Latest / The Financial Exchange Show / Why 5% Treasury Yields Are Rattling Investors

Transcript

Why 5% Treasury Yields Are Rattling Investors · The Financial Exchange Show

0:00
Speaker 1: The Financial Exchange is produced by Money Matters Radio and
0:03
Speaker 1: is hosted by employees of the Armstrong Advisory Group, a
0:05
Speaker 1: registered investment advisor. All opinions expressed are solely those of
0:09
Speaker 1: the hosts. Do not reflect the opinions of Armstrong Advisory
0:11
Speaker 1: or anyone else. Investments can lose money. This program does
0:14
Speaker 1: not offer any specific financial or investment advice. Please consult
0:17
Speaker 1: your own financial tax and estate planning advisors before making
0:20
Speaker 1: any investment decisions. Armstrong Advisory and the advertisers heard on
0:23
Speaker 1: this program do not endorse each other or their services.
0:26
Speaker 1: Armstrong and Money Matters Radio do not compensate each other
0:28
Speaker 1: for referrals and are not affiliated. Thank you. This is
0:34
Speaker 1: The Financial Exchange with Mike Armstrong and Mark Vandetti. Your
0:39
Speaker 1: exclusive look at business and financial news affecting your day,
0:42
Speaker 1: your city, your world. Stay informed and up to date
0:46
Speaker 1: about economic and market trends, plus breaking business news every day.
0:51
Speaker 1: The Financial Exchange is a proud partner of the Disabled
0:54
Speaker 1: American Veterans Department of Massachusetts. Help us support our great
0:58
Speaker 1: American heroes by visiting dav5k. boston. com. and making a donation today.
1:03
Speaker 1: This is The Financial Exchange with Mike Armstrong and Mark Vandetti.
1:12
Speaker 2: Good morning. Welcome back to The Financial Exchange.
1:14
Speaker 3: It's Mike, Mark, and Tucker with you on a Tuesday
1:17
Speaker 3: ahead of a Wednesday Fed meeting. Kevin Warsh will address
1:21
Speaker 3: reporters in the nation at 2.30 p.m. following their interest
1:25
Speaker 3: rate decision and release of summary of economic projections at
1:29
Speaker 3: 2 p.m., Right now, we've got markets in a bit
1:33
Speaker 3: of a sell-off here as we head into mid-September, or
1:36
Speaker 3: hit exactly mid-September, in fact. The yield on the 10-year
1:40
Speaker 3: Treasury seems to be the item that is driving things
1:43
Speaker 3: more than much else. We're hitting 5% today, which is
1:47
Speaker 3: the first time that's happened in 19 years.
1:50
Speaker 2: You've got to bring.
1:51
Speaker 3: Yourselves back to 2007, the last time that we saw
1:55
Speaker 3: yields on U.S. government 10-year debt hitting 5%. all sorts
2:00
Speaker 3: of things that we can dive in there on concerns
2:04
Speaker 3: about that happening.
2:05
Speaker 2: But suffice to say.
2:07
Speaker 3: Makes doing just about everything in our society more expensive
2:11
Speaker 3: when you have debt.
2:12
Speaker 2: Costs increasing that much.
2:15
Speaker 3: In equity markets, we've got a sell-off that's been bouncing
2:18
Speaker 3: around here, but the Dow currently off 513 points or
2:20
Speaker 3: about a percent. S & P about half of that,
2:24
Speaker 3: 37 points, one half of 1%. The NASDAQ off 179 points,
2:29
Speaker 3: two thirds of a percent.
2:32
Speaker 2: Anything else catching your eye, Mark?
2:34
Speaker 3: I know we have oil prices that have been bumping
2:37
Speaker 3: around 100 bucks a barrel.
2:38
Speaker 2: We're currently at $ 104.
2:39
Speaker 3: Today with another 3% increase there on the continued Saudi
2:45
Speaker 3: pipeline outage.
2:48
Speaker 2: What else is on your mind this beautiful Tuesday morning?
2:52
Speaker 4: Rates are really the story. They are a foundational... Bonds
2:58
Speaker 4: are a foundational asset class. The yields are used to
3:01
Speaker 4: price yields on the safe asset, U.S. Treasuries. Some debate
3:06
Speaker 4: whether or not Treasuries are still viewed as the world's
3:08
Speaker 4: safest asset, but let's suppose they are. They're used to
3:11
Speaker 4: price bonds issued by other governments and then companies and
3:16
Speaker 4: longer duration assets like equities.
3:20
Speaker 1: And so.
3:21
Speaker 4: Why are yields going up? We talked about this in
3:23
Speaker 4: the last hour. It could be AI investment and the
3:26
Speaker 4: capital they're soaking up.
3:28
Speaker 3: I think I can make more money elsewhere, so I'm
3:30
Speaker 3: going to not invest in bonds.
3:32
Speaker 2: So less demand.
3:35
Speaker 3: Or the belief that, hey, I'm an AI company and
3:38
Speaker 3: I need a whole bunch of cash to spend, so
3:40
Speaker 3: I'm going to issue a bunch of bonds and those
3:42
Speaker 3: are going to compete with U.S.
3:42
Speaker 2: Government debt.
3:44
Speaker 4: So rates, and I'll just talk about real rates here,
3:46
Speaker 4: the rate you see in the newspaper, and then minus inflation.
3:50
Speaker 4: Rates going up isn't necessarily a bad thing. It could
3:53
Speaker 4: be indicative of increased demand for capital. In expansion, business expansion,
4:01
Speaker 4: economic expansion, real rates, again, got to make that distinction,
4:05
Speaker 4: tend to go up. So it could be a sign
4:06
Speaker 4: of a healthy economy, just like rates that are too
4:08
Speaker 4: low could be a sign of a sickly economy. But
4:11
Speaker 4: if rates are going up here due to concerns about
4:13
Speaker 4: our fiscal situation, big deficits, and consequently big debt, That's
4:19
Speaker 4: obviously a bad sign, and it's a drag on economic
4:22
Speaker 4: growth without the payoff that comes from the increased investment
4:27
Speaker 4: that has historically driven real rates up during past expansions.
4:32
Speaker 3: Over the weekend, we had leadership at three of the
4:35
Speaker 3: major US AI leaders, sorry, three of the major US
4:41
Speaker 3: AI companies speaking openly about I don't want to call
4:46
Speaker 3: it regulation, but an orchestrated slowdown.
4:50
Speaker 2: In the development of their own models.
4:52
Speaker 3: So you started off with a post from the CEO
4:56
Speaker 3: of Anthropic, the creator of Claude. That was followed by
5:01
Speaker 3: a post by Elon Musk about similar types of concerns.
5:06
Speaker 3: And then finally, Sam Altman from OpenAI.
5:10
Speaker 2: All basically saying the same thing, that they.
5:15
Speaker 3: would like to see a slowdown in the development of
5:17
Speaker 3: AI models out of a concern for the safety.
5:23
Speaker 2: Of those models. Safety of us.
5:26
Speaker 3: Yeah, the danger of those models and what they could
5:30
Speaker 3: do to society.
5:33
Speaker 2: As we know it, I suppose, is the real wording here.
5:37
Speaker 3: This follows a report from a... What was his background?
5:42
Speaker 3: The Anthropic Employee A researcher with Anthropic. A researcher with Anthropic.
5:48
Speaker 2: Opposed to X, yeah. Talking about how.
5:51
Speaker 3: It could end humanity, and then those close to him
5:54
Speaker 3: saying that he's putting a 10% chance on that problem.
5:58
Speaker 4: Serious people say that's reasonable.
6:01
Speaker 3: And following that, we had then leadership from both the
6:06
Speaker 3: United States and China coming out and saying.
6:10
Speaker 3: On President Trump's side, that's not necessary and we are
6:13
Speaker 3: not going to do that. And then a Chinese foreign
6:15
Speaker 3: minister echoing the same sentiment that this is fear-mongering and
6:18
Speaker 3: there's no concern here. I'll reiterate something that we have
6:24
Speaker 3: said many, many times. We are currently seeing the worst
6:30
Speaker 3: AI models, meaning the least effective models that we will
6:34
Speaker 3: ever see, being used by the most advanced people in
6:38
Speaker 3: AI today.
6:40
Speaker 2: That exist today.
6:42
Speaker 3: You don't have, generally speaking, very non-tech savvy people using
6:50
Speaker 3: AI models today. Generally speaking, it's being done by researchers
6:54
Speaker 3: across a whole bunch of labs globally, some good actors,
6:57
Speaker 3: some bad actors, but the.
6:59
Speaker 2: Models are going to get better and the users are
7:01
Speaker 2: going to get dumber.
7:01
Speaker 4: Yeah, they get smarter every second.
7:03
Speaker 2: Right?
7:04
Speaker 4: They're training themselves, which is the essence of it.
7:07
Speaker 2: That is going to be the status quo.
7:09
Speaker 3: It's not that we as a society are going to
7:10
Speaker 3: get dumber, but the people using the models are going
7:12
Speaker 3: to be, on average, dumber than they are today, and
7:14
Speaker 3: the models are going to be a lot smarter today.
7:17
Speaker 3: And I think that, more than anything else, is what
7:20
Speaker 3: convinces me that we are hurtling towards a damning place here.
7:27
Speaker 3: I don't really like making this conversation about markets, but
7:30
Speaker 3: we are a finance and economic and markets show. We've
7:35
Speaker 3: talked a lot about, hey, if this is a bubble
7:38
Speaker 3: in stock prices being caused by artificial intelligence investment, which
7:42
Speaker 3: would be fairly typical of a new technology and would
7:47
Speaker 3: follow the path that we saw with railroads and electricity
7:51
Speaker 3: and certainly the internet, it's It pops at some point
7:57
Speaker 3: because the spending from these giant companies slows or stops, right?
8:04
Speaker 2: The prices that they're paying for semiconductors and everything.
8:06
Speaker 4: You get overinvestment. You get falling returns to capital coupled
8:09
Speaker 4: with saturation followed by bankruptcies and a dearth of investment.
8:15
Speaker 4: probably coinciding with an economic slowdown. Just 2000 is all
8:19
Speaker 4: you need to keep. 2000 to 2003. Classic overinvestment, ruinous competition,
8:24
Speaker 4: fall and return to capital, slowdown, and wipeout. But we're
8:28
Speaker 4: left with all this wonderful technology. God willing, that'll be
8:32
Speaker 4: the worst of this AI experiment.
8:36
Speaker 3: I think my point would be that I would sure
8:39
Speaker 3: be surprised if major leaders from... developed nations and leaders
8:47
Speaker 3: of the most forward and most advanced companies in the
8:52
Speaker 3: new technology space all saying that, hey, we're going to
8:54
Speaker 3: stop developing this, was the proximate cause of the bubble bursting.
9:00
Speaker 2: That would surprise me.
9:01
Speaker 4: Something will prick it, though. Something's going to change. A
9:03
Speaker 4: bubble is narrative-driven.
9:04
Speaker 2: It's story-driven.
9:06
Speaker 4: All people have to do is kind of at the
9:07
Speaker 4: same time break their fever. We're all under mass AI
9:12
Speaker 4: hypnosis right now. As soon as that narrative changes and
9:15
Speaker 4: we all sort of come to our senses, like, oh, wow,
9:17
Speaker 4: this is going to kill us. So it's not worth
9:19
Speaker 4: an extra quarter percentage point in GDP growth.
9:21
Speaker 2: That's my point.
9:22
Speaker 4: For the next generation.
9:22
Speaker 3: I don't think believing that it's going to kill us
9:26
Speaker 3: is going to be enough to stop.
9:27
Speaker 2: I think there's enough greedy people out there. No, it's
9:29
Speaker 2: going to take an accident.
9:31
Speaker 4: It's going to take this stuff. It's going to break
9:33
Speaker 4: out into the wild again like it did with Hugging Face.
9:36
Speaker 4: It's going to attack a water treatment plant, and they're
9:38
Speaker 4: going to have to shut down the water supply to
9:40
Speaker 4: a major city just for a week. God willing, it
9:42
Speaker 4: won't kill anybody, but I fear that it will. I'm
9:46
Speaker 4: not making this stuff up. Many people in the industry,
9:48
Speaker 4: the AI industry, for lack of a better way to
9:51
Speaker 4: put it, have said this is what's going to happen.
9:53
Speaker 4: Then politicians will scramble. Congress will call a special session.
9:56
Speaker 4: We'll stop experiment at whatever, wherever the frontier is at
10:00
Speaker 4: that moment. And markets will subsequently collapse.
10:03
Speaker 2: Yeah, that could be it.
10:04
Speaker 3: I mean, it could be that we continue to develop
10:06
Speaker 3: without that major incident. And at some point, just the
10:09
Speaker 3: ROI on, hey, you know, XYZ company partnering with Claude
10:14
Speaker 3: to do this, that or the other just doesn't The
10:16
Speaker 3: math doesn't work anymore, and it pops that way.
10:19
Speaker 4: It's going to take a tragedy. It's going to attack.
10:21
Speaker 4: It's going to go after Waymo. It's going to take
10:22
Speaker 4: over a bunch of cabs. It's going to drive them
10:24
Speaker 4: off the Golden Gate Bridge. Congress will then act, and
10:27
Speaker 4: then the market will crash because they realize the pace
10:30
Speaker 4: of investment is going to slow.
10:32
Speaker 3: Do you have any other optimistic predictions for us today, Mark?
10:37
Speaker 4: It's not funny, but Congress has not. We got the
10:41
Speaker 4: president's being poorly advised by his chief, his AI czar, Sachs,
10:46
Speaker 4: on this. Everybody close to this says the implications could
10:51
Speaker 4: be catastrophic, existentially catastrophic. Why would you even mess with that?
10:56
Speaker 4: Did we in 1952 say, we can't lose the fission
11:01
Speaker 4: race to, we had atomic weapons, hydrogen weapons were new.
11:06
Speaker 4: Soviets were on our heels because they were cheating, stealing
11:09
Speaker 4: the tech from us. Can you imagine some idiot saying
11:12
Speaker 4: in 1952, after we had successfully tested, I think that
11:14
Speaker 4: was the year we first tested the The H-bomb. I'm
11:16
Speaker 4: not talking about the A-bomb. I'm talking about the H-bomb.
11:18
Speaker 4: I think it was 52. Some idiot saying, now, we've
11:22
Speaker 4: got to let the market decide how far to take this.
11:24
Speaker 4: We don't want to lose to the Russians. Of course not. We,
11:28
Speaker 4: as Chuck Zotta would say, we air-gapped that stuff, almost literally.
11:34
Speaker 4: You know what I mean. Government took over development of it.
11:38
Speaker 4: AI could be as devastating. The fact that we aren't
11:43
Speaker 4: treating it with the same sense of urgency, I think,
11:45
Speaker 4: will will reflect very poorly on us when posterity looks
11:49
Speaker 4: back and said, what did they do? What did leadership
11:52
Speaker 4: do when the experts in this field said this could
11:54
Speaker 4: kill us all? Leadership said, no, no, it could increase
11:57
Speaker 4: economic growth a little bit. Yeah, but we'll all be dead.
12:00
Speaker 4: So there'll be nobody around to enjoy that increased GDP.
12:05
Speaker 2: Maybe a few of us.
12:07
Speaker 4: A few.
12:08
Speaker 2: Let's take a quick break. When we return.
12:11
Speaker 3: I want to talk about this piece from Market Watch
12:13
Speaker 3: when it comes to bond investing. Obviously, challenging year for
12:17
Speaker 3: bond investing.
12:18
Speaker 2: Quick break. We'll be back with that next. Financial Exchange.
12:34
Speaker 1: Find daily interviews and full shows of The Financial Exchange
12:37
Speaker 1: on our YouTube page. Subscribe to our page and get
12:40
Speaker 1: caught up on anything and everything you might have missed.
12:43
Speaker 1: This is The Financial Exchange Radio Network.
13:04
Speaker 3: Mark, there's a piece in MarketWatch today that I just
13:08
Speaker 3: found terribly entertaining that I wanted to draw attention to.
13:12
Speaker 3: So the title of the article, Traditional Bond Investors Have
13:16
Speaker 3: Lost Money for Years. These Five-Star Portfolio Managers Show a
13:19
Speaker 3: Better Way. I've never read an article that is more
13:21
Speaker 3: about selling your own book than this one here. But
13:25
Speaker 3: it is the case. They interview five portfolio.
13:28
Speaker 4: Managers from different mutual funds.
13:30
Speaker 2: Oh, sure, yeah.
13:32
Speaker 3: So first of all, it is the case that cumulatively
13:36
Speaker 3: bond investors who have invested in, let's say, the U.S.
13:41
Speaker 3: 10-year treasury for the last five years have lost money
13:45
Speaker 3: by doing so. Even when you factor in the interest payments,
13:48
Speaker 3: they've cumulatively lost money due to the increase in interest
13:50
Speaker 3: rates on newly issued debt.
13:52
Speaker 2: And uh the falling bond prices of those.
13:55
Speaker 4: Existing total returns so negative.
13:56
Speaker 3: Total return negative which is not a normal or experience
14:00
Speaker 3: that people are used to over the course of the
14:02
Speaker 3: last 30 40 even 50 years and so a lot's
14:06
Speaker 3: being written about right um the article then goes on
14:10
Speaker 3: to interview these uh these different bond fund managers and
14:14
Speaker 3: you know they point out that hey uh when you
14:17
Speaker 3: talk about emerging markets debt or, uh, high yield corporate debt, um,
14:23
Speaker 3: those things have actually made money over the last five
14:26
Speaker 3: years in the aggregate. And so, you know, there are
14:29
Speaker 3: ways to mix those sorts of things into your bond
14:31
Speaker 3: portfolio and look, you can balance this thing out. So
14:34
Speaker 3: it's not as detrimental as investing in us treasuries over.
14:36
Speaker 4: The last five years.
14:38
Speaker 3: Um, the article, when I first read it kind of
14:40
Speaker 3: printed weirdly. So the main piece that somebody was talking about, I'll, uh,
14:46
Speaker 3: I'll quote the article here. When interviewing one of the
14:50
Speaker 3: fund managers from the Eaton Vance Strategic Income Fund, frontier
14:54
Speaker 3: local market investing, these are markets that aren't yet included
14:57
Speaker 3: in emerging market indexes. While he couldn't name current investments,
15:00
Speaker 3: Shaw mentioned Serbia as an example of a country that
15:04
Speaker 3: had been considered to be a frontier market before political
15:07
Speaker 3: reforms caused its government bonds to be added to the blah, blah,
15:10
Speaker 3: blah index.
15:11
Speaker 5: Um.
15:13
Speaker 3: Would you consider it practical, Mark, for the average investor
15:17
Speaker 3: to go research Serbian bonds as a potential investment for
15:20
Speaker 3: their portfolio?
15:21
Speaker 4: I'm not even sure how or if an individual investor
15:24
Speaker 4: could buy those. So, no. I hope what he means
15:27
Speaker 4: by that is you would look for an active manager
15:30
Speaker 4: that can allocate to frontier markets. And there might be
15:33
Speaker 4: some in your 401k plan, for example. I'm not suggesting
15:35
Speaker 4: you should.
15:35
Speaker 2: I don't.
15:38
Speaker 4: Well, we can get into what are bonds for, which
15:40
Speaker 4: is a higher level and maybe more useful question. But
15:42
Speaker 4: I hope what he means there is you could find
15:44
Speaker 4: a manager who can allocate to frontier markets. Some are dedicated.
15:47
Speaker 4: Some just allocate a portion of the portfolio. Know what
15:50
Speaker 4: you're buying. And they may be exploring opportunities in Eastern Europe.
15:55
Speaker 3: And that's precisely why he did this article is because, hey, look,
15:58
Speaker 3: I have the expertise to go do this.
15:59
Speaker 2: You don't.
16:00
Speaker 5: Well, sure.
16:01
Speaker 4: That's what they do.
16:03
Speaker 3: And I think the takeaway for me, though, is For
16:08
Speaker 3: most people, unless you are personally a pension fund that
16:13
Speaker 3: is governed by strict rules about how to invest or
16:17
Speaker 3: an insurance company who's subject to regulations, for most people,
16:21
Speaker 3: I don't think anyone's forcing them to buy bonds. Not
16:24
Speaker 3: saying you shouldn't, but for the average person, most people
16:28
Speaker 3: aren't being told by their 401k plan or by their
16:32
Speaker 3: mother that Hey, you have to have bonds in your portfolio.
16:36
Speaker 2: And so step one is understanding.
16:37
Speaker 4: Mind your own business, mom.
16:40
Speaker 2: She keeps asking me this question.
16:41
Speaker 4: Damn Serbian bonds she's pushing. First it was the lasagna.
16:45
Speaker 2: Are you sponsored by the government of Serbia?
16:47
Speaker 4: When are you going to get married? When are you
16:49
Speaker 4: going to buy Serbian bonds? Hey, back off.
16:54
Speaker 2: Here is my point with all of this.
16:56
Speaker 3: A lot of these things are written as though you
16:59
Speaker 3: are forced to make these decisions. And it's this one-to-one
17:02
Speaker 3: decision of, hey, should I be owning U.S. government debt
17:04
Speaker 3: or some other mix of assets that come with their
17:07
Speaker 3: own sets of risks? And step one is not, hey,
17:11
Speaker 3: should I own U.S. government debt or hired corporate debt?
17:14
Speaker 3: It's more a question of, should I own bonds? Why
17:18
Speaker 3: should I own bonds? And is there a logical conclusion
17:21
Speaker 3: here other than just I read about it in a
17:23
Speaker 3: textbook one time? And so this is really fundamentally important
17:30
Speaker 3: to developing your investment strategy because while in any one
17:34
Speaker 3: year a bond.
17:36
Speaker 2: Return is going to be unpredictable.
17:39
Speaker 3: And could be down, could be up, when you look
17:42
Speaker 3: at the cumulative effect of investing in one asset class
17:45
Speaker 3: versus another over the course of 10, 15, 20 years,
17:49
Speaker 3: It can either be a really great addition to a
17:51
Speaker 3: portfolio or a pretty significant distraction.
17:54
Speaker 4: That's like saying, why own consumer staples? They've been down
17:57
Speaker 4: for the past. This isn't the case. I'm just picking
17:59
Speaker 4: on it. S & P 500 has 11 sectors in
18:02
Speaker 4: any given year, Hafford. Hi, Tucker.
18:05
Speaker 1: You're good.
18:06
Speaker 4: He's waving at me. I don't know what. What am
18:08
Speaker 4: I supposed to do?
18:08
Speaker 2: He's waving at me. Ignore him.
18:10
Speaker 4: Am I supposed to bunt? Just go. Am I supposed to?
18:13
Speaker 2: Okay.
18:13
Speaker 3: Here is my point. Bonds should be part of a
18:16
Speaker 3: balanced portfolio. I think everybody recognizes that, but nobody's forcing
18:20
Speaker 3: you to do it, and understanding why it needs to
18:23
Speaker 3: be part of it is critical if you're going to
18:25
Speaker 3: actually build something.
18:27
Speaker 4: The 10-year treasury is a very specific component of the broader, say,
18:32
Speaker 4: Bloomberg aggregate index, to which most, not all, most bond
18:36
Speaker 4: index products are benchmarked. Back to my earlier point, it'd
18:39
Speaker 4: be like picking out a sector in the S &
18:41
Speaker 4: P that's underperforming. Why would you want to own utilities
18:43
Speaker 4: when you could own technology. Well, for diversification, stupid.
18:50
Speaker 2: There, he got it out.
18:51
Speaker 3: The point with all of this is you actually have
18:55
Speaker 3: to understand what it is that you are doing and
18:58
Speaker 3: why you're doing it beyond, oh, well, a certain fund
19:02
Speaker 3: in my 401k suggested that I have a balanced portfolio
19:06
Speaker 3: of stocks versus bonds, because that is not customized to
19:10
Speaker 3: your situation. That is not specific to your situation. And
19:13
Speaker 3: your money that you are saving for your future should be.
19:17
Speaker 3: So that's the main point that I was trying to
19:18
Speaker 3: make with all of that. We've got to take a
19:20
Speaker 3: quick break. When we return, full market update, which is
19:24
Speaker 3: looking slightly better than it was 15 minutes ago.
19:27
Speaker 2: Quick break. Wall Street Watch coming up next.
19:40
Speaker 1: Bringing the latest financial news straight to your radio every day.
19:44
Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
19:50
Speaker 1: Time now for Wall Street Watch. Tracking the stocks, the data,
19:54
Speaker 1: and the headlines driving markets so far today. Right here
19:57
Speaker 1: on the Financial Exchange Radio Network.
20:00
Speaker 5: Markets again in negative territory after the 10-year Treasury yield
20:04
Speaker 5: climbed to its highest level since 2007 as a potential
20:07
Speaker 5: interest rate hike looms. at the conclusion of the feds
20:11
Speaker 5: meeting tomorrow afternoon. And now the Dow is down nine
20:14
Speaker 5: tenths of 1% or 474 points lower S and P
20:18
Speaker 5: 500 down half a percent to 38 points off NASDAQ
20:22
Speaker 5: down three quarters of a percent or 197 points lower.
20:25
Speaker 5: Russell 2000 is down over nine tenths of 1% 10
20:28
Speaker 5: year treasury yield is up three basis points at 4.996%
20:31
Speaker 5: crude oil up 3% at one Oh four barrel. while
20:38
Speaker 5: Brent is up 2.5% to trade at $ 108 a barrel. Energy,
20:44
Speaker 5: continuing to see their stocks steadily climb along with the
20:48
Speaker 5: rise in oil. Halliburton, Occidental Petroleum and Marathon Petroleum are
20:53
Speaker 5: up anywhere between 1% and 2%. Meanwhile, shares in arcade
20:57
Speaker 5: and restaurant chain Dave & Buster's tanking over 16% now.
21:02
Speaker 5: After the company's second quarter results disappointed, As it swung
21:07
Speaker 5: to a loss elsewhere, Innova International stock is tumbling 25%
21:11
Speaker 5: after the online provider of loans said it is withdrawing
21:15
Speaker 5: its regulatory applications for the proposed acquisition of Grasshopper Bancorp.
21:20
Speaker 5: And crypto stocks including Coinbase, Robinhood, Strategy are all down
21:25
Speaker 5: anywhere between 2% and 6% after Bitcoin tumbled down to $ 76, 000.
21:34
Speaker 5: I'm Tucker Silva, and that is Wall Street Watch.
21:36
Speaker 3: I want to talk to folks about the new guide
21:39
Speaker 3: from the Armstrong Advisory Group for the month of September.
21:41
Speaker 3: It's all about the five hidden costs of saving, that's right,
21:45
Speaker 3: too much for retirement.
21:48
Speaker 2: Obviously, this is a.
21:51
Speaker 3: Bit of an attention-getter guide here, because always what we're
21:55
Speaker 3: talking about on the program is the fact that Americans
21:58
Speaker 3: almost never save enough for retirement.
22:00
Speaker 2: But the opposite can be true.
22:02
Speaker 3: And to me, I always start with This guide, we
22:05
Speaker 3: actually end with the opportunity cost.
22:08
Speaker 2: I would start with the opportunity cost.
22:09
Speaker 3: Because if you are saving too much for retirement, it
22:12
Speaker 3: by definition means that you either worked longer than you
22:17
Speaker 3: had to, worked in a higher income or stress job
22:20
Speaker 3: than you had to for a period of time. And
22:23
Speaker 3: to me, more than the taxes you'll ultimately pay or
22:26
Speaker 3: the estate planning effects, which all exist, the real problem
22:30
Speaker 3: with saving too much for retirement is is that it
22:32
Speaker 3: probably meant some degree of meaningful sacrifice that if laid
22:37
Speaker 3: out in a very clear way to you, you may
22:39
Speaker 3: or may not have chosen, right? It could have been, hey,
22:42
Speaker 3: I may have been able to retire two years earlier.
22:44
Speaker 2: Than I did.
22:46
Speaker 3: It may have been I could have taken that dream
22:48
Speaker 3: job working for that nonprofit that I always wanted to,
22:51
Speaker 3: et cetera, et cetera. And so We start with that piece,
22:56
Speaker 3: but there are these actually mathematical hidden costs for saving
22:59
Speaker 3: too much for retirement that come in, such as required
23:02
Speaker 3: minimum distributions that start now at age 75. The real
23:06
Speaker 3: hidden one that people look over all the time, though,
23:09
Speaker 3: has to do with your health insurance and retirement. And
23:13
Speaker 3: listeners of the show may be familiar with it, but
23:16
Speaker 3: the idea of IRMA, the income-related monthly adjustment amount, means
23:21
Speaker 3: that in 2026, if you had.
23:25
Speaker 3: Modified adjusted gross income of over $ 109, 000 as an individual taxpayer,
23:31
Speaker 3: then suddenly you started getting hit with extra health insurance
23:34
Speaker 3: costs in the form of a hidden taxation. All of
23:38
Speaker 3: this can contribute to the point that we make with
23:40
Speaker 3: this guide of there are times when saving in your
23:45
Speaker 3: traditional retirement account might not be the best decision for
23:49
Speaker 3: you when it comes to estate planning, future taxes, etc.,
23:53
Speaker 3: If you'd like your free copy of our new guide
23:55
Speaker 3: or have questions about how it could apply to you,
23:58
Speaker 3: give us a ring at 800-393-4001. Again, the guide is
24:03
Speaker 3: five hidden costs of saving too much for retirement from
24:07
Speaker 3: the Armstrong Advisory Group. You can request it online at armstrongadvisory.com
24:12
Speaker 3: or call us at 800-393-4001.
24:16
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
24:18
Speaker 1: registered investment advisor. Nothing in the ad or in any
24:21
Speaker 1: Armstrong guide is specific financial, legal, or tax advice. Consult
24:24
Speaker 1: your own financial, tax, and estate planning advisors before making
24:27
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
24:30
Speaker 1: advisory services.
24:31
Speaker 3: Mark, was there something you wanted to talk about other
24:33
Speaker 3: than junk fees? Because I saw you smirking over there
24:35
Speaker 3: like you were just ready and rearing to go.
24:37
Speaker 4: No, I had kind of a silly thought that I
24:40
Speaker 4: don't want to share because it might offend some Listeners.
24:43
Speaker 2: Okay, well, let's talk about it offline, and then maybe
24:46
Speaker 2: Tucker and I.
24:46
Speaker 4: Can re-invite it.
24:47
Speaker 2: No, no, no.
24:48
Speaker 4: We'll filter it in the break.
24:49
Speaker 2: We'll filter in the break.
24:50
Speaker 4: It's like Irma. It's not just a hideous name.
24:54
Speaker 2: Yeah, yeah. That's a good tagline.
24:57
Speaker 4: There's no Irmas.
24:59
Speaker 3: There's probably an Irma out there that is ready to
25:02
Speaker 3: write you a strongly worded letter. But yeah, Mark Vandetti
25:07
Speaker 3: finds the name Irma very unattractive, and you can write him.
25:12
Speaker 3: Or text the show at 617-362-1385 about how that was
25:14
Speaker 3: callous and in disregard.
25:16
Speaker 4: There's no one with that name listening. And if there is,
25:18
Speaker 4: I apologize.
25:20
Speaker 2: He doesn't.
25:21
Speaker 3: I want to talk about junk fees because there's a piece,
25:26
Speaker 3: a couple of pieces in the Wall Street Journal and
25:27
Speaker 3: NPR about them.
25:28
Speaker 2: And then I'm running into them in another area.
25:30
Speaker 3: And my wife actually just sent me this class action
25:32
Speaker 3: lawsuit that's taking place over junk fees. But they seem
25:35
Speaker 3: to be popping up more and more, especially when Uh,
25:39
Speaker 3: private equity is getting involved in businesses because by and
25:43
Speaker 3: large people ignore junk fees. That's the entire reason that
25:47
Speaker 3: they exist. Is there a way of raising the price
25:49
Speaker 3: without raising the price? See baggage fees on airlines. We've
25:52
Speaker 3: talked about at length how nobody actually looks at them
25:54
Speaker 3: when booking their airline ticket. They just look at the
25:56
Speaker 3: lowest cost without considering that it's going to cost you
25:59
Speaker 3: a hundred.
25:59
Speaker 2: Dollars to check your bag.
26:01
Speaker 3: Um, it's also happening in real estate, which sucks given
26:05
Speaker 3: how costly a mortgage and a home is now. But, uh,
26:09
Speaker 3: agencies are placing in all sorts of new fees into
26:13
Speaker 3: the closing settlement statement that presumably are negotiable, just like
26:17
Speaker 3: the commission that you pay is negotiable. But nobody's actually
26:22
Speaker 3: noticing them because you're looking at a $ 400, 000 home purchase
26:26
Speaker 3: and you barely notice the fact that the agency has
26:29
Speaker 3: put into place a $ 500 titling closing fee that the
26:37
Speaker 3: agent then puts on the closing settlement statement. You have
26:40
Speaker 3: to come up with the cash to cover. And you
26:42
Speaker 3: ask yourself, what is this for? But nobody really has
26:45
Speaker 3: the answer to it. And it's just a way of
26:46
Speaker 3: raising prices without raising commissions.
26:49
Speaker 4: They know you're overwhelmed and fatigued.
26:50
Speaker 2: Yeah.
26:51
Speaker 4: It's like when you've done the deal to purchase a
26:54
Speaker 4: car and they start hitting you with baloney fees.
26:58
Speaker 1: Yeah.
26:58
Speaker 3: So the other place that I found this, because I
27:01
Speaker 3: am involved in youth hockey, as anyone that knows me...
27:06
Speaker 3: is aware of, is this lawsuit that's being filed against
27:11
Speaker 3: a few tournaments that are run by private equity funds.
27:15
Speaker 3: And they've started to find really cool ways to put
27:17
Speaker 3: junk fees into these as well. So you guys probably
27:22
Speaker 3: haven't seen this, but they run hockey tournaments all over
27:25
Speaker 3: the country, all over the world, where teams sign up
27:28
Speaker 3: to go to. And it's a pretty fun activity for
27:30
Speaker 3: the kids. I just booked ours for late February for.
27:34
Speaker 2: My kids' team.
27:36
Speaker 3: And In many of these tournaments, they have this built-in fee.
27:40
Speaker 3: And then in addition, they have a requirement. It's called
27:44
Speaker 3: a stay-to-play tournament, meaning you must book your hotel options
27:51
Speaker 3: with the tournament provider. And lo and behold, very surprising
27:57
Speaker 3: news here. When you go to book your hotel through
27:59
Speaker 3: that tournament provider, oftentimes it is, you know, a hundred
28:03
Speaker 3: dollars more than you may be able to find that
28:05
Speaker 3: hotel by going to Marriott.com. Uh, and instead you, you know,
28:09
Speaker 3: you're required to book it right through there. And so
28:13
Speaker 3: I guess my point with all this one, the lawsuit
28:15
Speaker 3: I don't think has any merit because apparently they disclose
28:18
Speaker 3: it all over the place that like, Hey, yeah, there's a,
28:20
Speaker 3: you know, there's a revenue share between the hotel and
28:22
Speaker 3: the tournament and you may not pay the market rate
28:25
Speaker 3: for the hotel by signing up for this tournament. Uh,
28:28
Speaker 3: And the same goes for the real estate transaction anywhere else.
28:32
Speaker 3: And the same goes for airlines, right? If these airlines
28:34
Speaker 3: who are basically monopolies can charge these fees without, you know,
28:38
Speaker 3: by disclosing them, then I'm sure, you know, small hockey
28:41
Speaker 3: tournaments can.
28:42
Speaker 2: But these junk fees, beyond anything else, I don't think
28:47
Speaker 2: they're illegal. They're just really darn annoying.
28:50
Speaker 3: And so, you know, when I was looking, I found
28:52
Speaker 3: one that did not contain a stay to play rule
28:56
Speaker 3: in there. But yeah, you see this now everywhere. And
29:01
Speaker 3: I it's greed is what it is. It's it's a
29:05
Speaker 3: way of passing through additional costs, gaining additional profit without,
29:09
Speaker 3: you know, making it part of the headline cost. And
29:13
Speaker 3: I think that kind of sucks. But I don't see
29:15
Speaker 3: any real sign that we are going to rebel against it.
29:18
Speaker 4: Yeah, it's revenue sharing. A lot of providers do it.
29:21
Speaker 2: Yeah, sure.
29:22
Speaker 4: And depending on the industry, they may or may not
29:24
Speaker 4: even have to disclose it.
29:26
Speaker 2: Yeah.
29:26
Speaker 4: So you don't know. If they didn't have these arrangements,
29:29
Speaker 4: of course, you'd just be paying more up front.
29:31
Speaker 2: Yep, you would.
29:32
Speaker 4: I think, unless they're just padding their margins.
29:35
Speaker 3: Yeah, I mean, it's both probably. We've got to take
29:38
Speaker 3: a quick break. When we return, Bit of Stack Roulette
29:40
Speaker 3: is next.
29:42
Speaker 1: The Financial Exchange is live on Sirius XM's Business Radio
29:46
Speaker 1: Channel 132, weekdays from 11 to noon. Get the latest
29:49
Speaker 1: business and financial news from across the country and around
29:52
Speaker 1: the world, and keep up to date on how it
29:54
Speaker 1: might affect your wallet. That's The Financial Exchange, weekdays from
29:58
Speaker 1: 11 to noon on Sirius XM's Business Radio Channel 132.
30:02
Speaker 1: This is The Financial Exchange Radio Network. Subscribe now to
30:07
Speaker 1: our YouTube page, where you'll find daily interviews and full
30:10
Speaker 1: shows of The Financial Exchange. We'll get you caught up
30:13
Speaker 1: on anything and everything you might have missed, right here
30:16
Speaker 1: on The Financial Exchange.
30:21
Speaker 5: The Financial Exchange is a proud partner of the Disabled
30:24
Speaker 5: American Veterans Department of Massachusetts, and this year's 5K is
30:29
Speaker 5: officially sold out. The race will take place on Saturday,
30:32
Speaker 5: November 7th at Fort Independence on Castle Island, and we
30:36
Speaker 5: hope you can take this opportunity to consider making a donation.
30:40
Speaker 5: Your gifts help provide vital services like free transportation to
30:44
Speaker 5: medical appointments and safe housing for single veterans and their families.
30:49
Speaker 5: Donate today at DAV5K. Boston. That's DAV5K. Boston.
30:55
Speaker 3: Mark, I was trying to give Scott Besson some credit
30:58
Speaker 3: here as he's testifying in front of Congress, and I
31:01
Speaker 3: didn't actually hear him say it because the TV is
31:03
Speaker 3: on mute.
31:05
Speaker 2: But the what do we call that thing?
31:07
Speaker 3: The Chiron just flashed across the screen that Besson says
31:11
Speaker 3: that the five thousand dollar checks would.
31:14
Speaker 2: Be, unquote, good idea.
31:15
Speaker 5: Yeah.
31:17
Speaker 3: I've now gone and, you know, full circle here, lost
31:20
Speaker 3: any remaining respect I have for this guy in the role.
31:23
Speaker 3: But let's talk once again about the idea of the $ 5, 000
31:26
Speaker 3: stimulus check, because it's been a week.
31:30
Speaker 4: Well, is it a stimulus? That was my characterization. It
31:33
Speaker 4: sounds like you think about it.
31:35
Speaker 2: What do they call it, a dividend check?
31:36
Speaker 4: They're calling it a dividend check, probably because to call
31:39
Speaker 4: it a stimulus would suggest the economy needs it, which
31:42
Speaker 4: it doesn't. We're growing it probably around potential, maybe a
31:46
Speaker 4: little less.
31:47
Speaker 2: Okay, so whatever you want to call it— Sorry, I.
31:49
Speaker 4: Just don't—I've been calling it a stimulus too, but.
31:51
Speaker 2: Yeah, okay, I'll call it a dividend check if you want.
31:53
Speaker 3: In either case, the estimates are that it would increase
31:56
Speaker 3: the deficit by $ 1. 4 trillion because they don't own any
32:00
Speaker 3: stock to issue the dividend from. They don't have any
32:03
Speaker 3: cash sitting there. We're not suddenly collecting more tax revenue
32:07
Speaker 3: than we are spending money. So whether you want to
32:09
Speaker 3: call it a dividend or you want to call it
32:11
Speaker 3: a stimulus payment— it'd be $ 5, 000 per adult, about $ 1. 4
32:15
Speaker 3: trillion coming out of more government debt.
32:20
Speaker 4: I guess.
32:21
Speaker 3: I don't know that I can describe in five minutes
32:24
Speaker 3: all the ways that this would be bad for our economy,
32:27
Speaker 3: but let's go there.
32:27
Speaker 4: Let's be clinical about it. What would it do? It
32:30
Speaker 4: would increase spending by some fraction of $ 1. 3 or $ 4 trillion.
32:35
Speaker 3: What have past studies indicated when it comes to stimulus checks?
32:38
Speaker 5: The.
32:40
Speaker 4: I'll just use the research term, the marginal propensity to consume.
32:45
Speaker 4: Everybody's probably heard that at some point. They slept through
32:47
Speaker 4: or enjoyed an economics class in college, and they talked
32:51
Speaker 4: about what fraction of, say, a tax cut are you
32:55
Speaker 4: likely to spend. It's not 100%. You save some. In
32:59
Speaker 4: the quarter following stimulus payments, and there have been several
33:05
Speaker 4: to study in the past few decades— On average, people
33:09
Speaker 4: spend a third to half of it. Somewhere in the middle,
33:13
Speaker 4: I think, is a safe estimate. So people are going
33:16
Speaker 4: to spend... on an annualized basis, several trillion dollars.
33:24
Speaker 2: Hundreds of billions.
33:26
Speaker 4: It would add something like $ 2 trillion annually.
33:28
Speaker 2: Remember, I went through this last week. It would be $ 1. 4 trillion.
33:33
Speaker 4: Excuse me, several hundred million.
33:35
Speaker 2: $ 700 billion.
33:36
Speaker 4: Thank you. $ 600 billion was the figure. I was reaching
33:38
Speaker 4: back in my memory because I did this last week internally.
33:41
Speaker 4: So the addition to consumption is about $ 600 billion. I
33:44
Speaker 4: don't know where they'll get several trillion from. Apologies. You
33:47
Speaker 4: know what I meant. This would add a few percentage
33:50
Speaker 4: points to annualized GDP in one quarter. Think of what
33:54
Speaker 4: happened during COVID when you had constrained supply butting up
33:57
Speaker 4: against a dramatic increase in demand because all the Biden
34:01
Speaker 4: and the Trump stimulus, all the Trump, excuse me, then
34:04
Speaker 4: the Biden, I forget the sequence, stimulus. You had inflation.
34:08
Speaker 4: The same thing would almost surely happen again if you
34:13
Speaker 4: endowed households with what could be a $ 5, 000, $ 10, 000, $ 15, 000
34:18
Speaker 4: one-time payment. They'd save some of it. They'd spend some
34:23
Speaker 4: of it. That, again, butts up against limited supply in
34:26
Speaker 4: the short term. And as a result, you get inflation.
34:30
Speaker 3: I recognize that this moment in time is different than
34:32
Speaker 3: when we were dealing with COVID shutdowns. But does anybody
34:35
Speaker 3: look at today's economy and say it's not supply constrained?
34:38
Speaker 3: We're facing the highest diesel prices.
34:40
Speaker 2: We have ever seen. Of course, $ 5, 000.
34:42
Speaker 3: To every adult American would drive higher inflation right now.
34:46
Speaker 2: There's almost no doubt.
34:48
Speaker 4: Beyond that, we just got to spend some of it
34:50
Speaker 4: and they're spending it on a fixed in the short
34:53
Speaker 4: term amount of goods and services.
34:56
Speaker 3: So, you know, beyond all this, I don't know how
35:00
Speaker 3: Scott Besson is justifying to himself why he's saying that
35:02
Speaker 3: other than wanting to keep his job. But we need
35:06
Speaker 3: to actually look at these things eyes wide open and
35:09
Speaker 3: be honest with them because Do.
35:10
Speaker 2: I want $ 5, 000?
35:11
Speaker 3: Of course I want $ 5, 000.
35:12
Speaker 2: My wife wants $ 5, 000.
35:13
Speaker 3: My kids would be happy if we each got $ 5, 000.
35:17
Speaker 3: Everybody would be happy if we got $ 5, 000. But we
35:21
Speaker 3: are seriously talking about a sitting president promising every American $ 5, 000
35:27
Speaker 3: in dividend or stimulus checks at a time where we
35:31
Speaker 3: are already dealing with high inflation, deficits, compared to GDP
35:38
Speaker 3: that we have not seen outside of wartime. And frankly,
35:42
Speaker 3: you know, I think this got people heated for like
35:45
Speaker 3: one day, and then nobody cared about it again. And
35:49
Speaker 3: I am just absolutely confounded that in one breath, we
35:53
Speaker 3: can say, hey, we need to deal with Social Security,
35:56
Speaker 3: we need to fund Medicare, we need to cut government spending,
35:59
Speaker 3: and we need to address the fact that we have
36:01
Speaker 3: $ 40 trillion worth of debt. And then the next sentence
36:05
Speaker 3: out of your mouth is, yeah, but we should also
36:07
Speaker 3: potentially issue $ 5, 000 dividend or stimulus checks to the general public.
36:11
Speaker 4: I mean, it's ill-advised, it's ill-timed, you name it. There's
36:15
Speaker 4: a bad reason to assign to it. But it's a
36:19
Speaker 4: good teachable moment. It forces everybody, I think, forces people
36:22
Speaker 4: who care like you, if you're listening, to stop and
36:25
Speaker 4: think about what that would do to demand versus supply,
36:30
Speaker 4: what the inflation implications would be. So it would push
36:34
Speaker 4: up longer-term interest rates because inflation went up. It's not
36:37
Speaker 4: one for one, but it moves with inflation. They have to.
36:40
Speaker 4: It would also increase the debt and deficit, as you
36:44
Speaker 4: pointed out, Mike. So you're increasing the supply of U.S. treasuries.
36:48
Speaker 4: The Fed's probably not going to buy them. we're not
36:51
Speaker 4: doing quantitative easing right now the market has to buy
36:54
Speaker 4: them so you get inflationary pressure on interest rates and
36:57
Speaker 4: you get the pressure of increased supply on interest rates uh...
37:01
Speaker 4: it would sell out of one side of his mouth
37:03
Speaker 4: dissent is saying i'd like to five thousand check sounds
37:05
Speaker 4: like a super idea to me and the other side
37:07
Speaker 4: is not the same i think long-term interest rates are
37:09
Speaker 4: too high i'm sorry could you get the hemispheres of
37:11
Speaker 4: your brain to coordinate on this yes because it sounds
37:15
Speaker 4: like There's a split personality at work, fiscal personality at
37:20
Speaker 4: work here.
37:22
Speaker 3: I cannot wrap my brain around the hypocrisy and the
37:26
Speaker 3: craziness of, again, especially coming from the Republican Party.
37:32
Speaker 4: But if you think long-term rates are too high right now, Mike,
37:35
Speaker 4: the last thing you'd prescribe is more debt, right? I
37:38
Speaker 4: think we could all agree, no matter what your political persuasion. Mike,
37:42
Speaker 4: if they could cut spending by $ 1. 5 trillion and send
37:44
Speaker 4: everybody a dividend check, I would welcome it. But that's not... Well, actually,
37:49
Speaker 4: we should probably pay down some of the debt first.
37:51
Speaker 2: Okay, sorry. I wouldn't welcome that. But yeah, I take
37:53
Speaker 2: your point. But practically, that's not happening. We're in war.
37:57
Speaker 2: That's true. It's war. No, you're right.
37:59
Speaker 4: It's not happening. Fair point. They're not even talking about that.
38:03
Speaker 4: It's just so harebrained.
38:05
Speaker 3: Markets remain in negative territory as we close out the show.
38:08
Speaker 3: We've got the NASDAQ off two-thirds of a percent, the
38:11
Speaker 3: Dow Jones Industrial Average off close to nine-tenths, and the
38:13
Speaker 3: S & P close to half a percent here. We've
38:16
Speaker 3: got a Fed decision tomorrow. We'll be back at it
38:19
Speaker 3: in 22 hours. Have a great rest of your day, folks.