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Could the stock market gain another 20% in 2025? · The Financial Exchange Show

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Speaker 2: Yesterday, our top story was the piece from market Watch.
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Speaker 2: It was titled Nasdak reaches twenty thousand for the first time.
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Speaker 2: Here's why that could spell trouble for investors in early
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Speaker 2: twenty twenty five. Today, our top story from Barons is
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Speaker 2: why the stock market could gain another twenty percent in
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Speaker 2: twenty twenty five. Barons is owned by whom I would
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Speaker 2: imagine Barons blown by Wall Street Journal, which isn't owned
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Speaker 2: by David Jones, who owns market Watch Dal joneson is it?
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Speaker 3: Yeah, it is okay, so same parent company too. Writing
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Speaker 3: these two pieces. I know they didn't appear in the
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Speaker 3: same exact article and they are all very opinion based.
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Speaker 2: But yeah, there we go.
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Speaker 3: We have one subsidiary of Dow Jones saying look out, folks,
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Speaker 3: because then NASZAC reached all time highs and therefore, according
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Speaker 3: to mister Steinberg, sure, I think that's where they interviewed
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Speaker 3: Colony Group CIO. You know, look out because my gut
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Speaker 3: tells me things aren't going to go well, and Baron's
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Speaker 3: here saying look out because stocks gained another twenty percent. Chuck,
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Speaker 3: Here's the.
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Speaker 2: Thing, So when there actually is an interesting point in this,
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Speaker 2: and that point is we talk a lot about the
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Speaker 2: long term trends of the stock MARKETO. Depending on like
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Speaker 2: the exact years you use, and you know, whether it
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Speaker 2: was called the S and P five hundred or whether
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Speaker 2: it was its predecessors. Historically you look at and you say,
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Speaker 2: US stocks generally have averaged between nine and twelve percent
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Speaker 2: a year long term. Mike, do you know what they
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Speaker 2: tend to make when they don't go down in a year?
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Speaker 2: So take out the years where the S and P
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Speaker 2: five hundred lost money. Oh, I see, I guess it
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Speaker 2: would have to be fifteen to eighteen. It's around twenty percent.
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Speaker 2: So like one of the mistakes that investors do make
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Speaker 2: is thinking, hey, like, if it's a good year for
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Speaker 2: the stock market, it's gonna be up like twelve to fifteen. No,
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Speaker 2: when this when stocks go up, they do tend to
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Speaker 2: go up in larger numbers. Typically now not all the time. Again,
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Speaker 2: it's still on you know, there's a distribution of this.
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Speaker 2: I'm not saying they always do, but when stocks move up,
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Speaker 2: they tend to move up meaningfully on the other side
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Speaker 2: of things, when they go down, they tend to go
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Speaker 2: down meaningfully, like year's like twenty eighteen, where the market
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Speaker 2: loses like one percent by the end of the year. Abnormal.
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Speaker 2: Those are kind of the weird ones, like that's not
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Speaker 2: really normal to see single digit returns in either direction.
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Speaker 2: It's usually either hey, you made a bunch of money
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Speaker 2: for the year, or you lost a decent chunk of
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Speaker 2: money for the year. It's it's very rarely in between.
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Speaker 2: When you look at the actual numbers, there's still again
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Speaker 2: it's it's still is a distribution in terms of you
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Speaker 2: know what you get overall, but it's it's not something
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Speaker 2: where you're consistently like, hey, it was eight percent this
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Speaker 2: year and it was ten percent. Like let's just do
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Speaker 2: the last twenty five years as an example, please plus
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Speaker 2: twenty eight plus twenty six minus eighteen plus twenty eight
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Speaker 2: plus eighteen plus thirty one minus four plus twenty one
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Speaker 2: plus eleven plus one plus thirteen plus thirty two plus
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Speaker 2: sixteen plus two plus fifteen plus twenty six minus thirty
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Speaker 2: seven plus five plus fifteen plus ten plus twenty six
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Speaker 2: minus twenty two minus twelve minus ten plus twenty one
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Speaker 2: plus twenty eight plus thirty three plus twenty two plus
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Speaker 2: thirty seven plus one, So that's going back to ninety four.
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Speaker 2: That's thirty one years.
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Speaker 3: Actually I counted five where the returns were single digits
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Speaker 3: in either direction.
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Speaker 2: So this illustrates my point is that even though the
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Speaker 2: average long term returns might be nine to twelve percent,
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Speaker 2: you very rarely actually generate like high single digit returns.
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Speaker 2: It's usually either meaningful double digits or meaningful meaningful double
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Speaker 2: digits either.
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Speaker 3: Way that the stocks are gonna be great or stocks
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Speaker 3: are gonna sucks your point.
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Speaker 2: Yeah, I mean occasionally, Look again, you get a handful
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Speaker 2: of times, like sixteen percent of the time in the
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Speaker 2: last thirty one years you ended up with stocks in
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Speaker 2: single digits either way. Yeah, But most of the time
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Speaker 2: they either win meaningfully or lose meaningfully. And this is
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Speaker 2: what I mean by volatility is built into the market.
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Speaker 2: It is a feature of equities that stocks usually either
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Speaker 2: make a lot of money or lose a lot of money.
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Speaker 2: They very rarely just hang out.
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Speaker 3: Can I I'm gonna pull another quote from here. The
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Speaker 3: S and P five hundredth price to earnings ratio at
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Speaker 3: around twenty two times next year is expected earnings is
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Speaker 3: approaching frothy? If twenty two times future earnings isn't frothy,
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Speaker 3: where is our frothy definition? Because from what I am aware,
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Speaker 3: there's been three moments in US history where stocks have
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Speaker 3: been at twenty two times plus.
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Speaker 2: So I actually have a great metric here from Bank
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Speaker 2: of America on this. Oh it's got their their their
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Speaker 2: froth maker, not their froth maker. But this is from
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Speaker 2: like they publish stuff like every day because it's Bank
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Speaker 2: of America and they got three hundred thousand people working
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Speaker 2: for them. Yes, so they looked at twenty different s
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Speaker 2: and P five hundred valuations and they said, hey, like
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Speaker 2: where is this relative to its historical norm? Like where
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Speaker 2: is today compared to its historical norm? Or okay, go ahead,
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Speaker 2: basically like how yeah, how far like above or below average?
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Speaker 2: Is it relative to the long term average? Trailing PE
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Speaker 2: ratio is seventy four percent above its historical average. Okay,
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Speaker 2: now again, interest we can talk about like why that's
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Speaker 2: the case, but I'm just gonna give you all the numbers.
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Speaker 2: Trailing gap PE so generally accepted accounting principles, so not
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Speaker 2: using you know, weird things like adjusted earnings in this
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Speaker 2: and that ninety six percent above its historical norm. Forward
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Speaker 2: pe it's thirty nine percent above its norm, trailing normalized
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Speaker 2: PE forty five percent above schill Er PE one hundred
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Speaker 2: and thirteen percent above price to book, ninety six percent
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Speaker 2: above enterprise value to ebit a fifty one percent above
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Speaker 2: trailing PEG ratio so PE basically divided by growth ten
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Speaker 2: percent above forward PEG, nine point nine percent above price
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Speaker 2: to free cash flow, twenty five percent above enterprise value
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Speaker 2: to sale, seventy percent above normalized earnings return premium forty
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Speaker 2: bless you forty nine percent below, which means that they're
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Speaker 2: actually it was a loud one. It was cooking. I
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Speaker 2: try my best to keep it, which actually made is
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Speaker 2: like no earnings return. There's no earnings premium there the
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Speaker 2: S and P five hundred in oil terms, so like
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Speaker 2: relative to the price of oil. I don't know why
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Speaker 2: that matters, but they included in their list, So whatever
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Speaker 2: two hundred and fifteen percent above its norm, the S
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Speaker 2: and P five hundred relative to gold, thirty seven percent
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Speaker 2: above its norm, the S and P five hundred relative
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Speaker 2: to the Russell two thousand forward pees twenty two percent
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Speaker 2: above its norm. S and P five hundred market cap
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Speaker 2: relative to GDP. So basically, how big is the S
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Speaker 2: and P relative to the US economy one hundred and
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Speaker 2: fifty eight percent above its norm? Okay, so long story short.
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Speaker 3: Many of those sound like frothy numbers to me, But
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Speaker 3: take that with what.
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Speaker 2: You hy froth Yeah, Look, this is a market where
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Speaker 2: if anything meaningful goes wrong, there's significant downside potential. Now,
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Speaker 2: it doesn't mean that something meaningful is going to go
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Speaker 2: wrong tomorrow, the next day, or the day after whatever.
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Speaker 3: And I'll remind folks that it sure looked like things
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Speaker 3: were going to go significantly wrong over the last couple
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Speaker 3: of years. We had Silicon Valley Banking bank collapse, we
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Speaker 3: had a PSM rule recession indicator. We had a number
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Speaker 3: of things just in twenty twenty three and twenty twenty four,
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Speaker 3: which were fantastic years for stocks that ge when they
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Speaker 3: were occurring, sure looked like they were pretty bad.
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Speaker 2: Which gets back to my overall point that I make
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Speaker 2: all the time, which is stuff's always going wrong in
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Speaker 2: the world, and most of the time we figure out
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Speaker 2: how to deal with it. The problem is when we don't,
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Speaker 2: and then it becomes like the bigger problems that you
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Speaker 2: know result in either you know, meaningful downturns or you know,
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Speaker 2: meaningful geopolitical conflict and stuff like that. But most of
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Speaker 2: the time we kind of figure it out. I'm not
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Speaker 2: saying that it makes the world perfect or anything. It's
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Speaker 2: more just like, hey, like, I guess this is how
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Speaker 2: it is, and we'll deal with it. So yeah, I
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Speaker 2: think that the interesting thing about these two top pieces
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Speaker 2: that we covered today and yesterday is they are illustrative
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Speaker 2: of what you actually see in the market. It typically
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Speaker 2: either makes a bunch of money or loses it. It's
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Speaker 2: rare that you have a stock market year where you're like, yeah,
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Speaker 2: we made four percent in the market this year. Great.
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Speaker 2: So I think that you could view these as, you know,
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Speaker 2: two potential views. But the problem is that they're not
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Speaker 2: published together and with The perfect piece, in my opinion,
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Speaker 2: is one where someone says, hey, here's the bull case
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Speaker 2: for next year, here's the bear case for next year.
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Speaker 2: Here are the factors that could steer you any other
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Speaker 2: of these directions, and these are the things that you
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Speaker 2: need to be mindful of as you get there. And
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Speaker 2: I know that's wishy washing.
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Speaker 3: It's not a very good headline. Catcher there, Chuck, totally
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Speaker 3: get it.
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Speaker 2: Okay, but Listenke, we got to do better, Michael, we
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Speaker 2: got to do better. I don't know what would we
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Speaker 2: rip on if we didn't have people publishing pieces. No,
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Speaker 2: I'm saying we have to They can do worse. Okay,
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Speaker 2: got it. That gives us material that keeps the show going.
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Speaker 2: But we gotta do better. Agreed. Let's take a quick break.
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Speaker 2: When we talk about someone doing better on the back side,
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Speaker 2: We'll talk about Broadcom because their stock is up about
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Speaker 2: twenty percent today, so they must be doing pretty darn good.
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Speaker 2: Mike So Broadcom reported earnings. Was it this morning or yesterday? Yesterday?
11:57
Speaker 2: After the bell? They're twenty one percent this morning and
12:01
Speaker 2: broad coom. If you're not familiar with them, uh, you
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Speaker 2: should get familiar with them because they have a market
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Speaker 2: cap now of over a trillion dollars. They are a
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Speaker 2: semiconductor company that does all kinds of different stuff anything
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Speaker 2: from you know, networking to storage, all kinds of different things.
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Speaker 2: Like they're they're all over the place. What I'm really
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Speaker 2: struggling to wrap my head around on this is why
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Speaker 2: the valuation is where it is. And here's why it's
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Speaker 2: it's not a no. It is the poo poo their
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Speaker 2: business and Vidia I can look at it and say, okay,
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Speaker 2: in Vidia has a market cap of three and a
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Speaker 2: half trillion dollars. They got one hundred and you know,
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Speaker 2: fifteen billion dollars in revenue, and they make sixty billion
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Speaker 2: dollars a year off that Broadcom had. You know, again,
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Speaker 2: even if they repeat this quarter here, they made four
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Speaker 2: point three two billion dollars in proper fit. That's up
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Speaker 2: about you know, fifteen percent from a year ago. But okay,
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Speaker 2: like fifteen percent profit growth is you know, fine on
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Speaker 2: like a sixteen billion dollar profit company, but the margins
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Speaker 2: are thinner than you have with companies like in Nvidia.
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Speaker 2: There's no sign that there's some kind of clear mode.
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Speaker 2: And it's it's not to say that Broadcom should like
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Speaker 2: go out of business or anything, but from a valuation perspective,
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Speaker 2: I mean, you talk about like how nutty it is.
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Speaker 2: The pe ratio on them is one hundred ninety, the
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Speaker 2: forward pe is thirty five, and you're kind of sitting
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Speaker 2: there going, okay, like what's going on here because it's
13:43
Speaker 2: just not exactly showing accelerat no, Like it's it's a
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Speaker 2: fine company that's growing at a good clip, but like
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Speaker 2: in Nvidia is a company that's showing you know, two
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Speaker 2: hundred percent yearly profit growth, and even like quarter to quarter.
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Speaker 2: Now the profit growth is still in the mid teens,
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Speaker 2: and that's valued at forty six times forward earning. So
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Speaker 2: how is this getting two thirds of the multiple when
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Speaker 2: it's growing at like a quarter of the pace.
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Speaker 3: I think the answer is that there's just a lot
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Speaker 3: of stuff in the AI semiconductor space right now that.
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Speaker 2: Looks frothy. It's a company like this is. I don't
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Speaker 2: want people to be like, oh, Chuck doesn't like anything
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Speaker 2: that's good, Like, no, I don't like some things that
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Speaker 2: are good, but there's other things that I look at
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Speaker 2: them just like it's fine, but I don't get it.
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Speaker 3: Yeah, And I think it's a different question than we
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Speaker 3: were asking of in video six months ago. The question
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Speaker 3: of in video was can this continue to grow at
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Speaker 3: such a breakneck pace? Broadcom's already not growing at such
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Speaker 3: a breakneck pace and still being valued quite I won't
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Speaker 3: say exorbitantly, I'll say expensively.
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Speaker 2: So here, like you look, get just a comparison again,
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Speaker 2: in Video's valued you know three and a half times
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Speaker 2: what Broadcom is. Sure in video revenue growth, it's it's
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Speaker 2: five year compound revenue growth is thirty nine percent a year.
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Speaker 2: It's growing revenue forty percent a year for the last
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Speaker 2: five years on average. Most of that compressed in the
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Speaker 2: last year and a half. Sure, it's earnings per share
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Speaker 2: are growing at forty eight percent a year over the
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Speaker 2: last five years. So you're growing profit faster than you're
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Speaker 2: growing revenue, and you're pressed and you're basically doubling your
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Speaker 2: profit every like seven quarters yea, which is good. Broadcomm
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Speaker 2: Its revenue growth is eleven percent a year. It's earnings
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Speaker 2: growth and this is for the last five years. It's
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Speaker 2: earnings growth over that time is three percent a year.
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Speaker 2: Again in and of itself, still impressive. Still a well
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Speaker 2: run company that's highly profitable. But yeah, it doesn't really compare.
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Speaker 2: One of these things is not like the other, and
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Speaker 2: there's only two things, so that thing is Broadcom. Let's
15:56
Speaker 2: see piece from Bloomberg. The Fed's gonna cut one more
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Speaker 2: time this year before slowing their pace next year. Congratulations,
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Speaker 2: we looked at the FED fund's futures market.
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Speaker 3: Yeah, I don't know who this piece is for.
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Speaker 2: This isn't Bloomberg. Nobody's subscribing to tell me.
16:13
Speaker 3: Show me the one Bloomberg subscriber that is unaware that
16:16
Speaker 3: the FED is cutting rates.
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Speaker 2: This year, they don't exist. It's a fine piece. I
16:23
Speaker 2: guess this is the kind of piece. The place that
16:26
Speaker 2: it is is wrong. Yeah today, Yeah, and it is
16:31
Speaker 2: a great service then informing people about what's going on
16:34
Speaker 2: in the broader market for the APOR, you know exactly,
16:38
Speaker 2: like and stuff like that should be in like USA
16:41
Speaker 2: today or the AP because I do think we need
16:43
Speaker 2: broader access to talking about this stuff because there's a
16:46
Speaker 2: whole bunch of people that don't realize that the FED
16:48
Speaker 2: doesn't cut mortgage rates. That's where we come in. We
16:51
Speaker 2: cut mortgage rates. Yes, gosh, I had no idea. I
16:56
Speaker 2: time that wrong. What button do I press on that? Yeah,
17:00
Speaker 2: there's nothing interesting here. It's okay, the Fit's probably going
17:05
Speaker 2: to cut next week almost a certainty, and no one
17:08
Speaker 2: really knows what the pace of cuts is going to
17:10
Speaker 2: be next year. I think that's that's good. Like, that's
17:12
Speaker 2: that's a fine summary there. I do want to talk
17:15
Speaker 2: a little bit about what we are seeing in uh,
17:18
Speaker 2: the treasury market right now, not even just the treasury market,
17:21
Speaker 2: the treasury market and the S and P five hundred.
17:24
Speaker 2: There's no volatility. It's just flat dom like everything is
17:29
Speaker 2: just very very muted as far as projections for future volatility,
17:36
Speaker 2: and it's been calm also, like realized volatility has been
17:40
Speaker 2: pretty quiet as well. For how I mean, you know
17:44
Speaker 2: we had some SP five hundred has been calm all year. Statistically,
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Speaker 2: this is going to be like the third or fourth
17:52
Speaker 2: least volatile year in S and P five hundred history.
17:55
Speaker 3: I want to focus just on that volatility piece for
17:58
Speaker 3: a minute, because I continue to get points from people
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Speaker 3: and I was had a client in earlier this week
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Speaker 3: and she says, Man, it just it feels like things.
18:07
Speaker 2: Are way more volatile than I remember.
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Speaker 3: And I had to make it a point to where that, like,
18:12
Speaker 3: it's not statistically the markets are not more volatile. And
18:16
Speaker 3: I think where this affects a lot of people and
18:19
Speaker 3: why they feel as though markets are more volatile, is
18:21
Speaker 3: that the Dow's trading over forty thousand right now. Bigger numbers,
18:25
Speaker 3: it's just pure play bigger numbers. And it's not just
18:28
Speaker 3: bigger numbers on the index, it's bigger numbers for people
18:32
Speaker 3: in general.
18:33
Speaker 2: Remember that when you were going.
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Speaker 3: Through the Great Financial Crisis eight the Dow got as
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Speaker 3: low as seventy six hundred. So the numbers that we
18:41
Speaker 3: were talking about are massively larger. In her case, it
18:44
Speaker 3: was also a situation of well, yes, not only are
18:49
Speaker 3: the Dow numbers bigger, but your portfolio is bigger. And
18:52
Speaker 3: so when we do have a one percent sell off,
18:55
Speaker 3: you're talking about a much larger figure that you're seeing
18:57
Speaker 3: when you go log into your accounts or single day
19:00
Speaker 3: move upwards. It feels more volatile to you because the
19:04
Speaker 3: numbers are bigger, and the numbers are bigger everywhere in
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Speaker 3: your personal portfolio as well as in.
19:08
Speaker 2: The indices themselves. But bigger numbers are good. Yeah, I
19:12
Speaker 2: don't think there's much to be complaining about it.
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Speaker 3: No, it.
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Speaker 2: Seems worse because of what you just outlined, But ultimately
19:19
Speaker 2: you want the problem of hey, I lost more money
19:22
Speaker 2: today than I've ever lost before. Well, that's because you
19:24
Speaker 2: had more money today than you ever had before. More
19:26
Speaker 2: money to lose, you know, Warren Buffet's not like, gee,
19:28
Speaker 2: I lost a million dollars, what do I do? It's well,
19:31
Speaker 2: I got a few billions, and it's fine. Let's take
19:35
Speaker 2: a quick break here when we come back. We got
19:36
Speaker 2: Wall Street.
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Speaker 1: Wall Street watch a complete look at what's moving markets
19:57
Speaker 1: so far today right here on the Financial Exchange Radio Network.
20:01
Speaker 4: Markets are edging higher on the final trading day of
20:05
Speaker 4: the week, as the Dow looks to snap at six
20:07
Speaker 4: day losing streak, or its longest losing streak since April.
20:12
Speaker 4: Right now, the Dow is flats, SMP five hundred is
20:16
Speaker 4: edging six points higher, and the Nasdaq is up by
20:19
Speaker 4: a third of a percent or sixty five points of
20:22
Speaker 4: Rustle two thousand is off four tenths of a percent,
20:25
Speaker 4: ten year Treasure reeled up four basis points at four
20:28
Speaker 4: point three seven percent, and crude oil is up nearly
20:32
Speaker 4: one percent higher, trading at seventy dollars in sixty four
20:36
Speaker 4: cents a barrel. Broadcom shares jumping by twenty one percent
20:40
Speaker 4: after the chip and software company posted a significant jumping
20:43
Speaker 4: quarterly revenue and said it saw big opportunities ahead for
20:47
Speaker 4: its AI business. Broadcom also hiked its quarterly dividend. Meanwhile,
20:52
Speaker 4: Costco reported higher quarterly sales and said customers are starting
20:56
Speaker 4: to spend slightly more as inflation comes down. Over the
21:00
Speaker 4: warehouse club chain said it saw a split customer base
21:04
Speaker 4: willing to pay the highest and lowest prices. Costco shares
21:08
Speaker 4: are up by half a percent, Elsewhere shares and Restoration
21:11
Speaker 4: hardware jumping by nearly fifteen percent after the furniture company
21:16
Speaker 4: swung to a quarterly profit and guided for fourth quarter
21:19
Speaker 4: revenue growth of eighteen two twenty percent from a year ago,
21:24
Speaker 4: and Boeing shares up by about half a percent after
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Speaker 4: the aircraft maker said it would invest one one billion
21:30
Speaker 4: dollars to boost production of its seven eighty seven Dreamliner
21:34
Speaker 4: jets as it seeks to address a growing backlog. I'm
21:38
Speaker 4: Tucker Silvain. That's Wall Street watch.
21:40
Speaker 2: Piece from Bill Dudley in Bloomberg Opinion today. It's titled
21:43
Speaker 2: the Fed Can't ignore All Trump's intentions Bill Dudley. If
21:47
Speaker 2: you're not familiar with him, he was the president of
21:49
Speaker 2: the Federal Reserve Bank of New York from twenty and
21:52
Speaker 2: nine through twenty eighteen. I feel like he might write
21:55
Speaker 2: something almost weekly in Bloomberg Opinion. Now. I don't know.
21:59
Speaker 2: Maybe this is what he does in addition to the
22:01
Speaker 2: postfit speaking circuit. But what's he talking about in terms
22:04
Speaker 2: of ignoring Trump's intentions?
22:06
Speaker 3: Well, So the commentary has been from the Federal Reserve
22:10
Speaker 3: when asked about policy that's going to be upcoming, is uh,
22:14
Speaker 3: you know, we don't guess, we don't speculate, and we
22:17
Speaker 3: don't assume. And that's a very reasonable policy to have,
22:20
Speaker 3: especially when you don't know who is going to be
22:21
Speaker 3: the next president.
22:22
Speaker 2: Yeah, I think that's fair today, you do.
22:26
Speaker 3: And the point that Dudley makes is that's not a
22:29
Speaker 3: good enough answer when you now know who the president
22:32
Speaker 3: is and who has made very public their intentions when
22:34
Speaker 3: it comes to certain things. I still would air on
22:37
Speaker 3: the caution of Jerome Powell's response to that question, which is,
22:41
Speaker 3: we don't guess, we don't speculate, and we don't assume.
22:43
Speaker 3: But there's a few things like the Federal Reserve doesn't
22:45
Speaker 3: just again put their finger in the air and determine
22:48
Speaker 3: where rates go. They build models. They lick the finger first, Yes,
22:51
Speaker 3: they do lick the finger first, then stick it in
22:53
Speaker 3: the air. They build actual models to assume what the
22:56
Speaker 3: what is going to happen with the economy, and so
22:58
Speaker 3: a few things that you probably should take into account
23:01
Speaker 3: if you're doing this would be baseline, tax is not
23:04
Speaker 3: going up in twenty twenty six, that was probably part
23:06
Speaker 3: of your model going into twenty twenty four. That should
23:10
Speaker 3: probably come out of that model based on what you
23:12
Speaker 3: know now. But if you're asking Jerome Powell in the
23:16
Speaker 3: FED to start contemplating and modeling out the effects of
23:21
Speaker 3: things like no taxes on social Security tips over time,
23:26
Speaker 3: mass immigration reform and deportations, or higher tariffs on all
23:30
Speaker 3: sorts of countries, I think Jerome Powell's answer absolutely should
23:34
Speaker 3: be we don't guess, we don't speculate, we don't assume,
23:36
Speaker 3: because you have no actual idea what's going to go
23:39
Speaker 3: into place here.
23:40
Speaker 2: Yeah, I think Look, I'm a long standing believer that
23:46
Speaker 2: the FED should say less at all potential times in
23:51
Speaker 2: the world, and as such, I'm kind of okay with
23:56
Speaker 2: Powell just continuing to say, like, yeah, we don't assuily.
24:00
Speaker 2: What harm comes from Powell saying that, I guess is
24:02
Speaker 2: my question? Yeah, I don't think much, especially right now.
24:08
Speaker 3: If you're saying that in March and Congress is in
24:12
Speaker 3: the middle of passing a mass deportation bill or something
24:15
Speaker 3: like that, then Okay, that's a different period of time
24:18
Speaker 3: and something else that you need to fixate on, or
24:21
Speaker 3: tariffs are about to be implemented or.
24:23
Speaker 2: This, that or the other.
24:24
Speaker 3: But today, what can you do with any of the
24:29
Speaker 3: campaign promises or pledges that have been put out there
24:32
Speaker 3: when it comes to their effects on the economy.
24:34
Speaker 2: My answer would be very, very not much. You know
24:37
Speaker 2: who I think would be a great if I were
24:40
Speaker 2: president one day? You know who I think would be
24:42
Speaker 2: a great FED chair, Bill Belichick. Yeah, just no smiles,
24:49
Speaker 2: no answers. Bill. Can you tell us a little bit
24:51
Speaker 2: about how the unemployment rate might be impacting how you're
24:56
Speaker 2: approaching policy. Well, we're on a next week, Bill, You're
25:02
Speaker 2: not you're not coaching football anymore. Well, the data will
25:05
Speaker 2: be what the data will be. Oh, okay, thanks, I
25:09
Speaker 2: think that would be great. I have to say I
25:11
Speaker 2: need less talk from the FED. Yeah. The reason and
25:18
Speaker 2: this is something that's also just bothersome to me. The
25:20
Speaker 2: reason why we think more communication from the FED is
25:23
Speaker 2: preferred is quite literally, because we think, hey, if we
25:29
Speaker 2: just say things the right way about money, we'll be
25:33
Speaker 2: able to avoid the like if if we message how
25:36
Speaker 2: we're going to make money, like how how money is
25:38
Speaker 2: going to be handled, that we'll be able to avoid
25:42
Speaker 2: problems in the future, as opposed to no, like, actually
25:47
Speaker 2: go and execute policy and leave the talking to other people.
25:51
Speaker 3: Well, there's there's one piece of communication that I think
25:54
Speaker 3: is imperative on the Federal reserves part and has been
25:57
Speaker 3: studied to the extent they're able to convince the American
26:02
Speaker 3: public that they are able to control inflation and get
26:05
Speaker 3: it down in the future. Sure, that's an important one
26:08
Speaker 3: because of the inflation expectations that we always talk about.
26:11
Speaker 2: I'd do it through actions, not through words.
26:13
Speaker 3: It's fair, but you know what, the average American isn't
26:17
Speaker 3: going to see the actions or understand the actions and
26:20
Speaker 3: have a tough time conveying them. Whereas if Jerome Powell
26:23
Speaker 3: comes out and says, don't worry, folks, we got this,
26:26
Speaker 3: then for some people out there, I think it does
26:29
Speaker 3: have an effect of saying, yeah, it's twenty twenty one.
26:32
Speaker 3: Car prices are crazy. But Jerome Powell just told me
26:35
Speaker 3: that he's going to get inflation down, So I'm going
26:36
Speaker 3: to wait on that purchase rather than, oh, I'm going
26:39
Speaker 3: to buy that car now because I'm worried it's going
26:40
Speaker 3: to go up another twenty percent next year. So that's
26:43
Speaker 3: the one area where those communications I think are relevant
26:46
Speaker 3: are important and kind of comically. I also think it's
26:51
Speaker 3: one of the less truthful things that they say, but
26:54
Speaker 3: I think it is important.
26:55
Speaker 2: Well, look, every leader who's at least, you know, worth
26:59
Speaker 2: their salt always tells you they haven't figured out. Yeah. Now,
27:03
Speaker 2: internally they might be talking to their second in command going, hey,
27:08
Speaker 2: how are we gonna do this? But like the publicly,
27:11
Speaker 2: you don't want your leader being like, no, we don't
27:14
Speaker 2: know how to handle this. I mean, yeah, if you
27:17
Speaker 2: start saying that, then you got real problems. So that's
27:20
Speaker 2: what we've got going on with the FED. Here. Let's
27:22
Speaker 2: take a quick break, and when we come back, we'll
27:25
Speaker 2: talk about another piece from Bloomberg. It's titled Trump's tax
27:28
Speaker 2: cuts may fail to drive much if any economic boost
27:31
Speaker 2: will cover that when we come back.
27:34
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28:04
Speaker 2: All right, Mike, we got a piece here in Bloomberg Opinion.
28:06
Speaker 2: It's titled Trump's tax cuts may fail to drive much,
28:09
Speaker 2: if any, economic boost. Do we think this is legit
28:13
Speaker 2: or not? Well, let's talk about it depends what tax
28:16
Speaker 2: cuts those are. We haven't seen any tax cuts yet
28:19
Speaker 2: because he's not he's the president yet not the president.
28:24
Speaker 3: I think it is fair to say that if he
28:27
Speaker 3: simply extends the twenty seventeen Tax Cuts and Jobs Act,
28:31
Speaker 3: which would maintain tax rates exactly where they are now,
28:35
Speaker 3: that's not going to boost the economy. It would boost
28:38
Speaker 3: that the economy compared to where Kamala Harris wanted to see
28:41
Speaker 3: rates worship president. But that's all we're talking about. Let's
28:44
Speaker 3: talk about where we are now versus where we might.
28:46
Speaker 2: Go in the right. Let's just put out a hypothetical
28:49
Speaker 2: where the corporate tax rate gets cut by another five
28:52
Speaker 2: percent and individual tax brackets come down by another two
28:55
Speaker 2: to three percent each. Like, I don't know what the
28:58
Speaker 2: numbers end up being there, but let's say that that's
29:00
Speaker 2: what we see. Yeah, I mean, would it have an
29:01
Speaker 2: economic boost? Sure?
29:03
Speaker 3: Would it be nearly as radical and substantial as what
29:06
Speaker 3: we saw in twenty seventeen? Very clearly not very obviously
29:11
Speaker 3: not because of where this economy is right now, and
29:14
Speaker 3: just looking at the dollars to look at how much
29:18
Speaker 3: that would cut and put in American taxpayer's pockets as
29:24
Speaker 3: a percentage of GDP or a percentage of the value
29:27
Speaker 3: of the stock market, or any number of different measures,
29:30
Speaker 3: it is a fraction of what was able to be
29:32
Speaker 3: done back in twenty seventeen.
29:35
Speaker 2: I'm not sure look at this point, with where we
29:40
Speaker 2: currently sit, I'm not sure that the answer, whether it's
29:44
Speaker 2: on the tax side or the spending side, is hey,
29:48
Speaker 2: we need more money in the economy to grow it faster.
29:51
Speaker 2: And the reason why I say this, the key difference
29:54
Speaker 2: is between now in twenty sixteen. Twenty sixteen GDP was
29:58
Speaker 2: growing at one point eight percent. This year's growing at
30:00
Speaker 2: two seven so it's already growing much faster. Unemployment rate
30:05
Speaker 2: in twenty sixteen was five percent. Now it's four to one.
30:07
Speaker 2: Remember the unemployment rate over Trump's term until the pandemic
30:10
Speaker 2: hit declined into the high threes, so you had more
30:13
Speaker 2: people that were coming into the workforce and working. Another one.
30:18
Speaker 2: The age twenty five to fifty four employment to population
30:20
Speaker 2: ratio seventy eight percent of people in that age group
30:23
Speaker 2: were working back then, eighty point nine percent. Now it's
30:26
Speaker 2: eighty point four percent are working today. There are there
30:30
Speaker 2: are fewer people aged twenty five to fifty four that
30:33
Speaker 2: can get into working because remember there's always some percentage
30:36
Speaker 2: that is either taking care of kids, taking care of parents, uh,
30:41
Speaker 2: just you know, goofing off, or going back to school
30:44
Speaker 2: for you know, masters and this and that.
30:46
Speaker 3: We've we've talked about this. If you release a bunch
30:49
Speaker 3: of money into the economy right now.
30:52
Speaker 2: Where will it go? Where? Where will where will it
30:55
Speaker 2: find slack? Because let's talk about what economic what real
30:59
Speaker 2: economic growth actually is. Real economic growth is making more
31:05
Speaker 2: stuff or making more experiences, but like making more sellable
31:10
Speaker 2: good sellable goods and things. The way that you do
31:14
Speaker 2: that there are two ways. The first increase the number
31:17
Speaker 2: of hours worked, which is not like hey, everyone work
31:20
Speaker 2: an extra ten hours, but it's it's generally, hey, more
31:23
Speaker 2: people come into the workforce, and that's how you get
31:25
Speaker 2: more hours worked. It's the additional labor or make more
31:29
Speaker 2: stuff during each hour worked. And there's literally no way
31:34
Speaker 2: that you can whether legislatively or executively, that's actually it.
31:42
Speaker 2: I think say, hey, you all make more stuff during
31:46
Speaker 2: your hours that you're working like, that's not how product
31:49
Speaker 2: If we could just legislate productivity, it would be great.
31:52
Speaker 2: We'd be like you and I would be on Mars
31:54
Speaker 2: right now. But you can't legislate productivity.
31:56
Speaker 3: And countries that try, like China, have trouble with it.
32:00
Speaker 2: It's it's a it's a problem. Live in this factory
32:02
Speaker 2: for the next six months. So I again, I keep
32:05
Speaker 2: coming back to, this is a different situation than the
32:08
Speaker 2: one that President Trump came into during his first term
32:13
Speaker 2: and expecting the same as far as hey, we're just
32:17
Speaker 2: gonna do a big tax cut and that's gonna goose
32:20
Speaker 2: you know, the economy. I'm not sure that that's the case.
32:25
Speaker 2: It's not a President Trump thing. It's not like it's
32:28
Speaker 2: it's not in anyone. It's just this is where the
32:31
Speaker 2: economy is now. It's in a really different place than
32:33
Speaker 2: it was a few years, eight years back. Now, if
32:38
Speaker 2: you end up, let's say that you end up in
32:40
Speaker 2: a situation where, hey, the labor market concerns that we've
32:44
Speaker 2: had last couple of weeks, we've seen enough taking jobos claims.
32:47
Speaker 2: Let's say those continue, and let's say we get some
32:49
Speaker 2: kind of mild recession next year. Okay, now you've got
32:51
Speaker 2: a case where, yeah, maybe there is something on the
32:53
Speaker 2: fiscal side that makes sense, But that's a big leap
32:58
Speaker 2: because we we still haven't seen anything meaningful on the
33:00
Speaker 2: labor market side that would indicate a lot of slack
33:04
Speaker 2: there yet.
33:05
Speaker 3: Reality is, though, Chuck, I think if we were to
33:08
Speaker 3: acknowledge it, the likelihood is we will get a tax
33:11
Speaker 3: cut in early twenty twenty five. It's probably one of
33:14
Speaker 3: the first things that will make its way through Congress.
33:16
Speaker 3: It might just be a lock in of the existing
33:18
Speaker 3: tax code, but it will still be a tax cut
33:21
Speaker 3: compared to where we are right now. There are other
33:23
Speaker 3: things that do seem fairly likely. The complicated piece of
33:28
Speaker 3: all of this is what will it mean for the
33:30
Speaker 3: short term and what will it mean.
33:31
Speaker 2: For the long term? Totally?
33:33
Speaker 3: Do you, as President Trump, ask the American public to
33:37
Speaker 3: make a few years of sacrifice in order to get
33:40
Speaker 3: this economy into a place where it should and needs
33:42
Speaker 3: to be long term through vast immigration reform and changes
33:48
Speaker 3: to tariffs and lower taxes. But what does all that
33:53
Speaker 3: workout to mean? What will it mean for prices? What
33:55
Speaker 3: will it mean at the end of the day for
33:57
Speaker 3: a lot of people for their four oh one K plans,
33:59
Speaker 3: and nobody has the answers to any and all of
34:03
Speaker 3: these things. But if you have spent the last forty
34:07
Speaker 3: five days or so trying to digest that and thinking
34:11
Speaker 3: about do I make changes to my own financial situation,
34:15
Speaker 3: to my own investment portfolio, to my retirement strategy based
34:19
Speaker 3: on the trajectory change that has occurred with American politics
34:23
Speaker 3: over the last few months, here, I would encourage you
34:27
Speaker 3: to take a pause and sit down with a professional
34:29
Speaker 3: that helps guide through the long term, because it can
34:32
Speaker 3: be very tempting to make dramatic changes when there are
34:36
Speaker 3: dramatic political changes.
34:37
Speaker 2: And the consistent.
34:40
Speaker 3: Communication that I hear from you, Chuck, and that we
34:42
Speaker 3: try to convey to our clients at Armstrong is you
34:45
Speaker 3: need to temper expectations because ultimately nobody knows exactly where
34:51
Speaker 3: the path will be. But if you have questions along
34:54
Speaker 3: those lines, if you're trying to sort out what all
34:57
Speaker 3: of this might mean for you and your personal financial situation,
35:00
Speaker 3: whether it is your retirement accounts and how those are invested,
35:04
Speaker 3: whether it's whether to refinance or move. In twenty twenty five,
35:08
Speaker 3: We'd love to sit down with you and use us
35:11
Speaker 3: as a sounding board so you can try and figure out.
35:14
Speaker 3: We'll sit on the same side of the table as
35:16
Speaker 3: you and work to evaluate your overall strategy. The phone
35:19
Speaker 3: number for the Armstrong Advisory Group is eight hundred three
35:23
Speaker 3: nine three four zero zero one. Set a new year's
35:26
Speaker 3: resolution to get your financial house in order so that
35:29
Speaker 3: you feel good about your financial future. Again that number
35:33
Speaker 3: eight hundred three nine three for zero zero one.
35:36
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
35:39
Speaker 1: registered investment advisor. Nothing in the ad or in any
35:42
Speaker 1: Armstrong guide a specific financial, legal, or tax advice. Consult
35:45
Speaker 1: your own financial, tax, and estate planning advisors before making
35:47
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
35:51
Speaker 1: advisory services PC.
35:53
Speaker 2: Here from the Wall Street Journal how seniors can donate
35:56
Speaker 2: more to charity and pay less than taxes. That that
35:58
Speaker 2: sounds lovely, doesn't it. It does.
36:00
Speaker 3: Yeah, this is something that's been getting a little bit.
36:04
Speaker 3: It seems to me like the in the financial services world,
36:07
Speaker 3: the Roth conversions of a decade ago, where a few
36:10
Speaker 3: people were doing them, were really new about them, but
36:13
Speaker 3: this is becoming more popular now, especially since the Trump
36:16
Speaker 3: era tax cuts.
36:18
Speaker 2: Here's the rule.
36:20
Speaker 3: You can always make charitable donations, and you can always
36:23
Speaker 3: itemize them on your tax return. But for what's the
36:27
Speaker 3: latest reading, eighty percent of Americans do not itemize on
36:30
Speaker 3: their tax return, not because they're lazy, but purely because
36:34
Speaker 3: the standard deduction is pretty big.
36:36
Speaker 2: Pretty big.
36:37
Speaker 3: So if you are over the age of seventy and
36:39
Speaker 3: a half, you are likely on the cusper already in
36:43
Speaker 3: required minimum distribution territory, and it allows you to do
36:46
Speaker 3: something called a qualified charitable distribution. This to me is
36:53
Speaker 3: the kind of holy grail that's only available to those
36:56
Speaker 3: retirees over the age of seventy and a half. But
36:58
Speaker 3: it is a really tax effective way to support the
37:03
Speaker 3: causes that you may already be doing so. And it's
37:06
Speaker 3: also pretty unknown to the general public and not terribly
37:09
Speaker 3: well understood. And so this is one of those that
37:12
Speaker 3: you need to do some research on before you do
37:15
Speaker 3: it because there are strict rules around how it is done.
37:18
Speaker 2: Yes, but it's a real opportunity for a lot of retiaries.
37:21
Speaker 2: The big premise on it is, look, you take the
37:24
Speaker 2: money directly from an IRA and give it directly to
37:27
Speaker 2: a charity. It never even hits your tax return, so
37:30
Speaker 2: it doesn't show up on things like your adjusted gross
37:32
Speaker 2: in come or modified adjusted gross income, which can impact
37:35
Speaker 2: your Medicare premiums and things along those lines. It doesn't
37:39
Speaker 2: end up getting hit by if you're in a certain
37:42
Speaker 2: tax bracket. The three point eight serve tax on that
37:45
Speaker 2: investment income, so it allows you to have potentially more
37:49
Speaker 2: efficient management of your taxes in retirement. But it is
37:53
Speaker 2: something where you do want to consult with a qualified
37:56
Speaker 2: tax advisor on this because it's a little bit more
38:00
Speaker 2: complex than just saying, oh, like, I'm gonna do this.
38:03
Speaker 2: If you do it wrong, then it does you don't
38:06
Speaker 2: get any of the benefits from it right, So chat
38:09
Speaker 2: with your tax advisor about qualified charitable donations to see
38:13
Speaker 2: if it makes sense on your end. Quick break here
38:16
Speaker 2: we got more financial exchange and just a bit