, two,
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  Speaker 2: and three-year are basically flat to slightly down in terms
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  Speaker 2: of yield. So I think, look, I've said this since
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  Speaker 2: Warsh came on board, that Every single Fed chair gets
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  Speaker 2: tested by the market early in their tenure. We saw
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  Speaker 2: it with Bernanke. We saw it with Yellen. We saw
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  Speaker 2: it with Powell. And they don't always pass those tests,
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  Speaker 2: by the way. Like occasionally they kind of flounder around
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  Speaker 2: for a couple months and finally are like, oh, this
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  Speaker 2: is what the market wants me to do. And I'm
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  Speaker 2: going to have to deal with this. The question here,
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  Speaker 2: the one that's worth asking is, is the market specifically
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  Speaker 2: asking something of Kevin Warsh, or is it asking something,
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  Speaker 2: there's three possibilities here. It's asking something of Kevin Warsh,
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  Speaker 2: it's asking something of Scott Besant, or it's asking something
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  Speaker 2: of every major developed country in the world right now.
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  Speaker 2: And I tend to lean closer to a combination of
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  Speaker 2: The latter and the first one that I gave you,
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  Speaker 2: and that's yields are rising worldwide, not because of anything
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  Speaker 2: that Kevin Warsh has said or done, but simply because
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  Speaker 2: of the state that we find the world economy in
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  Speaker 2: right now, which by and large is slow growth overall,
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  Speaker 2: but nominal growth accelerating because of rising deficits in spending
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  Speaker 2: that are being eaten up by inflation. That's what we're
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  Speaker 2: seeing pretty much everywhere around the world at this point.
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  Speaker 2: And it's not to say that Warsh doesn't have a
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  Speaker 2: say in how this plays out, because monetary policy can
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  Speaker 2: impact nominal growth pretty significantly. We've talked about that at length.
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  Speaker 2: But this is not purely a Kevin Warsh thing, unless
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  Speaker 2: you believe that it's Kevin Warsh's fault that Japanese government
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  Speaker 2: bonds are selling off or German bonds are selling off
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  Speaker 2: or that British guilds are selling off. I'm not really
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  Speaker 2: sure Warsh is responsible for what's going on there. But
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  Speaker 2: there's definitely some things that he's done this summer where
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  Speaker 2: the market's going to test him as well in terms of, hey,
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  Speaker 2: you're talking a big game, but are you going to
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  Speaker 2: actually do anything?
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  Speaker 3: I think that's my takeaway. This is his third major speech.
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  Speaker 3: And in order, they went first, said all the right things,
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  Speaker 3: and markets believed him.
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  Speaker 4: Yes.
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  Speaker 3: To second, said a bunch of things that maintained the
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  Speaker 3: same view, but didn't follow it up with any actions.
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  Speaker 3: And then when asked questions, had some really weird, non-clear
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  Speaker 3: and somewhat nonsensical answers, so bad. And now he's given
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  Speaker 3: another good speech where he's going to be hard on inflation.
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  Speaker 3: And quite honestly, I think the market reaction today is
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  Speaker 3: not all that surprising. It's them doubting it because that's
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  Speaker 3: been the order in which it's gone. Hey, I am
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  Speaker 3: serious about inflation. Two, no follow through. Three, I'm serious
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  Speaker 3: about inflation. Will there be follow through on option number
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  Speaker 3: four in 16 days? Yeah, 16 days when their next
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  Speaker 3: decision is made at the Fed. And at least compared
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  Speaker 3: to a week ago, investors are slightly more certain about
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  Speaker 3: a rate hike at this September 16th meeting. We've seen
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  Speaker 3: the odds there flip in the CME FedWatch futures. So
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  Speaker 3: you went from about a, I think it was about
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  Speaker 3: a 35, 40% chance of a rate hike at the
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  Speaker 3: next meeting to now about a two thirds chance. So
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  Speaker 3: there's some belief there, but to your point, markets this
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  Speaker 3: morning are Again, sending a bit of a message. We'll
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  Speaker 3: see if there's some follow-through by Warsh and the rest
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  Speaker 3: of the committee here on actually following through with actions,
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  Speaker 3: what they have said several times.
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  Speaker 2: Now, I've got a few different things to talk about
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  Speaker 2: as it relates to Warsh and the committee. Some of
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  Speaker 2: these are interesting to talk about. Some of them are
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  Speaker 2: very dramatic to talk about. And some of them are
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  Speaker 2: just things that... make you think a little bit. Where
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  Speaker 2: would you like to start? Would you like to start
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  Speaker 2: with some drama, some just interesting things, or some things
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  Speaker 2: just to ponder?
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  Speaker 5: Let's get the drama out of the way first, Chuck.
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  Speaker 2: Whose committee is it?
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  Speaker 5: Warsh's or Powell's.
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  Speaker 2: I'm going, gotta be honest, this speech that he gave
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  Speaker 2: on Friday, the more that I sat with it and
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  Speaker 2: I reread the thing like two or three times just
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  Speaker 2: because I wanted to make sure that I really kind
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  Speaker 2: of let it in. This was a Powell speech that
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  Speaker 2: Warsh gave. This was Warsh's first couple of press conferences
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  Speaker 2: where Warsh trying to come in and say, hey, I'm
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  Speaker 2: a maverick here to shake things up and change things.
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  Speaker 2: And I am going to rattle some cages and y'all
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  Speaker 2: are going to listen to me.
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  Speaker 1: Yeah.
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  Speaker 5: This speech wasn't about that.
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  Speaker 2: This one had some of those things sprinkled in here
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  Speaker 2: and there. Again, he didn't abandon that. But this was
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  Speaker 2: a speech straight out of the Powell playbook. And I
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  Speaker 2: suspect that Walsh probably, not probably, I would, if there
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  Speaker 2: were a prediction market that I could legally bet on
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  Speaker 2: for this, I would look at this and be like, Powell,
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  Speaker 2: you went to Powell and talked about it with him.
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  Speaker 5: Or created a Powell AI and fed your speech into it.
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  Speaker 2: Yes, like, something like that, because there were certainly touches
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  Speaker 2: of Powell in this speech that are noticeable if you, like,
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  Speaker 2: just pay attention to, you know, the communication style and
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  Speaker 2: things along those lines. So I think that my interpretation
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  Speaker 2: here is not that Warsh is, like, giving up or anything,
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  Speaker 2: but more just, again, kind of classic understanding, okay, like,
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  Speaker 2: I got to kind of play ball with what's expected
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  Speaker 2: in order to get some of the things that I
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  Speaker 2: might want. You know, things along the lines of, hey,
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  Speaker 2: while this, again, just quotes that I think are Powell-esque.
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  Speaker 2: While this summer's PCE and CPI readings were better than expected,
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  Speaker 2: they do not tell me that the underlying trends have
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  Speaker 2: meaningfully improved. Warsh spent his July meeting being like, hey,
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  Speaker 2: I don't know if we're going to use PCE going
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  Speaker 2: forward anymore. And now he's talking about like the PCE trend.
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  Speaker 2: That's clearly an influence from Powell.
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  Speaker 5: Other things.
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  Speaker 2: Certain sectors like housing and agriculture are showing strains, but
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  Speaker 2: on balance, I would be hard pressed to describe broad
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  Speaker 2: financial conditions as restrictive. Again, during the July... First of all,
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  Speaker 2: that language is, like, right out of Powell. And during
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  Speaker 2: the July meeting, Warsh was like, man, like, housing's in
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  Speaker 2: real trouble. Like, I'm just not sure. Like, things are
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  Speaker 2: definitely restrictive there right now. Okay, like, what changed in
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  Speaker 2: the last month? Has the housing data changed? No, it's
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  Speaker 2: been the same for three years now. Like, the housing
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  Speaker 2: data hasn't meaningfully changed since 2022.
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  Speaker 3: Well, yeah, I think he's coming around to the idea
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  Speaker 3: that you can be restrictive on housing and still not
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  Speaker 3: have restrictive policy.
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  Speaker 5: Other things.
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  Speaker 2: The Fed's predominant focus right now should be on prices.
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  Speaker 5: Good.
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  Speaker 2: That's not good, but okay, that's still Warsh. I believe
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  Speaker 2: the labor markets are consistent with full employment. Warsh hasn't
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  Speaker 2: even mentioned the labor market, except in passing in the
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  Speaker 2: last three months. So I think that this is a
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  Speaker 2: committee that even though Warsh is in the chair right now,
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  Speaker 2: This speech is Warsh either throwing a bone to or
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  Speaker 2: recognizing that he's got work to do to take control
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  Speaker 2: of the committee away from Powell and Waller, who are
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  Speaker 2: still in the driver's seat as far as who the
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  Speaker 2: committee looks to for guidance right now.
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  Speaker 5: Which, by the way, is precisely.
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  Speaker 3: What is her name from the Financial Times, who is
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  Speaker 3: sounding a little bit more like the mouthpiece of the
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  Speaker 3: Fed these days.
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  Speaker 2: It starts with a C.
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  Speaker 5: We're going to have to come back to it.
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  Speaker 3: Claire.
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  Speaker 5: Yeah, it was Claire. Hang on. I'm not sure. But
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  Speaker 5: in any case. Claire Jones.
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  Speaker 3: Her message in the Financial Times last week was that.
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  Speaker 3: Warsh is going to go in and try and calm
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  Speaker 3: and level set things back to where they need to
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  Speaker 3: be to kind of make up for his second press
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  Speaker 3: conference where most took away that there wasn't really much
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  Speaker 3: of a message there.
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  Speaker 5: And I think he delivered that, which is great.
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  Speaker 3: But if it's not followed through with action, then I
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  Speaker 3: think there's some serious questions on the credibility side in
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  Speaker 3: mid-September here.
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  Speaker 2: Let's take a quick break. Next, now that we've moved
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  Speaker 2: past the drama, I have an interesting thought, an interesting
• 10:33
  Speaker 2: data point to pay attention to as it relates to
• 10:36
  Speaker 2: the possibility of a Fed hike in September.
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• 11:32
  Speaker 2: That's DAV5K. Boston. So, Mike, the other thing that I want
• 11:39
  Speaker 2: to discuss as it relates to the Fed potentially hiking
• 11:44
  Speaker 2: rates in September is the fact that the Citigroup Economic
• 11:51
  Speaker 2: Surprise Index, which if you're not familiar with this index,
• 11:55
  Speaker 2: basically what it does is it measures cumulatively... how much
• 12:01
  Speaker 2: the data that we get on the U.S. economy either
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  Speaker 2: beats or misses expectations. So as an example, in Q2
• 12:10
  Speaker 2: of 2020, at its worst, when everything was being shut
• 12:15
  Speaker 2: down and this and that, the City Economic Surprise Index
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  Speaker 2: registered a reading south of negative 125%.
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  Speaker 5: Got it.
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  Speaker 2: At its peak, one quarter later, it registered readings north
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  Speaker 2: of 200.
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  Speaker 5: So surprising to the upside, surprising to the downside. Correct.
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  Speaker 5: Zero would be no surprise.
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  Speaker 2: If you want other examples of this, in 2022, when
• 12:37
  Speaker 2: the economy was starting to suck wind in Q2 and Q3,
• 12:40
  Speaker 2: it reached a reading of negative 75. On the other hand,
• 12:43
  Speaker 2: in 2023... After we cleared, like, the Silicon Valley bank
• 12:50
  Speaker 2: scare and things started improving, it registered a reading of
• 12:52
  Speaker 2: positive 75. So, again, a normal place for it to land, like,
• 12:57
  Speaker 2: without recessions is generally between, like, positive 75 and minus 75.
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  Speaker 2: That's a reasonable range for it to be in. Just
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  Speaker 2: to acclimate and acclimatize and, you know, familiarize yourself with
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  Speaker 2: this data set. So at the end of Q2, the
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  Speaker 2: City Economic Surprise Index was showing a reading of plus 50, saying, hey,
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  Speaker 2: the economic data is pretty consistently coming in better than
• 13:23
  Speaker 2: people thought.
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  Speaker 1: Cool.
• 13:25
  Speaker 2: That's great. As of right now, it's showing a reading
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  Speaker 2: of 21. The last month has kind of been just
• 13:31
  Speaker 2: a straight line down, not to, you know, where the
• 13:34
  Speaker 2: data is cumulatively bad or anything like that, but just, hey,
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  Speaker 2: it's not showing data that's as strong as it was
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  Speaker 2: a month ago as a whole. Now, there are two
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  Speaker 2: reasons why these things happen. This is a self-correcting index
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  Speaker 2: in that, hey, if the data consistently comes in better
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  Speaker 2: than people expect, well, analysts raise their expectations and then
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  Speaker 2: the data comes in worse. So it doesn't skew too
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  Speaker 2: far in one direction. So the question on this over
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  Speaker 2: the last month, there are two that need to be asked.
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  Speaker 2: Number one, is this something where analysts, because of the
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  Speaker 2: strong Q2 data, have just raised their estimates so far
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  Speaker 2: for data in Q3, and the economy's still fine, but
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  Speaker 2: we're just missing those estimates? Or is this a downward
• 14:19
  Speaker 2: trend that we want to extrapolate and say, yeah, this
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  Speaker 2: is a worsening, and it's a material worsening, And we
• 14:27
  Speaker 2: need to watch what happens because there's a chance that
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  Speaker 2: the U.S. economy could be weakening as we get deeper
• 14:33
  Speaker 2: into Q3. Do I know which one it is?
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  Speaker 5: No, I don't.
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  Speaker 2: That's why we're in this game. That's why the whole
• 14:41
  Speaker 2: business exists is because no one knows exactly what's going
• 14:44
  Speaker 2: to come of it. But the question that I raise
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  Speaker 2: then is, hey, is Warsh's increased hawkishness and the potential
• 14:52
  Speaker 2: for a Fed hike... coming at the very moment that
• 14:55
  Speaker 2: the U.S. economy may be weakening because the benefits of
• 14:59
  Speaker 2: additional tax refunds are wearing off, high gas prices and
• 15:03
  Speaker 2: diesel prices and things like that are finally starting to
• 15:06
  Speaker 2: bite in a way they didn't in the first couple
• 15:07
  Speaker 2: months of the conflict. Is this a weakening that now
• 15:11
  Speaker 2: is becoming broader and Warsh might be hiking right into
• 15:17
  Speaker 2: that weakening?
• 15:18
  Speaker 5: That could be.
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  Speaker 3: I would also say that citing that as a reason
• 15:21
  Speaker 3: to not hike would be a pretty A weak reason
• 15:24
  Speaker 3: to not hike.
• 15:26
  Speaker 5: A heavily questioned one, at least, by analysts.
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  Speaker 2: Which is why we find ourselves in this remarkable spot
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  Speaker 2: where I think there's a real case to be made
• 15:37
  Speaker 2: that the September, and this is basically what the Fed
• 15:41
  Speaker 2: Funds futures market is telling you, the September meeting is
• 15:45
  Speaker 2: going to be determined by what we get from the
• 15:46
  Speaker 2: jobs report and CPI in the next 10 days.
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  Speaker 5: Yeah, right.
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  Speaker 3: We have the jobs report on Friday, the CPI on
• 15:52
  Speaker 3: September 11th, And again, we've seen some revisions to jobs
• 15:57
  Speaker 3: that have made the labor market appear a little bit
• 15:59
  Speaker 3: weaker than we previously understood, but not really much that
• 16:03
  Speaker 3: is shaking things on the unemployment rate side of things.
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  Speaker 3: And on inflation, yeah, well, frankly, on inflation, it'd be
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  Speaker 3: tough to see much of a surprise there to the
• 16:14
  Speaker 3: downside on CPI. I guess you can always get one,
• 16:17
  Speaker 3: but we know what happened with oil and that's been
• 16:20
  Speaker 3: the major driver of things.
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  Speaker 5: So We will see. But yeah, those are going to
• 16:25
  Speaker 5: be the two major drivers.
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  Speaker 3: But if you don't get some pretty substantial weakness from
• 16:32
  Speaker 3: either of those two reports, and by weakness, I just mean,
• 16:34
  Speaker 3: you know, worse than expected job creation or lower than
• 16:37
  Speaker 3: anticipated inflation, worse you better hike or there's going to
• 16:42
  Speaker 3: be some serious questions about credibility.
• 16:44
  Speaker 2: The other thing that I'll say, and again, I've said
• 16:49
  Speaker 2: this before and I'll say it again, Hiking at one
• 16:52
  Speaker 2: meeting doesn't matter.
• 16:54
  Speaker 3: It doesn't. Again, it matters for credibility. It matters nothing
• 16:58
  Speaker 3: to the market.
• 16:58
  Speaker 5: Correct.
• 17:00
  Speaker 2: And so if inflation is really becoming more entrenched in
• 17:05
  Speaker 2: the U.S. economy, then it's not one hike that you need.
• 17:09
  Speaker 5: It's two.
• 17:10
  Speaker 6: It's three.
• 17:10
  Speaker 5: It's four.
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  Speaker 2: It's five. Because the method by which tighter policy is
• 17:17
  Speaker 2: passed into the economy is through increased borrowing costs and
• 17:21
  Speaker 2: things like that. And that doesn't happen just with one
• 17:24
  Speaker 2: quarter percent hike. Quick break here. We've got Wall Street
• 17:27
  Speaker 2: Watch next.
• 17:36
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• 17:43
  Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
• 17:48
  Speaker 1: Street Watch. Tracking the stocks, the data, and the headlines
• 17:52
  Speaker 1: driving markets so far today. Right here on the Financial
• 17:55
  Speaker 1: Exchange Radio Network.
• 17:57
  Speaker 6: Markets are in negative territory to begin the week with
• 18:00
  Speaker 6: oil prices rising in reaction to the U.S. and Iran
• 18:03
  Speaker 6: exchanging strikes for the first time in a month. Wall
• 18:06
  Speaker 6: Street's also rating for a jobs Friday. Right now, the
• 18:10
  Speaker 6: Dow is down three quarters of a percent or 414
• 18:12
  Speaker 6: points lower. S & P 500 down nearly six tenths
• 18:15
  Speaker 6: of a percent or 43 points off. NASDAQ down about
• 18:19
  Speaker 6: half a percent or 135 points lower. Russell 2000 down
• 18:23
  Speaker 6: seven tenths.
• 18:24
  Speaker 5: Of one percent.
• 18:25
  Speaker 6: Ten-year Treasury yield up three basis points at 4.76 percent.
• 18:27
  Speaker 5: And oil.
• 18:30
  Speaker 6: Up nearly 3% higher, trading at $ 85 a barrel. Several
• 18:34
  Speaker 6: energy stocks are seeing gains in reaction to the rise
• 18:36
  Speaker 6: in oil prices. Halliburton, Chevron, ExxonMobil, and Occidental Petroleum all
• 18:42
  Speaker 6: up about 2%. Meanwhile, some news from Nvidia this morning.
• 18:46
  Speaker 6: After the AI and chip giant revealed it is investing $ 3. 5
• 18:49
  Speaker 6: billion into MediaTek, further deepening its partnership with the Taiwanese chipmaker,
• 18:54
  Speaker 6: NVIDIA's stock is up by 1%. Elsewhere, utility company PG
• 18:58
  Speaker 6: & E is seeing its stock tumble 20% after California
• 19:03
  Speaker 6: lawmakers blocked a proposal that would have limited the amount
• 19:05
  Speaker 6: of money individuals could seek from utility companies whose equipment
• 19:10
  Speaker 6: ignited wildfires. And video game retailer GameStop said it expects
• 19:16
  Speaker 6: its second quarter profit to climb, lifted by investment gains
• 19:19
  Speaker 6: from its stake in eBay. but also said sales likely
• 19:22
  Speaker 6: declined from a year ago. GameStop is up by 3% today.
• 19:28
  Speaker 6: I'm Tucker Silva. That is Wall Street Watch.
• 19:33
  Speaker 2: As promised, we're now joined by the one and only
• 19:35
  Speaker 2: Todd Lutzke from the law firm of Cushing and Dolan. Mr. Lutzke,
• 19:40
  Speaker 2: how are you doing today?
• 19:41
  Speaker 4: I am doing well, thanks.
• 19:43
  Speaker 3: And you?
• 19:44
  Speaker 5: Doing well.
• 19:45
  Speaker 2: How does someone actually go about qualifying for Medicaid if
• 19:51
  Speaker 2: they are looking to have Medicaid cover nursing home costs?
• 19:56
  Speaker 4: Yeah, so it's such a complicated situation, but the message
• 20:01
  Speaker 4: is really I don't want people to just write a
• 20:05
  Speaker 4: check because they tell you you're over assets, right? You
• 20:07
  Speaker 4: could be over assets. But in applying, you need to, obviously,
• 20:14
  Speaker 4: if you're asking me how do you go about applying,
• 20:15
  Speaker 4: and that's more the question, you've got to fill out
• 20:17
  Speaker 4: this form, this application. You've got to put all your
• 20:20
  Speaker 4: assets on. They're looking for five years' worth of bank statements,
• 20:24
  Speaker 4: five years' worth of brokerage statements. They're looking at what
• 20:27
  Speaker 4: kind of real estate you own, a house, a vacation home.
• 20:30
  Speaker 4: They want your Social Security card, your Medicare card. I mean,
• 20:35
  Speaker 4: it is a process of in and of itself. And
• 20:40
  Speaker 4: it's basically an audit, a financial audit. And they want
• 20:44
  Speaker 4: to know if you've given anything away in the last
• 20:46
  Speaker 4: five years. And it takes us about 90 days on
• 20:50
  Speaker 4: a good day, three months on a good day to
• 20:53
  Speaker 4: go through the application process, which is why we say
• 20:55
  Speaker 4: you shouldn't do it alone.
• 20:56
  Speaker 2: So if someone is interested in being able to qualify
• 21:01
  Speaker 2: for Medicaid for covering nursing home costs, when is the
• 21:05
  Speaker 2: time for them to begin... conducting or to begin putting
• 21:09
  Speaker 2: in place their estate plan so they're able to do so?
• 21:13
  Speaker 4: You always want to, there's this five-year window where you
• 21:20
  Speaker 4: need to, if you're going to transfer assets to a place,
• 21:23
  Speaker 4: let's call it, where the nursing home can no longer
• 21:26
  Speaker 4: get it. Well, you got to do that, but you
• 21:29
  Speaker 4: got to stay out of the nursing home for five years.
• 21:31
  Speaker 4: So it's a five-year window. But what we find out
• 21:34
  Speaker 4: is even if we've done it, And that's really what's
• 21:37
  Speaker 4: really great about this guide that we're giving away. At
• 21:39
  Speaker 4: the end of the month, folks, we're giving away a
• 21:40
  Speaker 4: guide on how to become last-minute Medicaid eligible. When you
• 21:45
  Speaker 4: give away these assets, so people who have done that
• 21:47
  Speaker 4: in advance feel like, great, what's in this trust is protected.
• 21:52
  Speaker 3: True.
• 21:53
  Speaker 4: But there's always stuff not in the trust. And there
• 21:56
  Speaker 4: just is, from IRAs to assets you keep out. And
• 21:59
  Speaker 4: for folks who haven't done any planning, well, obviously, there's
• 22:02
  Speaker 4: a lot more outside the trust that are at risk.
• 22:05
  Speaker 4: when you're applying. And that, folks, is what this last-minute
• 22:08
  Speaker 4: Medicaid eligibility guide is all about. It's about what can
• 22:12
  Speaker 4: I do with that stuff that I have not protected
• 22:15
  Speaker 4: yet when I'm faced with this. And it does explain
• 22:18
  Speaker 4: in there how to deal with a house, which is
• 22:21
  Speaker 4: different than a vacation home, which is different than a
• 22:24
  Speaker 4: rental property. What about excess dollars over the asset amount,
• 22:28
  Speaker 4: how to deal with annuities? What do you do with
• 22:31
  Speaker 4: your IRA, life insurance, folks? Each one of these items
• 22:35
  Speaker 4: are treated differently when applying for Medicaid. Some are countable,
• 22:40
  Speaker 4: some are not, and the guide will help you determine
• 22:43
  Speaker 4: how to make even some that are countable, non-countable, last
• 22:47
  Speaker 4: minute to try and protect them. So it's the end
• 22:48
  Speaker 4: of the month, folks. Get the guide if you're faced
• 22:51
  Speaker 4: with this. It's something for everybody, the planners and the non-planners.
• 22:54
  Speaker 4: 866-848-5699 or LegalExchangeShow.com. You can download it there. Again, 866-848-5699.
• 23:05
  Speaker 4: 5-6-9-9 or LegalExchangeShow.com. You can always go to Cushing and
• 23:10
  Speaker 4: Dolan PC on our Instagram for more information.
• 23:13
  Speaker 1: Mr.
• 23:14
  Speaker 2: Lutzky, thank you so much for joining us today.
• 23:16
  Speaker 4: Always a pleasure. Thank you.
• 23:18
  Speaker 1: The proceeding was paid for and the views expressed are
• 23:20
  Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
• 23:22
  Speaker 1: or Armstrong Advisory may contact you offering legal or investment services.
• 23:25
  Speaker 1: Cushing and Armstrong do not endorse each other and are
• 23:27
  Speaker 1: not affiliated.
• 23:29
  Speaker 2: Michael Santoli, who occasionally joins us on our show from CNBC.
• 23:34
  Speaker 6: He'll be on next week.
• 23:35
  Speaker 2: He's going to be joining us next week. He's got
• 23:37
  Speaker 2: a piece on CNBC.com today titled, Why Investors Should Be
• 23:41
  Speaker 2: on High Alert Heading Into September. I've known Mike for
• 23:46
  Speaker 2: a number of years at this point. If there's one
• 23:49
  Speaker 2: thing that Mike Santoli is not, he's not really prone
• 23:53
  Speaker 2: to hyperbole. He tends to be pretty grounded, I think,
• 23:57
  Speaker 2: in terms of how he assesses information. And this, what
• 24:01
  Speaker 2: he's talking about here is not, you know, September seasonality
• 24:04
  Speaker 2: or things like that, but more something that we've been
• 24:07
  Speaker 2: bringing up over the course of the summer, which is, hey,
• 24:09
  Speaker 2: we've got a bunch of different assets that are kind
• 24:11
  Speaker 2: of converging towards different critical levels. And September is going
• 24:17
  Speaker 2: to be a time where this has to shake out.
• 24:18
  Speaker 5: One way or another.
• 24:20
  Speaker 3: What sort of critical levels are we talking about here?
• 24:22
  Speaker 3: Because certainly we have valuation pieces. We have the VIX
• 24:28
  Speaker 3: that has been slipping a little bit. What is the
• 24:32
  Speaker 3: average investor to make of all of this? Because I
• 24:34
  Speaker 3: think all of this gets mentioned with the backdrop of
• 24:38
  Speaker 3: pretty widespread knowledge that on average, September is the worst
• 24:42
  Speaker 3: month of the year for stocks. So what is kind
• 24:45
  Speaker 3: of coming together here in this moment that Michael is
• 24:48
  Speaker 3: writing about?
• 24:49
  Speaker 2: Things that he brings up in this piece, number one,
• 24:52
  Speaker 2: what we're seeing with yields and bonds, that 4.7% range
• 24:56
  Speaker 2: on the 10-year treasury, that 5.25 range on the 30-year. Hey,
• 25:02
  Speaker 2: this is an area that the treasury has basically said, look,
• 25:05
  Speaker 2: we want to try to defend that. So you've got
• 25:08
  Speaker 2: that in play. Along those lines, the exchange rate between
• 25:13
  Speaker 2: the U.S. dollar and the yen. The Japanese central bank,
• 25:17
  Speaker 2: or the Bank of Japan rather, and the U.S. Treasury
• 25:21
  Speaker 2: staged an intervention earlier this summer when the yen weakened
• 25:25
  Speaker 2: below 160 per dollar. And so it's a case where
• 25:29
  Speaker 2: we're back at that 160 mark after getting down to
• 25:31
  Speaker 2: like 157 through a period of yen strengthening for a
• 25:35
  Speaker 2: couple weeks. Hey, we're back at that 160 mark. Is
• 25:38
  Speaker 2: there going to be further intervention there? The VIX has
• 25:42
  Speaker 2: declined down to below 15, which is not, you know,
• 25:46
  Speaker 2: historically low level. And it is reflective of the lack of,
• 25:50
  Speaker 2: you know, index volatility that we've seen this summer. But
• 25:54
  Speaker 2: that's been driven by what's been called this dispersion trade where, hey,
• 25:59
  Speaker 2: stocks have just been historically uncorrelated to each other. And
• 26:03
  Speaker 2: so that's been responsible for the lack of volatility. And
• 26:06
  Speaker 2: how long can that continue? Uh, so like, these are
• 26:09
  Speaker 2: some of the things that, that I think we're looking at, uh,
• 26:12
  Speaker 2: when we talk about, Hey, these things are coming to
• 26:15
  Speaker 2: a head. They're kind of, you know, coiling into these
• 26:18
  Speaker 2: tight ranges in a number of cases and how long
• 26:22
  Speaker 2: can they stay coiled in those tight ranges before that
• 26:24
  Speaker 2: energy that's building up has to go in one direction
• 26:27
  Speaker 2: or another, not necessarily bad, but just has to go somewhere.
• 26:31
  Speaker 4: Right.
• 26:31
  Speaker 3: Remember all that with the backdrop too, of, uh, near
• 26:35
  Speaker 3: record high crack spreads on fuels. And we just over
• 26:40
  Speaker 3: the weekend, right, had renewed strikes on Iran. And so, yeah,
• 26:45
  Speaker 3: when I combine all these things, there's a number of
• 26:47
  Speaker 3: different market items that you look at for the last
• 26:50
  Speaker 3: four months of the year as we head here. In
• 26:53
  Speaker 3: terms of the big driver of overall activity, what I
• 26:57
  Speaker 3: don't see any real concern about at this point is
• 27:02
  Speaker 3: the major spending that is driving this economy, the AI spend.
• 27:05
  Speaker 3: That I do think becomes really interesting come 2027 when
• 27:09
  Speaker 3: we have comps of 2026 instead, where you're looking at, hey, 2027,
• 27:13
  Speaker 3: year over year spending by giant hyperscalers doesn't look as
• 27:19
  Speaker 3: impressive as it did last year. But I don't think
• 27:22
  Speaker 3: that's the last four months of this year. The last
• 27:23
  Speaker 3: four months of this year, it's about inflation, it's about
• 27:25
  Speaker 3: the state of jobs, interest rates. energy prices, and will
• 27:29
  Speaker 3: we have any of those seemingly put-off, real, desperate situations
• 27:34
  Speaker 3: with energy come true here as we close out the
• 27:38
  Speaker 3: last four months?
• 27:38
  Speaker 5: Yeah.
• 27:39
  Speaker 2: Let's take a quick break here. When we return, we'll
• 27:42
  Speaker 2: talk a little bit about what we're seeing from corporate profits.
• 27:48
  Speaker 1: Find daily interviews and full shows of The Financial Exchange
• 27:51
  Speaker 1: on our YouTube page. Subscribe to our page and get
• 27:54
  Speaker 1: caught up on anything and everything you might have missed.
• 27:57
  Speaker 1: This is The Financial Exchange Radio Network. From Fed decisions
• 28:03
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• 28:07
  Speaker 1: This is The Financial Exchange.
• 28:26
  Speaker 2: Peace in the Wall Street Journal. Corporate America's profits are
• 28:30
  Speaker 2: booming and signal more good times ahead.
• 28:33
  Speaker 3: What's this piece outline, Mike? Well, first things first. Per
• 28:36
  Speaker 3: share earnings are up massively. 53% for the S &
• 28:41
  Speaker 3: P 500. We've talked a lot about what's driving all
• 28:46
  Speaker 3: of that. We can get into it. But even sales, too, right?
• 28:48
  Speaker 3: Which in this moment with the AI trade may be
• 28:53
  Speaker 3: a somewhat... clearer indicator of what's going on are up
• 28:57
  Speaker 3: 16% year over year. So first things on the earnings front,
• 29:01
  Speaker 3: what is driving some of this? Well, one, when sales
• 29:04
  Speaker 3: are up 16%, yeah, you're able to pad profits. You
• 29:07
  Speaker 3: just got a bunch of tariff reimbursements that are hitting
• 29:09
  Speaker 3: bottom line. All of that is a contributing factor. The
• 29:12
  Speaker 3: other contributing factor that I just like to bring up
• 29:15
  Speaker 3: over and over again, I'm honestly not sure how much
• 29:17
  Speaker 3: it matters, but when you talk about the likes of
• 29:22
  Speaker 3: every major hyperscaler, They all have these investments in other
• 29:26
  Speaker 3: privately held AI companies, such as Anthropic, such as OpenAI,
• 29:31
  Speaker 3: all of whom have seen their valuations go through the roof.
• 29:34
  Speaker 3: And when that happens, these companies book actual profit for
• 29:38
  Speaker 3: the just change in what they companies are worth. Even
• 29:41
  Speaker 3: if they didn't sell them, even if they didn't transact
• 29:42
  Speaker 3: in them in any way, they're required, you know, with
• 29:46
  Speaker 3: standard accounting measures to say, well, yet we have a
• 29:48
  Speaker 3: higher profit this quarter because our ownership in these companies
• 29:51
  Speaker 3: is suddenly worth more. All of that having been said,
• 29:55
  Speaker 3: revenue growth of 16% year over year. It's pretty darn
• 29:58
  Speaker 3: rare and worthy of acknowledgement here.
• 30:01
  Speaker 2: Yeah. It's one thing to say, okay, there's some stuff
• 30:06
  Speaker 2: that we need to be aware of in terms of
• 30:07
  Speaker 2: how the revaluation of these AI companies that are internally
• 30:12
  Speaker 2: held by publicly traded companies reflect, show up in earnings.
• 30:17
  Speaker 5: Got it.
• 30:18
  Speaker 2: It's different to say, hey, that's the only good thing
• 30:20
  Speaker 2: that's going on in earnings.
• 30:22
  Speaker 4: No.
• 30:22
  Speaker 2: Even without that, earnings growth still would have been like
• 30:24
  Speaker 2: 25% to 30% year over year. So, again, understand that
• 30:29
  Speaker 2: there's some middle ground that you can get to and that, yes,
• 30:32
  Speaker 2: there is an outside influence on earnings for this quarter.
• 30:36
  Speaker 2: But even stripping that out, the earnings for the S
• 30:39
  Speaker 2: & P 500 are still quite, quite good. Mike, I
• 30:42
  Speaker 2: want to go kind of off the beaten path a
• 30:45
  Speaker 2: little bit, if you will. So there is a contractor
• 30:51
  Speaker 2: in Southern California.
• 30:52
  Speaker 5: What kind of contractor?
• 30:54
  Speaker 2: It looks like... Yes, a GC called Reserva Construction.
• 30:59
  Speaker 5: Okay.
• 31:01
  Speaker 2: It's got, like, it basically has, you know, as most
• 31:04
  Speaker 2: contractors do, big pickup truck with their name and phone
• 31:08
  Speaker 2: number and website and everything on it. You know, like,
• 31:10
  Speaker 2: here's my license from California, like, blah, blah, blah. So
• 31:15
  Speaker 2: the guy had his truck stolen over the weekend.
• 31:19
  Speaker 1: Uh-huh.
• 31:20
  Speaker 2: And now, apparently whoever stole the truck is going around
• 31:25
  Speaker 2: committing other crimes in Southern California and Northern Mexico. And
• 31:30
  Speaker 2: the contractor is being reported for committing these crimes because...
• 31:35
  Speaker 2: It's a big old truck with his name on it,
• 31:38
  Speaker 2: which is reminiscent of the time. And this is, again,
• 31:41
  Speaker 2: not my original material, but I saw this.
• 31:43
  Speaker 5: Is this the pickup truck that was sold to the
• 31:45
  Speaker 5: Middle East somewhere?
• 31:46
  Speaker 4: Yes.
• 31:47
  Speaker 2: The plumber's truck, who, again, it was a truck that
• 31:51
  Speaker 2: was old or whatever. He ended up selling it. And
• 31:54
  Speaker 2: one way or another, like about six months later, it
• 31:57
  Speaker 2: ends up on a video that ISIS put out with
• 32:00
  Speaker 2: like a machine gun in the back doing ISIS stuff.
• 32:04
  Speaker 5: Couldn't remember if it was Al-Qaeda, Al Jazeera. It was ISIS.
• 32:07
  Speaker 3: Sorry, not Al Jazeera, Al-Qaeda or.
• 32:12
  Speaker 2: It was ISIS.
• 32:13
  Speaker 5: Yeah.
• 32:14
  Speaker 2: So again, just one of the dangers of, you know,
• 32:18
  Speaker 2: branding your vehicle is that if it gets stolen... People
• 32:22
  Speaker 2: are going to think that you're doing the bad things
• 32:24
  Speaker 2: still because they won't realize the vehicle has been stolen.
• 32:28
  Speaker 5: Yeah, pretty solid.
• 32:29
  Speaker 2: So I just wanted to put that one out there
• 32:31
  Speaker 2: before we go further. Sudden unraveling of Wall Street's momentum trade.
• 32:37
  Speaker 2: So within any given market, there are a number of
• 32:41
  Speaker 2: factors that different analysts try to decompose into. Okay, like
• 32:46
  Speaker 2: why is a stock moving in any one particular way?
• 32:49
  Speaker 2: One of the big ones that has been really successful
• 32:51
  Speaker 2: in the last several years is what's called the momentum factor,
• 32:54
  Speaker 2: which is exactly what it sounds like. Stocks that have
• 32:57
  Speaker 2: done well recently, you know, the person can expect them
• 33:01
  Speaker 2: to do well in the future. And so you buy
• 33:03
  Speaker 2: a basket of stocks that have done well recently and
• 33:06
  Speaker 2: you say, okay, I think this is going to outperform
• 33:08
  Speaker 2: the market over the next month, three months, however long
• 33:11
  Speaker 2: you think it might be. Well, The S & P
• 33:15
  Speaker 2: 500 momentum index is now down 9% since July 1,
• 33:18
  Speaker 2: which lags the S & P 500 by about 12%
• 33:22
  Speaker 2: during that time. The S & P is only up 2.8%,
• 33:25
  Speaker 2: but when the momentum index is down 9, that down
• 33:28
  Speaker 2: 9 does most of the work. And so this is
• 33:31
  Speaker 2: going to be, assuming this carries through over the next month,
• 33:35
  Speaker 2: which we don't know, potentially the biggest quarterly underperformance of
• 33:39
  Speaker 2: the momentum factor in 25 years.
• 33:46
  Speaker 3: The trends that worked in markets the last six months
• 33:48
  Speaker 3: aren't going to be the ones that necessarily work the
• 33:50
  Speaker 3: next six months.
• 33:51
  Speaker 2: Past performance is not indicative of future success.
• 33:55
  Speaker 3: I think the message here is, especially when you would
• 33:58
  Speaker 3: have a very difficult time explaining why. It's one thing
• 34:02
  Speaker 3: when you say, hey, I believe in the management of
• 34:04
  Speaker 3: this company, and I think they are going to continue
• 34:06
  Speaker 3: to innovate and deliver a high-quality product for decades to come,
• 34:10
  Speaker 3: and so I'm going to become a long-term shareholder.
• 34:12
  Speaker 5: Compared to Look at all those stocks going up.
• 34:16
  Speaker 3: I want to own those stocks that are going up
• 34:18
  Speaker 3: because I think because they went up in the past,
• 34:20
  Speaker 3: they're going to continue to go up in the future.
• 34:22
  Speaker 2: Let's talk about what the biggest components are in the
• 34:25
  Speaker 2: S & P 500 momentum index. Right now, I'm looking
• 34:28
  Speaker 2: at it. It's comprised of 99 different companies. The top
• 34:32
  Speaker 2: 25 make up most of it. Broadcom, been stuck kind
• 34:36
  Speaker 2: of in neutral. Nvidia, been stuck in neutral. Meta, been
• 34:39
  Speaker 2: going down. JPMorgan Chase has had a nice year. I
• 34:42
  Speaker 2: don't know if anyone's looked at financials recently, but JPMorgan
• 34:47
  Speaker 2: has actually just been on a mission to the upside
• 34:50
  Speaker 2: since the start of April. Other companies in the S
• 34:55
  Speaker 2: & P 500 momentum index. Netflix has not had a
• 34:59
  Speaker 2: particularly good year. Palantir has kind of cooled off after
• 35:02
  Speaker 2: a couple hot years. Oracle hasn't been good. Visa, I
• 35:05
  Speaker 2: don't know, to be honest. I haven't really looked at them.
• 35:07
  Speaker 2: Walmart has cooled off this year. GE Aerospace, Cisco, GE Vernova,
• 35:13
  Speaker 2: Philip Morris International, AT & T, IBM. So again, you
• 35:17
  Speaker 2: can see it's just kind of a mixed bag here
• 35:19
  Speaker 2: for some of these companies that are the major constituents
• 35:22
  Speaker 2: of this index. And again, just because something has done
• 35:27
  Speaker 2: well recently does not necessarily mean it will do well
• 35:31
  Speaker 2: in the future. We have seen a trend over the
• 35:33
  Speaker 2: last several years where the momentum factor has been more
• 35:37
  Speaker 2: dominant in driving returns and that, you know, kind of
• 35:39
  Speaker 2: good performance has beget, you know, additional good performance in
• 35:45
  Speaker 2: the future. But these correlations are not fixed. It's not physics.
• 35:48
  Speaker 2: These things aren't set in stone. And this is just
• 35:50
  Speaker 2: a time where, okay, you know, this quarter, giving back
• 35:54
  Speaker 2: some of those relative gains that might have appeared over
• 35:56
  Speaker 2: the last several years. Let's take a quick break here.
• 35:59
  Speaker 2: When we return, we got a whole lot more coming
• 36:01
  Speaker 2: up in hour two, including Congress finally talking a little
• 36:05
  Speaker 2: bit about Social Security. It's a great day for us
• 36:07
  Speaker 2: when they do that. So we will discuss it soon.