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Insider trading in Washington DC is out of control · The Financial Exchange Show

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Speaker 1: and fall Lane.
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Speaker 2: Good morning, Happy Tuesday. Welcome back to the Financial Exchange.
1:13
Speaker 2: It's Mike, Paul and Tucker with you here the day
1:17
Speaker 2: before CPI is released. We'll get an inflation reading tomorrow morning.
1:21
Speaker 2: The Apple Developers Conference has been ongoing. We've got some
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Speaker 2: general discussions about inflation expectations as well, according to the
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Speaker 2: New York Federal Reserve. But before all of that, we're
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Speaker 2: entering day two of negotiations in London between the United
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Speaker 2: States and China when it comes to trade generally more
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Speaker 2: specifically rare earth material, semiconductor, student visas, etc. And we
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Speaker 2: have a piece from the New York Times to kick
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Speaker 2: things off. Clock ticks. Is us in China try to
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Speaker 2: undo devastating trade curbs? Bob oh, Yeah, this is not
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Speaker 2: a like, yeah, this is not a dramatic enough talk.
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Speaker 2: Clock we need. We need some sort of really earth
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Speaker 2: shattering you know, maybe the one from uh, never mind,
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Speaker 2: let's move on. Uh. The clock ticks according to the
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Speaker 2: New York Times. So my question for you, Paul, is
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Speaker 2: this real or is New York Times needing some clickbait
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Speaker 2: on a quiet June Tuesday, Because it reads more to
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Speaker 2: me like the latter. I don't see any clock ticking.
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Speaker 2: There's no deadline that we have with China and Trade
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Speaker 2: that we must meet before world's collide. Uh And frankly,
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Speaker 2: I don't really expect anything to happen out of all
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Speaker 2: of this. Either best case scenario, Yeah, these series of meetings,
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Speaker 2: best case scenario, trade terriffts don't move up, maybe they
2:52
Speaker 2: move slightly down and we hopefully get some magnets. Yes,
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Speaker 2: I know I sound like a seven year old, but
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Speaker 2: that's genuinely what I think is the best case scenario
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Speaker 2: out of these negotiations. Let's frame what I guess why
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Speaker 2: I feel that way If I am China going into
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Speaker 2: this and I know that the rest of the world
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Speaker 2: is freaking out over my magnets. My what's the samarium? Mum,
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Speaker 2: I gotta say, prepping for the show today. You know
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Speaker 2: our background in finance diving into these rare earth going
3:26
Speaker 2: back to eighth grade chemistry, Paul.
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Speaker 3: I'm glad my chemistry grades aren't publicly available because I
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Speaker 3: am not qualifying to speak to some of these.
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Speaker 2: So they have this stranglehold on these rare earth elements.
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Speaker 2: They're probably a little annoyed that US keeps restricting in
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Speaker 2: video's latest and greatest semiconductor trips from going over there,
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Speaker 2: especially given how much they've invested in AI recently. They're
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Speaker 2: probably not terribly happy that some of their students are
3:55
Speaker 2: no longer able to attend Harvard, or at least it's
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Speaker 2: being called into question. But generally, the only thing you
4:01
Speaker 2: care about right now is, hey, can the United States
4:03
Speaker 2: or will the United States go back into pretty much
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Speaker 2: trade embargo world with China. That is the lever that
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Speaker 2: I think the United States has that's equivalent to China's
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Speaker 2: rare earth materials, because quite honestly, I don't see how
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Speaker 2: the United States kicking out a bunch of students is
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Speaker 2: even close to the same scale as China. Saying you
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Speaker 2: can't have the rare earth materials that you use to
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Speaker 2: manufacture cars and fighter jets right seems like just kind
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Speaker 2: of an uneven, uneven sequence there. And so if you're
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Speaker 2: China and you're looking at that threat of those big
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Speaker 2: giant tariffs, it's a real threat. It does exist, But
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Speaker 2: you're also saying, hey, let's try and play this out
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Speaker 2: here for a little while. Let's not let's not do
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Speaker 2: anything rash, because the Supreme Court in the next few
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Speaker 2: weeks in the United States might just tell the Trump administration, Hey,
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Speaker 2: all those tariffs that you used, the rules that you
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Speaker 2: use to impose tariffs on China, on the European Union
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Speaker 2: and just about every other country in the world, they
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Speaker 2: were illegal. You need to refund all the money, and
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Speaker 2: you can't use that again next time. Very fair, right, Like,
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Speaker 2: why would you negotiate with the United States if you
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Speaker 2: are China right now? And I'm not using this as
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Speaker 2: a criticism of the courts. I think that you want
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Speaker 2: to have checks on presidential power. We talked a lot
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Speaker 2: about that. As much as I think President Trump might
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Speaker 2: be right to slap tariffs on China, I don't know
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Speaker 2: that they want the next president being able to use
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Speaker 2: this to summarily say, yeah, we're punishing is real because
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Speaker 2: of something we don't like. So we will see what
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Speaker 2: the courts think about all of this. But at the
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Speaker 2: end of the day, that's why my expectations for this
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Speaker 2: are rather low. I would be very content if we
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Speaker 2: came out of this with a meaningful increase or a
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Speaker 2: meaningful agreement on rare earth materials coming back into the
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Speaker 2: United States and no new tariffs going on. And that's
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Speaker 2: where I kind of land as my best case.
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Speaker 3: But I just don't know why China would be on
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Speaker 3: board with that. What's our concession in that agreement? Really?
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Speaker 2: Yeah, I guess lower tariffs on Chinese made good, right, right?
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Speaker 2: That thirty percent is going down even lower because that'll,
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Speaker 2: you know.
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Speaker 3: To reinvigorate the exports. Yeah, China to the unit.
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Speaker 2: The Chinese economy is not good right now. They've they've
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Speaker 2: got unemployment problems, they've got deflation problems, and you know,
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Speaker 2: we make this it's all always very US centric and
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Speaker 2: US focused, But that export of those rare earth materials
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Speaker 2: wasn't going to Europe either. Those magnets haven't been going
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Speaker 2: to Volvo or Volkswagen either. They they've been pretty much
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Speaker 2: halted globally. And so you know, to some degree, China
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Speaker 2: wants to play ball here too and say, hey, you
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Speaker 2: know if we if we ultimately piss off everybody in
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Speaker 2: the room, then then that's probably not going to work
6:51
Speaker 2: out well for us either. And we have some vested
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Speaker 2: interest in playing nice here and there. So I very
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Speaker 2: much doubt we're heading back to one hundred percent TARA
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Speaker 2: as a result of these negotiations. But look, the United
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Speaker 2: States and China have deep differences of opinion in terms
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Speaker 2: of how the global economy does and should work. Those
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Speaker 2: aren't going to be solved by a five day negotiation
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Speaker 2: period in London with the United States and China, and
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Speaker 2: that's probably, you know, you need some sort of degree
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Speaker 2: of understanding if we're going to get to the point
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Speaker 2: where trade truly opens up between these two countries. And
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Speaker 2: so instead, I think you have small deals here and there.
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Speaker 2: Right If the Chinese want to appease the Trump administration,
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Speaker 2: they can go out and buy a bunch of agricultural goods,
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Speaker 2: or frankly even just announced that they plan to go
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Speaker 2: out and buy agricultural goods to free up some of
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Speaker 2: that trade imbalance. The US desperately wants some of these
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Speaker 2: rare earth materials. So I'm sure that there will be something.
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Speaker 2: There's already been something announced on that as of last Friday,
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Speaker 2: but big sweeping trade deal, man, I'd be really surprised.
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Speaker 3: No, I would be surprised to And really, what this emphasizes, Mike,
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Speaker 3: the further we get along from April is how intertwined
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Speaker 3: the global economy is in terms of like these rare
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Speaker 3: earth materials, for example, things that you and I, at
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Speaker 3: least unless you were really buffed up on your scenarian
8:19
Speaker 3: before the show came out. It's just not something that
8:23
Speaker 3: I knew how much dominance China had in the space.
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Speaker 3: And this is not new news if you go back,
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Speaker 3: you know historically this goes back decades. But it does
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Speaker 3: reemphasize that China needs the purchases on our into things.
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Speaker 3: There are rare earth materials that we need from them,
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Speaker 3: and in Europe as well. Just to me, it continues
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Speaker 3: to reinforce that point that it truly is a globally
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Speaker 3: intertwined economy.
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Speaker 2: Yeah, and look, this has been China's play. The reason
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Speaker 2: that China is the only one to manufacture this is
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Speaker 2: not because these are actually rare and China just got
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Speaker 2: lucky these rare earth materials. I know this has been
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Speaker 2: reported everywhere, but they are everywhere. You can get them
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Speaker 2: in the United States, you can mind them here. Why
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Speaker 2: isn't it happening here? I account as twofold one. It's messy.
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Speaker 2: Just you know, we actually have a little bit of
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Speaker 2: respect for the environment here. We generally don't want to
9:16
Speaker 2: make a whole bunch of people move and pollute their
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Speaker 2: water in order to get some of this stuff out
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Speaker 2: of the ground, which China doesn't have much of an
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Speaker 2: issue with.
9:23
Speaker 3: Two doesn't make enough fun.
9:24
Speaker 2: We don't really like to subsidize these types of industries.
9:29
Speaker 2: It's like, think about how unpopular the Biden bill on
9:33
Speaker 2: you know, subsidizing even semiconductors was, And you get to
9:38
Speaker 2: the idea that, yeah, the United States doesn't want to
9:40
Speaker 2: be a state owned enterprise that minds samarium, but that's
9:45
Speaker 2: what China has done. And so when you have those
9:48
Speaker 2: dueling factors right, it's not economically feasible to get the
9:52
Speaker 2: stuff out of the ground because of how cheap China
9:54
Speaker 2: will do it for and sell it for. And two
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Speaker 2: you'll destroy the environment by doing so, or least it'll
10:00
Speaker 2: be really expensive to not destroy the environment by doing so.
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Speaker 2: And you get to a point where you say, okay,
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Speaker 2: unless this is going to be a state owned enterprises
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Speaker 2: that runs these minds, we're just going to do it
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Speaker 2: in China.
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Speaker 3: Right, because you can't entice any publicly traded company or
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Speaker 3: any company out there to endeavor this.
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Speaker 2: You know, China will just put you out of business tomorrow.
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Speaker 3: They and they've done it before in instances here historically
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Speaker 3: where they bankrupted some companies that tried this out in
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Speaker 3: California where it just wasn't viable. And if you look
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Speaker 3: at samarium just specifically, which is used in pretty much
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Speaker 3: solely military applications and in fighter jets for Lockey Martin,
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Speaker 3: as a business producing samarium, if you're just going to
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Speaker 3: have one customer out there, it's not an enticing market
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Speaker 3: to go into and not a very profitable one either.
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Speaker 2: Let's take a quick break. When we come back, I
10:44
Speaker 2: want to move along from try. We will be revisiting
10:46
Speaker 2: China because as much as they're doing have already done
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Speaker 2: this in rare with materials, there's growing evidence that they
10:51
Speaker 2: are taking the same approach with vehicles, and I want
10:54
Speaker 2: to get to that. But I want to talk a
10:55
Speaker 2: bit about inflation expectations. We have the CPI Report coming
10:59
Speaker 2: up to tomorrow. Inflation expectations are next year. On the
11:03
Speaker 2: Financial Exchange.
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11:44
Speaker 2: Paul tomorrow will have a consumer price index inflation reading
11:48
Speaker 2: general expectations medium forecast is coming in at a zero
11:52
Speaker 2: point two percent month of a month increase year over year,
11:56
Speaker 2: expected to come in at two point four percent. Takeaways
12:00
Speaker 2: on inflation. I know there are some genuine concerns about things,
12:04
Speaker 2: but it would seem to me that a lot of
12:08
Speaker 2: that front renting on trade tariffs and the concern that
12:12
Speaker 2: car prices and electronics prices were going to shoot up
12:15
Speaker 2: at some point. I don't know. I'm hearing a lot
12:18
Speaker 2: less of that today than I was just a couple
12:20
Speaker 2: months ago. Would you generally agree?
12:22
Speaker 3: I would agree. It doesn't seem like as much as
12:25
Speaker 3: there's those headline stories on Target and Walmart, you know,
12:28
Speaker 3: changing prices on certain names. I just don't feel like
12:30
Speaker 3: that's become overly prevalent other than the news stories that
12:33
Speaker 3: we've heard. But I haven't heard that from an experiential standpoint.
12:36
Speaker 2: And yet, whenever I talk to a professional money manager
12:40
Speaker 2: or economists and you talk about, hey, what do you
12:43
Speaker 2: think will define the next five years, most that I
12:48
Speaker 2: talked to. You know, there's some concerns about deficits, trade,
12:51
Speaker 2: et cetera. But most of the ones that I talk to,
12:54
Speaker 2: it's all about higher the normal inflation, and maybe higher
12:58
Speaker 2: the normal growth too, is something that plays out there.
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Speaker 2: But high growth, high inflation, and you know, all of
13:05
Speaker 2: that caused by what we're seeing already today, higher government spending,
13:11
Speaker 2: higher barriers to trade, et cetera, et cetera. So we
13:15
Speaker 2: have seen those short term expectations come in a little
13:18
Speaker 2: bit tighter, whether it is the University of Michigan surveys
13:21
Speaker 2: that we'll get every month, or this New York Fed
13:24
Speaker 2: survey which found that the decline was most significant projections
13:29
Speaker 2: for year ahead price growth, which just month over month
13:32
Speaker 2: declined to three point two percent from the three point
13:35
Speaker 2: six percent read back in April. Three year inflation fell
13:38
Speaker 2: to three from three point two. And so generally speaking,
13:42
Speaker 2: I think most investors and most consumers are just expecting
13:46
Speaker 2: prices to keep going up, but not quite as fast.
13:52
Speaker 2: I don't know. I keep going back to I'll believe
13:55
Speaker 2: the inflation when I see it, and that you know
13:58
Speaker 2: that we ended up getting a lot of it in
14:01
Speaker 2: twenty twenty one and twenty twenty two. But I kept
14:04
Speaker 2: saying even then, like, you know, I think that this
14:06
Speaker 2: should cause inflation, but let's wait until it actually shows
14:08
Speaker 2: up before you start doing anything. I think that's probably
14:11
Speaker 2: going to be the federal reserves approach to That's.
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Speaker 3: The challenging part of this, and we've talked about this
14:15
Speaker 3: a lot. When examining the impact of these tariffs, it
14:19
Speaker 3: often seems as if we're just pushing the deadline to
14:22
Speaker 3: see whether or not these are going to be inflationary
14:24
Speaker 3: further and further because there has been so much change
14:27
Speaker 3: in policy over the time that there was this idea
14:30
Speaker 3: that perhaps we'd see it as early as the summer.
14:33
Speaker 3: I think now general consensus is that more the fall
14:36
Speaker 3: is where we look to see potentiary impact on the
14:39
Speaker 3: inflationary front, whether it's back to school season or some
14:42
Speaker 3: of these other measures. It's just spent harder to really
14:45
Speaker 3: wrap your arms around the impact. The longer it goes on.
14:48
Speaker 3: The longer, maybe consumers or individuals that get pulled kind
14:52
Speaker 3: of don't you know, overlay it as a concern out there, right,
14:55
Speaker 3: I'm married about it.
14:56
Speaker 2: Yeah, certainly I can paint a picture. Hey, this fall,
14:59
Speaker 2: you've got fifty percent steel and aluminum tariffs in place,
15:02
Speaker 2: and so every canned good that you consume, every you know,
15:06
Speaker 2: car part, and you know, anything that we manufacture with
15:11
Speaker 2: those products gets more expensive, not only because we are
15:14
Speaker 2: paying those higher tariffs because you don't produce some of
15:17
Speaker 2: this stuff domestically, but hey, if that's the going rate
15:20
Speaker 2: for stealing illunum, then domestic producers are going to you know,
15:23
Speaker 2: raise their prices too. So I get how you could
15:27
Speaker 2: see that type of thing and compound it with tariffs
15:29
Speaker 2: on China and other countries, and you could pretty quickly
15:33
Speaker 2: see that being the case. On the other hand, what
15:36
Speaker 2: if you get a Supreme Court ruling on August first
15:38
Speaker 2: that says, no, all the tariffs that the Trump are
15:41
Speaker 2: nearly all the tariffs that Trump administration have it imposed
15:44
Speaker 2: since April, no since March, we're illegal and they must
15:49
Speaker 2: refund all of those to the payers of those tariffs,
15:51
Speaker 2: which is probably what would happen if they deemed them
15:54
Speaker 2: to be illegal. I don't know that you would see deflation,
15:58
Speaker 2: but you certainly wouldn't see any big inflation. Right, You're
16:01
Speaker 2: going to suddenly have a bunch of companies sitting on
16:04
Speaker 2: tariffs that they thought they were going to need to
16:06
Speaker 2: charge their customers, probably already did charge their customers and
16:09
Speaker 2: now are getting a reimbursement of those And so I
16:12
Speaker 2: don't know where all of this goes, but I come
16:15
Speaker 2: back to the same thing, and I think the Federal
16:17
Speaker 2: Reserve is playing the same game here, which is there
16:20
Speaker 2: are risks to the upside both on inflation and on unemployment.
16:26
Speaker 2: We have no idea if either of them are going
16:29
Speaker 2: to come to pass, and if they do, in what
16:31
Speaker 2: order they will come. And you're probably not going to
16:34
Speaker 2: do much until that happens. And so to your point,
16:38
Speaker 2: if we're not now expecting higher inflation until maybe even
16:41
Speaker 2: this fall, I hesitate to see how the mortgage rates
16:46
Speaker 2: or Fed funds rates are going to go anywhere in
16:48
Speaker 2: the near future.
16:49
Speaker 3: I can't make the argument to lower base on the
16:52
Speaker 3: data that we have now.
16:53
Speaker 2: But yeah, the only argument you have would be the
16:57
Speaker 2: last three months of unemployment data now have gotten slightly worse, right,
17:04
Speaker 2: very slightly worse. It's been a rounding error as to
17:07
Speaker 2: whether or not you saw four point three versus four
17:10
Speaker 2: point one percent unemployment. And so if that trend were
17:14
Speaker 2: to continue and by fall you had four point five
17:18
Speaker 2: percent unemployment. Okay, and now now I'm proven wrong and
17:23
Speaker 2: you have a different story playing out here. But there's
17:25
Speaker 2: a lot of cards that need to fall for that
17:27
Speaker 2: to actually happen. And again, the further this time gets
17:31
Speaker 2: away from these high tariffs, I think you're seeing more
17:34
Speaker 2: and more confidence from business owners and others working in
17:38
Speaker 2: different areas that were previously ringing the alarm bells about
17:42
Speaker 2: recession and where this economy was going to go.
17:44
Speaker 3: It seems like sentiment has really improved from a lot
17:47
Speaker 3: of these surveys. But the hardest part has been the
17:50
Speaker 3: actual hard data. There really hasn't been tremendous takeaways. I mean,
17:54
Speaker 3: like the labor market stuff. There's some weakness, but nothing
17:58
Speaker 3: that's really definitive. On the other front on the hard
18:02
Speaker 3: economic data.
18:03
Speaker 2: Yeah, look, the corporate earnings have been solid. Companies have
18:07
Speaker 2: not been on mass laying people off. They've also been
18:11
Speaker 2: delaying a lot of plans. Yes, they've been delaying a
18:14
Speaker 2: lot of plans, and so even those delays can contribute
18:19
Speaker 2: to a weak labor market. But I even think about
18:22
Speaker 2: so I keep hearing about all these college students who
18:26
Speaker 2: are having a tough time finding a job, and I
18:27
Speaker 2: do believe it, because I keep hearing it over and
18:29
Speaker 2: over again. The youth unemployment rate is high, college grad
18:32
Speaker 2: unemployment rate is high. We had a job opening and
18:35
Speaker 2: we're interviewing candidates. I think that something like half of
18:40
Speaker 2: them or maybe two thirds of them either canceled last
18:43
Speaker 2: second or no showed on our interviews. Really wow, And
18:47
Speaker 2: so I keep tossing this around, like, yeah, I keep
18:50
Speaker 2: hearing about this. I read it, and then I go
18:52
Speaker 2: have a very different experience. I mean, massive numbers of
18:55
Speaker 2: applications to the job and very well qualified candidates and
18:59
Speaker 2: all of that stuff. But on the other hand, two
19:01
Speaker 2: thirds of them either canceled last menda or no showed
19:04
Speaker 2: an interview. And You're like, how do I how do
19:07
Speaker 2: I put these two together and make sense of them?
19:10
Speaker 2: And so it is a confusing market right now, and
19:12
Speaker 2: I think that things are just in some bit of
19:16
Speaker 2: holding pattern or stasis until you get some real clarity
19:20
Speaker 2: on are the terriffs legal, are they going to be
19:22
Speaker 2: used in the same way for the second half of
19:24
Speaker 2: the year, and will this tax bill pass? Quick break,
19:27
Speaker 2: We've got Wall Street Watch coming up next.
19:42
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Speaker 1: TFE Show breaking business news is always first right here
19:49
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall Street.
19:55
Speaker 1: Watch a complete look at what's moving markets so far
19:58
Speaker 1: today right here on the Financial Exchange Radio Network.
20:02
Speaker 4: Markets are in weight and C mode on day two
20:05
Speaker 4: of trade talks in London between the US and China.
20:08
Speaker 4: Investors are also ready for an inflation reading duout tomorrow morning.
20:12
Speaker 3: In the Consumer Price Index.
20:14
Speaker 4: Right now, the Dow is completely flat, SMP five hundred
20:18
Speaker 4: up by fourteen points, and the Nasdaq is up by
20:21
Speaker 4: three tenths of one percent. Russell two thousand is up
20:23
Speaker 4: by eight tenths of one percent, Tenure treasure Feld is
20:27
Speaker 4: down by one basis point now at four point four
20:30
Speaker 4: to six percent, and Crew to Oil up another one
20:33
Speaker 4: percent higher, trading just below sixty six dollars a barrel.
20:37
Speaker 4: Apple held its annual Developers Conference yesterday and seemingly underwhelmed
20:41
Speaker 4: investors on its Apple Intelligence advancements. The bigger focus of
20:45
Speaker 4: the Tech Giants event involved its software facelift, marking its
20:50
Speaker 4: first significant redesign of its iOS software since twenty thirteen.
20:54
Speaker 4: Apple shares are up modestly today. Meanwhile, US listed shares
20:58
Speaker 4: of Taiwan Semiconduct up over two and a half percent
21:01
Speaker 4: after the chip maker saw its revenue jump nearly forty
21:04
Speaker 4: percent compared with last year. Elsewhere, Tesla shares are rebounding
21:08
Speaker 4: one and a half percent after the stock was downgraded
21:11
Speaker 4: by Baird yesterday. In addition to the ongoing feud between
21:15
Speaker 4: CEO Elon Musk and President Trump, the New York Times
21:19
Speaker 4: is reporting that Meta is forming a new artificial intelligence
21:22
Speaker 4: research lab and bringing on Alexander Wang, the founder and
21:26
Speaker 4: CEO of startup Scale AI. Meta is also in advanced
21:30
Speaker 4: talks to invest more than ten billion dollars in Scale
21:33
Speaker 4: ai AI. Excuse me that, according to a report from Bloomberg,
21:38
Speaker 4: Meta shares are up about one percent. According to CNBC,
21:42
Speaker 4: Paramount told employees it would be reducing its workforce by
21:46
Speaker 4: three and a half percent. Paramount shares are flat. JM
21:50
Speaker 4: Smucker posted lower sales and swung to a loss in
21:53
Speaker 4: the latest quarter. The food maker's guidance also missed expectations.
21:57
Speaker 4: Jam Smucker shares are sinking by thirteen percent. In after
22:01
Speaker 4: today's closing bell, we'll see earnings from GameStop, I, Tucker, Silva,
22:06
Speaker 4: and that's Wallstree Watch.
22:08
Speaker 2: I would like to talk about corruption and insider trading
22:12
Speaker 2: Paul special, specifically with our elected officials. So there's been
22:16
Speaker 2: a lot made, for instance of President Trump's special dinner
22:20
Speaker 2: that he had when was that back in like March May? Sorry,
22:25
Speaker 2: so he hosted a dinner with two hundred and twenty
22:29
Speaker 2: holders of a cryptocurrency that bears his name, and tough
22:35
Speaker 2: to look at this as anything other than buying your
22:38
Speaker 2: way into a meeting with the president. It was very blatant,
22:42
Speaker 2: very front and center, and I think deservedly got a
22:45
Speaker 2: lot of criticism about the way it was structured. The
22:48
Speaker 2: problem I see is all of those criticizing it have
22:51
Speaker 2: almost no leg to stand on because instead of doing
22:54
Speaker 2: these conflict of interest deals out in the front, what
22:57
Speaker 2: they've done instead of the last thirty years has been
23:00
Speaker 2: behind closed doors, with insider trading on knowledge that they
23:03
Speaker 2: have that is really difficult to charge them with. So,
23:05
Speaker 2: you know, if you don't like this, then you probably
23:09
Speaker 2: shouldn't like what you've seen from the likes of all
23:12
Speaker 2: elected officials and all presidents pasts that have done this
23:14
Speaker 2: in some different way, just shadyer behind closed doors would
23:18
Speaker 2: be my opinion. But Wall Street Journal is reporting today
23:21
Speaker 2: that lawmakers traded stocks heavily as President Trump ruled out
23:25
Speaker 2: Liberation Day tariffs. I can guarantee there were select lawmakers
23:29
Speaker 2: that had inside knowledge about what was coming on this front.
23:33
Speaker 2: And you have massive trading that was probably done on
23:37
Speaker 2: inside information that will never be charged because it's really
23:40
Speaker 2: difficult to do with lawmakers. And I keep thinking about
23:43
Speaker 2: this and going back to one solution. If you are
23:48
Speaker 2: an elected official pretty much at the level of like
23:52
Speaker 2: I think governor and then anything federally, you just can't
23:58
Speaker 2: own stocks. You certainly can can't trade them. Yeah, and
24:02
Speaker 2: we need to have this across the board. And you
24:04
Speaker 2: know what, you give them a capital gains waiver. Right,
24:07
Speaker 2: so you say, look, yeah, we understand you're an elected
24:10
Speaker 2: official that owns twenty million dollars worth of ex on mobile.
24:14
Speaker 2: You would have to pay a boatload of taxes if
24:15
Speaker 2: you went and sold it. Fine, you can transfer your
24:18
Speaker 2: cost basis. You have to transfer it into an exchange fund.
24:22
Speaker 2: Like you know, just owning an index of US stocks
24:25
Speaker 2: is fine, but you can't you still can't trade that.
24:28
Speaker 2: But you're not even allowed to own the stocks. We
24:30
Speaker 2: won't charge you a capital gain on it because you're
24:32
Speaker 2: an elected official and that'd be punishing. That'd be unfair
24:35
Speaker 2: if we said, hey, you're elected now, so you have
24:37
Speaker 2: to sell all of your stocks and pay a bunch
24:38
Speaker 2: of taxes. No, that's fine. You can you can transfer
24:41
Speaker 2: your positions into a general index that holds US stocks.
24:46
Speaker 2: But it can't even be industry specific. It has to
24:48
Speaker 2: just be the you know, some index. I don't care
24:51
Speaker 2: who decides this, the S and P five hundred or
24:53
Speaker 2: something along those lines. So long as you're holding office,
24:56
Speaker 2: you cannot trade that index. You can't buy it and
24:58
Speaker 2: sell it when you know that President Trump's about to
25:00
Speaker 2: roll out tariffs or the next president's about to raise
25:03
Speaker 2: taxes or shut down the economy due to a due
25:06
Speaker 2: to a COVID disease. And that's the deal, that's the
25:10
Speaker 2: trade off. We're going to give you a gift on
25:12
Speaker 2: the tax side, we're going to allow you to defer
25:15
Speaker 2: the taxes and you know, have zero taxes for getting
25:18
Speaker 2: rid of your shares. But this blind trust crap, where
25:22
Speaker 2: you know you're allowed to have it managed by somebody
25:24
Speaker 2: else who allegedly you don't talk to and you know
25:27
Speaker 2: you don't influence. It's garbage. It's absolute garbage. It's it's
25:32
Speaker 2: it's completely one of the major reasons that everyone distrusts
25:37
Speaker 2: American politicians, and it's also bipartisan.
25:42
Speaker 3: I don't understand why the public markets do a better
25:46
Speaker 3: job with this than the government official. It's like, we
25:48
Speaker 3: work with a lot of clients who work in specific
25:50
Speaker 3: industries that have very strict regulations as to what they
25:55
Speaker 3: can buy and sell down to a sector, and there's
25:58
Speaker 3: blackout windows and all sorts of other things. Why can't
26:01
Speaker 3: that same sort of implementation be levied on government officials?
26:04
Speaker 3: Baffles me every time this comes up. I don't understand
26:08
Speaker 3: what judges too, Actually I didn't name them.
26:10
Speaker 2: Judges have to be you know, like, oh, yeah, I'm
26:13
Speaker 2: overhearing a course on a court case on whether or
26:15
Speaker 2: not Google should be broken up. But I can trade
26:19
Speaker 2: in and out of Google stock, right. That is literally
26:22
Speaker 2: what you're allowed to do today. Yeah, so long as
26:24
Speaker 2: you can make an argument that it wasn't based on
26:26
Speaker 2: non public material information, you are allowed to do that.
26:29
Speaker 2: You might have an ethics inquiry, but there is no
26:31
Speaker 2: rule barring the judge who is sitting on Google's case
26:34
Speaker 2: from buying and selling Google stock while he is sitting
26:37
Speaker 2: on that case.
26:38
Speaker 3: With the proliferation of index funds out there. There are
26:41
Speaker 3: many a multitude of investment options for them to go into.
26:44
Speaker 3: You could set I wouldn't maybe hammer on the sector pieces.
26:48
Speaker 3: I would just say you can have sector ETFs if
26:50
Speaker 3: you want, but you can't trade them. You can only
26:52
Speaker 3: trade them these certain windows of the year, whether that's
26:55
Speaker 3: when lawmakers are in recess or whatever you want. It
26:58
Speaker 3: just like a public there are many this mic and
27:01
Speaker 3: you and I and I feel like Chuck, all of
27:03
Speaker 3: us have battered around the segment a hundred times on
27:05
Speaker 3: the show. It's just beating it down, but nothing changes.
27:08
Speaker 3: And you know why nothing changes is because they make money.
27:11
Speaker 3: They make money.
27:11
Speaker 2: It's self interest. You make the rules. Of course, they're
27:14
Speaker 2: not going to outlaw themselves from being able to make
27:16
Speaker 2: a whole bunch of money on private information.
27:18
Speaker 3: It's just like the step up and basis and some
27:20
Speaker 3: of these other tax concepts that come up around, you know,
27:22
Speaker 3: election time. These elected officials are incentivized by them too,
27:27
Speaker 3: which is why you can sort of know that perhaps
27:30
Speaker 3: you have a good chance of these staying in place
27:31
Speaker 3: because the elected officials benefit from it.
27:33
Speaker 2: And people wonder why there's no outrage about President Trump
27:36
Speaker 2: holding this dinner of people buying his cryptocurrency. It's because
27:39
Speaker 2: all of you have been doing this but shadier for
27:43
Speaker 2: the last fifty years and getting away with it, so
27:47
Speaker 2: of course there's no outrage over this one. All he's
27:49
Speaker 2: doing is, you know, shining a light on it and
27:51
Speaker 2: just admit pretty much admitting it, like, yeah, you want
27:54
Speaker 2: to buy a dinner with me, go ahead and buy
27:56
Speaker 2: my meme coin. I don't know, at least it's not
28:00
Speaker 2: lying to you. Let's take a quick break. When we
28:04
Speaker 2: come back, what do we want to do next? I
28:07
Speaker 2: want to talk about all these pieces on where markets
28:10
Speaker 2: go next, since apparently all these all these writers have
28:13
Speaker 2: a much better idea of whether or not the S
28:15
Speaker 2: and P five hundred has room to rally. That's next
28:17
Speaker 2: here on the Financial Exchange.
28:19
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28:44
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29:14
Speaker 2: Paul. The subject of private equity and private credit has
29:17
Speaker 2: been getting a lot of headline news recently. Moody's This
29:22
Speaker 2: Morning is now coming out and sounding the alarm on
29:24
Speaker 2: private funds, specifically their goal of marketing to individuals. There's
29:29
Speaker 2: been discussion about having these types of products available in
29:32
Speaker 2: four oh one k's, for example. We're not there yet,
29:35
Speaker 2: but that's that's been some of the discussion before we
29:37
Speaker 2: even get there. Can can you help define the idea
29:40
Speaker 2: of private equity and private credit and how it exists
29:43
Speaker 2: today and we don't need to st you know, the
29:45
Speaker 2: scale is massive now compared to where it was twenty
29:48
Speaker 2: years ago, but just what is it for those that
29:50
Speaker 2: aren't really eligible to participate participate in it today.
29:53
Speaker 3: Yes, So typically where private equities incorporated in terms of
29:56
Speaker 3: the financial market, it's largely with pensions and elements, large
30:01
Speaker 3: pools of capital.
30:03
Speaker 2: Big family offices. Right, if you're managing money for the
30:06
Speaker 2: Walton family, you might be participating in something like this.
30:09
Speaker 3: Where there's an array of investments that could underline these
30:12
Speaker 3: private equity funds. They're sector specific. There's all sorts of
30:15
Speaker 3: different ways, and basically what they're looking to do is
30:17
Speaker 3: find a way to generate a differentiated return above and
30:20
Speaker 3: beyond that of the standard capital markets that regular Joe
30:25
Speaker 3: investor may be may have access to, like the S
30:27
Speaker 3: and P they're trying to outpace that through access into
30:31
Speaker 3: private deals in any array of spaces out there. It
30:34
Speaker 3: can be technology, infrastructure. They can take on many different
30:39
Speaker 3: machinations here.
30:39
Speaker 2: Which is why we talk about these unicorns. Right. You
30:42
Speaker 2: have these companies that are billion dollar valuations that are
30:45
Speaker 2: privately held. Right. Big Open AI is a nonprofits space
30:50
Speaker 2: weird one but space example. All these types of companies
30:52
Speaker 2: that you can't access as a public investor can be
30:55
Speaker 2: accessed through private equity markets, and the same goes for
30:58
Speaker 2: lending right on the other side of that private credit
31:01
Speaker 2: where you are lending money to all sorts of investors,
31:04
Speaker 2: many times private companies that you know, these are unrated bonds.
31:09
Speaker 2: They are not things that hit the public markets in
31:11
Speaker 2: trade in any way. They are just held on private
31:14
Speaker 2: balance sheets. The idea has been, hey, you know, would
31:19
Speaker 2: these be appropriate for individual investors, small time investors that
31:23
Speaker 2: don't traditionally get access to them. Clearly they're popular amongst billionaires,
31:28
Speaker 2: and maybe that's a good place for them. I think,
31:33
Speaker 2: you know, on the surface, why would anyone be talking
31:35
Speaker 2: about this, Well, because the four to one K market
31:38
Speaker 2: is massive. You have billions of trillions of dollars. I
31:41
Speaker 2: don't know how much money is in the for to
31:42
Speaker 2: win K market, probably trillions of dollars that you could
31:45
Speaker 2: potentially access there, and hey, you know, wouldn't this be
31:49
Speaker 2: a great market to access moodies? I think, interestingly, I
31:54
Speaker 2: don't know why they're the ones that are ringing the
31:55
Speaker 2: alarm bell here, but basically saying like, hey, this is
31:58
Speaker 2: a bad idea, not for those individual investors, but rather
32:01
Speaker 2: for the companies themselves. Basically, hey, if you start getting
32:05
Speaker 2: into this, you are not prepared to deal with the
32:08
Speaker 2: amount of regulation you will need to deal with in
32:11
Speaker 2: order to do this, and you risk having some serious
32:14
Speaker 2: reputation risk by going about this, which I have to
32:17
Speaker 2: say I fully agree. I think generally speaking that individual
32:22
Speaker 2: investors should have some access to this type of thing
32:26
Speaker 2: if they really want to. I don't agree with a
32:29
Speaker 2: lot of the rules that are out there, such as, hey,
32:31
Speaker 2: you can only invest in this type of product if
32:34
Speaker 2: you have a quarter million dollars of income or a
32:36
Speaker 2: million dollars in net worth. I don't know. Those always
32:39
Speaker 2: seemed kind of arbitrary to me, Like if somebody is
32:41
Speaker 2: really interested in private equity and they only make one
32:43
Speaker 2: hundred and fifty grand and they take a class on
32:47
Speaker 2: how to invest in it, who am I to say, no,
32:49
Speaker 2: you can't. It seemed to me like, you know, if
32:52
Speaker 2: so long as somebody wants to get the education, I'm
32:54
Speaker 2: not really sure why we would put these restrictions on it.
32:57
Speaker 2: But realistically, I don't think private equity wants that person's money.
33:02
Speaker 2: They might have a half a million dollar investment minimum
33:04
Speaker 2: to even put money into all of this, and the
33:07
Speaker 2: risk that you have out there. To be really clear,
33:11
Speaker 2: there is no real transparency into these funds. If you
33:16
Speaker 2: own a bunch of debt that's in there, you don't
33:17
Speaker 2: know that it's gone bad until it goes bad. There's
33:20
Speaker 2: no Moody's downgrading it, there's no real transparency into what's
33:24
Speaker 2: in here. And you have big liquidity risks as well.
33:29
Speaker 2: If you're an investor who does own something private. This
33:34
Speaker 2: could be a private equity fund, it could be something else,
33:37
Speaker 2: but something where it contains liquidity restrictions. It's really important
33:44
Speaker 2: to understand how that fits into your portfolio. It could
33:47
Speaker 2: be anything from an annuity to a private equity fund,
33:51
Speaker 2: but understanding the When we talk about risks, I feel
33:56
Speaker 2: like everyone's mind immediately goes to stock market crashing. That's
34:00
Speaker 2: the only risk that people tend to focus on. And
34:03
Speaker 2: my point to investors over and over is it's an
34:07
Speaker 2: important thing for you to understand and focus on. But
34:10
Speaker 2: have you considered what the risk is to your portfolio
34:13
Speaker 2: if half of it is tied up in private holdings
34:16
Speaker 2: that you can't sell. Have you considered the risk to
34:19
Speaker 2: your portfolio if inflation runs half a percent higher than
34:23
Speaker 2: you're predicting for the next twenty years. And what I
34:26
Speaker 2: find when I test some of those things is people
34:28
Speaker 2: are far less prepared to deal with those types of
34:30
Speaker 2: risks and often over prepared to deal with the market
34:33
Speaker 2: crashing by fifty percent, which frankly usually doesn't happen. If
34:38
Speaker 2: you have questions along those lines, if you are evaluating
34:41
Speaker 2: your own retirement plan and finding some of these things
34:44
Speaker 2: are ringing true to you, give the folks that I'm
34:47
Speaker 2: Strong Advisory Group a call. We offer free consultations on
34:51
Speaker 2: your retirement plan and your investment strategy so that you
34:55
Speaker 2: can get a coherent and cohesive look at everything that
34:58
Speaker 2: you're doing and really look under the hood to understand it.
35:02
Speaker 2: That free consultation is available by calling eight hundred three
35:05
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35:09
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35:13
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35:14
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
35:16
Speaker 1: registered investment advisor. Nothing in the ad or in any
35:19
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
35:22
Speaker 1: your own financial tax into state planning advisors before making
35:25
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
35:28
Speaker 1: advisory services.
35:29
Speaker 2: Paul, do you want to talk about college degrees or
35:31
Speaker 2: digital shelves?
35:32
Speaker 3: I want to do the college degrees.
35:34
Speaker 2: Yeah, So Alison Schreeger writes, and I think she has
35:37
Speaker 2: a really interesting perspective on this. Her unifying theory of
35:41
Speaker 2: finance is that everything goes seriously wrong when people start
35:45
Speaker 2: seeing something a bond, mortgage backed security, crypto exchange, whatever
35:48
Speaker 2: it is, as risk free when it really isn't risk
35:52
Speaker 2: free in any meaningful way. And her point is that's
35:55
Speaker 2: exactly how a college degree was treated over the last
35:57
Speaker 2: thirty or some odd years. There's no rest you can
36:00
Speaker 2: borrow as much money as you need to get it,
36:02
Speaker 2: and everyone who gets a college degree makes more money
36:05
Speaker 2: after they graduate. Right. That's I don't think I'm exaggerating
36:09
Speaker 2: too much by saying that. That's kind of the summary
36:12
Speaker 2: of how college has been treated for the last thirty years,
36:15
Speaker 2: and certainly was the message I was delivered as a kid. Yes,
36:18
Speaker 2: go get a college degree. Otherwise have fun working that
36:22
Speaker 2: landscaping job for the rest of your life and breaking.
36:25
Speaker 3: Your opportunities we limited. And I sit here, you know,
36:28
Speaker 3: I just had a baptism for my youngest daughter over
36:30
Speaker 3: the weekend, and some five twenty nine contributions went in
36:32
Speaker 3: after that, and you'd really scrutinize the investment that we're
36:36
Speaker 3: going to be making eighteen years from now in college.
36:39
Speaker 3: Is it going to return? Are we going to generate
36:42
Speaker 3: a return on an investment? And I continue to wonder
36:44
Speaker 3: at the cost that we're at on the college side,
36:46
Speaker 3: and this conversation has gone on for decades, is it
36:49
Speaker 3: really going to justify it? I mean, particularly the problem
36:52
Speaker 3: that I have most is, you know, investing a degree
36:54
Speaker 3: that's not going to get the commensurate income return if
36:58
Speaker 3: you're leveraging yourself the substantial amount of debt to do it,
37:01
Speaker 3: you know, to be a social worker for example, and
37:04
Speaker 3: taking on hundreds of thousands of debt you need a
37:07
Speaker 3: graduate degree to do exactly. You just know that you're
37:09
Speaker 3: not You're going to be constrained from an income perspective
37:12
Speaker 3: to be able to pay that out. And so it
37:14
Speaker 3: is something that you wonder, how is the education industry
37:17
Speaker 3: going to evolve over the next twenty years or so.
37:21
Speaker 3: It hasn't changed since we have these concerns thirty years ago,
37:24
Speaker 3: but who knows that the folds.
37:26
Speaker 2: One thing that I'm very slightly encouraged by, which is
37:30
Speaker 2: that thirty year inflation number on college education has been
37:34
Speaker 2: in the high single digits, I believe, And if you're
37:37
Speaker 2: willing to look at just the last decade it has come,
37:40
Speaker 2: it's still gone up, but the rate of inflation has
37:43
Speaker 2: slowed considerably. I know that's not the most encouraging news, like,
37:47
Speaker 2: oh yeah, now education is one hundred thousand dollars, where
37:50
Speaker 2: if it continued to be one hundred and thirty. But
37:52
Speaker 2: I do see more scrutiny. I do see people taking
37:55
Speaker 2: a second look at that. And clearly enrollment numbers are
37:59
Speaker 2: also down, especially among especially among men. Enrollment numbers and
38:05
Speaker 2: for your institutions are down. You can take that as
38:08
Speaker 2: maybe good news scrutinizing it. You can also take it
38:10
Speaker 2: as really bad news that men are going to fall
38:12
Speaker 2: further behind. But nonetheless that's definitely occurring. Markets are in
38:16
Speaker 2: positive territory. We're gonna take a quick break and we'll
38:18
Speaker 2: have a full recap in the second hour of the show.