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What does Powell's speech mean for September rate cuts? · The Financial Exchange Show

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Speaker 1: and Paul.
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Speaker 2: Lane, Chuck, Paul and Tucker with you today.
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Speaker 3: And obviously the big focus.
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Speaker 2: For us is going to be drum Palell out in
1:18
Speaker 2: Jackson Hall talking about his view on the US economy.
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Speaker 2: At a little bit after ten am this morning, the
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Speaker 2: text of his speech that he is going to give
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Speaker 2: was published, and you know, we've gotten some of the
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Speaker 2: details that have come out. Again, the FED puts this
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Speaker 2: up on their website promptly at ten am, even though
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Speaker 2: he has not yet actually spoken the words. But the
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Speaker 2: big thing and the thing everyone's focused on is one
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Speaker 2: key sentence here, which is it's about two paragraphs. I'm
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Speaker 2: sorry about four paragraphs in we'll quote here. Overall, while
1:56
Speaker 2: the labor market appears to be in balance, it is
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Speaker 2: a curious kind of balance that was from a market
2:00
Speaker 2: slowing in both the supply and demand for workers. Okay,
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Speaker 2: you acknowledging both sides there. The unusual situation suggests that
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Speaker 2: downside risks to employment are rising, and if those risks materialize,
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Speaker 2: they can do so quickly in the form of sharply
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Speaker 2: higher layoffs and rising unemployment. The market interpreting this saying hey,
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Speaker 2: all systems go for the FED to begin a cutting cycle.
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Speaker 2: And so what you have is you've got stocks rallying
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Speaker 2: strongly on that news, the S and P five hundred
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Speaker 2: up about seventy five points, about one and a quarter
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Speaker 2: percent on that news. There you've got bonds rallying on
2:42
Speaker 2: that news as well, the ten year treasury down five
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Speaker 2: point five basis points to four point two seven seven percent.
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Speaker 2: And so basically it looks to be that unless we
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Speaker 2: get surprised by some inflation numbers to the upside UH
2:58
Speaker 2: in the next few weeks, or unless we have, you know,
3:01
Speaker 2: some kind of conclusive shift to the upside in the
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Speaker 2: jobs numbers, it looks like the Fed is set to
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Speaker 2: begin a cutting cycle in September, which, as we laid
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Speaker 2: out tomorrow, is a completely defensible position for the Fed,
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Speaker 2: one that still has some questions, but the labor market
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Speaker 2: has enough questions in it as well that you can
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Speaker 2: defend them starting to begin a cutting cycle in a
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Speaker 2: few weeks.
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Speaker 4: Here, as someone who on yesterday's show made a prediction
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Speaker 4: with you that in Nvidia's earnings would move the market
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Speaker 4: more than the Federal Reserve speech a little frustrated by
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Speaker 4: the market action, But the two words that I really
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Speaker 4: took away you mentioned some of the coverages. You know,
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Speaker 4: conditions may warrant an interest rate cut. That is other
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Speaker 4: verbiage that was used by drum Powell in this speech.
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Speaker 4: And you take a look at the market action that
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Speaker 4: we're seeing s and P. Five hundred round in the news.
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Speaker 4: I did not think that he would be perhaps this telegraphed,
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Speaker 4: not to say he said there was going to be
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Speaker 4: a rate cut, but there certainly was a lot of
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Speaker 4: ammo here that was pushing towards that direction. I had
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Speaker 4: looked at the CME futures, which do a probability assessment
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Speaker 4: for rate cuts heading into next month's meeting in the
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Speaker 4: middle of September, that percentage that probably had come down
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Speaker 4: quite a bit over the course of the last week
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Speaker 4: or so, from upwards of eighty five percent down to
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Speaker 4: seventy percent. As early as this morning, that probability now
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Speaker 4: sits at seventy five percent, so five percent jump just
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Speaker 4: within the matter of the last half hour.
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Speaker 2: So that hasn't even updated, by the way, is it
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Speaker 2: more that's running on a delay, So okay, there's a
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Speaker 2: fifteen minute delay there, so we won't even see.
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Speaker 4: That that says at a fifty five Okay, Yeah, so
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Speaker 4: it's very likely is going to be even higher than that.
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Speaker 4: And that was just a five percent move there, and
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Speaker 4: perhaps more than that when that delay gets updated. So
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Speaker 4: certainly markets are rallying on the news and something that
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Speaker 4: you might be able to take your victory lab my man.
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Speaker 3: Not yet.
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Speaker 2: Again, we have yet to see much trading today, so
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Speaker 2: we'll see how this ends up playing out here. The
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Speaker 2: funniest possible outcome would be that we end up closing
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Speaker 2: flat on the day.
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Speaker 3: And look, that's a possibility.
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Speaker 2: I mean, I could see this market rallying and the
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Speaker 2: S and PN's up, you know, one hundred and twenty
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Speaker 2: five points day. I could see ending up flat, just
5:24
Speaker 2: because you know, people think about this a little more
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Speaker 2: and say, okay, like what does this actually mean? I
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Speaker 2: want to read a few more quotes here just that
5:31
Speaker 2: kind of give the full picture, the power's full speech.
5:35
Speaker 2: It also gets into their monetary policy framework, and we
5:38
Speaker 2: can get to some of that, you know, as we go.
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Speaker 2: But ultimately, the thing that people really care about here
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Speaker 2: and now is hey, what's you know, the potential impact on.
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Speaker 3: The US economy. So another quote here.
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Speaker 2: It's also possible, however, that upward pressure on prices from
5:53
Speaker 2: tariffs could spur a more lasting inflation dynamic, and that
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Speaker 2: is a risk to be assessed and managed. One possibility
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Speaker 2: is that workers who see their real incomes declined because
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Speaker 2: of higher prices, demand to get higher wages from employers,
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Speaker 2: setting off adverse wage price dynamics. Given that labor get
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Speaker 2: the labor market is not particularly tight and faced increasing
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Speaker 2: downside risks, that outcome does not seem likely. So right
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Speaker 2: here Pal talking about again something I think he listened
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Speaker 2: to our show earlier this week because he's he's basically no,
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Speaker 2: I mean, look, he's basically saying the stuff that we said,
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Speaker 2: but pretty much one of the things we outlined is, look,
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Speaker 2: is there a possibility that you see a wage price
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Speaker 2: spiral because of lower supply in the labor market. Maybe,
6:39
Speaker 2: but he's basically saying, look, I think the labor market's
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Speaker 2: weak enough that employees and workers don't have enough bargaining
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Speaker 2: power to get the higher wages that would cause a
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Speaker 2: wage price spiral. It's a again, it's an open question,
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Speaker 2: but Powell laying down his mark saying no, I don't
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Speaker 2: think that's going to be a problem. And finally, this
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Speaker 2: is where I think it all comes together. Is in
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Speaker 2: kind of one of his last paragraphs in this section,
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Speaker 2: putting the pieces together, What are the implications for monetary policy?
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Speaker 2: Ok he tells us right here, It's like, okay, here
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Speaker 2: it is in the near term risks to the risks,
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Speaker 2: risks to inflation are tilted to the upside, and risks
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Speaker 2: to employment to the downside. A challenging situation. Again, as
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Speaker 2: we outlined yesterday, thanks for listening to the Showjay. When
7:29
Speaker 2: our goals are intentioned like this, our framework calls for
7:32
Speaker 2: us to balance both sides of our dual mandate. Our
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Speaker 2: policy rate is now one hundred points closer neutral than
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Speaker 2: it was a year ago. In the stability of the
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Speaker 2: employment rate and other labor market measures allows us to
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Speaker 2: proceed carefully as we consider changes to our policy stance. Nonetheless, nonetheless,
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Speaker 2: and again it's kind of hey when someone says, but
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Speaker 2: everything before the butt doesn't really matter. Nonetheless, with policy
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Speaker 2: and restrictive territory, the baseline outlook and the shifting balance
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Speaker 2: of risks may warrant adjusting our policy stance. Pretty much
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Speaker 2: saying look, I think we're gonna need to cut rates
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Speaker 2: now he hedges a little bit with that, may warrant
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Speaker 2: instead of does warrant. But it seems like this has
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Speaker 2: a doubvish tilt to it at the moment, because the Fed,
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Speaker 2: in trying to balance these is saying, hey, we're more
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Speaker 2: concerned about unemployment going up and staying up than inflation
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Speaker 2: going up and staying up.
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Speaker 3: Whether that proves to be right, I don't know where it's.
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Speaker 2: It's gonna, you know, be a year or so before
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Speaker 2: we know if that's the right decision. Again, this is
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Speaker 2: not something where like you see this you know tomorrow,
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Speaker 2: Hey this worked, or hey this didn't.
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Speaker 3: But Powell is.
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Speaker 2: Clearly laying down a marker saying, yeah, this is what
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Speaker 2: I think is going to happen here, and I think
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Speaker 2: that we're gonna need to start cutting rates as a
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Speaker 2: result of it.
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Speaker 4: It's interesting, I believe when they released the Fed Minutes,
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Speaker 4: the larger concern was inflation that they mentioned there, and
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Speaker 4: now sort of shifting gears and focusing on the labor market.
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Speaker 4: Is that we have that accurate.
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Speaker 3: It's kind of a head fake.
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Speaker 2: It is because a couple a couple of days ago,
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Speaker 2: it was a more hawkish interpretation that was rolled out
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Speaker 2: in the Fed Minutes. This more dubbish there so it
9:12
Speaker 2: was kind of a head fake that we we got
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Speaker 2: a couple days ago. I don't know that that necessarily
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Speaker 2: means anything, and I do come back to another thing
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Speaker 2: that we talked about earlier this week, which is, look,
9:22
Speaker 2: when when push comes to shove, Powell has tended to
9:25
Speaker 2: operate in a more dubvish fashion when faced with different
9:29
Speaker 2: questions out there, and this is right in line with it.
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Speaker 2: I think it's fully defensible. I don't think it's anything
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Speaker 2: where you look at it and say, hey, the Fed
9:37
Speaker 2: is you know, off their rocker on this based on
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Speaker 2: the information that's out there now. And certainly, look, if
9:43
Speaker 2: we get to December and there's no rise in unemployment
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Speaker 2: and inflation's continuing to move up, the Fed's gonna have
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Speaker 2: to answer some questions then. But let's get to December
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Speaker 2: and see if that's actually a problem. Before we we
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Speaker 2: you know, say oh gee, they they blew it on this.
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Speaker 2: I think the Fed's been pretty darn good for the
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Speaker 2: last couple of years, and I think they've earned the
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Speaker 2: right to make this decision based on the data that
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Speaker 2: they're seeing and what's out there in the aggregate right now.
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Speaker 4: It is worth noting that I mentioned that the FED
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Speaker 4: meeting minutes were released that was from about three weeks ago,
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Speaker 4: and you mentioned the headfake there. The same thing could
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Speaker 4: happen in the other direction. We have two really important
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Speaker 4: economic reports that will come out before the September seventeenth meeting.
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Speaker 4: We're going to get the jobs report for the month
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Speaker 4: of August on September fifth, and then we're going to
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Speaker 4: get the inflation report on September eleventh. So those two
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Speaker 4: will have a tremendous amount of influence on the final decision.
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Speaker 4: But like we said, all indications at the moment and
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Speaker 4: based on where the market reacting that perhaps they would cut.
10:41
Speaker 4: But there's always that chance for a changing course depending
10:44
Speaker 4: on what we see from those two economic courts. So
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Speaker 4: I think that's important to mention too.
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Speaker 3: Let's take a quick break here.
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Speaker 2: When we come back, let's dig in a little bit
10:53
Speaker 2: more on what Powell speech said and talk a little
10:57
Speaker 2: bit more about previewing that September meeting.
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11:55
Speaker 3: Paul, what else we.
11:56
Speaker 2: Have from Powell's speech that you want to touch on.
11:59
Speaker 2: I know we've got a September meeting that we'll get
12:01
Speaker 2: to as well, but anything from the pale speech that
12:04
Speaker 2: caught your.
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Speaker 4: Eye, certainly. He also addressed something that we had previewed
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Speaker 4: earlier this week on the program about the importance of
12:12
Speaker 4: FED independence, and I quote, FMOC members are going to
12:16
Speaker 4: make these decisions, interest rate decisions and other decisions based
12:20
Speaker 4: solely on their assessment of the data and its implications
12:23
Speaker 4: for the economic outlook and the balance of risk. We
12:25
Speaker 4: will never deviate from that approach, something that many punnits
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Speaker 4: thought would be mentioned as part of his speech. He
12:33
Speaker 4: didn't specifically address the White House, but certainly sort of
12:36
Speaker 4: made that resounding claim that the importance of the Fed's
12:40
Speaker 4: independence is critical for the Federal Reserve. And this is
12:44
Speaker 4: his last speech, like we've talked about, so making sure
12:46
Speaker 4: that he did address that particular subject.
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Speaker 2: So this brings us to the obvious topic of Okay,
12:53
Speaker 2: you've got this September meeting, and what are we going
12:55
Speaker 2: to see there? See me now pricing in a ninety
12:59
Speaker 2: one point three percent chance that we see a rate
13:03
Speaker 2: cut at the September meeting, This up from seventy five
13:06
Speaker 2: percent yesterday, and so it seems to be basically full
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Speaker 2: steam ahead for hey, when we get to that September meeting,
13:14
Speaker 2: which is gonna be September seventeenth. So you know, you
13:17
Speaker 2: go look at the calendar and you say, okay, it's
13:18
Speaker 2: about four weeks from now a little bit less than that,
13:21
Speaker 2: but about four weeks from now, and really the questions
13:25
Speaker 2: are going to be, Okay, what data do we get
13:27
Speaker 2: in the interim that can matter there, because quite honestly,
13:31
Speaker 2: like durable goods orders next Tuesday, sure, I like to
13:35
Speaker 2: see it just to see what's going on, but ultimately
13:37
Speaker 2: not material to the Fed's decision making process for September.
13:41
Speaker 2: The ones that are gonna matter piece of E Price
13:44
Speaker 2: Index comes out next Friday, August twenty ninth, That obviously
13:49
Speaker 2: is going to be a big one. The following Friday,
13:53
Speaker 2: September fifth, we have the August Jobs report that is
13:57
Speaker 2: going to be coming out. That is going to be
14:01
Speaker 2: a big one. As we go deeper into September, we
14:05
Speaker 2: get out to September tenth and eleventh, where we've got
14:10
Speaker 2: producer Price Index and consumer Price Index for the month
14:14
Speaker 2: of August. Taken together, you can usually get a pretty
14:17
Speaker 2: good sense of what PCE is going to be for August.
14:20
Speaker 2: So I think in looking at this, those.
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Speaker 3: Are the releases that I have highlighted.
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Speaker 2: Obviously, you could also highlight weekly jobless claims, but there's
14:29
Speaker 2: no one report that matters. It's gonna you know, be hey,
14:31
Speaker 2: is there a change in trend that happens over the
14:35
Speaker 2: next three to four weeks. But PCE Jobs, CPIPPI, and
14:42
Speaker 2: you could throw jobless claims in as well. Those are
14:45
Speaker 2: the key things to watch over the next three and
14:48
Speaker 2: a half weeks. Because they're the only ones that have
14:50
Speaker 2: the chance of changing where FED policy goes at that
14:55
Speaker 2: September meeting.
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Speaker 3: Is that a fair assessment, Paul.
14:57
Speaker 4: Fair assessment?
14:57
Speaker 3: I agree?
14:59
Speaker 2: So how could they end up changing things? Let's let's
15:02
Speaker 2: talk first, kind of things stay the same. If we
15:05
Speaker 2: get a jobs report where I don't know, call it
15:09
Speaker 2: fifty to one hundred thousand jobs created, unemployment stays at
15:14
Speaker 2: four to two, and the inflation data all you know,
15:18
Speaker 2: comes in, you know, zero point three percent month over months, still,
15:21
Speaker 2: you know, like nothing crazy. The FED is probably cutting
15:26
Speaker 2: in that case, just because that's what we saw this month,
15:29
Speaker 2: and they, you know, basically committed Powell basically committed them to, yeah,
15:33
Speaker 2: we're gonna have to start cutting.
15:34
Speaker 3: If that's still the case, if we.
15:37
Speaker 2: See job growth pick up, Let's say that we go
15:43
Speaker 2: to one hundred and fifty thousand jobs added. Again, at
15:45
Speaker 2: the FED doesn't really look at jobs added, They look
15:47
Speaker 2: at the unemployment rate. But let's say the unemployment rate
15:50
Speaker 2: drops to four to one and core CPI goes up
15:54
Speaker 2: to point four. Okay, that that throws a little bit
15:57
Speaker 2: of a spanner in the works, right, you know, like
15:59
Speaker 2: that's that's a little bit of a risk there that, Okay,
16:02
Speaker 2: maybe the FED doesn't cut in that case if if
16:04
Speaker 2: the unemployment rate moves down and inflation the pace of
16:08
Speaker 2: it increases. That's the kind of thing where the FED says, no,
16:13
Speaker 2: we're not doing this. On the other side of the ledger, Hey,
16:17
Speaker 2: let's say the jobs picture worsens, unemployment moves up to
16:21
Speaker 2: four three or four four, and course CPI comes in
16:26
Speaker 2: point two. You might have a fifty basis point cut
16:30
Speaker 2: on the table there, right, you know, like that that's
16:32
Speaker 2: the possibility as well. So I think the base case
16:35
Speaker 2: now is clearly, hey, FED wants to start some kind
16:38
Speaker 2: of cutting cycle. But as we get more data, even
16:42
Speaker 2: in the next three weeks, it's going to inform as
16:44
Speaker 2: to hey, are they really gonna kick it off in
16:46
Speaker 2: September or do they need to turbo charge it in September.
16:49
Speaker 2: That that's kind of the open question now.
16:51
Speaker 4: Yeah, Basically, to summarize those three scenarios that you laid out,
16:54
Speaker 4: the only way presumably you would see them not cut rates.
16:59
Speaker 4: And again we're just you know, a couple of guys
17:02
Speaker 4: in our chairs, just just chatting away. Is this idea that.
17:06
Speaker 3: You're standing up actually in your chairs.
17:09
Speaker 4: You're standing up. You're always sitting down when you do
17:11
Speaker 4: the show.
17:12
Speaker 3: I'm just not tall. Okay, God, I'm sitting actually.
17:15
Speaker 4: I'm in my chair. I just want to give me
17:18
Speaker 4: a hard text is that we're gonna have for all
17:21
Speaker 4: the listeners out there, Chuck is sitting, We're if you
17:24
Speaker 4: have a tremendous jobs report, really like, that's kind of
17:27
Speaker 4: the the one that I come back. If they just
17:29
Speaker 4: blow it out of the water and unemployment decreases, probably
17:32
Speaker 4: is the only way you know that you'd see potentially
17:36
Speaker 4: this cut be off the table from what we know today.
17:40
Speaker 2: And when we talk about unemployment decreasing, remember there are
17:42
Speaker 2: two different ways that you can have that happen. The
17:45
Speaker 2: first is through a significant amount of jobs added. The
17:48
Speaker 2: second is through the labor force shrinking. One of those
17:53
Speaker 2: obviously has you know, better implications than the other.
17:55
Speaker 3: I mean, look in theory again.
17:57
Speaker 2: Here's here's our hypothetical world where we've got a hundred
18:00
Speaker 2: people living in a country and four of them are unemployed.
18:04
Speaker 2: If one of those people moves out of the country
18:06
Speaker 2: or leaves the labor force, or however it happens, and
18:09
Speaker 2: now you only have three out of ninety nine that
18:11
Speaker 2: are unemployed, the unemployment rate did go down, Did the
18:15
Speaker 2: economy materially improve?
18:18
Speaker 1: No.
18:19
Speaker 2: On the other hand, if we have one hundred people
18:21
Speaker 2: in the country and four are unemployed and one of
18:24
Speaker 2: them gets a job and we go from ninety six
18:26
Speaker 2: to ninety seven people employed, hey, that's a material improvement
18:30
Speaker 2: in the economy. But these both represent a shift from
18:35
Speaker 2: basically four percent to three percent unemployment, but with different implications.
18:38
Speaker 2: And this is another thing that Powell got at here,
18:40
Speaker 2: which is, look, if the labor supply, if labor force
18:44
Speaker 2: growth is slowing as a combination of baby boomer retirements
18:49
Speaker 2: and reduced or even to like shrinking immigration, you know,
18:53
Speaker 2: negative immigration potentially happens, then you have a case where, yes,
18:58
Speaker 2: the unemployment rate might not move, but it still might
19:01
Speaker 2: be bad for the US economy because you don't have
19:04
Speaker 2: as much labor to do the stuff that you want,
19:07
Speaker 2: and you don't have as much spending power in order
19:10
Speaker 2: to buy the things that people normally buy because you
19:13
Speaker 2: have fewer people working. And as such, Powell I think
19:17
Speaker 2: is viewing that as a downside risk to the economy,
19:20
Speaker 2: even if unemployment stays flat. And that's kind of interesting.
19:25
Speaker 2: Let's take a quick break. When we return, it's Wall
19:28
Speaker 2: Street Watch.
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Speaker 1: TFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:53
Speaker 1: Street Watch a complete look at what's moving markets so
19:56
Speaker 1: far today right here on the Financial Exchange Radio More.
20:00
Speaker 5: Markets are reacting favorably to fit Chairman Jerome Poll's speech
20:03
Speaker 5: from Jackson a Hole about half an hour ago, where
20:06
Speaker 5: Powell left the door open four rate cut next month,
20:10
Speaker 5: citing the rising risks for the labor market. Right now,
20:13
Speaker 5: the Dow everything is actually rallying right now at the moment,
20:16
Speaker 5: DOO is up one point seven percent er seven hundred
20:19
Speaker 5: and seventy two points higher, SMP five hundred is up
20:22
Speaker 5: nearly one and a half percenter ninety three points higher.
20:26
Speaker 5: Tech heavy Nasdaq up one point seven percent or three
20:29
Speaker 5: hundred and sixty seven points, Rustle two thousand up three percent,
20:34
Speaker 5: Ten year treas reeled down five basis points at four
20:37
Speaker 5: point two seven to seven percent, and crude oil mostly
20:41
Speaker 5: flat today. Let's see here. According to report from the
20:45
Speaker 5: Information and Vidia told suppliers to halt some production of
20:49
Speaker 5: its eight twenty chips after Chinese authorities push companies to
20:52
Speaker 5: avoid the product. Furthermore, in Video is also reportedly having
20:56
Speaker 5: conversations with the US government about shipping a more advance
21:00
Speaker 5: chip to China, and Video shares are up nearly one percent,
21:04
Speaker 5: with their earnings on tap for next week. Meanwhile, tax
21:07
Speaker 5: preparation software company into It said it expects sales growth
21:11
Speaker 5: between fourteen and fifteen percent in its current quarter, below
21:16
Speaker 5: growth forecasts expected by Wall Street analysts. Into Its stock
21:20
Speaker 5: tumbling six percent on that news. Elsewhere shares and Ross
21:24
Speaker 5: Stores up one percent after the discount department store chain
21:27
Speaker 5: reported a rebound in sales in July. Ross also said
21:31
Speaker 5: terror related costs hadn't pinched profits as much as it expected.
21:36
Speaker 5: Workday following four percent after the human resources software company
21:40
Speaker 5: said revenue climb thirteen percent, just above street expectations, and
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Speaker 5: Zoom Communications raised its full year outlook following the strong
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Speaker 5: second quarter, sending shares in the video conferencing platform up
21:54
Speaker 5: by nine percent. I'm Tucker Silva, and that is Wall Street.
21:58
Speaker 2: Watch else that you want to add, that's federlated. I
22:02
Speaker 2: know we spent the first couple of segments today discussing
22:05
Speaker 2: Powell's Jackson a whole speech and the ramifications here, anything
22:10
Speaker 2: else you want to add on that.
22:11
Speaker 4: The last thing in this was pretty much going this
22:15
Speaker 4: was well known probably going into this, is that he
22:17
Speaker 4: did a sort of mia culpa on their previous policy
22:20
Speaker 4: stance where they were going to let inflation run past
22:24
Speaker 4: their two percent target, reversing course on that, just saying
22:27
Speaker 4: that having that framework in place from what we saw
22:31
Speaker 4: in twenty twenty one makes, you know, makes no sense
22:34
Speaker 4: from a framework perspective.
22:36
Speaker 2: So talk about this piece from the Wall Street Journal. Then,
22:39
Speaker 2: the biggest retailers are thriving in the teriff economy, And
22:42
Speaker 2: basically what it's talking about is that companies like Walmart
22:45
Speaker 2: and Amazon and TJX, because of their scale and relationships
22:49
Speaker 2: with suppliers and things like that, they are trying to
22:53
Speaker 2: offer deals to consumers in ways that smaller companies might
22:57
Speaker 2: not be able to because they don't have the financial
22:59
Speaker 2: or so just to go resources to be able to
23:02
Speaker 2: pull it off. And so there's a lot of data
23:04
Speaker 2: nowt pointing to these companies scooping up market share from
23:07
Speaker 2: smaller retailers. Uh, and not great news for smaller retailers,
23:12
Speaker 2: but for these guys, a way to continue consolidating market
23:15
Speaker 2: share under their umbrellas.
23:16
Speaker 4: I do worry about that, Chuck. Obviously, the intention behind
23:19
Speaker 4: some of these tariffs in place is this idea of
23:21
Speaker 4: bringing back manufacturing to the United States and certainly more
23:25
Speaker 4: of a focus on bolstering the US businesses. But what's
23:29
Speaker 4: probably lost is that the size and scale of Walmart
23:33
Speaker 4: and Amazon and TJ Max and these types of retailers,
23:37
Speaker 4: they have that flexibility that you're talking about from a
23:39
Speaker 4: supplier side that a local mid size or small business
23:43
Speaker 4: doesn't have. And I just worry that the unintended consequence
23:46
Speaker 4: of some of these tariffs is just to creating more
23:48
Speaker 4: value to these big behemoths that have the ability to
23:51
Speaker 4: withstand increased in their prices versus the local mom and
23:56
Speaker 4: pop shop that's a clothing retailer, for example, or others
23:59
Speaker 4: out there. So it's certainly something to follow. And for
24:04
Speaker 4: the stock market perspective, yeah, it's nice that Walmart and
24:07
Speaker 4: Amazon and TG max are doing well, but for just
24:10
Speaker 4: that middle America mid market, it's something that we need
24:13
Speaker 4: to follow as hopefully not an untended consequence of all this.
24:18
Speaker 2: I want to move down to talk about what I
24:19
Speaker 2: think is a big story, and there have been a
24:23
Speaker 2: few of these in the last week or so, and
24:25
Speaker 2: I just I'm starting to get a little bit edgy
24:28
Speaker 2: again when it comes to AI here. So, this one
24:31
Speaker 2: from Bloomberg was originally reported by The Information, who I
24:35
Speaker 2: looked into trying to get the the report directly from
24:39
Speaker 2: the Information and apparently you need to pay like seven
24:42
Speaker 2: hundred dollars a year to subscribe. So I said, no,
24:45
Speaker 2: I'm not gonna do that. Instead, I'll just read the
24:46
Speaker 2: Bloomberg report of the report from the Information, and Vidia
24:51
Speaker 2: Corporation has instructed component suppliers, including Samsung Electronics and Amcore
24:55
Speaker 2: Technology to stop production related to the H twenty AI chip.
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Speaker 2: The Information report, it's saying, unidentify, I'd swored sources.
25:01
Speaker 3: Now.
25:01
Speaker 2: The H twenty chip is the one that in Vidia
25:04
Speaker 2: specifically builds for China. It was also the one that
25:08
Speaker 2: back in the spring, the Trump administration said, no, you
25:11
Speaker 2: can't send that to China.
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Speaker 3: Actually we're not going to allow.
25:13
Speaker 2: It, and then reversed course several months later in July
25:17
Speaker 2: when they did, I mentioned, and Tucker can pull we
25:21
Speaker 2: don't use tape anymore. Whatever it is that we use.
25:24
Speaker 2: The ones and zero's the hard drive. However it works
25:27
Speaker 2: you can pull the tape. And I said at the time,
25:30
Speaker 2: wouldn't the really interesting thing be if China said, hey,
25:33
Speaker 2: thanks for allowing those shipments, but we don't want them anymore.
25:37
Speaker 2: And lo and behold, that's actually what China is doing now.
25:40
Speaker 2: And so it's clear to me that in Vidia is
25:43
Speaker 2: underwater on these chips that they're producing, because the Chinese
25:46
Speaker 2: government is pretty much told domestic companies, hey, don't buy
25:50
Speaker 2: any of these H twenty chips if you can avoid it.
25:53
Speaker 2: And so in Vidia is now trying to spool down
25:56
Speaker 2: production on those and this in conjunction with again just
26:01
Speaker 2: a bad quarter for semiconductor earnings in general. I mean,
26:05
Speaker 2: you go down the list, and whether it's applied materials,
26:09
Speaker 2: whether I mean like you can go through like the
26:11
Speaker 2: whole Semiconductor Index, applied materials, whether it is ASML, broad Com, AMD, Micron,
26:21
Speaker 2: Texas instruments, like, you go down the listen it was
26:23
Speaker 2: generally every other day it was oh, semiconductor company XES
26:28
Speaker 2: down ten percent. And yeah, the chat GPT five release
26:33
Speaker 2: maybe a week or week and a half ago. Now
26:35
Speaker 2: that's been panned fairly universally by lots of different people
26:41
Speaker 2: and lots of different groups, and I wonder if we're
26:45
Speaker 2: reaching an inflection point on this. But the counter to
26:47
Speaker 2: that is, hey, there have been times where we've thought
26:49
Speaker 2: that before and it hasn't mattered at all. But this
26:53
Speaker 2: is kind of a clustering of data points where I
26:55
Speaker 2: look at and go, oh, this is kind of interesting.
26:58
Speaker 2: I wonder, you know what this looks like three to
26:59
Speaker 2: fo more months from now.
27:01
Speaker 4: We'll get in Vidia's arnings report next Thursday. It is
27:04
Speaker 4: worth noting that they did take a five and a
27:07
Speaker 4: half billion dollar right down when it was initially announced
27:09
Speaker 4: that these Age twenties were not going to be able
27:12
Speaker 4: to be shipped back in the spring. The stock probably
27:15
Speaker 4: did rally a bit. I can't remember the performance offhand
27:17
Speaker 4: when the announcement came out that they would resume shipping
27:21
Speaker 4: those Age twenties. So ultimately it'll be interesting to see
27:23
Speaker 4: if Nvidia has any commentary in terms of what they anticipate.
27:27
Speaker 4: There was initially some hope that they would claw back
27:30
Speaker 4: some of that five and a half billion that they
27:31
Speaker 4: had ridden down from the sale of these Age twenty chips.
27:34
Speaker 4: It also now seems like they're trying to pivot to
27:38
Speaker 4: utilizing a different chip to replace this age twenty to
27:42
Speaker 4: be sold to China. But it is incredible of any
27:46
Speaker 4: nation out there that is one in particular with China,
27:49
Speaker 4: that can stop on a dime and really make a
27:52
Speaker 4: significant influence to shutting off orders in quick you know,
27:56
Speaker 4: quick fashion.
27:58
Speaker 3: Yeah.
27:58
Speaker 2: I mean, look, when you're in authoritarian regime, you can
28:00
Speaker 2: basically do whatever lot different that you want as long
28:03
Speaker 2: as you have you know, the capability there. The question
28:07
Speaker 2: to me is what does China want in order to
28:11
Speaker 2: buy these chips? Because it's clear that they obviously want
28:14
Speaker 2: to be able to import them, otherwise they wouldn't have
28:17
Speaker 2: been to this point. The question that's out there is
28:21
Speaker 2: what does China want from the United States in order
28:24
Speaker 2: to reauthorize, you know, the buying buy Chinese companies of
28:28
Speaker 2: these chips. And I don't know the answer to that,
28:32
Speaker 2: but it's not one that fills me with a great
28:34
Speaker 2: deal of you know, happiness in my heart. It's probably
28:37
Speaker 2: not something that the US would want to give up.
28:39
Speaker 2: And so I sit there and I say, I hope
28:41
Speaker 2: that you know, the Trump administration is not trying to
28:45
Speaker 2: you know, just benefit in Vidia to you know, push
28:48
Speaker 2: the stock price higher. And I hope that there's you
28:50
Speaker 2: know something that they're willing to say. Hey, no, we're
28:53
Speaker 2: not going to do this just so that Nvidia can
28:55
Speaker 2: sell these chips into China. We're gonna have to see
28:58
Speaker 2: what it looks like.
28:59
Speaker 4: And then the government take fifteen percent cut of those chips.
29:01
Speaker 3: That's where they do they do.
29:04
Speaker 2: Let's take a quick break here and when we return,
29:10
Speaker 2: how long can the stock market prosper?
29:12
Speaker 3: Who knows? Let's not do that. Do we want to
29:16
Speaker 3: talk about roth iras?
29:18
Speaker 2: Yeah, I think roth iras could be a fun thing
29:20
Speaker 2: to talk about, So let's do that when we return
29:22
Speaker 2: on the Financial Exchange.
29:25
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30:03
Speaker 3: Paul, we got a piece here in Bloomberg Today.
30:06
Speaker 2: It's titled how to maximize your roth ira and retire
30:10
Speaker 2: Rich Well does maximizing your wroth IRA mean that you're
30:14
Speaker 2: going to retire rich Paul.
30:16
Speaker 4: Not necessarily, but certainly it can provide some tax advantages
30:20
Speaker 4: in the future. Ultimately, the major benefit with a roth
30:24
Speaker 4: IRA is it gets the same tax deferred treatment that
30:27
Speaker 4: an IRA or four on K would, but when you
30:30
Speaker 4: withdraw those earnings and those proceeds later in life, after
30:34
Speaker 4: fifty nine and a half, they come out tax free,
30:36
Speaker 4: which is a real fantastic benefit that they have. Basically,
30:39
Speaker 4: you pay the taxes upfront to contribute to these roth
30:43
Speaker 4: iray vehicles, but after they grow for however many years
30:47
Speaker 4: you've been invested for, then you get to withdraw the
30:52
Speaker 4: gains tax free. So they certainly have tremendous advantages if
30:55
Speaker 4: you're able to set them up appropriately.
30:57
Speaker 2: Check what kind of limitations are there in terms of
31:00
Speaker 2: who can contribute, how much you can contribute.
31:03
Speaker 3: Things along those lines.
31:04
Speaker 4: Yeah, so there is an income cap on contributions. So
31:07
Speaker 4: for those who are single filers, the income ceiling is
31:11
Speaker 4: one hundred and sixty five thousand. For a married couple
31:15
Speaker 4: it's two hundred and forty six thousand. So if you
31:18
Speaker 4: exceed those thresholds, you are unable to do roth IRA contributions. However,
31:22
Speaker 4: many retirement plans out there for employers do offer a
31:26
Speaker 4: WROTH for OH one K, which is not subject to
31:28
Speaker 4: those income limitations. And if you want to go really
31:32
Speaker 4: down into the weeds, you can also facilitate a backdoor
31:36
Speaker 4: roth IRA contribution. That is, when you do a non
31:40
Speaker 4: deductible IRA contribution and then immediately take those funds and
31:45
Speaker 4: can convert them over to ROTH. You do want to
31:48
Speaker 4: make sure that you're talking with a tax advisor when
31:51
Speaker 4: you go with those approaches, because you don't want to
31:53
Speaker 4: have an existing IRA in place before you're trying to
31:56
Speaker 4: do that roth IRA back door there.
31:59
Speaker 2: Yeah, I think you can get pretty complicated there, so
32:01
Speaker 2: it's always something where you want to chat with a
32:04
Speaker 2: licensed accountant before going in that direction. Quite honestly, before
32:09
Speaker 2: making any retirement account contributions, you probably want to speak
32:12
Speaker 2: with an accountant just to make sure you understand whether
32:15
Speaker 2: you're contributing to the right type of account, whether you
32:18
Speaker 2: should be upping your contributions, contributing to different types of accounts.
32:22
Speaker 2: There's a lot, you know, that can go on there,
32:24
Speaker 2: But ultimately, I think when we talk about this in
32:26
Speaker 2: the context of financial planning, Paul, I'm a big believer
32:29
Speaker 2: in having, you know, kind of a balance of different
32:32
Speaker 2: types of accounts so that depending on your needs and
32:35
Speaker 2: the time when you need the money, you have the
32:37
Speaker 2: ability to tap different sources. Having funds that are across
32:41
Speaker 2: WROTH I array traditional and even after tax brokerage gives
32:44
Speaker 2: you some flexibility to pull from different account types depending
32:48
Speaker 2: on your tax situation in any given year.
32:50
Speaker 4: It's great to have that three stooled approach, like you're
32:52
Speaker 4: talking about tax defer, just regular investment accounts and the
32:55
Speaker 4: WROTH bucket to pull from for any listeners that they're
32:58
Speaker 4: One of my bigger regrets from just my early career
33:02
Speaker 4: is not knowing about roths earlier for those you know,
33:05
Speaker 4: grandkids that you have out there for your kids, particularly
33:08
Speaker 4: when you get that first job out of college, you're
33:10
Speaker 4: not making a lot of money oftentimes, and the utilization
33:14
Speaker 4: of a ROTH four u K where you're paying the
33:15
Speaker 4: taxes up front when you're not earning a lot and
33:18
Speaker 4: then allowing for that tax free growth over time is
33:20
Speaker 4: something that I look back on that I wish I
33:23
Speaker 4: knew more before when I was younger starting my career.
33:26
Speaker 2: Folks, if you've got questions about roth I rays or
33:29
Speaker 2: other types of retirement accounts. Armstrong Advisory Group is available
33:33
Speaker 2: to assist with those questions. Phone number to call is
33:37
Speaker 2: eight hundred three nine three four zero zero one. We've
33:40
Speaker 2: got offices all through the New England region to sit
33:43
Speaker 2: down and explore what types of retirement accounts can make
33:46
Speaker 2: sense for you and your specific financial situation. Because again
33:50
Speaker 2: everyone's different, there's no one size fits all approach to this.
33:54
Speaker 2: That number again to schedule a consultation is eight hundred
33:57
Speaker 2: three nine three four zero zero one. Again, that is
34:01
Speaker 2: eight hundred three nine three for zero zero one.
34:06
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
34:09
Speaker 1: registered investment advisor. Nothing in the ad or in any
34:11
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
34:14
Speaker 1: your own financial, tax into state planning advisors before making
34:17
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
34:20
Speaker 1: advisory services.
34:22
Speaker 3: Paul, when's the last time you've been to a chili's? Who?
34:24
Speaker 4: I'd say, probably six or seven years ago was the
34:28
Speaker 4: last time.
34:29
Speaker 2: I gotta say it's been longer than I can't even
34:31
Speaker 2: think of the last time that I went to a
34:33
Speaker 2: chili's and It's not because I have like any hard
34:35
Speaker 2: feelings about like Chili's or anything like that. It's just
34:38
Speaker 2: not something that you know, kind of has has clicked
34:41
Speaker 2: for me in recent years. And so it was surprising
34:45
Speaker 2: to me earlier this year when I saw that Chilis
34:49
Speaker 2: was seeing, you know, same store sales growth of north
34:51
Speaker 2: of thirty percent in Q one and just like Monster numbers.
34:56
Speaker 3: I mean even like there.
34:58
Speaker 2: When you look at their parent company, Brink International, their
35:02
Speaker 2: net income for the full fiscal year more than doubled
35:07
Speaker 2: from the prior year. And we've talked to Lent about
35:09
Speaker 2: how restaurants in general are having a tough time right now,
35:12
Speaker 2: and Brinker is largely cranking because of Chili's. And so
35:17
Speaker 2: what Chili's is gonna be doing here, they are going
35:19
Speaker 2: to be paying out bonuses at two hundred percent of
35:24
Speaker 2: their corporate workers' target rates because the profits are so
35:29
Speaker 2: good and they want to pay out bonuses to those
35:32
Speaker 2: corporate workers. I'm sure, you know, maybe when it comes
35:34
Speaker 2: to store managers and things like that, you might see
35:37
Speaker 2: some things as well there, but Chili's just absolutely cranking
35:42
Speaker 2: right now. And I gotta be honest, that's not something
35:45
Speaker 2: that I thought I would be saying in twenty twenty five.
35:47
Speaker 4: I can't reiterate how rare that it is chuck on
35:50
Speaker 4: when we cover these types of companies in the fast
35:52
Speaker 4: casual sort of space, like Darden restaurants or other there like,
35:55
Speaker 4: to have this type of sales growth that they've seen
35:58
Speaker 4: is just out of this world. It's something that I
36:00
Speaker 4: never could have envisioned that something has established as Chili's
36:04
Speaker 4: could have its highest sales and most profit for a
36:07
Speaker 4: fiscal year since nineteen eighty four. I do hope that
36:11
Speaker 4: it does trickle down to the store managers and the
36:14
Speaker 4: waitress and waiters staff at some of these Chilis here.
36:17
Speaker 4: I hope these bonuses aren't just tethered to the corporate workers,
36:20
Speaker 4: because ultimately a lot of this is done kind of
36:24
Speaker 4: in the trenches at the ground four level two. So
36:26
Speaker 4: hopefully they get some pass through. Because these numbers are
36:29
Speaker 4: just so out of this world. You got to take
36:31
Speaker 4: care of the people who are really doing the work
36:33
Speaker 4: on the front line for you there too.
36:35
Speaker 3: Yeah.
36:36
Speaker 2: Absolutely also found a little bit of interesting data from
36:40
Speaker 2: the Bureau of Labor Statistics. Nothing that is like earth
36:45
Speaker 2: shattering or that's going to impact the economy in any way,
36:48
Speaker 2: shape or form. But they conduct on an annual basis
36:52
Speaker 2: their Current Employment Statistics Survey. Actually it might be every
36:57
Speaker 2: six months. I don't know, to be honest, but one
37:01
Speaker 2: of the questions that they ask people is, hey, how
37:04
Speaker 2: frequently do you receive a paycheck? And I thought this
37:08
Speaker 2: was just kind of interesting just to see the distribution
37:10
Speaker 2: of when people get paid. Paul, what do you think
37:13
Speaker 2: is the most common pay period?
37:16
Speaker 4: You gotta go with the every two weeks. It seems
37:18
Speaker 4: like that's the most common.
37:19
Speaker 3: Bi weekly is correct?
37:20
Speaker 2: Forty three percent of workers get paid on a bi
37:24
Speaker 2: weekly basis. What do you think is the next most
37:26
Speaker 2: common weekly?
37:28
Speaker 3: Correct?
37:28
Speaker 2: Again, twenty seven percent of workers. Paul, you're up to
37:31
Speaker 2: seventy percent. Now, what is the next most common way
37:34
Speaker 2: that people get paid?
37:35
Speaker 4: Monthly?
37:36
Speaker 3: No?
37:37
Speaker 2: Incorrect, Paul, I'm sorry, Yes, semi monthly, Tucker, thank you
37:41
Speaker 2: for scooping that one up at nineteen point eight percent.
37:44
Speaker 2: And finally, monthly is ten point three percent of workers.
37:48
Speaker 2: I realize this adds to one hundred point one percent,
37:50
Speaker 2: but that's obviously because of some rounding that they do here.
37:54
Speaker 2: But I found this interesting just to finally see, like, hey,
37:57
Speaker 2: how often do people get paid. The monthly number I
38:01
Speaker 2: thought was actually higher than I thought. I mean, quite honestly,
38:03
Speaker 2: I can't imagine going a full month between paychecks like that.
38:07
Speaker 2: That just seems kind of like a lot, like no
38:09
Speaker 2: thank you, I need something along the way just to
38:11
Speaker 2: make sure I feel okay. But yeah, about ten percent
38:14
Speaker 2: of workers get paid on a monthly basis. We're gonna
38:18
Speaker 2: take a quick break now, but a whole lot more
38:22
Speaker 2: coming up on the Financial Exchange