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Why the Fed’s Inflation Fight Just Got Harder · The Financial Exchange Show

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  Speaker 1: Exchange with Mike Armstrong and Mark Vandetti. Your exclusive look
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  Speaker 1: making a donation Today. Face is the Financial Exchange with
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  Speaker 1: Mike Armstrong and Mark.
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  Speaker 2: Vandetti, Good morning, Welcome back to the Financial Exchange. Hopefully
• 1:14
  Speaker 2: everybody's all geared up ready for the long weekend. Based
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  Speaker 2: on traffic patterns yesterday, it sounds like you all got to.
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  Speaker 3: Where you're going already.
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  Speaker 2: Markets are reacting positively to signals coming out of the
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  Speaker 2: White House that we may be progressing toward a deal
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  Speaker 2: with Iran. Action speak louder than words on that one.
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  Speaker 2: I've had the road pulled out from me a few
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  Speaker 2: too many times, so we will see. But oil prices
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  Speaker 2: back below one hundred dollars a barrel, though moving up
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  Speaker 2: slightly today to ninety seven dollars fifty cents.
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  Speaker 3: The yield and the.
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  Speaker 2: Ten year Treasury pretty flat for the day four point
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  Speaker 2: five eight percent. US equities here, we've got the Dow
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  Speaker 2: moving up two thirds of a percent three hundred twenty
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  Speaker 2: eight points s and P five hundred up forty one
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  Speaker 2: points half a percent in the Nasdaq also up about
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  Speaker 2: two thirds of a percent in early trading. This all
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  Speaker 2: comes back on the back of a not a crazy
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  Speaker 2: busy earnings week, but we did have Nvidia, and then
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  Speaker 2: we had a lot of retail earnings Walmart, Target TJX, companies,
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  Speaker 2: Home Depot, and Low's all reporting earnings this week, and
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  Speaker 2: I can't look at any of them and say they
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  Speaker 2: were received with massive fanfare. I think TJX might have
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  Speaker 2: had the best results of them. Target arguably had pretty
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  Speaker 2: good results as well. Walmart citing some concerns about their
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  Speaker 2: consumer facing higher gas prices and pulling back on spending,
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  Speaker 2: Home Depot and Well Lows maintained their guidance. Home Depot
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  Speaker 2: talked about a slow housing market impacting their sales and
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  Speaker 2: same store sales missing expectations. So overall, I'd say a
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  Speaker 2: you know, mixed bag in videos. Earnings as always, were
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  Speaker 2: incredible for any company out there normally, but for XPEC
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  Speaker 2: tations investors. For Nvidia not quite enough to ignite the
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  Speaker 2: stock upward, and was pretty flat after their earnings. So
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  Speaker 2: fairly busy week though, when it came to those companies
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  Speaker 2: and their earnings. Taking a look at gas prices, we're
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  Speaker 2: now sitting at four dollars fifty five cents per gallon
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  Speaker 2: according to trip La. That's up slightly from a month
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  Speaker 2: ago where we were sitting at four dollars even and
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  Speaker 2: has just continued pretty much in a straight line. Upwards
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  Speaker 2: since the outbreak of war in Iran thirty year fixed
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  Speaker 2: rate mortgage yesterday six and two thirds eight percent? Anything
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  Speaker 2: else catching your eye over the course of this week
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  Speaker 2: mark when it comes to markets.
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  Speaker 4: No, you know, there's so much to say about tech
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  Speaker 4: and the size that it's in terms of market capitalization,
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  Speaker 4: the proportion of the S and P five hundred, the
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  Speaker 4: leading index the for large cap stocks and a proxy
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  Speaker 4: for US stocks generally, tech is nearly forty percent of
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  Speaker 4: that benchmark. Now tech alone is almost the size of
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  Speaker 4: the US economy is measured by GDP. It's comparing stocks
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  Speaker 4: to flows. So I don't love doing that, no, but
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  Speaker 4: there are plenty of problems with that approach. But it's
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  Speaker 4: still pretty remarkable that not long ago people used to
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  Speaker 4: sound the alarm bell when the value of the stock
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  Speaker 4: market the total market capitalization exceeded GDP. Warren Buffett famously
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  Speaker 4: cited that as a measure of excessive investor exuberance. And
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  Speaker 4: now tech alone is nearly as big as the US
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  Speaker 4: I'm rounding up very generously there. It's just pretty remarkable
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  Speaker 4: how willing investors are to pay up for prospective tech earnings.
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  Speaker 2: And you know, we learned this week about one of
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  Speaker 2: the most fascinating IPOs that's likely to go off in
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  Speaker 2: Rice than a month now, SpaceX, which I don't think
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  Speaker 2: I would imagine will not be categorized under the technology
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  Speaker 2: sector given that it is much more of a defense
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  Speaker 2: industrial company, but nonetheless very tech focused and has an
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  Speaker 2: AI company folded into it. But most certainly if we
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  Speaker 2: see the IPOs of open Ai and Anthropic, which are
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  Speaker 2: both targeting trillion dollar market caps, then we we could
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  Speaker 2: have further concentration in that space. So yeah, it's a
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  Speaker 2: it's been an interesting week if anybody. If anybody's familiar
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  Speaker 2: with how IPOs traditionally work and how publicly traded companies
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  Speaker 2: traditionally operate and want to see something that's just pretty wild,
• 5:33
  Speaker 2: go look at the S one and all the filings
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  Speaker 2: and all the commentary on it for SpaceX's because it
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  Speaker 2: is it's so unique that it's requiring a bunch of
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  Speaker 2: you know, Nasdaq and SMP to completely rewrite the rules
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  Speaker 2: of how companies get listed into their indices because of
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  Speaker 2: the kind of strangeness of this specific IPO and how
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  Speaker 2: it's going to operate going forward. So pretty interesting stuff.
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  Speaker 2: Obviously going to Garner a lot of investor attention. Ask
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  Speaker 2: and his companies almost always do. In addition everything else,
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  Speaker 2: this week we got meeting minutes from the last Federal
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  Speaker 2: Reserve meeting, where as we knew, there is quite a
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  Speaker 2: bit of disagreement in terms of the direction of things.
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  Speaker 2: Generally speaking, the Fed kept interest rates where they were,
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  Speaker 2: and more members expressed concern over statements that interest rates
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  Speaker 2: would be coming down. They continued to express confusion and
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  Speaker 2: you know, I guess a lack of real firm grasp
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  Speaker 2: on what AI is going to do to inflation and
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  Speaker 2: interest rates, as well as big questions. I found this
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  Speaker 2: piece a little bit surprising that they had as much
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  Speaker 2: commentary on the private credit space as they did.
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  Speaker 3: Basically, you know, citing is a big.
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  Speaker 2: Risk to the economy, but acknowledging that they yeah, they should.
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  Speaker 4: Be, but speculating about the productivity enhancing characteristics of AI
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  Speaker 4: is is irresponsible. Which is ironic because Warsh has criticized
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  Speaker 4: the Fed for going off the rails and exceeding it's
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  Speaker 4: remit in so many other ways. He well, you know,
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  Speaker 4: go ahead, I'm sorry, let's no please. So the argument is, well,
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  Speaker 4: we can cut interest rates today because AI is going
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  Speaker 4: to be great. It's going to make us more productive,
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  Speaker 4: and that that'll keep wage growth lower. That'll reduce wage
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  Speaker 4: growth relative to productivity growth, which will keep inflation down.
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  Speaker 4: None of this has happened yet. It's entirely speculative. That
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  Speaker 4: may happen, although the fact that we're talking about it
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  Speaker 4: could result in people demanding higher See, the thing that
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  Speaker 4: was great about the late nineties is that people's wage
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  Speaker 4: demands were lower than the rate of productivity growth. That
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  Speaker 4: helped keep inflation down. There's a relationship between the two.
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  Speaker 4: Inflation is just the difference, if you want to think
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  Speaker 4: about it that way. The argument at the time was
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  Speaker 4: people didn't know any better, so wages weren't growing as
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  Speaker 4: fast as productivity because people were too timid because of
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  Speaker 4: the experience of the previous two decades when wage growth
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  Speaker 4: was modest, was relatively modest relative to the fifties and sixties.
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  Speaker 4: And also we didn't realize what was happening at the time,
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  Speaker 4: which was the latter was definitely true. We didn't realize
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  Speaker 4: productivity was increased, that the clip the growth rate of
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  Speaker 4: productivity had had gone up. But to argue in advance
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  Speaker 4: that not only will ai be successful. It will also
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  Speaker 4: you know, it's gonna roll out sort of on schedule,
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  Speaker 4: and it's imminent. Its benefits are imminent. People will benefit
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  Speaker 4: from it, will become more productive, and our wage demands
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  Speaker 4: will be tame. You could probably sense just from my
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  Speaker 4: little exposition there by a little much more of an explanation,
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  Speaker 4: I guess, or a description.
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  Speaker 2: Uh, it's mostly toiling.
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  Speaker 3: It's just your general attitude.
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  Speaker 4: It's your contemptuous, sarcastic, off putting demeanor that.
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  Speaker 3: Really drove the point home from me.
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  Speaker 4: No, but you know what I'm saying, like, you get,
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  Speaker 4: you get, you get, You get what I'm saying, Well,
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  Speaker 4: we're piling assumption on top of assumption. There warsh speak.
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  Speaker 4: I don't know if he's gonna actually behave this way.
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  Speaker 4: He's speaking recklessly and frankly like not like the non
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  Speaker 4: economist that he is.
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  Speaker 2: Frankly, Well, we will have to see, because he hasn't
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  Speaker 2: spoken in that way now for several months the nomination.
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  Speaker 4: We know what he thinks, we know what he said,
• 9:16
  Speaker 4: we know what it is, we.
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  Speaker 3: Know what he's said to get the job.
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  Speaker 2: I'm not willing to jump the conclusion that he genuinely
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  Speaker 2: believed cross Trump. I don't know, we'll find out, but
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  Speaker 2: I do pooh pooh the thinking that, hey, this technology
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  Speaker 2: that is still in development stage, that is visibly crowding
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  Speaker 2: out other spending and driving prices higher in this moment.
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  Speaker 2: Right we can theorize about what it might do in
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  Speaker 2: the future. But is there really any argument that the
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  Speaker 2: AI development boom that we are seeing right now is
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  Speaker 2: a major contributor to GDP, a major contributed to growth
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  Speaker 2: and driving up prices higher for things like computer hardware,
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  Speaker 2: cell phones, and other technology. There is no argument it's
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  Speaker 2: driving car prices higher, it's driving refrigerators higher, It's driving
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  Speaker 2: my cell phone price higher and my Apple laptop higher.
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  Speaker 2: Because now I'm competing for resources with these giant tech behemoths.
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  Speaker 2: I'm going to be competing for resources such as water
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  Speaker 2: and electricity with these guys now, and so there's a
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  Speaker 2: very clear argument to me that, hey, all else equal,
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  Speaker 2: the AI boom is crowding out other spending and driving
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  Speaker 2: up prices higher. Maybe someday it can bring prices lower
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  Speaker 2: because of productivity, but for right now, there's really only
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  Speaker 2: one argument, which is it's driving up spending, driving up prices.
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  Speaker 4: Yeah, and if it does push up economic growth. Then
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  Speaker 4: I'm willing to admit that it could. That would call
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  Speaker 4: for higher, not lower, real short term interest rates because
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  Speaker 4: of increase for reasons similar to those that you were
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  Speaker 4: just explaining. It increases the demand for investment, basically to
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  Speaker 4: finance all this stuff.
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  Speaker 2: Clear, it did increase growth, right, I don't know, did it?
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  Speaker 2: I mean eight contribution Q one GDP and.
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  Speaker 4: The investment part of it. I'm sorry I'm talking.
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  Speaker 3: About I'm not saying.
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  Speaker 2: I'm not saying it changed the trend line for growth,
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  Speaker 2: but in the most recent quarter, it was a major
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  Speaker 2: contributor to growth. Well, let's say a quick break when
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  Speaker 2: we come back, playing a little bit of trivia here
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• 13:16
  Speaker 2: The Wall Street Journal today wants you to know that
• 13:18
  Speaker 2: you're probably over invested in bonds.
• 13:22
  Speaker 3: Mark.
• 13:22
  Speaker 2: That's that's the headline from Actually it's yesterday's Wall Street Journal,
• 13:27
  Speaker 2: and the author's quoted say most financial advisors tell their clients.
• 13:31
  Speaker 3: To hold a sixty forty portfolio. I don't know if
• 13:34
  Speaker 3: that's true.
• 13:35
  Speaker 2: I haven't seen much evidence of that personally, but it's
• 13:38
  Speaker 2: basically a criticism of the sixty forty, which I think
• 13:42
  Speaker 2: is a reasonable criticism to make.
• 13:44
  Speaker 3: I don't think people should go into this blindly.
• 13:47
  Speaker 2: And I'll also argue that for many folks that you
• 13:51
  Speaker 2: know invest in their four oh one k's, for example,
• 13:54
  Speaker 2: you could make a compelling argument that the target date
• 13:57
  Speaker 2: retirement funds out there get overly conservative in some cases.
• 14:03
  Speaker 2: I'm looking right now at some of the you know,
• 14:05
  Speaker 2: some of the retirement income funds out there that are
• 14:07
  Speaker 2: designed for somebody that retired like last year, and pretty
• 14:11
  Speaker 2: much universally they have fifty percent of their portfolios in
• 14:15
  Speaker 2: the bond market. So I guess one, I'm comfortable saying
• 14:20
  Speaker 2: that this might be the exact wrong time to write
• 14:22
  Speaker 2: this article, given where equity markets have gone over the
• 14:25
  Speaker 2: last several years. So very much reader beware on this
• 14:28
  Speaker 2: sort of thing. But when it comes to assessing the
• 14:34
  Speaker 2: right portfolio allocation, I don't know, maybe maybe I should
• 14:37
  Speaker 2: be talking about this and not you, But I mean,
• 14:39
  Speaker 2: you've worked in many scenarios when it comes to institutional investors,
• 14:45
  Speaker 2: individual investors. I mean, what's the approach that gets taken,
• 14:49
  Speaker 2: because I do think that very often, especially individuals who
• 14:53
  Speaker 2: blindly choose a target allocation or you know, have heard
• 14:58
  Speaker 2: the term sixty forty, we'll just, you know, blindly say well,
• 15:01
  Speaker 2: i'm older now it's time to be more conservative.
• 15:03
  Speaker 4: It's it's a math problem. What's your required return?
• 15:07
  Speaker 3: You do the as a.
• 15:11
  Speaker 4: As a renowned financial planner, Mike Armstrong, who we're talking about,
• 15:15
  Speaker 4: you do, Charles Schwab, they have an office next door's
• 15:20
  Speaker 4: pointy next door. You do the tough part, which is
• 15:24
  Speaker 4: getting people to think about the lifestyle they want to
• 15:27
  Speaker 4: live and what that is going to cost. The rest
• 15:30
  Speaker 4: is easier not easy easier. It's a math problem. There's
• 15:35
  Speaker 4: this gap between social security, pension and the lifestyle you
• 15:38
  Speaker 4: want to live. Maybe that gap is twenty thousand, maybe
• 15:40
  Speaker 4: it's one hundred thousand.
• 15:41
  Speaker 3: It depends.
• 15:42
  Speaker 4: You know, it's all over the place, right, Yep, that's
• 15:44
  Speaker 4: going to come from your assets. Okay, great, we've pinned
• 15:46
  Speaker 4: down specifics. Now what do you need to retire with
• 15:50
  Speaker 4: to generate Maybe in the form of annuity in annuity,
• 15:53
  Speaker 4: maybe just in the form of a withdrawal, sure enough
• 15:55
  Speaker 4: to cover that gap that in turn dictates your investment strategy.
• 15:59
  Speaker 4: No plan and are worth their opposing is he's a
• 16:04
  Speaker 4: sort of illuminary. He knows what he's talking about. He's
• 16:06
  Speaker 4: oversimplifying here. Nobody would prescribe as sixty forty and eighty
• 16:10
  Speaker 4: twenty and I speak in terms of stocks relative to
• 16:13
  Speaker 4: bonds portfolio. A financial planner or even advisor would base
• 16:18
  Speaker 4: their equity to bond allocation on your required return.
• 16:23
  Speaker 2: Yeah, here's the real work you need to do if
• 16:27
  Speaker 2: you're going to handle this on your own. It's mapping
• 16:30
  Speaker 2: out your needs. Hey, people ask all the time, like, well,
• 16:36
  Speaker 2: you know, I'm sixty five now, so what's the right
• 16:39
  Speaker 2: allocation there isn't one. There isn't a right allocation for you,
• 16:42
  Speaker 2: just plan and simple. There isn't one. You start by
• 16:45
  Speaker 2: mapping out your needs, right. So, yeah, I'm gonna retire
• 16:47
  Speaker 2: in two years. I'm not planning on taking so security
• 16:50
  Speaker 2: until seventy. And this is how much I estimate I'm
• 16:54
  Speaker 2: going to need to spend in retirement to get a
• 16:56
  Speaker 2: framework for what does the next five to ten years
• 16:58
  Speaker 2: look like?
• 16:58
  Speaker 3: Because if you if you approach the markets.
• 17:01
  Speaker 2: As a random walk, right, like I think over the
• 17:05
  Speaker 2: next thirty years it might average this, but I don't
• 17:07
  Speaker 2: know what the sequence is going to be, and it
• 17:09
  Speaker 2: could be down in any single year or any single decade.
• 17:13
  Speaker 2: Then you then you approach it with Okay, this is
• 17:15
  Speaker 2: going to be random, and how do I set up
• 17:17
  Speaker 2: my portfolioby about random?
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  Speaker 4: Random walk? Is my best guess of tomorrow is today.
• 17:22
  Speaker 4: That's the simplest way to think about it. Most people,
• 17:25
  Speaker 4: I think, assume that stocks are going to do over
• 17:27
  Speaker 4: the next thirty what they did over the last thirty.
• 17:29
  Speaker 4: Maybe a little bit of a haircut because the last
• 17:31
  Speaker 4: thirty have been extraordinary. Maybe pe multiples that we sometimes
• 17:34
  Speaker 4: talk about won't continue to grow, So maybe it's not thirteen,
• 17:38
  Speaker 4: Maybe it's nine. Right long term return from equities, that's
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  Speaker 4: your say, say that's your starting point.
• 17:44
  Speaker 2: If you are getting a what feels like a standard,
• 17:49
  Speaker 2: cookie cutter approach to your investment portfolio, maybe that's because
• 17:53
  Speaker 2: you're doing it on your own and self selecting. Maybe
• 17:56
  Speaker 2: it's because it seems cookie cutter. That's not the way
• 17:59
  Speaker 2: it should be. A spec actually as your approach retirement.
• 18:01
  Speaker 2: If you want something custom, if you want to work
• 18:03
  Speaker 2: with a professional, call Armstrong eight hundred three nine three
• 18:06
  Speaker 2: for zero zero one will help guide you to the
• 18:09
  Speaker 2: right strategy eight hundred three to nine three for zero
• 18:12
  Speaker 2: zero one.
• 18:13
  Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
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  Speaker 1: registered investment advisor. Nothing in the ad or in any
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  Speaker 1: Armstrong guide a specific financial, legal, or tax advice. Consult
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  Speaker 1: your own financial tax into state planning advisors before making
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  Speaker 1: any investment decisions. Armstrong make contact you to offer investment
• 18:27
  Speaker 1: advisory services.
• 18:29
  Speaker 3: Go ahead, Mary, can I refine a point I was
• 18:31
  Speaker 3: making earlier.
• 18:31
  Speaker 4: For some people, one hundred percent equities might be an
• 18:34
  Speaker 4: appropriate or necessary portfolio. Now of an academic would say
• 18:38
  Speaker 4: you should never have one hundred percent equities. There should
• 18:41
  Speaker 4: always be something in there to buffet the extreme moves
• 18:45
  Speaker 4: in equity. You need some kind of diversifier. But for
• 18:48
  Speaker 4: someone with a long enough time frame and who also
• 18:51
  Speaker 4: shares in the optimistic idea that stocks will return over
• 18:55
  Speaker 4: the long poll something in the say the high single digits,
• 18:58
  Speaker 4: maybe low double digits, that to me seems a little
• 19:02
  Speaker 4: overly optimistic, But so for some people that might be appropriate,
• 19:05
  Speaker 4: And that might be appropriate for some people in their
• 19:06
  Speaker 4: fifties or sixties if they don't think they're gonna need
• 19:08
  Speaker 4: the money or they want to leave it as a
• 19:10
  Speaker 4: bequest in thirty or forty years. Like you said, Mike,
• 19:13
  Speaker 4: it's really situation.
• 19:15
  Speaker 2: If you're doing it right, then there should be some
• 19:17
  Speaker 2: ninety year olds who are more aggressive than some sixty
• 19:20
  Speaker 2: year olds. It's just like the nature of how this
• 19:22
  Speaker 2: should work, and oftentimes we let age guide too much.
• 19:26
  Speaker 3: Quick Break Wall Street Watch is coming up.
• 19:28
  Speaker 1: Next, bringing the latest financial news straight to your radio.
• 19:44
  Speaker 1: Every day. It's the Financial Exchange on the Financial Exchange
• 19:47
  Speaker 1: Radio Network. Till out full Wall Street Watch treking the stocks,
• 19:53
  Speaker 1: the data, and the headlines driving markets so far today
• 19:57
  Speaker 1: right here on the Financial Exchange Radio Network.
• 20:00
  Speaker 5: Kits are building on their gains, where the SMP five
• 20:02
  Speaker 5: hundred is on pace for its longest streak of weekly
• 20:05
  Speaker 5: gained since December of twenty twenty three. Right now, the
• 20:10
  Speaker 5: dows up over eight tens of a percent, or four
• 20:12
  Speaker 5: hundred and nineteen points, SMP five hundred up two thirds
• 20:16
  Speaker 5: of a percent. Nasdaq also up about two thirds of
• 20:19
  Speaker 5: a percent, or one hundred and seventy six points of
• 20:21
  Speaker 5: RUS two thousand up two thirds of a percent. Tenure
• 20:25
  Speaker 5: treasure reeled is flat at four point five seven percent,
• 20:28
  Speaker 5: and Oil up about one and a half percent higher,
• 20:30
  Speaker 5: trading right around ninety seven dollars a barrow. According to
• 20:34
  Speaker 5: the Wall Street Journal, premium movie theater Imax is exploring
• 20:37
  Speaker 5: a sale and has approached entertainment companies as potential buyers.
• 20:41
  Speaker 5: Imax shares are up nearly fifteen percent now. Meanwhile, Workday
• 20:45
  Speaker 5: shares are climbing four percent after the finance and hr
• 20:48
  Speaker 5: software company reported stronger than expected results and raised its
• 20:52
  Speaker 5: full year margin outlook. Elsewhere, Zoom stock is rallying nearly
• 20:57
  Speaker 5: twelve percent after the video conferencing company posted better than
• 21:01
  Speaker 5: expected earning ZAM revenue in the previous quarter. Zoom also
• 21:05
  Speaker 5: increases stock repurchase authorization by one billion dollars, and SDA
• 21:10
  Speaker 5: Lauder and Pleev said they have terminated discussions of a
• 21:15
  Speaker 5: potential merger. S Day Latter said it will instead remain
• 21:18
  Speaker 5: focused on its ongoing turnaround. Sjay Latter shares are up
• 21:22
  Speaker 5: nearly eleven percent on that news. I'm Tucker Silvan. That
• 21:28
  Speaker 5: is Wall Street Watch, and in the previous segment we
• 21:31
  Speaker 5: asked you the trivia question what year did Memorial Day
• 21:34
  Speaker 5: become a federal holiday? That'll be nineteen seventy one and
• 21:38
  Speaker 5: Tom from Erie, Pennsylvania is our winner today taking on
• 21:42
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• 21:45
  Speaker 5: we play trivia every day here on the Financial Exchange.
• 21:49
  Speaker 5: See complete contest rules at Financial Exchange Show dot com.
• 21:53
  Speaker 2: Uh Mark Blame AI for the strange death of dividends
• 21:59
  Speaker 2: is the piece from the Wall Street Journal today, and
• 22:03
  Speaker 2: while technically right, I'm not sure that it's really helpful
• 22:07
  Speaker 2: for explaining things. So what it's pointing out is that
• 22:10
  Speaker 2: as the S and P five hundred has gotten more
• 22:12
  Speaker 2: and more pricey, the dividend rate has naturally fallen. Many
• 22:18
  Speaker 2: of the tech companies that have been bid up either
• 22:20
  Speaker 2: don't pay a dividend or pay a very small dividend,
• 22:24
  Speaker 2: and the dividend rate on the S and P five
• 22:26
  Speaker 2: hundred is just a calculation how much of it do
• 22:29
  Speaker 2: you pay out versus the price on the S and
• 22:32
  Speaker 2: P five hundred. So naturally, if it keeps hitting new
• 22:34
  Speaker 2: all time highs, it's going to get lower. That's one
• 22:36
  Speaker 2: of the things that we actually look at as a
• 22:38
  Speaker 2: valuation metric is what is the dividend rate on the
• 22:40
  Speaker 2: S and P five hundred, Because.
• 22:41
  Speaker 4: It's because it's money in the bank, it's it's real.
• 22:43
  Speaker 4: It's like free cash flow, the ultimate form of free
• 22:46
  Speaker 4: cash flow.
• 22:46
  Speaker 2: Right. So, yes, you can blame the run up of
• 22:48
  Speaker 2: tech stocks and AI specifically as part of the reason
• 22:51
  Speaker 2: that's happened, but it doesn't mean that there aren't companies
• 22:54
  Speaker 2: out there that still pay a very hefty dividend. And
• 22:57
  Speaker 2: if you go looking, yeah, you can find all sorts
• 22:59
  Speaker 2: of companies that are paying five, six, seven plus percent
• 23:02
  Speaker 2: in dividend rates, if that's what you are trying to accomplish.
• 23:06
  Speaker 2: I think the other part though, that's of interest to me,
• 23:09
  Speaker 2: is that the idea of dividend investing, which was very
• 23:13
  Speaker 2: popular for quite some time, has in my mind, really
• 23:17
  Speaker 2: fallen by the wayside and has dramatically really underperformed, and
• 23:22
  Speaker 2: whether you want to use a proxy like value investing
• 23:24
  Speaker 2: versus growth investing or dividend investing as a real push,
• 23:28
  Speaker 2: I mean, underperformed during the twenty tens decade, has dramatically
• 23:33
  Speaker 2: underperformed in the twenty twenties decade. And while I think
• 23:37
  Speaker 2: we'll probably you know, have its moment in the sun. Again,
• 23:41
  Speaker 2: it's not a new phenomenon. This has been you know,
• 23:44
  Speaker 2: problematic form and use a.
• 23:45
  Speaker 4: Nail on the head. High dividend payers tend to be
• 23:50
  Speaker 4: lower price relative to book value, which makes them more
• 23:52
  Speaker 4: VALUEI ish, as opposed to growth when where again, the
• 23:56
  Speaker 4: dividing line there is based on price took. That's how
• 24:00
  Speaker 4: the major indices categorize value versus growth and blend. I
• 24:06
  Speaker 4: think they all they all use something along those lines.
• 24:09
  Speaker 4: Dividend payers not unrelated to that, they tend to be
• 24:13
  Speaker 4: smaller and which comes so you keep those two characteristics
• 24:18
  Speaker 4: of high dividend payers in mind. They tend to be
• 24:20
  Speaker 4: closer to value on the value to growth spectrum, and
• 24:23
  Speaker 4: they tend to be smaller on the small to large
• 24:25
  Speaker 4: cap spectrum. That explains why they've in a relative sense underperformed.
• 24:31
  Speaker 4: The story of the last fifteen years has been large
• 24:33
  Speaker 4: gap growth companies.
• 24:34
  Speaker 3: I would be interested.
• 24:35
  Speaker 2: I don't know the answer to this, but I would
• 24:38
  Speaker 2: have to guess that you got to go back a
• 24:40
  Speaker 2: good twenty plus years to find a five year time
• 24:44
  Speaker 2: period where value Actually.
• 24:45
  Speaker 4: Yeah, the twenty tens were such a period. For example,
• 24:49
  Speaker 4: that two thousand, two thousands, Right, I just said.
• 24:52
  Speaker 2: Yeah, you'd have to find a time where that was
• 24:54
  Speaker 2: defined by tremendous tech failure in the stock market, bubble
• 25:00
  Speaker 2: value our perform, So yeah, I would imagine that was
• 25:02
  Speaker 2: the only time period. This is just this just goes
• 25:06
  Speaker 2: back to one of my common concerns about the markets
• 25:09
  Speaker 2: is we are now so far removed from the last
• 25:12
  Speaker 2: time we had a real market, a real prolonged market downturn, which,
• 25:16
  Speaker 2: by the way, Wash eight was the last time we
• 25:18
  Speaker 2: had one. You've had plenty of market downturns since then,
• 25:21
  Speaker 2: but none of which I can define as prolonged. None
• 25:24
  Speaker 2: of them have lasted more than a few months. And
• 25:27
  Speaker 2: so there's an entire generation of investors now who have
• 25:29
  Speaker 2: no idea what.
• 25:30
  Speaker 3: It's like to go through a three year market pullback.
• 25:33
  Speaker 2: And my personal opinion is we will have one again
• 25:38
  Speaker 2: at some point. The idea of a market pullback that's
• 25:42
  Speaker 2: so severe that it takes two, three, four or five
• 25:45
  Speaker 2: years to come back from that idea is not dead.
• 25:49
  Speaker 2: It's going to happen again someday. And it's been now
• 25:53
  Speaker 2: seventeen years since we've had it, so I'll be interested
• 25:56
  Speaker 2: to see how people are.
• 25:57
  Speaker 3: You know.
• 25:57
  Speaker 4: The interesting thing is, Mike, go back ten years from
• 26:01
  Speaker 4: today and look at the performance of the Russell one,
• 26:03
  Speaker 4: which is mostly large cap, but the Russell one is
• 26:07
  Speaker 4: the Russell one.
• 26:08
  Speaker 3: Thousand, so it goes so like double the more or less.
• 26:11
  Speaker 4: Yeah, yeah, sure is a rule for sure, close enough,
• 26:15
  Speaker 4: it's technically the one thousand biggest value. I'm gonna look
• 26:18
  Speaker 4: at value and growth. As of ten years ago, the
• 26:21
  Speaker 4: case for value investing was a lot stronger. The long
• 26:24
  Speaker 4: term case a dollar invested, Well, I'll just use percentages
• 26:29
  Speaker 4: a dollar. I said, all these percentages, and I start
• 26:34
  Speaker 4: talking to dollars again. Starting from an investment period starting
• 26:37
  Speaker 4: in nineteen seventy nine through twenty sixteen, money invested in
• 26:41
  Speaker 4: a value strategy would have grown by nearly seven thousand
• 26:44
  Speaker 4: percent versus a growth strategy. The Russell one value that
• 26:48
  Speaker 4: is versus Russell one growth. The percentage gain over the
• 26:53
  Speaker 4: same period is forty eight hundred percent, So value for
• 26:58
  Speaker 4: a and this is the reason why many active managers
• 27:02
  Speaker 4: employ a value or a growth at a reasonable price
• 27:06
  Speaker 4: type approach. They're looking for things trading for not necessarily pennies,
• 27:13
  Speaker 4: but maybe dimes and quarters on the dollar. And for
• 27:16
  Speaker 4: a long time, value outperformed growth. It's only recently.
• 27:20
  Speaker 3: It's the definition. It's the definition of would think you.
• 27:24
  Speaker 4: Would describe himself that way, but it's yeah, well he's
• 27:28
  Speaker 4: a body, he's a bottom up front, but he'd buy
• 27:29
  Speaker 4: growth companies too though. Sure, But yeah, in the sense
• 27:33
  Speaker 4: that he's looking for things that the market isn't properly valuing.
• 27:37
  Speaker 4: They may not be a so called value company strictly
• 27:40
  Speaker 4: defined in a price to book sense, but for a
• 27:42
  Speaker 4: long time, uh, value stocks outperformed over a long time frame,
• 27:49
  Speaker 4: growth stocks, it wasn't even close.
• 27:51
  Speaker 2: Yeah, let's take a quick break. When we come back.
• 27:54
  Speaker 2: Paula Monica from Barons joining us next to talk about one. Yeah,
• 28:00
  Speaker 2: completely underappreciated area of the market. That's next here on
• 28:03
  Speaker 2: the Financial Exchange.
• 28:04
  Speaker 1: Subscribe now to our YouTube page, where you'll find daily
• 28:07
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• 28:10
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• 28:13
  Speaker 1: missed right here on the Financial Exchange. Follow the Financial
• 28:18
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• 28:21
  Speaker 1: about Wall Street and economic trends. This is the Financial
• 28:25
  Speaker 1: Exchange Radio Network, Ladies and gentlemen the weekend.
• 28:40
  Speaker 2: Joining us now is Paul Lamonica from Baron's Paul Any
• 28:44
  Speaker 2: big plans for the I'm not sure about New York,
• 28:47
  Speaker 2: but up here it's like a high of sixty this
• 28:49
  Speaker 2: weekend and a fair bit of rain. Any giant plans
• 28:52
  Speaker 2: for the Mortal Day weekend?
• 28:54
  Speaker 6: Yeah, my younger son has a baseball tournament locally, so
• 28:59
  Speaker 6: it'll be a lot of fun pr fitting Memorial Day
• 29:02
  Speaker 6: outdoors in the cold and rain. That's what you that's
• 29:06
  Speaker 6: what you want in late.
• 29:07
  Speaker 2: May, definitely, Paul, in a market a wash with AI infatuation.
• 29:13
  Speaker 2: You found an area that well, as far as I know,
• 29:17
  Speaker 2: has nothing to do with it, but is benefiting this
• 29:20
  Speaker 2: year in the market. Billboard advertising having their moment in
• 29:26
  Speaker 2: the sun right now in spite of dollars going to
• 29:30
  Speaker 2: social media advertising, and you know, hints that AI may
• 29:34
  Speaker 2: begin advertising in their own models, Yet billboards.
• 29:38
  Speaker 3: Are shining here.
• 29:40
  Speaker 2: What's going on with the likes of Lamar and Outfront Media,
• 29:43
  Speaker 2: who I believe own pretty much all of the billboards
• 29:47
  Speaker 2: in this country these days.
• 29:48
  Speaker 6: They own a majority of them, definitely. But yeah, Lamar
• 29:52
  Speaker 6: and out Front are interesting companies, a little bit of
• 29:57
  Speaker 6: a different dynamic. Outfront, in addition in the billboards, is
• 30:01
  Speaker 6: also a major player in transit advertising, so buses and
• 30:07
  Speaker 6: subways and other trains. But what's fascinating about these two
• 30:13
  Speaker 6: companies is that I think a lot of advertisers recognize
• 30:20
  Speaker 6: that you don't necessarily have as many options as you know,
• 30:26
  Speaker 6: a consumer of these ads if you will to skip
• 30:31
  Speaker 6: the ads in the way that you would h with
• 30:34
  Speaker 6: a DVR when watching television or you know, tuning things out,
• 30:40
  Speaker 6: you know, in other ways, these are giant advertisements that
• 30:44
  Speaker 6: are staring down at you as you drive or as
• 30:48
  Speaker 6: your driverless car drives and you're hopefully still looking up
• 30:52
  Speaker 6: at the road. Uh. It's going to be interesting to
• 30:56
  Speaker 6: see because you know, revenue growth is expected to be
• 30:59
  Speaker 6: very solid, about five to eight percent for these two
• 31:03
  Speaker 6: companies this year, and in the case of out Front,
• 31:09
  Speaker 6: because of some of the efforts they're making to increase
• 31:13
  Speaker 6: their digital advertising and transit agencies. You know, they're more relevant,
• 31:18
  Speaker 6: you know, kind of getting more advertisements out there and
• 31:22
  Speaker 6: can boost revenue that way because they are able to
• 31:25
  Speaker 6: serve more ads than they would have in a more
• 31:29
  Speaker 6: static world, if you will.
• 31:30
  Speaker 2: What does this look like going into I mean, it's
• 31:33
  Speaker 2: you know, midterm election season. I tend to think of
• 31:37
  Speaker 2: television advertising when I go there. But is that a
• 31:39
  Speaker 2: big is that a big year of business for them?
• 31:43
  Speaker 1: That is?
• 31:44
  Speaker 6: And what's interesting is that Lamar's CEO said in the
• 31:48
  Speaker 6: company's most earnings conference call just a few weeks ago
• 31:51
  Speaker 6: that they're actually seeing trends in this year's election cycle,
• 31:58
  Speaker 6: even though it's a midterm not presidential election, that are
• 32:02
  Speaker 6: outpacing where they were in twenty twenty four. So I
• 32:07
  Speaker 6: think there is this sense that, you know, what could
• 32:11
  Speaker 6: be a very contentious election cycle with a lot of
• 32:15
  Speaker 6: people wondering whether or not there's going to be you know,
• 32:18
  Speaker 6: a big shift in Washington, you know, with Democrats potentially
• 32:22
  Speaker 6: gaining you know, more seats in the House and Senate.
• 32:25
  Speaker 6: How Republicans respond to that. You could have a lot
• 32:29
  Speaker 6: of people stepping up their advertising which could include billboards
• 32:34
  Speaker 6: and transit ads as well.
• 32:36
  Speaker 2: What else could be a catalyst here? I obviously think
• 32:38
  Speaker 2: about the return to office. You know, maybe public transit
• 32:41
  Speaker 2: is going to finally become a little bit busier than
• 32:43
  Speaker 2: it has been for the last five or six years.
• 32:47
  Speaker 2: I know, both of them don't have exposure there, But
• 32:49
  Speaker 2: what are other catalysts that analysts are talking about when
• 32:51
  Speaker 2: it comes to these two.
• 32:53
  Speaker 6: Yeah, the return to office, definitely, I think is a catalyst.
• 32:56
  Speaker 6: Out Front has already said that they're seeing very strong growth,
• 33:03
  Speaker 6: particularly with the New York City's MTA, so you know
• 33:07
  Speaker 6: a lot of people I think are taking trains, buses,
• 33:10
  Speaker 6: subways back into the offices in Manhattan again, so that's
• 33:15
  Speaker 6: something that should help them. But you know, I think
• 33:19
  Speaker 6: in the case of both companies, you for all of
• 33:23
  Speaker 6: the worries about rising inflation and how that's impacting the
• 33:29
  Speaker 6: broader economy, the job market has held up relatively well.
• 33:34
  Speaker 6: So if consumers are still working and driving, you know,
• 33:39
  Speaker 6: even with fears of higher gas prices because of what's
• 33:42
  Speaker 6: happened to oil, you know, due to the conflict in Iran,
• 33:46
  Speaker 6: people on the roads, you know, for business or leisure travel,
• 33:51
  Speaker 6: that helps drive more eyeballs looking at these giant billboards.
• 33:55
  Speaker 2: Well, thank you, Paul. This has been refreshing. After a
• 33:58
  Speaker 2: week of talking pretty much exclusively gasoline, artificial intelligence, and SpaceX.
• 34:03
  Speaker 2: To hear about a traditional media company doing fairly well
• 34:06
  Speaker 2: at the moment is fascinating.
• 34:08
  Speaker 3: Paul, thanks so much for joining us. Appreciate it and
• 34:10
  Speaker 3: we'll talk to you next week.
• 34:11
  Speaker 6: Thanks a lone. I have a good long weekend.
• 34:13
  Speaker 2: Guess time for a bit of stack ru lette here
• 34:16
  Speaker 2: on the Financial Exchange.
• 34:17
  Speaker 3: Mark want to kick us off here.
• 34:19
  Speaker 4: Yeah, we're about to have a new FED chairman. As
• 34:21
  Speaker 4: soon as the President wraps up his remarks, he's been
• 34:24
  Speaker 4: talking for several minutes now he'll swear. I think he's
• 34:27
  Speaker 4: going to personally swear warsh in, we'll have new FED leadership.
• 34:32
  Speaker 4: Comes at a perilous time, Mike to say the least
• 34:34
  Speaker 4: inflation increased by one point five percentage points in the
• 34:38
  Speaker 4: last couple of months. That's cumulative now, and that's just
• 34:41
  Speaker 4: in two months. There's more to come. It's inevitable as
• 34:44
  Speaker 4: rising oil prices make their way through the economy. The
• 34:48
  Speaker 4: Fed's compromised. It's been compromised due to political pressure. So
• 34:52
  Speaker 4: the burden is on Warsh to prove that he can
• 34:55
  Speaker 4: stand up to the recent inflationary burst. The FED always
• 34:58
  Speaker 4: has a choice. It can either accommodate yep the surge.
• 35:01
  Speaker 4: It chose to do that for part of the early
• 35:05
  Speaker 4: part of the COVID surge. That ended up being a mistake.
• 35:07
  Speaker 4: If the Fed doesn't act quickly, inflation can become entrenched.
• 35:11
  Speaker 4: We learned today inflation expectations shot up last month. Whether
• 35:15
  Speaker 4: you look at one year ahead or five year ahead,
• 35:18
  Speaker 4: people don't expect anything close to the Fed's long term
• 35:21
  Speaker 4: goal of two percent. So Worsh would have his work
• 35:24
  Speaker 4: cut out for him, even without all the political pressure
• 35:27
  Speaker 4: and the credibility baggage that he brings into him as
• 35:31
  Speaker 4: a result of the way the President conducted this process.
• 35:35
  Speaker 2: Yeah, I mentioned this earlier in this week. But Worsh
• 35:40
  Speaker 2: is gonna have a challenge he needs to build. In
• 35:42
  Speaker 2: my mind, at least, he needs to build credibility with
• 35:45
  Speaker 2: three constituents. One is the president unless he just wants
• 35:50
  Speaker 2: to be yelled at for the next several years. Two
• 35:54
  Speaker 2: is the general public. He needs to convince the public
• 35:56
  Speaker 2: that they are going to be able to control inflation
• 35:58
  Speaker 2: and bring price increases to a reasonable rate, and he
• 36:01
  Speaker 2: needs to build credibility with the rest of the voting
• 36:04
  Speaker 2: members of the FED. And I'm not sure how you
• 36:08
  Speaker 2: can manage to build that credibility with all three at
• 36:11
  Speaker 2: the same.
• 36:11
  Speaker 4: Well, the only thing that matters is number two.
• 36:13
  Speaker 2: There.
• 36:13
  Speaker 4: If he is viewed as a credible inflation fighter, everyone
• 36:16
  Speaker 4: will follow along with him. The president. He'll continue to
• 36:19
  Speaker 4: carp from the side. He wants lower rates, that's clear.
• 36:22
  Speaker 4: He's hopeless, but he needs to convince you and me
• 36:25
  Speaker 4: and everybody listening that he will fight inflation at the
• 36:30
  Speaker 4: expense of some economic growth. I'm not sure people are
• 36:33
  Speaker 4: ready for that trade off. That's a slightly different question.
• 36:36
  Speaker 3: Yeah.
• 36:37
  Speaker 2: I think all of this is going to make for
• 36:38
  Speaker 2: one of the most interesting press conferences that we've had
• 36:41
  Speaker 2: in a while. Yeah, yeah, I do. I think it
• 36:45
  Speaker 2: will be fascinating. I'm going to try and block my
• 36:47
  Speaker 2: calendar to make sure that i can watch it, because again,
• 36:51
  Speaker 2: there are a lot of members of that FED right
• 36:55
  Speaker 2: now that seem very suspicious of his motive and his
• 37:01
  Speaker 2: opinion on things, and so I'll be fascinated to hear
• 37:03
  Speaker 2: what he has to see.
• 37:04
  Speaker 4: We're getting a little preview of it right here. The
• 37:05
  Speaker 4: president's been talking for like ten minutes. This guy should
• 37:08
  Speaker 4: have been he should have been sworn in and at
• 37:09
  Speaker 4: lunch with the rest of the FOMC like seven minutes ago.
• 37:13
  Speaker 4: So this is this is going to be really interesting.
• 37:15
  Speaker 3: Real quickly. My item for Stacriulette here before we go. Weird.
• 37:20
  Speaker 2: ETFs just keep getting weirder at ETFs used to be
• 37:24
  Speaker 2: just a low cost way of index investing. Primarily these days,
• 37:28
  Speaker 2: you can buy darn near an ETF to accomplish any
• 37:33
  Speaker 2: goal of yours, including a new one that was launched
• 37:36
  Speaker 2: recently by Tuttle Capital. It's the UFO Disclosure ETF. That
• 37:42
  Speaker 2: is specifically a fund that seeks to buy stocks that
• 37:46
  Speaker 2: could benefit from government disclosure, confirmation or exploitation of advanced
• 37:53
  Speaker 2: technologies related to non human intelligence. So's it's the X
• 38:00
  Speaker 2: files et F, I suppose, and you can actually invest
• 38:03
  Speaker 2: on that, and believe it or not, he's got two
• 38:05
  Speaker 2: million dollars in the fund, according to according to Wall
• 38:08
  Speaker 2: Street Journal, We've got to take a quick break for
• 38:10
  Speaker 2: the rest of the day, have a great long weekend.
• 38:12
  Speaker 2: Happenedmorial Day, and we will see you on Tuesday.
• 38:15
  Speaker 3: Right back here,