Latest / The Financial Exchange Show / Why is it not surprising that markets aren't dropping as Middle East conflict continues

Transcript

Why is it not surprising that markets aren't dropping as Middle East conflict continues · The Financial Exchange Show

0:00
Speaker 1: The Financial Exchange is produced by Money Matters Radio and
0:03
Speaker 1: is hosted by employees of the Armstrong Advisory Group, a
0:06
Speaker 1: registered investment advisor. All opinions expressed are solely those of
0:09
Speaker 1: the hosts. Do not reflect the opinions of Armstrong Advisory
0:11
Speaker 1: or anyone else. Investments can lose money. This program does
0:14
Speaker 1: not offer any specific financial or investment advice. Please consult
0:18
Speaker 1: your own financial, tax, and estate planning advisors before making
0:20
Speaker 1: any investment decisions. Armstrong Advisory and the advertisers heard on
0:24
Speaker 1: this program do not endorse each other or their services.
0:26
Speaker 1: Armstrong and Money Matters Radio do not compensate each other
0:29
Speaker 1: for referrals and are not affiliated. This is the Financial
0:34
Speaker 1: Exchange with Mike Armstrong and Paul Lane, your exclusive look
0:39
Speaker 1: at business and financial news affecting your day, your city,
0:43
Speaker 1: your world. Stay informed and up to date about economic
0:46
Speaker 1: and market trends plus breaking business news every day. The
0:50
Speaker 1: Financial Exchange is a proud partner of the Disabled American
0:54
Speaker 1: Veterans Department of Massachusetts. Help us support our great American
0:58
Speaker 1: heroes by visiting dav I Do Boston and making a
1:02
Speaker 1: donation today. This is the Financial Exchange with Mike Armstrong
1:06
Speaker 1: and Paul Lane.
1:11
Speaker 2: Good morning, Welcome back to the Financial Exchange. While the
1:15
Speaker 2: while the state of the geopilical world changed on Saturday evening,
1:20
Speaker 2: markets are barely you wouldn't notice if you looked at
1:23
Speaker 2: markets this morning. Oil prices off half a percent from
1:26
Speaker 2: where they closed on Friday, US equities up about half
1:30
Speaker 2: a percent from where they closed on Friday, and oil
1:34
Speaker 2: traders and investors generally taking a big shrug when it
1:37
Speaker 2: comes to the actions of Saturday. I'm assuming folks that
1:41
Speaker 2: are listening are not hearing about the US strikes in
1:43
Speaker 2: Iran for the first time by tuning into the Financial Exchange,
1:46
Speaker 2: But if by chance you somehow are on Saturday evening
1:51
Speaker 2: local time, the US struck ford Ow, Nahans and Isfan
1:57
Speaker 2: nuclear sites in Richmond sites and and followed through on
2:03
Speaker 2: a threat of significant bombings of those sites that the
2:06
Speaker 2: Israelis had been asking for for quite some time, and
2:10
Speaker 2: Iran has not had much of a retaliation or a
2:14
Speaker 2: reaction so far. There's been some threats, there's been some
2:18
Speaker 2: follow up strikes on Israel, but to this point that
2:21
Speaker 2: there there has not been any further escalation, And frankly,
2:24
Speaker 2: I think that's in part because Iran has very limited
2:28
Speaker 2: options available to them in terms of retaliation, at least
2:31
Speaker 2: in the short term. May they go, you know, might
2:34
Speaker 2: they go plan different terrorist attacks or fun different things
2:37
Speaker 2: down the road that could play out later quite possibly,
2:41
Speaker 2: but in the short term, some limited options that are out.
2:44
Speaker 3: There at the moment.
2:45
Speaker 2: But we're I think we're gonna take you know, a
2:47
Speaker 2: few minutes here to talk through how this potentially escalates,
2:51
Speaker 2: de escalates, where it goes next. But for the first
2:55
Speaker 2: time in decades in the existence of the cur into
3:00
Speaker 2: running regime, the US has struck inside Iran and escalated
3:04
Speaker 2: to some degree the tensions there. So taking a look
3:08
Speaker 2: at things where they go from here and what happens
3:11
Speaker 2: next is the all important question. But as far as
3:14
Speaker 2: markets go, my conclusion is this play out even the
3:21
Speaker 2: worst case scenario from where things are right now, clearly
3:25
Speaker 2: where the US doesn't want to go and Israel doesn't
3:28
Speaker 2: seemingly want to go, certainly Iran doesn't want, would be
3:31
Speaker 2: US boots on the ground forcing regime change like we
3:34
Speaker 2: saw in Iraq, and very clearly that's not the goal,
3:38
Speaker 2: that's not the stated goal of this administration.
3:40
Speaker 3: I think it's genuinely not the goal of this administration.
3:44
Speaker 2: But play that out for a minute, and I still
3:46
Speaker 2: have a tough time understanding precisely what that means for
3:49
Speaker 2: the US economy in equities. I don't necessarily think it
3:52
Speaker 2: means terrible things for the US markets and equities in general, Like,
3:57
Speaker 2: you know, what does that mean for Microsoft's profits or
3:59
Speaker 2: in videos? It's it's hard to play that out, and
4:02
Speaker 2: hence I think that's why you're seeing markets react the
4:05
Speaker 2: way they are. And in fact, perhaps there's an argument that, hey,
4:09
Speaker 2: if all of the you know, US political might needs
4:14
Speaker 2: to get behind backing something with Israel against Iran here
4:18
Speaker 2: for the next several months, then you know, does that
4:20
Speaker 2: suck all the oxygen out of the room for something
4:22
Speaker 2: like escalating trade tensions with Europe and elsewhere. And so
4:26
Speaker 2: it's tough to formulate these thoughts all in place. But
4:29
Speaker 2: when I really thought through this all, it's okay. There's
4:32
Speaker 2: some clear risks, risks to oil prices, risks of escalation,
4:36
Speaker 2: risks of retaliation against US bases and putting, you know,
4:39
Speaker 2: putting further US involvement in Iran. But how that all
4:43
Speaker 2: would negatively play out for the US economy and markets
4:46
Speaker 2: is kind of tricky to play out, and so I think,
4:48
Speaker 2: am I surprised by equity markets moving up a little
4:51
Speaker 2: bit today?
4:51
Speaker 3: Yeah? I guess so, but not shocked, I guess is
4:54
Speaker 3: where I come back.
4:55
Speaker 4: No, I think it's really important to reiterate that, you know,
4:58
Speaker 4: this show is the financial and obviously we're going to
5:01
Speaker 4: be looking at it through the financial realm and sort
5:04
Speaker 4: of that lens as to what the impact will be
5:07
Speaker 4: on markets geopolitical concerns aside, and if you do look
5:11
Speaker 4: at it from that framework, we've seen this in prior
5:15
Speaker 4: instances of geopolitical conflict, where the emergence of the Ukraine
5:19
Speaker 4: in Russia War several years ago, where equity markets were
5:23
Speaker 4: relatively immune in terms of that impact. Though it's a
5:25
Speaker 4: significant geopolitical event, it doesn't really have much bearing, as
5:29
Speaker 4: you alluded to the impact on Microsoft's profits or what
5:33
Speaker 4: Amazon sells or anything like that from an economic perspective.
5:36
Speaker 4: The way that I look at the story the most
5:38
Speaker 4: is certainly the biggest focus becomes on the energy market,
5:42
Speaker 4: and it's probably worth sort of diving into the impact
5:47
Speaker 4: and the strategic importance that Iran has in the energy market.
5:51
Speaker 4: There where one fifth of the world's daily oil supply
5:54
Speaker 4: goes through the Strait of Homez, which is right between
5:57
Speaker 4: Iran and Saudi Arabia. Significant amount of products for cars
6:02
Speaker 4: and chemical maker companies out there and power plants go
6:07
Speaker 4: through that particular straight and if Iran wanted to take
6:11
Speaker 4: what has been deemed by sort of analysts out there
6:14
Speaker 4: the Sports Earth approach, the idea of closing this would
6:18
Speaker 4: be a way to flex probably its most powerful strategic
6:21
Speaker 4: muscle in terms of the strength that it has when
6:24
Speaker 4: you're talking about daily oil supply. It has been voted
6:28
Speaker 4: on by the Parliament to go ahead and close that,
6:31
Speaker 4: but they are not the final decision makers and Iran
6:33
Speaker 4: there's another level above that that would ultimately make that
6:37
Speaker 4: final decision, and that decision has not been made yet,
6:40
Speaker 4: and many seem to think that that would just be
6:44
Speaker 4: really economically damaging and otherwise put a lot bigger target
6:48
Speaker 4: on their back if they were to go down this road.
6:51
Speaker 2: So the economic damaging part, you look at that and
6:54
Speaker 2: you say, okay, well, you know it's an administration that's
6:56
Speaker 2: under threat, right, It's a ruling party that could be
7:00
Speaker 2: under threat, and so you could see them taking steps
7:02
Speaker 2: that don't make it. You know, their entire nuclear capabilities
7:05
Speaker 2: may have just been decimated, So what do they care
7:07
Speaker 2: if they're their economy is decimated too, It would be
7:10
Speaker 2: the logical question. The problem there, you know, one their
7:14
Speaker 2: main buyer of Iranian oil, and much of the oil
7:17
Speaker 2: coming out of the Middle East, of Rock and elsewhere
7:18
Speaker 2: goes to China, one of the remaining few countries that
7:22
Speaker 2: are not exactly directly speaking out for Iran, but you know,
7:26
Speaker 2: through backdoor channels trying to support them in different ways,
7:29
Speaker 2: and you know, trying to de escalate situations in different ways.
7:32
Speaker 2: If you prevent your oil from going to China, which
7:35
Speaker 2: needs it, and you you know, thereby drive prices up
7:39
Speaker 2: to you know, I've seen estimates that if the Straight
7:42
Speaker 2: of Horror moves were closed, even for a short period
7:43
Speaker 2: of time, you could see oil prices spiking to one
7:45
Speaker 2: hundred dollars a barrel. What sort of remaining support do
7:50
Speaker 2: you get from China. That's a bit of an open question. Likewise,
7:54
Speaker 2: if you do start firing missiles at chips in the
7:56
Speaker 2: Straight of hornor moonves because they don't you know, they
7:59
Speaker 2: don't have a they don't have a bridge that they
8:00
Speaker 2: can just close or a dam that they can straight
8:03
Speaker 2: you know, close the straight up horm moves. How they
8:05
Speaker 2: do it is they threaten to sink ships. They do
8:08
Speaker 2: sink ships. They they you know, prevent ships from safely
8:11
Speaker 2: traveling through. Yeah, it leads to some big questions about
8:16
Speaker 2: what remaining support the the group would have.
8:21
Speaker 3: Leading around going forward there.
8:22
Speaker 2: So, and it would almost certainly escalate things further and
8:26
Speaker 2: require US or other forces to counter that in some
8:31
Speaker 2: way in terms of straight you know, closing that straight though, again,
8:35
Speaker 2: the mere threat of action against oil tankers would do it.
8:39
Speaker 2: Because if you are you know, X y Z insurance
8:42
Speaker 2: company covering an oil tanker carrying millions of dollars of
8:47
Speaker 2: crude through that straight you're just gonna say, no, you
8:52
Speaker 2: will lose your insurance if you make that trip.
8:54
Speaker 3: We will not cover this. We are canceling the policy.
8:57
Speaker 2: Move that oil elsewhere, which can be done, just takes
9:00
Speaker 2: a lot longer and is much more costly, therefore driving
9:03
Speaker 2: up prices. So that's to me the biggest possible threat
9:07
Speaker 2: in terms of why oil isn't moving. It's seemingly oil
9:10
Speaker 2: trader saying, what's the likelihood of them cutting off their
9:13
Speaker 2: nose to spite their face, which is kind of what
9:16
Speaker 2: you would be doing here. Let's take a quick break.
9:18
Speaker 2: When we come back a little bit more on the
9:20
Speaker 2: US Israel around situation. That's next here on the Financial Exchange.
9:25
Speaker 1: Find daily interviews in full shows of the Financial Exchange
9:28
Speaker 1: on our YouTube page. Subscribe to our page and get
9:30
Speaker 1: caught up on anything and everything you might have missed.
9:33
Speaker 1: This is the Financial Exchange Radio Network. The Financial Exchange
9:38
Speaker 1: Show podcast drops every day on Apple, Spotify, and iHeartRadio.
9:43
Speaker 1: Hit that subscribe button and leave us a five star review.
9:46
Speaker 1: You're listening to the Financial Exchange Radio Network.
9:52
Speaker 5: This segment of The Financial Exchange is brought to you
9:55
Speaker 5: in part by the US Virgin Islands Department of Tourism.
9:58
Speaker 5: The US Virgin Islands are So Croix, Saint Thomas, and
10:01
Speaker 5: Saint John and are consistently voted one of the top
10:04
Speaker 5: Caribbean vacation destinations. Enjoy world class cuisine, Pristine Beach's rich history,
10:10
Speaker 5: and of iber nightlife. Book your trip now to visit
10:13
Speaker 5: America's Caribbean paradise the United States Virgin Islands. For reservations
10:18
Speaker 5: and more information, go to visit USBI dot com. That's
10:22
Speaker 5: visit USBI dot com again.
10:25
Speaker 2: As far as how this US strikes in Iran end
10:29
Speaker 2: up shaping the US economy, markets, markets for oil. I
10:33
Speaker 2: think is anybody's best guest.
10:34
Speaker 3: At this stage.
10:35
Speaker 2: There are some very clear paths that this could go
10:37
Speaker 2: down to further involve the US. The closing of the
10:39
Speaker 2: Strait of her Moves would be.
10:41
Speaker 3: One of those.
10:42
Speaker 2: But so far everything has been relatively muted, even the
10:46
Speaker 2: Saudis and others who previously under the threat of Iran
10:51
Speaker 2: closing the straight you know, previously Saudis and others had
10:54
Speaker 2: pumped a bunch of oil into markets in previous years
10:58
Speaker 2: in order to counter the Iranian ret there. They're not
11:01
Speaker 2: doing that this time because they don't I guess buy
11:03
Speaker 2: that this is likely to happen, but there's a lot
11:06
Speaker 2: of unknowns that could take place here that could drive things,
11:09
Speaker 2: and certainly an oil price shock would lead to even
11:13
Speaker 2: though the US is not nearly as dependent as we
11:15
Speaker 2: previously were on you know, Saudi and Iranian oil, it
11:20
Speaker 2: would still lead to a slow.
11:21
Speaker 3: Down in the US economy.
11:23
Speaker 2: I think net net, Yeah, there's some jobs that would
11:27
Speaker 2: pick up with one hundred dollars barrel oil, but you know,
11:29
Speaker 2: the average effect of gas prices being through the roof
11:32
Speaker 2: would be a I think, a net detractor from the
11:34
Speaker 2: US economy overall, and a hurt to inflation, which would
11:37
Speaker 2: keep interest rates higher. There are just a few kind
11:41
Speaker 2: of things that I've been thinking about that don't necessarily
11:43
Speaker 2: relate to the economy, But when I'm talking about this
11:46
Speaker 2: overall conflict that come to mind.
11:48
Speaker 3: One.
11:49
Speaker 2: I don't think you, me or anyone else here has
11:52
Speaker 2: the intel that Trump and net and Yahoo do and
11:55
Speaker 2: did prior to this strike, And so I tend to
11:58
Speaker 2: reserve any of my judgment on what happened next here
12:01
Speaker 2: because I don't know what sort of intelligence they had on,
12:03
Speaker 2: you know, Iran's nuclear capabilities. I think one thing we
12:06
Speaker 2: can say for certain, Natanya, who has been warning about
12:09
Speaker 2: Iran's nuclear capabilities consistently for the last three decades, saying
12:13
Speaker 2: there are weeks away, months away, years away from nuclear
12:16
Speaker 2: capabilities for the last thirty years. Were they actually this
12:21
Speaker 2: time is a question that we probably won't know anytime soon. Right,
12:24
Speaker 2: How long did it take us to figure that out?
12:26
Speaker 2: When it came to a rock. It took quite some
12:28
Speaker 2: time for us to realize, oh yeah, their capabilities were
12:30
Speaker 2: not quite as far as was previously discussed. Another conclusion
12:36
Speaker 2: that I have, there's more chatter about regime change today
12:39
Speaker 2: than there was two weeks ago. That still doesn't seem
12:43
Speaker 2: to be a goal with all of this, but there's
12:45
Speaker 2: much more open discussion about it from President Trump Netnyaho
12:49
Speaker 2: then there was a few weeks ago being open to that,
12:52
Speaker 2: and so you know the previous hey, we're not going
12:56
Speaker 2: to allow her Israel to target the Supreme Leader. That
13:00
Speaker 2: chatter has died down quite a bit, and there's more
13:02
Speaker 2: chatter about regime change.
13:04
Speaker 3: I guess the fourth one.
13:05
Speaker 2: There's a lot of echoes to Iraq here right there.
13:09
Speaker 2: You go take a look for instance, that it's being
13:11
Speaker 2: posted all over the place. So I'm not the first
13:13
Speaker 2: person to bring this up, but you know Net and
13:15
Speaker 2: Yahoo testifying two US Congress in two thousand and two
13:18
Speaker 2: about Iraq's nuclear capabilities weapons of mass destruction that are.
13:22
Speaker 3: Clearly there that turned out not to be there.
13:25
Speaker 2: You know, the testimony that hey, this would be a
13:28
Speaker 2: pretty quick circumstance of regime change in Iraq, and it
13:33
Speaker 2: wouldn't take wouldn't draw the US in, it would stabilize
13:36
Speaker 2: the region all turned out to be false, obviously, And
13:39
Speaker 2: so the question is hey, how much of this is
13:41
Speaker 2: an echo of twenty years ago? How much of it
13:44
Speaker 2: is not going to come to pass? But I think
13:46
Speaker 2: those are the those are the things that keep running
13:48
Speaker 2: through my head. Is Hey, there are a lot of
13:51
Speaker 2: echoes of what happened in the early two thousands when
13:53
Speaker 2: it comes to all of this.
13:55
Speaker 3: And I'm gonna sit here and admit that.
13:56
Speaker 2: Yeah, if I were in ISRAELI I would be, you know,
14:00
Speaker 2: all on board with regime change in Iran. This is
14:03
Speaker 2: you know, this is a regime that has threatened the
14:04
Speaker 2: existence of Israel for decades. So I completely understand where
14:10
Speaker 2: they are all coming from, while also looking at it
14:13
Speaker 2: from the context of, wow, this feels pretty similar to
14:17
Speaker 2: other conflicts that we have been a part of over
14:21
Speaker 2: the course of the last twenty years. And we will
14:22
Speaker 2: have to see do we get drawn in in similar ways?
14:26
Speaker 4: Yeah, and certainly sort of assess strategically, and again, this
14:31
Speaker 4: goes beyond our capabilities because of the lack of knowledge
14:34
Speaker 4: that you have in the situation as to whether that
14:36
Speaker 4: endeavor is worthwhile we certainly know how challenging financially and otherwise.
14:41
Speaker 4: It was back twenty years ago to restart that type
14:45
Speaker 4: of process. Not so sure.
14:47
Speaker 3: Yeah, so let's move all on from Iran.
14:50
Speaker 2: It'll kind of echo throughout the show because this is
14:53
Speaker 2: mostly what matters for for markets in the global economy today.
14:56
Speaker 2: But moving on to the other subject that's close to
15:00
Speaker 2: hard here on the financial exchange, which is the Federal Reserve.
15:03
Speaker 2: There was a Federal Reserve meeting last week Wednesday of
15:06
Speaker 2: last week, where they chose to keep interest rates at
15:10
Speaker 2: their current four to four and a quarter rate on
15:14
Speaker 2: the Fed funds, And since then you now have people
15:17
Speaker 2: talking freely because they're out of their quiet period for
15:20
Speaker 2: the last few weeks. Excuse me, four and a quarter
15:22
Speaker 2: to four and a half percent. I misspoke there. At
15:26
Speaker 2: this stage, it's still looking fairly unlikely that the Fed
15:29
Speaker 2: moves forward with a rate cut at the July thirtieth meeting,
15:32
Speaker 2: which is the next one scheduled. It's not until September
15:35
Speaker 2: that markets are actually forecasting a rate cut or pricing
15:38
Speaker 2: it in at least. But you do have now Fed
15:40
Speaker 2: governors calling for rate cuts as soon as that July meeting.
15:43
Speaker 2: Christopher Waller kind of a perennial dove when it comes
15:48
Speaker 2: to interest rates, you know, so always seemingly calling for
15:52
Speaker 2: lower interest rates, but nonetheless coming out there and saying, hey,
15:57
Speaker 2: I see a case for cutting rates as soon as July.
16:00
Speaker 3: You know, I don't disagree.
16:01
Speaker 2: Necessarily there can be a case for it, But I
16:03
Speaker 2: wonder how much of this is potentially positioning on Waller's
16:07
Speaker 2: part for that next Fed chair pick.
16:09
Speaker 4: That was my immediate takeaway in one of my biggest
16:11
Speaker 4: notes from this piece here from the New York Times, Mike,
16:13
Speaker 4: is you know or Federal Reserve Chairman Jerome Powell's term
16:18
Speaker 4: comes up. It's next May May twenty twenty six, right, Mike,
16:21
Speaker 4: He's up. Then obviously there's going to be a lot
16:24
Speaker 4: of lobbying for that position. Christopher Waller was appointed by
16:28
Speaker 4: President Trump and seems a at least a front runner
16:31
Speaker 4: candidate or one of the candidates we should say, potentially
16:34
Speaker 4: to be the next Federal Reserve chairman. So parsing through
16:37
Speaker 4: his comments, it does seem to be a lot of
16:40
Speaker 4: sentiment that echoes or at least sort of rubs pretty
16:43
Speaker 4: similar to what President Trump is suggesting from the rate
16:46
Speaker 4: cut perspective. I will say, we do have breaking news
16:49
Speaker 4: here where Federal Reserve Governor Michelle Brown did say today
16:52
Speaker 4: that she would also favor an interest rate cut at
16:55
Speaker 4: the next policy meeting in July, and I quote, should
16:58
Speaker 4: inflation pressures remain contained, I would support lowering the policy
17:02
Speaker 4: rate as soon as Bowman yes, yes to who you said? Brown, Oh,
17:06
Speaker 4: Michelle Bowman sorry, should.
17:07
Speaker 3: Influence another Trump appoint If I'm not mistake.
17:10
Speaker 4: Correct, we should bring it to closer to its neutral
17:14
Speaker 4: setting in order to sustain a healthy labor market. This
17:18
Speaker 4: was done. Her comments come from a speech that she
17:22
Speaker 4: was doing in Prague, So it seems like someone else
17:26
Speaker 4: at least publicly coming out on board to sort of
17:28
Speaker 4: support this measure.
17:31
Speaker 2: But like and by the way, it can be both right,
17:32
Speaker 2: Like I do genuinely believe that both Waller and Bowman
17:36
Speaker 2: might want lower rates right now, in addition to saying, hey,
17:40
Speaker 2: you know, this might get me the pick for chair president,
17:43
Speaker 2: and so I'm going to be pretty public about this
17:45
Speaker 2: push at the moment. Waller, you know, for a while now,
17:48
Speaker 2: has been dubvish on the subject, Bowman not quite as much.
17:52
Speaker 2: But nonetheless they're building a case for these lower interest rates.
17:58
Speaker 2: The problem that you have doing and why I think J.
18:01
Speaker 2: Powell isn't going to move it all come July. You
18:04
Speaker 2: still are probably going to have this threat of supply
18:07
Speaker 2: shocks like oil prices. And you know, in twenty twenty two,
18:14
Speaker 2: when they were starting to roll out their interest rate increases,
18:17
Speaker 2: the FED took a pause when Russia invaded Ukraine and
18:20
Speaker 2: they said, you know, we're not sure this could be deflationary.
18:24
Speaker 2: We're not sure how it's going to play out, so
18:26
Speaker 2: we're going to pause our rate hikes. And I think
18:29
Speaker 2: that was something that we at least heavily criticize the
18:32
Speaker 2: FED for, like, on what planet would Russia invading Ukraine
18:36
Speaker 2: lead to lower prices in anything?
18:39
Speaker 3: And we turned out to be right.
18:42
Speaker 2: Prices rose right through June and continue to rise today,
18:45
Speaker 2: but not at such a quick pace. Same story goes
18:49
Speaker 2: for right now. It's really tough to envision a scenario
18:53
Speaker 2: where the US striking Iran leads to lower oil prices, definitely, definitely,
19:01
Speaker 2: and you know, prices for anything else either, right, you know,
19:04
Speaker 2: if it leads to further escalation militarily, then that means
19:07
Speaker 2: additional spending coming from the US potentially coming from the
19:10
Speaker 2: Middle East, and more defense spending coming from Europe. And
19:13
Speaker 2: so it's tough to envision a scenario where any of
19:17
Speaker 2: this stuff leads to lower prices, Does it lead to
19:19
Speaker 2: an oil price spike and higher prices?
19:21
Speaker 3: I don't know.
19:22
Speaker 2: It might not, It hasn't so far, but that's the
19:24
Speaker 2: question that matters for the FED. Next, let's take quick break.
19:27
Speaker 2: Wall Street Watch is coming up.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
19:44
Speaker 1: TFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network.
19:52
Speaker 3: Time now for.
19:53
Speaker 1: Wall Street Watch. A complete look at what's moving markets
19:56
Speaker 1: so far today right here on the Financial Exchange Radio Network.
20:01
Speaker 5: Well stocks are in positive territory, as Wall Street's keeping
20:03
Speaker 5: a close eye on energy markets after the US attacked
20:06
Speaker 5: Irans three nuclear sites on Saturday evening. However, after jumping
20:11
Speaker 5: four percent last night, oil prices have paired those gains.
20:15
Speaker 5: Overall for markets, the Dow is up by four tenths
20:19
Speaker 5: of one percent, SMP five hundred is up over half
20:22
Speaker 5: a percent, or thirty three points, and the Nasdaq also
20:26
Speaker 5: up just over half a percent higher one hundred and
20:29
Speaker 5: eight points. Russe In two thousand is up over half
20:31
Speaker 5: a percent as well, or eleven points. Ten year Treasure
20:34
Speaker 5: reeled down by five basis points, now at four point
20:37
Speaker 5: three to two percent, and crude oil down over one
20:40
Speaker 5: percent lower, trading just below seventy three dollars a barrel.
20:45
Speaker 5: Defense stocks are also garnering attention as well this morning. RTX,
20:49
Speaker 5: Northrop Grumming, and Kratos Defense and Security are all seeing
20:53
Speaker 5: gains on the day. Outside of the Middle East, some
20:56
Speaker 5: big news in the financial sector this morning after The
21:00
Speaker 5: Wall Street Journal reported that Bank of New York Mellon
21:03
Speaker 5: approached Northern Trust about a possible merger. Northern Trust shares
21:08
Speaker 5: are jumping by eight percent, while Bank of New York
21:11
Speaker 5: Mellon stock is down by nearly two percent on that news. Meanwhile,
21:15
Speaker 5: Tesla shares rallying nine percent after the ev maker launched
21:19
Speaker 5: its long awaited Robotaxi service in Austin, Texas over the weekend. Elsewhere,
21:25
Speaker 5: Nova Noordas shares down by five percent after its latest
21:28
Speaker 5: results for its next gen obesity drug were disappointing and
21:32
Speaker 5: suggested no clear advantage of over Eli Lilly's zep bound. Furthermore,
21:38
Speaker 5: the pharmaceutical company announced it has ended its collaboration with
21:41
Speaker 5: Hymns in Hers Health, citing compounding and marketing concerns. Hymns
21:47
Speaker 5: and Hers tanking thirty two percent on that news. And
21:50
Speaker 5: shares in Trump Media and Technology up over two percent
21:53
Speaker 5: after the parent company of Truth Social said its board
21:56
Speaker 5: has approved a stock buyback of up to four hundred
21:59
Speaker 5: million billion dollars. I'm Tucker Silvan, that's Wallstree Watch.
22:03
Speaker 2: We have a piece here to date, Paul, don't be
22:06
Speaker 2: fooled by treasury yields, and it's from Bloomberg and speaks
22:12
Speaker 2: to higher interest rates on yields that US investors are
22:18
Speaker 2: probably not used to over the course of the last
22:20
Speaker 2: few decades, because we do have the ten year yield
22:24
Speaker 2: hanging out now at four point three percent. And the
22:27
Speaker 2: author's conclusion is, while that is certainly more attractive than
22:31
Speaker 2: it has been, he wouldn't bank on it outperforming stocks.
22:36
Speaker 2: And I'm just curious as to how anyone puts together
22:40
Speaker 2: any sort of useful model for predicting whether treasuries will
22:44
Speaker 2: outperform stocks on what he does, which is a two
22:46
Speaker 2: year basis.
22:48
Speaker 4: This piece is an overly complex way of saying that
22:53
Speaker 4: historically stocks have outperformed bonds, or historically hot stocks have
22:57
Speaker 4: been up, you know, eighty percent of the time if
22:59
Speaker 4: you look at calendar years or look at certain different metrics.
23:02
Speaker 4: That was the summation of it. I mean to go
23:05
Speaker 4: into the nitty gritty. It's basically the idea of trying
23:09
Speaker 4: to project the future earnings growth of the S and
23:12
Speaker 4: P five hundred and it's constituent and its member companies
23:16
Speaker 4: relative to the post inflation the nominal yield less the
23:22
Speaker 4: inflation rate that you'd receive on two your treasure. It's
23:25
Speaker 4: basically this idea that today, if you want to buy
23:27
Speaker 4: a US two year treasury, you can pick it up
23:30
Speaker 4: at three point nine percent. You know, Mike mentioned the
23:32
Speaker 4: ten year treasure before. We're obviously there's a lot more
23:35
Speaker 4: lock in there. Two year a little bit shorter term
23:38
Speaker 4: in nature that is appealing to most folks. For the
23:41
Speaker 4: last fifteen twenty years, it's been really hard to find
23:43
Speaker 4: four percent out there.
23:46
Speaker 2: However, free frist right right, I mean, like that was
23:48
Speaker 2: the last time I had one of those ig orange
23:51
Speaker 2: savings accounts paying me a whole bunch of interest. And
23:54
Speaker 2: so yeah, the temptation is now there to say, hey,
23:57
Speaker 2: I can I can get a guaranteed three point nine
24:00
Speaker 2: percent or four point three percent from the US government?
24:03
Speaker 2: Why why not? And you know, he poo poos that
24:06
Speaker 2: I don't. I mean you know, look, I have no
24:08
Speaker 2: idea what's going to happen in equities over the course
24:10
Speaker 2: the next two years. Anyone telling you that they have
24:12
Speaker 2: any sort of good idea as to what's going to
24:13
Speaker 2: happen in the stock market over the next two years
24:16
Speaker 2: is full of it. They're full of it. They have
24:17
Speaker 2: no idea. Nobody has any clue. Every bank has to
24:21
Speaker 2: put out their estimate of what's going to do. And yes,
24:24
Speaker 2: it's true, equities do go up eighty percent of calendar years.
24:29
Speaker 2: Problem is in that twenty they might go down and
24:31
Speaker 2: then you know, not make up their gains for another
24:33
Speaker 2: five to ten years. And so look, I don't know
24:37
Speaker 2: what to do with this piece, I think is my point.
24:40
Speaker 2: There are risks to either of these scenarios. Right, we
24:44
Speaker 2: talk about we tend to talk about treasuries as these
24:47
Speaker 2: risk free assets because the US has never defaulted before.
24:51
Speaker 2: I suspect that the US won't default anytime soon. I'm
24:54
Speaker 2: not concluding that it might. But you know, imagine for
24:56
Speaker 2: a moment that you're locked into that ten year treasury
24:59
Speaker 2: bond inflation starts running US three percent. Well, yeah, you're
25:03
Speaker 2: earning just about as much as you did ten years
25:06
Speaker 2: ago when you were buying that lousy bond, paying like
25:09
Speaker 2: two percent of feeling a lot worse about it. And
25:11
Speaker 2: so there are risks to any of these strategies, I think,
25:14
Speaker 2: is my overall conclusion. But anybody telling you that stocks
25:17
Speaker 2: are going to outperform bonds or vice versa over a
25:20
Speaker 2: two year time period, I.
25:22
Speaker 3: Think is full of it. There.
25:24
Speaker 4: Yeah, you shouldn't be making that comparison the first place.
25:26
Speaker 4: If you think about it. You know, if you're looking
25:28
Speaker 4: at your money, there's different buckets that have different time
25:30
Speaker 4: horizons to it. So like your four oh one k,
25:32
Speaker 4: for example, should be if you're younger. For the most part,
25:35
Speaker 4: it's primarily stocks. Obviously, to compare that to your treasure yield,
25:40
Speaker 4: that's really not the way you're looking at it. And
25:42
Speaker 4: people should have safe money too, So it's just different
25:45
Speaker 4: risk components and there's different ways of looking at the
25:47
Speaker 4: framework of time horizon on those investments.
25:50
Speaker 2: The big beautiful bill is getting less big and beautiful
25:55
Speaker 2: in the eyes of some, I guess. So the bill
25:58
Speaker 2: is making its way through the Senate right now and
26:00
Speaker 2: using the process of reconciliation. The process of reconciliation has
26:04
Speaker 2: a bunch of strict rules as to what can go in,
26:07
Speaker 2: what can go out, what cannot go in, and you
26:09
Speaker 2: know it has to have to do with the budget,
26:11
Speaker 2: and so a number of things that were proposed in
26:14
Speaker 2: the House have now been tossed out of the Senate
26:16
Speaker 2: version of the bill. For instance, there was a provision
26:19
Speaker 2: that would have required states to pay a portion of
26:22
Speaker 2: food benefits, with their share increasing the more they mistakenly
26:26
Speaker 2: overpaid or underpaid beneficiaries. So if you screw up your
26:29
Speaker 2: snap benefits and pay a bunch of fraudsters, then you're
26:32
Speaker 2: gonna have to pay more next month. Like good idea,
26:36
Speaker 2: but can't be in this bill because they can't use
26:38
Speaker 2: that process. That would have saved one hundred and twenty
26:42
Speaker 2: eight billion dollars over a decade, so some of the
26:44
Speaker 2: cost savings are now gone. Provision barring people living in
26:47
Speaker 2: the country illegally from receiving nutrition assistance again can be
26:52
Speaker 2: passed as Congress, but cannot go into this bill because
26:54
Speaker 2: they can't do it via reconciliation. Another one that would
26:58
Speaker 2: have required plaintiffs to post huge bonds when asking the
27:01
Speaker 2: court to issue preliminary injunctions against the federal government out
27:05
Speaker 2: as well, and then another one that would have reduced
27:08
Speaker 2: the Consumer Financial Protection Bureaus budget to zero, once again
27:12
Speaker 2: not qualifying for the reconciliation process here. And so again
27:16
Speaker 2: these weren't deal breakers for anyone that I saw in
27:20
Speaker 2: terms of getting this bill across the finish line, but
27:23
Speaker 2: it does speak to the complexities of using the process
27:26
Speaker 2: that they are using in order to get this bill done,
27:29
Speaker 2: which is everything that they touch must directly affect the budget.
27:33
Speaker 2: One of them that had been a question mark was
27:37
Speaker 2: the regulations around artificial intelligence. The Congress initially wanted to
27:42
Speaker 2: pass a ban on any states imposing AI regulations for
27:47
Speaker 2: a decade. They couldn't get that in here, and so
27:50
Speaker 2: what they did instead was they said, any state that
27:52
Speaker 2: passes regulations on artificial intelligence will automatically lose out on
27:57
Speaker 2: broadband funds. So you want to basically supply, you know,
28:00
Speaker 2: get federal funds to expand broadband. You cannot impose any
28:04
Speaker 2: new restrictions on AI at the state level. I'm sure
28:08
Speaker 2: some states like California might still do so, but this
28:11
Speaker 2: imposes some restrictions on all of that.
28:14
Speaker 4: One other tidbit that I'll add you hit most of them.
28:16
Speaker 4: Here is the proposal to merge the Public Company Accounting
28:21
Speaker 4: Oversight Board, the US audit watchdog with the SEC was
28:25
Speaker 4: not eligible for the fast track process to merge those
28:29
Speaker 4: two entities together. So again, these are some of the
28:33
Speaker 4: nitty gritty of the bill. Ultimately, I think a lot
28:36
Speaker 4: of us are really focused on the tax side of things,
28:40
Speaker 4: So we'll continue to monitor as it makes its way
28:43
Speaker 4: through there, trying to target, of course, that July fourth deadline,
28:47
Speaker 4: which is gonna be tight.
28:48
Speaker 2: We're gonna take a quick break when we come back.
28:51
Speaker 2: I want to talk a little bit about emerging payment
28:54
Speaker 2: technology by now pay later. It's having some changes going
28:57
Speaker 2: into place.
28:58
Speaker 3: Now.
28:58
Speaker 2: We'll also be talking about the terror effect and what
29:00
Speaker 2: we're starting to see in terms of prices at the stores.
29:05
Speaker 2: That's next year. On the Financial Exchange, this is your home.
29:08
Speaker 1: For the most comprehensive coverage of the economy and the
29:10
Speaker 1: trends on Wall Street. This is the Financial Exchange Radio Network.
29:16
Speaker 1: Find daily interviews and full shows of the Financial Exchange
29:19
Speaker 1: on our YouTube page. Like us on YouTube and get
29:22
Speaker 1: caught up on anything and everything you might have missed.
29:25
Speaker 1: This is the Financial Exchange Radio Network.
29:42
Speaker 2: Speaking of the Republican tax bill making its way through Congress.
29:45
Speaker 2: There's been a lot of discussion of Medicaid cuts, and
29:48
Speaker 2: I think for a lot of folks that doesn't really
29:51
Speaker 2: hit terribly close to home. You know, Medicaid cuts impact
29:57
Speaker 2: a lot of folks, but there's a a lot of
30:00
Speaker 2: different pieces to it, and how it's going to directly
30:02
Speaker 2: affect the local hospital is kind of unclear. One area
30:05
Speaker 2: that looks like it is definitely going to get in
30:07
Speaker 2: here and will be an almost immediate change is changes
30:11
Speaker 2: to Obamacare.
30:12
Speaker 3: Now for folks that aren't all that familiar with it.
30:18
Speaker 2: Obviously, everybody is aware that Obamacare exists, that it's been
30:21
Speaker 2: out there for a while, but it's one of the
30:23
Speaker 2: key tools that a lot of retirees use if they're
30:26
Speaker 2: retiring before age sixty five. I'm sure, Paul, you've worked
30:30
Speaker 2: with clients on kind of figuring out those premiums, but
30:33
Speaker 2: they are these heavily subsidized health insurance premiums, and you know,
30:38
Speaker 2: let's say you, you know, for whatever reason for health concerns,
30:43
Speaker 2: decide to retire at sixty three years old prior to
30:45
Speaker 2: your Medicare eligibility age. You oftentimes turn to that Medicare
30:49
Speaker 2: market in order to find your health insurance, unlike Medicare,
30:54
Speaker 2: it's not They are allowed to basically charge you more
30:59
Speaker 2: for being old, not for pre existing conditions. So that
31:03
Speaker 2: was the big piece of this rule is, hey, if
31:05
Speaker 2: you had pre existing conditions, you can get health insurance,
31:08
Speaker 2: but if you're sixty three years old, you're still more
31:10
Speaker 2: expensive to ensure, and so we're going to charge you.
31:12
Speaker 2: As such, these have been very heavily subsidized based on income.
31:16
Speaker 2: One look at this estimates that a typical sixty year
31:19
Speaker 2: old couple making eighty two thousand dollars per year would
31:24
Speaker 2: see their monthly Obamacare premiums go from five hundred and
31:28
Speaker 2: eighty one dollars a month to two one hundred eleven
31:32
Speaker 2: dollars as a result of the changes to the Obamacare
31:36
Speaker 2: you know clawbacks or it's not a clawback, but it's
31:39
Speaker 2: an end of these subsidies. You know, that's a twenty
31:42
Speaker 2: thousand dollars ish increase on an annual basis and pretty
31:46
Speaker 2: dramatically changes. I think some of the formulas that people
31:49
Speaker 2: use when figuring this stuff out, Like I had previously
31:53
Speaker 2: worked with folks to say, okay, you know, hey, our
31:56
Speaker 2: goal is to retire at sixty two years old.
31:58
Speaker 3: How are we going to manage that?
32:00
Speaker 2: And they oftentimes just draw a blank when we talk
32:03
Speaker 2: about health insurance, like, oh, yeah, I don't know. I thought,
32:06
Speaker 2: you know, I'm eligible for so Security? Am I not
32:08
Speaker 2: eligible for Medicare? And the answers know it's been Hey,
32:11
Speaker 2: we got to turn to this marketplace. And you previously
32:14
Speaker 2: had a fair bit of flexibility, right if you're you know,
32:16
Speaker 2: had you know I raise and maybe a you know,
32:20
Speaker 2: savings account, you could draw off those funds for a
32:22
Speaker 2: period of time and get big subsidies on Obamacare until
32:25
Speaker 2: you turn sixty five to limit your cost. That's still
32:28
Speaker 2: going to be possible, but it's going to make it
32:29
Speaker 2: a lot more challenging to do so and may come
32:32
Speaker 2: as a surprise just some early retirees in the next
32:35
Speaker 2: few years.
32:35
Speaker 4: No question, the sixty five number is really a magic
32:38
Speaker 4: number that we talk about often with clients looking towards retirement,
32:41
Speaker 4: and I would say that a pretty significant, vast majority.
32:46
Speaker 4: There are some that don't know what they're going to
32:48
Speaker 4: do for early retirement health care coverage, but many know
32:51
Speaker 4: that sixty five is sort of their magic number. From
32:54
Speaker 4: a health care perspective, there's certainly privy to the idea
32:56
Speaker 4: that it's a significant retirement expense, and many people try
32:59
Speaker 4: to bridge that gap as best as possible. Usually in
33:03
Speaker 4: the planning that I've done with folks locally here, we're
33:05
Speaker 4: sort of around nine hundred to one thousand a month
33:07
Speaker 4: when we're looking at the estimate that we put together
33:10
Speaker 4: in terms of what they would pay for care prior
33:13
Speaker 4: to age sixty five.
33:14
Speaker 3: So if it were per person, right, right, yea per.
33:17
Speaker 4: Person, if it were to increase to this twenty one hundred,
33:21
Speaker 4: I guess that was a couple number that they quoted
33:23
Speaker 4: here in this piece, But if.
33:24
Speaker 3: It were to increase further, it certainly.
33:26
Speaker 4: Could cause a lot of people to pause and potentially,
33:30
Speaker 4: you know, push back that retirement.
33:31
Speaker 2: Data, which, by the way, is the goal, right, Like,
33:34
Speaker 2: let's not sugarcoat this. Like the whole idea here is, hey,
33:37
Speaker 2: we want to withdraw these subsidies because if you're making
33:39
Speaker 2: eighty thousand dollars a year, we don't think you should
33:41
Speaker 2: be getting subsidies for your health insurance. And that's a
33:44
Speaker 2: I think a reasonable approach to all of this. And
33:47
Speaker 2: so yeah, what it does mean is for a lot
33:48
Speaker 2: of people that are thinking about pre sixty five retirement.
33:52
Speaker 3: I'll have to sharpen the pencil a little bit.
33:54
Speaker 5: Elder life planning can be overwhelming, so make sure you're
33:58
Speaker 5: prepared or you could make costly mistakes that can affect
34:01
Speaker 5: your overall plan. Cushing and Dolan are experts in elder
34:05
Speaker 5: law and taxation, and they can devise a plan that
34:08
Speaker 5: covers you in every area where issues can arise. Irrevocable
34:12
Speaker 5: trusts are the most common type of trust that folks
34:14
Speaker 5: use for financial protection, and while they can be complicated
34:18
Speaker 5: to create, they help keep your assets safe because they
34:21
Speaker 5: can say in specific protections that many of us need,
34:24
Speaker 5: like the possibility of eliminating your estate taxes. Their new
34:28
Speaker 5: guide is called Unlocking the Power of Irrevocable Medicaid trust.
34:32
Speaker 5: Learn more about how these trusts can benefit you and
34:36
Speaker 5: your family by calling eight six six eight four eight
34:40
Speaker 5: five six nine nine. That number again to get the
34:43
Speaker 5: free guide is eight six six eight four eight five
34:46
Speaker 5: six nine nine, or you can request it from their
34:49
Speaker 5: website Legal exchange show dot com.
34:53
Speaker 1: The proceeding was paid for and the views expressed are
34:55
Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
34:57
Speaker 1: or Armstrong Advisory may contact you offering legal or investment services.
35:00
Speaker 1: Cushing and Armstrong did not endorse each other and are
35:02
Speaker 1: not affiliated.
35:04
Speaker 2: I've rarely felt so old, curmudgeony and confused as I
35:08
Speaker 2: have been when discussing buy now, Pay later services.
35:12
Speaker 3: I have not used one.
35:14
Speaker 2: For those unfamiliar, it is a service that allows you
35:18
Speaker 2: to make a purchase and generally pay for it installments.
35:22
Speaker 2: You know, oftentimes it's four monthly installments that you use
35:25
Speaker 2: to pay for something.
35:26
Speaker 3: But unlike layaway, you get the good right away and immediately.
35:30
Speaker 2: And unlike some other services, they oftentimes don't actually charge
35:33
Speaker 2: you fees or interest to use the service. It is
35:35
Speaker 2: purely something that the vendor, say Amazon, will strike a
35:40
Speaker 2: deal with the buy now, Pay later firm to offer
35:43
Speaker 2: that service for free to consumers, and they'll pay for
35:46
Speaker 2: it in some way, or they make a bunch of
35:48
Speaker 2: money if you don't make your payments in late fees
35:50
Speaker 2: and penalty charges. For years now, this service has been growing,
35:54
Speaker 2: and you know, now plays a pretty big role in
35:57
Speaker 2: the US economy.
35:58
Speaker 3: Accounting for where was the it was.
36:00
Speaker 4: One hundred and eight billion of transactions in pay later
36:04
Speaker 4: expected this year, up from ninety four bill last year.
36:07
Speaker 2: And up until very very recently, these transactions were never
36:11
Speaker 2: recorded on credit scores, which is a big problem in
36:14
Speaker 2: my mind, right, Like, I know why consumers wouldn't want
36:17
Speaker 2: them reported, but if you are a lender of some
36:20
Speaker 2: sort and you don't know about a whole bunch of
36:22
Speaker 2: real debt that's out there.
36:24
Speaker 4: That if Paul Lane has Gucci belts and other things,
36:28
Speaker 4: but I.
36:28
Speaker 3: Think Paul Lane, I think Gucci belt.
36:31
Speaker 4: They listed Gucci belts here. That's why I fancy furniture
36:34
Speaker 4: and everything else. Yeah, you need to have the full
36:36
Speaker 4: profile of the barrow and of those things that I'm
36:39
Speaker 4: borring for are not being accounted for. Hypothetically, that's problematic
36:42
Speaker 4: if you're a lender to not have the full picture.
36:44
Speaker 3: So fair. Isaac Corp.
36:46
Speaker 2: The company behind the most widely used US credit score,
36:49
Speaker 2: said they're going to be rolling out a new model
36:51
Speaker 2: that factors this stuff in. It's going to be up
36:53
Speaker 2: to Experience, Equifax, and TransUnion to decide whether to make
36:58
Speaker 2: them visible to borrowers and let because again it's very
37:01
Speaker 2: new and it's not so simple, you know.
37:04
Speaker 3: Compared to a credit card.
37:05
Speaker 2: For example, if you open ten credit cards, it's going
37:08
Speaker 2: to hurt your credit score because it looks at you know,
37:11
Speaker 2: all of those openings if you have ten by now
37:14
Speaker 2: pay later agreements open. I don't think it should be
37:17
Speaker 2: looked at the same way as applying for ten different
37:20
Speaker 2: credit cards.
37:20
Speaker 4: No, because it's much shorter termined nature.
37:22
Speaker 3: That's the way shorter term in nature.
37:23
Speaker 2: It's individual purchases here rather than a credit card which
37:27
Speaker 2: can be used for dozens of different purchases. And so
37:29
Speaker 2: how they utilize all this data is going to be confusing.
37:32
Speaker 2: Where I just get confused is I can't tell if
37:35
Speaker 2: the proliferation of this thing is because Americans are broke
37:39
Speaker 2: and can't afford their stuff, or if it's just my
37:44
Speaker 2: generations used to the credit card. Right Like when I
37:46
Speaker 2: was a kid, a lot of people were still paying
37:48
Speaker 2: for groceries with a check. I have not seen somebody
37:51
Speaker 2: pay for groceries with a check or cash much at
37:54
Speaker 2: all recently. And so is this just a change in
37:56
Speaker 2: how people pay for stuff and is just you know,
37:59
Speaker 2: a sign the new generation or is this a sign
38:02
Speaker 2: that the American consumer is strapped and falling apart. I
38:06
Speaker 2: think we'll find out in a few years. Quick break
38:09
Speaker 2: a lot more to cover in the second hour the
38:10
Speaker 2: Financial Exchange. Stay tuned, we'll be right back folks.