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Three categories of stories that are concerning investors · The Financial Exchange Show

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Speaker 1: donation today. This is the Financial Exchange with Mike Armstrong,
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Speaker 2: Good morning, Happy Friday.
1:12
Speaker 3: Welcome back to the Financial Financier, the Financial Exchange, the
1:17
Speaker 3: old Financial.
1:18
Speaker 2: Exchange in one of those weeks. Welcome back to the
1:21
Speaker 2: Financial Exchange.
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Speaker 3: It's Mike, Paul and Tucker with you on a on
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Speaker 3: what actually before even nine thirty am started out as
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Speaker 3: a volatile day. We'll be talking about markets and the
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Speaker 3: bout of volatility we've been experiencing since last Friday. We'll
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Speaker 3: be getting into next week's big announcements that are coming up,
1:42
Speaker 3: so taking a look at the earnings calendar for next week.
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Speaker 3: This week was all about the big banks. Next week
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Speaker 3: we will be kicking off some other large companies, including Netflix.
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Speaker 2: So let's take a peek here.
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Speaker 3: Monday, nobody ever, nobody important ever reports earnings. Sorry to
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Speaker 3: steal dynamics. Not that you're not important, but you're not
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Speaker 3: very big. Netflix reports after the bell. On Tuesday, ge
2:07
Speaker 3: Aerospace and Coca Cola, as well as Philip Morris and
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Speaker 3: Raytheon all reporting before the bell. On Tuesday. Wednesday, we'll
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Speaker 3: be hearing from Tesla after the bell, IBM, SAP all
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Speaker 3: reporting after the bell, Thermo, fisher At and T reporting
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Speaker 3: before the bell, as well as ge Vernova. Remember the
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Speaker 3: g is now three separate companies, T Mobile going before
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Speaker 3: the bell on Thursday, Intel after the bell on Thursday,
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Speaker 3: So a few big names going out there. I think
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Speaker 3: we'll also have the CPI release what next Thursday as well,
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Speaker 3: twenty fourth twenty fourth, which is next Friday. Rather, that's
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Speaker 3: an important one one because the government's shut down. It's
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Speaker 3: the only government statistics we're going to going to be
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Speaker 3: getting until the government reopens. It also will be determining
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Speaker 3: helping to determine inflation adjustments for social security next year.
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Speaker 3: So one that people will be keeping an eye on,
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Speaker 3: big questions about that government shutdown and what sort of
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Speaker 3: data we will be able to get. But when we
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Speaker 3: talk about, you know, those monthly jobs reports that we
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Speaker 3: talk about thoroughly every month, the collection period for them
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Speaker 3: is mid month. So when we talk about the September
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Speaker 3: jobs report that was supposed to be released the first
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Speaker 3: Friday of October, the data gathering period is mid September.
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Speaker 3: Right now is the data gathering period for the October
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Speaker 3: jobs report. Nobody's working, so they can't gather the data,
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Speaker 3: Meaning even if they're back in the office on November first,
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Speaker 3: I find it unlikely that we would get to the
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Speaker 3: October jobs report. So we'll see entering now day seventeen
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Speaker 3: of the government shutdown, and I have to say, still
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Speaker 3: seems like very little pressure to reopen things, although you know,
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Speaker 3: what's happening behind closed doors is always an open question.
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Speaker 3: But I don't see people freaking out about TSA lines
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Speaker 3: or canceled flights or any of that stuff.
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Speaker 2: To this point, it has not been a story we've covered.
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Speaker 4: Yeah, when the camel's back, you know, what's the straw
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Speaker 4: that breaks the camel's back in terms of the TSA,
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Speaker 4: Like when do they I mean.
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Speaker 2: How many days is it now? It's been seventeen just
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Speaker 2: said that. I know he wasn't listening. Important caveat it's
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Speaker 2: also October seventeenth.
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Speaker 3: Yeah, today Chuck had to plaint this address like we
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Speaker 3: were doing all the math, and he was like, guys,
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Speaker 3: it started on October first, Now it's the thirteenth.
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Speaker 2: That's pretty easy math. Here.
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Speaker 4: Twenty one days's three weeks of no pay. You'd think
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Speaker 4: that that would start to.
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Speaker 2: People.
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Speaker 3: We'll say, yeah, I mean, we again have not seen
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Speaker 3: big impacts. I would imagine at some of the regional
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Speaker 3: airports where even one call out can really dramatically affect flights.
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Speaker 3: So you know, if you're talking about flying out of
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Speaker 3: TF Green or Manchester, I'd be interested by the way
4:44
Speaker 3: you can text us if you do fly out of
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Speaker 3: those places six one, seven, three, six two thirteen eighty five.
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Speaker 3: But you know when we talk about the the Portsmouth
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Speaker 3: New Hampshire Airport or Portland Maine, or Manchester, New Hampshire,
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Speaker 3: Worcester Providence, if you're seeing so slowdowns there, I'd be
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Speaker 3: interested to hear. But out of the big guys, we
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Speaker 3: have not been hearing it, and many airline CEOs have
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Speaker 3: been saying no, hasn't been a problem yet. As far
5:10
Speaker 3: as markets go, we've had a volatile week here. We
5:15
Speaker 3: kicked off the volatility on Friday of last week over
5:18
Speaker 3: the announcement on tariffs regarding China that was following an
5:22
Speaker 3: announcement on rare earth restrictions from China. Since then, the
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Speaker 3: focus has shifted and I've come around to Chuck's way
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Speaker 3: of thinking here, which yes, the China tariffs were what
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Speaker 3: kicked off this market selloff, but apparently the markets seemed
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Speaker 3: poised for something regardless of what the announcement was because
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Speaker 3: the volatility has continued even though the concern about China
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Speaker 3: and US tariffs has dissipated. Right both presidents have said, yes,
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Speaker 3: we are still going to meet in South Korea in
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Speaker 3: a couple of weeks. The President just this morning was
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Speaker 3: saying that one hundred percent tariffs are not sustainable for
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Speaker 3: the long term. So there's been a lot of conciliatory remarks,
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Speaker 3: and yet markets have been bouncing all over the place.
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Speaker 3: As I mentioned in very early trading, I think this
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Speaker 3: morning around seven am you had futures off by more
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Speaker 3: than one percent. Markets have made their way back positive,
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Speaker 3: but the vix has been elevated. A lot of things are,
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Speaker 3: you know, expressing some concern about where this market has
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Speaker 3: gone to. I think to me, there's three categories of
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Speaker 3: news stories that are concerning investors. One is the tariff's
6:29
Speaker 3: US China relations and rarers and everything that has to
6:32
Speaker 3: go with it.
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Speaker 2: Two is artificial intelligence.
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Speaker 3: Is at the dot com bubble all over again, everyone's
6:38
Speaker 3: making the comparisons. Three is the private credit market, and
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Speaker 3: there's three questions around that piece. It's how many loans
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Speaker 3: were taken by companies that might be over you know,
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Speaker 3: over lent to or you know, actively defrauding their lenders,
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Speaker 3: who issued those loans? How big are those loans that
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Speaker 3: were issued? And who now owns the repackaged loans? Because again,
7:06
Speaker 3: what does Jeffreys or any other investment bank do when the.
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Speaker 2: Issue of these things?
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Speaker 3: They called them all together into a collateralized loan obligation
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Speaker 3: and sell it off to all different investors.
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Speaker 2: So who owns it?
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Speaker 3: And I think everybody is now searching this stuff in
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Speaker 3: a way that they weren't a few weeks ago. And
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Speaker 3: I'm just gonna go ahead and toot our own horn
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Speaker 3: for here for a moment. The first time that we
7:26
Speaker 3: brought up this situation was all the way back on
7:28
Speaker 3: September twenty ninth. That was the first record I have
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Speaker 3: of a email from Tucker on this subject of the
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Speaker 3: first brand's collapse and what it might mean. And immediately,
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Speaker 3: where did our minds go, Paul? It was, is this
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Speaker 3: the tip of the icebread, the canary, and the coal
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Speaker 3: mine of the private credit situation that has gotten so
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Speaker 3: built up over the last few years? And will you
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Speaker 3: see the spillover? To me, that's the only question that
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Speaker 3: matters right now. The other ones can take a back seat.
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Speaker 3: We won't know about the payoff on artificial intelligence for
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Speaker 3: several years, and so we can guess as to whether
8:03
Speaker 3: or not it's a bubble. We can talk about that,
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Speaker 3: but until either earning start shrinking or companies start seeing
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Speaker 3: real revenue generated from the AI build out that's being
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Speaker 3: put out there, I don't think we have a firm
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Speaker 3: answer on it.
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Speaker 4: I keep wondering, you know, how big this could be?
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Speaker 4: You know, like even if it was in massive and skill.
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Speaker 2: How big we could be? Yeah, no, no.
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Speaker 4: No, forgetting the private credit issues that we're talking about here,
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Speaker 4: you know, it's like it is reminiscent. I guess Chuck
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Speaker 4: Ring made this point, so I'm stealing this thunder a
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Speaker 4: little bit or copying him.
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Speaker 2: Credit HND is that he's not here.
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Speaker 4: The Silicon Valley banks scenario is eerily similar. We sat
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Speaker 4: here on this program and talked about if this is
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Speaker 4: bigger spread, this is problematic.
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Speaker 3: March twenty twenty three, Silicon Valley Bank gets dragged out
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Speaker 3: over the weekend, investors get bailed out.
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Speaker 2: You have two other banks, I think.
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Speaker 4: It was the first public also a get.
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Speaker 2: The same issue.
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Speaker 3: And the question that everyone was asking themselves, is this
9:01
Speaker 3: going to lead to a run on regional banks. Is
9:05
Speaker 3: are there other regional banks out there who have the
9:08
Speaker 3: same problem of duration that's going to sync them. Many
9:12
Speaker 3: regional banks took a massive hit and.
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Speaker 2: Lo and behold.
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Speaker 3: A few months later we turn around and say, actually, no,
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Speaker 3: this was pretty much just a problem with those guys.
9:21
Speaker 4: To be fair, the federal reserves stepped in and really
9:24
Speaker 4: back thing. If they didn't, then who knows what would
9:27
Speaker 4: have happened. That was to credit them. That was a
9:30
Speaker 4: tremendous move to really stem the tize. And it's a
9:33
Speaker 4: different situation here when you're deal with private credit markets.
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Speaker 4: But even if this spills over to regional banks, not
9:39
Speaker 4: to be so biased like the S and P five hundred,
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Speaker 4: but it is so much of what we deal with
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Speaker 4: on a daily basis and in client investment portfolios. Like
9:47
Speaker 4: many individual investors listening to this program have likely very
9:52
Speaker 4: limited exposure to regional banks within their portfolio.
9:55
Speaker 2: So let's take a quick break.
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Speaker 3: When we come back, I want to continue this conversation
9:58
Speaker 3: because to me, the volatility we've seen around insurers and
10:02
Speaker 3: regional banks, which we will talk about, is not the
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Speaker 3: biggest story when it comes to all of this. So
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Speaker 3: let's say quick break and more talk on private credit,
10:12
Speaker 3: who owns it, where investors are sniffing out the rot,
10:16
Speaker 3: and what it might mean next on the Financial Exchange.
10:19
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10:22
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10:26
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10:28
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Speaker 3: All right, so let's go back to this First Brand
11:26
Speaker 3: story because it has been pretty intriguing. Tricolor has as well,
11:29
Speaker 3: But I want to talk about the fraud that's being
11:32
Speaker 3: alleged by First Brands, which is effectively all different types
11:37
Speaker 3: of lending that they were doing. And it's tough to
11:41
Speaker 3: say exactly where the fraud is occurring, but even those
11:44
Speaker 3: who are running the bankruptcy have been asked like, can
11:47
Speaker 3: you account for this money that's supposed to be on
11:49
Speaker 3: the balance sheet and the answer has been no, And
11:51
Speaker 3: so there's some more shoes to drop on there. There
11:54
Speaker 3: are some difficult questions being asked, especially of Jeffreys, who
11:58
Speaker 3: originated a lot of this.
11:59
Speaker 2: Lens for a few different reasons.
12:02
Speaker 3: One because they were making these traditional loans to them
12:07
Speaker 3: and they were also on the other side of their
12:09
Speaker 3: business helping out with the vendor financing. And that seems
12:13
Speaker 3: to be the piece that a lot of people missed here,
12:15
Speaker 3: was that, oh, yeah, you're taking out these traditional loans
12:18
Speaker 3: and look at this great business model, but you have
12:21
Speaker 3: all these kind of hidden vendor financing deals going on
12:24
Speaker 3: in the back round two, which leads to a lot
12:27
Speaker 3: more debt than was publicly known, and the Wall Street Journal,
12:30
Speaker 3: at least, you know, put together a piece showing how
12:33
Speaker 3: Jeffries had exposure to both of those sides through different
12:36
Speaker 3: units of their bank. And again the question on Jeffries
12:40
Speaker 3: is if anyone should have known, shouldn't have been you guys.
12:44
Speaker 3: So again they've pulled some investor presentations where Jeffries, for example,
12:49
Speaker 3: estimated the total debt to be around five billion.
12:51
Speaker 2: We know that it's now approximately double that.
12:55
Speaker 3: So big questions there again, allegations of fraud and just
13:00
Speaker 3: some curiosities here with this bankruptcy. So then the next
13:06
Speaker 3: question was, okay, Jeffries, you had a big hand in
13:09
Speaker 3: originating this. Now who owns all this stuff that you
13:11
Speaker 3: packaged together and sold? And the answer seems.
13:14
Speaker 2: To be ubs and a few even JP Morgan had
13:19
Speaker 2: know JP Morgan was just tricolor, Just tricolor. Yeah, so a.
13:23
Speaker 3: Few big banks, but largely also some smaller banks and
13:27
Speaker 3: insurance companies. Yesterday, the regional banking index sold off by
13:31
Speaker 3: about six percent.
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Speaker 2: I haven't looked today.
13:33
Speaker 3: The insurance sector index dropped by about three percent on
13:38
Speaker 3: this news. In particular a few regional banks that again,
13:43
Speaker 3: unless you bank with them, raise your hand. If you're
13:45
Speaker 3: familiar with Zion's Bank Corp. Or Western Alliance, Yeah, only
13:51
Speaker 3: because you don't probably know them a whole lot, and
13:55
Speaker 3: you know, taking a look at this stuff, they're preferred shares.
13:58
Speaker 3: Both of these banks had some of the worst days
14:00
Speaker 3: since April of twenty twenty four on this sort of news. So, Paul,
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Speaker 3: you asked an intriguing question to me, which is okay, cool, Mike, interesting,
14:12
Speaker 3: but dark?
14:13
Speaker 2: Right right? Who gives it?
14:15
Speaker 3: Because unless you are a real active investor who's out
14:18
Speaker 3: there picking individual regional banks.
14:22
Speaker 2: Should you care?
14:23
Speaker 3: It's it's not moving markets today in the negative, and
14:27
Speaker 3: you know, none of these things even make it into
14:29
Speaker 3: the top ten of any of the indices. And I
14:32
Speaker 3: come at it from a different perspective. If this is isolated,
14:37
Speaker 3: if it's concentrated in a couple companies that you know
14:41
Speaker 3: perpetuated fraud, then it's probably not a problem, yep. If instead,
14:47
Speaker 3: what this causes is every investment bank and private lender
14:52
Speaker 3: to go out there and take a good hard look
14:53
Speaker 3: at their loans and start asking tougher questions of their borrowers,
14:58
Speaker 3: and it turns out that they're something more systemic here.
15:02
Speaker 3: Then what that will ultimately lead to is all of
15:04
Speaker 3: these lenders pulling way back on lending. Sure, and one
15:09
Speaker 3: of the key funding sources for the biggest thing that
15:14
Speaker 3: has mattered to markets this year artificial intelligence, it's private
15:18
Speaker 3: credit lenders. They've been lending and investing approximately fifty billion
15:22
Speaker 3: dollars a month into all sorts of different areas of
15:27
Speaker 3: artificial intelligence build out, and so without that cash flow,
15:32
Speaker 3: to me, there's some big questions about what this market
15:35
Speaker 3: can actually stand upon.
15:36
Speaker 2: Yes, Google is still.
15:38
Speaker 3: Going to be pouring their money into there, but again,
15:41
Speaker 3: even a marginal drop in investment on these different areas
15:45
Speaker 3: I think could lead to some pretty dramatic effects.
15:47
Speaker 2: So that's where I care about this.
15:50
Speaker 3: I do care about the regional banks too, and I
15:51
Speaker 3: don't want to see a bunch of go under that
15:53
Speaker 3: can be pretty systemic. But I think honestly, the comparison
15:58
Speaker 3: that you were making before of two years ago, Paul,
16:01
Speaker 3: with Silicon Valley Bank is probably the appropriate one, which
16:04
Speaker 3: is to say, we don't know if this is isolated
16:07
Speaker 3: or systemic. There's probably not an easy way for the
16:10
Speaker 3: FED to step in and quash it because of the
16:13
Speaker 3: type of lending that this is they don't oversee private credit.
16:17
Speaker 2: It's not banking.
16:18
Speaker 3: It's really not an area that they are into, and
16:21
Speaker 3: so we need time to figure out is this isolated
16:25
Speaker 3: or is it systemic. But when you have two failures
16:28
Speaker 3: this close together in a related industry, I start to
16:32
Speaker 3: ask questions.
16:33
Speaker 4: I'm going to rebuttal your sentiment a little bit in
16:35
Speaker 4: that I get the further trickle down of impacts from
16:40
Speaker 4: this credit issue could become problematic. And here's why you
16:44
Speaker 4: made the key point with it could cause scrutiny on
16:47
Speaker 4: these companies to lend less often than they were previously,
16:51
Speaker 4: which was at an absolute rampant pace. But I wouldn't
16:55
Speaker 4: have it snowball all the way I'm going to call
16:57
Speaker 4: it up to some of the major tech hyper scalers
17:00
Speaker 4: is in terms of that's the type of financing that
17:03
Speaker 4: they would pull away from.
17:04
Speaker 2: I think where the problem.
17:05
Speaker 4: Could in lie is that they may pull away from
17:08
Speaker 4: the financing that so much of the small to mid
17:12
Speaker 4: market businesses in this country rely on for financing, and
17:15
Speaker 4: that would have a detrimental impact to those And that's
17:18
Speaker 4: why not to say I don't care, because that is important.
17:21
Speaker 4: We talked about on the show the other day, where
17:24
Speaker 4: you know, small business employee half this country and a
17:26
Speaker 4: significant percentage of the lending for these businesses comes from
17:30
Speaker 4: this private credit area. So that's important. But then again,
17:33
Speaker 4: from an individual stock ownership standpoint, for the retiree out
17:37
Speaker 4: there in their four one K, they probably don't have exposure.
17:40
Speaker 4: I think it would be more of a macroeconomic concern
17:43
Speaker 4: that I would have that all of a sudden, small
17:44
Speaker 4: and mid sized businesses that are already getting beaten up
17:47
Speaker 4: by all the tariffs that are in place year to
17:49
Speaker 4: date also have difficulty getting as much lending. Rather than
17:54
Speaker 4: taking your worst case scenario of oh, all of a sudden,
17:58
Speaker 4: you know Oracle or whomever, Maybe not them for the
18:01
Speaker 4: hyper skills, maybe Core weave something down the chain a
18:03
Speaker 4: little bit, don't get their financing.
18:04
Speaker 2: For the AI build out.
18:05
Speaker 4: Yeah, it's an interesting discussion and thought exercise to have.
18:09
Speaker 3: Yeah, we will see where the spillover is. But clearly,
18:11
Speaker 3: you know investors over the last couple of days sniffing
18:13
Speaker 3: out a few areas. One is regional banks, two is insurers,
18:16
Speaker 3: And again why they have this exposure is pretty simple.
18:20
Speaker 3: I mean, both of these institutions take in a boatload
18:24
Speaker 3: of cash from their customers and then have all sorts
18:27
Speaker 3: of potential liabilities to pay out. And so how if
18:31
Speaker 3: you're taking you know, fifteen hundred dollars insurance premium from
18:35
Speaker 3: the Lane family on their auto policies, you can take it.
18:39
Speaker 3: You can invest it at the FED and get some interest.
18:41
Speaker 3: You can go buy treasuries and get some interest. Or
18:44
Speaker 3: if you can convince your board and your shareholders, you
18:47
Speaker 3: can go buy a basket of you know, collaboralize loan obligations,
18:50
Speaker 3: juice your return and boost your profits, and or offer
18:56
Speaker 3: a lower premium to your customers. Charlie perfect on all
19:00
Speaker 3: fronts until it blows up in your face.
19:02
Speaker 4: Charlie Munger has this quote that smart man go broke
19:04
Speaker 4: from Ladies liquor and leverage and the leverage one.
19:07
Speaker 2: It's like, how often does this come up?
19:09
Speaker 4: Mike? This is clos. We did this before with cmos
19:13
Speaker 4: and it's like the package of stuff. It's so eerily
19:15
Speaker 4: reminiscent how history repeats itself where you get over your
19:18
Speaker 4: skis and overbar and overextend and something blows up.
19:21
Speaker 2: That is the business cycle.
19:22
Speaker 3: Paul quick Break, Wall Street Watch coming up next.
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Speaker 1: TFFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall Street.
19:53
Speaker 1: Watch a complete look at what's moving market so far
19:56
Speaker 1: today right here on the Financial Exchange Radio Network.
20:00
Speaker 5: It's been a bumpy ride for markets to this point,
20:02
Speaker 5: as investors way regional bank concerns. This comes after Zion's
20:06
Speaker 5: ban Corps said it would take a large loss, accusing
20:10
Speaker 5: some borrowers of fraud. Right now, the Dow is up
20:14
Speaker 5: by about a quarter percent, or one hundred and twenty
20:17
Speaker 5: six points. SMP five hundred is up a tenth of
20:20
Speaker 5: a percent or eight points higher. NASDAK up a tenth
20:22
Speaker 5: of a percent or twenty two points higher. Russell two
20:25
Speaker 5: thousand is down about three tenths of one percent. Tenure
20:28
Speaker 5: treasure yield is up four basis points at four point
20:32
Speaker 5: zero one six percent, and crude oil mostly flat tipping lower,
20:37
Speaker 5: trading a fifty seven dollars and thirty eight cents a barrel,
20:41
Speaker 5: well after yesterday's ten percent plunge. Shares in Jeffries bouncing
20:44
Speaker 5: back six percent today. The bank has recently faced questions
20:48
Speaker 5: about its ties to the First Brand's bankruptcy. However, Oppenheimer
20:53
Speaker 5: upgraded the stock to outperform, with firm said Jeffrey's exposure
20:57
Speaker 5: to first brands is very limited. Meanwhile, another big financial name,
21:02
Speaker 5: and American Express, beat third quarter expectations and raised its
21:07
Speaker 5: full year guidance. The credit card company reported a jump
21:10
Speaker 5: in profit and revenue where card holders spent more in
21:14
Speaker 5: card fees grew. AMEX shares a rising almost five percent, Elsewhere,
21:20
Speaker 5: shares in ozempic maker Novo Nordisk falling over three percent
21:23
Speaker 5: after President Trump said the cost of the weight loss
21:27
Speaker 5: drug could be one hundred and fifty dollars, or much
21:29
Speaker 5: lower than it is now. Micron Technology down by about
21:33
Speaker 5: one percent after Reuters reported that the chip maker would
21:36
Speaker 5: exit the server chips business in China. Railroad operator CSX
21:42
Speaker 5: is up two percent after it posted better than expected
21:45
Speaker 5: third quarter earnings. In Oracle stock pulling back after yesterday's
21:50
Speaker 5: rally by six percent today. Yesterday, Oracle confirmed a cloud
21:54
Speaker 5: computing deal with Meta. I'm Tucker Silva, and that is
21:58
Speaker 5: Wall Street Watch pull.
22:00
Speaker 3: Most Americans are falling behind and saving for retirement. I've
22:03
Speaker 3: heard this story again before. But you do financial planning,
22:10
Speaker 3: I would guess every day just about.
22:14
Speaker 2: So.
22:15
Speaker 3: You and I have both run into instances where we
22:17
Speaker 3: are working with somebody on their financial plan and they're
22:20
Speaker 3: approaching retirement and things don't work. So we always have
22:24
Speaker 3: a bunch of levers to pull. What are the levers
22:26
Speaker 3: that you pull if you are falling behind on putting
22:30
Speaker 3: things together for retirement?
22:31
Speaker 2: One in for that bucket.
22:32
Speaker 4: One which is not the most appealing is you know,
22:34
Speaker 4: you continue to work longer than you would have wanted to,
22:37
Speaker 4: which isn't the first one that you want to start with.
22:39
Speaker 2: It's always a tough pill to swallow. Yeah, it is.
22:41
Speaker 3: Yeah.
22:41
Speaker 4: Otherwise, there are some instances where I'm working with clients
22:45
Speaker 4: particularly what's so important about this is doing it before
22:48
Speaker 4: it becomes an issue. You can kind of make the
22:49
Speaker 4: parallel to Social Security trust, which is mentioned in this article.
22:52
Speaker 4: It's you know, projected around on twenty thirty three. Gee,
22:55
Speaker 4: it would be so smart if we took measures today
22:57
Speaker 4: to try and you know, curb that potent issue. That's
23:00
Speaker 4: a separate deal. We all know about that, but specific
23:03
Speaker 4: to an individual out there, The sooner that you address
23:06
Speaker 4: that shortfall, the easier it is to potentially resolve that
23:10
Speaker 4: issue rather than saying, Gee, I'm sixty four or sixty
23:14
Speaker 4: five years old, it's time to pony up and save more.
23:16
Speaker 4: What oftentimes I'll look at with clients is, let's say
23:18
Speaker 4: you get past the college tuition years for your kids
23:21
Speaker 4: and you're starting to phase in, to call it your
23:23
Speaker 4: late fifties early sixties. That is that point in time
23:26
Speaker 4: where you can really turn on the saving switch. For
23:28
Speaker 4: a lot of people. You're at the peak of your
23:29
Speaker 4: earnings power from an income perspective, you don't have the
23:32
Speaker 4: big liability of a tuition payment. That's the time to
23:36
Speaker 4: start a gear up and get ready to go.
23:38
Speaker 2: Yeah, I'll be honest.
23:39
Speaker 3: Like the working extra and cutting expenses piece, they're the
23:44
Speaker 3: most impactful ones you can do, but they are also
23:47
Speaker 3: the toughest ones to get.
23:49
Speaker 2: Yeah, buy into.
23:50
Speaker 4: Thirty years of working your butt off for forty years
23:52
Speaker 4: and then you have to cut expenses.
23:54
Speaker 3: You know, the one that gets underestimated. In my mind,
23:57
Speaker 3: we're oftentimes talking to people who have been in stressful,
24:00
Speaker 3: high power jobs for a long period of time, but
24:04
Speaker 3: pulling off a few years of working for even a
24:07
Speaker 3: third of what that person was pulling in before in
24:10
Speaker 3: a very low.
24:11
Speaker 2: Stress type environment. It has a lot of impact it does.
24:16
Speaker 3: You know, That's one where I think people sometimes undervalue or,
24:20
Speaker 3: as the author of this piece is puts in there,
24:22
Speaker 3: there might be some embarrassment or shame in doing that.
24:25
Speaker 2: Type of work.
24:26
Speaker 3: And I guess I've seen it, and I'm not here
24:30
Speaker 3: to judge psychology, but like I know people who have
24:33
Speaker 3: gone from you know, working in a six figure job
24:36
Speaker 3: to working part time at home depot and one really
24:39
Speaker 3: enjoy the work a fair bit, and then two have
24:41
Speaker 3: this bucket of money that they pull in that really
24:43
Speaker 3: dephrase the need for so security or other things that
24:46
Speaker 3: they're able to put off for longer. But I think,
24:50
Speaker 3: as we frequently come back to from the Armstrong Advisory
24:53
Speaker 3: Group on all of this, it's about knowing, Like that's
24:57
Speaker 3: the first step in the process, because if you don't
24:59
Speaker 3: know how much you can afford to spend or how
25:02
Speaker 3: much you need to save every year to get to
25:05
Speaker 3: a comfortable place, then it's all kind of a moot point, right.
25:09
Speaker 3: You can't make these goals and objectives without having some
25:12
Speaker 3: semblance an idea of how much you need to get to.
25:15
Speaker 4: Yeah, or where what is your baseline? I can't tell you,
25:18
Speaker 4: Mike and you probably see the same thing. How many
25:20
Speaker 4: people have no idea what they spend on a monthly basis.
25:24
Speaker 4: I would say upwards of seventy or eighty percent of
25:26
Speaker 4: people we meet with initially don't have an idea what
25:28
Speaker 4: their baseline is.
25:29
Speaker 3: Right, So these are important considerations, and the fact of
25:34
Speaker 3: the matter is, you know, you might have a really
25:36
Speaker 3: firm grasp on the budget, you might have a really
25:38
Speaker 3: firm grasp on the investment strategy and portfolio and what
25:41
Speaker 3: your returns have been. Ultimately, though, to make your financial
25:45
Speaker 3: plan successful, you have to have a sense for where
25:49
Speaker 3: are you trying to get to and what it's going
25:50
Speaker 3: to take to get there. How much can I spend,
25:53
Speaker 3: how much do I need to make, how long do
25:55
Speaker 3: I need to work? And what is my real number,
25:57
Speaker 3: like what number do I need to get to before
25:59
Speaker 3: I can comfortably hang it up? And it's different for
26:02
Speaker 3: every household. If you're trying to answer that question, that
26:06
Speaker 3: is what we do at the Armstrong Advisor Group day
26:08
Speaker 3: in and day out, is help people assess what that
26:11
Speaker 3: magic number is going to be to make their plans
26:15
Speaker 3: work in retirement. Give us a call at eight hundred
26:17
Speaker 3: three nine three for zero zero one. Let us talk
26:20
Speaker 3: to you about how we do it. At the Armstrong
26:22
Speaker 3: Advisory Group offices all throughout New England. You can book
26:27
Speaker 3: an appointment or schedule a call by calling eight hundred
26:29
Speaker 3: three nine three for zero zero one, or schedule a
26:32
Speaker 3: call back at Armstrong Advisory dot com.
26:35
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
26:37
Speaker 1: registered investment advisor. Nothing in the ad or in any
26:40
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
26:43
Speaker 1: your own financial, tax into state planning advisors before making
26:46
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
26:49
Speaker 1: advisory services.
26:50
Speaker 3: All right, we got one out of left field here, Paul.
26:52
Speaker 3: I didn't think we were going to be talking about
26:53
Speaker 3: this issue today, but auto industry panic about panicking about
26:57
Speaker 3: another chip shortage. I thought that we were done with
26:59
Speaker 3: chips shortages for the auto sector at least, but back
27:03
Speaker 3: at the forefront, potentially here I was much more nervous
27:06
Speaker 3: about tariffs and bankruptcies are parts suppliers. But now we
27:11
Speaker 3: are back into the story of chip shortages for major
27:16
Speaker 3: auto companies.
27:17
Speaker 2: Why are we talking about this today?
27:19
Speaker 4: The enjoying part of our job, MIC is it's something
27:21
Speaker 4: new every day. Earlier this week, Chuck and I were
27:23
Speaker 4: talking about cooking oil and soybean issues between China and
27:27
Speaker 4: the US, and here we are back with the chip issues.
27:29
Speaker 4: But what we're dealing with specifically here is Nexspiia, which
27:33
Speaker 4: is a Dutch chip maker with about forty percent market
27:36
Speaker 4: share and basic automotive chips. Their shipments have been halted
27:42
Speaker 4: because the Dutch government took it over from its Chinese owner.
27:46
Speaker 4: So basically, there was this company out there called Wintech Technology,
27:50
Speaker 4: a Chinese company which is on the US trade blacklist.
27:54
Speaker 4: The Dutch government came in and seized Nexspira, which is
27:58
Speaker 4: kind of underneath that Wintech Technology, and took it back
28:01
Speaker 4: over stating that it has to keep Europe from losing
28:05
Speaker 4: its technological capabilities and its knowledge there. It deals with
28:11
Speaker 4: some of the issues that have gone on with concerns
28:14
Speaker 4: about exporting. You know, it bleeds into some of the
28:17
Speaker 4: rare earth stuff that we've talked about too, where China
28:20
Speaker 4: had stepped in and said, all right, you know what,
28:22
Speaker 4: we're going to see some of these exports as a
28:24
Speaker 4: result of this takeover.
28:26
Speaker 1: That they did.
28:27
Speaker 2: Raise your hand if you've ever heard of Nexperia before
28:30
Speaker 2: to day, right.
28:34
Speaker 3: This is how sensitive these supply chains still are. There's
28:38
Speaker 3: some Dutch company that no one here has ever heard
28:41
Speaker 3: of that accounts for forty percent market share, and basic.
28:44
Speaker 2: Auto chips who knew? Who knew?
28:48
Speaker 3: Let's take a quick break when we come back. I
28:50
Speaker 3: think that's enough for the auto industry for the moment.
28:54
Speaker 3: Let's talk a little bit about oil because prices have
28:56
Speaker 3: been on the move. A little bit of good news
28:59
Speaker 3: for those of us at the pump. But what does
29:01
Speaker 3: it mean for the overall economy?
29:03
Speaker 2: That's next. On the Financial Exchange.
29:05
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29:31
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29:50
Speaker 2: Paul, it's still pretty cheap to fill up my cars.
29:52
Speaker 3: It's a national average of three dollars and five cents
29:56
Speaker 3: a gallon. Looking across New England, here ains at three
30:00
Speaker 3: oh three, New Hampshire at two ninety six, Mass at
30:03
Speaker 3: three oh two, Connecticut at three yoh seven, Rhode Island
30:07
Speaker 3: at two ninety six, and Vermont sitting at three dollars
30:11
Speaker 3: and fourteen cents per gallond. Did I give, Yeah, I
30:15
Speaker 3: give Connecticut. So loving the cheap gas prices, I'm excited to,
30:20
Speaker 3: you know, pay a little bit less for home heating
30:22
Speaker 3: oil this winter. But I I don't know, I'm a
30:27
Speaker 3: little bit perked up about oil prices dropping below sixty
30:33
Speaker 3: bucks a barrel. I mean, we're sitting right now, just
30:36
Speaker 3: a FYI at fifty seven dollars thirty nine cents on
30:39
Speaker 3: West Texas crude oil. Most analysts out there, and most
30:46
Speaker 3: who look closely at the oil industry look at that
30:48
Speaker 3: sixty dollars range as kind of the break even point
30:51
Speaker 3: for drilling new wells and getting oil on the ground
30:53
Speaker 3: in the United States.
30:55
Speaker 2: And so.
30:57
Speaker 3: You do wonder, okay, how much new exploration and drilling
31:00
Speaker 3: is going to happen with oil sitting at these prices.
31:03
Speaker 3: But moreover, what does it say about the global economy
31:07
Speaker 3: to see oil prices sitting in the sixty dollars range.
31:10
Speaker 3: To me, it doesn't spell fantastic news about you know,
31:13
Speaker 3: if you have oil demand so low that it's only
31:16
Speaker 3: able to garner fifty seven bucks a barrel, I don't know.
31:20
Speaker 3: I'm not enthusiastic about what this might mean.
31:23
Speaker 4: Yeah, and it seems like this could potentially there isn't
31:26
Speaker 4: really a near term fix for this. I mean, US
31:28
Speaker 4: oil producers they notched a fresh output record of more
31:32
Speaker 4: than thirteen and a half million barrels a day in July.
31:35
Speaker 4: You've got the Saudi leg lead OPEC announcing that they're
31:39
Speaker 4: going to boost production by one hundred and thirty seven
31:41
Speaker 4: thousand barrels a day in November. So it seems like you.
31:43
Speaker 3: Got the massive oil fielding Guiana. Now that's pumping. So,
31:48
Speaker 3: I mean, don't get me wrong, it's not only a
31:50
Speaker 3: demand equation here. We do have more supply that's able
31:53
Speaker 3: to be pumped.
31:54
Speaker 2: But yeah, to see see oil prices down here, I
31:57
Speaker 2: don't know. To me.
32:01
Speaker 3: That industrial demand and all that stuff is not terribly
32:06
Speaker 3: great at the moment.
32:07
Speaker 4: Probably the case, but it's with energy productions. It's just
32:10
Speaker 4: the price can swing so quickly. Yes, it's hard to
32:13
Speaker 4: read too much into it, but I would agree with you.
32:14
Speaker 4: It does seem like industrial activities down a bit, and
32:17
Speaker 4: maybe that's leading to some of these lower prices here.
32:19
Speaker 3: New York Times reporting that Delta and United are leaving
32:23
Speaker 3: other airlines behind. So let's talk about how and why
32:27
Speaker 3: and will it stick? I mean, the airline industry has
32:31
Speaker 3: obviously become hyper concentrated at this point, in spite of
32:36
Speaker 3: in spite of a few judges shooting down merger attempts.
32:40
Speaker 3: What was it Jet Blue and Spirit that tried to
32:43
Speaker 3: merge and now Spirits of course in bankruptcy, and who
32:46
Speaker 3: knows what will happen with Jet Blue, but these two
32:49
Speaker 3: are clearly standing out. I would toss American as kind
32:52
Speaker 3: of a third contender in here as well, because they
32:54
Speaker 3: basically mirror each other's business models. But what's been working
32:57
Speaker 3: recently for these airlines compared to us.
33:00
Speaker 4: Really what it is is this shift to focus on
33:04
Speaker 4: making the most profit per seat on the first class
33:08
Speaker 4: and lounge premium seats experience. And I hate to keep
33:12
Speaker 4: bringing this up. We hit it on often. I do
33:14
Speaker 4: wonder if it's just focusing on the divergence and the
33:17
Speaker 4: consumer that we've kind of tracked where the higher income
33:21
Speaker 4: consumers are accounting for a heavy percentage of spending nationally.
33:25
Speaker 4: And it seems like Delta and some of these in
33:28
Speaker 4: American have been these airlines that have and United too
33:32
Speaker 4: that have sort of shown this trend the most where
33:34
Speaker 4: whether it's corporate business travel or first class seats, that
33:37
Speaker 4: is where they're making tremendous margins MIC and it's leading
33:40
Speaker 4: to profitability numbers that are really impressive for the airline sector,
33:45
Speaker 4: which is a very tough business to execute in. And
33:48
Speaker 4: it just seems like there's the haves and haves nots
33:50
Speaker 4: both of airlines and just where the consumers are willing
33:54
Speaker 4: to spend money. Like I just don't think you're seeing
33:57
Speaker 4: as much demand for those discount airlines in those travelers
34:01
Speaker 4: than you are from the first class travelers in Delta.
34:05
Speaker 2: United. Look.
34:06
Speaker 3: Airline travel is the It's probably my definition of discretionary item.
34:13
Speaker 3: Yeah right, Like even for businesses, you do not have
34:16
Speaker 3: to send your employees to go on an airline.
34:18
Speaker 2: You can tell them to do a zoom meeting. These days, it.
34:21
Speaker 3: Is the definition of discretionary spending is flights on airlines.
34:26
Speaker 3: And so I do find what is happening there to
34:29
Speaker 3: be intriguing, and it continues. Like you said, this divergence
34:35
Speaker 3: we have been seeing of luxury right.
34:39
Speaker 2: Now is selling.
34:40
Speaker 3: Delta in their most recent earnings call, reported that premium
34:44
Speaker 3: revenue increased by nine percent year over year. So that
34:48
Speaker 3: is first class, is business class, it's you know, just
34:50
Speaker 3: premium spending.
34:51
Speaker 2: In general.
34:53
Speaker 3: Main ticket revenue, main cabin ticket revenue was down four
34:56
Speaker 3: percent year over year at Delta. Right that is a
34:59
Speaker 3: star contrast. It spells right into what we've been talking
35:04
Speaker 3: about of the top ten percent really keeping on the
35:06
Speaker 3: spending and the others not doing so. And in some
35:09
Speaker 3: ways it makes me think.
35:11
Speaker 2: You know, hey, will we see.
35:15
Speaker 3: Will we see that dramatically pull back if you see
35:18
Speaker 3: an asset price pull back, and will the spirits and
35:21
Speaker 3: the jet blues in the Southwest have their heyday at
35:24
Speaker 3: that point? But I'm honestly not sure at this stage
35:28
Speaker 3: because Delta and American and all these airlines have gotten
35:30
Speaker 3: so good at segmenting their business and still offering really
35:34
Speaker 3: cheap flights in their main cabins. You know, I don't
35:39
Speaker 3: know if Delta does it, but American, I'm sure, has
35:42
Speaker 3: a completely stripped down ticket where you don't get to
35:44
Speaker 3: choose your seat, don't get to bring on a checked
35:47
Speaker 3: bag and everything, And so they can compete on price
35:51
Speaker 3: with spirit in ways that they just chose not to
35:53
Speaker 3: in the past. And so even the case of let's say,
35:57
Speaker 3: you know, markets fall apart and we have that per
36:00
Speaker 3: of time where luxury spending pulls back, I'm just not
36:03
Speaker 3: sure that the business is going to go to those
36:05
Speaker 3: discounters like it used to.
36:07
Speaker 4: Yeah, just such a difficult business to execute it. And
36:10
Speaker 4: I do worry about, like you said, it is such
36:14
Speaker 4: discretionary spending that it could fade very quickly to from
36:18
Speaker 4: these larger aircraft carriers that they don't continue to demand
36:22
Speaker 4: these type of profits on those seats. But I don't
36:25
Speaker 4: know how how would you make a counter argument that
36:28
Speaker 4: the mid size airlines can really compete. I just don't
36:32
Speaker 4: know what case stuff to make.
36:34
Speaker 3: Yeah, it's tough to By the way, this is not
36:37
Speaker 3: just something that's isolated to the airline industry. Marriott also
36:41
Speaker 3: reported earnings recently. What they found was their luxury segment
36:46
Speaker 3: saw growth of four point one percent in the US
36:49
Speaker 3: and Canada, where as their Select service and extended stay
36:53
Speaker 3: so they're more discounted segment one and a half percent decline.
36:58
Speaker 2: So you're really seeing this.
37:00
Speaker 3: Across the board. And here's where I'll drive it all home.
37:05
Speaker 3: Consumer spending generally used to be driven by wages. It
37:10
Speaker 3: was driven by the wage that you have in your
37:13
Speaker 3: current job, as well as new people getting jobs and
37:15
Speaker 3: getting into the labor force, and that was what drove
37:18
Speaker 3: consumer spending. There's this insinuation by this data that now
37:23
Speaker 3: consumer spending is being driven by a wealthier, older population
37:28
Speaker 3: who I would presume is more being driven by asset
37:33
Speaker 3: prices and the wealth effect than they are by wages,
37:37
Speaker 3: because I don't know a ton of seventy year olds
37:40
Speaker 3: who are working. It's mainly, hey, I've got so security,
37:43
Speaker 3: and look how big my portfolio has gotten. And I
37:46
Speaker 3: went on zillo and look what my house is worth.
37:50
Speaker 3: And that just reshapes things pretty dramatically. It just changes incentives.
37:55
Speaker 3: It changes a whole lot of the structure of the
37:57
Speaker 3: US economy. If consumerism is now still there but driven
38:02
Speaker 3: by asset prices instead of income, I kind of have
38:05
Speaker 3: to rethink a lot of things in my head about
38:07
Speaker 3: how this whole structure works. We got to take a
38:09
Speaker 3: quick break, but have a ton more to cover in
38:11
Speaker 3: the second hour of the Financial Exchange.
38:13
Speaker 2: Stay tuned, we'll be right back folks.