Latest / The Financial Exchange Show / Oil Markets Still Aren’t Buying Relief

Transcript

Oil Markets Still Aren’t Buying Relief · The Financial Exchange Show

0:00
Speaker 1: The Financial Exchange is produced by Money Matters Radio and
0:02
Speaker 1: is hosted by employees of the Armstrong Advisory Group, a
0:05
Speaker 1: registered investment advisor. All opinions expressed are solely those of
0:08
Speaker 1: the hosts. Do not reflect the opinions of Armstrong Advisory
0:11
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
0:17
Speaker 1: your own financial tax and estate planning advisors before making
0:20
Speaker 1: any investment decisions. Armstrong Advisory and the advertisers heard on
0:23
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
0:28
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,
0:42
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
0:50
Speaker 1: Financial Exchange is a proud partner of the Disabled American
0:53
Speaker 1: Veterans Department of Massachusetts. Help us support our great American
0:57
Speaker 1: heroes by visiting DAV5K. Boston and making a donation today. This
1:03
Speaker 1: is the Financial Exchange with Mike Armstrong and Paul Lane.
1:11
Speaker 2: Good morning.
1:12
Speaker 3: Welcome back here to the Financial Exchange. We've got markets
1:16
Speaker 3: in slight sell-off mode to kick off the month of
1:19
Speaker 3: October after the S & P 500 closed yesterday. The
1:22
Speaker 3: month of September down half a percent with nine out
1:25
Speaker 3: of 11 sectors in the S & P closing down.
1:28
Speaker 3: I'll let you guess which ones closed up, tech and
1:32
Speaker 3: other tech, communication services, which is Facebook and Google. We've
1:37
Speaker 3: got the Dow Jones Industrial Average off two-thirds of a percent,
1:40
Speaker 3: the S & P 500 off a third, and the
1:42
Speaker 3: NASDAQ down about a quarter of a percent in early trading.
1:46
Speaker 3: All eyes have been on, though, the bond market over
1:49
Speaker 3: the course of the month of September.
1:51
Speaker 2: The U.S.
1:52
Speaker 3: 10-year Treasury now sitting at 5.31%, which is bringing us
1:57
Speaker 3: to mortgage rates that are quite possibly approaching 8% again.
2:02
Speaker 3: Last time we were there was, was it 23, I believe?
2:06
Speaker 2: Let's see here.
2:07
Speaker 4: 23, we got up to 7.8, I want to say.
2:08
Speaker 4: For October of 23, we hit 7.97 on the average 30-year.
2:10
Speaker 2: Fixed rate mortgage.
2:17
Speaker 3: So we've not quite been, oh yeah, we did actually
2:19
Speaker 3: briefly get above eight around then. I'm having a tough
2:22
Speaker 3: time getting my cursor right over it. But sometime in
2:25
Speaker 3: the fall of 23, we did get to an average
2:29
Speaker 3: up there.
2:29
Speaker 2: As of yesterday on.
2:31
Speaker 3: That 30-year fixed rate, according to Mortgage News Daily, we
2:33
Speaker 3: were sitting at 7.6%. Slight move upward in yields again today,
2:38
Speaker 3: likely to drive that even higher. So we will see
2:42
Speaker 3: what happens when we get a reading on that tomorrow.
2:45
Speaker 3: gasoline sitting now at $ 4. 41 per gallon for the national average,
2:50
Speaker 3: according to AAA. That's a little bit higher than where
2:54
Speaker 3: we were a month ago when we were still about $ 4. 10
2:59
Speaker 3: a gallon. On the diesel prices, a little bit of
3:03
Speaker 3: relief here, but we need a lot more relief to
3:06
Speaker 3: see any sort of dent in expected inflation. We're sitting
3:09
Speaker 3: at a national average on diesel prices of $ 6. 00 39
3:13
Speaker 3: cents a gallon, which is down from the September 22nd
3:16
Speaker 3: high of $ 6.
3:16
Speaker 2: 53. Paul, anything else catching your eye in markets this morning?
3:22
Speaker 4: No, it's all about the bond market, like you covered.
3:26
Speaker 3: So what we have been getting whisperings of is the
3:30
Speaker 3: energy market. And I don't think what's happening in the
3:33
Speaker 3: Middle East is what's going on with diesel prices coming
3:36
Speaker 3: down a bit. That seems to be related to refining
3:39
Speaker 3: capacity here in the U.S. coming back online. So that's
3:42
Speaker 3: helping drive down that national average. But we are seeing
3:46
Speaker 3: now oil, we covered this earlier this week, seeping through
3:51
Speaker 3: the Middle East at a.
3:52
Speaker 2: Pretty good rate in spite of.
3:55
Speaker 3: The threat to shipping from Iran. And I think partly
3:59
Speaker 3: this comes from desperation. Oil companies have tankers that have
4:02
Speaker 3: been sitting there for quite some time You know, strategic
4:05
Speaker 3: reserves globally are getting quite low. And so these companies
4:09
Speaker 3: are effectively saying and these countries are directing them to
4:13
Speaker 3: take the risk, run the potential risk of getting shot
4:16
Speaker 3: at and.
4:16
Speaker 2: Move the energy out of the Middle East, out of
4:19
Speaker 2: out of the Strait of Hormuz.
4:22
Speaker 3: And yet, oil price is not really moving a whole
4:25
Speaker 3: lot on the fact that, yeah, I mean, energy, oil
4:29
Speaker 3: is going out of the Middle East at a pace
4:31
Speaker 3: of about 80% to 90% of what we were seeing
4:33
Speaker 3: pre-war right now.
4:34
Speaker 4: Really, what it comes down to, the reason why that
4:37
Speaker 4: premium still exists in my mind is that the risks
4:41
Speaker 4: that loom out there, as you mentioned, countries being a
4:44
Speaker 4: little bit more aggressive to try and get energy or
4:47
Speaker 4: trying to get oil moved around, and there just doesn't
4:50
Speaker 4: seem to be... any clear path to resolution with this conflict,
4:55
Speaker 4: unlike at least in prior months, many people could point
4:59
Speaker 4: to perhaps something of a resolution. Those hopes have largely faded,
5:05
Speaker 4: and I feel like the energy market is reflecting that.
5:08
Speaker 4: That combined with there just isn't really many fallback plans here.
5:13
Speaker 4: A lot of these short-term fixes have been deployed, and
5:17
Speaker 4: as a result of that, For example, domestically, 130 million
5:22
Speaker 4: barrels have been withdrawn from the U.S. strategic reserves. We
5:25
Speaker 4: now sit at the lowest level since 1982. There aren't
5:28
Speaker 4: really many more levers that can be pulled in the
5:32
Speaker 4: short term other than just trying to push this through.
5:35
Speaker 4: And then globally, you have China, who really helped in
5:39
Speaker 4: a sense earlier this year by not making this oil
5:42
Speaker 4: outbreak as bad as it could have been by curtailing
5:45
Speaker 4: some of their imports of oil. Those have started to
5:48
Speaker 4: pick back up a little bit.
5:49
Speaker 3: So it just feels like 30 percent more oil was
5:52
Speaker 3: loaded onto tankers destined for China in September than it
5:55
Speaker 3: was in May.
5:55
Speaker 4: Right.
5:56
Speaker 3: In addition, I'm just seeing this flash now. Oil prices
5:59
Speaker 3: are increasing today as Chinese refiners are reportedly banned from
6:04
Speaker 3: exporting any fuel for the month of October.
6:07
Speaker 4: Wow.
6:07
Speaker 2: So that's new.
6:09
Speaker 3: That's got oil, especially the Brent crude price, up three
6:12
Speaker 3: and a quarter percent. One other interesting just tidbit and
6:15
Speaker 3: statistic to have in your back pocket, the cost now
6:17
Speaker 3: of moving oil by sea from the Gulf to East
6:21
Speaker 3: Asia is currently around $ 34 per barrel. You can account
6:26
Speaker 3: that to not only higher shipping costs from fuel prices
6:29
Speaker 3: and things like that, but the risk cost of moving that,
6:33
Speaker 3: the insurance cost, is up massively compared to an average
6:38
Speaker 3: of $ 3 per barrel back in January. That's according to
6:42
Speaker 3: Argus here. So the cost to move this energy is
6:46
Speaker 3: up substantially. And I think to your point, I think
6:49
Speaker 3: betters and traders are probably pricing in that risk of, well,
6:53
Speaker 3: you know, does this get disrupted again? And yeah, to
6:57
Speaker 3: your point, this China piece is huge, right? The China
6:59
Speaker 3: effectively dramatically cut back the amount of oil that they
7:03
Speaker 3: were importing over the course of the last six months
7:06
Speaker 3: and held prices down to some degree and This would
7:10
Speaker 3: indicate that they are unable or unwilling to continue to
7:13
Speaker 3: do that and are now importing the oil at a
7:15
Speaker 3: pretty heavy clip, and that can continue for some time.
7:19
Speaker 3: All of this leads back then to the conversation about
7:22
Speaker 3: refined products, because if China is now saying, hey, we're
7:26
Speaker 3: going to import crude and not export any refined product,
7:31
Speaker 3: then that throws another monkey wrench into all of this stuff.
7:34
Speaker 3: You're in a place now where most countries have drawn
7:37
Speaker 3: down their strategic reserves substantially, including.
7:40
Speaker 2: Here in the United States.
7:41
Speaker 3: So they are looking to refill those if possible, unable
7:46
Speaker 3: to do so a whole lot further. And I guess
7:51
Speaker 3: just strategically here, if we look at the war in Iran,
7:54
Speaker 3: and I don't think that I can put myself in
7:58
Speaker 3: the position of Iranian military, but right now what you're
8:01
Speaker 3: seeing is is in spite of your threats to global
8:05
Speaker 3: shipping lanes and threats to, you know, striking oil, you're
8:10
Speaker 3: seeing record amounts of oil leave the Strait of Hormuz in,
8:16
Speaker 3: you know, disregard for the threats that you're making.
8:20
Speaker 2: There's two kind of ways that plays out.
8:22
Speaker 3: Either you, you know, strike out and try to, you know,
8:28
Speaker 3: get the world's attention again, as the Iranians have done
8:31
Speaker 3: plenty over the course of the last seven months, or
8:34
Speaker 3: you capitulate in some meaningful way. Maybe you do not
8:38
Speaker 3: have the ability to strike out, but I kind of
8:41
Speaker 3: doubt that based on how this war has gone. Your
8:45
Speaker 3: main strategic threat has been, oh, we learned that we
8:48
Speaker 3: can cut off fuel from the.
8:50
Speaker 2: Middle East from leaving the Strait of Hormuz.
8:53
Speaker 3: And by the way, through our Iranian-backed Houthi rebels in Yemen,
8:58
Speaker 3: cut off other shipping lanes as well.
9:02
Speaker 2: Everybody knew when that started.
9:03
Speaker 3: That that was not going to be a limitless threat, right?
9:06
Speaker 3: Like eventually they're going to find ways to reroute the
9:08
Speaker 3: oil and strategically change things up. But if that control,
9:15
Speaker 3: if that influence piece is truly under threat, I worry
9:20
Speaker 3: about how the Iranians could lash out.
9:22
Speaker 2: In that case.
9:23
Speaker 3: I would guess that all of that and more is
9:26
Speaker 3: playing into the price of oil as we sit here
9:28
Speaker 3: today with, again, crude prices that had fallen quite a
9:31
Speaker 3: bit now topping $ 92 a barrel on the West Texas
9:35
Speaker 3: benchmark and $ 100 a barrel, over $ 101 a barrel on
9:39
Speaker 3: the Brent crude. Let's take a quick break. When we return,
9:43
Speaker 3: a lot more to cover. I want to talk a
9:46
Speaker 3: little bit about more on the September performance from stocks.
9:49
Speaker 2: That's next on the Financial Exchange.
9:52
Speaker 1: The financial exchanges live on Sirius XM's business radio channel
9:56
Speaker 1: 132 weekdays from 11 to noon. Get the latest business
10:00
Speaker 1: and financial news from across the country and around the
10:03
Speaker 1: world and keep up to date on how it might
10:05
Speaker 1: affect your wallet. That's the Financial Exchange weekdays from 11
10:09
Speaker 1: to noon on Sirius XM's Business Radio Channel 132. This
10:13
Speaker 1: is the Financial Exchange Radio Network. Stay informed and prepared
10:18
Speaker 1: for market changes and breaking business news. The Financial Exchange
10:21
Speaker 1: is live every day on YouTube. Tune in, subscribe, and
10:25
Speaker 1: keep up to date on all of our show's content
10:27
Speaker 1: on a daily basis. This is the Financial Exchange Radio Network.
10:41
Speaker 5: The Financial Exchange is a proud partner of the Disabled
10:44
Speaker 5: American Veterans Department of Massachusetts, and this year's 5K is
10:49
Speaker 5: officially sold out. The race will take place Saturday, November
10:52
Speaker 5: 7th at Fort Independence on Castle Island, and we hope
10:55
Speaker 5: you can take this opportunity to consider.
10:58
Speaker 2: Making a donation.
10:59
Speaker 5: Your gifts help provide vital services like free transportation to
11:03
Speaker 5: medical appointments and safe housing for single veterans.
11:07
Speaker 2: And their families.
11:07
Speaker 5: Donate today at DAV5K. Boston. That's DAV5K. Boston.
11:12
Speaker 3: These numbers from the AI sector continue to be hard
11:16
Speaker 3: to fathom, but Microsoft shares jumped some 37.5% between July
11:22
Speaker 3: and September, which is a big number by any account.
11:25
Speaker 2: It also happens to be $ 1.
11:27
Speaker 3: Trillion when you talk about a company as big as Microsoft.
11:30
Speaker 3: Their share value increased by a trillion dollars, roughly a
11:35
Speaker 3: full micron is how that's put.
11:41
Speaker 2: The talk as a whole.
11:43
Speaker 3: In the third quarter definitely shifted to interest rates and
11:46
Speaker 3: the fascination around the surge in yields there. But under
11:52
Speaker 3: the surface, the thing that matters to this economy now
11:54
Speaker 3: in the United States, as well as the market, continues
11:57
Speaker 3: to be artificial intelligence. We pointed out a few weeks ago,
12:00
Speaker 3: according to is it commerce or whoever puts out the
12:05
Speaker 3: data on GDP, that computer and related equipment investment now
12:11
Speaker 3: exceeds what we are seeing on an annual basis from
12:14
Speaker 3: housing residential investment. So add up new home construction, purchases
12:21
Speaker 3: to furnish your home, all of that stuff is now
12:24
Speaker 3: smaller than the annual investment we're seeing on the part
12:27
Speaker 3: of AI data centers mainly. All of this is leading
12:31
Speaker 3: to just an economy that is very heavily reliant on
12:35
Speaker 3: this AI trade, but also seems to show no signs
12:38
Speaker 3: of slowing down in spite of record higher, nearly record
12:41
Speaker 3: high energy prices and very high interest rates that we
12:45
Speaker 3: haven't seen in the likes of a quarter century.
12:47
Speaker 4: Yeah, it just continues to go back to the biggest
12:50
Speaker 4: story with markets is the amount of capital that has
12:53
Speaker 4: been allocated to invest in this new technology that really
12:57
Speaker 4: continues to be the story. You have two sides of
13:00
Speaker 4: the coin. One on the bullish side is all of
13:02
Speaker 4: that investment. And then the more negative bearish side would
13:06
Speaker 4: be all the inflationary pressure and some of the things
13:09
Speaker 4: that we're seeing in the bond market. That's how I'd
13:11
Speaker 4: simply kind of characterize where we sit with the market
13:15
Speaker 4: and economy where we are today.
13:17
Speaker 3: There was a meeting this week at the White House,
13:19
Speaker 3: I believe Tuesday of this week, where AI leaders and
13:25
Speaker 3: effectively signed a voluntary safety accord. It rejected any form
13:30
Speaker 3: of formal guardrails from the government. This is effectively industry
13:35
Speaker 3: self-regulation where they signed an accord that they would put
13:39
Speaker 3: in some controls as well as establish external audits.
13:42
Speaker 2: Of their system.
13:45
Speaker 3: I don't know that this does much of anything to
13:49
Speaker 3: assure me that we are not barreling towards a massive
13:54
Speaker 3: problem with AI.
13:55
Speaker 2: I know that it was heralded and really pushed by
13:58
Speaker 2: a lot.
13:59
Speaker 3: Of the industry executives as well as members of the
14:02
Speaker 3: White House themselves who took a lot from a very
14:05
Speaker 3: positive meeting in their words. But at the same time,
14:10
Speaker 3: we still have executives and insiders at all these companies
14:13
Speaker 3: warning of just how damaging this technology could be in
14:16
Speaker 3: the future.
14:17
Speaker 4: Yeah, we covered a New York Times piece yesterday on
14:20
Speaker 4: the show which had some sources from OpenAI employees who
14:26
Speaker 4: were raising security concerns in months leading up to what
14:31
Speaker 4: ultimately ended up surfacing was 12 or 13 different hacking incidents,
14:35
Speaker 4: the most famous one being OpenAI's models breaking control and
14:41
Speaker 4: going after Hugging face. But really, it has been interesting.
14:47
Speaker 4: And I think I mentioned earlier in the week, I
14:49
Speaker 4: take this sort of cynical approach to viewing the communications
14:53
Speaker 4: from these AI leaders.
14:55
Speaker 2: It's hard.
14:56
Speaker 4: They have two different items of concern right now. One
15:00
Speaker 4: is some of these safety concerns that we're talking about here.
15:03
Speaker 4: But the other is these businesses are extremely capital intensive.
15:07
Speaker 4: They need to spend a lot of money. They've needed
15:09
Speaker 4: to raise a lot of money. And there's a lot
15:12
Speaker 4: of pressure for them to deliver to their shareholders and
15:17
Speaker 4: to compete in a very competitive arms race to become
15:20
Speaker 4: the most dominant AI, whether it's frontier model or infrastructure play.
15:26
Speaker 4: And all of those incentives go against slowing down and
15:33
Speaker 4: trying to control for safety. You hope ultimately that the
15:38
Speaker 4: greater good, the safety, would be the ultimate focus, but
15:41
Speaker 4: it's hard to take them at their word, I think
15:44
Speaker 4: is what you're saying. And I would echo those thoughts
15:46
Speaker 4: because when you have a $ 2 trillion valuation looming like
15:50
Speaker 4: Anthropic or OpenAI has significant commitments to spend billions of
15:55
Speaker 4: dollars and so does Anthropic, there is that hard sell
16:00
Speaker 4: to slow down the pace of innovation.
16:03
Speaker 3: This is hardly the most important part of this AI development,
16:08
Speaker 3: but I continue to be fascinated by the New York
16:10
Speaker 3: Times lawsuit against these model companies and what's going to
16:13
Speaker 3: come of it. I have to suspect that this AI
16:16
Speaker 3: race is of such crucial national interest that they are
16:21
Speaker 3: not going to get anything other than a slap on
16:23
Speaker 3: the wrist. But keep in mind what these companies did
16:28
Speaker 3: and said about what they did and are now saying today,
16:31
Speaker 3: which is, internally at OpenAI, there's been a whole bunch
16:36
Speaker 3: of discoveries showing that internal OpenAI employees were saying at
16:40
Speaker 3: the time that, hey, we are ripping off content, and
16:43
Speaker 3: this is one of the biggest rip-offs and thefts that
16:45
Speaker 3: anything has ever seen.
16:48
Speaker 2: They intentionally... went.
16:50
Speaker 3: Around paywalls at all sorts of major publications in order
16:54
Speaker 3: to train their models on copyrighted material. And then after
16:58
Speaker 3: doing so, I'll actually quote, this is like two years
17:02
Speaker 3: ago that they submitted this, but quote, because copyright today
17:07
Speaker 3: covers virtually every sort of human expression, including blog posts, photographs,
17:11
Speaker 3: forum posts, scraps of software code and government documents, it
17:14
Speaker 3: would be impossible to train today's leading AI models to
17:18
Speaker 3: without using copyrighted materials. And I just look at that argument,
17:23
Speaker 3: and it's effectively, yeah, I don't know, it's effectively, you know,
17:29
Speaker 3: somebody telling you that in order to be financially successful,
17:33
Speaker 3: I have to rob you, right?
17:34
Speaker 2: Like, we would not deal with.
17:38
Speaker 3: That in any other area of the world, but I
17:41
Speaker 3: suspect that because This one sector is so crucial to
17:45
Speaker 3: the U.S. economy that we are going to ignore it.
17:48
Speaker 3: But that that mere statement like. Yeah, I don't know,
17:52
Speaker 3: I can't be financially successful unless I'm allowed to break
17:55
Speaker 3: into your cars. It is such a ludicrous argument to me.
18:00
Speaker 3: that they are going about using this.
18:03
Speaker 4: Move fast and break things.
18:04
Speaker 2: That's what it's all about. Think about the.
18:07
Speaker 4: Music piracy days of LimeWire in the late 90s, early 2000s.
18:12
Speaker 4: That's another example of just completely ripping off copyright and.
18:16
Speaker 2: Those companies got shut down and are worthless they.
18:19
Speaker 4: Did but it did evolve the music industry to be
18:23
Speaker 4: streaming and it changed things dramatically after that um so
18:28
Speaker 4: that's now i don't these companies are getting shut down
18:30
Speaker 4: they've gotten too big you know napscare didn't get big
18:33
Speaker 4: enough to um to actually you know survive but these
18:37
Speaker 4: companies are so big to your point it's probably just
18:39
Speaker 4: a slap on the wrist because they're too economically important
18:42
Speaker 4: Uber is the same thing to a degree, just totally
18:45
Speaker 4: cutting out the taxi. But you get so big and
18:48
Speaker 4: you've reached this kind of escape velocity, there's only so
18:52
Speaker 4: much that they can do to contain you.
18:54
Speaker 3: That really cannot be the state. That is really the
18:57
Speaker 3: state of everything, but it really can't be. Like, hey,
19:01
Speaker 3: break as many laws as you want because if you're
19:03
Speaker 3: big enough.
19:05
Speaker 4: You've got to benefit the consumer at the end, I think,
19:07
Speaker 4: is what it has to land on.
19:08
Speaker 5: Yeah.
19:08
Speaker 2: And all these things did.
19:10
Speaker 3: But like, hey, if you're big enough, you'll be able
19:11
Speaker 3: to hire the lawyers to fight all the lawsuits is
19:14
Speaker 3: a really cynical view of American capitalism.
19:18
Speaker 4: That's the way it goes.
19:20
Speaker 3: Let's take a quick break here on the Financial Exchange
19:23
Speaker 3: when we return. Full market update for you with Wall
19:25
Speaker 3: Street Watch.
19:39
Speaker 1: Bringing the latest financial news straight to your radio every day.
19:44
Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
19:49
Speaker 1: Time now for Wall Street Watch. Tracking the stocks, the data,
19:53
Speaker 1: and the headlines driving markets so far today. Right here
19:56
Speaker 1: on the Financial Exchange Radio Network.
19:59
Speaker 5: Well, after a positive start to the day, markets have
20:01
Speaker 5: now swung into negative territory after the 10-year Treasury yield
20:05
Speaker 5: hit its highest mark since 2002. Wall Street's also ready
20:09
Speaker 5: for the all-important jobs report tomorrow morning. Right now, the
20:13
Speaker 5: Dow is down nearly two-thirds of a percent or 300
20:17
Speaker 5: points lower. S & P 500 down about a third
20:20
Speaker 5: of a percent or 22 points off. NASDAQ down about
20:24
Speaker 5: a third of a percent as well or 82 points lower.
20:26
Speaker 5: Russell 2000 is off half a percent. 10-year Treasury yield
20:29
Speaker 5: now down two basis points at 5.268%. Crude oil up 2.5%,
20:32
Speaker 5: trading at $ 92, while Brent is up nearly 4% higher,
20:39
Speaker 5: trading at $ 101 a barrel. Shares in Micron Technology are
20:43
Speaker 5: down over 1%, despite the semiconductor company posting a jump
20:47
Speaker 5: in quarterly profit and revenue. Meanwhile, Google parent Alphabet unveiled
20:51
Speaker 5: its latest AI model, Gemini 4 Argonne, with improvements in cybersecurity, coding,
20:57
Speaker 5: and complex professional work. Alphabet shares are down over 1%. Elsewhere,
21:02
Speaker 5: global professional services company Accenture is seeing its stock rally 18%.
21:08
Speaker 5: After posting stronger than expected quarterly results, Dollar Tree received
21:12
Speaker 5: an upgrade from Loop Capital, citing the current macroeconomic backdrop
21:16
Speaker 5: being favorable to the discount retailer. Shares are up nearly 1%,
21:21
Speaker 5: and struggling sportswear giant Nike will report earnings after the
21:26
Speaker 5: closing bell. I'm Tucker Silva, and that is Wall Street Watch.
21:30
Speaker 3: Paul, when we take a look at the U.S. bond
21:33
Speaker 3: market generally, the Bloomberg.
21:38
Speaker 2: What's the name of the index?
21:38
Speaker 3: The Bloomberg U.S. Aggregate Total Return is an index that, again,
21:44
Speaker 3: Bloomberg puts out. I think it used to be put
21:46
Speaker 3: out by Lehman Brothers. That obviously didn't work out terribly well,
21:49
Speaker 3: so it's changed hands a few times. But it is
21:52
Speaker 3: the measurement of U.S.
21:53
Speaker 2: Bonds.
21:54
Speaker 3: It includes a mix of governments as well as corporates
21:57
Speaker 3: and is the rough equivalent of what investment managers use
22:03
Speaker 3: compared to the S & P 500 for the bond
22:05
Speaker 3: market here in the United States. This year, it's lost
22:11
Speaker 3: nearly 3% of its value, and over the course of
22:14
Speaker 3: the last five years, it has not made money. There's
22:19
Speaker 3: a piece in the journal today, money managers are asking
22:21
Speaker 3: clients to give the bond market another chance. you can
22:25
Speaker 3: imagine why there's some hesitance on the part of investors
22:28
Speaker 3: with returns like I just described.
22:30
Speaker 4: It's really hard when you have a year, I believe
22:33
Speaker 4: it's 21 or 22, I don't know if you have
22:35
Speaker 4: the info in front of you, where the ag, that
22:38
Speaker 4: index that you're mentioning was down about 15%. It was 22%. 22%.
22:43
Speaker 4: That's really hard to overcome when typically bonds are not
22:47
Speaker 4: going to give you a tremendous amount of upside. So
22:49
Speaker 4: when you have that one really significant negative year, just
22:52
Speaker 4: like if you look back at the 2000s from a
22:56
Speaker 4: stock decade perspective, you have a year like 08, all
23:00
Speaker 4: of a sudden you're looking at a decade that you
23:02
Speaker 4: really don't see a lot of stock market growth at all.
23:06
Speaker 4: What bonds... The purpose behind them is so that they
23:11
Speaker 4: act as a buffer against a client's stock exposure, but
23:16
Speaker 4: they are not impervious to going down in value when
23:19
Speaker 4: interest rates go up. The thinking behind them acting as
23:22
Speaker 4: a protective force is that typically... When the market goes down,
23:26
Speaker 4: the economy is slowing. As a result of that, usually
23:29
Speaker 4: interest rates will come down when the economy slows. And
23:34
Speaker 4: as a result, bonds that you hold will go up
23:37
Speaker 4: in value. The other premise behind them is that they
23:40
Speaker 4: are insurance, that they do not fluctuate nearly as much
23:44
Speaker 4: as stocks do. But like you said, this has been
23:47
Speaker 4: a period that's been quite challenging for them. When you
23:50
Speaker 4: have a strategy with a portfolio... you want to stick
23:53
Speaker 4: to the allocation. You don't want to be influenced by
23:57
Speaker 4: a five-year period. If you have bonds built in for
24:01
Speaker 4: safety just because they haven't done it over the last
24:03
Speaker 4: few years, that's where you need the resolve, though, to
24:07
Speaker 4: stick to your guns. If you wanted that buffering just
24:09
Speaker 4: because they aren't delivering it today doesn't mean you completely
24:14
Speaker 4: change around your strategy. You do need to constantly look
24:17
Speaker 4: at it, but if you want the protection to them,
24:20
Speaker 4: it's hard, but you have to stay The course, just
24:22
Speaker 4: when the same thing occurs when stocks go down, you
24:25
Speaker 4: have to try and stay the course.
24:26
Speaker 2: Yeah.
24:27
Speaker 3: I guess my problem stems from the fact that I
24:30
Speaker 3: think we blindly choose that allocation.
24:33
Speaker 4: A lot of people do kind of just gravitate towards it.
24:38
Speaker 3: Like, hey, I'm 65 now, so now I need to
24:40
Speaker 3: have half my portfolio in bonds. It's not something people say,
24:45
Speaker 3: but it's certainly something people do, whether by intent or not, right?
24:48
Speaker 3: If all your money's in your uh, retirement plan through
24:51
Speaker 3: work and you've not made a decision, then you're probably
24:54
Speaker 3: in one of those target funds and those target funds
24:58
Speaker 3: on average are about half allocated to the bond market.
25:00
Speaker 2: Yeah. It's kind of sucked over the last five years.
25:03
Speaker 2: It has.
25:05
Speaker 3: I don't know how to say it another way. Um,
25:08
Speaker 3: a lot of people are not intentional about the ways
25:13
Speaker 3: in which they invest. And, uh, I think a lot
25:17
Speaker 3: of them probably aren't even aware of what their exposure
25:20
Speaker 3: to different sectors really looks like. And so for a
25:24
Speaker 3: lot of folks, you know, probably scratching their heads, like
25:26
Speaker 3: I hear the stocks are great. And you know, my
25:29
Speaker 3: quote unquote balanced portfolio that my guy keeps telling me
25:32
Speaker 3: to stick with is, is sucking wind. What's the story here?
25:35
Speaker 3: And I think honestly, that's where I'm with you on
25:39
Speaker 3: bonds purpose, right? Like, I've always kind of had the mindset, hey,
25:44
Speaker 3: if you want to make money, go make money in stocks,
25:45
Speaker 3: because while there are ways to make money in the
25:48
Speaker 3: bond market, you end up exposing yourself to all sorts
25:51
Speaker 3: of risks that are tough to understand. But they are
25:56
Speaker 3: a crucial component. The question, though, is what is the
26:02
Speaker 3: right mix for your specific scenarios? Because any target date
26:08
Speaker 3: fund will determine that for you, but it's not designed
26:12
Speaker 3: for you. You don't give that 401k manager enough information
26:18
Speaker 3: about you to make a real description. And I've met
26:21
Speaker 3: plenty of people who are well into their 70s who say,
26:26
Speaker 3: I don't need that allocation, that safety net because of
26:30
Speaker 3: the way that I spend, because of the way that
26:32
Speaker 3: my lifestyle works. If you are experiencing something like this, right?
26:38
Speaker 3: Like I just said, the US bond market in the aggregate,
26:41
Speaker 3: according to Bloomberg, has lost money over the course of
26:43
Speaker 3: the last five years, even when you account for the
26:46
Speaker 3: interest payments. At the same time, we are seeing interest
26:50
Speaker 3: rates on government bonds that we haven't seen in a
26:52
Speaker 3: quarter century. It could perhaps be presenting an opportunity for investors.
26:56
Speaker 3: But how do you balance out all those risks that
26:59
Speaker 3: you are seeing, especially if you are heading to a
27:02
Speaker 3: point in time where you can't afford to save a
27:05
Speaker 3: whole bunch more money because you are approaching those retirement years.
27:09
Speaker 3: If you have questions about your portfolio, if you want
27:12
Speaker 3: a second look, if you want to understand how others
27:16
Speaker 3: digest these rules of thumb that have existed for decades now,
27:20
Speaker 3: give the folks at Armstrong Advisory Group a call. You
27:23
Speaker 3: can reach us at 800-393-4001. We offer free consultations virtually
27:29
Speaker 3: in person across New England, however you like to do it.
27:32
Speaker 3: But the number that you call, 800-393-4001, 393-4001.
27:35
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
27:40
Speaker 1: registered investment advisor. Nothing in the ad or in any
27:42
Speaker 1: Armstrong guide is specific financial, legal, or tax advice. Consult
27:45
Speaker 1: your own financial, tax, and estate planning advisors before making
27:48
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
27:51
Speaker 1: advisory services.
27:53
Speaker 3: Nicholas Miller for the Wall Street Journal writes about how
27:56
Speaker 3: 7% mortgages are wrecking the homebuyer playbook.
28:01
Speaker 1: Yeah.
28:02
Speaker 3: We'll wait till you hear about what's going on now
28:04
Speaker 3: because we're now approaching 8%, Nicholas. So no good news
28:09
Speaker 3: coming from here. But we are now several months of
28:13
Speaker 3: rates over 7%. And it is clearly wreaking some havoc
28:17
Speaker 3: in the housing market for very obvious reasons. And to
28:21
Speaker 3: put it plainly, the average rate on a mortgage today
28:25
Speaker 3: for homeowners is in the fours, whereas the new rate
28:29
Speaker 3: you're applying for, is in the sevens, and that divergence
28:33
Speaker 3: is leading to all sorts of logical decision-making on the
28:37
Speaker 3: behalf of homeowners.
28:38
Speaker 4: Yeah, we saw a 14% drop year over year from
28:42
Speaker 4: data that we got from last week versus where it
28:46
Speaker 4: was in 2025 from mortgage applications. That has got to
28:50
Speaker 4: be largely tied to the interest rate story. Now, to
28:52
Speaker 4: be fair... the fall housing market tends to cool off
28:56
Speaker 4: like a lot of the transaction volume comes in that
29:00
Speaker 4: spring market. But still, if you are a prospective buyer,
29:04
Speaker 4: I think it's very easy for a lot of people
29:07
Speaker 4: to postpone, to continue to postpone that decision on when
29:11
Speaker 4: to make the next move.
29:12
Speaker 3: I keep seeing pieces written about because of this phenomenon
29:15
Speaker 3: and because of the distaste that younger Americans have for
29:19
Speaker 3: the housing market based on these rates. Yeah, I'm just
29:22
Speaker 3: going to rent for life and I'll invest that money
29:24
Speaker 3: in the stock market and be better off. And I
29:28
Speaker 3: don't believe it, I guess, is the first point. Not
29:31
Speaker 3: that they're not doing it, but I don't believe that
29:32
Speaker 3: they will end up better off for a lot of
29:35
Speaker 3: the psychological reasons that we've talked about at length.
29:37
Speaker 1: Right.
29:37
Speaker 3: You know, when you own a home, you're forced into saving,
29:41
Speaker 3: you're paying off that.
29:42
Speaker 2: Mortgage over and over, you have no choice.
29:44
Speaker 3: Whereas when you're renting, as your income increases, you're not
29:48
Speaker 3: necessarily going to maintain the same place, you're going to
29:51
Speaker 3: upgrade and you just have a higher propensity to save,
29:54
Speaker 3: you know, spend those savings rather than actually saving those savings.
29:58
Speaker 3: But even if you do take the most disciplined person
30:00
Speaker 3: out there, I have to remind people of just how
30:04
Speaker 3: rigged our tax system is towards the homeowner, right? If
30:10
Speaker 3: you go buy a home and get a mortgage, guess what?
30:12
Speaker 3: You get to deduct the interest on that mortgage against
30:16
Speaker 3: your other taxes. Can't do that in the stock market, right?
30:19
Speaker 3: If you go borrow on margin to buy more stocks, Paul,
30:22
Speaker 3: you're not getting a tax deduction for doing so. If
30:25
Speaker 3: you go and sell your home down the road that
30:27
Speaker 3: you lived in for 10 years, you're going to get
30:29
Speaker 3: a half a million, if you're married, half a million
30:31
Speaker 3: dollars of capital gains excluded. Can you do that on
30:34
Speaker 3: the stock market? Not so far as I know. There
30:37
Speaker 3: are so many... And the mortgage itself, right? There is
30:40
Speaker 3: no bank out there that would write a mortgage even
30:43
Speaker 3: at 7.6% right now unless the government guaranteed that they
30:47
Speaker 3: would go buy a bunch of those mortgages from the
30:49
Speaker 3: bank and backstop them in the event of crisis.
30:51
Speaker 2: And so... I'm not saying this is a bad thing, right?
30:55
Speaker 3: I think government policies to increase homeownership can actually be
30:59
Speaker 3: a positive. But that is what you're competing against if
31:02
Speaker 3: you're talking about, hey, I'm not going to buy a
31:04
Speaker 3: home ever.
31:05
Speaker 2: Yeah.
31:05
Speaker 4: And also, from a flexibility standpoint, if you're locked into
31:09
Speaker 4: a certain mortgage payment, the great thing about the mortgage
31:12
Speaker 4: market is you can refinance to bring your payment down lower.
31:15
Speaker 2: It's a one-direction option.
31:16
Speaker 3: This is why Warren Buffett called the 30-year mortgage The
31:19
Speaker 3: best possible investment an American can make.
31:21
Speaker 2: Yeah. It's the best deal you can get.
31:23
Speaker 4: Versus a rental agreement that you have in place that's
31:26
Speaker 4: only going to go up every single year. You actually
31:29
Speaker 4: have the ability, when interest rates change, to potentially bring
31:32
Speaker 4: down your monthly mortgage payment if you're able to refinance.
31:35
Speaker 4: That's not to say, we all know, with home ownership,
31:39
Speaker 4: it doesn't have its challenges because you're not going to
31:41
Speaker 4: have a $ 50, 000 new septic tank or a new roof
31:44
Speaker 4: when you have rental deals. You know, when you're renting,
31:48
Speaker 4: that is problems that cause huge headaches for homeowners.
31:52
Speaker 2: But this is not me saying everyone should go own
31:54
Speaker 2: a home. Right.
31:54
Speaker 3: This is me saying that if you are trying to
31:57
Speaker 3: weigh the options and you're coming out on the side
31:59
Speaker 3: of renting, just beware the structural benefits that exist to
32:04
Speaker 3: owning a home.
32:06
Speaker 2: Let's take a quick break. When we return, Stack Roulette
32:08
Speaker 2: is next.
32:10
Speaker 1: Miss any of the show? The Financial Exchange Show podcast
32:13
Speaker 1: is available on Apple, Spotify, and iHeart Radio. Hit the
32:16
Speaker 1: subscribe button and leave us a five-star review. This is
32:20
Speaker 1: the Financial Exchange Radio Network. Remember, you can watch the
32:25
Speaker 1: show live every day on our YouTube page. We've got
32:28
Speaker 1: market updates and breaking business news all morning long, plus
32:32
Speaker 1: a full archive of all our show's content. It's all
32:35
Speaker 1: there with a click of a button at youtube.com slash
32:38
Speaker 1: the Financial Exchange Show.
32:45
Speaker 5: Subscribe now to our YouTube page where you'll find interviews, highlights,
32:49
Speaker 5: and complete shows of The Financial Exchange. You'll get caught
32:52
Speaker 5: up in anything and everything you might have missed right
32:55
Speaker 5: here on the show. All you have to do is
32:57
Speaker 5: go to YouTube, plug in The Financial Exchange, and be
33:00
Speaker 5: sure to hit that subscribe button.
33:01
Speaker 2: Time for a bit of Stack Roulette. What do you
33:03
Speaker 2: have for us this morning, Paul?
33:05
Speaker 4: We got a piece here from Bloomberg, Mike, talking about
33:08
Speaker 4: the demise of downtowns for a lot of United States
33:13
Speaker 4: cities across the country. This is something that.
33:15
Speaker 2: Has gone on. Talking about this since March of 2020. Exactly.
33:18
Speaker 4: Since the COVID pandemic broke out, where for... Years and years,
33:23
Speaker 4: there was a, or I guess it goes back decades
33:26
Speaker 4: and almost centuries, there was this big shift from people using,
33:31
Speaker 4: let's say, right in the middle of Manhattan as a
33:34
Speaker 4: residence and then shifting to the makeup of the real
33:38
Speaker 4: estate in downtown Manhattan or downtown Boston being more focused
33:42
Speaker 4: on away from multifamily units into businesses, office space, or
33:49
Speaker 4: just commercial areas.
33:50
Speaker 2: Outfits.
33:51
Speaker 4: Now, there has been this shift where remote work has
33:56
Speaker 4: permanently infringed on, I think, the day-to-day of workers. And
34:01
Speaker 4: a little bit to my surprise, I did think it
34:02
Speaker 4: would fade. Now, it hasn't taken over, but certainly the
34:06
Speaker 4: hybrid work approach to me seems somewhat solidified in that
34:10
Speaker 4: most people who have downtown offices that are in Boston, overwhelming,
34:14
Speaker 4: I hear, and I'm sure you probably hear the same thing,
34:16
Speaker 4: is that They're at least remote one or two days
34:19
Speaker 4: a week. There is some businesses that have forced back
34:22
Speaker 4: Fidelity and others, the five.
34:23
Speaker 2: Days a week in office.
34:23
Speaker 3: I was going to say financial services is the exception
34:25
Speaker 3: to that, but I think I generally agree.
34:27
Speaker 1: Yeah.
34:27
Speaker 4: And so as a result of that, the cities, Boston,
34:31
Speaker 4: where we're near from a broadcast standpoint in particular, are
34:34
Speaker 4: facing this doom loop of. The valuations of these commercial
34:38
Speaker 4: real estate buildings have significantly declined and there's really no
34:40
Speaker 4: clear-cut proof that they're going to come back in value.
34:43
Speaker 4: That creates lesser tax revenue for the city and they
34:47
Speaker 4: need to focus on new things to pursue within those
34:51
Speaker 4: office space areas.
34:52
Speaker 2: Got any ideas?
34:55
Speaker 4: This Bloomberg opinion piece is well-written. They didn't present any
34:58
Speaker 4: ideas that I haven't come across before. The one that
35:02
Speaker 4: has been bantied about for years now, we've covered on
35:04
Speaker 4: the show, converting it back to the residence approach that
35:09
Speaker 4: it was in decades prior. And I just don't see
35:12
Speaker 4: that really being something that makes tremendous traction. We are
35:16
Speaker 4: short on housing, but it's damn expensive.
35:19
Speaker 2: Yeah, I don't know.
35:21
Speaker 3: We keep talking about that as the solution. and we
35:25
Speaker 3: are short on housing, but we don't seem terribly short
35:28
Speaker 3: on apartments.
35:29
Speaker 1: Right.
35:30
Speaker 3: I mean, here, yes, but nationally, we're seeing apartment values falling,
35:36
Speaker 3: and so I just.
35:37
Speaker 2: Don't know that that is going to be the fix, and.
35:42
Speaker 4: Data centers.
35:43
Speaker 3: Say what you will, like, you know, the United States,
35:46
Speaker 3: the phenomenon is not that you move to a city
35:48
Speaker 3: and raise a family. Like, that's just not the American
35:51
Speaker 3: vision or dream, and frankly, in most The school sucks,
35:55
Speaker 3: so you have a lot of problems to fix before
35:58
Speaker 3: you're going to make that a real solution. I would
36:02
Speaker 3: think that high-rise data centers don't make a ton of
36:05
Speaker 3: financial sense.
36:06
Speaker 4: Sad to throw that in.
36:07
Speaker 2: I don't know the mechanics. Let's put a cafe in
36:09
Speaker 2: the basement.
36:10
Speaker 3: Yeah, if you have any great ideas for converting our
36:15
Speaker 3: office buildings into something more successful, let us know. I
36:19
Speaker 3: would like to talk about one of my favorite retail companies,
36:22
Speaker 3: which is Walmart, who just continues in my mind to
36:25
Speaker 3: do everything that I like. One, I don't know of
36:28
Speaker 3: any big box store that has a better control of
36:31
Speaker 3: their inventory than Walmart.
36:33
Speaker 2: I think about my experiences with Costco, BJ's Wholesale, Lowe's
36:37
Speaker 2: Home Depot.
36:38
Speaker 3: In all of them, I've had experiences where their website
36:41
Speaker 3: is telling me that they have this item in stock.
36:43
Speaker 2: You get there. you find completely unhelpful staff. Not their fault.
36:47
Speaker 3: It's their company's fault because they don't label this stuff
36:51
Speaker 3: or control their inventories properly. But I have experienced at
36:55
Speaker 3: all of these places just a complete lack of inventory
36:58
Speaker 3: when they say that they have something in stock.
37:00
Speaker 5: Yeah, no shallots.
37:01
Speaker 3: Yeah, no shallots. Largely, it's been like chemicals for pools
37:06
Speaker 3: and things like that. But all of these things I've had.
37:09
Speaker 3: terrible experience with their inventory. There's nothing worse than showing
37:12
Speaker 3: up at a store trying to buy something specific and
37:15
Speaker 3: being told that, oh yeah, sorry, we say we have it,
37:17
Speaker 3: but we don't have it.
37:18
Speaker 2: That is a horrible experience.
37:20
Speaker 3: Walmart not only does have good control of their inventory,
37:23
Speaker 3: they tell you where the item is in their store,
37:27
Speaker 3: and this new feature that they are rolling out are
37:29
Speaker 3: flashing lights on their price labels, where if you press
37:33
Speaker 3: a button within the app and you are in that.
37:36
Speaker 2: Aisle, it is actually.
37:38
Speaker 3: Yeah, they turn off the lights, a disco ball drops,
37:41
Speaker 3: and you dance your way to the item. No, the
37:44
Speaker 3: item is actually going to start, the shelf is going
37:46
Speaker 3: to start flashing for you a light so you know
37:49
Speaker 3: exactly where in the aisle to go.
37:50
Speaker 2: I love it.
37:51
Speaker 4: I was at Home Depot on the Nor'easter day that
37:54
Speaker 4: past Sunday looking for a specific item, and I was
37:57
Speaker 4: so frustrated by looking at the website, not having an
38:00
Speaker 4: aisle attached to it. And the staff there are not
38:04
Speaker 4: what they were when the company was in its heyday.
38:05
Speaker 5: Yeah.
38:08
Speaker 2: Just throwing insults at Home Depot and Lowe's employees. Way
38:11
Speaker 2: to go, Paul.
38:12
Speaker 4: You started it.
38:13
Speaker 2: I did.
38:14
Speaker 3: We've got to take a quick break for the next
38:16
Speaker 3: 22 hours. Negative territory to close out the program. We'll
38:20
Speaker 3: have a full recap and a Jobs Friday tomorrow here
38:24
Speaker 3: on the Financial Exchange.
38:28
Speaker 5: This is Tucker Silva of the Financial Exchange Show, and
38:31
Speaker 5: I'm joined today by estate planning attorney Todd Lutzke, a
38:34
Speaker 5: partner with the law firm of Cushing & Dolan, with
38:37
Speaker 5: her master's in taxation