Latest / The Financial Exchange Show / AI Rally Masks Pressure Across the Rest of the Market

Transcript

AI Rally Masks Pressure Across the Rest of the Market · The Financial Exchange Show

• 0:00
  Speaker 1: The Financial Exchange is produced by Money Matters Radio and
• 0:03
  Speaker 1: is hosted by employees of the Armstrong Advisory Group, a
• 0:06
  Speaker 1: registered investment advisor. All opinions expressed are solely those of
• 0:09
  Speaker 1: the hosts. Do not reflect the opinions of Armstrong Advisory
• 0:12
  Speaker 1: or anyone else. Investments can lose money. This program does
• 0:14
  Speaker 1: not offer any specific financial or investment advice. Please consult
• 0:18
  Speaker 1: your own financial tax and estate planning advisors before making
• 0:21
  Speaker 1: any investment decisions. Armstrong Advisory and the advertisers heard on
• 0:24
  Speaker 1: this program do not endorse each other or their services.
• 0:26
  Speaker 1: Armstrong and Money Matters Radio do not compensate each other
• 0:29
  Speaker 1: for referrals and are not affiliated. This is The Financial
• 0:34
  Speaker 1: Exchange with Mike Armstrong and Paul Lane. Your exclusive look
• 0:39
  Speaker 1: at business and financial news affecting your day, your city,
• 0:43
  Speaker 1: your world. Stay informed and up to date about economic
• 0:46
  Speaker 1: and market trends, plus breaking business news every day. The
• 0:51
  Speaker 1: Financial Exchange is a proud partner of the Disabled American
• 0:54
  Speaker 1: Veterans Department of Massachusetts. Help us support our great American
• 0:58
  Speaker 1: heroes by visiting DAV5K. Boston and making a donation today. This
• 1:04
  Speaker 1: is the Financial Exchange with Mike Armstrong and Paul Lane.
• 1:10
  Speaker 2: Good morning, happy Tuesday, and welcome back to the Financial Exchange.
• 1:13
  Speaker 2: It's Mike, Paul, and Tucker with you on a Tuesday
• 1:16
  Speaker 2: after a strong rally on Wall Street yesterday with the
• 1:18
  Speaker 2: S & P 500. ending up over 1%. Metastock jumping
• 1:22
  Speaker 2: 11% yesterday with a little bit of a resurgence from
• 1:25
  Speaker 2: the Magnificent Seven. We've got oil pulling back further. We'll
• 1:30
  Speaker 2: be jumping through that. The upcoming U.S.-China talks, Paramount settling
• 1:34
  Speaker 2: their California lawsuit on the Warner Brothers merger, and some
• 1:40
  Speaker 2: interesting lawsuits filed against OpenAI regarding some horrific stuff that
• 1:46
  Speaker 2: happened earlier this year in Canada that I want to
• 1:49
  Speaker 2: get to. But starting off with just a recap of yesterday,
• 1:52
  Speaker 2: we saw all three major indices strongly to the positive,
• 1:56
  Speaker 2: really being led by tech again in a seeming shrugging
• 2:01
  Speaker 2: off of any of the concerns that were being raised
• 2:03
  Speaker 2: last week about hey, are these AI companies going to
• 2:08
  Speaker 2: orchestrate some sort of slowdown of the development of the technology?
• 2:11
  Speaker 2: What's that going to do to semiconductor demand and electricity
• 2:14
  Speaker 2: and all of these things? We might still see some
• 2:18
  Speaker 2: signs of that in the future. There's been some IPOs
• 2:21
  Speaker 2: that are being called into question. But by and large,
• 2:23
  Speaker 2: yesterday at least, it was risk right back on as
• 2:26
  Speaker 2: oil prices fell and interest rates not falling substantially, but
• 2:30
  Speaker 2: calming down a little bit on some of that narrative.
• 2:33
  Speaker 3: Yeah, the story that we'll get into a little bit
• 2:35
  Speaker 3: in one of these pieces here is that the last
• 2:38
  Speaker 3: month or so has really shown the resiliency of communication
• 2:42
  Speaker 3: services sector, which encompasses Google and Meta, which you could
• 2:45
  Speaker 3: kind of call tech in their own way. And the
• 2:48
  Speaker 3: tech sector in general, those have really been the strong
• 2:50
  Speaker 3: performers over the course of the last month or so.
• 2:53
  Speaker 3: Some people might be sitting there listening to say, no, duh,
• 2:55
  Speaker 3: that's kind of always been the case. But actually this year,
• 2:58
  Speaker 3: to a degree, there was a little bit more diversification
• 3:01
  Speaker 3: in terms of sectors that were seeing growth.
• 3:03
  Speaker 4: That effect has faded a bit.
• 3:05
  Speaker 3: Industrials and some other areas were really roaring over the
• 3:10
  Speaker 3: course of the first six months or so. They're still
• 3:12
  Speaker 3: positive on the year, but it is an area that
• 3:15
  Speaker 3: has weakened. And a lot of that has to do
• 3:17
  Speaker 3: with the inflationary pressure that we're seeing. Utilities have weakened too.
• 3:21
  Speaker 3: The areas of the market that are heavily tied to
• 3:25
  Speaker 3: either fuel costs or borrowing in general have started to
• 3:28
  Speaker 3: weaken because of the Fed raising rates and clearly stating
• 3:33
  Speaker 3: that they view inflation as a problem to tackle going
• 3:37
  Speaker 3: forward to a degree.
• 3:38
  Speaker 2: So across markets, we've got a few things moving. Equities
• 3:41
  Speaker 2: aren't moving much at all after yesterday's rallies. S &
• 3:44
  Speaker 2: P is basically flat. The Dow is down a little bit.
• 3:46
  Speaker 2: The Nasdaq is up a little bit. That can obviously shift,
• 3:49
  Speaker 2: but for now, pretty calm. In energy markets, we surpassed
• 3:53
  Speaker 2: $ 100 a barrel last week. We're now down below $ 95
• 3:56
  Speaker 2: a barrel as the president has insinuated some comments that
• 4:00
  Speaker 2: he may be open to negotiations with Iran. I think
• 4:03
  Speaker 2: that might be the 15th time that that sort of
• 4:05
  Speaker 2: talk has been– Tossed out there and hence, again, we're
• 4:10
  Speaker 2: not at $ 70 a barrel oil. We're at $ 95 a
• 4:13
  Speaker 2: barrel oil. So I think there's some question marks as
• 4:15
  Speaker 2: to the seriousness of that comment and the reality of
• 4:20
  Speaker 2: any sort of negotiation happening. Closely watched diesel prices, as
• 4:25
  Speaker 2: we've been keeping an eye on, are now up to $ 6. 53
• 4:29
  Speaker 2: on the national average. That is an all-time high. We
• 4:32
  Speaker 2: continue to climb on that space. We are up a
• 4:34
  Speaker 2: full dollar per gallon today. since just a month ago.
• 4:38
  Speaker 2: So I guess 95 cents, but, um, splitting hairs there.
• 4:41
  Speaker 2: So we are up nearly a full dollar per gallon
• 4:44
  Speaker 2: on diesel prices. And to your point, interest rates moving
• 4:48
  Speaker 2: slightly down over the course of the last few days,
• 4:51
  Speaker 2: we're now sitting at 4.95% on that crucial 10 year treasury,
• 4:56
  Speaker 2: which we'll be talking about later in the show as well. Uh,
• 5:01
  Speaker 2: Alarming piece from CNBC, Paul, that I love that you
• 5:05
  Speaker 2: put this one right front and center, Tucker. Stocks had
• 5:08
  Speaker 2: a great day yesterday on the surface, but something alarming occurred.
• 5:12
  Speaker 2: Not seen since 1999. Here was the thing that was
• 5:16
  Speaker 2: not seen since 1999. The S & P rose by
• 5:20
  Speaker 2: more than 1% and now stands less than 1% from
• 5:24
  Speaker 2: a fresh high. And yet, more stocks in the index
• 5:27
  Speaker 2: scored new 52-week lows during yesterday's session. then notched new
• 5:33
  Speaker 2: 52-week highs. And apparently that's the last time that occurred
• 5:36
  Speaker 2: was December 1999. I don't think this matters at all.
• 5:44
  Speaker 2: I don't even find it terribly interesting, quite honestly. So.
• 5:48
  Speaker 2: I don't know why CNBC is printing this.
• 5:50
  Speaker 4: I put this in the chat.
• 5:52
  Speaker 2: Because 1999 is in the headline. Let's talk about the
• 5:54
  Speaker 2: companies here.
• 5:55
  Speaker 4: I put this in the chat, this Jet Cheap PT
• 5:58
  Speaker 4: this morning.
• 5:59
  Speaker 2: You got that?
• 6:00
  Speaker 4: And I was like, why should I care about it?
• 6:03
  Speaker 4: I thought I was missing it. I was like, wait,
• 6:04
  Speaker 4: should I care about this? Well, there's a couple things
• 6:09
  Speaker 4: to note, but not really.
• 6:11
  Speaker 2: So let's talk about the companies. Hitting 52-week highs, Warner
• 6:14
  Speaker 2: Brothers Discovery, Marathon Petroleum, Valero Energy. Quest Diagnostics, Advanced Micro Devices,
• 6:20
  Speaker 2: F5 Networks, and Moderna, and then a long list of
• 6:23
  Speaker 2: ones that are at new 52-week lows. They then go
• 6:27
  Speaker 2: on to talk about how the only other time before this,
• 6:30
  Speaker 2: I think, was like 1929 in an attempt to scare everyone,
• 6:34
  Speaker 2: but can anyone give me some sort of concise theory
• 6:37
  Speaker 2: about why this should matter? Like, like, I think it's
• 6:42
  Speaker 2: just as relevant what the temperature was in December of
• 6:45
  Speaker 2: 1999 into 1929 in terms of its ability to forecast
• 6:48
  Speaker 2: anything for it to come in the future. I just
• 6:51
  Speaker 2: don't see how this could possibly be relevant. We do
• 6:56
  Speaker 2: know in markets today that there is a leadership pack
• 7:00
  Speaker 2: that is coming because of artificial intelligence, seems to be
• 7:04
  Speaker 2: sucking up almost all of the oxygen in the room.
• 7:07
  Speaker 2: And so companies that are not participating in that are
• 7:10
  Speaker 2: not really getting looked at because nobody seems to care
• 7:12
  Speaker 2: about them, and they're being defined by a tough economic
• 7:16
  Speaker 2: environment otherwise, right? You've got diesel prices up, you've got
• 7:19
  Speaker 2: interest rates higher, and so that is difficult for those businesses,
• 7:23
  Speaker 2: but I just don't see how that leads me to
• 7:27
  Speaker 2: believe that I should be concerned about this specific statistic. Yeah.
• 7:30
  Speaker 3: 52 week highs are tough to do because that's a
• 7:33
  Speaker 3: timing sample. Like for example, Moderna is a good one
• 7:35
  Speaker 3: that is hitting a 52 week high, but that's not
• 7:38
  Speaker 3: because yes, it has rallied significantly, but the stock was
• 7:43
  Speaker 3: absolutely punished over the course of the last four or
• 7:45
  Speaker 3: five years. So, so what does that really say? They
• 7:47
  Speaker 3: were down a lot a year ago. They've rallied back since,
• 7:50
  Speaker 3: but that doesn't really point to them with a.
• 7:53
  Speaker 4: Tremendous business turnaround. It's, It's hard.
• 7:56
  Speaker 3: It's like you're picking a specific sample size that can
• 7:58
  Speaker 3: lead to these sort of anomalies here in terms of 52-week.
• 8:03
  Speaker 4: Highs and lows.
• 8:04
  Speaker 3: The bigger, broader takeaway that I have to a degree
• 8:09
  Speaker 3: on the markets in general this year, what has been
• 8:11
  Speaker 3: interesting is that for so many of the prior years,
• 8:14
  Speaker 3: it has been, concentrated the gains in the tech sector
• 8:17
  Speaker 3: and the Magnificent Seven. We've talked about them ad nauseum.
• 8:20
  Speaker 3: This year was actually a little bit different and continues
• 8:22
  Speaker 3: to be at least a little bit more broader participation
• 8:25
  Speaker 3: in some of these other sectors that haven't fared as
• 8:27
  Speaker 3: well before. The equal weight S & P 500 index,
• 8:30
  Speaker 3: which basically gets rid of the effects of basically putting
• 8:35
  Speaker 3: a third of your money in the Magnificent Seven. If
• 8:37
  Speaker 3: you do the S & P 500, which is market
• 8:39
  Speaker 3: cap weighted, the The big boys take up a lot
• 8:41
  Speaker 3: of your investment dollars. With the equal weight, everybody gets
• 8:44
  Speaker 3: a dollar, roughly speaking. That is up 12.5% year-to-date. The
• 8:49
  Speaker 3: S & P is up 14%. There have been years
• 8:53
  Speaker 3: where that's been a lot wider. So that's why I
• 8:56
  Speaker 3: could barely say chat GBT earlier, but that's why I
• 8:59
  Speaker 3: put it in here. I'm like, what am I missing
• 9:01
  Speaker 3: with this? Because the equal weight is pretty close to
• 9:04
  Speaker 3: what the regular market has done, so meaning that there
• 9:06
  Speaker 3: have been other areas participating. It's not just a mag
• 9:09
  Speaker 3: seven story. Energy is a big part of that for sure.
• 9:12
  Speaker 3: But then also you've got small caps that have rallied.
• 9:15
  Speaker 3: It's not really what it's been before.
• 9:18
  Speaker 4: So what do we do?
• 9:20
  Speaker 3: But 99 and 29 gets mentioned, you're going to get
• 9:22
  Speaker 3: clicks and views.
• 9:23
  Speaker 2: So yeah, I guess that's really what it is about
• 9:26
  Speaker 2: here is clicks and views. I think there are some
• 9:28
  Speaker 2: relevant things for any investor to know about this market today.
• 9:32
  Speaker 2: The tech sector of the S & P 500 now
• 9:35
  Speaker 2: comprises almost 40%. Almost every company in there other than
• 9:40
  Speaker 2: Apple is either investing deeply into artificial intelligence or receiving
• 9:45
  Speaker 2: benefit from selling stuff into AI spending companies. Pretty much
• 9:50
  Speaker 2: the entirety of the communication services sector and a lot
• 9:54
  Speaker 2: of the consumer discretionary sector because of Amazon are also
• 9:58
  Speaker 2: pouring money into AI. And so you can pretty quickly
• 10:02
  Speaker 2: get to 40% of the market cap of the S
• 10:04
  Speaker 2: & P 500 is either benefiting from selling stuff to
• 10:07
  Speaker 2: AI or spending a boatload of their profits on developing AI.
• 10:11
  Speaker 2: That's a concerning story to me. I think that's worthwhile
• 10:13
  Speaker 2: people understanding and investigating and realizing that. that, hey, this
• 10:17
  Speaker 2: sector of the economy, this sector of growth, this computer
• 10:21
  Speaker 2: and data center investment, which does not seem to be
• 10:24
  Speaker 2: energy price sensitive or interest rate sensitive, is driving a
• 10:29
  Speaker 2: lot of the growth of this market and economy today.
• 10:33
  Speaker 2: Then you have the other 400 companies in the S
• 10:37
  Speaker 2: & P 500, like the ones reaching 52-week lows yesterday
• 10:42
  Speaker 2: included T-Mobile, Las Vegas Sands, Nike, Clorox. I look at
• 10:46
  Speaker 2: all of them and every single one of them is
• 10:49
  Speaker 2: interest rate sensitive and is diesel price sensitive.
• 10:52
  Speaker 1: Right.
• 10:52
  Speaker 2: Right. And so I continue to say, like, you know,
• 10:55
  Speaker 2: there is one thing driving this economy and stock market forward.
• 10:58
  Speaker 2: It's AI investment, which is not sensitive to energy prices
• 11:01
  Speaker 2: and not sensitive to interest rates. But every other sector
• 11:04
  Speaker 2: of the economy, every other area of the labor force
• 11:07
  Speaker 2: and work is sensitive to those two things and is
• 11:09
  Speaker 2: struggling right now. That's that's interesting to me, the 52
• 11:12
  Speaker 2: week high and low stuff. I'm going to file it
• 11:15
  Speaker 2: under unimportant clickbait, and feel free to do the same
• 11:19
  Speaker 2: if you're listening. Let's take a quick break. When we
• 11:21
  Speaker 2: come back, we do need to talk about oil prices, energy,
• 11:24
  Speaker 2: and potential impacts here. That's next on The Financial Exchange.
• 11:27
  Speaker 1: Text us at 617-362-1385 with your comments and questions about
• 11:32
  Speaker 1: today's show. And let us know what you think about
• 11:34
  Speaker 1: the stories we are covering. This is The Financial Exchange
• 11:37
  Speaker 1: Radio Network. The Financial Exchange streams live on YouTube. Subscribe
• 11:43
  Speaker 1: to our page and stay up to date on breaking
• 11:45
  Speaker 1: business news all morning long. This is the Financial Exchange
• 11:49
  Speaker 1: Radio Network.
• 11:54
  Speaker 5: Subscribe now to our YouTube page where you'll find interviews, highlights,
• 11:59
  Speaker 5: and full shows of the Financial Exchange. You'll get caught
• 12:02
  Speaker 5: up in anything and everything you might have missed. Right
• 12:05
  Speaker 5: here on the Financial Exchange Radio Network. Go to YouTube
• 12:09
  Speaker 5: and search for the Financial Exchange and be sure to
• 12:12
  Speaker 5: hit that subscribe button.
• 12:14
  Speaker 2: As we mentioned during the last segment, as of today,
• 12:17
  Speaker 2: oil prices sitting above, sorry, diesel prices specifically sitting above $ 6. 50
• 12:24
  Speaker 2: per gallon, all-time high. As such, we continue to hear from,
• 12:28
  Speaker 2: I'm going to say congressmen and women and senators who
• 12:33
  Speaker 2: The idea of a temporary ban on exports of diesel,
• 12:37
  Speaker 2: it's been floated by several people. I have not seen
• 12:40
  Speaker 2: it given any seriousness from the president, but I do
• 12:43
  Speaker 2: expect that he could hypothetically do that via executive order.
• 12:47
  Speaker 2: Here's the concern. Diesel prices themselves are not really, I think,
• 12:52
  Speaker 2: a problem for the American psyche. Right. Like nobody looks
• 12:55
  Speaker 2: at diesel when they're driving by the gas station. I'm
• 12:58
  Speaker 2: not even 100 percent certain that my local gas station
• 13:01
  Speaker 2: advertises the price of diesel or sells diesel at my
• 13:04
  Speaker 2: town's gas station. So it is not front and center
• 13:06
  Speaker 2: in the same way that gasoline prices are. But we
• 13:09
  Speaker 2: all know the second order effects on diesel prices and inflation. Right.
• 13:13
  Speaker 2: We haven't I don't think seen all of them yet.
• 13:16
  Speaker 2: But food prices, most definitely apparel like everything. is going
• 13:23
  Speaker 2: to be affected by this. I think food is the
• 13:24
  Speaker 2: most concerning one because it's not only, you just think
• 13:27
  Speaker 2: of the complexity of delivering food across the country. You've
• 13:31
  Speaker 2: got to put diesel in the, uh, equipment to get
• 13:35
  Speaker 2: it out of the ground. You've got to put diesel
• 13:37
  Speaker 2: in the equipment to get it to market. Uh, sometimes
• 13:40
  Speaker 2: you've got to cool the stuff. It's oftentimes bulky and,
• 13:43
  Speaker 2: and you know, all of that is using diesel to handle.
• 13:46
  Speaker 2: If you're a, if you're a refrigerated truck, I'm guessing
• 13:48
  Speaker 2: you're using diesel to cool all the way there. And then, Obviously,
• 13:52
  Speaker 2: a lot of layers of complexity there. The second order
• 13:56
  Speaker 2: of effects, I just don't know how long they're going
• 13:58
  Speaker 2: to take to materialize on prices. I'm sure there are
• 14:02
  Speaker 2: plenty of retailers who are hesitant to raise prices on
• 14:04
  Speaker 2: their consumers. A lot of them just got tariff refunds
• 14:07
  Speaker 2: that they are trying. Walmart made a big point of this,
• 14:09
  Speaker 2: trying to lower prices here and there. I think, especially
• 14:14
  Speaker 2: if you are a small business who may still be
• 14:17
  Speaker 2: navigating the tariff refund situation. I don't know what you'd
• 14:21
  Speaker 2: do in this case. You're getting pretty heavily squeezed right
• 14:23
  Speaker 2: now with these diesel prices. I would raise prices.
• 14:25
  Speaker 3: Oh, I'm sure the smaller retailer or the smaller business
• 14:29
  Speaker 3: has to do it in much quicker.
• 14:32
  Speaker 2: And by the way, by smaller business, I mean like
• 14:34
  Speaker 2: Shaw's grocery stores.
• 14:36
  Speaker 4: I was thinking even smaller than that, yeah.
• 14:38
  Speaker 2: But think about this in order of magnitude. I'm not
• 14:41
  Speaker 2: really talking about small business being your mom and Pop.
• 14:46
  Speaker 3: Like a landscaping company. Some of these are always like
• 14:49
  Speaker 3: your garbage pickup service. All these ones, right away, you
• 14:53
  Speaker 3: have to think of raising your prices to just adjust
• 14:56
  Speaker 3: for what are some of the biggest input costs that
• 14:58
  Speaker 3: you have.
• 14:59
  Speaker 2: But even if you're a regional grocer, put yourself in
• 15:01
  Speaker 2: the owner's of market basket shoes. This is a company
• 15:04
  Speaker 2: that is very big regionally, but probably doesn't have the
• 15:09
  Speaker 2: type of access, or definitely doesn't have the type of
• 15:11
  Speaker 2: access to credit that, say, Costco or Walmart does. They
• 15:17
  Speaker 2: probably got some degree of tariff refunds as part of this,
• 15:21
  Speaker 2: but not substantial. And their borrowing costs are up substantially
• 15:26
  Speaker 2: from a year ago. And so, you know, if you're
• 15:29
  Speaker 2: sitting in that position, you're already a low margin business
• 15:32
  Speaker 2: if you're a market basket or any of these guys.
• 15:34
  Speaker 2: You don't have easy access to credit that you can
• 15:37
  Speaker 2: use to pay these fuel surcharges that you're facing. I
• 15:41
  Speaker 2: got to think you have to raise prices pretty dramatically,
• 15:43
  Speaker 2: pretty quickly.
• 15:44
  Speaker 3: That one's a little complicated just on the grocery store
• 15:47
  Speaker 3: example because so many vendors are selling into, like Nabisco
• 15:51
  Speaker 3: and Pepsi are selling into.
• 15:54
  Speaker 4: The grocery store.
• 15:55
  Speaker 3: So MarketBass is always going to take their margin, but
• 15:57
  Speaker 3: it's going to be on top of whatever the margin
• 15:59
  Speaker 3: is for a Campbell's or Pepsi or whatever you want
• 16:02
  Speaker 3: to say there. But there's private label stuff too, obviously,
• 16:05
  Speaker 3: that they have in there. It's been 200 days. And
• 16:09
  Speaker 3: typically what a business is going to do is if
• 16:12
  Speaker 3: it is a short-term supply shock, they are going to
• 16:15
  Speaker 3: hold back those price increases as much as possible. But
• 16:19
  Speaker 3: here we sit, you know, getting to a point in
• 16:21
  Speaker 3: time where when you're looking at $ 6. 50 a gallon for diesel,
• 16:27
  Speaker 3: it's just you find it hard to believe that there
• 16:29
  Speaker 3: is just the ability to continue to stave off those increases.
• 16:33
  Speaker 5: Yeah.
• 16:33
  Speaker 2: Tucker just sent me an announcement breaking from NBC 10 Boston.
• 16:37
  Speaker 2: Governor Moore Healy announced that she's filing legislation to suspend
• 16:42
  Speaker 2: the Massachusetts gas tax for two months, which would cut
• 16:45
  Speaker 2: the price of gasoline by 24 cents a gallon across
• 16:48
  Speaker 2: the state. I'm sure she won't be the last of
• 16:50
  Speaker 2: them to do so. I happen to think it's the
• 16:53
  Speaker 2: exact wrong policy, by the way, because what do you do?
• 16:57
  Speaker 2: Diesel is one thing, right? If you are purchasing diesel,
• 17:02
  Speaker 2: you are generally not responding to price. It's not as
• 17:05
  Speaker 2: though you're filling up the tank extra. If diesel prices
• 17:08
  Speaker 2: drop by 25 cents, you're filling the tank regardless and
• 17:12
  Speaker 2: you are just paying the price. Gasoline, on the other hand,
• 17:15
  Speaker 2: you are responding to price in some cases, right? Like
• 17:20
  Speaker 2: you might shop for the cheaper price. You also, if
• 17:22
  Speaker 2: it gets burdensomely high, might try and negotiate with your
• 17:25
  Speaker 2: employer to work from home a little bit more. You
• 17:27
  Speaker 2: might cancel the family vacation. You might commute via train
• 17:31
  Speaker 2: instead of via car to work. And if you are
• 17:35
  Speaker 2: getting rid of the gas tax, then you are just
• 17:37
  Speaker 2: going to increase demand across Massachusetts. I'm not adamantly opposed
• 17:43
  Speaker 2: to the policy here. I would much rather see a
• 17:45
  Speaker 2: more permanent solution to this where, hey, when gas is
• 17:48
  Speaker 2: like $ 3 a gallon, let's charge a higher tax rate
• 17:51
  Speaker 2: on it to make up for the times when it's
• 17:54
  Speaker 2: sitting near $ 5 a gallon and we need to waive
• 17:56
  Speaker 2: the gas tax. So I don't think it's the end
• 17:58
  Speaker 2: of the world that we're seeing this, but some response
• 18:01
  Speaker 2: here from the state of Massachusetts at least to cut
• 18:04
  Speaker 2: that gas tax. We will see if other states follow.
• 18:06
  Speaker 2: California's collection of gasoline tax right now, because it is
• 18:11
  Speaker 2: a percentage, must be enormous. Didn't we cover this the
• 18:15
  Speaker 2: other day? Wasn't their tax on every gallon of diesel
• 18:17
  Speaker 2: like $ 1. 30 a gallon now because of the percentage? I
• 18:20
  Speaker 2: think it's massive right now.
• 18:22
  Speaker 3: I wonder how much of this is political pressure because
• 18:24
  Speaker 3: I just heard an advertisement yesterday criticizing Healy for not
• 18:28
  Speaker 3: stripping out the gas tax, and here you have it.
• 18:32
  Speaker 4: I agree with you. I don't know if that's the
• 18:34
  Speaker 4: right way to attack it, but.
• 18:35
  Speaker 2: Yeah, it's definitely a very temporary fix. It's not going to... Again,
• 18:40
  Speaker 2: it exacerbates the issue. If what we have right now
• 18:43
  Speaker 2: is a supply issue where we cannot get enough refined
• 18:46
  Speaker 2: products into our country, then by cutting the tax and
• 18:49
  Speaker 2: lowering the price, you are going to increase demand and
• 18:52
  Speaker 2: make the ultimate problem of gasoline shortages worse. So Text
• 18:58
  Speaker 2: the show, by the way, at 617-362-1385 with your own thoughts, comments, etc.
• 19:03
  Speaker 2: Always like reading those off and checking in on that.
• 19:07
  Speaker 2: Got to take a quick break. When we return, we're
• 19:11
  Speaker 2: going to get a full market recap with Wall Street Watch,
• 19:15
  Speaker 2: and then I want to talk about interest rates. Not
• 19:18
  Speaker 2: just what the Fed's doing, but interest rates that all
• 19:21
  Speaker 2: of us actually pay and whether or not the economy
• 19:24
  Speaker 2: can handle them. That's next after Wall Street Watch.
• 19:40
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:42
  Speaker 1: TFE Show. Breaking business news is always first, right here
• 19:47
  Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
• 19:52
  Speaker 1: Street Watch. Tracking the stocks, the data, and the headlines
• 19:55
  Speaker 1: driving markets so far today, right here on the Financial
• 19:58
  Speaker 1: Exchange Radio Network.
• 20:00
  Speaker 5: Following yesterday's strong AI-fueled rally, markets today are mixed. Oil
• 20:04
  Speaker 5: prices continue to pull back. After reports that Iran suggested
• 20:08
  Speaker 5: it could reopen the Strait of Hormuz within seven days
• 20:11
  Speaker 5: if the U.S. eases military pressure and lifts its blockade.
• 20:14
  Speaker 5: Right now, the Dow is down about a half a
• 20:17
  Speaker 5: percent or 232 points. Lower S & P 500 is
• 20:20
  Speaker 5: edging only six points higher. NASDAQ up over half a
• 20:23
  Speaker 5: percent or 149 points. Up Russell 2000. is up over
• 20:28
  Speaker 5: eight-tenths of one percent. Ten-year treasury yield is flat at 4.955 percent.
• 20:34
  Speaker 5: Crude oil down one percent to trade at $ 94 a barrel,
• 20:36
  Speaker 5: while Brent is trading at $ 99 a barrel. After its
• 20:40
  Speaker 5: 11 percent leap yesterday, Meta up another one percent today.
• 20:45
  Speaker 5: Monday's jump was driven by Meta's new AI agent Muse,
• 20:49
  Speaker 5: notching the top spot in Apple's App Store. Speaking of Meta,
• 20:53
  Speaker 5: Shopify is partnering with The Facebook and Instagram parent company
• 20:57
  Speaker 5: with plans to allow its Muse AI agent to complete
• 21:00
  Speaker 5: purchases on behalf of users with the e-commerce platform's roster
• 21:05
  Speaker 5: of stores. Shopify up by 7% elsewhere. Alibaba unveiled its
• 21:10
  Speaker 5: most powerful chip yet, doubling down on its bid to
• 21:13
  Speaker 5: control the software and hardware industry. that powers its AI ambitions.
• 21:18
  Speaker 1: U.S.
• 21:18
  Speaker 5: Listed shares of Alibaba are up nearly 2% and Swiss
• 21:22
  Speaker 5: sneaker maker On Holding is rallying 13% after delivering encouraging
• 21:28
  Speaker 5: financial targets at its investor day. I'm Tucker Silva and
• 21:33
  Speaker 5: that is Wall Street Watch.
• 21:37
  Speaker 2: Paul, we've got a piece in the Wall Street Journal
• 21:38
  Speaker 2: about the silver lining in soaring interest rates. So let's
• 21:42
  Speaker 2: define that soaring interest rate comment first, because at the
• 21:45
  Speaker 2: beginning of this year, the 10-year Treasury was sitting at.
• 21:51
  Speaker 4: I'm going to go with around 4%, I guess.
• 21:53
  Speaker 1: 4%.
• 21:56
  Speaker 2: Come on. 4.15% as of January 1st of this year.
• 22:00
  Speaker 2: We're now at just shy of 5%. Very big surge
• 22:03
  Speaker 2: in interest rates, nearly a full percentage point.
• 22:05
  Speaker 3: Highest since 2007 when we eclipsed 5% earlier a couple
• 22:10
  Speaker 3: weeks ago.
• 22:10
  Speaker 2: Right. So on that 10-year treasury, to translate that into
• 22:14
  Speaker 2: interest rates that everyone listening is actually familiar with, on
• 22:18
  Speaker 2: January 1st of this year, You had the 30-year fixed
• 22:22
  Speaker 2: rate mortgage sitting at 6.2%. It's now almost exactly a
• 22:27
  Speaker 2: full percentage point higher. Roughly corresponds to what we see
• 22:30
  Speaker 2: in the 10-year treasury market for a number of different reasons.
• 22:34
  Speaker 2: In spite of that, according to the Atlanta Federal Reserve,
• 22:38
  Speaker 2: they put together an estimate of where GDP is at
• 22:41
  Speaker 2: any given point in time. Their third quarter GDP now
• 22:44
  Speaker 2: estimate for this moment in time, which was updated as
• 22:47
  Speaker 2: of last week, is 5.1%. Meaning the economy, as we
• 22:51
  Speaker 2: measure it through GDP, is growing at the pace of 5.1% annualized.
• 22:58
  Speaker 2: That does not sound to me like interest rates are
• 23:00
  Speaker 2: having any effect whatsoever on slowing this economy. And the
• 23:05
  Speaker 2: conclusion that I draw, backed up by a whole bunch
• 23:09
  Speaker 2: of evidence on where the growth is coming from is
• 23:12
  Speaker 2: that it's only because this entire economy right now is
• 23:17
  Speaker 2: artificial intelligence. I am exaggerating, of course, but let me
• 23:22
  Speaker 2: give you some figures from the Bureau of Economic Analysis.
• 23:28
  Speaker 2: They have this tool that allows you to look at
• 23:31
  Speaker 2: the contribution of GDP based on So remember what GDP is, right?
• 23:36
  Speaker 2: It's really spending. It's the flow of money. It's not
• 23:39
  Speaker 2: what everything's worth in the economy. It's the pace of
• 23:42
  Speaker 2: spending in this economy is how we effectively measure GDP.
• 23:46
  Speaker 3: Two-thirds of it, personal consumption, and the other thirds broke
• 23:49
  Speaker 3: out to government spending and also the private investment.
• 23:52
  Speaker 2: So when we take a look at, let's say, 2019,
• 23:56
  Speaker 2: there's two categories within the GDP measurement that we can
• 24:00
  Speaker 2: put together here. And if we go take a look
• 24:02
  Speaker 2: at 2019, just a pre-COVID strong economy as an example,
• 24:07
  Speaker 2: the residential investment part of this was making up about
• 24:11
  Speaker 2: $ 750 billion in the first quarter of 2019. The information
• 24:17
  Speaker 2: processing equipment, computers, data centers, all sorts of technology products
• 24:26
  Speaker 2: in that first quarter of 2019, looks like it was
• 24:30
  Speaker 2: around $ 425 billion. Okay, so we've got the rough range here.
• 24:37
  Speaker 2: It was a little bit more than half of residential investment.
• 24:40
  Speaker 2: Residential investment, new homes being built, repairs to your existing home,
• 24:45
  Speaker 2: a renovation, new couches in your home, any of that
• 24:50
  Speaker 2: stuff is going to the residential piece. Any sort of
• 24:53
  Speaker 2: largely business spending on computer equipment, although personal too, is
• 24:57
  Speaker 2: going into that piece. As of the most recent read
• 25:00
  Speaker 2: on this data, which was Q1 of 2026, the information
• 25:05
  Speaker 2: processing equipment is now in excess of $ 750 billion, which
• 25:11
  Speaker 2: is about the same level of residential. It's actually slightly
• 25:13
  Speaker 2: above it. We used to talk about this economy in
• 25:16
  Speaker 2: terms of housing, right? It's really tough to have a
• 25:19
  Speaker 2: booming economy without a lot of housing activity. Likewise, it's
• 25:24
  Speaker 2: really tough to have a recession when there's a lot
• 25:26
  Speaker 2: of pent-up demand for housing. Construction just leads to all
• 25:30
  Speaker 2: sorts of other economic activity. It does not matter as
• 25:33
  Speaker 2: much now. The economy is being defined right now by
• 25:38
  Speaker 2: the growth in AI spending, not anything that could or
• 25:40
  Speaker 2: is happening in residential real estate. And that's been to
• 25:45
  Speaker 2: the benefit of the stock market and employment and everything else.
• 25:49
  Speaker 2: I guess the question is, which one do we think
• 25:52
  Speaker 2: is going to be more volatile and potential for downturn?
• 25:59
  Speaker 4: Yeah, the tech one, obviously.
• 26:01
  Speaker 3: Yeah, it's far more cyclical in nature, whereas housing is
• 26:05
  Speaker 3: a little bit more defined by life events and tends
• 26:09
  Speaker 3: to be a little bit more predictable in nature that
• 26:12
  Speaker 3: demographics are going to continue to age and the 5Ds
• 26:15
  Speaker 3: of housing will emerge, divorce, downsizing, etc. diapers for new kids,
• 26:19
  Speaker 3: diamonds in marriages and death. Whereas with infrastructure for artificial
• 26:25
  Speaker 3: intelligence and tech, yeah, it can have tremendous amount of momentum.
• 26:29
  Speaker 3: The question that we all sit around here and pontificate
• 26:33
  Speaker 3: on is how long does that go for? Usually with
• 26:37
  Speaker 3: any type of tech technology, investment period, it's got its
• 26:41
  Speaker 3: boons and busts. Um, and that's why there's been invoked
• 26:44
  Speaker 3: comparisons to whether it's, you know, the internet build out
• 26:48
  Speaker 3: or going all the way back to the railroads that
• 26:50
  Speaker 3: that is really what we are most focused on right now.
• 26:54
  Speaker 3: It is wild Mike to see them crisscross because housing
• 27:00
  Speaker 3: is just so much more prevalent in On a day-to-day basis,
• 27:05
  Speaker 3: driving around and just your day-to-day experience with the economy,
• 27:09
  Speaker 3: it's so much easier to get your eyes wrapped around that.
• 27:12
  Speaker 3: But these data centers are being constructed in the middle
• 27:14
  Speaker 3: of nowhere for the most part. So while you see
• 27:16
  Speaker 3: the numbers, you don't see just how much investment is
• 27:20
  Speaker 3: going in there. And I've heard– I was talking with
• 27:22
  Speaker 3: a client this past week whose brother is in– He's
• 27:25
  Speaker 3: in construction and is working out in Milwaukee. He's based
• 27:29
  Speaker 3: out of the Boston area, but is working out of
• 27:31
  Speaker 3: Milwaukee because he's getting paid to work on data centers.
• 27:35
  Speaker 5: Leaving your IRA to your children may sound like the
• 27:38
  Speaker 5: obvious choice, but how they receive that money could have
• 27:41
  Speaker 5: important tax consequences.
• 27:43
  Speaker 4: Cushing and Dolan has a.
• 27:44
  Speaker 5: New guide called Why Name Your Estate an IRA Beneficiary.
• 27:48
  Speaker 5: Under current rules, most adult children who inherit an IRA
• 27:52
  Speaker 5: must withdraw the money within 10 years. That could mean
• 27:55
  Speaker 5: taking retirement distributions while they're still working and earning income,
• 28:00
  Speaker 5: potentially creating a larger tax bill. That's one reason why
• 28:03
  Speaker 5: your IRA beneficiary should be part of your overall estate plan.
• 28:08
  Speaker 5: Who receives the account, how they receive it, and the
• 28:10
  Speaker 5: tax consequences that may follow all deserve careful consideration. Get
• 28:15
  Speaker 5: Cushing and Dillon's new guide called Why Name Your Estate
• 28:18
  Speaker 5: an IRA Beneficiary by calling the number 866-848- 888-5699. That
• 28:25
  Speaker 5: number again is 866-848-5699. Or you can request the guide
• 28:31
  Speaker 5: from their website, LegalExchangeShow.com.
• 28:35
  Speaker 1: The proceeding was paid for and the views expressed are
• 28:37
  Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
• 28:39
  Speaker 1: or Armstrong Advisory may contact you offering legal or investment services.
• 28:42
  Speaker 1: Cushing and Armstrong do not endorse each other and are
• 28:44
  Speaker 1: not affiliated.
• 28:46
  Speaker 2: This whole conversation, Paul, really to me, raises the question,
• 28:51
  Speaker 2: so what is the point of the Fed raising interest rates?
• 28:54
  Speaker 2: We just talked about it. It doesn't seem like it's
• 28:55
  Speaker 2: having any effect on the economy. It doesn't seem like
• 28:59
  Speaker 2: it would slow AI data center construction. That's where the
• 29:02
  Speaker 2: growth and the inflation is coming from. What exactly is
• 29:05
  Speaker 2: the point? I personally do think it's still worth doing.
• 29:09
  Speaker 2: Mohamed El-Erian writes this week in the Financial Times about,
• 29:15
  Speaker 2: you know, the Fed shouldn't really be the only game
• 29:17
  Speaker 2: in town. And the responsible thing would be to, in
• 29:20
  Speaker 2: addition to the Fed raising rates, have lawmakers do something
• 29:27
  Speaker 2: about the fiscal situation of deficits, which isn't going to happen,
• 29:32
  Speaker 2: or policymakers globally to do something about the tremendous choke
• 29:37
  Speaker 2: points of things, all sorts of oils and other materials
• 29:43
  Speaker 2: that are going on in the Middle East right now.
• 29:45
  Speaker 2: And realistically, I don't think I see either of those happening.
• 29:49
  Speaker 2: But if you are concerned about a boom and bust
• 29:54
  Speaker 2: cycle coming from data centers, which I certainly am, the
• 29:58
  Speaker 2: best thing that you could do as a lawmaker today
• 30:01
  Speaker 2: and as the Federal Reserve, I think, would be to
• 30:04
  Speaker 2: build your dry powder to be able to respond to
• 30:07
  Speaker 2: that corresponding decrease in economic activity if that bubble pops.
• 30:12
  Speaker 2: And one way to do that is to raise rates
• 30:14
  Speaker 2: higher now so you can cut them down the road.
• 30:16
  Speaker 2: Another way to do it would be to stop spending
• 30:19
  Speaker 2: so much damn money from the government in order to
• 30:24
  Speaker 2: be able to spend that money when we actually need it,
• 30:26
  Speaker 2: when economic activity dries up, unemployment shoots up, and a
• 30:30
  Speaker 2: bunch of companies are going bankrupt, and I just see
• 30:33
  Speaker 2: absolutely no intention whatsoever from lawmakers to do anything like that.
• 30:38
  Speaker 3: Yeah, I don't mean to be so crass, but when
• 30:41
  Speaker 3: I read this piece from Muhammad Al-Aryan.
• 30:44
  Speaker 1: Is it?
• 30:45
  Speaker 2: Muhammad Al-Aryan.
• 30:45
  Speaker 4: Al-Aryan.
• 30:46
  Speaker 2: You got to say it quickly.
• 30:48
  Speaker 3: I sit back and say, no bleep, no kidding. Yeah,
• 30:51
  Speaker 3: I'm with you. I agree with his sentiment, but just
• 30:54
  Speaker 3: like you alluded to just a moment ago, like, We
• 30:58
  Speaker 3: all agree that's the right thing to do, but it's
• 31:00
  Speaker 3: not going to happen.
• 31:01
  Speaker 2: I'm not sure that we do. I think you and
• 31:04
  Speaker 2: I agree, but go poll people on what they think
• 31:08
  Speaker 2: about the $ 5, 000 dividend checks that President floated, and I
• 31:11
  Speaker 2: bet that more than half say that's a great idea.
• 31:14
  Speaker 2: So I'm not sure that everyone does agree that this
• 31:17
  Speaker 2: level of government spending, that the deficits that we are
• 31:19
  Speaker 2: running are irresponsible and going to lead to problems, because
• 31:22
  Speaker 2: over and over again, when I look at polls of
• 31:24
  Speaker 2: the general public, They seem to be very, very in
• 31:28
  Speaker 2: favor of populist ideas, whether it is stimulus checks from
• 31:34
  Speaker 2: the president or price controls or any of these different
• 31:38
  Speaker 2: things that we've proven out are stupid ideas that make
• 31:40
  Speaker 2: the economy worse, but are very popular right now because
• 31:44
  Speaker 2: people are, I think, having a moment where they very
• 31:47
  Speaker 2: much doubt free market capitalism.
• 31:49
  Speaker 3: It's like polling middle schoolers or, you know, elementary school
• 31:52
  Speaker 3: kids if they'd want to have recess all day.
• 31:53
  Speaker 4: Like, yeah, obviously they would, but.
• 31:56
  Speaker 2: So you're comparing the.
• 31:57
  Speaker 4: No, I'm not saying.
• 31:58
  Speaker 2: You're comparing the voting populace to middle schoolers.
• 32:01
  Speaker 4: I'm not saying that. I'm saying that if you.
• 32:04
  Speaker 2: I would.
• 32:04
  Speaker 3: There has to... If it's free money, there's no such
• 32:09
  Speaker 3: thing as a free lunch. Like, and people have to
• 32:11
  Speaker 3: be aware or at least the policymakers that we've voted
• 32:15
  Speaker 3: into these roles have to be aware to take... the
• 32:19
  Speaker 3: disciplined approach to what is best for the fiscal health
• 32:23
  Speaker 3: of the country. And we all know it's not just
• 32:27
  Speaker 3: printing money. I'd love to just dump out my bank
• 32:29
  Speaker 3: account and take my wife and kids on, you know,
• 32:32
  Speaker 3: a six-month vacation in the south of France or wherever
• 32:35
  Speaker 3: you want to say.
• 32:36
  Speaker 4: But at some point in time, you know, that's going
• 32:39
  Speaker 4: to screw me over.
• 32:40
  Speaker 2: When the people find that they can vote themselves money,
• 32:43
  Speaker 2: that will herald the end of the republic. Let's take
• 32:46
  Speaker 2: a quick break. When we return, let's talk about the
• 32:52
  Speaker 2: bond market, what we're seeing there, and Bessett's comment around it.
• 32:55
  Speaker 2: It's next on the Financial Exchange.
• 32:57
  Speaker 1: This is your home for the most comprehensive coverage of
• 33:00
  Speaker 1: the economy and the trends on Wall Street. This is
• 33:03
  Speaker 1: the Financial Exchange Radio Network. Subscribe now to our YouTube
• 33:08
  Speaker 1: page where you'll find daily interviews and full shows of
• 33:10
  Speaker 1: the Financial Exchange. We'll get you caught up on anything
• 33:14
  Speaker 1: and everything you might have missed right here on the
• 33:16
  Speaker 1: Financial Exchange.
• 33:27
  Speaker 2: Paul, during the last segment, we were talking about the
• 33:29
  Speaker 2: pretty dramatic increase in yields here in the United States.
• 33:32
  Speaker 2: We've gone from about 415 to nearly 5% on the
• 33:36
  Speaker 2: 10-year Treasury, about a full percentage point jump in interest
• 33:39
  Speaker 2: rates on the 30-year fixed-rate mortgage. And again, for people
• 33:44
  Speaker 2: that don't look at the bond market every day, what
• 33:46
  Speaker 2: that means is that the price of your bonds has fallen.
• 33:50
  Speaker 2: If the yield went up by a full percentage point
• 33:51
  Speaker 2: on the 10-year Treasury, it means that the price of
• 33:53
  Speaker 2: that 10-year Treasury has gone down since the beginning of January.
• 33:57
  Speaker 2: And in spite of that, Treasury Secretary Besant told Congress
• 34:02
  Speaker 2: last week that the U.S. was, quote, the best performing
• 34:05
  Speaker 2: bond market in the developed world, which when put to
• 34:10
  Speaker 2: the test is a pretty difficult statement to make. I
• 34:14
  Speaker 2: recognize you're the Treasury Secretary, and so you need to
• 34:17
  Speaker 2: make these kind of comments. But, you know, taking a
• 34:20
  Speaker 2: look at things here from the start of the current
• 34:25
  Speaker 2: Trump administration through the day, Besant made his comment, the
• 34:29
  Speaker 2: 10-year Treasury yield rose less than those five other countries.
• 34:34
  Speaker 2: So if you're going to, I guess, pick that timeframe,
• 34:37
  Speaker 2: then that works. But the U.S. is not the outperformer
• 34:41
  Speaker 2: since the start of the year. That would be Germany.
• 34:44
  Speaker 2: During the month preceding Besson's comments, Japan was better performing
• 34:48
  Speaker 2: than the United States. So I'm not sure that the
• 34:51
  Speaker 2: comments really hold any water. None.
• 34:53
  Speaker 4: Absolutely none.
• 34:54
  Speaker 3: This is ridiculous. No one here domestically is going to
• 34:58
  Speaker 3: care about those results. First of all, the credit ratings
• 35:02
  Speaker 3: vary between these countries in comparison. So that's one thing
• 35:05
  Speaker 3: to take in mind in the first place, that looking up,
• 35:08
  Speaker 3: The credit quality ratings, only Germany has stronger than that
• 35:11
  Speaker 3: of the U.S.
• 35:12
  Speaker 2: The U.S.
• 35:12
  Speaker 3: Is AA on its debt. I believe Germany, in some
• 35:15
  Speaker 3: ratings agency out there, is almost AAA. But the other
• 35:19
  Speaker 3: ones mentioned here, Italy in particular and France, are not
• 35:25
  Speaker 3: nearly the same sort of credit quality, meaning just the
• 35:29
  Speaker 3: ability to issue debt at lower rates and the reliability ranking,
• 35:32
  Speaker 3: I guess, is the way I would sort of put
• 35:34
  Speaker 3: it to listeners. So that's the first thing. You're not comparing...
• 35:37
  Speaker 3: apples to apples on that aspect of things. The second
• 35:39
  Speaker 3: thing is, for any bond investor domestically, primarily the bulk
• 35:45
  Speaker 3: of your bonds are going to be US-based. You can
• 35:48
  Speaker 3: invest in emerging market debt, but for many investors out there,
• 35:51
  Speaker 3: this is just.
• 35:53
  Speaker 4: A non-starter.
• 35:54
  Speaker 3: I mean, your bonds are down, and yeah, okay, they're
• 35:56
  Speaker 3: down less than maybe some other countries that you don't
• 35:59
  Speaker 3: invest in anyway, so who cares? Ultimately, the mortgage rate
• 36:03
  Speaker 3: that you're borrowing at, if you're the person buying a
• 36:05
  Speaker 3: new house, it's 1% higher. Those are the facts of
• 36:08
  Speaker 3: the situation, and I know it's his job to defend it.
• 36:11
  Speaker 3: But I hate when leaders or officials just give you
• 36:16
  Speaker 3: this baloney and just make it seem like you're just
• 36:19
  Speaker 3: supposed to just take it by it.
• 36:21
  Speaker 1: Yeah.
• 36:21
  Speaker 4: Just like be straight about it.
• 36:23
  Speaker 2: The other comment that I'll make and I'll try and
• 36:25
  Speaker 2: find the study on this that was done pretty recently, but.
• 36:29
  Speaker 2: throughout much of the 20th century, the United States received
• 36:33
  Speaker 2: this seemingly unable to identify benefit just by being the
• 36:38
  Speaker 2: reserve currency and just the United States debt market. And
• 36:41
  Speaker 2: you could measure this. The way you did it was
• 36:43
  Speaker 2: you would look at the interest rate on, say, a
• 36:46
  Speaker 2: 30-year German bond and a 30-year U.S. bond, and then
• 36:50
  Speaker 2: you'd hedge them for currency risk. And if you just
• 36:53
  Speaker 2: assume that, hey, both of these are equally likely to
• 36:55
  Speaker 2: pay you back, which one should pay a lower yield.
• 37:01
  Speaker 2: And for decades, it was the U.S. bond. You could
• 37:04
  Speaker 2: do the same thing with corporate bonds, right? Look at
• 37:06
  Speaker 2: a U.S. 10-year government bond versus a 10-year Microsoft bond,
• 37:11
  Speaker 2: for example. And then you hedge them for default risk.
• 37:14
  Speaker 2: And still, the interest rate on the U.S. government bond
• 37:17
  Speaker 2: was lower because people wanted to hold that. Apparently, according
• 37:21
  Speaker 2: to the study, that benefit has disappeared.
• 37:24
  Speaker 5: Right?
• 37:24
  Speaker 2: Like, don't get me wrong. government bond yields are still
• 37:27
  Speaker 2: lower than what you would get on other countries' debt.
• 37:30
  Speaker 2: But when you hedge away that currency risk, when you
• 37:34
  Speaker 2: hedge away that default risk on the corporate bond, that
• 37:38
  Speaker 2: benefit does not apparently exist anymore in the same way
• 37:41
  Speaker 2: that it did throughout the, again, much of the 20th century.
• 37:46
  Speaker 2: And I don't think I can put my finger precisely
• 37:49
  Speaker 2: on what that difference is.
• 37:51
  Speaker 4: $ 40 trillion in debt.
• 37:52
  Speaker 2: That might be a big piece of it. It could
• 37:55
  Speaker 2: be geopolitical stuff. It could be any number of things.
• 37:58
  Speaker 2: But that is something that I find interesting. The difference
• 38:02
  Speaker 2: in Japanese performance over a weirdly chosen timeline is, yeah,
• 38:08
  Speaker 2: throw it in the trash. Quick break. A lot more
• 38:10
  Speaker 2: to cover in the second hour of the Financial Exchange.
• 38:12
  Speaker 2: We'll be right back.