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Warsh’s Fed Faces Its First Inflation Test · The Financial Exchange Show

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• 1:12
  Speaker 2: Good morning, congrats on making it to Friday. Here from
• 1:15
  Speaker 2: the Financial Exchange. It's a fairly calm day on market,
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  Speaker 2: so which I'll take this week has been a fair
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  Speaker 2: bit of downward pressure then as that composite for the
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  Speaker 2: week right now off nearly four and a half percent,
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  Speaker 2: but only one fifth of a percent this morning. SMP
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  Speaker 2: and Dow both basically flat as we kick off the
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  Speaker 2: eleven o'clock hour.
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  Speaker 3: Here, but big moves and oil prices.
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  Speaker 2: You've got West Texas crewed below seventy dollars a barrel,
• 1:42
  Speaker 2: sitting at sixty nine dollars and fifteen cents. That's a
• 1:44
  Speaker 2: nearly four percent drop this morning. You'll the ten year
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  Speaker 2: Treasury sitting at four and a third about four point
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  Speaker 2: three seven four percent. Little changed in terms of the
• 1:55
  Speaker 2: national average for a gallon of gas, we're now sitting
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  Speaker 2: at three dollars and ninety cents. A little litle bit
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  Speaker 2: more here in New England, Massachusets about three ninety seven,
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  Speaker 2: main around three ninety four Vermonte buck over four bucks
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  Speaker 2: a gallon, and then taking a look over at mortgage rates.
• 2:12
  Speaker 2: But he's been a little while since I've updated there.
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  Speaker 2: We're sitting, according to Mortgage News Daily, at six point
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  Speaker 2: five three percent on the thirty year fixed rate mortgage,
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  Speaker 2: which is down from the highs that we reached during
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  Speaker 2: the war. In round, we reached three six and three
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  Speaker 2: quarters back in May, so we've moved down from there,
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  Speaker 2: but still well above where we were prior to the
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  Speaker 2: outbreak of war, which was sub six percent on the
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  Speaker 2: thirty year fixed Anything else catching your eyes this week,
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  Speaker 2: mark markets, economic news, or otherwise, well put you on
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  Speaker 2: the spot.
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  Speaker 4: There's a lot. Well, it's a fair question. Were there
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  Speaker 4: any like big surprises in terms of market movement? See
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  Speaker 4: any weak treasury yields, longer goods?
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  Speaker 2: Sorry, I was gonna say, like PC inflation was as expected?
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  Speaker 3: Yeah, it's bad, Yes, I expected so.
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  Speaker 4: And the interesting thing is treasury yields came down of it.
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  Speaker 4: They're still elevated relative to pre war, but they're not
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  Speaker 4: astronomically elevated. Yield on the ten years treasury. I don't
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  Speaker 4: know what it's doing today, but was it about four
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  Speaker 4: point four yep yesterday and it's come in again ten
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  Speaker 4: or so so called basis points one one hundredth of
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  Speaker 4: a percentage point or zero point one percentage points maybe
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  Speaker 4: an easy way to put it.
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  Speaker 3: I mean it's followed oil prices pretty closely.
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  Speaker 4: Yeah, so I guess that's explicable. So you could argue
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  Speaker 4: that it's always dangerous to draw this conclusion. Well, markets
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  Speaker 4: seemed to think because you don't. It could just be random,
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  Speaker 4: it could be noise. But let's take it at face
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  Speaker 4: value that this reflects the average investor's opinion or something.
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  Speaker 4: Inflation is not going to become entrenched. If was maybe
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  Speaker 4: the message of longer term treasury yields this week. Shorter
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  Speaker 4: term not as much movement. So the conviction seems to
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  Speaker 4: be if you want to attribute to markets the opinion
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  Speaker 4: of the average investor, that Fed's got to do something
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  Speaker 4: this year, as we've been talking about, probably raise rates
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  Speaker 4: a little bit, because by not raising rates when inflation
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  Speaker 4: expectations are going up, real FED funds rate, which is
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  Speaker 4: what matters for economic activity, is coming down. So policy's
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  Speaker 4: got more commodative over the past couple of months despite
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  Speaker 4: the Fed not doing anything. But over the long term,
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  Speaker 4: markets don't seem to they think warsh specifically, and I
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  Speaker 4: know we're going to talk about this next is going
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  Speaker 4: to get a handle on this.
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  Speaker 5: Maybe that's the best way to put it.
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  Speaker 2: Speaking of rates, we have the FED watch tool from
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  Speaker 2: CME Group that allows you to look at implied probabilities
• 4:35
  Speaker 2: of where rates go based on betting out there. And
• 4:40
  Speaker 2: for the July meeting, which is scheduled for end of
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  Speaker 2: July July twenty ninth, it's expected about a seventy percent
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  Speaker 2: chance of no move. Then following that we've got a
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  Speaker 2: September meeting, and by then it is anticipated that rates
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  Speaker 2: will be at least a quarter percent higher than where
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  Speaker 2: they are Right now.
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  Speaker 3: Let's talk about worsh.
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  Speaker 2: We're more than a week out from his first ever
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  Speaker 2: press conference as chair of the Federal Reserve, with a
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  Speaker 2: week to reflect back on it.
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  Speaker 3: You know, what's been your impression.
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  Speaker 2: What do you think markets impressions have been of Worsha's
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  Speaker 2: first ever FED meeting.
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  Speaker 4: My personal impression was positive. I like him a lot,
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  Speaker 4: despite the fact that he's going to have trouble changing
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  Speaker 4: the models that FED economists use because he's not an economist.
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  Speaker 5: He's a lawyer. Powell was a lawyer.
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  Speaker 3: Yep.
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  Speaker 4: Again irks me that they can't find a PhD economist
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  Speaker 4: to fill this role. I mean, you wouldn't make a
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  Speaker 4: lawyer surgeon general. You wouldn't make an economist head of
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  Speaker 4: the Chief Justice of the Supreme Court. But for some
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  Speaker 4: reason we like appointing lawyers as head of the Federal Reserve,
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  Speaker 4: despite the very technical nature of monetary policy.
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  Speaker 5: All so, he's like he's got.
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  Speaker 4: A handicap, kay as a result, despite that, if what
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  Speaker 4: matters most I think in researchers, he is not one,
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  Speaker 4: but he seems to get this instinctively. Is credibility. When
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  Speaker 4: you say, which means you're gonna do what you say
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  Speaker 4: you're gonna do. You don't have to specify your so
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  Speaker 4: called reaction function of phrase that comes out of research
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  Speaker 4: that news people like to use. It just means rule.
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  Speaker 4: They people were upset some commentators that he wouldn't share
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  Speaker 4: his rule for interest rates. You can to raise him
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  Speaker 4: one for one with inflation. Are you gonna wait to
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  Speaker 4: see the whites of inflation's eyes? What's your reaction function?
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  Speaker 5: What's your rule? He wouldn't say. I kind of like that.
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  Speaker 5: It's we've got.
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  Speaker 4: You can almost become captive to a rule you articulate,
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  Speaker 4: because then when you deviate from it, you lose credibility.
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  Speaker 4: I think wash. He didn't say this. I wish he had. Actually,
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  Speaker 4: when you articulate a so called reaction function a rule,
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  Speaker 4: you're gonna have to deviate from it. It's unavoidable. No rule
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  Speaker 4: can cover every scenario. Then you lose credibility. Powell was
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  Speaker 4: trapped by his own forward guidance and his own so
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  Speaker 4: called mental reaction function in twenty twenty two to enact
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  Speaker 4: quickly enough. I don't think warsh is going to make
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  Speaker 4: that same mistake. And he's focused, laser focused on price stability.
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  Speaker 4: He used the phrase multiple times. He gets that in
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  Speaker 4: the way that really good effective like Paul Volker and
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  Speaker 4: to an extent, green Span great men. By the way,
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  Speaker 4: he gets why they were great, I think, And I
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  Speaker 4: don't think he wants to go down in history in
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  Speaker 4: the failure column of Fed chairman.
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  Speaker 3: I would think not.
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  Speaker 4: I know, nobody sets out but he's okay, boy, is
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  Speaker 4: this guy determined.
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  Speaker 2: But in the worst case scenarios, I'm with you. I
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  Speaker 2: don't think anyone sets out to be a failure when
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  Speaker 2: it comes to their chairmanship of.
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  Speaker 3: The Federal Reserve.
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  Speaker 2: But in the worst case predictions, people were calling them
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  Speaker 2: a lackey of the president.
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  Speaker 3: And I was going.
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  Speaker 5: Because I didn't know.
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  Speaker 4: God knows what he said to get this job. Sure,
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  Speaker 4: but I think if he sticks to his guns, and
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  Speaker 4: he sticks to his his philosophical pedal, his philosophical philosophical
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  Speaker 4: excuse me, predisposition, and he's a hard money what they
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  Speaker 4: used to call a hard money hy he puts inflation. Now,
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  Speaker 4: the FED has a dual mandate. They're supposed to achieve
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  Speaker 4: unemployment as low as is consistent with price stability. But
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  Speaker 4: he never talked about the unemployment side of the mandate,
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  Speaker 4: which I kind of liked because it's not a problem
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  Speaker 4: right now. Powell would have been wishing. As much as
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  Speaker 4: I admire Powell standing up to the President defending FED independence,
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  Speaker 4: he was always wishy washy when it came to that.
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  Speaker 4: I got the strong impression that Warsh will keep that
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  Speaker 4: for Wosh, keeping inflation under wraps is paramount, and he
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  Speaker 4: will inflict pain on the economy if he has to.
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  Speaker 2: Yeah, and I think it would be very refreshing to
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  Speaker 2: not have to hear every thirty days from every Federal
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  Speaker 2: Reserve president about their views on where they think it's
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  Speaker 2: going to go. Now, this is part of that would
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  Speaker 2: be that would be nice that would be nice to
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  Speaker 2: take a.
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  Speaker 4: Look, but you know, and the thing is, you can
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  Speaker 4: become captive to those The reason you can become captive
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  Speaker 4: to things you've said if you're obsessed with this notion
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  Speaker 4: of forward guidance, which only applies by the way in
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  Speaker 4: the literature and theory under very specific circumstances. It's like
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  Speaker 4: a drug you don't want to use much. The FED
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  Speaker 4: became addicted to using it all the time, so they
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  Speaker 4: went way beyond the bounds of theoretical work and empirical
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  Speaker 4: work on forward guidance. I think it's good that worsh
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  Speaker 4: is for now retiring the concept.
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  Speaker 1: There.
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  Speaker 4: If we hit the zero lower bound again, meaning interest
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  Speaker 4: rates can't go any lower in real terms, you may
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  Speaker 4: have to utilize forward guidance to put to to get
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  Speaker 4: people to spend if you convince them that rates will
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  Speaker 4: remain low, thus the forward part of forward guidance indefinitely.
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  Speaker 4: But you could also become a prisoner to that. You
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  Speaker 4: become trapped by it. Powell did, and Warsh knows it.
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  Speaker 3: I think.
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  Speaker 2: This was known at the time that he gave his
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  Speaker 2: press conference. But what we are dealing with right now
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  Speaker 2: is a pretty persistent level of inflation. And you know,
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  Speaker 2: worsh knew that when he gave his press conference, he
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  Speaker 2: didn't know precisely what the PCE numbers were because they weren't.
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  Speaker 3: Released yet, but he had a grasp on that.
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  Speaker 2: I mentioned at the beginning that the inflation numbers we
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  Speaker 2: got on Wednesday, is it Wednesday? Wednesday was yesterday? Yesterday.
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  Speaker 2: We're right in line with expectations. But those expectations were
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  Speaker 2: pretty bad, right like we are seeing now, you know,
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  Speaker 2: not only the worst headline inflation that we've seen since
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  Speaker 2: twenty twenty three. But my concern more that we are
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  Speaker 2: seeing pretty persistent inflation even when you strip out the
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  Speaker 2: biggest stuff that people are talking about, which is food
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  Speaker 2: prices and gas prices.
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  Speaker 3: And I I'm not.
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  Speaker 2: Sure how you get that core function, you know, core
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  Speaker 2: pricing down when all we seem to be talking about,
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  Speaker 2: you know, when what we're talking about from the stock
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  Speaker 2: market is a bunch of companies who are willing to
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  Speaker 2: spend as much money as possible to develop a new technology.
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  Speaker 5: Yeah.
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  Speaker 4: So the question is always is that a change in
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  Speaker 4: relative prices. Is it just memory chips relative to hamburgers
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  Speaker 4: that are going up, or is the general price level
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  Speaker 4: rising and the short term memory chips going up because
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  Speaker 4: people don't immediately retrench will push up inflation that should
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  Speaker 4: not get picked up by measures of the trend in inflation.
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  Speaker 4: Core ex food and energy is one measure. Imperfect worsh
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  Speaker 4: understands this. I feel weird not saying anything negative about
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  Speaker 4: a personality we talk about on this show.
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  Speaker 3: But so far, so far, Mars got a crush. Yeah.
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  Speaker 4: I saw him at the press conference and I'm like,
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  Speaker 4: I wish you would explain a little better why.
• 11:35
  Speaker 5: He believes what he believes.
• 11:36
  Speaker 4: What you could tell, he believes it like in his heart,
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  Speaker 4: and I think that's important for a central banker.
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  Speaker 5: This guy hates inflation. I think it was.
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  Speaker 4: I think that's I think it was palpable, at least
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  Speaker 4: to me.
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  Speaker 3: Let's take a quick break here. When we come back,
• 11:50
  Speaker 3: we're playing a little bit of trivia.
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  Speaker 6: Time for trivia here in the Financial Exchange And despite
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• 13:15
  Speaker 2: Tucker, I love these these stories that you pull from Axios,
• 13:18
  Speaker 2: do you. I mean, there's nothing's ever been so obvious
• 13:21
  Speaker 2: to me that it's purely written by AI. Every story
• 13:24
  Speaker 2: that they published that you, at least the ones that
• 13:26
  Speaker 2: you put in the stack. Because I don't read Axios otherwise. Uh,
• 13:29
  Speaker 2: They're all structured and formatted the exact same way.
• 13:31
  Speaker 3: They have a bunch of bold headers.
• 13:33
  Speaker 6: I don't think that's AI.
• 13:34
  Speaker 3: Three bullet points, that's not AI.
• 13:36
  Speaker 6: That's just how they structure it.
• 13:38
  Speaker 5: I mean they have authors.
• 13:40
  Speaker 3: I know they have authors.
• 13:42
  Speaker 2: Okay, well we can we can not imply that they're
• 13:45
  Speaker 2: just utilizing AIS right there.
• 13:47
  Speaker 3: Now. What those authors do I don't.
• 13:49
  Speaker 2: Know, Yeah, but they they are also brutally obvious that
• 13:55
  Speaker 2: I just don't know who they're designed for.
• 13:57
  Speaker 3: So, Mark, do you know anybody that is.
• 14:02
  Speaker 2: Unsure of why US corporate profits right now are? Like,
• 14:06
  Speaker 2: I don't even know anybody that doesn't pay attention to
• 14:10
  Speaker 2: markets that doesn't know why US markets corporate profits are surging.
• 14:14
  Speaker 5: Right raise a good point.
• 14:15
  Speaker 4: Their audience may not be readers of market Watch, Wall
• 14:18
  Speaker 4: Street Journal and stuff like that, so don't forget these.
• 14:21
  Speaker 4: They do have to consider who their audience is and
• 14:24
  Speaker 4: what their other news or so to some Axios readers,
• 14:26
  Speaker 4: this could be news.
• 14:27
  Speaker 2: Mike coult, it is there anyone that doesn't know that
• 14:30
  Speaker 2: AI is driving everything in this economy right now?
• 14:33
  Speaker 4: Nobody that listens to this show doesn't know that I
• 14:37
  Speaker 4: know I.
• 14:37
  Speaker 2: Live in a little corner of the universe where all
• 14:40
  Speaker 2: I read is market and economic news, and that that
• 14:43
  Speaker 2: makes me strange. But this seems like pretty big news
• 14:46
  Speaker 2: to me. I feel as though everyone in the world, like,
• 14:51
  Speaker 2: even if you don't own any stocks or an investment
• 14:54
  Speaker 2: portfolio at all, you're out there complaining about how AI
• 14:58
  Speaker 2: is taking all the jobs. Of course, US corporate profits
• 15:00
  Speaker 2: are being pushed upwards by AI spend, so I just
• 15:06
  Speaker 2: find it a little bit humorous.
• 15:07
  Speaker 3: But is there.
• 15:08
  Speaker 2: Anything, I guess, is there anything intelligent that we can
• 15:12
  Speaker 2: say about this moment in time, because I didn't find
• 15:15
  Speaker 2: anything in this article to be terribly insightful or insinuating.
• 15:21
  Speaker 3: Of what could come next.
• 15:24
  Speaker 2: Yes, there is likely to be a trillion dollars spent
• 15:27
  Speaker 2: on AI build out this next year. JP Morgan is
• 15:32
  Speaker 2: now expecting that AI capex will grow to five and
• 15:35
  Speaker 2: a half trillion between now and twenty thirty, a massive
• 15:38
  Speaker 2: amount of money. Hence all the corporate profits because where
• 15:41
  Speaker 2: is that money going. It's going towards companies to build
• 15:44
  Speaker 2: out AI. But is there I think the interesting I'll
• 15:52
  Speaker 2: make one point about corporate profits that we brought up
• 15:55
  Speaker 2: over the course of the last several months, which is
• 15:58
  Speaker 2: when you are looking at a corporate profits on a
• 16:01
  Speaker 2: quarterly basis and digesting this news right now, I'm not
• 16:05
  Speaker 2: going to call them artificially inflated. They're not artificially inflated.
• 16:08
  Speaker 2: This is how you account for profits. But remember what
• 16:11
  Speaker 2: we are seeing right now, which is major companies making
• 16:15
  Speaker 2: huge purchases of new assets that they are putting on
• 16:20
  Speaker 2: their balance sheet.
• 16:21
  Speaker 3: Like that is what's driving the profits.
• 16:23
  Speaker 4: Maybe one way to think about it is you own
• 16:24
  Speaker 4: to Delhi a restaurant or something, and there's a big construction.
• 16:28
  Speaker 5: Project suddenly next door. It's going to take two years.
• 16:30
  Speaker 4: They're putting in a big apartment complex, some situation a
• 16:33
  Speaker 4: lot of us can relate to in Massachusetts where we're
• 16:35
  Speaker 4: broadcasting from a lot of multi family housing going up.
• 16:38
  Speaker 4: Sure you would not if you were that business where
• 16:41
  Speaker 4: all the guys and women who's ever on the job
• 16:43
  Speaker 4: site come in for lunch every day. Your revenue is
• 16:46
  Speaker 4: double triple, maybe for a long period of time. If
• 16:49
  Speaker 4: you were doing a forecast, which you might not if
• 16:51
  Speaker 4: you're just a small business person, or you might, you
• 16:53
  Speaker 4: wouldn't project that growth rate in indefinitely. Similarly, Micron and
• 17:01
  Speaker 4: others are almost certainly not projecting growth rates or even levels.
• 17:06
  Speaker 4: There's there's you know, there's a difference there. Uh, like
• 17:11
  Speaker 4: they've experienced lately and definitely said differently. This thing's gonna sunset.
• 17:15
  Speaker 4: It's probably because a recession hits. Investment always plummets during
• 17:19
  Speaker 4: a recession. It generally leads GDP, drags GDP down despite
• 17:23
  Speaker 4: its relatively modest size compared to say, consumption, consumer spending.
• 17:27
  Speaker 4: That's gonna happen, Mike, that's what killed the internet boom.
• 17:31
  Speaker 2: Ye didn't kill the Internet, just killed the boom generated.
• 17:35
  Speaker 5: Yeah, I'm talking about Yeah, think the other the.
• 17:38
  Speaker 2: Other piece to this from an accounting perspective. I just
• 17:40
  Speaker 2: like to bring this up to further the conversation about
• 17:45
  Speaker 2: you know, there's deli that is, you know, receiving a
• 17:47
  Speaker 2: boom in their profits from all the construction workers across
• 17:50
  Speaker 2: the street. When that deli goes and buys a new
• 17:55
  Speaker 2: slicer from the manufacturer, that slicer books the revenue right way,
• 18:00
  Speaker 2: and their corporate profit boom, you know, goes through a
• 18:02
  Speaker 2: boom because they are booking that revenue immediately. The deli
• 18:06
  Speaker 2: does not book an expense right away. They have bought
• 18:09
  Speaker 2: a piece of equipment that they are then going to
• 18:12
  Speaker 2: depreciate on their balance sheet for I don't know how
• 18:15
  Speaker 2: long a deli slicer depreciates a on a corporate.
• 18:19
  Speaker 3: P and L.
• 18:19
  Speaker 2: But that has been brought up as well is what
• 18:23
  Speaker 2: may not be getting appreciated by some investors right now
• 18:26
  Speaker 2: is that every company looks pretty attractive at the moment
• 18:29
  Speaker 2: because if you're selling stuff to the AI industry, your
• 18:32
  Speaker 2: profits are getting a huge boost. And if you're buying
• 18:35
  Speaker 2: stuff from the AI industry, you're not booking at all
• 18:38
  Speaker 2: as a realized expense today. You are paying for it
• 18:42
  Speaker 2: and then booking the expense as the asset depreciates and
• 18:45
  Speaker 2: moves towards the end of its life over the course
• 18:47
  Speaker 2: of the next five to seven years. And that is
• 18:50
  Speaker 2: known by people that you know that analyze companies. But
• 18:54
  Speaker 2: it is important to call out, and I think has
• 18:57
  Speaker 2: been brought up as maybe an area that's underappreciated by
• 19:00
  Speaker 2: some is how much depreciation is going to slam into
• 19:03
  Speaker 2: some of these very profitable companies over the course of
• 19:05
  Speaker 2: the next five years. I'll leave it right there. We've
• 19:09
  Speaker 2: got to take a quick break. When we come back.
• 19:11
  Speaker 2: Tucker's going to have a full market recap for you,
• 19:14
  Speaker 2: and then later on in the program at eleven forty five,
• 19:17
  Speaker 2: Paula Monica from Baron's joining us to talk about a
• 19:20
  Speaker 2: new entrant into the US stock market what it might
• 19:23
  Speaker 2: mean for that company and US markets.
• 19:26
  Speaker 3: Wall Street Watches.
• 19:27
  Speaker 1: Next, bringing the latest financial news straight to your radio.
• 19:42
  Speaker 1: Every day, It's the Financial Exchange on the Financial Exchange
• 19:46
  Speaker 1: Radio Network. Tell you know full whoa Street watch treking
• 19:51
  Speaker 1: the stocks, the data and the headlines driving markets. So
• 19:55
  Speaker 1: far today right here on the Financial Exchange Radio.
• 19:58
  Speaker 6: Net, markets are relatively quiet, now edging higher, with the
• 20:01
  Speaker 6: SMP five hundred and Nasdaq on pace for a losing week.
• 20:05
  Speaker 6: Right now, the Dow is up a quarter of a percent,
• 20:09
  Speaker 6: SMP five hundred up fifteen points, NASDAK up about a
• 20:13
  Speaker 6: tenth of a percent. RUSS two thousand is down modestly,
• 20:17
  Speaker 6: only two tenths of a percent. Tenure treasure Field is
• 20:21
  Speaker 6: down two basis points at four point three seven percent,
• 20:25
  Speaker 6: and Oil down over four and a half percent, now
• 20:28
  Speaker 6: trading its sixty eight dollars. According to the New York Times,
• 20:32
  Speaker 6: Open AI is leaning toward holding off its IPO until
• 20:36
  Speaker 6: next year. The AI company's advisors are pushing its chief
• 20:39
  Speaker 6: executive Sam Altman to move slowly after SpaceX stock has
• 20:43
  Speaker 6: been volatile and as the startup grapples with financial challenges. Meanwhile,
• 20:48
  Speaker 6: after it's sixteen percent surge yesterday on the heels of
• 20:51
  Speaker 6: its blockbuster earnings, Micron down over four percent today. Other
• 20:55
  Speaker 6: memory stocks including sand Disk and Western Digital pulling back
• 20:59
  Speaker 6: as well. Elsewhere, On Semiconductor announced an all stock deal
• 21:02
  Speaker 6: to acquire Synaptics. Synaptics and a seven billion dollar deal
• 21:07
  Speaker 6: in after sinking six percent yesterday, excuse me, after sinking
• 21:12
  Speaker 6: six percent yesterday after announced price increases to its Max
• 21:16
  Speaker 6: and iPads, Apple shares are up over one percent today.
• 21:22
  Speaker 6: I'm Tucker Silva and that is Walls. You're watching the
• 21:24
  Speaker 6: previous segment, We asked you the trivia question what year
• 21:27
  Speaker 6: did Bosnia and Herzegovina break away from Yugoslavia. It will
• 21:31
  Speaker 6: be nineteen ninety two and John from New Bedford, Mass
• 21:35
  Speaker 6: is our winner today taking on a Financial Exchange show.
• 21:38
  Speaker 3: Teachhert.
• 21:38
  Speaker 6: Congrats to John. We play trivia every day here on
• 21:41
  Speaker 6: the Financial Exchange. See complete contest rules at Financial Exchange
• 21:45
  Speaker 6: Show dot com.
• 21:47
  Speaker 2: Mark the Socialecurity Faces Trust Fund depletion. This is your
• 21:50
  Speaker 2: daily reminder that the Social Security Trust Fund is due
• 21:53
  Speaker 2: to go belly up by fourth quarter of twenty thirty two.
• 21:58
  Speaker 2: The trust Fund pays only a poor of Social Security benefits.
• 22:01
  Speaker 2: That's one item that you know, I think gets misrepresented
• 22:04
  Speaker 2: or misinterpreted sometimes. That does not mean that Social Security
• 22:07
  Speaker 2: funding stops in twenty thirty two. It means that the
• 22:10
  Speaker 2: Trust Fund, which subsidizes payments to beneficiaries, will not have
• 22:16
  Speaker 2: enough money.
• 22:16
  Speaker 3: To pay out there.
• 22:17
  Speaker 2: For it's estimated that about seventy eight percent of current
• 22:21
  Speaker 2: benefits would be payable to retirees and the disabled at
• 22:25
  Speaker 2: that point in time. And you know, CNBC is saying
• 22:31
  Speaker 2: that some lawmakers are calling for taxing high earners in
• 22:34
  Speaker 2: order to fix it, which would fix some portion of
• 22:37
  Speaker 2: the problem. Where I guess depends how much you're willing
• 22:40
  Speaker 2: to tax those high income earners.
• 22:41
  Speaker 3: In order to fix the problem. You could probably fix
• 22:43
  Speaker 3: the whole thing if you tax them enough.
• 22:46
  Speaker 2: But here we are, now six years away, and I
• 22:52
  Speaker 2: see no fundamental change in the seriousness of lawmakers in
• 22:56
  Speaker 2: dealing with these.
• 22:56
  Speaker 4: No, they're not even it's not like there's even a
• 22:58
  Speaker 4: debate in Washington about it.
• 23:00
  Speaker 2: You would think that given that we are, you know,
• 23:04
  Speaker 2: in election season, right, we are in midterm election season.
• 23:07
  Speaker 3: We will hear debates this fall, you would think that
• 23:11
  Speaker 3: that would be.
• 23:11
  Speaker 2: A pretty key area to focus on, given that lawmakers
• 23:15
  Speaker 2: are well, if they were responsible, would start dealing with
• 23:18
  Speaker 2: it pretty soon. And I got honest, I don't hear
• 23:22
  Speaker 2: anything about there's no.
• 23:24
  Speaker 5: Leadership on this issue.
• 23:25
  Speaker 4: There's no leadership on related relatedly, there's no leadership on
• 23:29
  Speaker 4: the debt.
• 23:30
  Speaker 2: When was the last time you can actually point to
• 23:35
  Speaker 2: US lawmakers raising tax rates?
• 23:39
  Speaker 3: Guess Obama?
• 23:39
  Speaker 4: Obama raised marginal rates eighty bit to.
• 23:42
  Speaker 2: Pay for a massive increase in spending, So it only
• 23:45
  Speaker 2: you know, I don't know if it even covered the
• 23:46
  Speaker 2: whole It probably didn't cover the whole thing. But I
• 23:48
  Speaker 2: guess Obama was the last person that you can actually
• 23:51
  Speaker 2: point to as raising taxes. When was the last time
• 23:53
  Speaker 2: you can point to a sitting president that actually lowered
• 23:57
  Speaker 2: the death So it was that Clinton.
• 24:00
  Speaker 4: Deficit was coming down, if that's what you're.
• 24:02
  Speaker 3: I know, he didn't cause the deficit to come.
• 24:04
  Speaker 4: No, defasit was coming down under Obama did it? The
• 24:07
  Speaker 4: economy was growing, they raised taxes, Oh sure, yeah, we
• 24:10
  Speaker 4: had a six or five hundred billion dollar deficit in
• 24:14
  Speaker 4: twenty six that Obama handed over to Trump. Republicans passed
• 24:18
  Speaker 4: a big tax bill, didn't offset it with spending cuts,
• 24:21
  Speaker 4: as they never do. I voted for him, so I
• 24:25
  Speaker 4: guess at fault myself, But anyway, they and as a result,
• 24:29
  Speaker 4: the deficit doubled before COVID, and then of course increased,
• 24:33
  Speaker 4: you know, three or four fold during COVID, and we
• 24:35
  Speaker 4: are where we are today and two trillion in two
• 24:38
  Speaker 4: thousand and ushuld point out Clinton ran surpluses a couple
• 24:40
  Speaker 4: of years ago. Give Gingrich and his successors in the
• 24:43
  Speaker 4: speaker cheer credit too, And so we were two trillion.
• 24:46
  Speaker 4: Now we're at thirty plus trillion.
• 24:48
  Speaker 2: The history for the last really fifteen years has been
• 24:52
  Speaker 2: defined primarily by benefit increases and tax cuts. That's been
• 24:57
  Speaker 2: the reality of what we have seen over the.
• 24:59
  Speaker 4: A couple of little in our options that didn't make
• 25:00
  Speaker 4: a dent to yeah, exceptions, I should say.
• 25:03
  Speaker 2: Dealing with this is going to be extraordinarily challenging for
• 25:06
  Speaker 2: that reason.
• 25:06
  Speaker 4: I don't think so we'll inflate a lot of it
• 25:08
  Speaker 4: away four or five percent inflation coupled with spending restraint.
• 25:13
  Speaker 4: I think once there will be tremendous political As political
• 25:18
  Speaker 4: power shifts from older folks to younger folks. I think
• 25:22
  Speaker 4: it'll be easier, don't you.
• 25:25
  Speaker 3: I don't know.
• 25:26
  Speaker 4: I mean the big impediment right now is and I'm
• 25:28
  Speaker 4: sort of straddling at fifty four years old, I'm sort
• 25:30
  Speaker 4: of straddling older and younger. I don't want to see
• 25:32
  Speaker 4: my benefits cup. But if you told me my normal
• 25:34
  Speaker 4: retirement age you're was going to be raised from sixty
• 25:36
  Speaker 4: seven to seventy. I say this now ask me in
• 25:39
  Speaker 4: fourteen years. That might be very upset.
• 25:41
  Speaker 2: I don't think any one of the solutions that I've
• 25:45
  Speaker 2: heard is the perfect one. But what I fear most
• 25:48
  Speaker 2: about this is that instead of actually dealing with the issue,
• 25:51
  Speaker 2: lawmakers wait until the last second and then change, Yeah,
• 25:54
  Speaker 2: we're going to do that. We're going to let me
• 25:55
  Speaker 2: to the last second. But instead of actually changing the
• 25:59
  Speaker 2: fundamentals of how the program works in order to fund
• 26:01
  Speaker 2: it properly, I fear that we will instead just change
• 26:05
  Speaker 2: the law in terms of how the trust Fund is
• 26:09
  Speaker 2: funded and just print.
• 26:11
  Speaker 3: The money to do so.
• 26:12
  Speaker 2: That's my biggest fear is that we just continue to
• 26:15
  Speaker 2: go on that path. And to me, it just seems
• 26:17
  Speaker 2: like the most likely scenario.
• 26:19
  Speaker 4: I don't I've not heard any it's well known. How
• 26:22
  Speaker 4: to fix it. It's gonna have to be a combination
• 26:24
  Speaker 4: of benefit adjustments. You could call them cuts if you want,
• 26:26
  Speaker 4: Even though we're not cutting anybody's check, cutting checks for
• 26:29
  Speaker 4: anybody who's getting one today, reducing benefits for people who
• 26:32
  Speaker 4: are in benefit in that phase, it's gonna have to
• 26:34
  Speaker 4: be a combination of those two things. Increasing I hope
• 26:38
  Speaker 4: the retirement ages could be thought of as a benefit cut.
• 26:41
  Speaker 3: Yep, I do hope.
• 26:43
  Speaker 2: So the planning piece of all of this is important,
• 26:47
  Speaker 2: especially maybe not so much for those that are in
• 26:49
  Speaker 2: their mid sixties, because my personal belief is that we
• 26:52
  Speaker 2: won't see benefit cuts for people that are that close
• 26:55
  Speaker 2: to receiving Social Security. But if you are within a
• 26:59
  Speaker 2: decade of becoming eligible and you are mapping out your finances.
• 27:03
  Speaker 3: For most Americans, so.
• 27:04
  Speaker 2: Security is a pretty big piece, a pretty big component
• 27:07
  Speaker 2: of all of that. And unfortunately the program is a
• 27:12
  Speaker 2: lot less certain than it was just five years ago.
• 27:16
  Speaker 2: If you're staring that down, if you're worried that your
• 27:19
  Speaker 2: retirement is going to coincide with this twenty thirty two
• 27:22
  Speaker 2: deadlineer be close to it. I'd urge you to call
• 27:25
  Speaker 2: the folks at Armstrong and book some time to review
• 27:27
  Speaker 2: your plans for how you are going to approach Social
• 27:30
  Speaker 2: Security and Medicare and how to how a change the
• 27:33
  Speaker 2: program could impact your retirement.
• 27:35
  Speaker 3: If you want to.
• 27:36
  Speaker 2: Book some time for us to give you a ring
• 27:38
  Speaker 2: and talk through it, you can go to Armstrong Advisory
• 27:41
  Speaker 2: dot Com. A free consultation available right there. You can
• 27:44
  Speaker 2: also call us at eight hundred three nine three for
• 27:47
  Speaker 2: zero zero one. But this is the type of stuff
• 27:49
  Speaker 2: we work with our clients on every day Armstrong Advisory
• 27:52
  Speaker 2: dot Com or eight hundred three nine three for zero
• 27:55
  Speaker 2: zero one.
• 27:56
  Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
• 27:58
  Speaker 1: registered investment advice. Nothing in the ad or in any
• 28:01
  Speaker 1: Armstrong guide a specific financial, legal, or tax advice. Consult
• 28:04
  Speaker 1: your own financial, tax into state planning advisors before making
• 28:07
  Speaker 1: any investment decisions. Armstrong may contact you to offer investment
• 28:10
  Speaker 1: advisory services.
• 28:11
  Speaker 2: As Tucker mentioned earlier, all three major industries have turned
• 28:14
  Speaker 2: positive for.
• 28:15
  Speaker 3: The day as we close in on the noon.
• 28:17
  Speaker 2: Now we've got the Dow, SMP and NASDAC all up
• 28:21
  Speaker 2: approximately a third of one percent. We're going to take
• 28:24
  Speaker 2: a quick break here and when we come back, Paul
• 28:26
  Speaker 2: Amonica from Barons joins us next.
• 28:29
  Speaker 1: Remember you can watch the show live every day on
• 28:32
  Speaker 1: our YouTube page. We've got market updates and breaking business
• 28:35
  Speaker 1: news all morning long, plus a full archive of all
• 28:39
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• 28:41
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• 28:45
  Speaker 1: Show breaking business and financial news first throughout the day,
• 28:50
  Speaker 1: only here on the Financial Exchange Radio Network. Ladies and
• 28:55
  Speaker 1: Gentlemen the weekend.
• 29:07
  Speaker 2: Joining us now is Paul Monica from Barons talking to
• 29:11
  Speaker 2: us about Korean stocks and sk Heinex in particular.
• 29:15
  Speaker 3: Paul, thanks for joining us, appreciate it, Thank you very much.
• 29:18
  Speaker 2: So Tech shares generally have been under pressure this week,
• 29:21
  Speaker 2: and Nasdak as of this morning was off around four
• 29:24
  Speaker 2: four and a half percent and the Korean Cospi index
• 29:28
  Speaker 2: down about six percent for the week. Now, talk to
• 29:32
  Speaker 2: us about sk Heinix, not precisely a household name here
• 29:37
  Speaker 2: in the US, but going to be going through a
• 29:40
  Speaker 2: US listing making their shares more available to US investors.
• 29:44
  Speaker 2: Why generally do I mean it seems obvious to me,
• 29:47
  Speaker 2: but why generally, do companies want to get access to
• 29:51
  Speaker 2: listing shares on a US market when it is fairly
• 29:53
  Speaker 2: easy these days to go buy a South Korean index
• 29:57
  Speaker 2: fund or something like that.
• 29:59
  Speaker 7: Yeah, I know exactly. I mean U s k Henix,
• 30:02
  Speaker 7: along with Samsung and Micron, which reported earnings great earnings
• 30:07
  Speaker 7: earlier this week, dominate the memory chip market. I think
• 30:11
  Speaker 7: sk Henix is looking to raise some capital with this
• 30:15
  Speaker 7: listing in the US to help them compete even more
• 30:19
  Speaker 7: effectively against Micron and Samsung. So and it raises its
• 30:23
  Speaker 7: profile in the US. As you point out, it's not
• 30:25
  Speaker 7: exactly a household name, you know, in the way that
• 30:29
  Speaker 7: you know Micron is now starting to become one is
• 30:32
  Speaker 7: almost like the new Nvidia, if you will. And then Samsung,
• 30:35
  Speaker 7: even if people don't know it as a chip giant,
• 30:37
  Speaker 7: they know it for you know, phones and other consumer electronics.
• 30:41
  Speaker 7: So what's really fascinating is that, you know, as you
• 30:45
  Speaker 7: point out, there are ETFs where you can get exposure
• 30:49
  Speaker 7: to the South Korean listed chairs. There's you know, e
• 30:52
  Speaker 7: w Y, which is the prominent South Korea et F.
• 30:56
  Speaker 7: There's the d ram ETF, a wildly successful debut you
• 31:01
  Speaker 7: know that just launched a few months ago a memory
• 31:04
  Speaker 7: atf that you know is dominated by Micron, Samsung and
• 31:08
  Speaker 7: sk Heinex. So US investors have had their opportunities to
• 31:12
  Speaker 7: buy the stock through funds, but now it's going to
• 31:15
  Speaker 7: be a lot easier to just buy that individually. With
• 31:17
  Speaker 7: these American listed shairs.
• 31:19
  Speaker 2: We sometimes bemoan the concentration risk of the US equity market.
• 31:25
  Speaker 2: You know, the S and P five hundred, the top
• 31:27
  Speaker 2: ten companies representing more than they ever have.
• 31:29
  Speaker 3: And I do view that as a potential risk out there.
• 31:33
  Speaker 2: Then you go take a look at some of these
• 31:34
  Speaker 2: other country index in disease and you start feeling a
• 31:37
  Speaker 2: little bit better about the S and P. Right, the
• 31:39
  Speaker 2: costly index. I believe Samsung and sk Heinex represent about
• 31:44
  Speaker 2: fifty percent of the total index, if not a little
• 31:47
  Speaker 2: bit more.
• 31:48
  Speaker 3: What is that with that type.
• 31:50
  Speaker 2: Of concentration in the index and therefore in the funds
• 31:53
  Speaker 2: that track the index, are investors expecting some degree of
• 31:57
  Speaker 2: downturn for these for these funds if suddenly I can
• 32:01
  Speaker 2: just go buy the ad R here on US listed
• 32:03
  Speaker 2: exchanges at no trading cost on most platforms, Yeah, that is.
• 32:08
  Speaker 7: A possible risk for these particular ETFs that have exposure
• 32:15
  Speaker 7: to the South Korea listed shares. The fact that you
• 32:18
  Speaker 7: will be able to buy sk Heinix in the US
• 32:22
  Speaker 7: more readily, you know, could lead to decreased demand for
• 32:27
  Speaker 7: some of those South Korean ETFs. But at the same time,
• 32:30
  Speaker 7: remember Samsung still doesn't really have, you know, an easy
• 32:35
  Speaker 7: way for US investors to access it, and there isn't
• 32:39
  Speaker 7: any plan as of yet for the company to list
• 32:43
  Speaker 7: in the US.
• 32:44
  Speaker 3: The way the.
• 32:44
  Speaker 7: Skhnex is that that might change, especially if the Skhinex
• 32:48
  Speaker 7: debut is pretty successful. I think investors, though you know,
• 32:52
  Speaker 7: buy and large, they're going to gravitate to where the
• 32:57
  Speaker 7: growth is. And when you look at et like Ewy
• 33:01
  Speaker 7: and d RAM, they're not going to maybe abandon them
• 33:05
  Speaker 7: just because you can buy skhi Nix directly as a
• 33:08
  Speaker 7: US listed stock. But I think you're right. Concentration is
• 33:12
  Speaker 7: not just the US risk. It's a South Korea risk,
• 33:14
  Speaker 7: It's a Taiwan risk with Taiwan Semi. There are many
• 33:18
  Speaker 7: geographies right now that are beholden to the AI trade.
• 33:22
  Speaker 2: Paul, there's many people writing this week about the bruising
• 33:25
  Speaker 2: week for tech shares, and I think trying to attribute
• 33:29
  Speaker 2: some cause to it. I heard concerned about Micron's earnings
• 33:32
  Speaker 2: leading into the week, which then blew it out of
• 33:34
  Speaker 2: the water. You had Apple's announcement about higher prices on
• 33:37
  Speaker 2: their components and hardware that they sell.
• 33:41
  Speaker 3: Bad inflation.
• 33:43
  Speaker 2: Do you attribute anything to this seeming shift and sentiment
• 33:46
  Speaker 2: this week or is it something that we're going to
• 33:48
  Speaker 2: look back on as kind of a blip in the
• 33:50
  Speaker 2: radar and put it behind us.
• 33:52
  Speaker 7: It could be the latter. We every time we have
• 33:56
  Speaker 7: these dips, they proverbially get bought of eventually, So I
• 34:03
  Speaker 7: think we also have to keep in mind that newsflow
• 34:07
  Speaker 7: is a little bit lighter. We do have the Micron
• 34:10
  Speaker 7: earnings this week, but earning season is pretty much wound down,
• 34:14
  Speaker 7: and it'll get started up again mid July when companies
• 34:17
  Speaker 7: start reporting their second quarter results. But again, at the
• 34:22
  Speaker 7: end of the day, you can't under appreciate the fact
• 34:27
  Speaker 7: that you look at the socks, the I share, Semiconductor
• 34:30
  Speaker 7: ETF it is nearly doubled this year. It is reasonable
• 34:35
  Speaker 7: and healthy for some people to take some money off
• 34:40
  Speaker 7: of the table. That doesn't mean that you know the
• 34:43
  Speaker 7: end times are nigh for chip stocks and tech stocks
• 34:47
  Speaker 7: and the AI trade, But you know the investors have
• 34:50
  Speaker 7: to be more rational and you know, comnisant evaluations.
• 34:55
  Speaker 3: There you have it.
• 34:56
  Speaker 2: Paul will let us know when the sky is falling
• 34:58
  Speaker 2: and our pets heads are falling off siate it.
• 35:00
  Speaker 3: Paul. I have a great weekend and we will talk
• 35:03
  Speaker 3: to ring.
• 35:03
  Speaker 2: A bell at the top and I have a great weekend.
• 35:08
  Speaker 3: Thanks Paul.
• 35:08
  Speaker 2: That's Paul from Baron's join us today to talk about
• 35:11
  Speaker 2: s K Heinez and their pending US listing mark anything
• 35:15
  Speaker 2: that you wanted to jump into.
• 35:17
  Speaker 4: Now, there's a piece in the Wall Street Journal about
• 35:19
  Speaker 4: China sharpening its tools. China shop me its tools for
• 35:22
  Speaker 4: hitting back get foreign sanctions. Here's the summary. China's preparing
• 35:26
  Speaker 4: a new bill. So they do have a sort of
• 35:28
  Speaker 4: a parliamentary process. It's a rubber stamp thing, but anyway,
• 35:31
  Speaker 4: they do have lawmakers. Apparently this new bill will this
• 35:34
  Speaker 4: new law have passed, and of course it will.
• 35:35
  Speaker 3: If if the Wall Street journals are reporting it, then it's.
• 35:38
  Speaker 4: Yeah, it's probably a foregone conclusion. At this point, state
• 35:41
  Speaker 4: prosecutors will be able to file civil suits against foreign
• 35:44
  Speaker 4: entities for allegedly damaging China's interest, very very vaguely defined.
• 35:48
  Speaker 4: It would add to legal mechanisms countering foreign sanctions and coercion,
• 35:52
  Speaker 4: and the American Chamber of Commerce in China stating its
• 35:54
  Speaker 4: members will closely watch the law's implementation. This is just
• 35:59
  Speaker 4: another tool in the economic warfare toolkit. We're in an
• 36:03
  Speaker 4: age of economic warfare. It's a remarkable turnaround from the
• 36:07
  Speaker 4: age of liberalization and globalization that prevailed until I don't
• 36:13
  Speaker 4: know what, say, the financial crisis, when it was obvious
• 36:17
  Speaker 4: that the trend in GDP had changed and that living
• 36:20
  Speaker 4: standard growth rates weren't going to resume their heavy pace
• 36:27
  Speaker 4: of the eighties and nineties. So no matter who the
• 36:29
  Speaker 4: president is here, who the president is in China, probably
• 36:33
  Speaker 4: for the rest of our lives, the world will get smaller,
• 36:37
  Speaker 4: more fragmented, and characterized by sort of tit for tat
• 36:43
  Speaker 4: stuff like.
• 36:44
  Speaker 3: This I would expect.
• 36:45
  Speaker 2: So Bloomberg Kiroen just flashing here that President Trump calls
• 36:50
  Speaker 2: the Iranian strike on that cargo vessel a violation of
• 36:54
  Speaker 2: the ceasefire. We will see if there's much to do
• 36:58
  Speaker 2: about that, and if if markets move it all on.
• 37:01
  Speaker 2: Taking a look here, oil price is not moving an
• 37:05
  Speaker 2: inch on it. Oil price is still down about four
• 37:07
  Speaker 2: percent on the day right around sixty nine dollars a
• 37:12
  Speaker 2: barrel as we head towards the top of the hour
• 37:15
  Speaker 2: here taking a look around at markets. As I mentioned,
• 37:18
  Speaker 2: there's been a reversal in market action from the early
• 37:21
  Speaker 2: start of the day. We've now got the Dow Jones
• 37:24
  Speaker 2: Industrial Average up one hundred and twenty eight points a
• 37:26
  Speaker 2: quarter of a percent, the S and P five hundred
• 37:28
  Speaker 2: up eighteen also a quarter of a percent, and the
• 37:31
  Speaker 2: Nasdaq up forty one points about one tenth of a percent.
• 37:36
  Speaker 2: Here taking a look, like I said, at oil markets
• 37:39
  Speaker 2: which are down today. Bond market, we're seeing the yield
• 37:42
  Speaker 2: and the ten year treasury at four point three seven
• 37:45
  Speaker 2: eight percent.
• 37:45
  Speaker 3: And if you want to.
• 37:46
  Speaker 2: Go get a new mortgage here you're still looking at
• 37:49
  Speaker 2: rates in the six and a half to six and
• 37:52
  Speaker 2: two thirds of percent range. Continue to put pressure on
• 37:56
  Speaker 2: on anybody looking for that new home. So all the
• 37:59
  Speaker 2: time we have for this week, have a great weekend.
• 38:02
  Speaker 2: We'll be back at it next week for a shortened
• 38:04
  Speaker 2: trading week ahead of the two hundred and fiftieth July
• 38:07
  Speaker 2: fourth holiday. Thanks everybody, and have a great weekend.