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Buy or Rent? Falling mortgage rates are changing the math · The Financial Exchange Show

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Today is the Financial Exchange with Mike Armstrong and Paul Lane.
1:14
Speaker 2: Good morning and welcome back to the Financial Exchange. As
1:18
we open up the eleven o'clock our markets remain in
1:21
strongly negative territory here. We've got the Dow Jones off
1:25
two hundred and seventy six points, about two thirds of
1:27
one percent, the S and P off sixty eight points,
1:30
a little bit more than one percent, Nazdak off nearly
1:32
three hundred and fifty points about one point nine percent.
1:36
In early trading, breaking news from Wall Street Journal, White
1:40
House says around missile attack on Israel is imminent, likely
1:45
contributing to some of what we are seeing in equity
1:47
markets today that increased tension in the Middle East.
1:51
Speaker 3: So we will not exactly.
1:53
Speaker 2: Our area of expertise, but keep your praise to any
1:56
breaking news on that front. This morning at ten am,
2:00
we had a number of different economic indicators released. One
2:03
was the ISM Manufacturing Survey. This is a survey of
2:07
managers across American manufacturing companies. That rating came in at
2:13
forty seven point two percent, similar reading to what we
2:17
saw previous month and generally quite bad. Is how I
2:23
would describe the results of that survey. Anything below fifty
2:26
is considered to be manufacturing in contraction. It was a
2:30
surprise last month it was expected to improve, did not
2:33
improve in the most recent reading here. The area that
2:37
we did see some improvement was the job opening's numbers.
2:41
In terms of those you saw eight million jobs open.
2:45
That was an improvement from expectations and an improvement from
2:48
the previous month. This is looking at how many total
2:51
jobs there were open on the last business day of
2:53
August of this year. So obviously it can change and
2:56
probably did change with the looming threat of the dock
3:01
workers strike and the Boeing strikes, but nonetheless a big
3:04
improvement on expectations here from that job openings number. And
3:08
we will get the job's report on Friday of this week.
3:12
That's where we will get the unemployment rate, among other factors.
3:16
To consider the likelihood now of a rate cut at
3:20
the next meeting for the Federal Reserve, which occurs on
3:22
November seventh this year, there is currently a sixty percent
3:27
chance of only a quarter percent cut at that meeting.
3:30
That is down or up pretty considerably from where we
3:35
were previously, where just a week ago it was almost
3:38
reversed in terms of expecting a fifty basis point cut
3:42
at that next meeting, which Federal Reserve officials and others
3:45
have pretty much done away with at this point. In
3:49
terms of what else might be moving markets, you've got
3:52
the ten year treasury yield down to three point seven
3:55
to one eight percent. Price of oil shooting up today
3:59
on those Middle East tensions, up over seventy bucks a barrel. Again,
4:02
we're at seventy dollars fifty cents up three point three
4:06
seven percent on the news today, Paul, anything else catching
4:10
your eye as we as we head into the next
4:13
segment of the show.
4:14
Speaker 4: Here, Yeah, we had forty five thousand longshoremen import operators
4:18
begin their strike at twelve oh one on Tuesday, and
4:23
you know those new game negotiations will continue to go on.
4:26
Our initial take was, you know, this goes for a week, Okay,
4:30
we can kind of dodge any negative impacts from it.
4:32
If this persists longer than that, then you could see
4:36
some real from financial ramifications from this strike.
4:40
Speaker 2: Though I can't get my damn bananas then, so help me.
4:43
I have a banana every morning, and if I'm eating
4:47
some mushy brown thing, that's been sitting on a dock
4:50
for three weeks. Then nobody's gonna be happy, especially you guys.
4:55
You're gonna have to deal with me.
4:56
Speaker 3: Didn't you have a.
4:57
Speaker 5: Pair last week or something random like that? Some random
5:00
fruit or was that somebody else?
5:01
Speaker 3: It's not random. Pairs are delicious.
5:03
Speaker 6: Answer the question I had a pair? Okay, yeah, random?
5:07
Jase Rand did you get them from honeypot?
5:09
Speaker 3: Well, nice has picked a bunch of pears. I was
5:12
eating them.
5:12
Speaker 6: Very cool.
5:14
Speaker 2: Finally, one point we overlooked earlier when discussing that dock
5:18
workers strike. So in terms of the split here, we've
5:21
got a seventy seven percent ask on wage increases from
5:24
the union. The negotiators on the other side are in
5:27
the fifty percent increased range over a six year time period.
5:32
That fifty percent increase would bring the wages we think
5:36
to somewhere and then what was it, sixty to seventy
5:38
dollars range per hour by twenty thirty, whereas the West
5:42
Coast dock workers are going to be reaching that same
5:46
level by twenty twenty seven. So looking for a little
5:49
bit more out of this contract. The other piece that's
5:51
been brought up in a few publications that I didn't
5:54
discuss and I think should just be discounted is the
5:57
dock workers pushing for a halt to new automation in
6:02
pretty much anything that they do, which, quite honestly, I
6:06
just it's not gonna happen.
6:08
Speaker 3: It's just not gonna happen.
6:09
Speaker 2: You've seen strikes time after time over you know, protests
6:14
to new technology, and almost never does it get worked
6:18
into the contract that oh, yeah, we're just going to
6:20
not automate anymore, We're not going to bring in new robotics,
6:23
new new things to make us more efficient. Even you know,
6:28
I think of even the writers strike, and even there
6:31
they were pushing hard for limitations on chat GPT and
6:35
they got very few of them.
6:36
Speaker 3: And so I suspect that ultimately this will be all.
6:39
Speaker 2: About the pay and you know, any other concerns about
6:43
automation and technology will be swept to the side when
6:46
all of a sudden.
6:46
Speaker 4: If you're employer, you cannot allow for that to go through.
6:51
It's just you, Tom is the that is the opposite
6:54
of how you run a business. Can you imagine, you know,
6:57
our business. We were not going to invest to try
6:59
to improve through the operations of this business for the
7:02
next six or seven years. We're just gonna stop and
7:05
not try to make it any more productive. I mean,
7:07
that's just not how.
7:08
Speaker 6: You stay in business. You die that way if you
7:11
don't invest.
7:12
Speaker 3: Auto sales idling as prices remain high.
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Speaker 2: So to give you a sense of where prices are,
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which I just continue to laugh at because it is
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absolutely preposterous. The average new vehicle in the United States
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sold in September for forty four thousan four hundred sixty
7:26
seven dollars. That is down by nearly three percent from
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last year according to JD Power. However, back in twenty
7:34
nineteen this time it is about thirty four thousand, six
7:36
hundred dollars. That is a tremendous ten thousand dollars price
7:40
increase for the average new car sold over a five
7:44
year time period. Unsurprisingly, sales are not looking all that
7:47
good with those sticker prices as well as the interest
7:50
rates on those new cars. Vehicle sales are paced right
7:55
now to do about fifteen point seven million. That's after
7:59
car makers posted five straight years of at least seventeen
8:02
million vehicle sales through twenty nineteen, and so this would
8:05
be a pretty significant disappointment. The interesting thing here is
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while we have seen a pretty significant and quick decline
8:12
on mortgage rates, we talked about this over the last
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nine months or so, thirty year mortgage rate coming down
8:17
from about eight to six auto loan rates apparently still
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remain near decades high levels of more than nine point
8:25
six percent percent for a new vehicle and nearly fourteen
8:28
percent for a used car or truck. Paul, I know
8:32
you're in the market for a minivan. I also know
8:35
that your wife won't let you buy a minivan, so
8:37
that's not going to happen. But what are you seeing
8:39
out there in terms of the auto market? And you know,
8:43
I've been hearing about discounts and sales. I know somebody
8:46
that ended up getting financing under two percent, for instance,
8:49
for their new vehicle purchase. Because if you've got good credit,
8:53
then these places want to sell to you.
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Speaker 6: I hope that's the case. It's interesting.
8:57
Speaker 4: One company in the automotive space that's been the headline
9:00
the last couple of days is Stillantis, which is the
9:03
company behind Jeep, Ram and Chrysler. And as part of
9:08
my car juggling, I will be turning in a Jeep
9:13
Grand Cherokee.
9:14
Speaker 6: Twenty sixteen model.
9:15
Speaker 4: And so as I was reading through Stillantis's issues, which
9:18
is they have blowed inventories across the United States, I
9:21
was a little bit upset to hear that info because
9:24
if they have blowed inventories, then maybe I don't know
9:27
if that's for newer vehicles. I would imagine it's largely
9:30
newer vehicles that they're trying to get rid of. But
9:31
I hope that there isn't lesser demand for that used
9:34
vehicle because there had.
9:37
Speaker 6: Been a reasonable amount of.
9:39
Speaker 4: Value that you could still extract from these older vehicles,
9:42
because Mike, as you mentioned, it's forty four five hundred
9:45
dollars for a new one. So I would have to
9:47
think that the used vehicle market continues to fare relatively
9:51
well because every single client that I continue to talk to,
9:53
and what I'll be looking at myself, is to buy
9:56
something that is a couple of years used. I am
9:58
surprised that the autom owns rates having come down a
10:02
little bit more than what you talked about here. Now
10:05
they quote on occurring to Cox Automotive, the nine point
10:10
sixty one percent is the interest rate for a new
10:12
vehicle and fourteen percent for a used car truck, but
10:15
that's got to be in the lowest a pretty low
10:17
credit rating. Because I'm looking here at CNN where a
10:20
fight go score between six sixty one to seven eighty
10:24
that average interest rate was six eighty seven or nine
10:27
three six between a new car and use Yah.
10:30
Speaker 2: I've always had a tough time figuring out the difference
10:33
in all these numbers, because the Bank Rate two is
10:35
saying that for a sixty month new car, the average
10:38
rate right now is sitting at seven and three quarters thereabouts.
10:42
So again, these divergences are all over. But what seems
10:46
to be occurring in this space, which is a bit
10:49
different than the mortgage market, is mortgage market rates have
10:52
come down by like I said, you know, one in
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three quarters, let's call it in terms of the average rates.
10:56
And I've seen that pretty consistently since October of last year,
10:59
so I guess not nine months, over twelve months, they've
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come down by nearly two full percentage points.
11:04
Speaker 3: In the auto loan market, there's some pretty.
11:08
Speaker 2: Significant concern about people's ability to pay this stuff. Right
11:13
in the homeowner space, like you know, you have to
11:17
put so much down there's no real big risk of
11:22
massive increase in defaults because the average person still has
11:26
so much equity in their home right now that heck,
11:30
even if you just bought it two years ago, you
11:31
probably still have a whole bunch of home equity. And
11:35
even if the price didn't appreciate, you put probably twenty
11:37
percent down in most cases, and so there's plenty of
11:39
equity to capture there and.
11:41
Speaker 6: A limited inventory side of things too.
11:43
Speaker 2: Right on the homes, in the car market, we've got
11:45
a very different situation going on. Right Prices are down
11:48
three percent a year over year. Plenty of people put
11:51
down nothing on new car purchases, meaning there is no
11:55
value to that car once you factor in the loan.
11:58
And so I think what you're I'm seeing in the
12:00
auto loan market is probably what we're describing, which is,
12:03
if you have excellent credit quality, you might be able
12:05
to get a steal. If you have bad credit quality,
12:08
you're gonna be paying fourteen percent for an auto loan
12:10
and it's not coming down anytimes.
12:12
Speaker 4: And those monthly payments, like you were pointing out, the
12:14
new car finance payments averaged seven hundred and thirty five
12:17
bucks bucks last month, up slightly from last year. According
12:19
to JD Power. So to your point of the concerns
12:22
on people paying back, that's a heck of a lot
12:24
of money for a car payment. And as we talk
12:27
about my situation, you know I was locked in at
12:29
financing of three and a quarter when I bought my
12:31
previous car back in nineteen or twenty. And the reason
12:34
I think you'll continue to see these lower numbers of
12:36
sales and decrease and prices is we're all trying to
12:39
hold on to those old cars for as long as
12:41
possible because I don't want to have to pay what
12:44
is a ten grand increase on sticker price and double
12:47
the barring.
12:47
Speaker 3: Costs my eleven year old Honda's at the shop right now.
12:51
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14:56
Speaker 2: Uh there's always a million different ways to look at
14:59
the incentives for home buyers and how things are lining up.
15:03
But the Wall Street Journal has a piece out this
15:05
morning on renting versus buying and how that formula may
15:09
have improved a little bit for people looking to purchase
15:13
out there to give some to give some numbers here
15:16
the thirty year fixed rate mortgage today, which is just
15:20
a little bit over six point one point five. That's
15:23
kind of the range I've seen it between six and
15:25
a quarter and six one five over the last few weeks.
15:28
On the average home price in the United States at
15:32
four hundred and nineteen thousand dollars, you are still finding
15:36
rents that are pretty significantly cheaper at the average US
15:41
rent at eighteen forty per month. So in order to
15:44
get those mortgage payments close to in line with that
15:47
eighteen forty monthly payment, you need rates to fall another
15:50
full percentage point down to the low five percent range.
15:54
Five and a quarter is the calculation that they're doing here,
15:58
and I'll be the first to say that I don't
16:01
see the scenario for that happening without a deep recession
16:05
over the next twelve months. Like FED can keep cutting rates,
16:10
you're not getting there because long term rates won't be
16:13
moving down unless you, like I said, you get unemployment
16:16
up over five and a half percent. Sure, we've got
16:18
five and a quarter percent mortgage rates, but then you
16:20
can't buy the home anyway. And so look, this isn't
16:23
how people actually do the math, though, I want to
16:25
recognize that for a moment here that nobody's actually looking at. Okay, well,
16:29
this is the average rent in the area, and this
16:31
is the cost of a home. And when I factor
16:33
all this in, this is how much my monthly payment's
16:35
going to be No, that's not how it works. People
16:38
you know, get married and you know, buy a home
16:41
on now dual incomes where they port previously combining those
16:45
incomes together. Like, lots of different things go into this,
16:47
and a large piece of it is the assumed appreciation
16:50
when it comes to, you know, buying that home that
16:53
people guess is going to continue like it did for
16:55
the last several decades. But we still have an affordability
17:00
question here and I'll be just really interested to see
17:03
what changes in the spring housing market next year.
17:06
Speaker 4: It is significant, though, because you're right, there are other
17:09
factors at play when people are focusing on making that purchase.
17:13
But it bears mentioning that if you look at the
17:17
comparison of value, that you may be more hesitant to
17:20
pull the trigger. I thought they did a good job
17:22
pointing out that renting a apartment in Jersey City was
17:26
thirty two hundred bucks a month for a couple husband
17:29
and wife that gave them two bedrooms and access to
17:31
a pool in Gym, versus purchasing a three bedroom home
17:34
in Jersey would cost them about six thousand bucks a month.
17:38
So certainly that monthly cost is something that someone would
17:41
think about before making that leap to home ownership. But
17:44
the other valuable part about home ownership, other than the appreciation,
17:48
is you're locking in that monthly mortgage cost if you
17:51
already get a thirty year fixed morse, you're not subject
17:53
on the rent side of things to year over year increases.
17:57
So that's the other benefit other than the home appreciation
17:59
is knowing what you're.
18:00
Speaker 6: Going to be paying.
18:01
Speaker 4: But someone could come at me and say, well, hell
18:04
with real estate taxes and Homer's insurance going on, I
18:06
was about much that you're not about to attack you
18:10
on that policy.
18:11
Speaker 3: That's fair. That's fair, you know, that's I.
18:14
Speaker 2: Don't think that people have fully realized that. I do
18:17
think people are becoming a little bit more conscious about
18:20
where they end up purchasing homes. I'm hearing more and
18:23
more people saying, oh, yeah, I saw that Zillow flood
18:26
score on that home, and I'm just not willing to
18:28
look at that area or you know, that area burnt
18:31
down a few years ago. I'm just not willing to
18:33
to focus on that particular thing. But yeah, to your point,
18:38
for decades, homeowner's insurance costs didn't move that quickly. The
18:43
last five years, like I don't know what the average is,
18:45
but in parts of the country, the average is probably
18:49
increases of fifty percent over.
18:50
Speaker 3: The last few years.
18:51
Speaker 2: You go look at Florida, you go look at other
18:52
areas that are prone to flooding, it's probably averaged fifty
18:55
percent in increases. And that narrative of fixing my home
18:59
casts is changing.
19:02
Speaker 4: After looking at the destruction that we saw from the hurricane.
19:05
I was talking with my father now this weekend. You know,
19:07
the idea of owning a second property in Florida, what
19:10
it just becomes really difficult to wrap your head around
19:14
because of the risk.
19:15
Speaker 6: That you run. Why not you know, rent for a
19:17
month or two. I just wonder if the market would
19:19
continue to think that way.
19:20
Speaker 2: Let's take a quick break. We're gonna have the trivia
19:22
winner next. And then also looking at Nike sales in
19:26
a funk new CEO taking over what's been going on
19:28
at that company the last few years and what needs
19:30
to change.
19:36
Speaker 1: Bringing the latest financial news straight to your radio every day,
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20:05
Speaker 2: Social Security's trust fund running dry if they don't fix it.
20:09
In let's see, where are we eightish years here than
20:14
the current laws that are on the books for how
20:17
Social Security works today would mean that everybody takes a
20:19
seventy nine percent cut on scheduled benefits, because that's approximately
20:23
how much is coming in now to cover existing promised benefits.
20:28
Of course, we won't really be talking about this in
20:32
any sort of earnest seriousness until probably, you know, midnight
20:36
on December first, twenty thirty two, would be my guess.
20:40
So don't expect any changes to all this. I don't
20:44
even remember the last time I heard a presidential candidate
20:47
talk about how they're going to fix the program. So
20:48
that's not that's not in the cards. But new analysis
20:52
shows that you know, we're Congress to not fix this.
20:56
Then the average millennial couple and they do some you
20:59
know some look in terms of okay, this is how
21:01
old they would be when they retire, This is how
21:04
much they would collect and benefits they're projected loss in
21:08
so Security benefits if again Congress did nothing would be
21:12
about nine hundred and eight thousand dollars. I don't know
21:15
why they picked millennials in particular, probably because none of
21:18
them are eligible for Social Security at this point, whereas
21:21
every other generation older I'm guessing.
21:24
Speaker 3: Some of them are at least eligible.
21:25
Speaker 2: But nonetheless, that's the analysis from the soci Security Administration
21:31
is that, yeah, if Congress doesn't fix this thing, then
21:34
the average millennial out a good million bucks over their
21:38
lifetime and benefits.
21:40
Speaker 4: It's something that if you're in our generation, you shouldn't
21:45
necessarily hang your hat on it entirely with all the
21:49
issues that you run into.
21:51
Speaker 6: What are the two ways to fix this?
21:52
Speaker 4: Well, you could tax people more, not popular to offer
21:57
as an opinion as a politician, or or you could
22:00
push back the full retirement age for when people can collect.
22:05
Speaker 2: There's a third option, what's the third massive wave of
22:09
legal migrants in the age range of like eighteen to.
22:12
Speaker 6: Thirty yep, more people paying, a ton of.
22:16
Speaker 3: People paying into the system. It would bring down wages.
22:19
It would you know, be the least of the popular.
22:23
Speaker 2: Like I'm trying to think, would people like to pay
22:25
a bunch more in taxes, loser so security benefits, or
22:28
see like a fifty percent increase in migration.
22:32
Speaker 3: Those are your optionized Sophie's choice sounds great. Yeah, good
22:36
way to get voted out of office.
22:38
Speaker 2: Folks, we're talking about Social Security, and I know that
22:41
we sometimes treat it in a somewhat joking manner.
22:45
Speaker 3: My personal opinion is.
22:46
Speaker 2: That this will actually get quote unquote fixed.
22:51
Speaker 3: Unfortunately.
22:52
Speaker 2: I think it's just gonna be fixed by raising the
22:53
deficit and spending a bunch of money that we can't
22:55
afford to spend. But nonetheless, if you are not familiar
23:01
with how benefits are calculated, how taxes are taken out
23:05
of Social Security, how that differs from state to state,
23:08
because guess what it does differ significantly from state to state.
23:12
How your government pension might offset these benefits, what it
23:15
might mean for your spouse if you're gone, what it
23:17
might mean if you're divorced and still trying to collect
23:19
soial security benefits, whether or not you're eligible to on
23:22
an X spouse or a new spouse. There are so
23:25
many complications on Social Security that there have literally been
23:29
books written about all of these complications. We have a
23:32
brand new guide for the month of October, just hot
23:35
out today, fresh off the presses on social Security and taxes,
23:40
and you can get your free copy by calling eight
23:43
hundred three nine three four zero zero one. While I'm
23:47
talking about it, though, I also want to bring up
23:48
that the Financial Exchange is going on the road. As
23:51
we've mentioned before, we're going to be in Springfield next Tuesday,
23:54
October eighth. We still have a few seats left if
23:56
you are looking to join that live broadcast of the
23:59
Financial Exchange at the MGM Springfield, followed by a free
24:03
lunch and seminar from the Armstrong Advisory Group. Again, new
24:07
guide from the Armstrong Advisory Group. You can get it
24:09
by calling eight hundred three to nine three four zero
24:12
zero one. You can also sign up for the live
24:13
broadcast of the Financial Exchange by going to Armstrong Advisory
24:17
dot com, slash events, or just call us for both
24:19
at eight hundred three nine three four zero zero one.
24:23
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
24:26
registered investment advisor. Nothing in the ad or in any
24:28
Armstrong Guide a specific financial, legal or tax advice. Consult
24:31
your own financial, tax, and estate planning advisors before making
24:34
any investment decisions. Armstrong may contact you to offer investment
24:37
advisory services.
24:39
Speaker 2: Paul, I don't know if this should be an indication
24:42
of the beginning of the end for Nike or an
24:46
indication that they are, you know, really connecting and firing
24:50
on all cylinders. But my daughters recently outgrew their sneakers,
24:55
and absolutely both of them, the twins insisted on a
25:01
pair of high top Nikes and now have you know,
25:04
coordinated one's teal one's blue high top Nikes because they
25:08
needed that swosh on their shoes in order to, I guess,
25:12
feel cool in elementary school.
25:14
Speaker 3: They're eight years old.
25:16
Speaker 2: Like I said, this could also be an indication of
25:18
the beginning of the end for Nike, because I'm not
25:20
sure that what the Armstrong kids are doing is considered
25:24
to be the semblance of what's cool.
25:25
Speaker 3: In this day and age. But sure clearly, in.
25:29
Speaker 2: Spite of my misgivings, that Nike swoosh is continuing with
25:34
its staying power. If you know a couple of eight
25:36
year old kids that have no idea about the brand.
25:39
Speaker 3: I don't think they even knew Nike.
25:42
Speaker 2: They're just like, you know, we want the ones with
25:44
the thing, the check mark, the swosh on the shoes.
25:47
Speaker 4: That's really interesting here. I mean, I'm of the generation
25:51
that grew up with it and because of the athletes
25:54
that grace the Nike shoes Jordan.
25:56
Speaker 3: As again, my kids have never watched the game of
25:58
basket no, I know. That's what's fascinating.
26:00
Speaker 4: Interesting to hear that it carries over even to your kids,
26:04
who I know have no idea probably who Michael Jordan is,
26:07
or likely many of the athletes who wear them on
26:11
their feet today they probably have no concept of. And
26:15
to me, that's been the story with Nike for years
26:18
is its brand recognition. You have a lot of other
26:21
entrants in the market innovating in the footwear space, but
26:25
what they've always been able to count on is that
26:28
brand recognition. And as they go into a transition from
26:32
a leadership perspective where they're bringing back Elliott Hill, who
26:36
was part of the company for thirty years and had
26:39
been working extensively at night Nike since twenty seventeen but
26:44
had stepped away for retirement. Now the focus is on
26:48
sort of not rebranding, but getting back to its core
26:52
competency of picking up sales. They saw a ten percent
26:56
decline in sales for the court that ended on August thirtieth,
26:59
and what they're gonna have to do. Part of the
27:01
problem was these Air Force ones, air Jordan ones were
27:05
these illustrious brands that they basically flooded the market with
27:08
too much supply. They're now focusing on reducing that supply
27:11
to revive consumer interest in the product. That along with
27:16
repairing their relationships with wholesalers like foot Locker. Those are
27:19
the challenges that lay ahead for Nike. Will get more
27:22
into that picture at the close of market today when
27:24
they report their earnings, but it is likely to see
27:28
perhaps another downward revision in sales for a stock that's
27:31
been beaten up significantly this year. But as someone who
27:36
who does love the brand and bought my kids shoes
27:40
when they were barely able to walk, I'm sort of
27:44
the sucker in that demographic. I'm not gonna say that
27:47
I don't still care.
27:48
Speaker 2: Stock, by the way, slightly up today with the rest
27:50
of the market down. But the more compelling story with
27:53
Nike is the longer term trajectory.
27:55
Speaker 1: Here.
27:55
Speaker 2: Five years ago to the day their stock was trading
27:58
at ninety three dollars per sit currently sitting at eighty nine.
28:02
In between that it had gotten up above one hundred
28:04
and seventy five dollars per share, and has just been
28:07
a tremendously disappointing few years, hence the leadership change at
28:11
the top of Nike.
28:12
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Speaker 5: This segment of The Financial Exchange is brought to you
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apart by the US Virgin Islands Department of Tourism. US
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29:14
Speaker 2: I would like to talk about price gouging and why
29:16
it is a stupid idea to run a campaign on
29:22
the idea of price gouging. I'm going to go back
29:25
to nineteen sixty four. Supreme Court Justice Potter Stewart was
29:30
describing a case where somebody was trying to bring a
29:33
case against a movie for it being like pornography, and
29:36
his quote, I shall not today attempt to further define
29:39
the kinds of material I understand to be embraced within
29:42
that shorthand description quote hardcore pornography. And perhaps I could
29:46
never succeed in intelligibly doing so, but I know it
29:49
when I see it. And the motion picture involved in
29:51
this case is not that the same thing seems to
29:54
be getting described with price gouging.
29:57
Speaker 3: Nobody really understands.
29:59
Speaker 2: How to perfectly just scribe what price gouging is, but
30:03
I think we can generally agree that we know it
30:06
when we see it, right, Like you know, there's a
30:08
hurricane bearing down on Florida, and the grocery store marks
30:12
up water bottles five hundred percent. There's a threat of
30:17
a wildfire, and the utility company jacks up water prices
30:21
by you know, three hundred percent. There's some pretty obvious
30:24
cases of price gouging, but the Harris administration is attempting
30:28
to build a policy on Hey, this is how we're
30:31
going to bring down prices, because we're going to go
30:34
after price gouging, and they have no intelligible way of
30:38
describing what it is, and therefore no way of bringing
30:42
down prices by going after companies that engage in it.
30:46
Because quite honestly, price gouging, as I think all of
30:51
us have come to understand, it doesn't really happen very often.
30:56
It just doesn't. It did happen. It's happened, you know,
30:59
I'm sure it happened day. It happened during the beginning
31:02
stages of COVID. Remember they arrested some guy in New
31:05
York for buying a whole bunch of face masks and
31:07
selling them out of his truck for like an obscene price.
31:10
Speaker 1: Like.
31:10
Speaker 2: Price gouging of course happens, but it is not the
31:14
reason that grocery prices are up twenty five percent over
31:17
the last four years and developing policy that's going to
31:21
somehow define and then attempt to charge firms with price
31:27
gouging when, by the way, most states already have rules
31:30
on the books when it comes to not gouging during
31:33
states of emergency, which is pretty much the only time
31:35
it ever actually happens. It's not going to fix anything
31:38
when it comes to prices.
31:39
Speaker 4: This is why you have free markets, right, is to
31:42
have multiple different competitors in a particular space to offset
31:46
any one business charging too much for a range of
31:50
services or products, whether it's grocery store or we talk
31:54
about you know, the auto market earlier in the program,
31:56
where yes, we've seen a tremendous increase over the last
32:00
four or five years, but prices have started to revert
32:03
back down as that supply and demand imbalance has shifted.
32:06
And that's the way I believe that market should be run.
32:09
You balance those supply and demands and that will typically
32:12
shake that stuff out. On the price gauging gougeing side
32:15
of things, the idea of doing pointed legislation against it
32:20
just seems difficult to parse out what it is and
32:23
how it just.
32:24
Speaker 2: Generally, like again, we all know price gouging when we
32:27
see it, and so yes, if we are faced with
32:30
something like a pandemic that sends the demand for face
32:33
masks and antibacterial wipes through the roof, then municipality should
32:38
step in and say, hey, any company that engages in
32:40
price gouging here is going to never do business again.
32:43
But again, that is not the reason why grocery prices
32:47
are up twenty five percent of the last few years.
32:49
It's because labor costs are up. It's because every price
32:52
of inputs into those grocery prices are up. It's not because, oh,
32:57
demand for groceries is fifty percent higher than it was
33:00
in twenty nineteen and there's no competition. Very evidently that
33:04
is not the case. I can go to Wegmans, I
33:05
can go to Whole Foods. I can go to Market
33:07
Basker and go to Shaws Roach Brothers. I can go
33:09
to dozens of different grocery stores that are going to
33:11
have different prices and all compete with each other. None
33:13
of them, as far as anyone can tell, is engaging
33:16
in significant degrees of price gouching.
33:18
Speaker 4: And if they will, people just stop there, right, I'll
33:21
go to Walmart instead. The five percent CD is a
33:25
great deal until the bank calls it back. This is
33:28
a piece from the Wall Street Journal where a lot
33:31
of investors out there. I didn't know how prevalent this
33:34
really was, but many have been impacted by purchasing five
33:37
percent CDs that may have had a maturity of twenty
33:41
twenty six. For example, However, they had that very pesky
33:46
call provision, which is basically enables the issuer to call
33:51
and return back the principle of a CD that was
33:54
purchased at a point in time. So, for example, if
33:58
you were out there buying CDs from Fidelity or Charles
34:01
Schwab or wherever you do your brokerage business, with those
34:05
CDs that are callable, really important to focus on the
34:09
what's called the yield to worse or the yield to call,
34:12
which is basically assessing out the assumed probability that if
34:16
you buy, for example, a five and a half percent
34:18
CD with a call provision and the FED cuts down
34:21
interest rates, then what a JP Morgan or Fidelity or
34:24
Charles Schwab or whoever the issuer is is going to
34:27
do is you're better believe that they're going to give
34:29
you back your money and make sure that they don't
34:33
have to pay the five percent that they may have
34:36
not agreed to but may have you know, advertised to
34:39
offer to you initially.
34:40
Speaker 2: Yeah, I don't know how common these are at like
34:43
local banks, for instance, where most of the CD purchases
34:46
were made over the last few years.
34:47
Speaker 4: Yeah, I feel like those are much more cun dry
34:49
and they don't have those call provisions.
34:51
Speaker 2: But clearly some of them do, right, very obviously, And
34:54
you know, for bond investors, people are probably already familiar
34:56
with this, right, Like, if you've been buying bonds over
34:58
the last few decades or last years, you're probably have
35:02
seen the call provisions put into bonds, and you do
35:05
look at that yield to maturity versus yield to worse
35:07
in factor that in when making a purchase. But I
35:10
do think to your point, Paul, there have been a
35:12
lot of new entrants into a number of new markets
35:15
that were irrelevant for decades, right, Nobody was talking about
35:18
eyebonds until the you know, since the nineteen eighties until
35:24
the last few years, and then again, you know, people
35:27
learning all sorts of new things about eyebonds, like, oh, yeah,
35:29
those rates come down pretty quickly when inflation goes away CDs.
35:33
Speaker 3: Same story.
35:33
Speaker 2: Who was buying CDs over the last I mean, I
35:36
know people were still buying CDs over the last few years,
35:38
but when they were paying three quarters of percent interest,
35:42
there just wasn't much of an incentive to do so,
35:45
all of a sudden, they're back in fashion and yeah.
35:48
Speaker 3: People learning some again.
35:50
Speaker 2: Is this going to ruin you financially, No, probably not,
35:52
but it's gonna leave a bit of a bad taste
35:53
in your mouth if you had that five percent CD
35:55
called right out from India.
35:57
Speaker 4: The same thing applies with your money markets and your
35:59
savings account there. Just monitor that even faster. Yeah, it's
36:02
it's a real immediate impact.
36:04
Speaker 6: Monitor.
36:04
Speaker 4: I'm not saying that it's detrimental to have your money
36:07
market savings dropped from five to four and a half,
36:10
but just keep an.
36:10
Speaker 6: Eye on it.
36:11
Speaker 2: That's all the time we have. Markets remain strongly negative
36:14
territories SMP. As we close out the show off fifty
36:17
five points or over nine ten seven percent, we'll be
36:20
back at it tomorrow. Folks, have a great rest of
36:22
your day and we'll talk to you then.