Latest / The Financial Exchange Show / The Fed's favorite recession indicator is flashing danger signs again

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The Fed's favorite recession indicator is flashing danger signs again · The Financial Exchange Show

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Speaker 1: and Paul Lane.
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Speaker 2: Good morning, Welcome back to the Financial Exchange if you
1:13
Speaker 2: happen to be just joining us. We have a few
1:15
Speaker 2: big stories of the day and video released earnings last
1:18
Speaker 2: night after the bell, generally reporting very solid earnings growth.
1:24
Speaker 2: Seventy eight percent I believe was the headline revenue growth number. Nonetheless,
1:28
Speaker 2: stock is off three point six percent this morning in
1:31
Speaker 2: early trading after being kind of all over the place
1:34
Speaker 2: last night to end this morning. But he was up
1:37
Speaker 2: in pre market trading and then has fallen a bit
1:41
Speaker 2: so far in early trading prior to the noon hour.
1:45
Speaker 2: We also had a bunch of different conflicting stories when
1:48
Speaker 2: it came to tariff. So yesterday, during a cabinet meeting,
1:52
Speaker 2: Donald Trump and sent you know, didn't it anyway specifically
1:55
Speaker 2: stated that April second was their implementation date for tariffs
1:59
Speaker 2: on Mexico and Canada, as well as potential reciprocal tariffs
2:03
Speaker 2: on a number of other countries, as well as increased
2:07
Speaker 2: tariffs on China too. This morning via a true social
2:11
Speaker 2: post stating that no, in fact, those tariffs are still
2:14
Speaker 2: to be implemented on Tuesday of next week week, which
2:18
Speaker 2: would be March fourth, which would be thirty days prior
2:20
Speaker 2: to After the previous announcement of Canada and Mexico tariffs,
2:25
Speaker 2: markets immediately on that news started sinking. We've got now
2:28
Speaker 2: the Dow up three hundred points, seven tenths of a percent,
2:32
Speaker 2: s and p basically flat for the day now off
2:34
Speaker 2: four points a little bit less than one tenth of
2:36
Speaker 2: one percent, and the Nasdaq still moving down on the
2:40
Speaker 2: Nvidia move, down one hundred and twenty five points or
2:42
Speaker 2: two thirds of one percent. Paul, what are we seeing
2:46
Speaker 2: on bond yields at the moment here? That's been a
2:48
Speaker 2: big topic over the last four days.
2:52
Speaker 3: US Treasury US tenure Treasury up three basis points at
2:55
Speaker 3: four point two eight percent, and have to take a
2:59
Speaker 3: look at the two year, which kind of ties into
3:02
Speaker 3: one of the pieces we have to cover here. But geez, Mike,
3:04
Speaker 3: I feel like you need like an aucygen mask after
3:06
Speaker 3: going through all the tariff.
3:07
Speaker 2: News because you can hear me breathing heavily.
3:09
Speaker 3: It's just like exhausting all the back and forth. It's
3:13
Speaker 3: just like you need a break, like you're walking up
3:14
Speaker 3: a mountain just to summarize all of it.
3:17
Speaker 2: But the good news on the interest rates side, you
3:19
Speaker 2: do have the thirty year fixed rate mortgage dropping now
3:21
Speaker 2: to six point seven to eight percent. That's according to
3:24
Speaker 2: Mortgage News daily, and oil prices, which have been moving
3:28
Speaker 2: down over the course of the last few days, spiking
3:30
Speaker 2: up again today up two point two percent. Obviously that
3:35
Speaker 2: has something to do again with tariffs on imported oil
3:38
Speaker 2: from Canada, should those actually go into place. So again,
3:42
Speaker 2: things are moving very rapidly here. Yesterday we thought it
3:45
Speaker 2: was April. Today we think it's March. We will see
3:47
Speaker 2: on Tuesday of next week. There's, oftentimes, as Tucker mentioned
3:50
Speaker 2: in the first hour of the show, progress made over
3:52
Speaker 2: the weekend prior to implementation here, and so we'll be
3:55
Speaker 2: looking for announcements tomorrow and leading up to Tuesday of
3:59
Speaker 2: nixt week when it comes to these tariffs. Tomorrow we
4:03
Speaker 2: will get an inflation reading, the Federal Reserves preferred measure
4:06
Speaker 2: of inflation through the Personal Consumption Expenditures Index that's released
4:11
Speaker 2: tomorrow at eight thirty am, if I'm not mistaken, yeah, correct,
4:16
Speaker 2: And then Friday of next week we will get the
4:18
Speaker 2: monthly jobs report, and the following week I believe we'll
4:21
Speaker 2: get some CPI data as well as a Federal Reserve
4:24
Speaker 2: meeting coming right up, so plenty to digest. And again,
4:28
Speaker 2: the narrative that has been gripping markets over the course
4:30
Speaker 2: of the last few days anyway, has been a recession fear,
4:35
Speaker 2: and that's been prompted at least in part by two surveys,
4:39
Speaker 2: one done by the University of Michigan. It's been a
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Speaker 2: consistent survey that's been done, i believe since the nineteen
4:44
Speaker 2: fifties or sixties, asking people how they feel about the economy,
4:47
Speaker 2: and then the other one from the Conference Board asking
4:49
Speaker 2: people how they feel about the economy, both taking a
4:52
Speaker 2: sharp nosedive in the collection period, which was January February
4:56
Speaker 2: time frame. In terms of consumers expectations. We have another
5:00
Speaker 2: recession indicator that is once again flashing, though, Paul, that
5:04
Speaker 2: is not about consumer preferences and indications, but actually a
5:09
Speaker 2: hard data signal about the yield on treasury. So talk
5:12
Speaker 2: to us about that one and whether or not we
5:14
Speaker 2: should be paying attention to it this time. Yeah.
5:16
Speaker 3: So there's this phrase that you'll hear out there, which
5:18
Speaker 3: is called inverted yield curve, and very simply what it
5:21
Speaker 3: means is that you can get a higher rate of
5:24
Speaker 3: interest buying a US Treasury two month. Well, in this case,
5:28
Speaker 3: they're talking about a three month note versus buying a
5:31
Speaker 3: ten year treasury bond. So right now, the US three
5:36
Speaker 3: month treasury, I believe, is sitting around four what's it,
5:39
Speaker 3: four and a quarter something like that, and the US
5:44
Speaker 3: so it's actually four point three percent, and the US
5:46
Speaker 3: tenure Treasury is sitting at four point two eight percent,
5:49
Speaker 3: but it was down four point two five earlier this week.
5:53
Speaker 3: So basically, this idea that you can commit your capital
5:56
Speaker 3: receive a higher rate of interest for a shorter period
5:58
Speaker 3: of time rather than what you'd get on the longer
6:00
Speaker 3: end of things a ten year treasury bond.
6:03
Speaker 2: And that's generally abnormal, right if you would think about
6:05
Speaker 2: it for a moment here, if I am making a
6:07
Speaker 2: loan to Paul for a decade, I'm going to require
6:11
Speaker 2: more interest over that period of time because I am
6:15
Speaker 2: not able to loan my money else out elsewhere. There's
6:18
Speaker 2: a higher risk there compared to saying, hey, Paul, you
6:20
Speaker 2: can have this thousand dollars loan for the next three months,
6:23
Speaker 2: I probably won't demand quite as much interest in that case.
6:26
Speaker 2: We have the reverse right now, A three month loan
6:28
Speaker 2: is paying more interest today than a ten year loan
6:32
Speaker 2: from United States treasuries, and that historically has been a
6:38
Speaker 2: negative indicator for the state of the economy because what
6:40
Speaker 2: it speaks to is such gross fear about the short
6:45
Speaker 2: term that people are saying, you know what, Look, I
6:47
Speaker 2: know the interest rate's better on the shorter term, but
6:50
Speaker 2: I'm willing to take the ten year because I'm uncertain
6:52
Speaker 2: about what comes next, and I don't want to be
6:54
Speaker 2: left holding the bag three months from now when the
6:57
Speaker 2: US government pays me back.
6:58
Speaker 1: Right.
6:58
Speaker 3: And so this one that there speaks of here, as
7:00
Speaker 3: I alluded to earlier, is three month versus tenure, but
7:03
Speaker 3: oftentimes you'll hear more frequently talked about the two year
7:06
Speaker 3: versus the tenure. The reason that the Federal Reserve cares
7:10
Speaker 3: about the three month versus the tenure the most is
7:12
Speaker 3: because they have the most direct impact and not direct control,
7:16
Speaker 3: but significant influence on what that three month interest rate is.
7:20
Speaker 3: When we talk about Federal Reserve and interest rate cuts
7:23
Speaker 3: and things of that nature, that is more specific and
7:27
Speaker 3: tied into the three month note. So it bears mentioning
7:30
Speaker 3: that we've had this previous inversion since October twenty twenty two.
7:35
Speaker 3: We have the same phenomenon occur. And here we sit
7:38
Speaker 3: two and a half years later, and as much as
7:40
Speaker 3: consumers might be frustrated with the inflation impacts, there has
7:44
Speaker 3: not been a recession. In fact, the US economy by
7:46
Speaker 3: all metrics, has been in a really good place over
7:49
Speaker 3: the course the last couple of years.
7:50
Speaker 2: Yeah, and we've talked at length about this, Paul. There
7:52
Speaker 2: have been recession indicator after recession indicator that have flashed
7:55
Speaker 2: warnings over the course of the last five years, and
7:59
Speaker 2: really none of them ended up being accurate predictors. The
8:02
Speaker 2: two ten year treasury yield inversion. When we talk about data,
8:07
Speaker 2: when it comes to US manufacturing, that has historically been
8:10
Speaker 2: a fairly good indicator of Sorry, there's a hammer swing
8:15
Speaker 2: in here somewhere. When we talk about the ism manufacturing
8:20
Speaker 2: index and the negative sentiment, there has been a relatively
8:23
Speaker 2: good read of recession. Heck, we had the some rule, right,
8:27
Speaker 2: the unemployment rule when it came to moving averages of unemployment,
8:32
Speaker 2: which was a perfect recession indicator for years, none of
8:36
Speaker 2: which worked over the last five years. So it's easy
8:39
Speaker 2: to look at this one and say, well, hasn't worked
8:42
Speaker 2: for the last five Plenty of issues of false positives
8:46
Speaker 2: of the course of history, probably just more of that.
8:50
Speaker 2: But I hesitate to very easily dismiss all of this. Right,
8:55
Speaker 2: there was let's call a space. It's made a lot
8:58
Speaker 2: more economic influence on behalf of the government in twenty
9:05
Speaker 2: twenty two, a lot more stimulus and interference in free
9:08
Speaker 2: markets over the course the last few years than there
9:10
Speaker 2: is today. And so just waving this away and saying, oh,
9:14
Speaker 2: it's not important because it didn't work last time, I
9:17
Speaker 2: would hesitate on that front. You know, I do think
9:20
Speaker 2: that this is a general indication of investor nervousness, and
9:24
Speaker 2: that's all it is, is right, you know, investors are
9:26
Speaker 2: choosing to buy more ten year yields than they are
9:29
Speaker 2: two years or three months rather in this case, will
9:33
Speaker 2: it result in a recession? Heck, I don't know, but
9:37
Speaker 2: I don't think we should easily dismiss it as just
9:39
Speaker 2: a broken indicator.
9:41
Speaker 3: Yeah, I'm gonna need to see some more hard data
9:43
Speaker 3: to really get to the point where I'm of concern
9:46
Speaker 3: because all the stuff that we've been talking about this week,
9:48
Speaker 3: MIC is consumer sentiment, you know, or it's you know,
9:50
Speaker 3: investor sentiment. It's people how they feel about things and
9:54
Speaker 3: interest rates to at least like there's numbers behind that.
9:56
Speaker 3: But I'm gonna need to see more things on GDP,
10:00
Speaker 3: the job market, you know, inflation. Those are the things
10:02
Speaker 3: that we're going to need to really see some more
10:04
Speaker 3: numbers on before I can get behind the nervousness. I agree,
10:08
Speaker 3: we have to summarize that is what's happening. There is
10:09
Speaker 3: some nervouses in the market, but we need some hard
10:12
Speaker 3: numbers behind it.
10:13
Speaker 2: I'm with you, Yeah, just because somebody tells you they
10:15
Speaker 2: are pessimistic doesn't mean they will act as such. But
10:19
Speaker 2: this is at least some confirmation of investors acting as such.
10:22
Speaker 2: They are telling you with these moves, I'm nervous about
10:27
Speaker 2: the short term, so I am piling into long term treasury.
10:30
Speaker 2: So this is again we had soft data on sentiment,
10:33
Speaker 2: and this is a confirmation with people putting money where
10:36
Speaker 2: their mouth is when it comes to sentiment as well.
10:38
Speaker 2: Let's take a quick break. When we come back, I
10:40
Speaker 2: want to talk a bit further about those bond yields
10:43
Speaker 2: and what we're seeing. In particular, Treasury Secretary Scott Besson
10:46
Speaker 2: has been hoping to get yields lower. Is this what
10:49
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Speaker 2: Treasury Secretary Scott Beston has spoken very public about interest
13:01
Speaker 2: rates and why he wants them to come down, and
13:03
Speaker 2: I think in part trying to kind of turn the
13:05
Speaker 2: Donald Trump narrative around, Hey, I want the Fed to
13:08
Speaker 2: lower interest rates. Scott Bessen taking the approach of, look,
13:11
Speaker 2: we've seen them do that in the last half of
13:13
Speaker 2: last year, and in fact the rates that people care
13:16
Speaker 2: about started going up in the other direction, and so
13:19
Speaker 2: he has been really focused on, hey, how can we
13:21
Speaker 2: make steps such as cutting government spending that might eventually
13:24
Speaker 2: bring down longer term interest rates. He's getting some of
13:28
Speaker 2: that this week, and I don't think it's for the
13:30
Speaker 2: reasons that he was hoping for, would be my general takeaway.
13:33
Speaker 2: I do wonder how he's looking at the movement most recently.
13:36
Speaker 3: No, I think that Mark on yesterday's show was analyzing
13:40
Speaker 3: the action that we had seen in the tips market,
13:43
Speaker 3: the treasury inflation protected securities, where it seemed like a
13:48
Speaker 3: lot of the interest rate movement that we've seen on
13:51
Speaker 3: the US tenure retreating has been from you know, more
13:54
Speaker 3: people piling and rather than there is this concern about
13:58
Speaker 3: you know, longer term inflation like that, it seemed like
14:00
Speaker 3: more of a retreat to safety based on the things
14:03
Speaker 3: that he had taken a look at, and that's what
14:05
Speaker 3: the really challenging thing is on the interest rate front
14:07
Speaker 3: is the longer end of the curve. Really, no political
14:10
Speaker 3: party or the Federal Reserve can have a significant impact
14:14
Speaker 3: on how that flow ebbs and flows, and that one
14:17
Speaker 3: the US tenure Treasury would be the most important catalyst
14:20
Speaker 3: to getting the thirty year fixed mortgage down and as
14:23
Speaker 3: a result, potentially stoking a housing market that's been relatively
14:26
Speaker 3: dormant over the course of the last couple of years.
14:30
Speaker 2: Really no doubt. The Financial Times asks today why is
14:34
Speaker 2: America still building houses in climate danger zones? And I
14:40
Speaker 2: have this is They wrote like seven pages on this,
14:43
Speaker 2: and the answer is really really easy. There are two reasons. One,
14:48
Speaker 2: it's pretty, Honestly, it is really pretty to build in
14:53
Speaker 2: climate danger zones. They tend to be in forested areas
14:56
Speaker 2: or on waterfront property. It is gorgeous to build in
15:00
Speaker 2: climate danger zones. And the second reason that America is
15:03
Speaker 2: still doing it is because state, local, and federal governments
15:08
Speaker 2: subsidize it. So let me use my own example here.
15:11
Speaker 2: I've been pretty public about how I'm a cheapskate when
15:13
Speaker 2: it comes to cars and things like that, but I'll
15:15
Speaker 2: state that my home is beautiful. I back up to
15:18
Speaker 2: water I back up to a river. We have this
15:21
Speaker 2: gorgeous view. I see parks and eagles and beavers. It
15:26
Speaker 2: is a very nice home to live in, and we
15:28
Speaker 2: have this wonderful quiet setting that we are on. Sorry, unfortunately,
15:33
Speaker 2: we're also in a flood zone. We're in an eighth
15:35
Speaker 2: flood zone, and that means that there's a one percent
15:40
Speaker 2: chance every year that we might flood a twenty six
15:42
Speaker 2: percent over thirty years. When I go take a look
15:45
Speaker 2: at my redfin listing for my own home, they call
15:47
Speaker 2: it a severe flood factor, and Redfin, at least on
15:51
Speaker 2: their web page when I'm looking at my own home
15:53
Speaker 2: listing says that there is a one hundred percent chance
15:56
Speaker 2: of flooding in the next thirty years. And I've experienced
15:59
Speaker 2: it over the course of the five years that I've
16:00
Speaker 2: lived there. Our backyard at least has frequently flooded from
16:05
Speaker 2: rising levels of the Charles River. I pay for flood insurance.
16:10
Speaker 2: I am required to pay for flood insurance. Nice home
16:15
Speaker 2: have flood insurance that would protect me if my water
16:17
Speaker 2: got if my home got damaged. The annual premium on
16:20
Speaker 2: this flood insurance policy that protects me is one four
16:24
Speaker 2: hundred and thirty dollars. It is nothing. It is nothing
16:28
Speaker 2: because the federal government subsidizes it and says that they
16:31
Speaker 2: are not allowed to raise the premium on me, and
16:33
Speaker 2: so the federal government pays the difference. If you are
16:35
Speaker 2: listening to this program right now, in pay taxes, you
16:38
Speaker 2: are personally subsidizing me living in this home because I
16:40
Speaker 2: could not buy it if I did not have the
16:42
Speaker 2: flood insurance, and I would not have bought it had
16:46
Speaker 2: the flood insurance policy been probably appropriately priced somewhere in
16:49
Speaker 2: the ten thousand plus range. Instead, I got a grandfathered
16:53
Speaker 2: policy that keeps this premium under fifteen hundred dollars a year.
16:58
Speaker 2: And I am not alone in this. Go Look across Florida,
17:02
Speaker 2: across California. The number of people who cannot buy and
17:07
Speaker 2: own homes in those areas unless the state steps in
17:11
Speaker 2: and provides insurance on their own at a subsidized rate.
17:15
Speaker 2: It's a lot of people.
17:17
Speaker 3: I have heard feedback that those flood insurance policies down
17:19
Speaker 3: Florida like have been useless.
17:22
Speaker 2: They just have not.
17:23
Speaker 3: Some homeowners to me have complained that they just have
17:26
Speaker 3: not been as effective as they would have thought.
17:28
Speaker 2: Yeah, and there's a number of reasons for that. They
17:31
Speaker 2: carve out a whole bunch of things that wouldn't be covered,
17:33
Speaker 2: and I forget how it works. Like you know, if
17:36
Speaker 2: your home is damaged because of a hurricane and it
17:39
Speaker 2: tears off the roof and your home, your whole home floods, well,
17:42
Speaker 2: guess what, You're not covered. Whereas if rising sea levels
17:45
Speaker 2: do it, then you are covered. In that case, how
17:48
Speaker 2: you define flooding is very specific, and in some markets
17:51
Speaker 2: these are being appropriately priced. In some markets you can't
17:54
Speaker 2: buy flood insurance at all. In some markets they have
17:58
Speaker 2: kind of let free markets dictate. But again, what I
18:01
Speaker 2: find fascinating about the insurance market is time and time again,
18:04
Speaker 2: whether you are left of center, right of center. You know,
18:09
Speaker 2: libertarian governments across the country, and I am more talking
18:13
Speaker 2: about state governments here, have come up with the same solution.
18:17
Speaker 2: We've got to subsidize it. If we don't subsidize it,
18:19
Speaker 2: we're gonna lose all of our citizens. And so we
18:21
Speaker 2: have to step in here and in Florida's case, become
18:24
Speaker 2: the insurance insure of last resort through Citizens Insurance, I
18:28
Speaker 2: believe it is. And in California we're seeing this now
18:31
Speaker 2: with the wildfires, a massive number of policy holders being
18:35
Speaker 2: on the California Insure of Last Resort, Call it subsidies,
18:39
Speaker 2: call it whatever you want. The fact remains that in
18:41
Speaker 2: some of those markets, those insurers, the private insurers, have
18:44
Speaker 2: said we are unwilling to write policies in this area,
18:47
Speaker 2: and the local government has come up and said we'll
18:49
Speaker 2: do it instead. One statistic that I.
18:51
Speaker 3: Just want to mention before we had to break here
18:53
Speaker 3: that blew me away is that in twenty fourteen, forty
18:55
Speaker 3: nine percent of the single family homes that were being
18:57
Speaker 3: built we're in zip codes that were deemed as severe
19:01
Speaker 3: or extreme risk of climate to dusts over the next
19:04
Speaker 3: thirty years. You'd think, oh, over the last decade, so
19:06
Speaker 3: that percentage has come down. Nope, it's gone up. It's
19:08
Speaker 3: closer to sixty percent as of twenty twenty three. That
19:11
Speaker 3: blew me away, mic because you think it would have
19:14
Speaker 3: come down, but people aren't changing the behaviors.
19:16
Speaker 2: No, and again it's for the reasons I mentioned. Yes,
19:19
Speaker 2: it is beautiful, and all of us as taxpayers subsidize
19:23
Speaker 2: people like me who sit in the flood zone. Quick break.
19:26
Speaker 2: We'll have the trivia winner when we come back, and
19:28
Speaker 2: then the Social Security Fairness Act a little bit update
19:30
Speaker 2: on payments if you were to receive them. That's next, Okay.
19:41
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19:45
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19:51
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19:58
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20:05
Speaker 4: Turgy questions today was what was the biggest box office
20:08
Speaker 4: hitd of Gene Hackman's career. That would be Superman, which
20:13
Speaker 4: growsed just over three hundred million dollars worldwide and Hackman
20:17
Speaker 4: played Lex Luthor. Winner today of the Financial Exchange Show
20:21
Speaker 4: t shirt was Pad from Sandwich, mass Congrats to Pad,
20:24
Speaker 4: and we play trivia every day here on the Financial Exchange.
20:28
Speaker 4: See complete contest rules at Financial Exchange Show dot com.
20:32
Speaker 2: We've talked a fair bit about it over the course
20:34
Speaker 2: of the last month and a half since the law passed,
20:37
Speaker 2: But the Social Security Fairness Act is now in effect
20:40
Speaker 2: and the Social Security Administration is trying to figure out
20:43
Speaker 2: how to make payments to more than three point two
20:46
Speaker 2: million individuals. I want to cover the basics, Paul, first,
20:50
Speaker 2: Can we run through what exactly the Social Security Fairness
20:53
Speaker 2: Act did that was signed into law under President Joe
20:56
Speaker 2: Biden on January fifth.
20:58
Speaker 3: Yeah. The first thing is it eliminated what's called the
21:01
Speaker 3: Windfall Elimination Provision or the WEB. And the other one
21:04
Speaker 3: that it also eliminated was the government pension off set.
21:07
Speaker 3: These two laws had been signed in late seventies early eighties,
21:11
Speaker 3: where basically the two principles behind the two laws is,
21:15
Speaker 3: let's say you were a municipal worker, you were a
21:17
Speaker 3: teacher in the Greater Boston area, and collected a pension
21:20
Speaker 3: from your specific school district. Any social security benefit that
21:24
Speaker 3: you would be entitled to, perhaps because you had a
21:28
Speaker 3: spousal benefit from your husband's work history or your wife's
21:31
Speaker 3: work history, that would be dramatically reduced because you had
21:35
Speaker 3: this other municipal pension in place. The other one, in effect,
21:38
Speaker 3: was the government pension offset, which was more specific to
21:42
Speaker 3: the amount that you'd be able to collect because you
21:45
Speaker 3: were collecting a government pension. So that was basically what
21:49
Speaker 3: was undone by this most recent act that was signed
21:53
Speaker 3: into law on January fifth by President Biden and really
21:56
Speaker 3: has a big impact on a lot of people around
21:58
Speaker 3: the Massachusetts.
22:00
Speaker 2: Massachusetts made two big states that it's affected. And the
22:03
Speaker 2: reason why again is in these two states, among seven
22:08
Speaker 2: or eight others across the country, all state employees pay
22:12
Speaker 2: into the pension system instead of Social Security, and so
22:15
Speaker 2: it is a big potential effect. I was meeting with
22:17
Speaker 2: somebody just this week. Actually, husband was a full time
22:21
Speaker 2: federal government worker for his entire career. Receives a pension
22:25
Speaker 2: for his work that is substantial. It's equivalent to more
22:28
Speaker 2: than what most people get from Social Security. And because
22:31
Speaker 2: of that, he never paid himTo Social Security. He was
22:34
Speaker 2: not eligible to receive any Social Security. And even if
22:37
Speaker 2: his wife, who did work in the private sector, got
22:39
Speaker 2: Social Security, he wasn't going to get much. His wife
22:43
Speaker 2: worked in the private sector for a number of years,
22:45
Speaker 2: then switched to the state of mass Massachusetts and was
22:48
Speaker 2: doing some work there where she is eligible for a pension.
22:51
Speaker 2: Now she's going to collect a pension from the state.
22:54
Speaker 2: She's going to collect Social Security from the federal government.
22:57
Speaker 2: And now because of these changes, the husband, who worked
23:01
Speaker 2: for the federal government for four decades can take half
23:05
Speaker 2: of her This is going to be twenty thirty thousand
23:08
Speaker 2: dollars a year of additional income that these two were
23:11
Speaker 2: not previously entitled to. It's a massive windfall for a
23:15
Speaker 2: number of Americans. And by the way, it goes back
23:17
Speaker 2: to the beginning of last year, so there's gonna be
23:20
Speaker 2: a one time payment that is issued. Soci Security Administration
23:24
Speaker 2: said that they were going to take quite a while
23:26
Speaker 2: to make those payments. As you can imagine, it's a
23:28
Speaker 2: bit complicated to retroactively calculate how much it was going
23:32
Speaker 2: back to January of twenty twenty four. But in a
23:35
Speaker 2: new update released on Tuesday, the administration said it will
23:38
Speaker 2: begin issuing these retroactive payments in February, So like tomorrow, right, yeah,
23:45
Speaker 2: begin in February then, yeah, yeah, tomorrow. You gotta get
23:48
Speaker 2: the ball roll in here. So Security Administration, I guess
23:51
Speaker 2: a few things about this one. It is going to
23:53
Speaker 2: take a little bit of time too. If you have
23:56
Speaker 2: never filed for Social Security before and the Social Security
23:59
Speaker 2: Administration basically just doesn't have any record of you because
24:01
Speaker 2: you weren't eligible, you will need to actually process an
24:04
Speaker 2: application here. For most people, this just eliminated some of
24:08
Speaker 2: their Social Security benefit and so it's a makeup for
24:11
Speaker 2: the difference for some folks though, like the person I
24:14
Speaker 2: was talking about, they've never really had anything with Social
24:16
Speaker 2: Security administration, so they're going to need to apply for
24:19
Speaker 2: the first time. Big picture, this changes a lot, especially
24:24
Speaker 2: for workers around New England, in terms of what type
24:27
Speaker 2: of work they do, who they work for. And I
24:29
Speaker 2: can tell you firsthand that these laws that were previously
24:33
Speaker 2: on the book absolutely did influence where people would choose
24:37
Speaker 2: to work and for how long. If you are maybe
24:42
Speaker 2: working for a local or federal government, if you are
24:45
Speaker 2: considering doing work for one or the other, or considering
24:49
Speaker 2: a career change at this point and are wondering about
24:52
Speaker 2: how these rules could change the narrative for your financial
24:56
Speaker 2: strategy and retirement plan, please give the folks at Armstrong
24:59
Speaker 2: Advisory Group call. As I mentioned with the folks that
25:01
Speaker 2: I was working with earlier this week, there are big
25:04
Speaker 2: implications for people's retirement plan when it comes to how
25:07
Speaker 2: these rules work out, and if you have questions along
25:10
Speaker 2: those lines, we'd love to guide you through it. The
25:12
Speaker 2: number for the Armstrong Advisory Group it's eight hundred three
25:16
Speaker 2: nine three four zero zero one. We have live human
25:20
Speaker 2: beings stand by to take your call and help you
25:22
Speaker 2: walk through this overall process and schedule ultimately a consultation
25:26
Speaker 2: with one of our advisors to sit down with you
25:28
Speaker 2: and make sure you understand how all of these different
25:31
Speaker 2: complicated rules regarding pensions and social security could benefit you.
25:35
Speaker 2: The number again eight hundred three nine three four zero
25:39
Speaker 2: zero one.
25:40
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
25:43
Speaker 1: registered investment advisor. Nothing in the ad or in any
25:45
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
25:48
Speaker 1: your own financial tax into state planning advisors before making
25:51
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
25:54
Speaker 1: advisory services.
25:56
Speaker 2: The number of four oh one k millionaires according to
25:59
Speaker 2: Fidelity by twenty seven percent in twenty twenty four. Good news,
26:04
Speaker 2: bad news are unimportant news to you, Paul.
26:06
Speaker 3: In other news, the market went up, and that's why
26:09
Speaker 3: more par millionaires. Yeah, you know, it does probably speak
26:13
Speaker 3: to the fact that we have more and more track
26:16
Speaker 3: recker of people participating heavily in four to oh one ks,
26:19
Speaker 3: so you're going to see more people hitting that second
26:22
Speaker 3: seventh figure mark.
26:25
Speaker 2: But other than that, it's just it's an effect of
26:27
Speaker 2: the stock market going on exactly. The The you know,
26:31
Speaker 2: interesting pieces around this is how do people deal with
26:34
Speaker 2: that are they really aware of all of the ins
26:37
Speaker 2: and outs of those four oh one k's. They're required
26:39
Speaker 2: minimum distributions and things along those lines, and it does
26:42
Speaker 2: get a little bit complicated. I also do wonder you know,
26:45
Speaker 2: you spoke to the prevalence of four oh one k's
26:47
Speaker 2: today compared to twenty thirty years ago. Most certainly the
26:53
Speaker 2: disappearance of pension funds over the course of that period
26:56
Speaker 2: of time and replacement of it with four oh one k's.
26:58
Speaker 2: And that's been one of the theories that's been at
27:02
Speaker 2: least tossed around there when it comes to equity market valuations. So,
27:05
Speaker 2: if you think about this massive four oh one k universe,
27:09
Speaker 2: the participants generally invest a lot differently than a pension
27:11
Speaker 2: fund does. Sure, pension funds tends to you know, it's
27:16
Speaker 2: very professionally managed, they're very large, they're very risk averse,
27:19
Speaker 2: they have specific rules that they have to follow. A
27:21
Speaker 2: four oh one k has none of that, right, like,
27:22
Speaker 2: it's self directed by the individual. Yeah, a lot of
27:25
Speaker 2: people end up in those target date funds, but even
27:27
Speaker 2: those invest a fair bit differently than your pension funds.
27:30
Speaker 2: And so the theory has been floated that hey, part
27:32
Speaker 2: of the reason we've seen valuations since the eighties go
27:36
Speaker 2: up substantially and not really returned to the pre eighties
27:40
Speaker 2: norm has been, Hey, is there this permanent buyer block
27:44
Speaker 2: of stocks with four to one k's that are not
27:46
Speaker 2: price averse. They're not paying attention to valuations. They are
27:50
Speaker 2: just every week tossing money into that four oh one
27:52
Speaker 2: k automatically, no matter what. I haven't really thought it
27:57
Speaker 2: through all the way to determine whether or not that's
27:58
Speaker 2: a factor. I mean, obviously, you've the baby boomers kind
28:01
Speaker 2: of moving through that population gap, and so I would
28:04
Speaker 2: suspect that if it were true, you would see it
28:06
Speaker 2: reverse as those same baby boomers spend that money over time.
28:10
Speaker 2: But it's at least an interesting query of MAAC. We
28:13
Speaker 2: talk a lot about how valuations are so elevated today
28:17
Speaker 2: and whether you compare that to the last twenty years,
28:19
Speaker 2: thirty years, or one hundred years. They're substantially elevated compared
28:22
Speaker 2: to those levels. But is fifty years ago even a
28:25
Speaker 2: relevant time period to compare to. I think it's kind
28:29
Speaker 2: of an unanswered question.
28:30
Speaker 3: Yeah, it's a great it's a great point and great
28:32
Speaker 3: exercise to go through because the adoption of the four
28:36
Speaker 3: to one K, I know, a big ballparking percentage of participation,
28:40
Speaker 3: but it's got to be two thirds of most workers
28:44
Speaker 3: that I would think participate in four one.
28:46
Speaker 2: K's or some other voluntary retirement, right, Yeah.
28:50
Speaker 3: And so it's always interesting when we're we have to
28:52
Speaker 3: do these forms for our clients when they get on
28:54
Speaker 3: and it goes over their investment history and experience. And
28:57
Speaker 3: so for those people who you know, started working perhaps
29:00
Speaker 3: in you know, seventies, eighties, things like that, they may
29:03
Speaker 3: have lesser experience than the default today is pretty much
29:06
Speaker 3: any twenty five year old you're talking to is immediately
29:09
Speaker 3: enrolled within their four oh one K. And so yeah,
29:12
Speaker 3: there's certainly a point to be made that there's a
29:14
Speaker 3: lot more buyers who are coming in every two weeks
29:17
Speaker 3: when they get that paycheck contribution.
29:20
Speaker 2: Let's take a quick break here on the Financial Exchange.
29:22
Speaker 2: When we come back, we will update on you on
29:24
Speaker 2: markets before we close out the program today. But Stack
29:27
Speaker 2: Roulette is next.
29:29
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29:32
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29:35
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29:40
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29:44
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29:56
Speaker 2: Time for a little stack roulette here, Paul, what do
29:58
Speaker 2: you have for me this morning?
30:00
Speaker 3: Hey? Alexa, do you finally have a real business model?
30:02
Speaker 3: This is a piece out of Bloomberg.
30:04
Speaker 2: Kudos, Paul Angers. Everyone who's listening to the radio right
30:07
Speaker 2: now in an Alexa device.
30:08
Speaker 4: See that's the thing, Mike, I don't think anybody is.
30:11
Speaker 2: Yeah, that's true.
30:11
Speaker 4: Nobody we like have one at the house, like one
30:15
Speaker 4: of those Echo show whatever it is, Echo Show. I
30:18
Speaker 4: think that's what it is. My kids ask it animal facts.
30:21
Speaker 2: That's what we use it for now. I set timers
30:24
Speaker 2: with mine. I stopped doing that.
30:26
Speaker 4: I just used my phone now. I used to use
30:28
Speaker 4: it for timers and music, but now we don't use
30:30
Speaker 4: it at all, so sorry, continue.
30:33
Speaker 3: No, No, it was a fantastic headline, so cheers to
30:36
Speaker 3: your kudos to the Bloomberg writer who put that together.
30:39
Speaker 3: But basically, as you guys just alluded to you, there
30:42
Speaker 3: wasn't really a business model behind Alexa.
30:45
Speaker 2: Now. I think they hoped for one. It's just that
30:47
Speaker 2: nobody wanted to use it as No, it didn't materialize
30:50
Speaker 2: the way that they expected, which I because they subsidized
30:52
Speaker 2: the heck oatem these ranks right, like how much did
30:54
Speaker 2: that Echo dot thing costs? Like fifteen bucks or something
30:57
Speaker 2: like this cheap and it's pretty complicated technology. It's got
31:00
Speaker 2: collective Wi Fi Like, it's really really cheap. And I
31:03
Speaker 2: think they're hoping that people would be interested in like
31:06
Speaker 2: shopping via voice.
31:07
Speaker 3: Out, they want to speak their Amazon orders into Alexa.
31:11
Speaker 2: It turns out, yeah, nobody wants to do that.
31:14
Speaker 3: So now that they are utilizing the idea is to
31:18
Speaker 3: utilize AI to have a more of a business case
31:22
Speaker 3: used for Alexa rather than the previous one. But you know,
31:27
Speaker 3: it's to be determined really if this is going to
31:30
Speaker 3: be something that is a creative to this business that
31:32
Speaker 3: has been kind of a lagger for Amazon in general.
31:36
Speaker 2: Yeah, they're rolling out a couple of things. They are
31:38
Speaker 2: rolling out a chat GPT style like web based generative
31:44
Speaker 2: AI tool, and they're trying to make really just Alexa smarter.
31:50
Speaker 2: But my point would be unless somebody is willing to
31:53
Speaker 2: pay for that, I don't know how it helps. And
31:56
Speaker 2: I'm not willing to pay for that, I'm not willing
31:58
Speaker 2: to pay to say. Okay, you know, Alexi, I'm actually
32:02
Speaker 2: genuinely curious and having this conversation about something that you're
32:07
Speaker 2: smarter about. Now, I'll probably look it up.
32:10
Speaker 3: Yeah, I just don't think like one of the questions
32:12
Speaker 3: that they pausit here is can I install a solar
32:15
Speaker 3: panel in my house? Is a question that you would
32:17
Speaker 3: ask it. I just don't think that the verbal communication
32:22
Speaker 3: between Alexa is gonna be the medium that you're gonna
32:24
Speaker 3: choose to have that done through. I think you'd much
32:26
Speaker 3: rather use just chat GPT and read through the response
32:30
Speaker 3: rather than having to have it spoken out to you. Yeah,
32:35
Speaker 3: or like, you know, the other one that they say
32:37
Speaker 3: is when is football practice?
32:38
Speaker 2: Like this other one like actually that's so. One area
32:41
Speaker 2: that I think might be useful would be if it
32:43
Speaker 2: does a better job of, let's say, like taking all
32:47
Speaker 2: of your email, reading through them and putting together calendar
32:50
Speaker 2: for you, like as a parent of three kids who
32:53
Speaker 2: are in activities almost every single day, like Monday and
32:56
Speaker 2: Wednesday are the only days that my kids do not
32:58
Speaker 2: have a long laundry list, things to go to. Okay, yeah,
33:02
Speaker 2: I could get on board with X I am constantly
33:04
Speaker 2: asking my wife where do we need to be at
33:05
Speaker 2: what time, because she is the holder of the calendar.
33:08
Speaker 2: So if you can figure that out, then I might
33:10
Speaker 2: be willing to pay for it. Otherwise I don't know
33:12
Speaker 2: that you have a whole lot of a business model here.
33:16
Speaker 2: Steep drops in credit scores are being realized by some
33:19
Speaker 2: student loan borrowers across the country because forty three percent
33:24
Speaker 2: of those who owe payments have not yet resumed making them.
33:29
Speaker 2: This was a COVID era rule that got extended, probably
33:33
Speaker 2: more times than it should have been. But beginning in October,
33:39
Speaker 2: the Pandemic era relief on federal student loans ended, and
33:42
Speaker 2: it started this ninety day clock where people had to
33:44
Speaker 2: make payments before their credit scores would start taking a hit.
33:47
Speaker 2: They needed to start making the payments beforehand. But if
33:50
Speaker 2: they didn't buy that period of time, then their credit
33:53
Speaker 2: scores were going to start getting whacked. And so they
33:55
Speaker 2: interview one woman from California who saw her credit score
33:59
Speaker 2: drop by one hundred points. She discovered that she was
34:02
Speaker 2: more than ninety days delinquent on payments for her sixteen
34:06
Speaker 2: thousand dollars in student loans, to which I say, and quote,
34:11
Speaker 2: I'm devastated. It's like having your whole life put in
34:14
Speaker 2: limbo over a simple mistake. How did you not know?
34:18
Speaker 2: It's not a simple miss I know that it's not okay. So, like,
34:21
Speaker 2: I have to take a step back here and recognize
34:23
Speaker 2: that the three of us read about these types of
34:25
Speaker 2: things far more frequently than the average person, And so
34:27
Speaker 2: I always have to put myself back in the average
34:29
Speaker 2: person's shoes. Who's not listening to this stuff? But this
34:33
Speaker 2: was not a secret, right, this was really really public.
34:36
Speaker 2: The Biden administration lost a Supreme Court case over this stuff.
34:40
Speaker 2: How are you not paying attention to this? These companies
34:43
Speaker 2: are sending out notices too. They're sending out notice like
34:47
Speaker 2: you get it. You might have get the most stuff
34:49
Speaker 2: you get in the mail. It's just from all the
34:51
Speaker 2: companies you owe money to. Like, if you owe someone money,
34:54
Speaker 2: you get notices for sure. And it's not just all
34:57
Speaker 2: you delivery. They come at you with paper too. I
35:00
Speaker 2: just I can't get behind that. And look, I know
35:04
Speaker 2: people move, I know people miss these notifications. But you know,
35:08
Speaker 2: if you have sixteen thousand dollars worth of debt, yeah
35:11
Speaker 2: you do, and you do.
35:13
Speaker 3: I'm not going to criticize whether or not it can
35:15
Speaker 3: be paid. That's everyone's individual financial situation. But don't tell
35:18
Speaker 3: me you didn't know about it, because that's the responsibility
35:22
Speaker 3: that you take on barring debt. Is you gotta be
35:25
Speaker 3: aware of it. And I just I find it very
35:29
Speaker 3: difficult to believe that there would be no notification that
35:32
Speaker 3: you'd receive, whether it be an email or something through
35:35
Speaker 3: the mail. They're gonna let you. Let you know.
35:37
Speaker 2: Poor woman Scrowge just trying to buy a home. Her
35:39
Speaker 2: mortgage broker had to inform her that, you know, the
35:41
Speaker 2: lower credit score is gonna knock on additional four hundred
35:43
Speaker 2: dollars a month to her mortgage payment if she goes
35:45
Speaker 2: and gets one. Now, so totally devastated by this, But again,
35:51
Speaker 2: you have to know these things. You have to keep tracking.
35:53
Speaker 2: This is like personal finance one oh one, Know what's
35:55
Speaker 2: coming in, know what's going out?
35:57
Speaker 1: Right right? Just crazy.
36:01
Speaker 3: NFL teams gathered detailed consumer data without standard notice or
36:05
Speaker 3: opt outs. That's so strange. The NFL is always so
36:08
Speaker 3: run on the up and up. Shocking to hear such
36:11
Speaker 3: a invasion of privacy by the NFL. Tongue in cheek
36:16
Speaker 3: obviously a lot of sarcasm there. I love the NFL
36:18
Speaker 3: and consume it most Sundays, but we can agree, most
36:21
Speaker 3: of us that some of their practices over the last
36:24
Speaker 3: decade or so haven't been the best. And what we've
36:27
Speaker 3: seen from this most recent piece here is that they
36:31
Speaker 3: for those people who had their NFL APP, they were
36:34
Speaker 3: gathering all sorts of marketing data and information regarding its
36:38
Speaker 3: consumers that violated the Digital Advertising Accountability Program where there
36:43
Speaker 3: was no clear ways to opt out or avoid some
36:46
Speaker 3: of these target advertising that they collected all this data on.
36:50
Speaker 3: And so as a result of this, they are going
36:53
Speaker 3: to face some sort of penalty I would imagine a
36:57
Speaker 3: fine of some sort for this violation.
36:59
Speaker 2: Can we just say that you got it right on
37:00
Speaker 2: this stuff? Like I know, we criticize them a lot,
37:03
Speaker 2: and their economy has lagged the US from a number
37:06
Speaker 2: of different perspectives. Some blame it on chance, others blame
37:10
Speaker 2: it on policy out of Europe being you know, too
37:15
Speaker 2: locked down. Some people blame that on their failure to
37:18
Speaker 2: really invent artificial intelligence and innovate in a lot of
37:21
Speaker 2: different ways because of all the regulation and red tape
37:24
Speaker 2: that they have. But I have to say when it
37:25
Speaker 2: comes to Internet privacy, I really respect what Europe has
37:29
Speaker 2: done there and I wish we would implement similar things here.
37:32
Speaker 3: Yeah, I think you did a good job of sort
37:34
Speaker 3: of illustrating the two sides of the coin. One is,
37:36
Speaker 3: this country has benefited tremendously from all the technological advancements
37:40
Speaker 3: over the course of the last couple decades, and that has.
37:42
Speaker 2: Been a massive wealth filder exactly.
37:44
Speaker 3: But contrarily, it's sort of break things first and then
37:48
Speaker 3: you know, ask for forgiveness later. A lot of these
37:50
Speaker 3: technology companies have gone through that process, and we have
37:53
Speaker 3: a system that allows for that. There's definitely drawbacks to it.
37:57
Speaker 3: The wealth creator is the positive, but the negative is
37:59
Speaker 3: that on a privacy we've all been hacked, probably almost assuredly,
38:04
Speaker 3: and privacy is limited.
38:07
Speaker 2: Markets are mixed, the Nasdaq down one hundred and fifty points,
38:10
Speaker 2: eight tenths of a percent, SMP off fifteen quarter of
38:13
Speaker 2: a percent. Now positive for the day so far up
38:15
Speaker 2: two hundred and twenty eight points, or one half of
38:18
Speaker 2: a percent. We'll have an inflation reading tomorrow, so stay tuned, folks.
38:22
Speaker 2: Have a great rest of your day.