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Why the dollar's value has declined 10% this year · The Financial Exchange Show

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Speaker 1: Face is the Financial Exchange with Mike Armstrong and Mark Vandetdy.
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Speaker 2: Good morning, Welcome back to the Financial Exchange. As all
1:16
Speaker 2: of you make your way across the country to your
1:20
Speaker 2: July fourth destination. We've got markets in strongly positive territory
1:24
Speaker 2: on the back of a better than expected jobs report.
1:28
Speaker 2: We've got interest rates up slightly on expectations or falling
1:33
Speaker 2: expectations of a rate cut. And clocking in on a
1:37
Speaker 2: few drives here, what do we want to see? Let's
1:39
Speaker 2: see Boston to Chatham drive time right now looking like
1:42
Speaker 2: two hours and fifty three minutes as we head into
1:46
Speaker 2: the weekend.
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Speaker 3: How about well, we're really going local this morning? We are?
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Speaker 2: Yeah, I want to know what it would take me
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Speaker 2: to get to Lake Winnipesauke if I needed to leave
1:55
Speaker 2: from Boston, right.
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Speaker 3: For those joining us? Serious that place in New Hampshire.
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Speaker 2: Yeah, it is not bad two hours and eight minutes
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Speaker 2: if I want to go to Winnipesaki.
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Speaker 3: So I'll take it any other drive times you want
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Speaker 3: to check it? On down to.
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Speaker 2: Narragansett Mark from here to rent Them, Rent Them. Mass
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Speaker 2: Chase is to hit the album no for no particular reason.
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Speaker 2: That's how Mark Fandetty celebrates his shopping at Gap on
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Speaker 2: the news of the Vietnam tariff.
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Speaker 4: Lived there twenty years, been to the outlooks like twice.
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Speaker 2: But yeah, okay, let's start off with a look at
2:26
Speaker 2: this job's report again that we got at eight thirty
2:29
Speaker 2: am this morning. It's a Thursday job It's a Thursday
2:33
Speaker 2: jobs report usually comes the first Friday of every month. Obviously,
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Speaker 2: there's something going on tomorrow that's disrupting that. Very disappointed
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Speaker 2: that markets are closed and that I won't be able
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Speaker 2: to come in here on a Friday, but we'll all live.
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Speaker 2: Market's closed today at one pm. At eight thirty this morning,
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Speaker 2: we had a jobs report that reported one hundred and
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Speaker 2: forty seven thousand jobs created in the month of June,
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Speaker 2: according to the that comes from the Establishment Survey.
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Speaker 3: Wow, I am drawn a blank there moment.
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Speaker 2: The Establishment Survey, which surveys a number of businesses, indicated
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Speaker 2: job creation of one hundred and forty seven thousand, which
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Speaker 2: was well above expectations which were around one hundred thousand.
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Speaker 2: The unemployment rate, which had come in at four point
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Speaker 2: two percent over the last three readings, bumped down to
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Speaker 2: four point one percent. And overall, what you can take
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Speaker 2: away from this report is an economy that is defying
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Speaker 2: I think all expectations and remaining quite resilient, at least
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Speaker 2: when it comes to the labor market.
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Speaker 4: In this moment, there was there were some concerns about
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Speaker 4: labor market softening. The drum beat was getting louder over
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Speaker 4: the past few weeks. It might be the case though
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Speaker 4: the labor market is just normalizing. The unemployment rate went
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Speaker 4: from fourteen percent to under four percent, so historically very high.
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Speaker 4: The highest the rate to reach during COVID was the
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Speaker 4: highest since the Great Depression. The lows reached post COVID,
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Speaker 4: following several rounds of stimulus fallow exceptional emergency action by
4:01
Speaker 4: the Federal Reserve was the lowest more or less that
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Speaker 4: it had ever reached a couple of exceptions nineteen sixties,
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Speaker 4: late nineteen nineties. So in very good company. All measures point.
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Speaker 4: All measures now fast forwarding ahead to today, point to
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Speaker 4: a stable and strong labor market. For anything in the
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Speaker 4: fours mike or in the fives for that matter, providing
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Speaker 4: that that's not a way station to something much higher,
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Speaker 4: is very good for unemployment. It probably something in the fours,
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Speaker 4: something in the low fives is probably close to what
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Speaker 4: you might call full employment. What you might call a
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Speaker 4: natural rate, the rate that's not pushing inflation up. Think
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Speaker 4: of it as the economy speed limit. So the household survey,
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Speaker 4: as you've already pointed out, suggests an all clear as
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Speaker 4: of this snapshot anyway in time for the labor market. Similarly,
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Speaker 4: the Establishment survey, even including the adjustment you might want
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Speaker 4: to do in your head for the fact that it's
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Speaker 4: an estimate and we know it's plus or minus roughly
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Speaker 4: one hundred and thirty thousand jobs. In all like lelihood,
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Speaker 4: business is still added jobs last month. Wage growth came
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Speaker 4: in a little bit, which is good news for inflation,
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Speaker 4: and there's really not much to I don't think harp
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Speaker 4: on as being negative in This Morning Reporter, as you pointed.
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Speaker 2: Out, So in the words of Mark Fandetti, stop complaining,
5:17
Speaker 2: all you college grads.
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Speaker 3: Is that what I'm hearing?
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Speaker 5: No?
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Speaker 4: Well, yeah, So there is this uncomfortable reality that according
5:28
Speaker 4: to other reports like the Job Opening's Labor Turnover Survey
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Speaker 4: so called Jolt's Report, and other more anecdotal sources, the
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Speaker 4: jobs market is in something of a limbo. Not many
5:43
Speaker 4: jobs being shed, thankfully, fewer, particularly for that cohort that
5:47
Speaker 4: you mentioned recent graduates being added. What's going on there?
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Speaker 4: I don't really know, to tell you the truth, I'm
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Speaker 4: not a labor economist, not my area. There's some interesting speculation.
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Speaker 4: As with many things, we won't truly know what the
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Speaker 4: trend is, either in that segment of the labor market
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Speaker 4: or overall, or for that matter, with respect to the
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Speaker 4: price level and the change in the price level, which
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Speaker 4: we call inflation and moving up a level still economic growth.
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Speaker 4: We won't know for some time what's actually going on
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Speaker 4: in the economy right now.
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Speaker 2: But you can take the good news for what it
6:20
Speaker 2: is today, and investors seem to be doing so on
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Speaker 2: Wall Street.
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Speaker 4: And the reaction makes sense.
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Speaker 3: It makes perfect sense.
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Speaker 4: Sometimes you can't explain it, and we chalk it up
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Speaker 4: to noise, which is a lazy way of saying we
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Speaker 4: don't get it. But today's reaction stocks up.
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Speaker 3: It is.
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Speaker 4: Well, it's a catch all category. When you don't know,
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Speaker 4: you say it's a miracle. In science, when we don't know,
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Speaker 4: we say, I say we like, I have never owned
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Speaker 4: a microscope, but you know what I mean. We as
6:47
Speaker 4: a civilization, we say it's a miracle. That's the that's
6:51
Speaker 4: the category we assigned the things we can't explain here.
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Speaker 4: We call it noise. Today's reactions makes sense. Bond yields
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Speaker 4: are up on stronger growth perhaps and maybe in slation expectations.
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Speaker 4: Maybe the idea that the FED needs to cut urgently.
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Speaker 4: That idea is the the urgency has subsided somewhat, maybe
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Speaker 4: a lot. So it makes sense that rates, especially short
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Speaker 4: term rates, like Ben Kitchen said in the last hour,
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Speaker 4: are up a lot. Makes perfect sense.
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Speaker 3: Never once owned a microscope, I don't think of it.
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Speaker 4: Why would I have a microscope? What do you do
7:21
Speaker 4: with yours?
7:22
Speaker 2: Uh? We we bought them as a family, and it
7:25
Speaker 2: was the most entertaining way to uh, most entertaining way
7:30
Speaker 2: to look at the kid's head lice was under a
7:32
Speaker 2: giant microscope. Those are fascinating little displase guys. Amish, Yeah, oh.
7:38
Speaker 4: That actually if you rumish, you would know ont a microscope? Correct,
7:41
Speaker 4: you have like a ferret eating them out or eating
7:44
Speaker 4: out the.
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Speaker 2: Lice in reactiones industrial having U sound serious?
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Speaker 3: Yeah, they're very well, well, they they're amish.
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Speaker 4: They're not they're not satellite radio no, yeah, so the
7:53
Speaker 4: heck with them?
7:54
Speaker 2: Dow Jones Industrial average up three hundred and sixty seven
7:56
Speaker 2: points eight ten s and P five hundred fifty one
8:00
Speaker 2: points eight tens of percent NAS that closing in on
8:02
Speaker 2: a full percentage point higher in the Russell two thousand,
8:05
Speaker 2: also up a little bit more than eight tenths of
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Speaker 2: a percent. In the bond market, as we've been talking
8:10
Speaker 2: about interest rates moving a bit higher this morning, the
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Speaker 2: yield on the two year treasury yield up nearly nine
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Speaker 2: basis points to three point eight seven six percent, the
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Speaker 2: yearield on the ten year up about four to four
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Speaker 2: point three to three percent. And just because Mark did
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Speaker 2: not like all my Boston centric drive times, the drive
8:28
Speaker 2: time from Manhattan to the Hampton's currently clocking into two
8:31
Speaker 2: hours and forty two minutes. I have no idea what
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Speaker 2: it usually takes so irrelevant to me, but just in
8:35
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Speaker 2: Mark I was I actually don't recall where I was
10:23
Speaker 2: reading or listening to it, whether it's a podcast or
10:26
Speaker 2: a news article, but it was from a left ish
10:29
Speaker 2: leaning source, and it was speaking specifically about this text
10:33
Speaker 2: bill that is being moved through and speaking about deficits
10:37
Speaker 2: and the concerns that are being raised about deficits in particular.
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Speaker 3: And one thing that.
10:41
Speaker 2: They narrowed in on that I thought was maybe just
10:47
Speaker 2: a bit of a miscategorization was the move in the
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Speaker 2: dollar this year. So, as we've reported on, the dollar
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Speaker 2: is moved down about ten percent so far this year
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Speaker 2: in value compared to a basket.
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Speaker 4: So it takes more dollars to buy a yen or
10:58
Speaker 4: a euro or a Sweiddish corona or whatever.
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Speaker 2: Devalued a bit makes makes makes us manufactured goods look
11:10
Speaker 2: more attractive overseas if you're traveling overseas or you know,
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Speaker 2: owning dollars, you own a few less of them.
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Speaker 3: And the point was.
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Speaker 2: Made that, hey, you know there's already pressure on the dollar,
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Speaker 2: and this is this devaluing is happening at a time
11:28
Speaker 2: when US interest rates are by and large higher than
11:30
Speaker 2: elsewhere in the world, and already there's pressure on the dollar.
11:33
Speaker 2: If you lump on a whole bunch of new additional
11:35
Speaker 2: debt on top of that, what does it spell for
11:38
Speaker 2: the state of the dollar. And I felt that that
11:40
Speaker 2: was all factually accurate, but insinuated that the fall in
11:46
Speaker 2: the dollar this year was already due to deficit concerns.
11:49
Speaker 2: And I have to say, I'm not really sure I
11:52
Speaker 2: agree there.
11:53
Speaker 4: So the dollar and all those other currencies we talked about,
11:56
Speaker 4: they are assets. They're traded every day. In fact, it's
11:59
Speaker 4: the biggest capital market in the way. I say this
12:03
Speaker 4: because I didn't know this, Like as a student, it
12:05
Speaker 4: didn't occur to me. The currencies get traded. What does
12:07
Speaker 4: that even mean? People, you buy dollars, if you are
12:11
Speaker 4: a Japanese business or their central bank, you can hold
12:15
Speaker 4: them as dollars. More likely you hold them as US
12:18
Speaker 4: assets like treasuries. So dollars have many uses here obviously
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Speaker 4: and abroad. Why would the dollar fall, Well, there's less
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Speaker 4: demand for it. Maybe it's because US interest rates are
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Speaker 4: coming down. That's the typical explanation. And you're right, Mike,
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Speaker 4: US interest rates are still higher than and I'm going
12:36
Speaker 4: to just use the long term rate here when I
12:38
Speaker 4: say interest rates, I'm thinking of the say, ten year treasury.
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Speaker 4: The ten year treasury equivalent is much lower in other countries,
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Speaker 4: not the UK necessarily, but Germany, Japan, certainly, Italy maybe
12:50
Speaker 4: about the same. But it's on average we've got higher
12:54
Speaker 4: interest rates than other countries. It's not so much that
12:56
Speaker 4: that matters. I don't think as the expected future difference
13:00
Speaker 4: in interest rates, and up until well really at eight
13:02
Speaker 4: twenty nine this morning, people were expecting US interest rates
13:05
Speaker 4: to come down, maybe quickly. So it's natural to expect
13:09
Speaker 4: if that differential between US and foreign interest rates were
13:12
Speaker 4: And by the way, I'm doing something else here that
13:14
Speaker 4: I should explain. I'm equating what the FED does when
13:18
Speaker 4: I say the FED will ease policy with what happens
13:22
Speaker 4: in longer term interest rates. Doesn't at certain no, in
13:25
Speaker 4: fact is often as not, it does not happen FED
13:28
Speaker 4: cuts rates. Long term interest rates go up because inflation
13:31
Speaker 4: expectations go up, or growth the expectations go up. So
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Speaker 4: people were probably misattributing the dollars declined to worries about
13:38
Speaker 4: erratic trade policy, worries about the US deficit ballooning even
13:43
Speaker 4: more rapidly than previously expected. The explanation is a lot
13:46
Speaker 4: more mundane than that. It's that interest rates here were
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Speaker 4: expected to come down by more than they were expected
13:52
Speaker 4: to come down elsewhere. That explains everything, and it also
13:55
Speaker 4: explains what's happening today. If you have a theory, it's
13:58
Speaker 4: got to explain not just what's happening right now, but
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Speaker 4: what's happened even if it wasn't consistent with what's happening
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Speaker 4: right now at previous points in time. And I think
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Speaker 4: it's just a matter of interest rate differentials.
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Speaker 2: MIC it can be difficult to parse out because the
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Speaker 2: theory of the dollar devaluing foreign buyers of US assets
14:17
Speaker 2: moving away from them due to deficit concerns, growth concerns,
14:21
Speaker 2: tariff concerns, to me, is a sound theory that could
14:25
Speaker 2: eventually take sure. Yeah, right, you can paint a picture
14:28
Speaker 2: right if the US keeps running up such high debt bills,
14:31
Speaker 2: they won't be able to pay it back. We're not
14:33
Speaker 2: going to lend them money at four percent interest rates
14:36
Speaker 2: or whatever you're lending the US at those rates because
14:39
Speaker 2: you're worried that they're going to have to devalue the
14:41
Speaker 2: currency in order to print the money to pay the
14:43
Speaker 2: interest on the debt and pay back those loans.
14:46
Speaker 4: Yeah, they won't call it a devaluation. That's like when
14:48
Speaker 4: a government deliberately wants its currency to be cheaper. Another
14:51
Speaker 4: reason a foreign government might own dollars. They use dollars
14:54
Speaker 4: to manipulate the value of their own currency. We don't
14:56
Speaker 4: do that, at least not anymore. Just a technical point,
15:00
Speaker 4: since we're on the subject, and it's a it's kind
15:02
Speaker 4: of a it's a complicated subject.
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Speaker 2: So how how that whole house of cards could come
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Speaker 2: crashing down? I think is a relatively sound theory that
15:13
Speaker 2: she would someday take place, but you have to kind
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Speaker 2: of resist temptation to believe it at all times.
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Speaker 4: There's never one single explanations are usually they could be right,
15:26
Speaker 4: but they get yeah, they're probably wrong. It's very easy
15:28
Speaker 4: to they're convenient, though. You just have to be willing
15:32
Speaker 4: to question what you thought explained events yesterday today, you know,
15:37
Speaker 4: because day date is constantly coming in and markets are shifting,
15:42
Speaker 4: and if you're not, if you're not questioning what you
15:44
Speaker 4: thought yesterday. You're not You're not doing a very good.
15:48
Speaker 2: Job CEOs publicly stating what they were previously kind of
15:53
Speaker 2: skirting around the edges on, but coming out and saying
15:56
Speaker 2: it a little bit more when it comes to artificial intelligence.
15:59
Speaker 2: These days, Wall Street Journal reporting this that CEOs are
16:04
Speaker 2: being much more public about their expectations and goals for
16:08
Speaker 2: artificial intelligence than they were previously, and those goals are
16:11
Speaker 2: pretty clear. We want to cut the cost of our
16:13
Speaker 2: labor by shrinking headcount across the board. Here's what we
16:18
Speaker 2: have seen so far from a few different leaders. Chief
16:21
Speaker 2: executive Jim Farley said an interview quote, Artificial intelligence is
16:25
Speaker 2: going to replace literally half of all white collar workers
16:29
Speaker 2: in the United States. We had other projections from Marion Lake,
16:34
Speaker 2: the CEO of JP Morgan Chase's consumer and community business,
16:39
Speaker 2: telling investors in May that she could see its operations
16:42
Speaker 2: headcount falling by ten percent in the coming years as
16:45
Speaker 2: the company uses new AI tools and Amazon CEO Andy
16:49
Speaker 2: Jasse wrote in and O to employees back in June
16:51
Speaker 2: that he expected the company's overall corporate workforce to be
16:54
Speaker 2: smaller in the coming years because of the once in
16:57
Speaker 2: a lifetime AI technology so I think the Wall Street
17:00
Speaker 2: Journal is correct in one thing, that CEOs are presenting
17:06
Speaker 2: this more frequently to primarily investors about the future state
17:12
Speaker 2: of their companies. I don't really believe that they're right,
17:17
Speaker 2: that the CEOs are correct. I think more than likely
17:20
Speaker 2: they are saying these things in order to get attention
17:24
Speaker 2: from investors and paint a pretty picture of their future
17:28
Speaker 2: earnings of what all of this stuff looks like. Quite honestly,
17:33
Speaker 2: I think if you were to pin me down, or
17:36
Speaker 2: pin the CEO of any of these major companies down
17:40
Speaker 2: on what their expectations for artificial intelligence really are, it
17:44
Speaker 2: would be to make their employees that exist today more
17:48
Speaker 2: efficient with one goal in mind. Mark It's to grow,
17:53
Speaker 2: right I mean, I mean if you were a CEO
17:55
Speaker 2: of a publicly traded company, your goal is to grow revenue,
17:57
Speaker 2: grow profits, and make your company larger if you can
18:02
Speaker 2: utilize artificial intelligence. If you're a net result here is
18:05
Speaker 2: that you have eliminated half of your employees because of
18:08
Speaker 2: artificial intelligence.
18:09
Speaker 3: I view that as a failure. That means they might
18:12
Speaker 3: might not grown.
18:13
Speaker 4: It might wipe out forward jobs at Ford, but it
18:17
Speaker 4: will create jobs elsewhere. You know what else wiped out
18:20
Speaker 4: a lot of jobs electricity did. Yes, a lot of
18:23
Speaker 4: candle makers lost, they did jobs. There are tons of
18:25
Speaker 4: examples like that. This is this is textbook progress.
18:29
Speaker 3: Forgive me.
18:29
Speaker 4: I don't mean to be glib about it, but we
18:31
Speaker 4: have to ensure that those who are displaced get retrained.
18:35
Speaker 4: But that's no reason to hold back. And nobody here
18:38
Speaker 4: is suggesting regulating AI to hold back these advances. Just
18:42
Speaker 4: AI like any technology, and there are far probably more
18:45
Speaker 4: potent examples in our history. I mentioned one steam power
18:48
Speaker 4: as another for Pete's sake. They push out the frontier
18:50
Speaker 4: of what's possible. There are always disruptions, but on average
18:54
Speaker 4: will be far better off. So might E at forward
18:57
Speaker 4: if they're not properly positioned. But you can't extra popolate
19:00
Speaker 4: to the larger economy from that.
19:01
Speaker 2: Right, I tend to agree. And again, if the only
19:06
Speaker 2: result of all this is that we have fewer people
19:08
Speaker 2: working in general, well it's not gonna happen.
19:11
Speaker 3: And be it's a.
19:13
Speaker 2: Very ugly picture not of just the US labor market,
19:16
Speaker 2: but of the companies themselves if they are hallowed out
19:18
Speaker 2: of their employees, because it means they've not found a
19:21
Speaker 2: way to grow off of this technology. Quick break, full
19:24
Speaker 2: market recap.
19:25
Speaker 3: Next with Wall Street.
19:25
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Speaker 1: Every day. It's the Financial Exchange on the Financial Exchange
19:47
Speaker 1: Radio Network. Time now for Wall Street Watch. A complete
19:53
Speaker 1: look at what's moving market so far today right here
19:56
Speaker 1: on the Financial Exchange Radio Network.
20:00
Speaker 6: Well markets continue to rise today is traders continue to
20:03
Speaker 6: digest this morning's monthly job support that came in higher
20:06
Speaker 6: than expected. Non non farm payrolls increased to seasonally adjusted
20:09
Speaker 6: one hundred and forty seven thousand for the month, higher
20:12
Speaker 6: than the estimate of one hundred and ten thousand and
20:15
Speaker 6: just above the upwardly revised one hundred and forty four thousand.
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Speaker 6: The Dow Jones is currently up over three hundred and
20:21
Speaker 6: thirty six points or point seventy five percent, the S
20:25
Speaker 6: and P five hundreds up over fifty points aer point
20:27
Speaker 6: eight two percent, and the Nasdaq is up over two
20:29
Speaker 6: hundred and seven points or just over one percent. The
20:33
Speaker 6: two year bond is up eight basis points and the
20:37
Speaker 6: ten year is up four basis points. Right now, shares
20:40
Speaker 6: of the Silicon Valley chip designers, Synopsis and Cadence Design Systems,
20:44
Speaker 6: each rallied over, are rallying over five percent. The US
20:47
Speaker 6: government lifted restrictions on exporting chip design software to China.
20:51
Speaker 6: According to announcements from companies in the industry, drone maker
20:55
Speaker 6: Crados Defense and Security Solutions is up two point seven
20:58
Speaker 6: percent after RBC Capital Market It's reiterated and outperform investment opinion.
21:03
Speaker 6: The firm raised its twelve month price target to create
21:07
Speaker 6: on Kratos, believing the small cap defense tech sector will
21:10
Speaker 6: continue to outperform. Krispy Kreme said this morning that its
21:15
Speaker 6: current CFO is leaving for another job, with international president
21:18
Speaker 6: Raphael du Vivier set to take the job over next week.
21:23
Speaker 6: The donut maker reported declining sales in May and recently
21:27
Speaker 6: ended its partnership with McDonald's amid profitability concerns. Currently, Krispy
21:33
Speaker 6: Kreme is about four percent off. I am Ben Kitchen
21:37
Speaker 6: and that is Wall Street Watch. Today's trivia question was
21:41
Speaker 6: how many Mission Impossible movies has Tom Cruise made? Your
21:45
Speaker 6: correct answer would be eight. He is currently on his
21:49
Speaker 6: eighth Mission Impossible movie. Today's winner is Susan in Bedford,
21:52
Speaker 6: New Hampshire. She'll be taking home a Financial Exchange Show
21:56
Speaker 6: T shirt. We will resume trivia next week.
22:00
Speaker 2: Do you guys remember the height of the Crispy Kream craze.
22:05
Speaker 2: I don't remember how old I was, but I remember
22:07
Speaker 2: there's a local shop owner who would drive something like
22:10
Speaker 2: two hours every morning to go to a Krispy Kreme
22:15
Speaker 2: across state lines, buy a bunch of Krispy Cremes and
22:18
Speaker 2: then resell them at a at a markup to the
22:21
Speaker 2: local residence.
22:22
Speaker 3: And it was a line out the door every time. Yeah.
22:25
Speaker 3: That lasted like a week and a half.
22:26
Speaker 4: We all had heart attacks than the phase fast spired.
22:29
Speaker 3: Yeah, yeah, there you go. Uh Mark.
22:33
Speaker 2: We have a piece from MarketWatch today on four to
22:36
Speaker 2: one k's and I find it interesting because we have
22:39
Speaker 2: been talking a lot about looming changes to for a
22:43
Speaker 2: one K plans that are being tossed out there. One
22:46
Speaker 2: that came up I think last year was the inclusion
22:50
Speaker 2: of new annuity products in for a one K plans,
22:54
Speaker 2: And another is the discussion, you know, partly led by
22:58
Speaker 2: by black Rock, but others as well, of including private
23:01
Speaker 2: equity and private credit in for a one K plans.
23:06
Speaker 2: As with anything else, I can't describe if any of
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Speaker 2: these things as universally good or bad.
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Speaker 3: I don't think it's appropriate to do so.
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Speaker 2: But I do think that you can definitively say that
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Speaker 2: four o one ks are on the cusp of getting
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Speaker 2: more complicated than they have been previously.
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Speaker 4: Yeah, they're trying to make them. The overall theme of
23:29
Speaker 4: the past really twenty five years, or since the Pension
23:33
Speaker 4: Protection Act of two thousand and six anyways, to the
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Speaker 4: overall effort has been toward making four one ks more
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Speaker 4: automatic and more pension.
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Speaker 2: Like unlike example that would be the automatic enrollment, automatic increase.
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Speaker 4: Those things existed pre two thousand and six, but they
23:49
Speaker 4: hadn't yet received the blessing, the categorical blessing of the
23:53
Speaker 4: Department of Labor, to the point where an employer and
23:54
Speaker 4: knew they wouldn't get suited if they offered them, right,
23:56
Speaker 4: believe it or not, It was controversial before that, Yeah,
23:59
Speaker 4: or at least legally questionable to default and roll somebody
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Speaker 4: into a plan and default them, that is, to do
24:06
Speaker 4: it without asking them, but giving them the chance to
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Speaker 4: object if they didn't, they got put into it. Default
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Speaker 4: them into an investment that put their money in stocks,
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Speaker 4: which is what a target date fund does, of course,
24:16
Speaker 4: and a balance controversial. Sure, you could lose money, and
24:20
Speaker 4: there were suits prior to six After the clarity that
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Speaker 4: Pension Protection Act provided the target, so called target date
24:28
Speaker 4: fund industry blossomed more recently, though it's not exactly a
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Speaker 4: new phenomenon in the effort again to make for one case,
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Speaker 4: more pension like offer an annuity distribution option. Most big
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Speaker 4: plans have for a very long time. Few people take
24:42
Speaker 4: advantage of it though, maybe because of the the mixed
24:47
Speaker 4: feelings people tend to have about annuities. Maybe for other reasons.
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Speaker 3: But it's a scary word for people.
24:54
Speaker 4: And now we're moving. Yeah, you would, you would know, right,
24:56
Speaker 4: there's there are Like with any financial tool, there are
25:01
Speaker 4: good uses and there are misuses. And then the the
25:05
Speaker 4: phase seems to be yeah, or maybe abuses. You're protected
25:11
Speaker 4: against that to a degree in a four to one
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Speaker 4: K plan because your employer is a fiduciary. The legal
25:16
Speaker 4: standard is for decision making there's very very high. The
25:20
Speaker 4: next phase appears to be offering private market investments into
25:23
Speaker 4: four oh one K plans. Pension plans have used them
25:25
Speaker 4: for nearly for over thirty years. That's private equity, private credit.
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Speaker 2: It is an important caveat that I don't think people
25:31
Speaker 2: recognize that their employer has a fiduciary obligation when it
25:35
Speaker 2: comes to their employees and their four one under federal law.
25:38
Speaker 2: There are serious ramifications if they do intentionally adverse things.
25:45
Speaker 4: Not just that they have to be engaged, Mike like,
25:48
Speaker 4: as a fiduciary, you have to exercise the same degree
25:53
Speaker 4: of care that a reasonably prudent expert would. You can't
25:57
Speaker 4: just sort of put it in place and hope for
25:59
Speaker 4: the best because they're self directed. You have to ensure
26:02
Speaker 4: that outcomes conform within a broad range to what's deemed appropriate.
26:08
Speaker 2: That having been said, there is a growing push I
26:15
Speaker 2: think for I don't know if I would call it deregulation,
26:18
Speaker 2: but inclusion of a lot more complexity when it comes
26:22
Speaker 2: to these retirement plans. We've already seen it through the
26:24
Speaker 2: introduction of wroth accounts decades ago, but those have become
26:29
Speaker 2: much more prominent. I think they are a great thing,
26:32
Speaker 2: but it's complex. The target date fund inclusion I think
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Speaker 2: a great improvement on where the four oh one k
26:38
Speaker 2: has gone over years, but complicated in room for error
26:41
Speaker 2: if you start including annuities and then private equity allocations
26:44
Speaker 2: within target date funds, added complexity that potentially could be
26:48
Speaker 2: a great thing for investors that know how to use
26:51
Speaker 2: it and know how to vet it and look through it,
26:55
Speaker 2: but large potential pitfalls as well. I think when it
26:59
Speaker 2: comes to all of this, I would say the traditional
27:02
Speaker 2: versus Roth question is the one that I most frequently
27:05
Speaker 2: see people making mistakes on quite frankly, and there is
27:10
Speaker 2: no fiduciary obligation for the four to one K provider,
27:12
Speaker 2: to my knowledge, to tell you should you be doing
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Speaker 2: one versus THEA.
27:15
Speaker 4: No, indeed, they probably can't unless they offer advice and
27:20
Speaker 4: you pay for it and it's monitored.
27:22
Speaker 3: Correct.
27:23
Speaker 2: So there are a number of these choices that, yeah,
27:25
Speaker 2: the employer has this fiduciary obligation to.
27:28
Speaker 3: You, there are a number of them where you're on
27:30
Speaker 3: your own. You need to.
27:31
Speaker 2: Figure this stuff out if you have a four to
27:34
Speaker 2: oh one K account and you don't feel as though
27:36
Speaker 2: you have a really firm grasp on some of these
27:40
Speaker 2: things that we've discussed, Right, what's the appropriate amount for
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Speaker 2: me to be putting in? How much should I be
27:45
Speaker 2: contributing to traditional versus Roth? What's the difference? How am
27:49
Speaker 2: I going to be taxed when they come out down
27:51
Speaker 2: the road. What if they do start including some sort
27:55
Speaker 2: of pension like annuity within my plan. Should I or
27:58
Speaker 2: should I not participate in it? How it will it
28:00
Speaker 2: affect my financial future? These are complicated questions. I recognize
28:04
Speaker 2: they're complicated. That's why we exist here at Armstrong is
28:08
Speaker 2: to help you answer those complicated questions and build it
28:11
Speaker 2: into your retirement strategy. Give us a ring at eight
28:13
Speaker 2: hundred three nine three for zero zero one. I know
28:16
Speaker 2: you're all sitting in traffic just like I'm about to be.
28:19
Speaker 2: Give us a ring at eight hundred. Well, don't whip
28:21
Speaker 2: out your phone and do it, but you know call
28:22
Speaker 2: us at eight hundred three nine three for zero zero one.
28:26
Speaker 2: You can also, when you're done driving, go to Armstrong
28:29
Speaker 2: Advisory dot com and just book a time for us
28:31
Speaker 2: to call you back at your convenience. But once again
28:33
Speaker 2: it's the Armstrong Advisory Group. The numbers eight hundred three
28:36
Speaker 2: nine three four zero zero one.
28:39
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
28:41
Speaker 1: registered investment advisor. Nothing in the ad or in any
28:44
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
28:47
Speaker 1: your own financial tax into state planning advisors before making
28:50
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
28:53
Speaker 1: advisory services.
28:54
Speaker 2: I went a little bit long there, and I don't
28:56
Speaker 2: want to keep him waiting. Paul lo Monica is going
28:58
Speaker 2: to be joining us next for Baron's talking to us
29:01
Speaker 2: about trading platform Robinhood. That's next here on the Financial Exchange.
29:07
Speaker 1: Find daily interviews and full shows of the Financial Exchange
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29:21
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29:43
Speaker 2: Joining us now is Paul Lamonica from Barons to talk
29:47
Speaker 2: to us about rob Paul important. First question, how long
29:51
Speaker 2: does it usually take to drive from Manhattan to the Hamptons.
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Speaker 3: You know, no idea. I think it usually take your helicopter.
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Speaker 5: Yeah, I take the helicopter.
30:01
Speaker 7: And I grew up on Long Island near beaches that
30:06
Speaker 7: you didn't need as much money to hang out in,
30:09
Speaker 7: So never really went out to the Hamptons, you know,
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Speaker 7: taking the jitney.
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Speaker 5: It's it's like a couple hours.
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Speaker 3: Okay, fair enough.
30:17
Speaker 1: I was.
30:18
Speaker 2: We were looking at traffic patterns ahead of the holiday,
30:20
Speaker 2: and I had no benchmark for what that would normally take.
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Speaker 3: We're speaking today.
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Speaker 2: About Robin Hood, Paul, and you have a really interesting
30:28
Speaker 2: piece here on their dominance and their recent stock success
30:33
Speaker 2: as well. But I have to be honest that if
30:35
Speaker 2: I was sitting here back in twenty twenty, when I
30:37
Speaker 2: was sitting here back in twenty twenty and twenty twenty
30:39
Speaker 2: one and looking at the retail investor landscape back then,
30:43
Speaker 2: when you had Roaring Kitty dominating the news, when you
30:46
Speaker 2: had Dave Portnoy saying he was a better investor than
30:48
Speaker 2: Warren Buffett, and you had all these meme stocks and spacks,
30:53
Speaker 2: my guess at that time was you're gonna have a
30:56
Speaker 2: whole bunch of investors get burnt, which they did, and
31:00
Speaker 2: they're going to lose interest and we're not going to
31:02
Speaker 2: continue to see this same retail investor interest and dominance
31:08
Speaker 2: with the with the dumb money kind of leading things
31:11
Speaker 2: when it comes to the markets in twenty twenty five.
31:14
Speaker 2: We've seen some of that pullback, but I can't say
31:18
Speaker 2: that we've seen it entirely reverse the trend that we
31:20
Speaker 2: have been on recently. What's your take overall, Am I
31:24
Speaker 2: misreading it?
31:25
Speaker 3: No?
31:26
Speaker 7: I mean, I think what's fascinating is that in twenty twenty,
31:31
Speaker 7: twenty twenty one, you know, with everyone maybe sitting at
31:35
Speaker 7: home and you know, being bored with what was going
31:40
Speaker 7: on with the pandemic, there was this sense that, you know,
31:43
Speaker 7: the retail investor was in some respects maybe trying to
31:48
Speaker 7: ward one over on institutional investors, and they were buying
31:54
Speaker 7: stocks with more questionable fundamentals like game Stop, like AMC,
32:00
Speaker 7: and there was this sort of sense of let's really
32:04
Speaker 7: show the quote unquote big money, smart money institutional investors
32:09
Speaker 7: that we can't be bullied, we can't be pushed around.
32:12
Speaker 7: I think what's happening in the past couple of years
32:15
Speaker 7: is that retail investors have maybe grown up a little bit,
32:19
Speaker 7: and I don't think they're chasing as much these speculative companies.
32:24
Speaker 5: They're you know, riding the wave that the institutions are,
32:29
Speaker 5: which are the mag seven, the NVIDIAs of the world,
32:32
Speaker 5: and Meta and Microsoft, all these AI.
32:35
Speaker 7: Leaders, and those are stocks that have done quite well.
32:39
Speaker 7: And you know, I think Robinhood has benefited from the
32:42
Speaker 7: broader market rebound of you know, even this year.
32:46
Speaker 5: Of course, you know, we had such a big.
32:48
Speaker 7: Sell off in April around Liberation Day and it was
32:51
Speaker 7: kind of a blink and you missed it sort of moment.
32:54
Speaker 7: Because now we're back at all time highs on almost
32:56
Speaker 7: all the major indexes. And I think retail investors haven't
33:00
Speaker 7: been sitting on the sidelines.
33:01
Speaker 5: They've been leading the charge.
33:04
Speaker 2: To a point you made earlier, I don't think there
33:06
Speaker 2: was a sense that retail investors were trying to pull
33:08
Speaker 2: one over on big hedge funds and the smart money.
33:12
Speaker 2: It was a pretty explicit stated goal of some of
33:15
Speaker 2: the retail investors that were there.
33:17
Speaker 5: Such tis yeah, definitely.
33:20
Speaker 3: When we take a look at robin Hood.
33:21
Speaker 2: I saw the story published just the other day about
33:24
Speaker 2: now I don't I frankly don't even know what this means,
33:28
Speaker 2: which is why I'm asking you tokenizing investments in US
33:32
Speaker 2: stocks and indices for foreign owners or for foreign investors
33:37
Speaker 2: investing in US markets. I don't even understand fully what
33:42
Speaker 2: that means. To do something like that but is the
33:45
Speaker 2: overall move here just hey, what are new ways that
33:48
Speaker 2: we can appeal to investors that have an interest in
33:51
Speaker 2: the crypto industry.
33:53
Speaker 5: Yeah, that basically is it.
33:54
Speaker 7: It is a bit opaque, and there's been some controversy too,
33:58
Speaker 7: because the organization aspect your Robinhood is claiming that they
34:04
Speaker 7: will be able to sell these tokens in private companies
34:09
Speaker 7: like SpaceX and open ai that could be like an
34:13
Speaker 7: equity investment, and open Ai is shot back and said,
34:18
Speaker 7: we have no involvement in this, we do not endorse it,
34:22
Speaker 7: we do not approve it. And then you have robin
34:23
Speaker 7: Hood CEO Vlad Tenev going on you know x Twitter.
34:29
Speaker 7: You're kind of walking things back a little bit saying, yes,
34:31
Speaker 7: these are not real equity investments.
34:34
Speaker 5: We get that.
34:36
Speaker 7: All that being said, I think robin Hood clearly is
34:41
Speaker 7: a company that recognizes that, you know, there's retail demand
34:45
Speaker 7: for not just traditional stocks, but also bitcoin and other
34:50
Speaker 7: cryptos and as well as some of these more esoteric
34:54
Speaker 7: you know, tokens that are out there as well, and
34:58
Speaker 7: you know, robin Hood are trying to you'll gain exposure
35:02
Speaker 7: in that market. And the stock, you know, did take
35:05
Speaker 7: a nice pop earlier this week on that announcement.
35:07
Speaker 5: It's down a little bit today.
35:09
Speaker 7: I think there was some speculation they would get into
35:12
Speaker 7: the SMP five hundred, you know, but you know they didn't.
35:16
Speaker 7: You know, Data Dog was chosen to be the replacement company,
35:20
Speaker 7: if you will, for Juniper Networks, which just got bought
35:23
Speaker 7: by Hewlett Packard Enterprise.
35:24
Speaker 5: So robin Hood stock is coming down a.
35:27
Speaker 7: Little bit today, and have a piece up on Barons
35:29
Speaker 7: right now about why that might be short sighted because
35:32
Speaker 7: Robinhood maybe didn't get in today, but they're probably going
35:35
Speaker 7: to get in eventually. They're too big to ignore. Companies
35:38
Speaker 7: like Tesla and Coinbase. They also had to wait a
35:41
Speaker 7: little bit longer than retail investors expected, but they eventually
35:45
Speaker 7: got in.
35:46
Speaker 2: Speaking of Tesla, I see some points of comparison here, right,
35:49
Speaker 2: I mean, this is a obviously growing company that's trading
35:52
Speaker 2: at quite a premium. Ultimately though they are just a
35:55
Speaker 2: brokerage platform. There are other publicly traded, much larger broke
35:59
Speaker 2: brokerage platforms out there, like Charles Schwab and others. What
36:03
Speaker 2: is the premium that people are paying for this stock
36:06
Speaker 2: and what's the reasoning behind it?
36:07
Speaker 7: In your mind, Yeah, it's it is a difficult sort
36:12
Speaker 7: of argument to make that a company like Robinhood deserves
36:15
Speaker 7: that much of a premium to say Schwab or Morgan
36:19
Speaker 7: Stanley which owns E Trade. I think that the argument
36:25
Speaker 7: is that because demographics, you're going to continue to see
36:29
Speaker 7: this market share shift to companies like Robinhood, maybe to
36:33
Speaker 7: a lesser extent a company like e Toro, and you
36:37
Speaker 7: know companies like Coinbase and.
36:40
Speaker 5: Galaxy for crypto.
36:42
Speaker 7: That you know, we are in a mobile first world
36:46
Speaker 7: and that's where investors you want to be accessing their money.
36:51
Speaker 7: So if you believe that there are these demographic shifts
36:54
Speaker 7: that will continue to take place, then inevitably you're going
36:58
Speaker 7: to see growth further slow for companies like Schwab and
37:02
Speaker 7: Morgan Stanley. You know, of course, Morgan Stanley is a
37:05
Speaker 7: lot more diversified and has huge investment banking business and
37:09
Speaker 7: asset management business as well.
37:11
Speaker 5: But you know, a company like Schwab.
37:13
Speaker 7: I think, you know there are going to be continued
37:15
Speaker 7: questions about where it fits in the retail landscape going forward.
37:19
Speaker 7: But you know, again they did buy td rort rates,
37:22
Speaker 7: so that helps them a lot, I think as well.
37:24
Speaker 2: Paul la Monica from Baron's joining us today to talk
37:27
Speaker 2: about robin Hood and the continued trends since twenty twenty
37:33
Speaker 2: in markets with retail investors. Paul, thanks so much for
37:35
Speaker 2: joining us. Appreciate and have a great fourth Thanks.
37:38
Speaker 5: A lot, send you guys have a good moment weekend.
37:40
Speaker 3: Triple A reporting to us the best and worst times
37:43
Speaker 3: to travel around the holiday if you're if you're making
37:46
Speaker 3: your moves today around New England, the absolute worst time
37:49
Speaker 3: to be on the road is between two and six pm,
37:51
Speaker 3: so beware. Tomorrow You're worst time in twelve to seven pm,
37:55
Speaker 3: and Saturday anytime between eleven and five try and avoid
37:59
Speaker 3: the road ways. That's all the time we have for
38:02
Speaker 3: this week on the Financial Exchange. Markets are open and
38:05
Speaker 3: strongly in positive territory. As we close out the week,
38:08
Speaker 3: we'll be right back at it on Monday. Folks, have
38:10
Speaker 3: a great July fourth