Latest / The Financial Exchange Show / The richest Americans kept the economy booming. What happens if they stop spending?

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The richest Americans kept the economy booming. What happens if they stop spending? · The Financial Exchange Show

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Speaker 1: donation today. This is the Financial Exchange with Chuck Zada,
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Speaker 2: Chuck, Mike and Tucker with you. Kicking off hour two
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Speaker 2: of the Financial exchange. We got the DOW of five
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Speaker 2: hundred and twenty nine points, the S and P is
1:20
Speaker 2: up ninety one, the NASDAG up three hundred and sixty nine.
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Speaker 2: So a broad based rally taking place across major US
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Speaker 2: indices today. Probably nice little bit of a relief for
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Speaker 2: people that might have been nervous over the last few weeks.
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Speaker 2: But obviously, hey, we'll have to see how things continue
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Speaker 2: to evolve here. But certainly, you know, nice to see
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Speaker 2: a little bit of upward movement there after you know,
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Speaker 2: things were pretty dodgy for a little bit. We got
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Speaker 2: to a ten percent correction. That's never fun for anyone
1:51
Speaker 2: to go through.
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Speaker 3: Tenny.
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Speaker 2: Sorry.
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Speaker 3: Bit of breaking news on the tariffront as we speak,
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Speaker 3: not broad based, but President Trump saying any country that
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Speaker 3: purchases oil from Venezuela, we'll have to pay twenty five
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Speaker 3: percent tariff on trade with the United States. So there's that.
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Speaker 2: I just googled Venezuela oil exports by a country because
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Speaker 2: I have no idea where Venezuela sends their oil. In fact,
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Speaker 2: the latest chart that I'm finding right now is from
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Speaker 2: twenty ten, so it's probably a little out of date.
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Speaker 2: I don't know where they send their oil, quite honestly,
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Speaker 2: so someone else is gonna have to do the legwork
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Speaker 2: on that. Let's see what year this is. Oh no,
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Speaker 2: this is two thousand and nine. Even even better, that's
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Speaker 2: really useful. So I don't know where they send their
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Speaker 2: oil right now, but they send it somewhere because I'm
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Speaker 2: sure they don't use it all domestically. Let's see, we've
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Speaker 2: got the ten year treasury selling off a bit up
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Speaker 2: to four point three two five percent, oil, also seeing
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Speaker 2: its price moving up. You've got oil at sixty eight
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Speaker 2: ninety nine on West Texas intermediate tripa national average four,
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Speaker 2: gas prices up another two tenths of ascent to three
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Speaker 2: twelve and eight tenths. And we've got gold today down
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Speaker 2: about four dollars and seventy cents nouns to threeenty sixteen
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Speaker 2: and seventy cents. So, after making some new all time
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Speaker 2: highs in the last week or so, just treading water
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Speaker 2: as it attempts to find some new direction here, we
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Speaker 2: got a piece here from Bloomberg Business Week. The headline
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Speaker 2: is the richest Americans keep the economy booming. What happens
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Speaker 2: if they stop spending? The answer is the economy goes
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Speaker 2: into a deep recession.
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Speaker 3: Yeah, then we would be quite Screwgeanelle is the answer
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Speaker 3: to that question. So she also makes it seem as
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Speaker 3: there's also no signs of this happening. Yeah, I want
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Speaker 3: to caveat that that it's not an inevitability.
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Speaker 2: It's not even something it's not even something that's showing
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Speaker 2: up in the data right now.
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Speaker 3: Can we change when to if?
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Speaker 2: Yes, if us wealthy people stop spending in trouble, it
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Speaker 2: would be catastrophic.
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Speaker 3: Or even slow down.
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Speaker 2: Well, if they slow down, it might not be catastrophice,
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Speaker 2: it could just be bad. But if they stopped spending, yes,
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Speaker 2: it would be very very bad.
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Speaker 3: Why something we've talked about a fair bit. Today, the
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Speaker 3: top ten percent of income earners represent about half of
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Speaker 3: total consumer spending. That is, as far as I know,
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Speaker 3: an all time high since we've been tracking the data.
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Speaker 2: Norm is like.
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Speaker 3: And what's the norm? Right? Like, I guess the historical
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Speaker 3: average in the United States. I'm sure it differs country
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Speaker 3: to country, but yes, it is a very high portion today.
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Speaker 3: And if it all just suddenly stopped. That would be
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Speaker 3: hugely problematic, But again, you need some evidence. I guess
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Speaker 3: the only piece of evidence that she found here was
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Speaker 3: data from vantage Score, which is a credit scoring company,
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Speaker 3: and particularly found that the share of consumers making more
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Speaker 3: than one hundred and fifty thousand dollars who were sixty
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Speaker 3: to eighty nine days late on their debt payments. So
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Speaker 3: again pretty narrow group, but one hundred and fifty k
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Speaker 3: or more of household income and sixty to eighty nine
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Speaker 3: days laid on their debt payments, that rate more than
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Speaker 3: doubled in January compared to two years ago. My problem here,
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Speaker 3: because I don't have all the data, is did it
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Speaker 3: double from one to two or did it double from
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Speaker 3: fifteen to thirty? Because that's a huge difference, right.
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Speaker 2: This is like, hey, you know, the risk of heart
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Speaker 2: attacks in eight year olds has doubled, but like it's
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Speaker 2: still still you know one one. I'm not saying that
5:19
Speaker 2: actually has I'm just saying like it's equivalent to something
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Speaker 2: that doesn't really happen often. So I think, look, when
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Speaker 2: we talk about data points that we can look at
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Speaker 2: to tell if wealthy people are spending, there are probably
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Speaker 2: four or five that are the key drivers on this.
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Speaker 2: The first is housing. When you look at who actually
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Speaker 2: buys houses, it is not people with low incomes because
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Speaker 2: they often don't have any money saved for a down payment,
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Speaker 2: and especially in this environment, don't have the ability to
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Speaker 2: buy into this pricing right now. So when we talk
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Speaker 2: housing generally, we're talking people with above average incomes. Other places,
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Speaker 2: cars new cars, specifically, average transaction price for a new
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Speaker 2: vehicle continues to hover high forties like forty seven, forty
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Speaker 2: eight thousand. I haven't seen like the latest monthly data,
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Speaker 2: but it's been right around there. Someone who is earning
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Speaker 2: thirty thousand dollars a year in income is not buying
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Speaker 2: a new vehicle for forty eight thousand dollars. True, it
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Speaker 2: is someone who is making one hundred thousand, one hundred
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Speaker 2: and twenty one hundred and fifty two hundred thousand. Those
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Speaker 2: are the people that are buying those cars. Other things
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Speaker 2: that you can look at hotel and airplane travel stats
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Speaker 2: not just you know what you're seeing in terms of
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Speaker 2: passenger volume, but also here from the airlines in terms
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Speaker 2: of what they're seeing. That has been one area that
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Speaker 2: has been you know, guided down a little bit, and
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Speaker 2: that Delta came out and said, yeah, we're starting to
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Speaker 2: see some signs of, you know, a slowdown in air
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Speaker 2: travel bookings. That is also meshed with what we have
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Speaker 2: seen from hotels where every week the uh, the who
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Speaker 2: is it? Who puts this out? I want to make
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Speaker 2: sure that I get the uh, the name correct on
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Speaker 2: this it is? Who is?
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Speaker 1: What?
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Speaker 2: What does STR stand for? Even I don't know, but
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Speaker 2: there's an industry group STR that does stuff with the
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Speaker 2: hotel data and everything, and their data shows that occupancy
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Speaker 2: now in hotels starting to run a little bit below
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Speaker 2: trend levels for the last twenty five years, and that's
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Speaker 2: been you know, development in the last couple of weeks.
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Speaker 3: Smith Travel Research.
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Speaker 2: Sure that that sounds great. So ultimately, did you just
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Speaker 2: think of that?
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Speaker 3: No, that's actually it is, ok refers to Smith Travel
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Speaker 3: Research of data benchmarking, analytics and marketplace insights.
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Speaker 2: Sounds great. So you've got some signs that travel might
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Speaker 2: be slowing down a little bit. Yeah, the housing market,
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Speaker 2: you're seeing pressure on pricing, but you know, volumes are
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Speaker 2: still okay ish and phto sales, I don't think we've
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Speaker 2: seen any major shift in auto sales in terms of volumes.
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Speaker 2: Nothing discerned. It's been more from month to month, but
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Speaker 2: not nothing big there.
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Speaker 3: The real areas that I can point to are, like
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Speaker 3: you said, airlines and hotels the only real two that
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Speaker 3: I can look at in terms of luxury that are
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Speaker 3: seeing a pullback. But as we pointed out, even on
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Speaker 3: the airline side, the pullback seemingly came in part from
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Speaker 3: domestic and business travel, yes, whereas international travel stayed up.
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Speaker 3: And that's the luxury of all luxuries, right, you do
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Speaker 3: not ninety nine percent of American employees do not need
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Speaker 3: to travel overseas for work. It's probably higher, Yeah, yeah,
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Speaker 3: it's a very small fraction of people who actually need
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Speaker 3: to travel overseas for work, and therefore that is a
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Speaker 3: huge discretionary item.
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Speaker 2: So yes, if the richest Americans stopped spending, big problem.
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Speaker 2: Are there any signs of that? Maybe like one and
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Speaker 2: a half around the edges, But it's tet tiny little
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Speaker 2: things that we're seeing, And most of the data is
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Speaker 2: absolutely completely fine at this point, and we'll see how
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Speaker 2: it evolves to see if there is any shift there.
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Speaker 2: But I continue to come back to this. The hard
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Speaker 2: data right now is not showing a meaningful shift in
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Speaker 2: trajectory in the basically throughout the entirety of twenty twenty
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Speaker 2: five so far. We'll see where it goes, but for now,
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Speaker 2: you're not seeing any major shifts in consumer spending trends.
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Speaker 3: By the way, Tucker gave us some quick data on
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Speaker 3: that venezuelan oil story.
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Speaker 1: That was Ben actually did that, Ben died?
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Speaker 3: All right? Thanks? Ben. China is the number one importer
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Speaker 3: of venezuelan oil, So I guess we're gonna slap an
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Speaker 3: additional twenty five percent there. Unclear.
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Speaker 2: We'll have to see what happens.
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Speaker 3: And they're already facing pretty big tariff rates as it is,
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Speaker 3: so we'll see what happens.
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Speaker 2: Yeah, let's take a quick break. When we come back,
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Speaker 2: we'll do a little bit of trivia, and then we're
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Speaker 2: talking CEO pay packages right after this.
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Speaker 4: All right. Time for trivia here on the Financial Exchange
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11:22
Speaker 2: Mike, we got a piece here in the Wall Street
11:24
Speaker 2: Journal for CEO's one hundred million dollar pay packages are disappearing.
11:29
Speaker 3: Oh gosh, watch out international flights on Delta Airlines.
11:33
Speaker 2: I feel so bad for them.
11:36
Speaker 3: It is a bit surprising the tally. Uh if it
11:39
Speaker 3: holds for twenty twenty four, where no CEOs has scored
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Speaker 3: one hundred million dollar pay day, that'd be the first
11:45
Speaker 3: time in a decade without one hundred million dollar pay
11:48
Speaker 3: package for a public company chief executive. And also somewhat
11:53
Speaker 3: surprising because if you're listening to this, you should also
11:56
Speaker 3: know that most of these pay packages are not based
11:59
Speaker 3: on hash. Primarily, most executives love to get paid in
12:03
Speaker 3: stock for a huge number of different reasons, but one
12:06
Speaker 3: of them is the treatment of that stock after they're retired,
12:09
Speaker 3: which is capital gains treatment rather than income treatment, or
12:12
Speaker 3: even while they're working. In any case, what's surprising to
12:17
Speaker 3: about me to this? About this to me, I can't
12:22
Speaker 3: speak English today. I apologize. I'm hosting a radio program
12:24
Speaker 3: I should be able to work on. That is that
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Speaker 3: it was also accompanied by a tremendous year of stock
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Speaker 3: market performance. So it's not as those stocks were down
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Speaker 3: by ten percent and no CEO made their comp based goals,
12:35
Speaker 3: but rather stocks were up pretty substantially and no CEOs
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Speaker 3: got the one hundred million dollar bench mark. I think
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Speaker 3: there might be some pushback on the part of shareholders here,
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Speaker 3: especially after the Elon Musk Tesla package that got battled
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Speaker 3: out in court and some of that, But by and large,
12:53
Speaker 3: I'm not sure really what to make of this, if anything.
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Speaker 2: So putting it all together, so you got fewer CEOs
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Speaker 2: making smaller amounts of money because the average is up.
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Speaker 2: The average is up, yeap, fewer CEOs making more money, okay,
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Speaker 2: because making like more, making like obscene amounts of money.
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Speaker 2: It's all kind of like not I mean again, like
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Speaker 2: one hundred million versus ten million. It's like, okay, like whatever,
13:19
Speaker 2: we'll take one, you know, it's fine. Uh So I
13:23
Speaker 2: think that in trying to sort through what that means here,
13:31
Speaker 2: I think there is a lot. I don't think it's
13:34
Speaker 2: just the Elon Musk situation. I think it's optically trying
13:38
Speaker 2: to avoid the appearance in a number of metrics of
13:44
Speaker 2: how overpaid CEOs are. The metrics you know, average employee
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Speaker 2: compensation compared to CEO comp and stuff.
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Speaker 3: Like, yeah, that was a new one that the SEC
13:54
Speaker 3: started requiring a few years ago. Is hey, give us
13:56
Speaker 3: your average employee comp and your CEO comp so you
13:59
Speaker 3: can do any calculation of what multiple those represent.
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Speaker 2: So some of it can be trying to you know,
14:06
Speaker 2: fit into that type of stuff there. Some of this
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Speaker 2: also is hey, you know, like one just fluky thing alphabet.
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Speaker 2: Google's parent hasn't disclosed the twenty twenty four comp for
14:20
Speaker 2: soonder Perchai, yet it is an equity award that he
14:23
Speaker 2: gets every three years. Odds are it's going to be
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Speaker 2: pretty substantial. So I think, you know, like, what what
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Speaker 2: causes this where CEOs on the whole are being paid
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Speaker 2: more but the top end is being paid less. What
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Speaker 2: what do we take from that? Like, what what does
14:41
Speaker 2: that tell us about how companies are trying to manage
14:44
Speaker 2: their executive compensation?
14:47
Speaker 3: I think what it reads to me is there some
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Speaker 3: negative optics around the very very high end, right, it's
14:52
Speaker 3: but they still need to be quite competitive with CEO
14:54
Speaker 3: comp to get good ones. Yes, I think that's fair
14:58
Speaker 3: because if the average is still going up, then it's
15:01
Speaker 3: kind of what matters, right, the outliers are outliers, and
15:04
Speaker 3: if the average is moving up, it just still means
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Speaker 3: that CEOs are raking in a boatload of money and
15:09
Speaker 3: more on average than the previous year.
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Speaker 2: So yeah, I don't know that there's any like huge
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Speaker 2: narrative or any story that you can take out of this.
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Speaker 2: It certainly isn't. Hey, CEOs aren't being compensated well anymore,
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Speaker 2: like it's the opposite action.
15:24
Speaker 3: And if you're you know, if you're on the board
15:26
Speaker 3: and you have a fiduciary obligation to the shareholders, you
15:30
Speaker 3: don't want to end up in court battling over a
15:32
Speaker 3: CEO executive compensation plan. And if you're right in the middle,
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Speaker 3: you're probably not going to.
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Speaker 1: Is that.
15:39
Speaker 3: Yeah, I don't know that I would read too much
15:42
Speaker 3: more into it than that, other than again surprising for
15:45
Speaker 3: it to, you know, not hit those thresholds when we
15:49
Speaker 3: had such amazing stock market performance In both twenty three
15:51
Speaker 3: and twenty.
15:52
Speaker 2: Four piece in Bloomberg Opinion titled risky bonds aren't so
15:57
Speaker 2: risky in the long run, and what it talks about
16:00
Speaker 2: is US high yield debt. Basically, Hey, it consistently offers
16:05
Speaker 2: a significant premium in yield compared to what you get
16:10
Speaker 2: on treasuries or just regular, you know, investment grade corporate bonds.
16:14
Speaker 3: You speak to just high yield or junk debt as
16:17
Speaker 3: it's commonly referred to. And I don't know, just for
16:20
Speaker 3: people out there that might not be frequent investors, you
16:24
Speaker 3: or paying really close attention to quote unquote junk debt?
16:28
Speaker 3: How does it earn that name? And how do people
16:31
Speaker 3: look at it generally?
16:32
Speaker 2: So Mike comes to me and says, Chuck, I need
16:34
Speaker 2: to borrow one hundred dollars, and I say, okay, Like,
16:38
Speaker 2: how how many times have you borrowed a hundred dollars before? Well,
16:40
Speaker 2: I've borrowed it, you know, eight times. Have you ever
16:42
Speaker 2: default on it? Yeah? Once I did. Okay, Well I'm
16:45
Speaker 2: going to demand more from Mike than Tucker, who says no,
16:49
Speaker 2: I've got perfect credit and I've never you know, defaulted
16:51
Speaker 2: on anything. So I might say, Tucker, I'm willing to
16:54
Speaker 2: lend you one hundred dollars at four percent. Mike, I'm
16:56
Speaker 2: gonna charge you eight right now, just because you know,
16:59
Speaker 2: there's a chance that you don't pay me back, and
17:00
Speaker 2: so I need to get paid some additional interests in
17:02
Speaker 2: order to make up for that risk. So high yield
17:05
Speaker 2: debt it's called junk debt because there's a greater chance
17:09
Speaker 2: of the debt defaulting. Now, this is something where when
17:14
Speaker 2: you look at the data that's shown by this Bloomberg piece,
17:18
Speaker 2: it points out, look, you get paid, you know, significantly
17:22
Speaker 2: more typically on high yield debt than traditional corporate debt
17:26
Speaker 2: in order to hold it, and overall, the default rates
17:31
Speaker 2: historically have not been crazy in the broad scheme of things,
17:35
Speaker 2: and so you end up making out pretty well in
17:37
Speaker 2: the long run if you're able to hold the high
17:39
Speaker 2: yield debt over long periods of time fifteen twenty thirty years.
17:45
Speaker 2: This raises a few different questions. The first is because
17:47
Speaker 2: high yield debt is again at a greater risk of
17:50
Speaker 2: default during times of stress and markets, it will trade
17:54
Speaker 2: at a significant discount because the chance of default goes
17:57
Speaker 2: up significantly.
17:58
Speaker 3: So, for example, according to the Saint Louis Fed, the
18:02
Speaker 3: spread there this is data they collect from Bank of America,
18:05
Speaker 3: the high yield Index option adjusted spread back in March
18:08
Speaker 3: of twenty twenty was sitting at about nine percent YEP.
18:11
Speaker 3: According to the same data, now that spread is sitting
18:13
Speaker 3: about three and a quarter correct.
18:16
Speaker 2: So it's something where hey, if you can stomach significant volatility,
18:20
Speaker 2: that's a prerequisite for being able to hold this long term,
18:23
Speaker 2: Like not panic when things go badly, because then obviously
18:26
Speaker 2: if you sell out at the bottom, your return is
18:29
Speaker 2: quite bad. Other things, just because the you know, historical
18:34
Speaker 2: rate of default is you know, not one hundred percent.
18:36
Speaker 2: Uh you know, I think the historical rate of default
18:39
Speaker 2: I don't have it here with me, but I think
18:41
Speaker 2: you're generally looking you know, somewhere in the range of
18:43
Speaker 2: like six to eight percent, sorry, three and a half
18:46
Speaker 2: percent is what you're looking at. And look, you might say, Okay,
18:51
Speaker 2: if I own, you know, a bunch of high yield bonds,
18:53
Speaker 2: you know, through you know, some kind of investment product, Okay,
18:56
Speaker 2: can stomach that. But the risk presented in any particular
18:59
Speaker 2: issue is still really high compared to other kinds of bonds.
19:03
Speaker 2: Because default is binary, it either happens or it doesn't,
19:07
Speaker 2: you know, like you can't. You don't usually have like
19:09
Speaker 2: a partial default. It's something where it either happens and
19:12
Speaker 2: you get some kind of lower return you know, back
19:15
Speaker 2: to you, or it doesn't. You continue on your merry way.
19:18
Speaker 2: So this is a long way of saying, I don't
19:22
Speaker 2: think that the title risky bonds aren't so risky in
19:25
Speaker 2: the long run does justice to the risk that's actually
19:28
Speaker 2: posed by high yield death quick break. When we come back,
19:33
Speaker 2: we've got the Trivia answer.
19:41
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20:08
Speaker 4: Chriviy question today was who played the office manager in
20:12
Speaker 4: the British version of the Office. That will be Ricky Gervas,
20:16
Speaker 4: who played the bumbling office manager David Brent in the
20:20
Speaker 4: original version of the show. The David Brant character was
20:23
Speaker 4: renamed Michael Scott played by Steve Carell for the US version.
20:28
Speaker 4: Mike from Newberry, New Hampshire is our winner today taking
20:31
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20:34
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20:37
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20:41
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20:42
Speaker 2: Mike, we got a piece in the Wall Street Journal.
20:44
Speaker 2: It's titled roth iras All the Rage with the Young Crowd.
20:49
Speaker 3: How come there's a few pieces of it that I
20:52
Speaker 3: think are appealing to the roth Ira One. It does
20:55
Speaker 3: allow you to just lock in your tax rate right
20:58
Speaker 3: like playing in Simple un know that whatever tax you
21:01
Speaker 3: pay on your income today, you are not going to
21:04
Speaker 3: be taxed on it. Again, if it's in the roth ira,
21:06
Speaker 3: I'm thinking more likely, though, part of the roth Ira
21:09
Speaker 3: desirability is your ability to tap that money before fifty
21:13
Speaker 3: nine and a half. So that's not a great reason
21:15
Speaker 3: to use it, but there is some truth to that that, Hey,
21:18
Speaker 3: you can get at that money a lot easier than
21:21
Speaker 3: say your traditional four oh one K.
21:23
Speaker 2: Or iram money.
21:24
Speaker 3: With that money, yeah, not all of it, but you
21:25
Speaker 3: know your your contributions can come back out without paying
21:28
Speaker 3: some big penalties and taxes, So that's part is pretty appealing.
21:32
Speaker 3: I'll also say though, that for working individuals, this is
21:36
Speaker 3: one of the areas that objectively, I think people make
21:39
Speaker 3: mistakes on pretty frequently. Most plans offer both a traditional
21:43
Speaker 3: four oh one K and a wroth for okay, so
21:46
Speaker 3: let me like give an example of what I think
21:48
Speaker 3: is pretty objectively a mistake. You've got two individuals that
21:52
Speaker 3: are living together and are engaged. They're not yet married.
21:56
Speaker 3: A couple is living together, they're engaged and combined. Right now,
22:01
Speaker 3: Let's say they are pulling in you know, household income
22:07
Speaker 3: in the I don't know, let's call it two hundred
22:10
Speaker 3: thousand dollars range. But it's heavily weighted towards one of them. Sure,
22:13
Speaker 3: and they're contributing to roths in those cases. And when
22:17
Speaker 3: you look at that, you say, okay, well, an individual
22:19
Speaker 3: might be paying then a thirty two percent tax rate
22:23
Speaker 3: on that top income or maybe it's twenty four whatever
22:26
Speaker 3: you land on. But like next year, you're going to
22:30
Speaker 3: be married and suddenly be in a substantially lower income
22:33
Speaker 3: tax bracket because of the waiting of your income. And
22:36
Speaker 3: so you can look at some of these situations and say, wow, yeah,
22:39
Speaker 3: that does not make any sense for somebody like that
22:42
Speaker 3: to be putting money into a roth. I ray. The
22:44
Speaker 3: other one that I see frequently are those who maybe
22:48
Speaker 3: you commute to another state that's common here in New England,
22:52
Speaker 3: but you live in it. You know, like, oh, yeah,
22:54
Speaker 3: I work and live in Sorry, I live in New Hampshire,
22:58
Speaker 3: but work in Massachusetts putting a bunch of money into
23:01
Speaker 3: my wroth. IRA. What I'm doing there is I'm paying
23:03
Speaker 3: Massachusetts income tax on money that's going into a wrath
23:07
Speaker 3: that wouldn't otherwise need to pay mass Its income tax
23:10
Speaker 3: if I just did the traditional And so it's a
23:13
Speaker 3: complicated subject. Taxes in general are a pretty complicated subject.
23:17
Speaker 3: And then when you intertwine it with all sorts of
23:20
Speaker 3: rules when it comes to retirement accounts about rmds and
23:23
Speaker 3: when the money can be tapped and penalties, it gets
23:26
Speaker 3: it even more complex. What else do you see out
23:29
Speaker 3: there in terms of the desirability or lack thereof when
23:31
Speaker 3: it comes to roths.
23:32
Speaker 2: Well, I think the other thing just to remember is
23:34
Speaker 2: whether it's a contribution to a WROTH or a traditional
23:38
Speaker 2: retirement accounts, it doesn't necessarily have to be all or nothing,
23:42
Speaker 2: because either way, you're basically trying to make a bet
23:46
Speaker 2: on where you think your tax rate is going to
23:48
Speaker 2: be in the future relative to today, And so I
23:51
Speaker 2: think there has to be some humility there that none
23:54
Speaker 2: of us know exactly where it's going to go from,
23:56
Speaker 2: you know, whether you're talking federal taxes, state taxes, like
23:59
Speaker 2: all these things can change dramatically over a twenty thirty
24:02
Speaker 2: forty year career. Just look at how they've evolved over
24:05
Speaker 2: the last thirty or forty years as an example. So
24:08
Speaker 2: I think part of this is also, hey, if you have,
24:11
Speaker 2: you know, multiple choices available to you, whether it's inside
24:13
Speaker 2: an employer sponsored planner, outside you know, in self directed accounts.
24:17
Speaker 2: It's something where I think that you can look at
24:19
Speaker 2: it and say, hey, even if I, you know, almost
24:24
Speaker 2: completely convinced that the WROTH is going to be best
24:27
Speaker 2: for me, do I take like ten or fifteen percent
24:29
Speaker 2: of my contributions for the year and put it in
24:31
Speaker 2: a traditional IRA, just because I want to give myself
24:34
Speaker 2: flexibility and have different types of accounts available depending on
24:38
Speaker 2: how the tax situation evolves over time.
24:40
Speaker 3: We frequently talk about the types of things that come
24:42
Speaker 3: up with a financial advisor, but I think frequently people
24:45
Speaker 3: hone in on you know, they're here to make investments
24:47
Speaker 3: for me, and frankly, that is just a piece of
24:50
Speaker 3: what a financial advisor's life tape touches. And there are
24:53
Speaker 3: some financial advisors out there, by the way, who don't
24:56
Speaker 3: do investments right. There are financial advisors that charge an
24:58
Speaker 3: hourly billable rate, that work on retainer. All sorts of
25:02
Speaker 3: different situations and conversations to be had when it comes
25:06
Speaker 3: to your financial life. If this is a question that
25:09
Speaker 3: you're facing and you're looking for some guidance on the
25:11
Speaker 3: subject of tax efficiency when it comes to your financial strategy,
25:16
Speaker 3: give the folks at Armstrong a call and let us
25:17
Speaker 3: educate you on how we work with our clients to
25:21
Speaker 3: just deliver more confidence abround these decisions so that they
25:24
Speaker 3: end up in the best place later in life. The
25:27
Speaker 3: number for the Armstrong Advisor Group is eight hundred three
25:30
Speaker 3: nine three four zero zero one. We offer free consultations
25:34
Speaker 3: throughout New England via zoom whatever is most convenient, But
25:37
Speaker 3: that number once again eight hundred three to nine three
25:40
Speaker 3: four zero zero one.
25:42
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
25:45
Speaker 1: registered investment advisor. Nothing in the ad or in any
25:47
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
25:50
Speaker 1: your own financial tax into state planning advisors before making
25:53
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
25:56
Speaker 1: advisory services.
25:58
Speaker 2: Head on from the Wall Street Journal that dumbest investment
26:01
Speaker 2: in the world was better than owning safe treasuries.
26:04
Speaker 3: This might be a candidate actually for you know, a
26:07
Speaker 3: candidate for at the time what was looked at as
26:09
Speaker 3: maybe the dumbest investment in the world.
26:10
Speaker 2: It could be so basically, there was a one hundred
26:15
Speaker 2: year dollar denominated bond that Argentina launched in twenty seventeen, and.
26:20
Speaker 3: I'm sure we laughed at it. Ourselves at the time.
26:22
Speaker 2: We might have. If you know anything about Argentina, it's
26:26
Speaker 2: kind of a serial defaulter. They've had a few and
26:32
Speaker 2: they have, you know, some some issues with how they've
26:36
Speaker 2: run the country from a fiscal standpoint historically. And basically,
26:42
Speaker 2: i'll quote here, the coupons investors received have more than
26:45
Speaker 2: made up for the fall in the price of the
26:47
Speaker 2: bonds down by a quarter. If the coupons had been
26:49
Speaker 2: reinvested in the same bonds, an investor would have made
26:52
Speaker 2: well over fifty percent against a loss of ten percent
26:55
Speaker 2: for US thirty year bonds in a slight gain for
26:58
Speaker 2: the US Treasury index. So here is why I don't
27:02
Speaker 2: love this piece. It's like assuming that there's an end
27:07
Speaker 2: date now.
27:09
Speaker 3: Yeah. So here's what it's doing is saying, look, you
27:12
Speaker 3: bought a ARGENTINIANE hundred year bond in twenty seventeen, and
27:17
Speaker 3: so far you have made more money than if you
27:19
Speaker 3: had bought a thirty year US treasury Yes, and that
27:22
Speaker 3: is objectively true. Yes, even though Argentina defaulted on the bond. Yes,
27:28
Speaker 3: but you still have ninety two years to go.
27:30
Speaker 2: Yes.
27:32
Speaker 3: So yeah, it's a calling the race a little bit
27:36
Speaker 3: before it's over I think is part of the problem here.
27:39
Speaker 2: And the other thing is, look, there's no guarantee that
27:43
Speaker 2: you don't you said, like there's still time to go
27:46
Speaker 2: and everything. But it's if something that was risky just
27:50
Speaker 2: always paid off better, then people would pay more for it,
27:55
Speaker 2: and so it would no longer pay off better. And
27:59
Speaker 2: it's not to say this will or won't work, you know,
28:01
Speaker 2: over the next five, ten, fifteen, or twenty years. I
28:04
Speaker 2: have no idea. But it's also kind of it's like
28:10
Speaker 2: in Apple's to Orangutang's comparison, Yeah, a little bit. You
28:13
Speaker 2: know that This would be like looking at some cryptomeme
28:16
Speaker 2: coin and being like, hey, you did better on this
28:19
Speaker 2: than in US treasuries. Well, I'm not trying to take
28:23
Speaker 2: risk with US treasuries. If I'm buying Argentinian one hundred
28:27
Speaker 2: year bonds, I probably am, so I should expect it
28:30
Speaker 2: to do better than my US bonds.
28:33
Speaker 3: Like it's it's it would be like Michael Armstrong entering
28:36
Speaker 3: into a triathlon and sprinting. What's the what's the first
28:42
Speaker 3: part of the triathlon? This swim?
28:43
Speaker 2: I don't know, I've ever done.
28:44
Speaker 3: One work a marathon and sprinting as fast as I
28:47
Speaker 3: can to get even close to the front of the pack,
28:50
Speaker 3: and everybody commenting being like, well, you know for the
28:54
Speaker 3: first one to one hundredth of the race that Mike
28:56
Speaker 3: Armstrong is sure in the lead here I better watch out, Like, well,
29:01
Speaker 3: let's go and see how the next ninety two years perform.
29:05
Speaker 2: I just I guess it's not comparing equal levels of risk.
29:10
Speaker 2: If you wanted to be like, hey, I'm doing a
29:13
Speaker 2: comparison of Verizon bonds and AT and T bonds. Okay,
29:18
Speaker 2: like now you're kind of in the same ballpark two telecoms,
29:21
Speaker 2: you know which one do I think? But trying to
29:24
Speaker 2: compare the return on an argentinean hundred year bond to
29:27
Speaker 2: a US thirty year treasury bond, those are not the
29:32
Speaker 2: same thing just because they have the word bond in them.
29:34
Speaker 2: That would be like comparing Berkshire Hathaway to Long Island Blockchain.
29:40
Speaker 2: Technically both equities very different, but they do very different things.
29:46
Speaker 2: One is, you know, a giant multinational firm and the
29:48
Speaker 2: other change its name from Long Island ice Tea when
29:50
Speaker 2: blockchain became popular, right, just fine, But like they're not
29:56
Speaker 2: the same just because they have equity, you know, as
29:59
Speaker 2: there asset class. I also would say this probably wasn't
30:04
Speaker 2: the dumbest investment in the world at the time. I mean,
30:06
Speaker 2: this was in twenty seventeen. There were some dumb stuff
30:08
Speaker 2: going on in twenty seventeen. We weren't quite like the
30:11
Speaker 2: spack stuff of twenty twenty one, and meme coins were
30:14
Speaker 2: still a few years away, but I'm sure they were
30:16
Speaker 2: still Like twenty seventeen was still when the first crypto
30:19
Speaker 2: cycle was going through. I think that's when Long Island
30:21
Speaker 2: blockchain became a thing. Was that when the Jersey Deli
30:26
Speaker 2: popped up? Or was that like twenty nineteen twenty twenty
30:29
Speaker 2: the Jersey Deli was later. Yeah, so agreed.
30:32
Speaker 3: There were undoubtedly dumber investments than buying one hundred year
30:35
Speaker 3: Argentinian bond, but yeah, that was that was a concerning one.
30:41
Speaker 2: So there's that. Let's take a quick break here. When
30:44
Speaker 2: we come back, we'll do a little bit of stack roulette.
30:47
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31:59
Speaker 2: Mike, what do you go for?
32:00
Speaker 3: Stuck Roula Bloomberg has a piece of today how to diversify
32:04
Speaker 3: your portfolio with markets hitting turbulence and hits out a
32:08
Speaker 3: bunch of things, and mainly it's about overseas investing and YadA, YadA, YadA.
32:13
Speaker 3: But I want to ask, was anyone talking about investing
32:18
Speaker 3: in Europe and Japan prior to Europe and Japanese markets
32:22
Speaker 3: rallying ten percent in the opposite direction of US equity markets.
32:26
Speaker 2: Nope, so a few people, but they were feeling.
32:30
Speaker 3: Very few and far between. I do not remember this
32:32
Speaker 3: being a discussion immediately after the election of President Trump, like, oh,
32:36
Speaker 3: President Trump selected let's go buy European stocks? Like sure, No,
32:40
Speaker 3: that was not the story or narrative that was playing out,
32:43
Speaker 3: And so for that narrative to suddenly shift in that direction,
32:46
Speaker 3: that would be cautious because oftentimes that's just purely as
32:50
Speaker 3: a result of high returns driving driving stories in that direction.
32:55
Speaker 3: The other thing I would be really cautious about is
32:57
Speaker 3: understanding what most people talk about when they have heard
33:00
Speaker 3: of diversification, right, Like, I'm not saying do or don't
33:04
Speaker 3: invest in any of these things, but if you're going
33:05
Speaker 3: to say diversify by investing in crypto as an example,
33:09
Speaker 3: really understand what you're investing in and how it correlates
33:12
Speaker 3: or doesn't to certain things, right, Like, the idea of
33:15
Speaker 3: diversification is that you have different buckets of money that
33:19
Speaker 3: do different things and perform in different ways. And if
33:22
Speaker 3: all you do is invest in something that's just a
33:25
Speaker 3: leveraged version of something else, you're not really accomplishing that.
33:28
Speaker 2: Yeah. And the promise of diversification is not better returns
33:33
Speaker 2: all the time, right, it's actually lesser returns when things
33:37
Speaker 2: are going well, and ideally better returns when things are
33:41
Speaker 2: going badly, because not everything's moving up or down as
33:44
Speaker 2: much as the worst or best things in your portfolio.
33:47
Speaker 3: So understand why you're diversifying first.
33:49
Speaker 2: Yeah.
33:49
Speaker 3: Is it because you're suddenly scared? Or is it because
33:51
Speaker 3: it's a good reason to do so in a good
33:53
Speaker 3: time for you to do so? And there's compelling reasons
33:55
Speaker 3: for it.
33:56
Speaker 2: Mike, I want to go, Tucker, can you cue up
33:58
Speaker 2: the time machine for us?
33:59
Speaker 4: Stand by?
34:00
Speaker 3: Okay?
34:01
Speaker 2: I want to make sure that we can take a
34:04
Speaker 2: little trip back in time.
34:05
Speaker 4: Here.
34:08
Speaker 2: The year is twenty twenty one. Oh, it's not that
34:11
Speaker 2: far the place the Suez Canal, ever given. We just
34:16
Speaker 2: crossed the four year anniversary of the ever Given getting
34:20
Speaker 2: stuck in the Suez Canal yesterday It was March twenty
34:23
Speaker 2: third of twenty twenty one when the thirteen hundred foot
34:27
Speaker 2: long two hundred and twenty four thousand ton Ever Given
34:30
Speaker 2: became lodged in the Suez Canal for five days. We
34:34
Speaker 2: all remember that little little front end loader trying to hey, Jimmy,
34:40
Speaker 2: you gotta bring it to the left. No, no, no,
34:44
Speaker 2: port is that way. No, to the starboard, to the starbird. Anyways,
34:51
Speaker 2: four years ago we spent a week covering that ship
34:54
Speaker 2: stuck in the Suez Canal, and we all made it through.
34:59
Speaker 2: So I I just want to remind everyone that thank you,
35:02
Speaker 2: when things seem at their worst, you can always get
35:07
Speaker 2: a really big boat out of the canal. Ken what
35:10
Speaker 2: else he got?
35:12
Speaker 3: Piece from Barons here about President Trump following Abraham Lincoln's example.
35:17
Speaker 2: I saw this one here, which is pretty.
35:19
Speaker 3: Confusing because I have to assume, you know, not a historian,
35:23
Speaker 3: but I have to assume the US economy under Abraham
35:26
Speaker 3: Lincoln in the eighteen hundreds was a fair bit different
35:28
Speaker 3: than today's twenty first century economy.
35:32
Speaker 2: As you would expect, we had a pretty robust semiconductor
35:36
Speaker 2: business domestically in the eighteen sixties. So the proposal is
35:42
Speaker 2: there is no proposal. Mike, let's tell a spade is
35:45
Speaker 2: spade this this piece makes no sense. It's comparing a
35:48
Speaker 2: potential tax credit for home ownership to Lincoln signing the
35:53
Speaker 2: Homestead Act of eighteen sixty two that let every adult
35:55
Speaker 2: claim one hundred and sixty acres of land.
35:57
Speaker 3: Yeah, so that's the that's the time travel story I
36:02
Speaker 3: thought we were going to. But let's just focus on
36:05
Speaker 3: forget about the comparison between the two, because I think
36:07
Speaker 3: it's nonsense. The tax credit idea, which, look, there's been
36:13
Speaker 3: all sorts of tax credits and incentives to get Americans
36:15
Speaker 3: into homes for decades. But as we've talked about many
36:19
Speaker 3: times before, we can debate you know, the wealth generation
36:23
Speaker 3: and creation from housing activity and all these different pieces.
36:27
Speaker 3: But if your goal is to bring down the cost
36:30
Speaker 3: of home ownership, paying a bunch of tax credits is
36:34
Speaker 3: not going to do that.
36:36
Speaker 2: You're increasing demand without increasing supply, and all it means
36:39
Speaker 2: that the price will go up by the amount of
36:41
Speaker 2: the credit. See college and kind of some healthcare expenses too,
36:46
Speaker 2: And so I just.
36:47
Speaker 3: We keep going back and like making believe that this
36:51
Speaker 3: is makes some sort of economic sense. And you know,
36:54
Speaker 3: goes through all this and how costly would be, and
36:56
Speaker 3: that they would need to replace the revenue from elsewhere,
36:59
Speaker 3: which you know, let's not even start on this, but like,
37:03
Speaker 3: why don't we just take a If you really want
37:06
Speaker 3: to bring down the cost of home ownership, then you
37:08
Speaker 3: have to build more homes and create the incentives for that. Yes,
37:13
Speaker 3: that needs to be in place, and the fact remains
37:16
Speaker 3: that nobody actually wants that because that means that the
37:19
Speaker 3: value of your home that you already own goes down.
37:22
Speaker 2: So on top of that, that's that's all. It is,
37:24
Speaker 2: great statistic reference, did hear? Keep in mind that a
37:29
Speaker 2: recent Tax Foundation poll found that sixty four percent of
37:32
Speaker 2: Americans survey didn't know what was more valuable a tax
37:35
Speaker 2: credit or tax deduction. So if you're trying to incentivize
37:40
Speaker 2: Americans to buy homes and they don't know if a
37:43
Speaker 2: tax credit or tax deduction is more valuable, that creates
37:48
Speaker 2: some potential problems in terms of how you're trying to
37:50
Speaker 2: incentivize them if they don't understand the incentives.
37:52
Speaker 3: Yeah, should work on some financial literacy.
37:54
Speaker 2: I guess beyond that. I say this as a proud homeowner.
37:58
Speaker 2: Haven't we done enough to subsidize home ownership.
38:02
Speaker 3: See my three and a quarter year at three and
38:04
Speaker 3: a quarter rate thirty year mortgage. I would think, so, you.
38:08
Speaker 2: Know, like, let's figure out ways to build more and
38:10
Speaker 2: make it cheaper to build, and not just give everyone
38:15
Speaker 2: another twenty five thousand dollars to buy the same homes
38:17
Speaker 2: that already exist. I don't know's take a quick break
38:21
Speaker 2: for the entire day. We'll be back tomorrow on the
38:23
Speaker 2: Financial Exchange.