Latest / HPK Provident Advisors: The Weekly Bull / AI Hype, Bond Pain, And The $100 Gas Tank

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AI Hype, Bond Pain, And The $100 Gas Tank · HPK Provident Advisors: The Weekly Bull

• 0:05
  SPEAKER_01: Welcome to Friday Live.
• 0:06
  SPEAKER_01: Every Friday, some of the partners of HBK Providen get together and discuss what we're seeing going on in the markets, the economy, and talk about some financial planning topics.
• 0:14
  SPEAKER_01: So back with me this week is David Harper.
• 0:16
  SPEAKER_01: David, how are you doing today?
• 0:18
  SPEAKER_02: Doing great.
• 0:20
  SPEAKER_02: Good night's sleep.
• 0:21
  SPEAKER_02: It's time to uh enjoy the fall weather.
• 0:24
  SPEAKER_02: Uh we're getting a little bit of rain down here in Florida.
• 0:28
  SPEAKER_02: Uh, and I understand uh this weekend uh is that uh hurricane Isaasis?
• 0:34
  SPEAKER_02: I'm not sure if it's the correct I don't know how to say it.
• 0:37
  SPEAKER_02: So well, it's I guess it's not a laughing matter, but I guess no, just the name.
• 0:43
  SPEAKER_01: I don't know why they picked something so hard to say.
• 0:47
  SPEAKER_01: Yeah, but yeah, it looks like it's a category three currently and still strengthening.
• 0:53
  SPEAKER_01: Um, I think it's supposed to hit landfall late tonight.
• 0:57
  SPEAKER_02: Yeah, and there it's gonna go up through Pittsburgh uh on uh I think by Sunday, as a as a main rainy then, as if Western PA hasn't had enough rain.
• 1:09
  SPEAKER_02: Um it's had a very soggy August, and so I I hope uh I hope it's not too too devastating.
• 1:20
  SPEAKER_02: Um even here when it makes landfall on the panhandle, uh, and as it goes up through the um as it goes through appellite appalace.
• 1:32
  SPEAKER_01: So yeah, always scary events.
• 1:34
  SPEAKER_01: We're certainly familiar with them in the Sarasota area, but hopefully the damage is not too severe, and they get in there and get the electricity back on quickly, and people's lives aren't too disrupted.
• 1:49
  SPEAKER_01: Um, from an economic standpoint, uh, I think it's estimated estimated to take off about 500,000 barrels a day in oil refiners.
• 2:00
  SPEAKER_01: So not necessarily something the energy market needs currently with energy still above$90 a barrel, but we just can't control weather.
• 2:12
  SPEAKER_02: No, and you can't but you can control keeping yourself safe.
• 2:17
  SPEAKER_02: No heed her heed warnings, no um material can be replaced.
• 2:23
  SPEAKER_02: You cannot.
• 2:24
  SPEAKER_02: Uh so please take efforts to protect yourself and your loved ones, and and we'll wait for the sun to come back, come out again the day or the day after.
• 2:37
  SPEAKER_01: So yeah, not uh moving on to the other economic data for the week.
• 2:43
  SPEAKER_01: Uh, we didn't get a whole lot.
• 2:44
  SPEAKER_01: We got ISM services on, I believe, Monday, which came in a little lower than expected, but still pretty healthy number.
• 2:51
  SPEAKER_01: Um consumer credit that did tick down quite a bit from the previous month.
• 2:57
  SPEAKER_01: It was 15 billion.
• 2:59
  SPEAKER_01: Uh, this one was 8.3 billion, so much better.
• 3:03
  SPEAKER_01: Um, I did agree that the like I flagged the last one on the Friday Live four weeks ago being extremely high, but it actually wasn't that uh much of uh increase in uh revolving credit, like credit cards.
• 3:19
  SPEAKER_01: So that's not as alarming for the consumer.
• 3:22
  SPEAKER_01: Um besides that, we got some FedSpeak.
• 3:25
  SPEAKER_01: Uh, most of them see more rate hikes for the year.
• 3:29
  SPEAKER_01: And then Michigan Sentiment Survey came in, uh, consumer sentiment survey came in today.
• 3:35
  SPEAKER_01: Uh the headline number was slightly down uh 46.3.
• 3:40
  SPEAKER_01: Um, but the present situation was the lowest read dating back to the history of this metric, which I believe is 1951.
• 3:53
  SPEAKER_01: Um on a positive note, I mean, we talk about this all the time.
• 3:57
  SPEAKER_01: That has a lot to do with when energy prices are high, you know, food prices are still high.
• 4:02
  SPEAKER_01: That feeds a lot into consumer sentiment, how everyone's feeling about the economy.
• 4:08
  SPEAKER_01: I mean, filling up your gas tank,$100.
• 4:11
  SPEAKER_01: Um, it definitely puts a damper on that.
• 4:15
  SPEAKER_01: Um and then both the one and the five-year inflation expectations ticked up a little bit.
• 4:21
  SPEAKER_01: So not really what the Fed wants to see.
• 4:24
  SPEAKER_01: Um, positive note on this metric is uh the expected uh conditions are supposed to be a little better than expected.
• 4:34
  SPEAKER_01: So that's one good thing.
• 4:36
  SPEAKER_01: Um, we'll be keeping an eye on next week's gonna be a big one for our economic data.
• 4:40
  SPEAKER_01: We'll have the uh inflation readings on let me see, I think Tuesday.
• 4:48
  SPEAKER_01: Uh yeah, the core is supposed to come in uh tenth lower than last month at 0.2, stay steady on an annualized basis at 2.4 percent.
• 4:57
  SPEAKER_01: And then we're gonna see a two-tenths uptick in headline expected uh to 0.6%.
• 5:03
  SPEAKER_01: So that's not a good thing, but energy is a big factor in that.
• 5:06
  SPEAKER_01: And then on the annualized basis, going up to 3.6%.
• 5:11
  SPEAKER_01: Um, and then we'll get PPI reading, which kind of a similar story.
• 5:16
  SPEAKER_01: Um, core looks okay at 0.25, but headlines expected to rise a half a percent.
• 5:22
  SPEAKER_01: Um, and then we'll get retail sales, which the control groups uh supposed to decelerate from last month's reading, which was 1.4, extremely healthy, uh, to just 0.3% this this month, which isn't a bad figure either, but it is a deceleration.
• 5:39
  SPEAKER_01: Um, turning to the markets, I need to look at my pull up the actual screen because it's a little small for me to read here.
• 5:50
  SPEAKER_01: Give me one second.
• 5:52
  SPEAKER_01: So SP after a two-day decline uh with a big big drawdown yesterday, especially uh it happened, it started happening around midday.
• 6:02
  SPEAKER_01: We got some news that open AI um revenue is gonna come in like what was it, 20 billion short.
• 6:10
  SPEAKER_01: Um, but they came out with a, I think they sent a a note to Bloomberg today saying, you know, that's more of an accounting thing and not necessarily anything to do with demand.
• 6:21
  SPEAKER_01: So markets are up on the day.
• 6:23
  SPEAKER_01: Um SP is up about 0.4%.
• 6:27
  SPEAKER_01: We're still in this breakout range.
• 6:29
  SPEAKER_01: So as long as we it looked like we were gonna start to violate that yesterday, but we bounced off of it.
• 6:35
  SPEAKER_01: Um, I would become a little more concerned if we get below the the previous highs in August.
• 6:42
  SPEAKER_01: Um, that's kind of a nice uh line of support.
• 6:46
  SPEAKER_01: Same thing with the NASDAQ.
• 6:48
  SPEAKER_01: Um, as long as this line holds, I remain optimistic, but I think the market is ignoring a lot of potential risk.
• 6:55
  SPEAKER_01: I mean, look at the yesterday we saw a nice pullback in the 10-year yield, but today it's marching back higher.
• 7:03
  SPEAKER_01: Um energy prices, like I said, are about 91 a barrel.
• 7:08
  SPEAKER_01: Um they were higher yesterday, but came off of the highs when Trump said that um he's not planning any attacks before the midterms, but we'll see.
• 7:20
  SPEAKER_01: We know how volatile those opinions change.
• 7:24
  SPEAKER_01: Um I flagged the high yield spread last week, which was becoming very concerning to me, even though historically low levels you don't like to see a spike like this.
• 7:33
  SPEAKER_01: We got to 324, but since then it's come down quite a bit.
• 7:37
  SPEAKER_01: Um, that has a lot like the increase has a lot to do with the higher um the higher longer end yields putting pressure on credit risk.
• 7:48
  SPEAKER_01: Um, and then I also want to highlight the S P 500 equal weight.
• 7:55
  SPEAKER_01: Um, it's definitely lost a lot of steam in the last couple months, and we now have a negative or declining 50-day moving average.
• 8:03
  SPEAKER_01: So whether that's an indication of the trend changing in that, um we'll just have to keep an eye on that.
• 8:10
  SPEAKER_02: But it seems like the Mike, it seems like the gains have been more concentrated with the the top performers.
• 8:18
  SPEAKER_01: Yeah, you know, it was starting to look like a year where the equal weight was gonna outperform, but they gave back all of that outperformance over the last couple of months.
• 8:28
  SPEAKER_01: Um, it's really just uh, you know, mostly AI, AI related trade right now, whether it's mega caps or the infrastructure build out.
• 8:40
  SPEAKER_01: Um, so I earnings are gonna uh start up next week with the big banks.
• 8:45
  SPEAKER_01: Um, we're looking at another expected good quarter.
• 8:49
  SPEAKER_01: Um, but I think, you know, I don't know how the Fed gets the 10-year down.
• 8:54
  SPEAKER_01: We'll have a meeting at, I believe, the end of October.
• 8:57
  SPEAKER_01: Um I don't, you know, I don't really think the economy needs rate hikes.
• 9:05
  SPEAKER_01: I'm more worried about the growth pitcher in the labor market than the inflation metrics.
• 9:11
  SPEAKER_01: Um, but you know, the tenure is already at close to 530, and that's where lending happens.
• 9:18
  SPEAKER_01: So that's just gonna put further pressure on, you know, the the areas that are affected by interest rates are already hurting.
• 9:28
  SPEAKER_01: Um housing markets not doing very well.
• 9:31
  SPEAKER_01: It's housing prices are high and interest rates are 30 year at seven and a half percent right now.
• 9:43
  SPEAKER_01: So I don't I don't really know how I think uh I think if I well, I don't know if they want to get the 10 year down or not.
• 9:53
  SPEAKER_01: I don't I don't know what the goal is here.
• 9:55
  SPEAKER_01: I mean, the it seems like the bond market's already restrictive and competition for stocks and you know we're having a lot more debt financing for this infrastructure build out.
• 10:06
  SPEAKER_01: Like do we want interest rates to go higher than this to slow the economy?
• 10:10
  SPEAKER_01: I think they're high enough already.
• 10:13
  SPEAKER_01: Um, but I think if they were to, you know, if they if they were to come out with the 50 basis point, a 0.5% increase in October, I think that would put a lot of downward pressure on tenure yields, which might be contrary to popular belief, but um I don't think they do that.
• 10:34
  SPEAKER_01: It's very um historically it's it's not um I don't have they ever hiked right before a midterm.
• 10:42
  SPEAKER_02: I I don't recall any rate hike before like sometime after September.
• 10:49
  SPEAKER_01: Yeah, I don't think I don't think so either.
• 10:52
  SPEAKER_01: But I think this time might be different.
• 10:57
  SPEAKER_01: Those are frowned upon words in the financial industry.
• 11:02
  SPEAKER_02: Well, the the amount of servicing the national debt is is astronomical.
• 11:10
  SPEAKER_02: Okay.
• 11:10
  SPEAKER_01: Um what's the deficit at right now?
• 11:15
  SPEAKER_02: Two trillion annually.
• 11:19
  SPEAKER_01: Yeah.
• 11:21
  SPEAKER_02: So like if um I I just read something today.
• 11:24
  SPEAKER_02: If if you have um if if you're making a hundred thousand dollars and yet your family spends a hundred and thirty thousand dollars a year, how you how are you going to make up that difference?
• 11:41
  SPEAKER_01: So um I don't know, credit card spending, which are certainly affected by higher or longer term rates.
• 11:53
  SPEAKER_02: But but not to sound so pessimistic, um we're just trying to uh I mean our our financial planning has always been make sure you have monies in reserve for times such as this that you could draw from.
• 12:08
  SPEAKER_02: Okay, so um you plan for these things, yeah.
• 12:14
  SPEAKER_01: Yeah, in in the event that you know we do get a market drawdown of a significant amount, which right now it's looking like uh you know, resilient stock market.
• 12:25
  SPEAKER_01: It's hard to bring it down too much.
• 12:28
  SPEAKER_01: We got two percent pullback a month ago and off back to all-time highs.
• 12:35
  SPEAKER_02: Yes, and and there's there's so much promise, uh especially in the uh AI or SI, whatever you prefer, uh space.
• 12:46
  SPEAKER_02: Uh that our gross domestic product is what is gonna turn along around 2.2, 2.4 uh percent, which about a percent of that is AI related.
• 13:00
  SPEAKER_02: But then the no, I mean that's the regular 2.2, and then add AI to that, and it goes up to four and a half, five percent.
• 13:09
  SPEAKER_02: Like they're they're looking at a GDP of three just from the AI universe.
• 13:14
  SPEAKER_01: Well, you keep looking at the Atlanta Fed GDP now, but I'm staying closer to the two percent with the one percent included in that.
• 13:26
  SPEAKER_02: Well, I mean, uh uh we had we had something uh uh a meeting of IQs uh at the White House yesterday, and the uh the giving of the medals of of merit to science and technology.
• 13:43
  SPEAKER_02: Uh I uh I'm um my mind is just somewhat blown away.
• 13:51
  SPEAKER_02: Uh there is so much promise, so much so much infrastructure that is that has been built, gonna be built, and yet uh how do we keep uh inflation in check?
• 14:05
  SPEAKER_02: How do we keep these things?
• 14:07
  SPEAKER_02: Um I'm an observer.
• 14:10
  SPEAKER_02: I'm glad that decision is not mine.
• 14:12
  SPEAKER_02: Uh Mike, um, I thank you for your observations and your knowledge of that.
• 14:17
  SPEAKER_02: And it's uh it's pretty interesting trying to uh navigate those potential pitfalls.
• 14:25
  SPEAKER_02: So uh we've you've built up your cash positions, uh based on the uncertainty, yeah.
• 14:35
  SPEAKER_01: So and I mean everyone's asked accessing the debt market these days, even the hyperscalers, so probably get a credit crunch at some point.
• 14:47
  SPEAKER_01: I'm not saying that's in the next couple quarters, but you know, remember last time when interest the tenure got to close to five percent, we started having all those bank failures.
• 14:59
  SPEAKER_01: Now, hopefully they took the past year, two years, three years to reposition their their balance sheets to not have that flight risk like we saw.
• 15:11
  SPEAKER_01: We had what what year was that?
• 15:12
  SPEAKER_01: 20 was that 2023, where we had three of the four biggest bank failures in US history.
• 15:23
  SPEAKER_02: Um that sounds about right because of all those rising uh rising rates that happened in 2022.
• 15:30
  SPEAKER_02: Uh you can't uh and a lot of and uh several of those were in uh California where they're uh at least the big one in Silicon Valley, where they were trying to uh buy into all of the uh by given very uh aggressive yields on CDs and so forth to try to capture that market.
• 15:55
  SPEAKER_02: Yeah, it really backfired with the when you had to pay out when you're obligated to pay out that high yield, and you're there's not enough money to pay for.
• 16:07
  SPEAKER_01: Well, hopefully we don't see that kind of thing again, but I would like to see the longer end of the yield curve come down and the shorter end, all the yields.
• 16:17
  SPEAKER_01: Yeah, um, turning to our blog posts, we didn't have a whole lot this week.
• 16:22
  SPEAKER_01: Um, we had a a post about the retaliatory uh tariffs put on by Canada.
• 16:28
  SPEAKER_01: Looks like uh 15 to 50 percent on a lot of a lot of goods, um, milk, perfume, aluminum, t-shirts, etc.
• 16:38
  SPEAKER_01: Um, so you know that could have some, especially in some of those uh Midwest, Northern Midwest companies um or industries could see an impact from that.
• 16:50
  SPEAKER_01: Um so just another thing that could put some upward pressure on inflation, but hopefully not.
• 16:58
  SPEAKER_01: Um, besides that, our only other blog posts, minus the market one, was the one about Trump accounts versus 529s.
• 17:08
  SPEAKER_01: Um, the article was just very vague, but you want to talk about that at all?
• 17:14
  SPEAKER_01: Benefits, pros, cons of each?
• 17:17
  SPEAKER_02: The pros for both is that you're putting money aside for hopefully 10-15 years down the road.
• 17:26
  SPEAKER_02: Always makes sense to have some money in your kids' name.
• 17:30
  SPEAKER_02: Now, I sort of prefer the 529 plans, but I'm not opposed to the Trump accounts because at least you're saving.
• 17:38
  SPEAKER_02: Okay, so on the 529 plan, it's it's a for college savings, and they've expanded that to not just college but to trade school.
• 17:47
  SPEAKER_02: Uh, you can also use it for uh high school education type pieces.
• 17:52
  SPEAKER_02: Um, you know, it has some restrictions, but um you can change beneficiaries on them.
• 17:59
  SPEAKER_02: Um, but it becomes a wonderful thing that they grow tax deferred if they're used for allowable college or higher education expenses, that is tax-free.
• 18:10
  SPEAKER_02: Okay, the Trump accounts uh they will grow unencumbered, um, uh but and also tax deferred, uh, but they will become a I believe a retired account.
• 18:21
  SPEAKER_01: Yeah, just like uh how traditional IRA works.
• 18:24
  SPEAKER_02: Yeah.
• 18:25
  SPEAKER_01: Uh so eventually you don't get the same tax benefit.
• 18:28
  SPEAKER_01: But I would say so.
• 18:30
  SPEAKER_01: If you're if you're planning to have your child go to college or some sort of further education, I think 529 is probably the better option.
• 18:40
  SPEAKER_01: Um, but if you're born within that threshold where you get the$3,000 in the Trump accounts, take advantage of it.
• 18:48
  SPEAKER_01: If your employers are you know contributing to that, certainly take advantage of it.
• 18:54
  SPEAKER_01: But from a tax standpoint, um, the$529 is the better tax vehicle.
• 19:01
  SPEAKER_02: Yes.
• 19:02
  SPEAKER_02: Uh however, uh corporations and even uh Michael and and uh um Mr.
• 19:07
  SPEAKER_02: and Mrs.
• 19:07
  SPEAKER_02: Dell, they'll add monies to help fund these uh these Trump accounts, okay, and other employers.
• 19:15
  SPEAKER_02: It doesn't have to be just you the corporation you work for, okay.
• 19:21
  SPEAKER_02: But take advantage of free money if it's there.
• 19:24
  SPEAKER_02: And the one thing that Trump accounts possibly could offer where it's not available in the 529 plan is that these various corporations can add to the Trump account.
• 19:37
  SPEAKER_02: They they don't really do that on the 529.
• 19:40
  SPEAKER_02: Okay.
• 19:41
  SPEAKER_02: Um not that they could it, there's not really a vehicle for that, I I believe.
• 19:47
  SPEAKER_01: Okay, but and who knows, there might be changes down the road, like we've seen with 529 plans where they become a little more flexible in what they can do.
• 19:55
  SPEAKER_01: Maybe they'll offer some sort of tax advantage down the road.
• 19:59
  SPEAKER_02: But but the key is do something, uh, take advantage of both these programs, not to the not to the point where you're you're neglecting your own uh non-retirement asset buildup.
• 20:16
  SPEAKER_02: Okay.
• 20:16
  SPEAKER_02: Um, but both of those programs, you can add$100 a month,$250 a month, build them up.
• 20:24
  SPEAKER_02: Uh, and don't forget, you can also do that with your with your own non-retirement assets as well.
• 20:31
  SPEAKER_02: Okay, build up your assets across the board.
• 20:35
  SPEAKER_02: Um, a lot of people don't okay.
• 20:39
  SPEAKER_02: Uh that's the best way to build wealth.
• 20:41
  SPEAKER_01: How about giving a quick comparison of Trump accounts to like UGMA Uniform Gift to Minors Act?
• 20:48
  SPEAKER_02: Um the Uniform Gift to Minor Act or Uniform Gift to uh Trust Act be leery of those.
• 21:00
  SPEAKER_02: Um if you really wanted to keep it in that child's name totally, then you could do that.
• 21:07
  SPEAKER_02: Um I'd like to have the the uh flexibility to change a beneficiary, especially on the 529 plan, where it could if it may not uh your child doesn't finish it all.
• 21:21
  SPEAKER_02: Well, guess what?
• 21:22
  SPEAKER_02: Maybe it could help fund their children, which would be your grandchildren.
• 21:27
  SPEAKER_02: If you change if you if you're not an AGMA uh 529, you have the flexibility to do that.
• 21:33
  SPEAKER_02: On the Trump uh Trump accounts, those stay with that child.
• 21:38
  SPEAKER_02: Uh they I don't I don't believe there's a mechanism for them to be to share or to uh be transferred to another beneficiary.
• 21:48
  SPEAKER_02: Uh the only way that that would be would be in death.
• 21:51
  SPEAKER_01: And um now both UGMA and the Trump accounts would grow tax deferred during the period um until it needs to be well the Ugma has to be converted to the individual account at a certain age, and then at that point it gives up the tax deferral, correct?
• 22:08
  SPEAKER_02: Yes.
• 22:09
  SPEAKER_02: The uh the agma do not you pay taxes on that each and every year.
• 22:14
  SPEAKER_02: Oh, okay.
• 22:15
  SPEAKER_02: Okay.
• 22:16
  SPEAKER_02: Uh on the UGMA's Uniform Gift of Minor Act.
• 22:19
  SPEAKER_02: Uh and it goes under the child's social security or uh the child's tax rate until it gets above 600$600, and then it then reverts to the parents.
• 22:32
  SPEAKER_02: Uh there's a lot of restrictions on the Ugmas, uh be leery of them.
• 22:38
  SPEAKER_02: Um seek out qualified as qualified uh assistance uh to help you think through that.
• 22:46
  SPEAKER_02: Um there is there is a place where that is very beneficial, and you may and you may want to do that, uh, but think it through.
• 22:56
  SPEAKER_02: Uh the 529, certainly my favorite.
• 23:01
  SPEAKER_02: Uh their Trump accounts.
• 23:03
  SPEAKER_02: I I would take that over in Agma.
• 23:05
  SPEAKER_02: Um, and then um if if need be uh you could have all three.
• 23:10
  SPEAKER_02: Um just don't spread your money too thin.
• 23:17
  SPEAKER_01: Anything to uh else to add before we wrap up the week?
• 23:21
  SPEAKER_01: Um I I believe is Monday Columbus Day.
• 23:24
  SPEAKER_02: Yes.
• 23:26
  SPEAKER_01: So I believe banks are closed, bond markets closed, stock market open.
• 23:31
  SPEAKER_02: Okay.
• 23:32
  SPEAKER_02: Well, uh crack that whip, Mike.
• 23:36
  SPEAKER_01: No day off for me.
• 23:41
  SPEAKER_02: All right, well, another good weekend.
• 23:44
  SPEAKER_01: All right, yeah, keep an eye out for our blog posts, and we'll be back next Friday by 12 30 Eastern time to talk about the latest inflation data and retail sales.
• 23:52
  SPEAKER_01: So make sure you tune in.
• 23:54
  SPEAKER_01: Take care.
• 23:54
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  SPEAKER_00: Brian Peluso, Michael Kutch, and David Harper are registered representatives of LPL Financial LLC.
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