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Why Wall Street Is Starting to Price In More Rate Hikes · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
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Speaker 1: Zada and Mike Armstrong.
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Speaker 2: Well, it was Chuck, Mike and Tucker and now was
1:15
Speaker 2: just Mike Entucker for a nice little intimate conversation here.
1:18
Speaker 3: But welcome back to the Financial Exchange.
1:20
Speaker 2: We've got markets pretty heavily in negative territory after a
1:23
Speaker 2: big rally day yesterday on excitement about the AI sector
1:27
Speaker 2: a Sarah bras ipo that went off pretty with a
1:32
Speaker 2: high degree of fanfare, and so today a little bit
1:36
Speaker 2: of retrenching here in markets. We've got the NASDAC off
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Speaker 2: right now, three hundred and seventy six points, are about
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Speaker 2: one point four percent, Russell two thousand off sixty four points,
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Speaker 2: two and a quarter percent. That's your small and mid
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Speaker 2: sized companies, s and P five hundred off one percent,
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Speaker 2: in the Dow Jones industrial average, off nine tenths of
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Speaker 2: a percent. In oil markets, we are well above again
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Speaker 2: that one hundred dollars a barrel benchmark, sitting at one
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Speaker 2: hundred four dollars and fifty cents per barrel.
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Speaker 3: That's up three and a half.
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Speaker 2: They have three and a third percent today, and we've
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Speaker 2: been keeping an eye on that ten year treasury yield
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Speaker 2: which is jumping pretty significantly.
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Speaker 3: Now.
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Speaker 2: The thirty year actually top five point one percent. That's
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Speaker 2: the highest in about a year. The ten year treasury
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Speaker 2: now up to four point five eight percent on that
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Speaker 2: ten year yield. Taking a look around at other prices
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Speaker 2: that folks tend to keep an eye on, national average
2:31
Speaker 2: for a gallon of gasoline now according to Triple As
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Speaker 2: sitting at four dollars and fifty three.
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Speaker 3: Cents per gallon.
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Speaker 2: I'm rounding slightly, and you know, keep keeping an eye
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Speaker 2: on California because they are the worst case scenario for
2:46
Speaker 2: this type of environment. Six dollars fourteen cents a gallon
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Speaker 2: out there, and those mortgage rates continue to be stuck
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Speaker 2: in that six and a half percent range and climbing.
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Speaker 2: We're now at six point five two percent on the
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Speaker 2: thirty year fixed rate, and given today's interest rate moves,
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Speaker 2: I suspect that.
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Speaker 3: That will move a bit higher. Chuck anything else catching
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Speaker 3: your eye in markets this morning.
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Speaker 4: I do think that the rates discussion is one worth
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Speaker 4: having now, just because this move that you are seeing
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Speaker 4: across the yield curve is notable and fairly rapid here.
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Speaker 4: I mean, when you've got a twelve basis point move
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Speaker 4: on the ten year in a single day, like that
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Speaker 4: makes my you know, ears perk up a little bit
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Speaker 4: and say, okay, like this is you know, worth paying
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Speaker 4: attention to. And the other piece on this is, you know,
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Speaker 4: you take a look at you know, shorter term rates
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Speaker 4: markets and what we're seeing in like fed Fund's futures
3:38
Speaker 4: markets and things like that, you're you're now starting to
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Speaker 4: see potentially a hiking cycle that is getting priced into
3:46
Speaker 4: the early part of next year. Now, we talked just
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Speaker 4: yesterday that look, there's still nothing really being priced in
3:52
Speaker 4: until the latter part of next year. You're now up
3:55
Speaker 4: to the March twenty seven meetings, so fewer than twelve
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Speaker 4: months out from now, with a seventy chance of a
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Speaker 4: hike occurring by then. So I think that rates markets
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Speaker 4: are starting to pick up on the fact that the
4:10
Speaker 4: inflation problem that is present is unlikely to be you
4:15
Speaker 4: know fully solved in short order. And by the way,
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Speaker 4: even the data that we were getting before the the
4:23
Speaker 4: Iran conflict began, that data was suggesting potentially a little
4:27
Speaker 4: bit of a pickup and inflation. And even Jay Powell
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Speaker 4: had noted this with Hey, you've got this Kapex cycle
4:32
Speaker 4: that's that's going on relating to these AI data centers
4:36
Speaker 4: that are being built out, and there is some inflation
4:38
Speaker 4: that was starting to show up as a result of that.
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Speaker 4: This is something that I do think is worth watching
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Speaker 4: because again we first of all, as we said yesterday, look,
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Speaker 4: the Fed generally does not like to do like one
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Speaker 4: and done in either direction. So the concern for bonds
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Speaker 4: is not hate. Is the Fed, you know, hike once
4:57
Speaker 4: because there's no meaningful difference between a FED funds rated
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Speaker 4: three and a half and three and three quarters. There
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Speaker 4: is a meaningful difference between a FED funds rated three
5:06
Speaker 4: and a half and a FED funds rate at five,
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Speaker 4: and the market might be starting to sniff out that
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Speaker 4: that's the direction that things need to go in because
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Speaker 4: of inflationary pressures that are building here right.
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Speaker 3: Other items just to keep an eye on.
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Speaker 2: We've been talking at length about that IPO from yesterday
5:24
Speaker 2: of the little known company Sarah Bros. Tick or Simple
5:27
Speaker 2: cbrs off pretty substantially today. Again, this is its second
5:33
Speaker 2: day as a public company, but when it started trading
5:37
Speaker 2: yesterday it ticked to three hundred and eighty five dollars
5:40
Speaker 2: per share. Was it looks like the first price at
5:43
Speaker 2: one pm. It's now sitting at about two hundred and
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Speaker 2: ninety six dollars per share, still well well above the
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Speaker 2: IPO price and the hundreds per share. Let's actually chuck,
5:54
Speaker 2: if you don't mind, let's take a quick break. We're
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Speaker 2: gonna be joined during the next segment by Lawrence Ball.
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Speaker 2: He is professor at Johns Hopkins University, professor of economics,
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Speaker 2: consults all over the world of central banks and elsewhere.
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Speaker 2: And we've been talking about that interest rates story and inflation.
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Speaker 2: Professor Lawrence Ball from Johns Hopkins.
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Speaker 3: Joins us next on the Financial Exchange.
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Speaker 3: Join us now.
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Speaker 2: Is Professor Lawrence Ball is professor of economics at Johns
6:48
Speaker 2: Hopkins University.
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Speaker 3: Is also a research associate.
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Speaker 2: At the National Bureau of Economic Research, experience with the IMF,
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Speaker 2: and also was a visiting scholar at a number of
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Speaker 2: central banks, including the Federal Reserve and so, as you
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Speaker 2: can probably tell from his resume, mentally more qualified to
7:03
Speaker 2: talk about the state of the economy today than I am.
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Speaker 3: And he's joining us now. So, professor, thank you so
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Speaker 3: much for taking the time. We appreciate it, happy to
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Speaker 3: be here.
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Speaker 2: So look over over the course of the last year
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Speaker 2: or so, I've heard comparisons of the economy today to
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Speaker 2: the nineteen seventies and the oil price shocks. I've heard
7:20
Speaker 2: comparisons to the dot com bubble regarding the AI fascination
7:27
Speaker 2: that we're seeing. And I've even heard comparisons to eight
7:29
Speaker 2: because out of concerns for the private credit sector. And
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Speaker 2: you know what's happening in that space. When you look
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Speaker 2: at the price shocks of the twenty twenties that we've
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Speaker 2: experienced so far, COVID tariffs, now war in Iran, how
7:45
Speaker 2: do you look at that moment in comparison to compare
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Speaker 2: it to the nineteen seventies or is that not the
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Speaker 2: right comparison to be making for this moment in time.
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Speaker 5: I think for inflation, that is not the right comparison.
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Speaker 3: Okay.
7:57
Speaker 5: I think the big difference is in nineteen seventies and
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Speaker 5: inflation was wandering around and expectations were following actual inflation.
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Speaker 5: So when Paul Volker wanted to reduce inflation, he was
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Speaker 5: doing that in the face of I expected inflation, and
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Speaker 5: that in that situation you have to really bash the
8:15
Speaker 5: economy on the head to reduce inflation, Whereas in this
8:19
Speaker 5: century inflation expectation, long term inflation expectations seemed to have
8:25
Speaker 5: been well anchored, and we of course had a big
8:27
Speaker 5: spurt in actual inflation in twenty twenty one twenty twenty two,
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Speaker 5: but the fact that long term expectations stayed low meant
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Speaker 5: that there was a natural tendency for inflation to come
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Speaker 5: back down after the underlying shocks worked their way through,
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Speaker 5: and we didn't need a big recession, and I think
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Speaker 5: that's probably the most likely scenario for the recent uptick
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Speaker 5: in inflation due to oil prices.
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Speaker 2: Okay, so you did speak to expectations there, and you know,
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Speaker 2: I think we all remember Ja Powell and the FED
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Speaker 2: using that word transitory to describe twenty one twenty two
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Speaker 2: time period, and I think very clearly there were some
9:04
Speaker 2: different different expectations of the definition of transitory, but ultimately
9:09
Speaker 2: to your point that COVID era inflation did dissipate, and
9:14
Speaker 2: this moment may too. What do you read into consumer
9:18
Speaker 2: expectations for inflation now because they are elevated compared to
9:21
Speaker 2: a few years ago, But are they not elevated to
9:24
Speaker 2: the point that you find it problematic?
9:28
Speaker 5: Yes, fundy the translatory issue people talk now about long translatory,
9:32
Speaker 5: which is kind of an oxymoron anyway. So there is
9:37
Speaker 5: a debate among economists about which expectations are important, short
9:41
Speaker 5: term expectations of consumers or longer term expectations. Long story short,
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Speaker 5: I'm on the side of thinking what's really important is
9:50
Speaker 5: long term expectations that price and wage increases are based
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Speaker 5: on norms that have to do more with the long
9:58
Speaker 5: term trend in prices than with what's happening right now
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Speaker 5: or in the coming year. I mean, other people dispute that,
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Speaker 5: but that's that's my view. And long term expectations have been,
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Speaker 5: you know, stayed quite anchored, and so you know, despite
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Speaker 5: short term consumer expectations moving around, you know, that gives
10:19
Speaker 5: me reasonable optimism that inflation is not going to take
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Speaker 5: off persistently.
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Speaker 2: You've got experience, obviously, having consulted or visited many other
10:30
Speaker 2: central banks that and you know, we tend to be
10:33
Speaker 2: very us focused on this program and made a particular
10:37
Speaker 2: very you know, more familiar with the US Federal Reserve
10:40
Speaker 2: than say, the Bank of Japan. But many have argued
10:44
Speaker 2: that FED independence is more fragile today than it has
10:48
Speaker 2: been in some time. And I wonder in your mind,
10:52
Speaker 2: having experienced consulting or visiting other central banks where that
10:56
Speaker 2: issue of independence may or may not be such a
10:59
Speaker 2: central focus, how do you view the threat to independence?
11:05
Speaker 2: And will the new incoming chair face some degree of
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Speaker 2: credibility issues given all of that, or or is it
11:13
Speaker 2: politics and we're making too much of it at the moment.
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Speaker 5: No, we're not making too much of it. Certainly there
11:18
Speaker 5: are threats to independence. I mean President Trump's assault on
11:23
Speaker 5: the Federal Reserve as independence and you know, attempts to
11:26
Speaker 5: indict people and so on and so forth are really unprecedented.
11:30
Speaker 5: I mean, I could go on and on about how
11:32
Speaker 5: outrageous that is. You know, I don't think that Kevin
11:37
Speaker 5: Wosh is at all the main problem. You know, it's
11:41
Speaker 5: it's you know, pressure from the president. I mean. Having
11:45
Speaker 5: said that, and again, I certainly don't want to cast
11:51
Speaker 5: any negative judgments on Kevin Walsh but I think it's
11:54
Speaker 5: reasonable to maybe wonder a little more about his credibility
11:59
Speaker 5: or independents, and say we did about J. Powell or
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Speaker 5: Janet Yellen or Ben Bernanke. I mean, I think it's
12:06
Speaker 5: on the record that for much of his career he was,
12:10
Speaker 5: you know, tended to favor higher interest rates, more recently
12:15
Speaker 5: more favoring lower interest rates. You know, he has logical
12:20
Speaker 5: economic arguments for that, but it's not crazy to wonder whether,
12:25
Speaker 5: you know, politics plays some role in it. So I
12:28
Speaker 5: think I don't think he should be pre judged, but
12:31
Speaker 5: I think people will be watching and I think, by
12:34
Speaker 5: the way, he has a very tough job. Again, from
12:38
Speaker 5: what I know, I think he's a very smart, well
12:41
Speaker 5: informed person who wants to basically be responsible, which means
12:46
Speaker 5: not reducing the federal funds rate to one percent very quickly.
12:50
Speaker 5: So I think there's a good chance he will disappoint
12:52
Speaker 5: the president, and it could be pretty soon when we
12:55
Speaker 5: start seeing on truth social you know, things about you know, work,
13:00
Speaker 5: flu Worsh is doing it again, and it'll be interesting
13:03
Speaker 5: to see how he handles that political.
13:07
Speaker 2: Problem as we look through the next several months of inflation. Obviously,
13:11
Speaker 2: the waters are going to be muddied because of the
13:15
Speaker 2: energy shortages that we're seeing in other parts of the world,
13:19
Speaker 2: the higher prices that we're seeing here domestically. When you
13:22
Speaker 2: look at that sort of data, how do you try
13:25
Speaker 2: and sort through, sort through the noise to find the
13:29
Speaker 2: actual reality on the ground. What are you looking at
13:33
Speaker 2: in terms of the inflation data now to kind of
13:35
Speaker 2: get an indication for what we might be worried about
13:38
Speaker 2: in the future. And again what matters, of course is
13:41
Speaker 2: the longer term and how that influences expectations of inflation.
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Speaker 5: So I could briefly answer at two levels, kind of
13:48
Speaker 5: at a technical level, sure, I'm a big fan of
13:51
Speaker 5: the median inflation rate that the Cleveland Fed produces, which
13:56
Speaker 5: is a way of filtering out big shocks to certain
13:59
Speaker 5: sectors and measuring the underlying trend, and that is still
14:04
Speaker 5: pretty subdued. But you know, more broadly, I think, obviously
14:09
Speaker 5: there's this big energy price shock. I think the most
14:13
Speaker 5: likely scenario for how that plays out is the same
14:17
Speaker 5: way as in other energy price shocks this century, which
14:20
Speaker 5: there have been several, which is that we get a
14:23
Speaker 5: big jump and headline inflation. But again, risky to use
14:28
Speaker 5: this word that that's transitory that you know, inflation comes back,
14:35
Speaker 5: you know, underlying inflation, the stable headline, inflation comes back down.
14:39
Speaker 5: You know, it's painful for people who buy gasoline. Uh,
14:43
Speaker 5: you know, it has economic costs, but the FED maybe
14:48
Speaker 5: can more or less look through it or ignore it,
14:52
Speaker 5: so in that sense, probably doesn't have big implications for
14:56
Speaker 5: monetary policy. Of course, who knows. You know, nobody has
14:59
Speaker 5: any the idea of what will happen with the war.
15:02
Speaker 5: You can imagine, you know, things get worse. You know,
15:05
Speaker 5: there's some huge cut off oil supplies, but you know,
15:09
Speaker 5: I think the most slightly scenario is not that disastrous.
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Speaker 3: Professor, this has been a real pleasure.
15:13
Speaker 2: We really appreciate you joining us and getting your take
15:16
Speaker 2: on this moment in time right now, which you know,
15:20
Speaker 2: the world has been changing fast over the last year
15:22
Speaker 2: or so, and keeping things grounded is much appreciated. It's
15:26
Speaker 2: Professor Lawrence Bali's professor of economics, director of Graduate Studies
15:30
Speaker 2: at the Johns Hopkins University and joined us today talk
15:33
Speaker 2: about the state of inflation, interest rates, and the Fed.
15:36
Speaker 3: Thanks you so much for joining us. Professor, thanks you
15:39
Speaker 3: all right.
15:39
Speaker 6: Time for trivia here on the financial Exchange and on
15:42
Speaker 6: this day in eighteen fifty six, L. Frank baumb was born.
15:45
Speaker 6: Bamb is famous for writing The Wizard of Oz and
15:48
Speaker 6: It's numerous sequels. So our trivia question today, how many
15:52
Speaker 6: sequels to the Wizard of Oz did L. Frank Baum write?
15:56
Speaker 6: Once again? How many sequels to the Wizard of Oz?
15:59
Speaker 3: Did L.
16:00
Speaker 6: Frank Baum right? Be the fifth person to text us
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Speaker 6: at six one seven three six two thirteen eighty five
16:06
Speaker 6: With the correct answer along with the keyword trivia, He'd
16:09
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16:11
Speaker 3: Once again.
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Speaker 6: The fifth correct response to textas to the number six
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Speaker 6: correct answer along with the keyword trivia, We'll win that
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16:27
Speaker 4: Gotta be honest, Mike didn't even know that the Wizard
16:30
Speaker 4: of Oz had sequels?
16:33
Speaker 3: WHOA, maybe it doesn't. Maybe the answers.
16:38
Speaker 2: None, stay tuned. I guess we'll find out.
16:42
Speaker 4: That would be a tricky one, but uh, who knows, Mike.
16:45
Speaker 4: Let's talk about this piece from uh NPR gen Z.
16:49
Speaker 4: Homeowners are on the rise despite uh, you know, some
16:52
Speaker 4: potential headwinds out there. Uh gen Z is saying, yeah,
16:56
Speaker 4: we're gonna try to uh make a run of home ownership,
16:59
Speaker 4: no kidding.
17:01
Speaker 2: You know, this does remind me a bit of the
17:03
Speaker 2: millennial story where you know how much was written posted
17:07
Speaker 2: GFC Great Financial Crisis about the minis and how they
17:10
Speaker 2: would never be able to afford their homes and then
17:14
Speaker 2: they ended up being a little bit delayed. They didn't
17:16
Speaker 2: end up buying homes until later in life, but by
17:19
Speaker 2: the time you got to like age thirty five, their
17:21
Speaker 2: rate of home ownership was the exact same as the
17:23
Speaker 2: Baby boomers. We don't know about gen X because everybody
17:26
Speaker 2: forgets about gen X, but the exact same rate. And so, look,
17:33
Speaker 2: the situation on the ground for gen Z is going
17:37
Speaker 2: to be difficult, more complicated, higher interest rate than what
17:41
Speaker 2: the millennials were facing, but they have a better job
17:43
Speaker 2: market than what millennials were facing. And frankly, based on
17:48
Speaker 2: most indications, I'm seeing the housing market is flipping towards
17:52
Speaker 2: more of a buyer's market than it has been for
17:54
Speaker 2: any time in the last five years. And so I
17:57
Speaker 2: suspect that gen Z and their home ownership will follow
18:02
Speaker 2: the same track as other generations it'll be a little
18:05
Speaker 2: bit different because of different circumstances on the ground. But
18:08
Speaker 2: anybody that's trying but you know, been trying to sell
18:11
Speaker 2: you on how Gen Z's never going to buy homes
18:13
Speaker 2: and they just want to rent permanently is the exact
18:15
Speaker 2: same story that I heard about millennials, and it's just
18:18
Speaker 2: fundamentally probably untrue.
18:21
Speaker 4: Yeah, I in general think it's not worth judging a
18:25
Speaker 4: generation's ease of financial stress. It's not worth judging their
18:32
Speaker 4: level of you know, financial stress or financial hardship until
18:36
Speaker 4: they're like I would say, seventy five to eighty.
18:41
Speaker 3: Yeah, Yeah, it's fair.
18:43
Speaker 2: You need a bigger look into what actually occurred during
18:47
Speaker 2: their lifetime to drive them to the point where they are.
18:50
Speaker 4: Yeah, the only generation that we can judge immediately is
18:56
Speaker 4: what's the one after Gen Z?
18:57
Speaker 7: Is a Gen Alpha? Is that what we're calling it?
18:59
Speaker 3: I don't know is that my kids probably I have very.
19:03
Speaker 4: High hopes for that generation because my hope is effectively
19:07
Speaker 4: that all the bad stuff about technology will have worked
19:10
Speaker 4: out by the time their coming of age and they
19:13
Speaker 4: won't have to deal with that.
19:14
Speaker 3: Yeah, that seems totally likely, Chuck, glad to hear it.
19:16
Speaker 7: I think so. Just take a quick break.
19:18
Speaker 4: Here, We've got the trivia answer next.
19:28
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19:40
Speaker 1: Wall Street Watch treking the stocks, the data, and the
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Speaker 1: headlines driving markets so far today right here on the
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19:48
Speaker 6: Market's selling off by midday as Wall Street hits the
19:52
Speaker 6: breaks on the recent tech rally, with several chip makers
19:55
Speaker 6: including Nvidia, AMD and Intel seeing losses on the day.
19:58
Speaker 6: Sentiment is also lower after the a summit between President
20:01
Speaker 6: Trump and Chinese President g yielded no major policy developments.
20:05
Speaker 6: Right now, the Dow is down over eight tenths of
20:07
Speaker 6: a percent, SMP five hundred down nine tenths of a
20:10
Speaker 6: percent or sixty six points lower. NASDAK down over one
20:14
Speaker 6: percent or three hundred and seven points of Rusted two thousand,
20:17
Speaker 6: selling off two point three percent. Tenure Treasure reeled is
20:21
Speaker 6: up twelve basis points at four point five to eighty
20:23
Speaker 6: one percent, and Oil up three and a half percent,
20:26
Speaker 6: trading right around one hundred and four dollars a barrel
20:30
Speaker 6: after its NASDAK debut yesterday. Shares and chip maker Sarah
20:33
Speaker 6: Bras down by two percent today. Yesterday, the stock served
20:36
Speaker 6: sixty eight percent to close at three hundred and eleven
20:40
Speaker 6: dollars a share after it opened at one hundred and
20:42
Speaker 6: eighty five dollars a share. In its IPO, Meanwell shares
20:45
Speaker 6: and Applied Materials are down nearly one percent, despite the
20:48
Speaker 6: semiconductor equipment maker beating second quarter expectations on the top
20:53
Speaker 6: and bottom line. The company also said it expects stronger
20:56
Speaker 6: sales this year than it previously forecasted, as it can
21:00
Speaker 6: it needs to see strong demand for AI computing in
21:03
Speaker 6: Starbucks announced another round of corporate layoffs this morning, about
21:06
Speaker 6: three hundred in the US. This marks the coffee chain's
21:10
Speaker 6: third round of layoffs since CEO Brian Nickel took over.
21:15
Speaker 6: Starbucks shares are up by about half or percent. I'm
21:20
Speaker 6: Tucker Silvan. That is Wall Street Watch. On the previous segment,
21:23
Speaker 6: we asked you the trivia question how many sequels.
21:26
Speaker 7: To The Wizard of Oz?
21:27
Speaker 3: Did L.
21:28
Speaker 6: Frank Baum write? Well, that would be thirteen and Casey
21:32
Speaker 6: from Derry, New Hampshire is our winner today taking on
21:35
Speaker 6: the Financial Exchange Show tea shirt. Congrats to Casey. We
21:38
Speaker 6: play trivia every day here on the Financial Exchange. See
21:42
Speaker 6: complete contest rules at Financial Exchange Show dot com.
21:46
Speaker 7: The males here, he is the male, the males.
21:50
Speaker 5: It makes big one the wagtail when that comes, I
21:53
Speaker 5: wanta wal Manan.
21:55
Speaker 1: You've got questions, We've got answers. It's time for the
21:59
Speaker 1: Money Matter maailback. We are tackling your calls and emails
22:02
Speaker 1: on everything from economic policy to global markets and everything
22:06
Speaker 1: in between. Leave us a voicemail at three three nine
22:09
Speaker 1: three nine nine four three three three and you might
22:12
Speaker 1: hear it on the show. You can also email your
22:14
Speaker 1: question to TFE Show at gmail dot com. No, it's
22:18
Speaker 1: time for the Moneymatters mail bag.
22:21
Speaker 6: Thank you, big voice guy. And yes, it is time
22:23
Speaker 6: for the Moneymatters mail bag. And again, if you have
22:26
Speaker 6: any questions for Chuck and Mike, all you have to
22:29
Speaker 6: do is email us TFE Show at gmail dot com.
22:32
Speaker 6: That's TFE Show at gmail dot com, or you can
22:35
Speaker 6: leave us a voicemail to the number three three nine
22:39
Speaker 6: three nine nine four three three three. All right, gentlemen,
22:44
Speaker 6: let's get started here with our first question. This listener says,
22:51
Speaker 6: I'm only thirty four and just started saving for retirement.
22:54
Speaker 6: Feeling behind and so dumb about how I've spent I
22:58
Speaker 6: haven't formulated a plan just yet with hard numbers, but
23:02
Speaker 6: am contributing to my sep IRA here and there there's hope, right, No.
23:08
Speaker 3: All hope is lost, give up now and all.
23:14
Speaker 2: Yeah, look, I mean the best time to start saving
23:18
Speaker 2: for the future is yesterday, and so today is better
23:22
Speaker 2: than tomorrow. And likewise, interesting point here about the sep IRA.
23:27
Speaker 2: So clearly you've done a little bit of research that
23:29
Speaker 2: means that you must have some self employment income, because
23:32
Speaker 2: that's what that step stands for for those unfamiliar with it,
23:36
Speaker 2: and it's a way for those who are working in
23:39
Speaker 2: the gig economy or might own their own business to
23:42
Speaker 2: be able to fund a retirement account with higher limits
23:47
Speaker 2: than your traditional iray. That's likely why this person is
23:50
Speaker 2: looking at the sep I think you know other things
23:53
Speaker 2: to be asking yourself as you're trying to formulate this
23:55
Speaker 2: overall plan. Hey, you know, would I be served better
23:59
Speaker 2: by a roth ira or would that be a good
24:03
Speaker 2: supplement to it? And yeah, I think the other word
24:06
Speaker 2: of caution here would just be that when I've seen
24:09
Speaker 2: people fall behind on retirement savings, they get super focused
24:15
Speaker 2: on it, which is great, but just you know, be
24:18
Speaker 2: sure that you don't be sure that you don't put
24:21
Speaker 2: yourself in a dangerous financial position by falling too far
24:24
Speaker 2: down the retirement contributions range, like it can be too
24:28
Speaker 2: much of a good thing. And I've seen people fall
24:32
Speaker 2: behind on tax payments for you know, you're clearly a
24:35
Speaker 2: self employed so hey, you know, am I paying all
24:37
Speaker 2: the taxes that I owe? Or did I put some
24:40
Speaker 2: of my tax money into my IRA? And can I
24:42
Speaker 2: make that tax payment now? Or you know, I thought
24:45
Speaker 2: I was doing what I should to fund retirement, but
24:48
Speaker 2: then a piece of my equipment went down and suddenly
24:50
Speaker 2: I can't operate my business in the same way because
24:53
Speaker 2: I overfunded my retirement.
24:54
Speaker 3: So there's a lot that goes into that.
24:56
Speaker 2: Obviously, the next step is, like you said, putting together
25:00
Speaker 2: plan and getting some numbers there. But no, it's never
25:03
Speaker 2: too late. And you know clearly you've educated yourself on
25:05
Speaker 2: some of the kind of extra more nuanced tools that
25:08
Speaker 2: are out there, like a sep IRA check anything add
25:11
Speaker 2: on that.
25:11
Speaker 4: No, I think you hit the big items and I've
25:15
Speaker 4: got nothing else to add all.
25:17
Speaker 6: Right on to the next question to the Money Matters
25:20
Speaker 6: mail bag, I have several four to oh one K
25:24
Speaker 6: accounts with excuse me, from separate employers. One of my
25:27
Speaker 6: best options would it be better to move them all
25:30
Speaker 6: into a single rollover IRA account?
25:35
Speaker 7: So, Mike, you mind if I take this one please.
25:38
Speaker 4: It's a good question, and the answer is not entirely straightforward,
25:43
Speaker 4: because there are some considerations that you need to pay
25:45
Speaker 4: attention to.
25:47
Speaker 7: The first is okay number one.
25:50
Speaker 4: If you have a plan at an active employer, generally
25:55
Speaker 4: you're not going to be allowed to roll that In
25:57
Speaker 4: most cases. There are some situations where you could, but
26:00
Speaker 4: that plan generally needs to stay there. Beyond that, some
26:05
Speaker 4: plans might have you know, beneficial investments in terms of
26:10
Speaker 4: you know, low cost investment options that are not available
26:13
Speaker 4: to individual investors, but that are available through a plan
26:17
Speaker 4: with you know large you know, total investment amounts, and
26:21
Speaker 4: so you might have cheaper investment options within that plan
26:25
Speaker 4: that you don't have access to elsewhere. Certain plans may
26:29
Speaker 4: also offer you additional services. You might be able to
26:33
Speaker 4: get you know, reduced fee financial planning through them, or
26:37
Speaker 4: or other services that can assist you with your overall finances,
26:42
Speaker 4: and so it may be worth keeping those open in
26:45
Speaker 4: order to continue to have access to those services and
26:49
Speaker 4: or investments. In a lot of cases, what you do
26:52
Speaker 4: see is that, hey, if none of those features are
26:55
Speaker 4: present and you kind of do all of your due diligence,
26:58
Speaker 4: if you're simply looking to solidate funds, Yeah, it can
27:02
Speaker 4: make sense in some situations to consolidate into either a
27:07
Speaker 4: rollover IRA or potentially into a current.
27:11
Speaker 7: Employer four oh one K plan.
27:13
Speaker 4: But you got to do the due diligence on each
27:15
Speaker 4: one of these because it's not always a slam dunk
27:19
Speaker 4: when you look at things such as costs and services
27:22
Speaker 4: offered by each particular plan. Certainly, you know, having fewer
27:27
Speaker 4: accounts means less stuff that you have to keep track of,
27:30
Speaker 4: but you do want to make sure you're not giving
27:32
Speaker 4: anything up in conducting a roll over there that you're
27:36
Speaker 4: not you know, aware of any thoughts on your own MIC.
27:39
Speaker 2: Just a couple other items to add on rare instances. One,
27:43
Speaker 2: if any of those four oh one ks have companies
27:45
Speaker 2: stock in them, pause, talk to an expert, because that's
27:48
Speaker 2: a really complex matter that you need to figure out.
27:51
Speaker 2: Two would be if you are rolling them into that
27:56
Speaker 2: four oh one K as opposed to a rollover IRA,
27:59
Speaker 2: it can make you eligible to maybe do what's referred
28:01
Speaker 2: to as a backdoor roth IRA contribution that may or
28:05
Speaker 2: may not be necessary in your case, but you can
28:06
Speaker 2: only do it if all of your assets are in
28:08
Speaker 2: a employer sponsored retirement plan rather than an IRA, So
28:12
Speaker 2: you know, another important consideration when you're talking about consolidation.
28:15
Speaker 6: There onto the final question this week for the Money
28:21
Speaker 6: Matters mail bag Where did it go?
28:24
Speaker 7: Here?
28:24
Speaker 6: It is? Are there downsides with opening a tax advantage
28:29
Speaker 6: investment account with your employer? What about opening one by yourself?
28:34
Speaker 3: I'll start this one off.
28:36
Speaker 2: So the obvious downside to opening one by yourself is
28:40
Speaker 2: that there are far lower contribution limits compared to a
28:43
Speaker 2: traditional employer sponsored plan, and you're going to miss out
28:47
Speaker 2: on matching contributions if your employer offers them.
28:50
Speaker 3: So you know, that's a pretty big downside.
28:54
Speaker 2: The main downside that I can think of with opening
28:57
Speaker 2: with an employer is that each one of these are different,
29:01
Speaker 2: and there's no way for you and I Chuck to
29:04
Speaker 2: sit here and say, oh, you've got a great plan
29:07
Speaker 2: with really good investment options and low costs, or you've
29:11
Speaker 2: got a plan that's hot garbage that's going to tie
29:13
Speaker 2: up your money for over a decade because they place
29:15
Speaker 2: it in an annuities. We literally can't know because we don't
29:19
Speaker 2: know enough about your specific situation. But just beware that
29:23
Speaker 2: both of those, you know, both of those do exist.
29:25
Speaker 2: I have run into for some reason in my experience,
29:28
Speaker 2: it's always teachers that are offered just the most ludicrous
29:31
Speaker 2: retirement plan lineups with all sorts of complex offerings in them.
29:36
Speaker 2: But there are others where it's you know, really compelling,
29:39
Speaker 2: really low cost, a lot of services attached to it,
29:43
Speaker 2: and so yeah, can there be downsides, Yes, there can
29:46
Speaker 2: also be downsides by going with the you know, self
29:48
Speaker 2: directed IRA on your own, so you know, do a
29:51
Speaker 2: little bit of research, understand what you're getting before you
29:53
Speaker 2: go do it.
29:54
Speaker 6: All right, So once again, if you have questions for
29:56
Speaker 6: our weekly segment, the Money Matters mail Bag, we do
29:59
Speaker 6: it at the this time every week, So shoot us
30:01
Speaker 6: an email if you have questions for Chuck or Mike
30:04
Speaker 6: to TFE Show at gmail dot com. That's TFE Show
30:08
Speaker 6: at gmail dot com, or leave us a voicemail. Three
30:11
Speaker 6: three nine three nine nine four triple three.
30:16
Speaker 2: Let's say quick break when we come back. Paul Amonica
30:18
Speaker 2: from Barons joins us next on the Financial.
30:20
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30:24
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30:47
Speaker 8: Ladies and gentlemen, the weekend.
30:54
Speaker 4: As promised, we're now joined by the one, the only,
30:58
Speaker 4: Paul Lamonica here to talk a little bit about what
31:01
Speaker 4: we are seeing in the IPO market.
31:04
Speaker 7: Paul, how you doing today?
31:06
Speaker 1: Good?
31:06
Speaker 8: Thanks?
31:06
Speaker 7: How you guys doing doing well?
31:08
Speaker 4: So, we had the much hyped Sarabras ipo yesterday that
31:13
Speaker 4: went off very well, basically the polar opposite from the
31:18
Speaker 4: core we've won at this time last year, which really
31:21
Speaker 4: struggled out of the gate before catching fire. And I'm
31:24
Speaker 4: wondering just your thoughts on where the tech ipo market
31:28
Speaker 4: sits right now and kind of what we're expecting over
31:31
Speaker 4: the rest of the year here.
31:33
Speaker 8: Yeah, no, it's a great question. It's interesting because before
31:36
Speaker 8: the successful debut, you know, at least for the first day.
31:40
Speaker 8: Cerebversus pulled back a little bit with the rest of
31:43
Speaker 8: the market, but at last check it was only down
31:45
Speaker 8: about three percent, which isn't too dramatic given the nearly
31:49
Speaker 8: seventy percent spike yesterday. Tech IPOs actually hadn't really been
31:54
Speaker 8: a big part of the IPO market so far. It's
31:57
Speaker 8: been more biotech and a lot of the kind of
32:00
Speaker 8: AI enablers in the industrial space. But I think that
32:04
Speaker 8: you know, Cerebras because of AI chips and all of
32:09
Speaker 8: the excitement around that. We're seeing how semiconductor stocks have surged.
32:13
Speaker 8: This does bode well potentially for SpaceX, which should be
32:19
Speaker 8: you know, going public sometime in June. Looks like they
32:22
Speaker 8: might be even giving their real filing, you know, advancing
32:27
Speaker 8: beyond the confidential phase, you know, that could be dropping
32:30
Speaker 8: as early as next week according to reports. So a
32:33
Speaker 8: lot of investors are going to be focused now, I
32:35
Speaker 8: think once again on tech IPOs, whether or not we
32:39
Speaker 8: get offerings maybe from data Bricks, from Stripe, from Canva,
32:45
Speaker 8: you know, design software company, and then of course open
32:49
Speaker 8: AI and Anthropic or the ones in AI that are
32:53
Speaker 8: looming large as well. They haven't filed yet, but everyone
32:57
Speaker 8: waiting for them to do so.
32:59
Speaker 4: Is the there any sense that there's so much supply
33:02
Speaker 4: coming from all of these tech IPOs that it could
33:04
Speaker 4: impact already public tech stocks.
33:08
Speaker 8: Yeah, it's a great question. I have spoken to some
33:11
Speaker 8: people who wonder whether or not active managers, active fund
33:17
Speaker 8: managers as well as retail investors, if they want to
33:19
Speaker 8: make room to own SpaceX and potentially open Ai and Anthropic,
33:25
Speaker 8: do they have to sell other stocks in order to
33:29
Speaker 8: raise those proceeds. And where do those sales come? Do
33:33
Speaker 8: they come from other tech stocks or other parts of
33:36
Speaker 8: the market. But I think what's going to be really interesting, though,
33:38
Speaker 8: is that you might have quote unquote forced demand for
33:42
Speaker 8: some of these stocks. If Elon Musk, as we're hearing,
33:46
Speaker 8: is able to convince some of the index providers. Does
33:49
Speaker 8: SpaceX get added to the NASATAQ one hundred and SMP
33:53
Speaker 8: five hundred, given it's going to have a two trillion
33:55
Speaker 8: plus valuation, most likely more quickly than companies like Alphabet,
34:01
Speaker 8: Google and Facebook Meta did in the past. They had
34:05
Speaker 8: to wait a while before they were added to the indexes.
34:09
Speaker 8: Looks like SpaceX is probably not going to have to
34:12
Speaker 8: wait nearly as long. And if that's the case, that
34:14
Speaker 8: sets the precedent for open AI and Anthropic, even though
34:18
Speaker 8: they probably aren't profitable yet, to be added to these
34:21
Speaker 8: indexes as well. So a lot of funds will be
34:25
Speaker 8: forced to buy these stocks if they're added to major indexes.
34:29
Speaker 4: Given this, this scale of these IPOs, I mean, between SpaceX,
34:34
Speaker 4: open AI, and Anthropic, we're potentially talking like four to
34:37
Speaker 4: five trillion dollars in market cap. That's a pretty drastic
34:43
Speaker 4: change to the competition, to the composition of these indices
34:46
Speaker 4: if they end up being added. It's you know, investors
34:51
Speaker 4: immediately after would not own anywhere close to what they
34:53
Speaker 4: owned previously.
34:55
Speaker 7: It's it's a pretty big shift.
34:57
Speaker 8: Yeah, I think. And there are definitely all concerns about
35:01
Speaker 8: market concentration in tech AI, and that will only be magnified.
35:07
Speaker 8: I mean, we've got the Magnificent seven. Of course, that
35:10
Speaker 8: doesn't even include Broadcom, which is you know, got a
35:13
Speaker 8: market cap now that's bigger than some of the Max
35:15
Speaker 8: seven companies. So throw them in there for an Elite eight,
35:19
Speaker 8: if you will, and then you potentially have SpaceX, Open
35:23
Speaker 8: AI and Anthropic added to the SP five hundred. That's
35:27
Speaker 8: what an awesome eleven or something like that exceptional eleven,
35:32
Speaker 8: if you want to be alliterative, then that's what more
35:36
Speaker 8: than half of the market value of the S and
35:38
Speaker 8: P five hundred potentially, So investors used to buy index funds,
35:44
Speaker 8: you know, based on the notion that it gives you
35:46
Speaker 8: exposure to all different parts of the economy. You're obviously
35:49
Speaker 8: still getting that exposure, but it's really going to be
35:53
Speaker 8: intensely concentrated in a way that could spook some investors
35:58
Speaker 8: if there is eventual AI pullback. I'm not talking about
36:03
Speaker 8: maybe Dot com bubble bursting type levels, but you know
36:06
Speaker 8: there are some people who are worried that maybe things
36:08
Speaker 8: are too proppy right now.
36:11
Speaker 4: Paul, I appreciate you joining us, and I hope you
36:13
Speaker 4: have a great weekend.
36:15
Speaker 8: San to you guys, really appreciate it.
36:17
Speaker 4: That is paul A Monica from Barons talking about the
36:21
Speaker 4: coming sleeate of tech IPOs.
36:25
Speaker 3: I'll play dot chuck before you get there.
36:28
Speaker 2: In March of two thousand, the tech concentration as a
36:31
Speaker 2: portion of the S and P five hundred was close
36:35
Speaker 2: to thirty five percent before the bubble burst, and it
36:38
Speaker 2: fell back down to sixteen percent by September of two
36:41
Speaker 2: thousand and two.
36:42
Speaker 3: To my knowledge, we're not far.
36:44
Speaker 2: Away from that right now, and certainly if these IPOs
36:46
Speaker 2: were added, you would be above that level of tech
36:50
Speaker 2: exposure in the index.
36:53
Speaker 7: Mike Tucker.
36:54
Speaker 4: Whenever Tucker puts something in the stack two days in
36:56
Speaker 4: a row, it's, you know, it's a nice subtle message
36:59
Speaker 4: of hey, cover this, you guys, So we're gonna do
37:02
Speaker 4: that now. There's a piece for market Watch roast my
37:05
Speaker 4: house Reddit. Desperate home sellers are asking strangers for help
37:08
Speaker 4: getting offers, and I did think this is good in that. Look,
37:11
Speaker 4: you've got people that are trying to sell homes in
37:14
Speaker 4: a more challenging environment nationally in which to do so now,
37:18
Speaker 4: and the ones that are not, you know, having offers
37:21
Speaker 4: for their houses. They're basically putting the listing pictures up
37:25
Speaker 4: on Reddit and being like, hey, can you guys help
37:27
Speaker 4: me figure out what's wrong with my house so it'll
37:29
Speaker 4: sell faster, which is kind of like, I don't hate
37:33
Speaker 4: the idea, to be honest.
37:34
Speaker 3: Oh I do.
37:35
Speaker 6: If I'm Zillo.
37:38
Speaker 7: Why don't you like it? Mike?
37:39
Speaker 2: I just I don't know. I don't like pictures of
37:43
Speaker 2: my home being out there. But I suppose if I'm
37:45
Speaker 2: listing it on Zilo, it's already listed, Michael, It's already
37:48
Speaker 2: there out there.
37:48
Speaker 1: Man.
37:49
Speaker 2: Uh yeah, but you're right, Tucker, Zillow and Redfin should
37:53
Speaker 2: be taking advantage of this in some way because they
37:56
Speaker 2: have such a massive user database that they do not
37:59
Speaker 2: monetize in any way realistic way.
38:01
Speaker 4: We're done for the day and done for the week.
38:04
Speaker 4: I hope you all have a great weekend. We'll see
38:07
Speaker 4: you back here Monday.