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AI, the Fed, and the Risks Behind the Market Rally · The Financial Exchange Show

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Speaker 1: is The Financial Exchange with Mike Armstrong and Paul Lane.
1:15
Speaker 2: Good morning.
1:16
Speaker 3: Welcome back to The Financial Exchange. Hope everyone had a
1:19
Speaker 3: great Labor Day weekend. Got out there for the last
1:23
Speaker 3: few days of summer with the chill in the air
1:26
Speaker 3: as we head into September here for apple picking and
1:30
Speaker 3: cider donuts and what are the other things that pumpkins
1:35
Speaker 3: leaves falling.
1:35
Speaker 2: Off trees bourbon football whiskey football Coors Light who's the
1:43
Speaker 2: beer sponsor of the NFL I don't even know Bud Light,
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Speaker 2: Coors Light, one of those two. Probably one of those two.
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Speaker 3: As we head in here, we've got the Dow off
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Speaker 3: about 550 points. We'll get into that story a bit,
1:56
Speaker 3: but there was a failed drug trial.
1:58
Speaker 2: And what companies bring down the Dow? Amgen.
2:01
Speaker 3: Amgen and the Dow bringing that one average lower by
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Speaker 3: quite a bit. The S & P 500 off 27
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Speaker 3: points or a third of a percent. NASDAQ off 68
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Speaker 3: points or a quarter of a percent. In oil markets,
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Speaker 3: we've got West Texas crude moving up over 1%, and
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Speaker 3: according to AAA, the national average for a gallon of
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Speaker 3: gas sitting right around $ 4.
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Speaker 1: 15.
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Speaker 3: The bigger story, though, is not about gasoline, but rather
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Speaker 3: diesel fuel, which is sitting at an all-time record of $ 5. 90,
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Speaker 3: potentially driving inflation higher due to transportation costs, additional costs
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Speaker 3: from harvest season for running combines, etc., So something to
2:43
Speaker 3: keep an eye on there as the diesel shortage is
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Speaker 3: something that a lot of folks are acutely aware of
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Speaker 3: and concerned about. On the interest rate side of things,
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Speaker 3: we've got the yield on the 10-year treasury pretty much
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Speaker 3: perfectly unchanged here a week ahead of the next Federal
2:59
Speaker 3: Reserve meeting. That is keeping interest rates high, though, across
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Speaker 3: the board, and we've got the average 30-year fixed rate
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Speaker 3: mortgage as of Friday of last week sitting around 6.89%,
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Speaker 3: making it Not a terribly appetizing fall housing market, if
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Speaker 3: you will, as we head in there. Anything else to
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Speaker 3: mention regarding markets, Paul? I think that pretty much covers
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Speaker 3: it for me. The odds of a rate hike at
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Speaker 3: the next Fed meeting, which is a week from tomorrow,
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Speaker 3: right now sitting at close to 60% being priced in
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Speaker 3: that they do, in fact, hike. We talked a fair
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Speaker 3: bit in the first hour of the program about credibility.
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Speaker 3: I think the one other thing to mention with all this,
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Speaker 3: there's immense pressure from President Trump and the White House
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Speaker 3: to not move rates higher and, in fact, move rates lower,
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Speaker 3: which isn't going to happen at this next meeting. I
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Speaker 3: think the question for me personally is, if Warsh does
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Speaker 3: not lead the Fed to raise rates. And it comes out,
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Speaker 3: you know, it always comes out how people voted, right?
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Speaker 3: And you've got a pretty even split between the two.
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Speaker 3: To me, that raises some credibility questions in and of itself, right?
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Speaker 3: If Warsh has delivered three speeches so far, I would
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Speaker 3: rank them as good, bad, good, in terms of those
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Speaker 3: three speeches in order. The bad one really was a
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Speaker 3: confusing bit of a rambling speech about why they weren't
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Speaker 3: raising rates at that meeting, having to do with long-term
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Speaker 3: interest rates and not having great answers to a few
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Speaker 3: questions that were posed to him. You've now had Treasury
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Speaker 3: Secretary Besant really interject in markets in a way that
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Speaker 3: kind of killed his argument, Kevin Warsh's argument about why
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Speaker 3: they shouldn't raise rates. You've now got increased energy prices again.
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Speaker 3: You've got a killer labor market report. And so the
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Speaker 3: question that I have is- okay, yes, we've got these
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Speaker 3: credibility issues because of political pressure. But just from an
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Speaker 3: economist and market watcher perspective, are those folks going to
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Speaker 3: really challenge Warsh if they do not lead to a
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Speaker 3: higher rate at this next meeting? And what argument could
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Speaker 3: they possibly give for that is the question that I'm pondering.
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Speaker 3: So I personally put the odds a little bit higher
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Speaker 3: because if you are truly trying to maintain credibility and
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Speaker 3: you want to lower rates later, the best thing you
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Speaker 3: can do over the next few meetings might be to
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Speaker 3: raise those rates.
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Speaker 4: No, it'd be interesting to see. You need to get
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Speaker 4: consensus on that Fed board. And if we get any
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Speaker 4: more sort of an indication on the way people are
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Speaker 4: voting on the 16th, that will be something that will
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Speaker 4: be keenly focused on.
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Speaker 2: Yeah.
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Speaker 3: I just have to reiterate, like, The reason we are
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Speaker 3: talking more about the Fed right now than probably ever
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Speaker 3: before is because I'm bored and I need something to
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Speaker 3: talk about. But beyond that, it's because this Fed is
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Speaker 3: uniquely different from everyone that I've personally ever covered on radio.
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Speaker 3: It's different from the Powell Fed. It's different from the
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Speaker 3: Yellen Fed and different from the Bernanke Fed. The Bernanke
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Speaker 3: Fed probably went through the most tremendous amount of change
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Speaker 3: of anyone in the last 50 years in terms of
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Speaker 3: their expansion of what they perceive to be their responsibilities.
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Speaker 3: But this one is different from those three in terms
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Speaker 3: of their communication style and what they are really looking at.
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Speaker 3: And so it is uniquely interesting, I think, for those
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Speaker 3: who watch the Fed. And what is not unique or
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Speaker 3: different is bond investors are challenging this Federal Reserve chair,
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Speaker 3: as they do every new Fed chair. And will he
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Speaker 3: I guess, will he stand up to the test is
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Speaker 3: the interesting question here.
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Speaker 4: His approach has allowed for or created a lot more
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Speaker 4: conjecture as to where things are going to go because
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Speaker 4: of the lack of information that's given.
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Speaker 3: And I think there's plenty of arguments on his side
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Speaker 3: that they shouldn't communicate as much as they have. But nonetheless,
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Speaker 3: they are going to be challenged and it leaves room
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Speaker 3: for stumbling blocks and it leaves room for other people
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Speaker 3: to fill that void. Because if you're not going to talk,
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Speaker 3: somebody else certainly is going to. Peace from the New
7:11
Speaker 3: York Times today. Why stocks are defying gravity and what
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Speaker 3: could bring them down?
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Speaker 2: Is it interest rates, Paul?
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Speaker 3: Is it the Federal Reserve? Is what's going to destroy
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Speaker 3: the market? If they do, it'll have been the first time.
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Speaker 4: Those are the ingredients being mentioned in this piece here, Mike.
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Speaker 4: They're often mentioned when it comes to the cocktail or
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Speaker 4: concoction that will bring down the markets. Rising rates is
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Speaker 4: one that many market pundits will point to.
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Speaker 2: Let's talk about that for a minute, Paul. I think
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Speaker 2: it's important.
7:40
Speaker 3: Why higher interest rates are not good for markets. When
7:43
Speaker 3: you think it through all the way to its conclusion,
7:46
Speaker 3: you can kind of get there, but you know. For
7:49
Speaker 3: the average person seeing higher CD rates, it might not
7:52
Speaker 3: be terribly obvious.
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Speaker 2: So a few perspectives on this.
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Speaker 3: One, you know, to make it very plain for the
7:58
Speaker 3: average person listening right now, you have a dollar. You
8:02
Speaker 3: always have a choice what to do with your dollar.
8:04
Speaker 3: You can spend it. You can save it. If you
8:06
Speaker 3: save it, you can save in a bunch of different things.
8:07
Speaker 3: You can buy stock in a company believing that that
8:11
Speaker 3: stock will be worth more in the future, or you
8:14
Speaker 3: can buy give it to a bank and lend it
8:18
Speaker 3: and they will go lend it out and they will
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Speaker 3: pay you a guaranteed rate of return on that. As
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Speaker 3: those rates move higher, it's a higher bar to cover
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Speaker 3: in terms of what those returns are going to need
8:27
Speaker 3: to look like. And furthermore, if you are doing a
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Speaker 3: more fundamental analysis, right? Like let's say you're valuing stocks
8:34
Speaker 3: and trying to come up with a fair market value,
8:36
Speaker 3: you have to use a discount rate on what you
8:38
Speaker 3: think their future earnings will be. Right. So, Hey, I
8:41
Speaker 3: think that, you know, meta's future earnings are going to
8:43
Speaker 3: be X, Y, or Z and, When interest rates are higher,
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Speaker 3: you have to discount those more to the current present
8:48
Speaker 3: value because of expected interest rates over that time period.
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Speaker 3: And so higher rates do make. risk assets look less
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Speaker 3: attractive by just a fundamental perspective.
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Speaker 4: And I'll take it one step further. You covered all
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Speaker 4: the kind of key block and tackle issues that you'd
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Speaker 4: think about as an investor. Let's think about it on
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Speaker 4: the other end from the business side of things. If
9:09
Speaker 4: you are looking to continue to invest in data centers,
9:13
Speaker 4: or if you are looking to continue to grow your company,
9:15
Speaker 4: you can finance that through cash flows. But what we're
9:17
Speaker 4: seeing with the data center build out is these robustly
9:20
Speaker 4: cashflow positive companies are spending basically their entire cashflow to
9:25
Speaker 4: build out the.
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Speaker 2: And then some.
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Speaker 4: That's where I'm going with this. And you've seen debt
9:30
Speaker 4: issuances that are very unique and rare for companies like
9:34
Speaker 4: Google and others. That has a significant impact. If all
9:37
Speaker 4: of a sudden the general borrowing costs for either hyperscalers
9:41
Speaker 4: or your local business to expand and build a new factory,
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Speaker 4: that is something that can sometimes curtail economic activity Same
9:49
Speaker 4: thing applies on the housing market side of things. Higher
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Speaker 4: interest rates, less transactional volume, less sort of turnover on properties,
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Speaker 4: which slows down all the trade work that would go
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Speaker 4: into homes and also build out of manufacturing or industry
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Speaker 4: across the country.
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Speaker 3: Yeah. To me, if there's going to be something that
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Speaker 3: ruins this rally, which has all been a bit about AI, right?
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Speaker 3: I think if you look at the last three years
10:14
Speaker 3: in markets, it's really tough to claim that the market
10:17
Speaker 3: has been driven higher by anything but AI. It's not
10:20
Speaker 3: that other companies haven't succeeded. We've been seeing some incredible
10:23
Speaker 3: stuff in healthcare stocks. But in terms of the force
10:27
Speaker 3: that has lifted the stock market in the United States,
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Speaker 3: it's been AI. So what could disrupt markets now? Well,
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Speaker 3: it would be a change in that narrative on AI, right?
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Speaker 3: The first company that goes out of business because they
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Speaker 3: borrowed too much money developing data centers, or the first
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Speaker 3: company whose stock gets rewarded for saying that they are
10:46
Speaker 3: pulling back on data center plans and not seeing the
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Speaker 3: ROI that they wanted. So they're not spending quite as
10:51
Speaker 3: much as they anticipated. Those are the types of narratives
10:55
Speaker 3: that start to change the story. It's not that anybody
10:58
Speaker 3: that I know out there does not think that AI
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Speaker 3: is going to be a world changing technology that has
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Speaker 3: massive use cases. It's merely a question of, can you
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Speaker 3: justify the investment that these companies are putting into the
11:10
Speaker 3: ground right now? And when will that payoff come? Because
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Speaker 3: if it's not pretty rapidly, as we've talked about over
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Speaker 3: and over again, then you have a much tougher time
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Speaker 3: justifying the prices you're paying.
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Speaker 2: We've got to take a quick break.
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Speaker 3: When we come back, Luke Cowan joining us next from
11:24
Speaker 3: Sherwood News.
11:47
Speaker 1: The Financial Exchange streams live on YouTube. Subscribe to our
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12:05
Speaker 3: Joining us now for a chat about markets, the economy,
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Speaker 3: and everything going on as we head into the fall
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Speaker 3: is Luke Kawa from Sherwood News.
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Speaker 2: Luke, thanks for joining us. Appreciate it. Pleasure to be here.
12:15
Speaker 1: Thanks for having me.
12:16
Speaker 3: Well, we just got done talking a bit about the
12:19
Speaker 3: upcoming Fed meeting, so I want to start there and
12:21
Speaker 3: get your take here. In my view, we've had three
12:26
Speaker 3: speeches from Kevin Warsh and in order, good, bad, good
12:30
Speaker 3: in terms of the message that he attempted to deliver.
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Speaker 3: What are they going to do at the next meeting
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Speaker 3: and what sort of credibility issues do they face as
12:40
Speaker 3: they head into this meeting a week from tomorrow?
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Speaker 5: Well, I think they've still got a lot to play for,
12:46
Speaker 5: so to speak. Essentially, all of the so-called dovishness that
12:50
Speaker 5: crept in from a Chris Waller speech in which he
12:53
Speaker 5: sounded a lot less eager to raise the rates than
12:56
Speaker 5: he might have surmised back in even July in the
12:59
Speaker 5: run-up to that meeting. We then got that all back
13:02
Speaker 5: after the non-farm payroll print last Friday. So this week,
13:06
Speaker 5: we have the PPI, the Producer Price Index Tomorrow, which a.
13:10
Speaker 1: Lot of those components.
13:11
Speaker 5: feed somewhat directly into the PCE index, which is the
13:15
Speaker 5: Fed's preferred gauge of inflation. So that'll be closely watched.
13:18
Speaker 5: And then on Friday, we have the CPI report. And
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Speaker 5: I don't want to say that it's a coin flip
13:23
Speaker 5: based on the outcome of these, but that's kind of
13:26
Speaker 5: what it seems to be shaping up to be. I'd
13:29
Speaker 5: say the interesting part is if you consider Waller to
13:32
Speaker 5: be the kind of intellectual center and gravity of the committee,
13:36
Speaker 5: then if their CPI report comes in in line, then
13:38
Speaker 5: that would suggest that maybe the Fed's on hold for September. But,
13:42
Speaker 5: you know, I think the larger point of still having
13:46
Speaker 5: inflation be above trend for a long time, but not
13:49
Speaker 5: necessarily being linked to dynamics in the labor market doesn't
13:53
Speaker 5: really seem to be a wage price spiral, but really
13:56
Speaker 5: just a series of rolling supply shocks. And now the
13:59
Speaker 5: Fed's deals with that and whether the Fed has any,
14:01
Speaker 5: you know, kind of comfort to accept this period of
14:04
Speaker 5: whether it's El Nino, whether it's AI pushing up the
14:08
Speaker 5: price of electrical components. And otherwise, it seems a long
14:13
Speaker 5: time to deal with a lot of temporary factors exerting
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Speaker 5: this very immense pressure on prices.
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Speaker 3: It seems to me that this year we've had three
14:21
Speaker 3: major market themes. We started the year with the oil discussion,
14:26
Speaker 3: war in Iran, shifted over to AI again over the summer,
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Speaker 3: now very focused on, I think, interest rates, Fed action,
14:35
Speaker 3: Treasury action.
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Speaker 2: In spite of that.
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Speaker 3: New focus, I think in the media at least, we've
14:42
Speaker 3: kind of quietly got the Magnificent approaching new all-time highs
14:46
Speaker 3: at the same time that none of their members are
14:48
Speaker 3: actually reaching all-time highs. It's just the average is being
14:51
Speaker 3: lifted here. What should we make of this market that
14:56
Speaker 3: I guess really hasn't been driven by much of anything
14:58
Speaker 3: other than AI over the last few years?
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Speaker 5: So I'd say what's really interesting about the Magnificent 7
15:04
Speaker 5: and that dynamic is For the first time ever, and
15:08
Speaker 5: keep in mind, it's only around May 2023 when Bank
15:11
Speaker 5: of America's Mike Hartnett started calling the group the Magnificent Seven,
15:15
Speaker 5: but it's the first time that this group of seven
15:18
Speaker 5: has been negatively correlated with momentum stocks ever on a
15:23
Speaker 5: monthly basis. And a lot of people, when I posted that,
15:26
Speaker 5: they were like, oh, these stocks are out of favor,
15:28
Speaker 5: this and that. No, it's the momentum cohort that's kind
15:32
Speaker 5: of still out of favor. It's a legacy of the
15:35
Speaker 5: the Leopold and situational awareness-related sell-off and the break in
15:39
Speaker 5: those stocks. Magnificent 7 have been doing quite well, and
15:42
Speaker 5: what still remains to me the marvel of this bull
15:45
Speaker 5: market is the fact that you have four of these
15:48
Speaker 5: companies that are investing a lot in AI, the hyperscalers.
15:54
Speaker 5: You have NVIDIA, who's receiving a lot of the money
15:57
Speaker 5: from these firms. You have Apple, who's kind of doing
15:59
Speaker 5: its own thing, and Tesla, which is in AI but
16:01
Speaker 5: also doing somewhat of its own thing. This is a
16:05
Speaker 5: group that, by and large, I would expect to be
16:07
Speaker 5: correlated by nature of their investment cycles, and yet the
16:11
Speaker 5: group within the group, it's incredibly, incredibly low correlated. The
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Speaker 5: average pairwise correlation between the group, so the extent to
16:19
Speaker 5: which the average member moves in tandem with one another,
16:21
Speaker 5: is its lowest in over a decade, despite the fact
16:24
Speaker 5: that we have this very, very uniform investment cycle. So
16:28
Speaker 5: that's something where you have a group where everyone's marching
16:31
Speaker 5: to the beat of their own drummer, It means, you know,
16:33
Speaker 5: if one day a stock is down by 2%, usually
16:36
Speaker 5: all the others are doing well. And that's what's limited
16:38
Speaker 5: drawdowns within the Magnificent Seven. And it's easier if you
16:42
Speaker 5: limit drawdowns to stay close to all-time highs, even if
16:46
Speaker 5: not all of your members are there. So I think
16:48
Speaker 5: that's something that's interesting with markets right now, whether we're
16:51
Speaker 5: going to go back to, you know, quote-unquote old momentum
16:54
Speaker 5: of semiconductors really heating up and doing well, as seems
16:58
Speaker 5: to be the case now. this morning, or whether it's
17:00
Speaker 5: these old, steady heavyweights that are really going to take
17:03
Speaker 5: the baton, as they've really done over the past month
17:06
Speaker 5: and change.
17:07
Speaker 3: Luke, most of the big earnings are now behind us
17:10
Speaker 3: for the quarter. I don't know of any Manhattan bars
17:13
Speaker 3: throwing Oracle earnings watch parties, but we are going to
17:16
Speaker 3: get Oracle's earnings this week.
17:18
Speaker 2: What are you looking for out of them?
17:21
Speaker 5: A couple things.
17:22
Speaker 2: Oracle is the.
17:24
Speaker 5: Is in many ways an OpenAI proxy because a lot
17:27
Speaker 5: of their RPO, or effectively their backlog for revenues, is
17:32
Speaker 5: going to be informed by the extent to which OpenAI
17:35
Speaker 5: is able to buy that compute over time. So their
17:40
Speaker 5: cloud division is very much an OpenAI proxy play, and
17:42
Speaker 5: because of that, I'm really looking at how the recent
17:45
Speaker 5: Astra launch and how sentiment around that continues to positively
17:50
Speaker 5: impact Oracle. I remember a time about 10 months ago
17:53
Speaker 5: where If you were tangentially related to OpenAI, whether you
17:57
Speaker 5: were a SoftBank or a Oracle, you did very poorly
18:01
Speaker 5: by association because Gemini had its zenith, Anthropic, and ClockCode
18:06
Speaker 5: was about to also pick up and kind of shunt.
18:08
Speaker 2: OpenAI to the side.
18:10
Speaker 5: So I'm looking at that. And also I'm looking at
18:12
Speaker 5: how the spreads, the credit spreads for hyperscalers, all of
18:15
Speaker 5: those kind of peaked. So AK had their like worst
18:19
Speaker 5: or widest to US treasuries around the end of July.
18:22
Speaker 5: So we know that issuance is still going to be
18:25
Speaker 5: probably an ongoing feature of life as the AI capex
18:28
Speaker 5: boom continues. But in terms of the spreads really calming down,
18:32
Speaker 5: that's something that I think helps kind of breathe or
18:35
Speaker 5: reinvigorate life into the AI trade and particularly for hyperscalers.
18:39
Speaker 5: If it looks like Oracle's revenue stream is quote unquote
18:43
Speaker 5: being de-risked because of more positive sentiment around AI, then
18:47
Speaker 5: everyone else's revenue stream I think effectively gets de-risked in
18:51
Speaker 5: that environment. And as a side note, I believe it
18:54
Speaker 5: was five months or so where Oracle said they'd be
18:57
Speaker 5: funding both out of Equity and debt, they haven't issued
19:01
Speaker 5: any of that equity so.
19:02
Speaker 2: Far as recently as their last earnings report showed.
19:05
Speaker 5: So I'll also be kind of closely watching to see
19:07
Speaker 5: have they started to tap the markets? Is that overhang
19:10
Speaker 5: partially getting out of the way here? And are they
19:13
Speaker 5: actually making good on that pledge to be not just
19:17
Speaker 5: focusing on bonds to be able to raise money for
19:19
Speaker 5: the AI boom, but also tapping the equity market as well?
19:22
Speaker 3: Luke Kawa from Sherwood News joining us to talk about
19:25
Speaker 3: markets this week and over the next few weeks.
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Speaker 2: Luke, thanks so much for joining us as always. Appreciate it.
19:30
Speaker 2: We will be right back with Wall Street Watch.
19:40
Speaker 1: Bringing the latest financial news straight to your radio every day.
19:45
Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
19:51
Speaker 2: Time now for.
19:52
Speaker 1: Wall Street Watch. Tracking the stocks, the data, and the
19:55
Speaker 1: headlines driving markets so far today. Right here on the
19:58
Speaker 1: Financial Exchange Radio Network.
20:01
Speaker 6: Markets in the red to begin the week as inflation
20:03
Speaker 6: takes center stage with a CPI reading on Friday. Rising
20:08
Speaker 6: energy prices today. Also continue to garner much attention. Right now,
20:12
Speaker 6: the Dow is down 1% or 541 points lower. S
20:16
Speaker 6: & P 500 off about a third of a percent,
20:18
Speaker 6: 26 points lower. NASDAQ now down only a tenth of
20:22
Speaker 6: a percent or 26 points off. Russell 2000 is down
20:25
Speaker 6: two-tenths of 1%. Ten-year Treasury yield is flat at 4.788%.
20:28
Speaker 6: Crude oil is up one and two-thirds of a percent
20:31
Speaker 6: or $ 93 a barrel, while Brent.
20:38
Speaker 6: The international benchmark is trading at $ 98 a barrel. Qualcomm
20:42
Speaker 6: announced it has signed up Amazon as a data center
20:45
Speaker 6: chip customer in a deal that will span multiple generations
20:49
Speaker 6: and gives Amazon the right to acquire as much as
20:51
Speaker 6: $ 4 billion in shares. Qualcomm up by 4% on that news. Meanwhile,
20:56
Speaker 6: Novartis dropping 13% after the drug maker said an experimental
21:01
Speaker 6: medicine failed to reduce cardiovascular risk in a late-stage clinical trial.
21:06
Speaker 6: Amgen said, And Eli Lilly are also seeing sympathy losses
21:10
Speaker 6: as they too are working on rival treatments. Elsewhere, fuel
21:15
Speaker 6: cell maker Bloom Energy will join the S & P
21:18
Speaker 6: 500 later this month, sending shares up by 9%. And
21:22
Speaker 6: Boston Scientific down about 4% on the day after the
21:26
Speaker 6: medical device maker said a recent cyber attack likely impacted
21:31
Speaker 6: sales and profit targets for 2026.
21:35
Speaker 1: I'm Tucker Sullivan. That is Wall Street Watch.
21:38
Speaker 3: Paul, it's been a little while since we talked about
21:40
Speaker 3: the FIRE movement. If you're not familiar, it's an acronym
21:43
Speaker 3: that stands for Financial Independence.
21:45
Speaker 2: Retire Early Movement.
21:47
Speaker 3: I have to say that in terms of all of
21:49
Speaker 3: the social media created financial advice, this is a fairly
21:55
Speaker 3: innocent form of it.
21:57
Speaker 2: I'm not opposed to this one.
21:59
Speaker 3: I don't think I have to label it with my
22:02
Speaker 3: usual warning about be very careful about what sort of
22:05
Speaker 3: advice you get online, but I will anyway be very
22:08
Speaker 3: careful about what sort of advice you get online. But
22:11
Speaker 3: the FIRE movement is very simply, you know, if you
22:14
Speaker 3: save a whole boatload of money early on in your life,
22:17
Speaker 3: you might not have to work as long as you
22:19
Speaker 3: otherwise would.
22:20
Speaker 2: Yeah, exactly.
22:20
Speaker 4: Basically what it does for this particular app is it
22:24
Speaker 4: pinpoints a number that you need to save from a
22:27
Speaker 4: lump sum perspective in order to get to a target
22:30
Speaker 4: number in the future to be able to just coast
22:34
Speaker 4: along on that initial lump sum that you invested hopefully
22:37
Speaker 4: early on in your career.
22:38
Speaker 3: So here's the idea. Be incredibly frugal. Live in your
22:42
Speaker 3: parents' basement. Save every penny you have. Don't go buy
22:46
Speaker 3: a home, rent an apartment, or rent a mobile home.
22:51
Speaker 3: Just live incredibly frugally for those early stages so that
22:56
Speaker 3: you can retire at 45, for example, or you know,
23:00
Speaker 3: quit that, you know, high stress job at 45 to
23:03
Speaker 3: do something that's more like coasting. And so it's actually
23:07
Speaker 3: a pretty easy formula to come up with, right? You
23:09
Speaker 3: just back into, okay, this is what my budget's going
23:12
Speaker 3: to be at this stage, how much I'm going to
23:14
Speaker 3: need to spend. If I use a specific threshold, then
23:18
Speaker 3: this is the amount of money I need to accumulate.
23:21
Speaker 3: And if we assume that markets do X percent, this
23:23
Speaker 3: is how much I need to put in by this
23:25
Speaker 3: age in order to get there. So it's- Again, I
23:28
Speaker 3: know that sounds like a lot, but, you know, if
23:31
Speaker 3: you have an Excel spreadsheet, you can do that math.
23:35
Speaker 3: My question would be how many people are going to
23:37
Speaker 3: get the math right?
23:39
Speaker 2: Very few.
23:40
Speaker 4: As you and I can attest, doing expense rundowns with
23:44
Speaker 4: any prospective or existing client, there are just maybe 10,
23:50
Speaker 4: 20 that I can count on my hands, you know,
23:53
Speaker 4: There's so few people that get this right in terms
23:55
Speaker 4: of monthly expenses. And this is for people, Mike, that
23:57
Speaker 4: are on the doorstep of retirement, that are right at
24:00
Speaker 4: the precipice of it.
24:01
Speaker 3: We're mainly working with folks that are like 49, 59,
24:06
Speaker 3: 65 years old who are, hey, how much am I
24:08
Speaker 3: going to spend two years from now, not 30 years
24:11
Speaker 3: from now?
24:11
Speaker 2: Exactly.
24:11
Speaker 4: Now you're talking about someone who is in their 30s
24:14
Speaker 4: where life can change dramatically in terms of your circumstances
24:17
Speaker 4: from getting married. All three of us can attest having
24:20
Speaker 4: kids is a much different monthly expense than it is for.
24:23
Speaker 3: Living on your own. Let me give an example here.
24:26
Speaker 3: And again, maybe I'm just dumb. I'm willing to admit
24:28
Speaker 3: that maybe I'm just the idiot in the room. But
24:31
Speaker 3: my experience with my expenses, right? I graduated college and
24:35
Speaker 3: got an apartment with four of my closest friends.
24:38
Speaker 2: It was disgusting, but man, was it cheap. Lived there
24:41
Speaker 2: for a while before.
24:43
Speaker 3: This was in the depths of a pretty bad housing market,
24:46
Speaker 3: realizing I had Saved enough money for my first place
24:49
Speaker 3: and bought that place. And it was actually a couple bedrooms,
24:53
Speaker 3: and I converted a living room into a bedroom. And
24:55
Speaker 3: I said, man, this is fantastic. I'm renting to a
24:58
Speaker 3: couple of my friends. We're all living together, and I'm
25:00
Speaker 3: pretty much paying for my mortgage. This is wonderful. Life
25:04
Speaker 3: will never change. Then I met my now wife and
25:07
Speaker 3: realized that perhaps she wouldn't love the idea of splitting
25:12
Speaker 3: that same apartment with my two buddies. Checking out for
25:14
Speaker 3: your buddies. And so we gave them the boot and
25:17
Speaker 3: we had this condo, which, you know, a lot more expenses,
25:20
Speaker 3: but we had the income to support it. My wife
25:22
Speaker 3: worked too. And, you know, we made that work. And,
25:25
Speaker 3: you know, I sat there saying, how would life ever change?
25:27
Speaker 2: This is perfect.
25:28
Speaker 3: Then we got married and we started about, thought about
25:31
Speaker 3: starting a family and realized that a third floor walk-up
25:33
Speaker 3: wasn't going to be the best thing for that situation. So,
25:37
Speaker 3: We moved out to the Burbs, bought this house, looked
25:40
Speaker 3: at this house, said, this is way bigger than my apartment.
25:44
Speaker 2: There is no way we're ever going to need.
25:46
Speaker 3: Yeah, it might be a little bit smaller than the
25:47
Speaker 3: house that I grew up in, but, you know, it's
25:50
Speaker 3: huge compared to where I was before. Subsequently had three children,
25:55
Speaker 3: realized that it was not big enough, and moved another time.
25:58
Speaker 2: And that's where I am now. And I am certain
26:01
Speaker 2: that some.
26:03
Speaker 3: Number of the expenses that I'm assuming will only go
26:06
Speaker 3: from down from here. I'm completely wrong about and will
26:09
Speaker 3: in fact go up a lot over the next decade.
26:11
Speaker 3: And I haven't saved enough for college or.
26:13
Speaker 2: And I haven't.
26:14
Speaker 3: But that is the biggest danger of doing this type
26:16
Speaker 3: of long term planning.
26:18
Speaker 2: When you are in your 20s and 30s. You don't
26:21
Speaker 2: know how much life is going to change.
26:22
Speaker 4: It's that and then inflation is a variable that none
26:25
Speaker 4: of us can account for. You can have the most
26:27
Speaker 4: sophisticated economist put together an estimate of what he or
26:31
Speaker 4: she thinks inflation is going to be and they could
26:33
Speaker 4: be far off. And the last point that I'll make
26:35
Speaker 4: on this subject is there's also just the psychological or
26:39
Speaker 4: emotional experience. The experiential side of things where all of
26:43
Speaker 4: us can attest to your point as when you started
26:46
Speaker 4: about your journey post-college, the experiences that you have in
26:49
Speaker 4: your 20s are unique to that period of time. And
26:51
Speaker 4: if you're willing to just forfeit those and curtail experiences
26:56
Speaker 4: to save every penny, I give you a ton of credit.
26:59
Speaker 2: Each their own.
27:00
Speaker 4: If someone wants to do that, that's totally fine. And it's,
27:03
Speaker 4: you know, I applaud them for doing it. But there
27:07
Speaker 4: is a specific period of time where you have that
27:09
Speaker 4: freedom and flexibility to travel a lot, to do all
27:12
Speaker 4: these things. You and I both know it gets more
27:14
Speaker 4: complicated as your family grows to be able to have
27:16
Speaker 4: that financial freedom.
27:18
Speaker 2: Dual income, no kids. That's when you do it.
27:20
Speaker 4: So there's tradeoffs, right, for every approach that retirement is great.
27:25
Speaker 4: But I think that there are people who are in
27:27
Speaker 4: retirement now who would tell you that they had plenty
27:29
Speaker 4: of fun in their 20s and 30s that they wouldn't
27:32
Speaker 4: just wish away because they could retire a year or
27:34
Speaker 4: two earlier.
27:34
Speaker 3: As I said, I applaud people that are doing this,
27:37
Speaker 3: that are being disciplined with it.
27:38
Speaker 4: You can't go wrong with saving more earlier.
27:40
Speaker 2: Of course.
27:41
Speaker 3: I think what you have to do, though, is plan
27:44
Speaker 3: for those expansions. You have to plan for the expansion
27:47
Speaker 3: of the budget because unless you find that partner that
27:50
Speaker 3: is perfectly in sync with your frugal lifestyle as well,
27:54
Speaker 3: For most of us, our expenses are going to expand
27:57
Speaker 3: from our 20s to our 30s to our 40s and
27:59
Speaker 3: then maybe contract a little bit later, but most of
28:01
Speaker 3: the time not. You've got to account for all of
28:03
Speaker 3: those complicated factors. If you're trying to save up for
28:06
Speaker 3: that retirement, if you are closing in or just in
28:09
Speaker 3: the beginning stages and you want to kick the tires
28:13
Speaker 3: and bounce questions off of a professional, give the folks
28:17
Speaker 3: at Armstrong Advisory Group a call. This is what we
28:20
Speaker 3: work on with our clients. That's what our financial advisors do.
28:24
Speaker 2: Every day.
28:24
Speaker 3: There's a lot that goes into it and a lot
28:26
Speaker 3: of experience that can be shared. The number is 800-393-4001. Again,
28:32
Speaker 3: Armstrong Advisory Group, 800-393-4001.
28:34
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
28:39
Speaker 1: registered investment advisor. Nothing in the ad or in any
28:42
Speaker 1: Armstrong guide is specific financial, legal, or tax advice. Consult
28:45
Speaker 1: your own financial, tax, and estate planning advisors before making
28:48
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
28:51
Speaker 1: advisory services.
28:52
Speaker 3: There's one other little piece of this whole thing that
28:54
Speaker 3: we didn't talk about. But the idea of Coast Financial
28:57
Speaker 3: Independence is very specifically, hey, I've got this formula. Once
29:00
Speaker 3: I reach the savings amount, then I don't need to
29:03
Speaker 3: save anything else in order to still accomplish my goals.
29:06
Speaker 1: Yes.
29:06
Speaker 3: And so I can, if not quit, then take a
29:08
Speaker 3: lower paying job. And that's the entire idea of this
29:12
Speaker 3: branch of the FIRE movement. They outlined several people, but
29:17
Speaker 3: one of whom had met that number at 28 years old.
29:22
Speaker 3: And so last year, in 2022, she left her six-figure
29:25
Speaker 3: job as a software engineer to take a take on
29:28
Speaker 3: a new job. Last year, she quit that job and
29:30
Speaker 3: decided to pursue online content creation. And I just– that
29:35
Speaker 3: entire sentence didn't exist 20 years ago, and I kind of,
29:40
Speaker 3: we were talking about it off air, but I openly
29:42
Speaker 3: do wonder, like, okay, 20 years ago, I don't know
29:45
Speaker 3: when John Cena, for example, got his start, but, you know,
29:48
Speaker 3: grew up around in Massachusetts on the North Shore. And
29:51
Speaker 3: if he wanted to do the same thing, probably hadn't,
29:55
Speaker 3: you know, reached financial independence at that stage would be
29:57
Speaker 3: my guess. But He had to pack up his stuff
29:59
Speaker 3: and fly out to L.A. and try and make it
30:02
Speaker 3: big in Hollywood. Today, I'm sure people still do that.
30:08
Speaker 3: But today, you take your phone, you buy a stand
30:11
Speaker 3: for a tripod for it, and you try and become
30:13
Speaker 3: a content creator. I tend to think that because I'm
30:18
Speaker 3: a financial advisor maybe, that the risk of quitting my
30:22
Speaker 3: job and flying out to a place where I have
30:24
Speaker 3: no network and trying to make it big sounds scarier,
30:27
Speaker 3: but I actually do wonder, right? Like, I don't know
30:33
Speaker 3: that I'd have the guts to go and post a
30:35
Speaker 3: bunch of stuff on social media. I happen to think
30:37
Speaker 3: it's kind of dumb and silly, and I tend to tease.
30:40
Speaker 2: People that do it, but what actually does take more guts, right?
30:44
Speaker 3: Like, flying out to somewhere that you don't know anybody
30:47
Speaker 3: and abandoning all of your network and And trying to
30:50
Speaker 3: make it big or staying where you are and needing
30:53
Speaker 3: to rely on that network to do something that a
30:56
Speaker 3: lot of people think is kind of foolish and silly
30:58
Speaker 3: and unproductive.
30:59
Speaker 2: They're both the same thing, right?
31:01
Speaker 3: You know, John Cena trying to make it big in
31:03
Speaker 3: wrestling versus the kid doing content creation on their YouTube platform.
31:07
Speaker 2: It's just entertainment.
31:09
Speaker 1: It is.
31:09
Speaker 4: Yeah, you're trying to garner eyeballs. And I guess the
31:13
Speaker 4: argument that you could make, you could slice it a
31:16
Speaker 4: couple of different ways. You can create a little small
31:18
Speaker 4: business niche for yourself within content creation and not have
31:22
Speaker 4: to be as blockbuster of a superstar as John Cena
31:26
Speaker 4: became and still make it. I guess you could make
31:28
Speaker 4: the argument that you could be an actor that picks
31:31
Speaker 4: up small-time roles and gets by maybe to the same degree.
31:35
Speaker 4: But it is, I think, something that with the content
31:38
Speaker 4: creation stuff, they've probably only seen the success stories and, oh, gee,
31:42
Speaker 4: I can just do what Mr. Beast does or name
31:44
Speaker 4: a successful content creator, but not realize that it's a
31:49
Speaker 4: job and it's still really difficult to do too. But
31:52
Speaker 4: it is definitely the new version of it. There is
31:55
Speaker 4: so much fragmentation in content now that unlike when we
31:59
Speaker 4: grew up, there was two or three channels to pick
32:01
Speaker 4: from and you watch those programs on Disney, Nickelodeon, whatever
32:04
Speaker 4: it may be. Now, I mean, it's a flooding of
32:09
Speaker 4: just numerous options to choose from. So it's harder to
32:13
Speaker 4: break through when you're chasing everybody's eyeballs and there are
32:17
Speaker 4: literally millions of options to go through.
32:19
Speaker 3: It's so funny to think about that sentence of, quit
32:22
Speaker 3: my job to go into content creation. Like, you didn't
32:26
Speaker 3: even print that sentence a decade ago.
32:28
Speaker 1: No.
32:29
Speaker 2: Pretty wild. Quick break. When we come back, but a
32:31
Speaker 2: stack roulette is next.
32:33
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32:37
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33:08
Speaker 6: The 2026 DAV 5K Boston is officially sold out. The
33:13
Speaker 6: race is set for Saturday, November 7th at Fort Independence
33:17
Speaker 6: on Castle Island. But even if you can't participate, you
33:20
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33:24
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33:27
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33:32
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33:34
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33:36
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33:38
Speaker 2: That's DAV5K. Boston.
33:41
Speaker 3: Time for a bit of Stack Roulette here, Paul.
33:43
Speaker 2: What do you have for us this morning?
33:45
Speaker 4: Hollywood box office boom is missing 248 million tickets. This
33:50
Speaker 4: is a piece here done in the New York Times
33:52
Speaker 4: where this summer for movies was really fantastic. The numbers
33:56
Speaker 4: that they saw, the total gross was $ 4. 76 billion. That
34:01
Speaker 4: was from May 1st through Labor Day. And you had
34:04
Speaker 4: the Defining Mooney movie of the summer. The Odyssey by
34:08
Speaker 4: Christopher Nolan did tremendously well, really boosted a lot of
34:12
Speaker 4: the revenue that you saw from IMAX. But The way
34:15
Speaker 4: Hollywood does its total box office revenue is that they
34:19
Speaker 4: just do it based on the dollar amount collected at
34:22
Speaker 4: the box office, but they don't adjust for inflation, which
34:26
Speaker 4: is pretty important to do when you're trying to compare
34:29
Speaker 4: different periods of time. If you do adjust that 4.76% $ 7. 6
34:34
Speaker 4: billion for inflation, you'll find that the 2019 total, that
34:40
Speaker 4: was 17% higher than the box office that we just
34:43
Speaker 4: saw from 2026. So 17% off what it was in 2019.
34:48
Speaker 4: And in terms of just seating at theaters, 30% drop
34:53
Speaker 4: from where it was in 2019. This is the continuing
34:56
Speaker 4: evolving of the movie industry where it seems like it's
34:59
Speaker 4: settled at more These truly blockbuster films that are these
35:04
Speaker 4: epics to see will continue to get people to go
35:06
Speaker 4: to movie theaters for a special experience, but It's just
35:10
Speaker 4: not going to be what it was. And all of
35:11
Speaker 4: us know that to a degree. It's never going to
35:14
Speaker 4: return to what it was previously because content can be
35:17
Speaker 4: so easily consumed on an iPad or on your device,
35:20
Speaker 4: your TV at home. And as a result of that,
35:23
Speaker 4: Hollywood is just in a really, to harken back to
35:27
Speaker 4: our earlier discussion on going out to Hollywood, it's just
35:30
Speaker 4: an unenviable business to be in. compared to what it
35:34
Speaker 4: was decades prior.
35:35
Speaker 2: No doubt. And it's just competition. The competition's far harder.
35:38
Speaker 3: And does anybody look at the Netflix or Apple TV
35:42
Speaker 3: series or HBO series or Amazon series that have been
35:44
Speaker 3: released over the last decade and said, man, this sure
35:47
Speaker 3: sucks for consumers?
35:49
Speaker 1: No.
35:50
Speaker 2: I think it's better for consumers. It is. It might
35:53
Speaker 2: be pricier. but tough for blockbuster Hollywood movies.
35:57
Speaker 4: It's pricier, but also you have the ability as the
35:59
Speaker 4: consumer and what makes the business so challenging. I listened
36:02
Speaker 4: to a long breakdown on Disney and just how their
36:04
Speaker 4: business has ebbed and flowed over time. When you run
36:07
Speaker 4: a subscription business model, you have the churning effect where
36:12
Speaker 4: you and I can just pull the cord on it,
36:13
Speaker 4: and that's just so hard to keep up with that treadmill.
36:16
Speaker 4: You need to keep investing in new content, but me, you,
36:18
Speaker 4: and Tucker can bail at any time we want and
36:21
Speaker 4: just go over to the next subscription service.
36:23
Speaker 3: Companies are bringing back pension plans. In 2023, nearly 26,000 employers,
36:28
Speaker 3: most of them relatively small, had cash balance plans. That's
36:31
Speaker 3: up from 23,000 in 2020. And a few major employers
36:35
Speaker 3: in negotiations with unions have brought back those pension plans.
36:40
Speaker 3: I know we talk a lot, and I myself have
36:42
Speaker 3: talked about the demise of the pension being tough for
36:44
Speaker 3: the American worker in the aggregate. And it's just not
36:48
Speaker 3: the forced savings vehicle that a 401k is. But before
36:53
Speaker 3: we go applauding this, I do just want to remind
36:57
Speaker 3: folks that while on average, I do think the pension
37:00
Speaker 3: was a great tool that previous generations had a much
37:04
Speaker 3: more stable retirement picture because of, it wasn't all of them.
37:10
Speaker 3: Raise your hand if you're listening and you know somebody
37:12
Speaker 3: who worked for Polaroid. How about Friendly's? Both of these
37:18
Speaker 3: companies defaulted on their pensions. things got, you know, insured
37:21
Speaker 3: by the PBGC and those retirees are left with a
37:25
Speaker 3: heck of a lot less coming in than they were
37:26
Speaker 3: initially guaranteed through their work. And so there is no
37:30
Speaker 3: real magic bullet. But, you know, imagine working for Spirit
37:34
Speaker 3: Airlines and having had a pension through that plan. Those
37:37
Speaker 3: workers are far better off given that they had the
37:40
Speaker 3: 401k that the company had no access to dig their,
37:44
Speaker 3: you know, dig into and wasn't part of their bankruptcy insolvency. So,
37:51
Speaker 3: I don't know which one I would prefer, which system
37:54
Speaker 3: I would prefer. I think I prefer the 401k.
37:58
Speaker 4: I'd rather, I mean, we do this for a living,
37:59
Speaker 4: but I'd rather take it in my own hands.
38:01
Speaker 2: Me too.
38:03
Speaker 3: But clearly unions and many others push for those pensions,
38:05
Speaker 3: and I get why. But they are not without their
38:08
Speaker 3: potential downsides. Quick break for the next 22 hours. I
38:12
Speaker 3: think that's relatively quick. We'll be back at it tomorrow.
38:16
Speaker 3: for more inflation talk as we head into a busy
38:19
Speaker 3: inflation week here on the Financial Exchange. Have a great
38:21
Speaker 3: rest of your day.