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Bonds Take Center Stage as Inflation Pressure Builds · 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: All right, it's Chuck, Mike, and Tucker here with you today.
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Speaker 2: And we got some economic data out this morning. We
1:18
Speaker 2: got weekly jobless claims, which were fine. No problems there.
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Speaker 2: They continue to be at very low levels. We got
1:25
Speaker 2: ISM services data, which showed good overall levels of activity,
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Speaker 2: though prices paid hit its highest level since mid-2022. So
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Speaker 2: we'll dovetail that into a little bit of a discussion
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Speaker 2: about inflation and bonds. It does seem like, Michael, I
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Speaker 2: wish we could probably train an AI to do this.
1:47
Speaker 2: But in terms of the topics of coverage that we have,
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Speaker 2: I feel like we've gone through three discrete periods this year. War, AI,
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Speaker 2: and now bonds.
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Speaker 3: Yeah, I don't think you can say that they have
2:06
Speaker 3: gone in any chronological order. They've phased in and phased
2:10
Speaker 3: out throughout the year.
2:12
Speaker 2: War was the primary focus from March through... Mid-May. AI
2:20
Speaker 2: was all we talked about from mid-May through early to mid-August.
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Speaker 2: And it feels like basically touched off by, you know,
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Speaker 2: in late July, Warsh's press conference after his second Fed meeting.
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Speaker 2: Feels like we've been talking bonds an awful lot for
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Speaker 2: the last three to four weeks now. Yeah. And so
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Speaker 2: we're going to start with this piece today from the
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Speaker 2: Wall Street Journal. There are four forces pressuring bonds. And
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Speaker 2: what are the forces?
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Speaker 1: Yeah.
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Speaker 2: According to them... I think there are two.
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Speaker 3: Yeah, okay, so we can all debate, but it is
2:54
Speaker 3: inflation caused by war, deficits they lay out as another,
3:01
Speaker 3: the term premium, which nobody understands what that means that's
3:04
Speaker 3: listening right now, and interest rate bets.
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Speaker 2: So what are your two, Chuck? Supply and demand. Got it.
3:12
Speaker 2: What the heck does interest rate bets even mean?
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Speaker 3: I'm not entirely sure.
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Speaker 2: What does that mean?
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Speaker 3: Because people are always betting on interest rates. Why would
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Speaker 3: it be driving them higher right now?
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Speaker 1: Okay.
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Speaker 2: I'm going to just toss that for a minute because
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Speaker 2: I don't like the thesis there. Here's the deal. When
3:32
Speaker 2: it comes to bond yields, there are a lot of
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Speaker 2: different factors that actually influence where they land. But ultimately,
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Speaker 2: supply and demand are them.
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Speaker 3: Yeah. So the only thing you're arguing is are... some
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Speaker 3: of these different forces affecting supply and or demand.
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Speaker 2: Let's look on the supply side, and let's talk about
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Speaker 2: what influences the supply of bonds. Ultimately, there are two
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Speaker 2: different types of supply. There is the supply of newly
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Speaker 2: issued bonds into the market, so how much issuance is
4:03
Speaker 2: out there in total, not just from sovereigns, not just
4:07
Speaker 2: from governments. You've got sovereigns, you've got corporates, you've got municipalities.
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Speaker 2: I'm sure if you, again, I don't know, but I'm
4:14
Speaker 2: sure if you went down to Brazil, I'm sure that,
4:17
Speaker 2: you know, the provinces and states can, you know, issue
4:20
Speaker 2: debt there.
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Speaker 3: Sure.
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Speaker 2: You've got all different kinds of debt. You've got personal loan,
4:24
Speaker 2: you know, personal debt if you need to borrow for,
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Speaker 2: you know. whatever it might be. There's all kinds of
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Speaker 2: borrowing that goes on. So number one is supply. How
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Speaker 2: much debt is coming on? And that primary supply from
4:39
Speaker 2: new issuance is one form.
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Speaker 3: And to be clear, we are seeing, again, the deficits
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Speaker 3: that we're talking about are pretty outsized compared to throughout
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Speaker 3: history other than war times, but they've been pretty outsized
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Speaker 3: for the last seven years and that hasn't really shifted.
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Speaker 3: So we're still on that same overall trajectory. If there
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Speaker 3: is a change in supply right now, it's coming from
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Speaker 3: some foreign issuance as well as corporate issuance.
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Speaker 2: Yeah, the AI issuance has been a significant addition this year.
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Speaker 2: The deficit from the United States, it's increasing this year,
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Speaker 2: but it's been increasing for a while at a pretty
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Speaker 2: steady clip. It's not anything new. So yeah, the corporate
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Speaker 2: side is new there. The other place that you can
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Speaker 2: get more supply is people that own their bonds deciding, hey,
5:31
Speaker 2: I want to sell my existing bonds, and that puts
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Speaker 2: more supply onto the market. Now, there can be a
5:36
Speaker 2: number of reasons why people do that. It can be
5:39
Speaker 2: concerns about credit quality, it can be concerns about future
5:43
Speaker 2: interest rates, it could be a planned sale because they
5:46
Speaker 2: were just holding the bond, you know, in order to
5:48
Speaker 2: earn something in order to, uh, you know, earn more
5:51
Speaker 2: than whatever else. And then they were saying, okay, I'm
5:53
Speaker 2: going to sell it on this date, no matter what,
5:55
Speaker 2: like there's, there's all different kinds of reasons that you
5:57
Speaker 2: can have additional, uh, you know, supply coming on from
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Speaker 2: the secondary market, people selling after they've already, uh, initially purchased.
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Speaker 2: Got it. That's fine. The demand side is ultimately where
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Speaker 2: I think the questions are more than the supply side,
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Speaker 2: because for the supply side to be true, basically what
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Speaker 2: you have to see is that every time bond issuance
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Speaker 2: goes up, yields go up, and that's just not the case.
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Speaker 2: And to illustrate this, Tucker, can you get the time
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Speaker 2: machine fired up for us? I just need four years
6:32
Speaker 2: of power. Three and a half, really, if you could. Okay,
6:40
Speaker 2: thank you. It is July of 2023, and it's warm outside.
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Speaker 2: And the 10-year treasury is at 3.8%. And over the
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Speaker 2: next three months, it's going to go from 3.8% up
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Speaker 2: to just shy of 5. 4.997. We never crossed 5,
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Speaker 2: but we got pretty darn close, almost as close as
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Speaker 2: you can get without crossing. So you saw a 1.2%
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Speaker 2: rise in interest rates during the latter part of 2023.
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Speaker 2: And during that time, everyone and their grandmother was saying, Oh,
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Speaker 2: it's the debt! The debt's too big! That's why rates
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Speaker 2: are going up, man! Like, it's the deficits! And, okay, like, true,
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Speaker 2: deficits were going up. Then, like, I get it. But then,
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Speaker 2: a funny thing happened over the last quarter of the year.
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Speaker 2: Deficits kept going up. And yet the 10-year treasury went
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Speaker 2: from 4.997 down to 3.785.
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Speaker 3: Pretty big drop.
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Speaker 2: All the people screaming about the deficit were suddenly silent
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Speaker 2: because they couldn't claim, hey, the debt's going down because
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Speaker 2: it wasn't. So it was not a supply issue in
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Speaker 2: and of itself. I'm not to say that the size
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Speaker 2: of the deficit doesn't matter, but I am to say,
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Speaker 2: thank you, I am to say, Chuck is the debt!
8:01
Speaker 2: Glad you got those. I'm just going to point to
8:03
Speaker 2: it so I don't have to ruin my voice going forward.
8:06
Speaker 2: but the Chuck, it's the debt. Those are good. I
8:12
Speaker 2: got to admit, I've got some talent at that one.
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Speaker 3: Do you guys know that we have $ 40 trillion in debt?
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Speaker 2: Oh, you got, you got all of them now. It's a,
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Speaker 2: I don't even need to be here. You could just
8:22
Speaker 2: play that. So the big thing is if it were really,
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Speaker 2: we're just about the deficit, then interest rates would never
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Speaker 2: come down because our deficit is ever increasing. It's just
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Speaker 2: how it is. So I'm, The supply side matters. I
8:37
Speaker 2: don't deny that. But I want to talk about the
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Speaker 2: demand side and the reasons why people buy bonds. Because
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Speaker 2: I think this is the crux of the issue, in
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Speaker 2: my opinion, is, okay, so you have this increasing issuance,
8:52
Speaker 2: which is fine if there's increasing demand. But occasionally, there
8:57
Speaker 2: are changes in demand as it relates to the reasons
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Speaker 2: why people buy bonds. And there are a few different
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Speaker 2: reasons why people buy bonds. Number one, as part of
9:07
Speaker 2: a consistent long-term investment strategy. We see this with pensions.
9:12
Speaker 2: We see this with average everyday investors that, you know,
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Speaker 2: dollar cost average into a target date fund in their 401k.
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Speaker 2: Price insensitive investors who just say, hey, here's my $ 100
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Speaker 2: a month going into the 401k or the pension that says, yep,
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Speaker 2: we need a 40% allocation into bonds. We're going to
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Speaker 2: rebalance into that every quarter. Those are consistent sources of demand, right?
9:39
Speaker 2: But it's on the margins that you get these things priced.
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Speaker 2: It's not based on what everyone's doing. It's based on
9:44
Speaker 2: what the 1% to 2% on the margins are doing.
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Speaker 2: And so today, when we look at it, the reason
9:50
Speaker 2: why investors typically go to bonds in higher quantities than
9:54
Speaker 2: they would otherwise, there are a couple of reasons. Number one,
9:58
Speaker 2: they're scared about something. Usually... they're scared about a lack
10:01
Speaker 2: of growth. And they say, look, my investments in this
10:04
Speaker 2: area aren't going to do as well. I will accept
10:06
Speaker 2: a lower rate of growth by buying a 5% bond
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Speaker 2: because I'm nervous about where, you know, equities are going
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Speaker 2: to go or the housing market or whatever it might be.
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Speaker 2: So that marginal dollar slides over there. And then more
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Speaker 2: investors get nervous. And so yields go from 5 to 4.7
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Speaker 2: to 4.5. And that's how yields move down. But the
10:25
Speaker 2: counter to that is, hey, if you're in a period
10:27
Speaker 2: right now where stock returns have been pretty darn tootin'
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Speaker 2: for the last few years. Tootin'. They've been darn tootin'
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Speaker 2: for the last few years. And on top of that,
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Speaker 2: you've got all this optimism about AI. You've got nominal
10:40
Speaker 2: growth going crazy because we are borrowing a ton of money.
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Speaker 2: And so investors on the margin are saying, hey, there's
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Speaker 2: all this growth out there. You're going to have to
10:49
Speaker 2: pay me more in order to hold this debt because
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Speaker 2: I'm giving up a ton of potential growth by sitting
10:54
Speaker 2: in it.
10:55
Speaker 3: Those are the price-sensitive investors. Yes.
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Speaker 2: Or, hey, I'm nervous about inflation. I don't want to
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Speaker 2: own a bond at 4% if inflation's running at 3%.
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Speaker 2: You've got to pay me 4.5% or 5% because I
11:09
Speaker 2: need some insurance in case inflation runs hotter than 3%.
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Speaker 2: So these are the things that I think are impacting it.
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Speaker 2: The supply is what it is. The supply is not
11:19
Speaker 2: really surprising anyone. Did anyone wake up in the last
11:22
Speaker 2: two months and be like, hey, where did all this
11:24
Speaker 2: government debt come from?
11:26
Speaker 4: No.
11:27
Speaker 3: I think if you want to argue there's a surprise
11:29
Speaker 3: in the issuance of debt, then you'd have to go
11:30
Speaker 3: back a good year before you can say, oh, yeah,
11:33
Speaker 3: I was surprised by the level of corporate issuance. But
11:36
Speaker 3: beyond that, it's been forecasted. It's been pretty well known.
11:38
Speaker 3: It's been understood that that was going to happen.
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Speaker 2: So I think that this is very much a case
11:43
Speaker 2: where basically every country in the world, remember, this is
11:45
Speaker 2: not a U.S.-centric phenomenon. This is happening in Japan. It's
11:48
Speaker 2: happening in Germany. It's happening. The only place in the
11:51
Speaker 2: world where this is not happening is China. And it's
11:54
Speaker 2: not happening in China because the Chinese economy sucks right now.
11:57
Speaker 2: The Chinese economy is just awful. If you talk to
12:01
Speaker 2: anyone who actually knows about what's going on in the
12:03
Speaker 2: Chinese economy, they're like, yeah, it's terrible right now. The
12:05
Speaker 2: real estate market's a mess. You get all kinds of
12:07
Speaker 2: excess capacity on Chinese EVs that they're trying to unwind
12:10
Speaker 2: and figure out. It's a mess. So this is happening globally,
12:16
Speaker 2: and it's because every country is pretty much running the
12:18
Speaker 2: same playbook. Hey, we're just going to borrow in order
12:21
Speaker 2: to fund this. And yeah, all of that borrowing creates
12:24
Speaker 2: more economic activity, which creates more nominal growth. And in
12:27
Speaker 2: a higher nominal growth world, you don't want to own
12:31
Speaker 2: bonds at low interest rates, not because you just don't
12:35
Speaker 2: like them, but because you say, no, I can get
12:37
Speaker 2: more somewhere else without as much risk as I previously
12:41
Speaker 2: needed to take in a lower nominal growth world.
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Speaker 3: Okay, so we talked about the cause-effect, supply-demand side. Everyone
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Speaker 3: and their mother is talking about, writing about, and going
12:53
Speaker 3: on TV about how we are in a different place
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Speaker 3: for bonds now.
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Speaker 2: Which no one was six months ago, which I find....
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Speaker 3: Interesting. So I want to dive into that next. Are
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Speaker 3: we actually in a obviously we're always in a different place,
13:06
Speaker 3: but are we in a cyclically different scenario? Bonds have
13:10
Speaker 3: lost money in the aggregate in the United States this year.
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Speaker 3: Do bonds represent something different than they always had in
13:16
Speaker 3: a balanced portfolio? Or is this people coming out of
13:21
Speaker 3: the woodwork because bonds have lost money this year?
13:23
Speaker 2: Quick break.
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Speaker 3: That's next on the Financial Exchange.
13:25
Speaker 2: It's pushing up the yields, man.
13:28
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13:57
Speaker 2: So we've been talking about interest rates to kick off
14:00
Speaker 2: the show. Mike, last segment, you said something that I
14:03
Speaker 2: can't remember, and you said you wanted to come back
14:06
Speaker 2: to it. What was that?
14:08
Speaker 3: Most investors, individual investors, invest in bonds for really just
14:13
Speaker 3: one or two reasons.
14:16
Speaker 2: One is that everyone else doesn't. They follow the herd.
14:18
Speaker 1: Yeah.
14:19
Speaker 3: I guess that's probably the primary reason.
14:20
Speaker 2: The second is for ballast being the idea that, hey,
14:25
Speaker 2: in years like 2008 where your stocks suck, bonds can,
14:29
Speaker 2: in certain circumstances, provide positive performance to a portfolio to
14:33
Speaker 2: help offset those losses. Good. Got it.
14:36
Speaker 3: So, yeah, stock returns are traditionally less predictable than bonds.
14:40
Speaker 3: bond ones and, uh, more volatile. And so you have
14:43
Speaker 3: something in there that is a bit more predictable on
14:46
Speaker 3: average and, uh, will provide balance in the portfolio. Everyone
14:50
Speaker 3: and their mother now writing about, do you need to
14:51
Speaker 3: rethink that equation? Do you need to rethink that equation, Chuck? No,
14:56
Speaker 3: but that's because you've needed to rethink it for the
14:58
Speaker 3: last several years. What I mean by that is if
15:02
Speaker 3: you look at the period from 1982 through 2021, that
15:04
Speaker 3: 40 year period, uh, The obvious tailwind that every investment
15:12
Speaker 3: portfolio had was falling interest rates during that time. Yes,
15:15
Speaker 3: there were some jagged segments of performance where it didn't
15:20
Speaker 3: always go in one direction. But by and large, if
15:23
Speaker 3: you look at that 40-year period, which I did just
15:27
Speaker 3: this morning, it was one in which you were seeing...
15:31
Speaker 3: lower peaks in terms of yields, as well as lower
15:35
Speaker 3: bottoms in terms of yields. It was a nice channel
15:37
Speaker 3: that you could just ride all the way down. So
15:39
Speaker 3: during that time, owning long-term U.S. treasuries, 10 years plus,
15:44
Speaker 3: was a huge net positive for your investment allocation.
15:49
Speaker 1: Mm-hmm.
15:49
Speaker 2: Today, I think that you, I'm not saying to abandon them,
15:52
Speaker 2: because I don't think that that is something that makes
15:56
Speaker 2: sense either, but I think that the average investor needs
15:59
Speaker 2: to view those, and this is, again, you can find
16:03
Speaker 2: me on this show five years ago saying this, the
16:07
Speaker 2: average investor needs to view those holdings as more of
16:09
Speaker 2: a tactical allocation at this point, rather than a long-term
16:14
Speaker 2: strategic one. Meaning, there are going to be periods like 2022,
16:20
Speaker 2: where owning long-term bonds can really hurt your investment portfolio.
16:25
Speaker 2: There are going to be periods like the latter part
16:28
Speaker 2: of 2023 where owning long-term bonds can really benefit your
16:32
Speaker 2: investment portfolio. But it is not the slam dunk, stick
16:36
Speaker 2: it in your portfolio and never change from it that
16:39
Speaker 2: it used to be. Now, I'm certainly not saying, hey,
16:43
Speaker 2: go invest all in equities. That's not the point I'm making.
16:48
Speaker 2: The point I'm making is, For the last 40 years,
16:50
Speaker 2: or for that 40-year period, early 80s through early 2020s,
16:55
Speaker 2: it was great. In your bonds, you just want to
16:57
Speaker 2: own long-term bonds because they give you the ballast that
16:59
Speaker 2: you need. In a rising interest rate environment, or even
17:03
Speaker 2: a flat one... that ballast doesn't provide the same constant tailwind.
17:07
Speaker 2: And so you need to rethink the composition of your
17:09
Speaker 2: bond portfolio from just, hey, own a bunch of like
17:12
Speaker 2: 10 to 30 year treasuries to do I need kind
17:16
Speaker 2: of a more nuanced bond portfolio that maybe has some
17:19
Speaker 2: shorter term ones mixed in, different types of bonds mixed in?
17:23
Speaker 2: Is that something that makes sense? And then you go
17:27
Speaker 2: and figure that out based on your particular asset allocation
17:31
Speaker 2: and risk tolerance and things like that.
17:33
Speaker 4: Yeah.
17:33
Speaker 3: The theory that I heard tossed around yesterday, which I
17:35
Speaker 3: just disagree with, was, hey, during the next recession, maybe
17:39
Speaker 3: because people are so worried about deficits, you're going to
17:42
Speaker 3: have a recession without a collapse in yield, without interest
17:47
Speaker 3: rates going down, without bonds getting a bid. And I
17:49
Speaker 3: have to say that I fundamentally disagree with that potential outlook.
17:52
Speaker 3: It's not to say that deficits don't matter. It's not
17:54
Speaker 3: to say that might not happen at some point. But
17:58
Speaker 3: We just talked about how I don't think deficits are
18:00
Speaker 3: what's driving yields upwards, so therefore I don't think it's
18:02
Speaker 3: going to prevent them from going back down. And Torsten Slocke,
18:07
Speaker 3: chief economist at Palo, was interviewed for this Barron's article. Quote,
18:11
Speaker 3: if AI manages to boost productivity, this will be massively
18:14
Speaker 3: deflationary and push rates lower. Okay, we can debate that,
18:17
Speaker 3: but okay. But if AI doesn't deliver the expected returns
18:20
Speaker 3: to corporate America, the bubble bursts and the NASDAQ is
18:23
Speaker 3: down 50% as investors rotate out of equities into treasuries
18:27
Speaker 3: and long rates fall dramatically. I tend to believe that
18:30
Speaker 3: that is going to be the relationship, once again, if
18:34
Speaker 3: we get the NASDAQ, as he mentions, down 50% at
18:37
Speaker 3: some point.
18:37
Speaker 1: Maybe.
18:38
Speaker 2: Again, I acknowledge that you could have a recession at
18:41
Speaker 2: some point where eventually that supply and demand mismatch, because remember,
18:44
Speaker 2: in recessions, the deficit blows out because you have more
18:47
Speaker 2: people going on to automatic stabilizers like unemployment and things
18:51
Speaker 2: like that, as well as lower tax revenue because people
18:54
Speaker 2: aren't making as much money. And so during recessions, typically,
18:57
Speaker 2: you see deficits, at least for the year, increase anywhere
18:59
Speaker 2: from like 3% to 5%.
19:01
Speaker 3: And that is the problem with irresponsible fiscal spending now.
19:05
Speaker 2: Yeah.
19:06
Speaker 3: Is you don't have a magic bullet the next time
19:08
Speaker 3: it all falls apart.
19:09
Speaker 2: For the last like five to six years, we've now
19:13
Speaker 2: been running wartime level annual deficits, despite up until the
19:19
Speaker 2: last six months not actually being in any kind of
19:22
Speaker 2: actual conflict. That's not great for the long-term fiscal health
19:26
Speaker 2: of the country. Let's take a quick break. When we return,
19:29
Speaker 2: we've got Wall Street Watch, and we're talking jobs.
19:39
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19:47
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20:00
Speaker 4: Markets are in positive territory with Treasury yields taking a
20:04
Speaker 4: breather today. Right now, the Dow is up nearly six-tenths
20:07
Speaker 4: of a percent or 304 points higher. S & P
20:10
Speaker 4: 500 up four-tenths of a percent, 32 points up. NASDAQ
20:15
Speaker 4: is up about three-quarters of a percent or 204 points higher.
20:18
Speaker 4: Rust 2000 is up about a tenth of a percent.
20:21
Speaker 4: Ten-year Treasury yield is down three basis points at 4.758%
20:23
Speaker 4: and oil. is up 1%, trading at $ 92 a barrel.
20:31
Speaker 4: Broadcom more than tripled its profit and nearly doubled its
20:33
Speaker 4: revenue in the previous quarter, saying demand for its custom
20:36
Speaker 4: chips should continue growing over the next two years. However,
20:40
Speaker 4: the stock is down by 6%. Meanwhile, NVIDIA has officially
20:44
Speaker 4: agreed to acquire open-source AI platform Hugging Face for about
20:48
Speaker 4: $ 13 billion, NVIDIA up by 1%. Cloud storage company Snowflake
20:54
Speaker 4: is seeing its stock surge 21% after it reported a
20:59
Speaker 4: narrower quarterly loss saying AI drove its business. Campbell stock
21:03
Speaker 4: is dropping 8% after the food beverage company offered earnings
21:08
Speaker 4: guidance that disappointed and shares in Victoria's Secret tumbling 13%
21:13
Speaker 4: after the retailer slightly missed estimates on revenue for the
21:16
Speaker 4: second quarter, while its guidance also came in below expectations.
21:23
Speaker 4: I'm Tucker Silva, and that is Wall Street Watch.
21:26
Speaker 2: Peace in the Wall Street Journal. Why we'll have to
21:28
Speaker 2: get used to meh job reports. What's a meh job report?
21:36
Speaker 3: Not a lot of job creation. Not a lot of
21:38
Speaker 3: wage inflation. Modest changes to unemployment. I think I would
21:44
Speaker 3: qualify as a meh. You got to give a little
21:47
Speaker 3: bit more meh than meh.
21:49
Speaker 2: So you think it's a meh, not a meh?
21:51
Speaker 1: Yeah.
21:53
Speaker 3: It's not an uh.
21:55
Speaker 2: It could be.
21:56
Speaker 3: An uh is like 100,000 jobs lost in the uptick
21:59
Speaker 3: in unemployment rate. A meh jobs report is, to me,
22:03
Speaker 3: between minus 50 and plus 50,000 jobs created and unemployment
22:11
Speaker 3: rate sticking right where it is.
22:12
Speaker 2: Well, here's the deal. At any particular point in time,
22:16
Speaker 2: there is what's known as a break-even rate in the
22:19
Speaker 2: labor force, which is the number of jobs that you
22:21
Speaker 2: need to add in a month to keep the unemployment
22:23
Speaker 2: rate from rising. Throughout much of the 2010s and into
22:26
Speaker 2: the early 2020s, that number was generally between 80,000 and 150,000.
22:30
Speaker 2: It would vary based on demographics and certain trends, but
22:35
Speaker 2: that's where it landed. Today, the estimates are that the
22:39
Speaker 2: break-even number for the jobs report is somewhere around 20,000 because.
22:45
Speaker 2: You got more baby boomers retiring than ever before. And
22:48
Speaker 2: you have immigration now basically somewhere around net zero, probably
22:54
Speaker 2: not much of any net immigration into the United States
22:58
Speaker 2: at this point.
22:59
Speaker 3: Yeah, according to the Bureau of Labor Statistics, so remember
23:02
Speaker 3: government shut down last year. So looking at the November
23:05
Speaker 3: of 25 measurement, they measured the civilian labor force, which
23:08
Speaker 3: is any person over the age of 16 in the U.S.,
23:12
Speaker 3: at 171.5 million. Most recent reading in July, 169 million.
23:18
Speaker 3: So 2.5 million fewer 16-plus-year-olds available to fill jobs is
23:23
Speaker 3: what they are estimating with their statistic.
23:25
Speaker 2: Yes, and most of that they're estimating, by the way,
23:28
Speaker 2: if you look at the breakdown into different demographics, the
23:32
Speaker 2: civilian labor force level for foreign-born workers has gone from 33.7
23:36
Speaker 2: million down to 31.5. It's a 2.2 million decline. That's
23:40
Speaker 2: basically it right there.
23:42
Speaker 3: Now, that does not answer, though, the participation rate. Because
23:46
Speaker 3: in addition to all this stuff, we are seeing a
23:49
Speaker 3: declining overall participation rate. And that can't be explained by
23:54
Speaker 3: fewer foreign-born workers because the participation rate is a ratio.
23:57
Speaker 3: How many people are working compared to those looking for work?
24:00
Speaker 3: And we've seen that decline, again, since the same November
24:03
Speaker 3: time period by about 1.1%. So you could point to
24:07
Speaker 3: baby boomers there who are retiring. But heck, even the
24:11
Speaker 3: 25 to 54, that prime age, Go take a look
24:15
Speaker 3: at November of last year. We were at 83.8. We're
24:18
Speaker 3: now at 83.4. So across the span... I think the 83.4
24:22
Speaker 3: is fine. I think it's fine too, but we are
24:25
Speaker 3: seeing a decline.
24:26
Speaker 2: I don't think we are.
24:27
Speaker 3: Okay, just mismeasurement or just statistically unimportant?
24:31
Speaker 2: I think it's just statistically unimportant. Like, basically the only
24:35
Speaker 2: times that we have ever gotten above 83.8% are like
24:37
Speaker 2: the late 1990s and.
24:44
Speaker 2: There was a very brief period, it looks like. Actually, no,
24:48
Speaker 2: it's the late 1990s. That's it. There's a natural cap
24:51
Speaker 2: on that prime age participation rate because here's the thing.
24:56
Speaker 2: Labor force participation. The question is not do you have
24:58
Speaker 2: a job or not. It's, hey, are you involved in
25:01
Speaker 2: the labor force? Do you want a job? And there's
25:04
Speaker 2: always about one in six people is kind of where
25:07
Speaker 2: we've seen the historical peak who say no. Now, before
25:11
Speaker 2: you call all of those people lazy, Before you call
25:15
Speaker 2: all of those people lazy, those can include people such
25:18
Speaker 2: as people getting advanced degrees who are in school despite
25:22
Speaker 2: being over the age of 25. Doctors, lawyers, MBAs, whoever
25:27
Speaker 2: it might be, master's programs of all types, nurses, pharmacists,
25:31
Speaker 2: whoever it might be.
25:32
Speaker 1: Sure.
25:33
Speaker 2: Those people are not included in the labor force because
25:36
Speaker 2: they do not want a job. They are in school
25:37
Speaker 2: full time. Some of them might have jobs, so maybe
25:39
Speaker 2: they are, but that's part of it. Another part. How
25:43
Speaker 2: about parents who are taking care of their kids? Those
25:46
Speaker 2: people are not included in the labor force. I don't
25:48
Speaker 2: think that you would call them lazy. You better not.
25:51
Speaker 2: You're going to get slapped pretty hard. If you do
25:52
Speaker 2: call them lazy, you will have some real problems with
25:56
Speaker 2: that person for an extended period of time. You get dope. Yes.
26:01
Speaker 2: Other people that fall into that group that might be
26:03
Speaker 2: lazy would be People who, you know, don't have a job,
26:07
Speaker 2: don't want a job, and aren't doing anything else with
26:09
Speaker 2: their time other than playing video games. Those people, maybe
26:13
Speaker 2: you can call lazy. Yeah. And that's not 16% of
26:15
Speaker 2: the population. It might be 1% to 3%, which, again, like.
26:21
Speaker 2: There's some lazy people out there. It is what it is.
26:24
Speaker 2: You're never going to unlaze everyone. And by the way, people,
26:27
Speaker 2: laziness is the mother of invention. Where do you think
26:29
Speaker 2: the remote control came from? Someone not wanting to get
26:32
Speaker 2: up to change the channel. So I think that you
26:36
Speaker 2: take a look at this broadly, and I think the
26:39
Speaker 2: message is, look, labor supply... is basically flatlining in the
26:43
Speaker 2: United States. There's no growth in the labor supply. This
26:47
Speaker 2: is not something we've ever seen before, since we've had
26:49
Speaker 2: statistics that are reliable. I don't know exactly how this
26:54
Speaker 2: is going to impact the labor force and the jobs
26:58
Speaker 2: market over the next five to 10 years. My gut
27:01
Speaker 2: tells me that if it stays like this for an
27:04
Speaker 2: extended period, It's going to put pressure on wages, which
27:08
Speaker 2: in turn settles the inflation level higher than it's been
27:11
Speaker 2: for the last 40 years. Not like, you know, hyperinflation
27:13
Speaker 2: or anything crazy. But if inflation for the last 40
27:16
Speaker 2: years was, you know, two and a half percent is
27:18
Speaker 2: like three to four percent inflation for the next 40. Crazy.
27:22
Speaker 2: I don't think so. Could the use of AI and
27:25
Speaker 2: automation to relieve some of the pressure on the labor
27:28
Speaker 2: force slow down, you know, reduce that and make it
27:32
Speaker 2: less of a problem? Yeah, it could. These are the
27:34
Speaker 2: factors that are going to interact with each other. But
27:36
Speaker 2: there's always technological innovations that are putting pressure on the
27:40
Speaker 2: labor force, and yet there still is always more work
27:43
Speaker 2: to be done historically. So that's kind of where I
27:46
Speaker 2: think we land here.
27:47
Speaker 4: Leaving your IRA to your children may sound like the
27:50
Speaker 4: obvious choice, but how they receive that money could have
27:54
Speaker 4: important tax consequences. Cushing and Dolan has a new guide,
27:58
Speaker 4: Why Name Your Estate an IRA Beneficiary. Under current rules,
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28:10
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28:14
Speaker 4: larger tax bill. That's one reason why your IRA beneficiary
28:18
Speaker 4: should be part of your overall estate plan. Who receives
28:22
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28:25
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28:30
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28:34
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28:48
Speaker 1: The proceeding was paid for and the views expressed are
28:50
Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
28:52
Speaker 1: or Armstrong Advisory may contact you offering legal or investment services.
28:55
Speaker 1: Cushing and Armstrong do not endorse each other and are
28:57
Speaker 1: not affiliated.
28:59
Speaker 2: Based in Market Watch, America's renter generation is trying to
29:03
Speaker 2: build wealth by investing in stocks instead of owning a house. So...
29:09
Speaker 2: We've all seen the calculators where it's like, okay, here's
29:12
Speaker 2: what it costs you to buy a home, and here's
29:14
Speaker 2: the monthly payment. And hey, maybe that's too high. So
29:18
Speaker 2: if you just sock that money away into the difference
29:23
Speaker 2: between owning and renting into an account over 40 years,
29:26
Speaker 2: here's what you end up with. Great. I understand the
29:28
Speaker 2: math there. And that's what this is talking about people doing, saying, oh,
29:32
Speaker 2: we ran the rent versus buy calculator, and we're going
29:35
Speaker 2: to take the extra $ 500 a month and invest it,
29:37
Speaker 2: and it'll work out better in the long run.
29:39
Speaker 3: True.
29:40
Speaker 2: If you're actually disciplined. And that's the big thing that
29:43
Speaker 2: I come back to on this is that housing by
29:45
Speaker 2: and large is forced savings. You have to make that
29:49
Speaker 2: monthly payment every month. And if you want to take
29:51
Speaker 2: the equity out of your house, by the way, you
29:54
Speaker 2: got to do some work in order to do so.
29:55
Speaker 2: Like a refi doesn't just happen in a HELOC doesn't
29:58
Speaker 2: just happen.
29:59
Speaker 1: Yeah.
29:59
Speaker 2: On the other hand, if you're putting the money into
30:01
Speaker 2: your investment account and all of a sudden something comes
30:06
Speaker 2: up that you really want to do or something comes
30:08
Speaker 2: up that you're like, oh, like, where am I going
30:10
Speaker 2: to get the funds from? I guess I'll raid the
30:11
Speaker 2: investment account. Now you are tapping into that savings earlier
30:16
Speaker 2: than you thought you were going to. And that changes
30:18
Speaker 2: the calculus. And ask me how I know that this happens.
30:21
Speaker 2: It's because I've done it plenty of times myself. Lifestyle creep. Like,
30:26
Speaker 2: you know, just plain and simple.
30:28
Speaker 3: This formula works great if you are incredibly disciplined, and
30:31
Speaker 3: every time you get that raise, it goes from $ 500
30:33
Speaker 3: now to $ 550 going into that investment account every month.
30:36
Speaker 3: The problem is nobody actually lives that way, or the
30:39
Speaker 3: vast majority of us don't live that way. And when
30:41
Speaker 3: we get that raise, we go out and celebrate, we
30:44
Speaker 3: book that vacation, and it just won't work in the
30:48
Speaker 3: same way as it would with an amortized mortgage payment
30:52
Speaker 3: that you have no choice but to make every month
30:55
Speaker 3: or lose your home.
30:56
Speaker 2: So it's not to say that it can't work, but
30:58
Speaker 2: it's just to say, understand how your own behavior can
31:04
Speaker 2: make that actual process look different over a 30 to
31:07
Speaker 2: 40 year period than you would have thought. It's just
31:11
Speaker 2: like the reality has to meet up with the expectation
31:14
Speaker 2: at some point. Let's take a quick break. When we return,
31:17
Speaker 2: let's talk a little bit about scams that are continuing
31:21
Speaker 2: to be a growing problem.
31:23
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31:26
Speaker 1: our YouTube page. We've got market updates and breaking business
31:30
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31:40
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31:43
Speaker 1: economy and the trends on Wall Street. This is the
31:46
Speaker 1: Financial Exchange Radio Network.
31:50
Speaker 2: We'll be right back.
32:15
Speaker 4: And safe housing for single veterans and their families. Donate
32:17
Speaker 4: today at DAV5K. Boston. That's DAV5K. Boston.
32:23
Speaker 2: Peace in the Boston Globe. Scams in the U.S. are
32:26
Speaker 2: at a record high, yet most victims get no help,
32:29
Speaker 2: and some end up losing even more. And this is
32:34
Speaker 2: a piece that also pulls from some reporting from the
32:39
Speaker 2: Associated Press and Frontline. and basically goes through a number
32:44
Speaker 2: of examples of people that have been scammed by various
32:47
Speaker 2: financial scammers, mostly online, but some in person, and what
32:52
Speaker 2: happened to them afterwards. And I think that there are
32:55
Speaker 2: a few things that I tried to sort through in
32:59
Speaker 2: kind of navigating this. The first is, generally, if you
33:03
Speaker 2: get scammed out of money, you're pretty much told by
33:08
Speaker 2: law enforcement you're not going to get it back.
33:10
Speaker 1: Yep.
33:10
Speaker 3: Almost never recoverable.
33:11
Speaker 2: Which, by the way, is no different from if you
33:14
Speaker 2: have something stolen from you. Generally, if you have some
33:18
Speaker 2: kind of robbery or mugging, it's pretty rare to get
33:22
Speaker 2: those things back in a lot of cases. Like, it's
33:25
Speaker 2: just kind of how it is. So, part of this
33:30
Speaker 2: talks about, like, oh, like, there's no recourse. And I'm just, like,
33:33
Speaker 2: not sure what recourse there should be out there because...
33:36
Speaker 2: you can't just monitor everything all the time, and I
33:42
Speaker 2: don't know what you would do in order to increase
33:45
Speaker 2: the rates of recovery of scammed funds and stolen goods
33:51
Speaker 2: in general. There's only so much law enforcement that you
33:55
Speaker 2: can do.
33:55
Speaker 3: Yeah, better policing, given where this goes and how quickly
33:59
Speaker 3: it moves outside U.S. borders, I do not see an
34:02
Speaker 3: easy path towards more recovery of stolen funds.
34:06
Speaker 2: No.
34:07
Speaker 3: So instead, it's about prevention.
34:09
Speaker 2: It is about prevention. And what it talks about is
34:11
Speaker 2: that in some countries, you've had financial institutions that by
34:15
Speaker 2: law now are required to do much more in terms
34:18
Speaker 2: of prevention, in terms of allowing funds to be distributed
34:24
Speaker 2: quickly in large amounts to new third parties. And I
34:29
Speaker 2: think there's something to that, in that, you know, there's
34:33
Speaker 2: a case to be made that... If someone comes to,
34:38
Speaker 2: whether it's a bank, a financial advisor, whoever it might be,
34:42
Speaker 2: like that person, and says, hey, I need to get
34:45
Speaker 2: money to this new third party today, I think you
34:50
Speaker 2: could make a real case for, unless, like, that person
34:54
Speaker 2: signs and waives their right to, like, any kind of
34:59
Speaker 2: compensation afterwards, hey, should there be, like, a two- or
35:02
Speaker 2: three-day cooling-off period for that?
35:05
Speaker 3: I'd be on board with that. I honestly think, so
35:10
Speaker 3: I've dealt with this firsthand, right? People that I suspect
35:15
Speaker 3: are falling for a scam. And what I found really
35:19
Speaker 3: disappointing is that the resources, even before the money had
35:22
Speaker 3: left to get some help as a professional in the
35:26
Speaker 3: investment industry from our regulator, police, the federal government, was
35:34
Speaker 3: not there.
35:35
Speaker 2: It's basically like, let us.
35:36
Speaker 3: Know once a crime occurs, and then we will help you.
35:39
Speaker 3: But if you suspect a crime of occurring in the future, yeah,
35:44
Speaker 3: go deal with it. Good luck. And I understand that
35:49
Speaker 3: every time you're worried about a crime, the temptation tends
35:51
Speaker 3: to be, hey, give me more authority to deal with it.
35:54
Speaker 3: And so I'm very suspect of that, right? Think about
35:56
Speaker 3: what we saw with the expansion of powers after 9-11.
35:59
Speaker 3: That is the temptation every time there is a major.
36:03
Speaker 2: issue that you need to deal with. You mean the
36:05
Speaker 2: government taking more authority?
36:06
Speaker 3: Yeah, the government taking more authority or giving more authority
36:08
Speaker 3: to different people, either in the government or outside the government,
36:12
Speaker 3: to prevent it. And I'm wary of that. But, you know,
36:16
Speaker 3: should there be some sort of degree of, hey, Chuck,
36:21
Speaker 3: if you are a bank and you suspect that the
36:24
Speaker 3: person coming into your branch is going to give all
36:26
Speaker 3: their money away to a scammer, that you are allowed
36:29
Speaker 3: to hold the money for 30 days and can't be held...
36:33
Speaker 3: liable for doing that if you believe.
36:35
Speaker 2: It's a scam again like a two or three day
36:37
Speaker 2: cooling off period because none of that stuff it's necessary sometimes.
36:41
Speaker 3: And unfortunately the only thing you can do there is
36:43
Speaker 3: provide liability protection right because think about the other way
36:46
Speaker 3: right like let's say that you think it's a scam
36:49
Speaker 3: and it turns out no the person does need to
36:53
Speaker 3: pay a medical bill or they're going to get evicted
36:56
Speaker 3: from the whatever and that person dies like okay you
37:00
Speaker 3: screwed up and you're you're going to get sued by
37:02
Speaker 3: that person because you didn't give them access to their
37:04
Speaker 3: own money.
37:05
Speaker 1: Sure.
37:05
Speaker 3: So I recognize how difficult this is. Let's be honest,
37:10
Speaker 3: that's almost never actually the case.
37:12
Speaker 1: Agreed.
37:12
Speaker 3: It is almost never actually the case, but that is
37:14
Speaker 3: the fear, right? Hey, I'm going to get sued by
37:16
Speaker 3: this person because I prevented them from accessing their own funds.
37:20
Speaker 2: Sure.
37:20
Speaker 3: And so the only thing that I can really think
37:22
Speaker 3: of is, yeah, putting the bank tellers, the custodians of
37:27
Speaker 3: investment accounts and giving them more authority to prevent funds
37:30
Speaker 3: from moving which is generally not going to make anybody
37:33
Speaker 3: happy because when you have your money somewhere you want
37:37
Speaker 3: to know that it's accessible and free for you to
37:39
Speaker 3: use you do and so i don't know what to
37:42
Speaker 3: do here it's messy other than the fact that education
37:45
Speaker 3: clearly ain't working no it's not working because the scams
37:49
Speaker 3: evolve so rapidly that you can't possibly educate and.
37:51
Speaker 2: With ai they're getting worse it's becoming cheaper and much
37:56
Speaker 2: more realistic for these scammers to operate. So it's honestly
38:01
Speaker 2: pretty scary stuff, to be honest. Let's take a quick
38:04
Speaker 2: break here. We've got Hour 2 coming up. We're talking
38:07
Speaker 2: energy prices. We're talking Boeing. We're talking about spending money
38:12
Speaker 2: on fun stuff in Hour 2.