Latest / The Financial Exchange Show / Markets Rally on War Optimism, $4 Gas Returns, and a Cooling Job Market

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Markets Rally on War Optimism, $4 Gas Returns, and a Cooling Job Market · The Financial Exchange Show

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Speaker 2: Good morning, Welcome back. It's Tuesday here on the Financial Exchange.
1:14
Speaker 2: And if you're wondering why markets are up one point
1:17
Speaker 2: six percent, same We've got Dow, SMP, and NASDAC all
1:22
Speaker 2: up in early trading, NASDAC leading the way up about
1:25
Speaker 2: two percent. Comes on the heels of some comments from
1:28
Speaker 2: the President as well as a press conference by Secretary
1:31
Speaker 2: of Defense Pete Hegseth. President Trump originally telling AIDS that
1:35
Speaker 2: he's willing to end the war without reopening Horne moves.
1:38
Speaker 2: Pete Hegseth acknowledging that only the President will ultimately decide
1:43
Speaker 2: when this war gets resolved, and also acknowledging that the
1:48
Speaker 2: Iranians still retains some ability to strike at the US
1:51
Speaker 2: in spite of the sweeping success of taking those missiles
1:55
Speaker 2: and drones offline. And again, I keep coming back to
2:01
Speaker 2: what is the most relevant fact because that's what's going
2:04
Speaker 2: to drive markets over the intermedia term here. And the
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Speaker 2: most I think relevant fact intermediate would be do ships
2:11
Speaker 2: flow through the Strait of Hormuz? And that is continuing
2:15
Speaker 2: to be the question last night A was it a
2:19
Speaker 2: Kuwait flagged oil tanker? I believe was struck in the strait,
2:23
Speaker 2: and so clearly some still remaining questions about what it
2:28
Speaker 2: will take to get traffic moving here. But investors, I
2:32
Speaker 2: think again, the piece that has maybe not surprised me,
2:36
Speaker 2: that might not be the right word, but I think
2:38
Speaker 2: been generally pretty impressive is that investors have just been
2:42
Speaker 2: clamoring for any opportunity to buy the dip and see
2:47
Speaker 2: markets return to an upward trajectory. Here and again these
2:53
Speaker 2: comments from overnight, and nothing to me has changed on
2:57
Speaker 2: the ground as far as I can tell. The main
2:59
Speaker 2: store right here is that I think there's more and
3:01
Speaker 2: more evidence that the president wants to bring an end
3:04
Speaker 2: to this war if he can find the excuse to
3:07
Speaker 2: do so.
3:08
Speaker 3: Yeah, Mike.
3:08
Speaker 4: The oil price shock will slow demand as people spend
3:13
Speaker 4: more on energy goods and services. Those goods and services
3:18
Speaker 4: or things they can't do without. So demand in this
3:21
Speaker 4: short term is an elastic, as researchers like to say,
3:24
Speaker 4: it's not sensitive to the price up to a point.
3:27
Speaker 4: It will also raise prices. Energy goes directly into headline inflation,
3:32
Speaker 4: and it can seep into measures of trend inflation core
3:37
Speaker 4: x flut, and energy is one of those measures so
3:40
Speaker 4: there's almost no question that this will be inflationary yep,
3:42
Speaker 4: and that this will slow demand if you want to,
3:45
Speaker 4: if you want to squish those two things together, you
3:47
Speaker 4: could say it's going to be stagflationary.
3:49
Speaker 3: The question is how much? To what degree?
3:52
Speaker 5: Of course?
3:53
Speaker 2: Yeah, so again just kind of thinking this through overnight
3:56
Speaker 2: of what the war ending on the US part could
3:59
Speaker 2: look like if this rate is not reopened. So a
4:02
Speaker 2: few things in terms of priorities. One, we've talked at
4:05
Speaker 2: length about how the US economy is far less reliant
4:08
Speaker 2: on the strait being opened than say the economies of
4:11
Speaker 2: Southeast Asia or Europe.
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Speaker 5: And part of that makes me think.
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Speaker 2: Like, okay, this is clearly some of the messaging strategy
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Speaker 2: here is okay, would the Americans really be willing to
4:22
Speaker 2: walk away from Iran without traffic moving again? And then
4:26
Speaker 2: if they did, what would that look like? Would the
4:28
Speaker 2: Iranians be effectively taking you hostage type tolls as they
4:33
Speaker 2: have allegedly done with a few ships. Was it the
4:36
Speaker 2: Indian ship that was able to navigate successfully and paid
4:39
Speaker 2: you know, some odds of millions of dollars to someone
4:42
Speaker 2: in Iran in order to navigate it? It would hostility
4:48
Speaker 2: in that case, right, in that case where the US
4:51
Speaker 2: ended military action and the strait wasn't reopened or secured
4:56
Speaker 2: by a Western military what would that mean for vessel
5:00
Speaker 2: from countries that you know, either tacitly or explicitly accept
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Speaker 2: US military support and house US military bases.
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Speaker 5: This is why I don't know.
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Speaker 2: The optimism about this kind of rings strange to me,
5:12
Speaker 2: because I just don't see a circumstance where we the
5:16
Speaker 2: United States would be willing to end the war with
5:19
Speaker 2: Iran if not fully controlling then, you know, significantly controlling
5:25
Speaker 2: the traffic through the Strait of Horror moves. That would
5:27
Speaker 2: seem to me to be an unacceptable trade off if say,
5:30
Speaker 2: every ship navigating it needed to pay a big old
5:32
Speaker 2: toll to whoever retains leadership capability in Iran. But stranger
5:38
Speaker 2: things have happened, and I guess we will have to
5:40
Speaker 2: see how that all develops. But to me, I don't
5:45
Speaker 2: really see how you get out of this without traffic
5:47
Speaker 2: significantly moving again through the Strait of Horror moves, and
5:50
Speaker 2: without that traffic paying some big fee to someone in
5:55
Speaker 2: Iran of influence in order to navigate it. So we
5:58
Speaker 2: will see, I don't think anything else that I heard
6:01
Speaker 2: from Pete Hexet this morning contradicted that or you know,
6:04
Speaker 2: brought new attention to the war, other than to say,
6:08
Speaker 2: I think it's fairly clear at this point that the
6:10
Speaker 2: President of the United States, President Trump, is looking for
6:13
Speaker 2: a way to exit the events here and wind this
6:17
Speaker 2: down as quickly as possible, and we will see to
6:21
Speaker 2: what degree that's possible.
6:22
Speaker 4: I think the knowledge of that eliminates certain extreme risks
6:28
Speaker 4: tail risks if you want to use the finance term
6:31
Speaker 4: for it, and that alone, I guess justifies some market reaction,
6:35
Speaker 4: even if there's only a very small chance mic what.
6:37
Speaker 5: Would what would the tail risk elimination look like.
6:40
Speaker 4: Say two hundred dollars a barrel oil, which would almost
6:44
Speaker 4: surely cause inflation to go up to the high single
6:47
Speaker 4: digits and cause the recession if the administration is determined
6:51
Speaker 4: to avoid that outcome. And I'm using a very specific example,
6:55
Speaker 4: but I don't know what there. I don't know what
6:57
Speaker 4: their red line is for a barrel of oil, but
7:00
Speaker 4: it's probably actually not far where we are from where
7:02
Speaker 4: we are today. So markets have picked up on the
7:04
Speaker 4: fact because the president has said it that he won't
7:07
Speaker 4: tolerate any more economic ban than is necessary to achieve
7:11
Speaker 4: their sort.
7:12
Speaker 3: Of fluid objectives.
7:14
Speaker 4: So if you can rule out extreme scenarios, then it
7:17
Speaker 4: makes sense for markets to rally as as those extreme
7:22
Speaker 4: scenarios are sort of crossed out.
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Speaker 3: I'm being a little bit circular.
7:26
Speaker 5: There, but I hear you.
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Speaker 3: It's not entirely irrational to me.
7:30
Speaker 2: Early in trading here, and again, you know, the last
7:32
Speaker 2: several trading days there's been many where markets open in
7:35
Speaker 2: positive territory and then give up some of those gains.
7:38
Speaker 2: So I don't want to read too much into what
7:39
Speaker 2: markets are doing forty two minutes into trading here, but Dow, SMP,
7:44
Speaker 2: NAZAC all strongly in positive territory, the NAZDAK leading the
7:47
Speaker 2: way up one point nine percent so far. In terms
7:50
Speaker 2: of bond yields, you've got bond yields moving down slightly
7:53
Speaker 2: to four point three to two percent, as well as
7:55
Speaker 2: oil prices following there at least on the West Texas
7:58
Speaker 2: benchmark to one oh two seventy three.
8:01
Speaker 5: Per barrel here.
8:03
Speaker 2: In terms of other news, I know we've been all
8:05
Speaker 2: Iran for a month now, but we talked about how
8:09
Speaker 2: this is a pretty busy week for other data points.
8:12
Speaker 2: One of those was released this morning at ten am,
8:15
Speaker 2: the job Openings in Labor Turnover survey. We also got
8:18
Speaker 2: SMP Case Shiller home price indicies at nine am. Consumer
8:23
Speaker 2: confidence at ten am yesterday misrepresented that saying it would
8:28
Speaker 2: be consumer sentiment from University of Mission.
8:30
Speaker 5: It's not.
8:30
Speaker 2: It's consumer confidence survey. Tomorrow, we'll be getting US retail
8:34
Speaker 2: sales at eight thirty am, ism manufacturing at ten am.
8:39
Speaker 2: Thursday we get the weekly jobisc claims. But then on
8:41
Speaker 2: Friday we'll get the full US employment report for the
8:45
Speaker 2: month of March. And so all of these data points, again,
8:48
Speaker 2: I don't think they have the ability to outshine what's
8:50
Speaker 2: going on in Iran, but give you some degree of
8:54
Speaker 2: explanation of how businesses and individuals have been reacting to
8:58
Speaker 2: the events in Iran. Let's take a quick break. When
9:01
Speaker 2: we come back, I do want to dive into that
9:03
Speaker 2: JOLT report again. This is the one that we determine
9:05
Speaker 2: how many people are looking for work, how many employers
9:07
Speaker 2: have jobs open. We'll be right back with the JILT
9:10
Speaker 2: report after this.
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10:20
Speaker 5: Mark.
10:20
Speaker 2: Once a month we get a report from the BLS
10:23
Speaker 2: on the state of what would you describe the state
10:27
Speaker 2: of hiring the state of tightness in the labor market
10:31
Speaker 2: from the BLS that we get this report from.
10:34
Speaker 5: In either case, it's.
10:34
Speaker 2: The one that you derive the ratio of jobs that
10:39
Speaker 2: are being opened or currently opened had employers compared to
10:44
Speaker 2: the number of people looking for work. That was a
10:46
Speaker 2: crucial statistic that was cited in twenty twenty two, and
10:49
Speaker 2: to be clear, it topped two meeting there were two
10:52
Speaker 2: jobs open for every unemployed person looking for work. Back
10:56
Speaker 2: in the spring and summer of twenty twenty two. It
10:58
Speaker 2: got higher than that, but that was that was the
11:00
Speaker 2: real ratio and helped to explain a lot of things
11:03
Speaker 2: that we were seeing in the labor markets, such as
11:05
Speaker 2: signing bonuses for roles that traditionally don't have any I
11:08
Speaker 2: remember two things that's, you know, kind of stood out
11:11
Speaker 2: to me during that period of time. One was the
11:13
Speaker 2: sign at the I ninety pardon me, Interstate McDonald's that
11:18
Speaker 2: was offering signing bonuses for people that took.
11:21
Speaker 5: A job there.
11:22
Speaker 2: The other was the big story from Walmart about paying
11:26
Speaker 2: you know, trucker long haul truckers one hundred thousand dollars
11:28
Speaker 2: a year starting salary. And so those two stories kind
11:31
Speaker 2: of stuck with me about the tightness of the labor market,
11:33
Speaker 2: and we saw it seep into inflation. Today, that ratio
11:37
Speaker 2: has flipped we are now under one, meaning there are
11:41
Speaker 2: more people looking for work than there are jobs open,
11:45
Speaker 2: and this survey for the month of February wall not
11:49
Speaker 2: significantly changed, continued to indicate that slow down in the
11:53
Speaker 2: pace of hiring and employers looking for employees.
11:57
Speaker 4: Yeah, you know, this survey has different uses for different audiences.
12:02
Speaker 4: If you're someone who's interested in forecasting inflation and wants
12:07
Speaker 4: a good measure of slack or lack of slack in
12:11
Speaker 4: the economy, there are lots of things you could use.
12:13
Speaker 4: You could use the unemployment rate, you could use GDP
12:16
Speaker 4: growth relative to potential jolts. Specifically, the statistic you cited Mike,
12:23
Speaker 4: the number of people looking for the number of open
12:27
Speaker 4: jobs divided by the number of people looking for work,
12:30
Speaker 4: so demand for workers relative to supply, if you want
12:33
Speaker 4: to think about it that way. That did a really
12:35
Speaker 4: good job over the past two decades of forecasting how
12:38
Speaker 4: tight the economy was. The FED was using it to
12:42
Speaker 4: determine how they should set policy if they were printing
12:44
Speaker 4: too much money. It was showing up in a tight
12:48
Speaker 4: labor market, as evidenced by relatively more job openings. That
12:52
Speaker 4: ratio you talked about relative to the number of people
12:56
Speaker 4: looking for work.
12:57
Speaker 3: And there are other.
12:58
Speaker 4: Specialists, I imagine who pick out other parts of this
13:02
Speaker 4: report for their own purposes, but that to me is
13:05
Speaker 4: the probably the most relevant use agreed.
13:10
Speaker 5: Now, a few things about this report.
13:11
Speaker 2: One, it is measuring everything as of the end of February,
13:14
Speaker 2: so none of this accounts for any changes in attitude
13:18
Speaker 2: or confidence since the breakout of war in Iran. But
13:22
Speaker 2: to contextualize just where this labor market is, I know,
13:25
Speaker 2: we've gotten plenty of indications of the slowdown in the
13:27
Speaker 2: pace of hiring. We'll see on the Friday Jobs Report,
13:31
Speaker 2: what the unemployment rate looks like and everything. But just
13:34
Speaker 2: a few points that I'll continue to make here about
13:37
Speaker 2: the confidence people have in changing jobs and the confidence
13:41
Speaker 2: employers have in hiring people. So, as of February, the
13:46
Speaker 2: quits rate was about one point nine percent, meaning monthly
13:51
Speaker 2: about you know, a little bit less than two percent
13:53
Speaker 2: of people quit their jobs. We did not see that
13:57
Speaker 2: get lower than that current rate anytime other than and
14:01
Speaker 2: you know, May twenty twenty and April of twenty twenty,
14:04
Speaker 2: so we only ever tested that type of low back,
14:08
Speaker 2: you know, during the peaks of COVID to get there
14:11
Speaker 2: before then you're getting back to like a twenty fifteen
14:14
Speaker 2: type labor market, so not a lot of confidence in
14:17
Speaker 2: the ability to find new jobs. Higher unemployment rate than
14:19
Speaker 2: we're experiencing right now, but that's the type of environment
14:23
Speaker 2: that you're looking at was early twenty tens, post grade
14:25
Speaker 2: financial crisis in terms of the quits rate. The higher
14:28
Speaker 2: rates similarly reaching pretty low levels three point one percent
14:32
Speaker 2: in February of this year. We only saw that during
14:35
Speaker 2: COVID levels April of twenty twenty.
14:37
Speaker 5: We got to the same level before that.
14:40
Speaker 2: Again, you're right in the same timeframe you're you're in
14:43
Speaker 2: this early twenty tens area. You know, when you get
14:48
Speaker 2: a higher rate that's as low as it is now.
14:50
Speaker 2: We've talked about the demographics here. Obviously there's a lot
14:52
Speaker 2: of baby boomers that have been retiring. There have been
14:55
Speaker 2: massive changes to immigration, so overall, I can understand why
15:00
Speaker 2: these rates are so low, but I think they do
15:02
Speaker 2: speak to me beyond that. When you hear stories about
15:05
Speaker 2: how people describe this labor market as really difficult right now,
15:09
Speaker 2: we're not so much seeing that reflected in the unemployment rate.
15:14
Speaker 2: We are very much seeing it in the pace of
15:16
Speaker 2: churn in the labor market, and that can indicate I
15:20
Speaker 2: guess it can just indicate stagnation is more than anything else.
15:23
Speaker 2: I don't think it necessarily tells you if the unemployment
15:25
Speaker 2: rate's about to spike or bottom. In my opinion, at
15:28
Speaker 2: least anything else to add on that Joelt report Mark No.
15:31
Speaker 4: No, I think you tied it into what's going on
15:33
Speaker 4: in the broader economy. Well, things, we're slowing down. In
15:36
Speaker 4: the fourth quarter of last year, over all growth slowed.
15:39
Speaker 4: We know we had no new jobs by the payroll survey,
15:42
Speaker 4: different survey than what we're talking about here created in
15:45
Speaker 4: twenty twenty five. No new jobs. That's unusual outside of recessions.
15:50
Speaker 4: Question is, how does this stagflationary shock the price of
15:54
Speaker 4: oil going way up. We know the impact is not
15:59
Speaker 4: going to be wood. Is it enough to tip the
16:01
Speaker 4: economy into recession?
16:03
Speaker 2: So let's talk about America's favorite single price point out there.
16:07
Speaker 2: According to Triple A yesterday or today, rather, the national
16:11
Speaker 2: average for a gallon of gas is sitting at four
16:13
Speaker 2: dollars and I'm gonna round here two cents per gallon.
16:18
Speaker 2: Across the West, it's substantially higher. You're pushing six bucks
16:22
Speaker 2: a gallon in California, and you know five across many
16:25
Speaker 2: of the other Western states.
16:26
Speaker 5: Here in the Northeast, you're.
16:27
Speaker 2: A little bit below that average, but you're still seeing
16:30
Speaker 2: many places in Massachusetts, Rhode Island, Connecticut, et cetera, where
16:34
Speaker 2: prices are topping four bucks a gallon. What does that,
16:39
Speaker 2: I guess, just you know, we've hinted at mark, But
16:41
Speaker 2: what does that do to the economy, Because in one
16:44
Speaker 2: sense it certainly inflationary. In another, it's almost like a
16:49
Speaker 2: tax increase, right. I mean, if the average family spend
16:52
Speaker 2: in I think it was like two grand a year
16:56
Speaker 2: on gasoline and you see the price increase by what's
17:00
Speaker 2: the percentage increase that we're talking about here, like twenty
17:03
Speaker 2: five percent, that's nothing more than a tax increase.
17:06
Speaker 5: Given how we consume the fuel.
17:09
Speaker 4: Right, short term demand is pretty insensitive to prices, like
17:13
Speaker 4: we talked about earlier, and the right way to think
17:15
Speaker 4: about it, or one way to think about it, is
17:18
Speaker 4: modeling it as a sort of tax increase. People have
17:22
Speaker 4: less money in the short term. In the longer term
17:24
Speaker 4: they can substitute away from it, but they have less
17:27
Speaker 4: money to spend elsewhere. That's the stag part of stagflation.
17:31
Speaker 4: It slows growth. The other part is deflation. It drives
17:36
Speaker 4: up headline inflation because energy goes right into it. Like
17:38
Speaker 4: we talked about, it also drives up inflation expectations, how
17:42
Speaker 4: much people think prices will go up by over the
17:45
Speaker 4: next one, three, five years, or whatever the horizon is.
17:49
Speaker 4: If there are very few sort of relationships you can
17:51
Speaker 4: take to the bank, one of them is the very
17:54
Speaker 4: close co movement between inflation expectations and the price of gas.
17:58
Speaker 4: So this creates this This creates a bigger problem for
18:03
Speaker 4: the Fed than it usually has. And the Fed's always
18:06
Speaker 4: got a problem. It's always trying to balance the forces
18:08
Speaker 4: of growth against the forces of.
18:12
Speaker 3: Inflation. This just amplifies that challenge.
18:16
Speaker 2: So the last time we saw gas prices here was
18:18
Speaker 2: August of twenty twenty two. One of the big questions
18:21
Speaker 2: that comes to my mind right when we hit this
18:23
Speaker 2: in twenty twenty two, there was a government response. A
18:27
Speaker 2: lot of it was at the state and local level,
18:28
Speaker 2: but there was a response, and generally speaking, a lot
18:31
Speaker 2: of states cut their gas tax. The federal government was
18:35
Speaker 2: trying to do what they could to make things more affordable.
18:39
Speaker 2: I think arguably a contributed to higher inflation. I don't
18:43
Speaker 2: know what governments are going to do this time around.
18:45
Speaker 2: I do know that state and local governments are a
18:48
Speaker 2: lot more cash strapped than they were going into twenty
18:51
Speaker 2: twenty two after you know, years of federal government subsidies
18:55
Speaker 2: and cash flow going to those states because of COVID,
18:59
Speaker 2: and that will be It's ptty important in terms of
19:01
Speaker 2: determining what happens.
19:02
Speaker 5: Next beyond all that.
19:03
Speaker 2: Like you know, I keep asking people ask all the
19:06
Speaker 2: time where a gas price is going to go?
19:08
Speaker 5: I don't know.
19:09
Speaker 2: If you want to theorize higher, you could justify it
19:12
Speaker 2: by saying, look, there's even if the war ends, likely
19:16
Speaker 2: to be a threat to the Straight of horror moves
19:17
Speaker 2: and a whole bunch of countries trying to refill their sprs.
19:21
Speaker 2: On the other hand, you know, if Saul causes a recession,
19:23
Speaker 2: then demand drops and the Straight reopens, maybe gas prices
19:26
Speaker 2: go a lot lower. I don't know where they go
19:28
Speaker 2: of the long term. I don't think anybody truly does.
19:30
Speaker 2: We've got to take a quick break. Wall Street Watch
19:32
Speaker 2: coming up next.
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Speaker 1: Watch treking the stocks, the data, and the headlines driving
19:57
Speaker 1: markets so far today Right here on the Financial Exchange
20:00
Speaker 1: Radio Network.
20:01
Speaker 5: We're on the final day of March.
20:03
Speaker 6: Markets are in rally mode as Wall Street continues to
20:06
Speaker 6: focus on the conflict in Iran, where President Trump reportally
20:09
Speaker 6: told AIDS he's willing to end the US military campaign
20:12
Speaker 6: against Iran, even if the straight of horror moves remains
20:16
Speaker 6: largely closed. Gasoline has also hit four dollars a gallon,
20:19
Speaker 6: the highest mark since twenty twenty two. Right now, the
20:23
Speaker 6: Dow is up one point two percent, or five hundred
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Speaker 6: and fifty three points, SMP five hundred up one point
20:30
Speaker 6: six percent or one hundred and three points, Nasdaq surging
20:33
Speaker 6: over two percent higher, or four hundred and forty seven points.
20:37
Speaker 6: Russell two thousand also up by two percent. Tenure treasure
20:41
Speaker 6: yield down two basis points at four point three one
20:44
Speaker 6: seven percent in crude oil mostly flap dipping today, trading
20:49
Speaker 6: at one hundred and two dollars a barrel. Some big
20:51
Speaker 6: news in the food space this morning, where Unilever agreed
20:54
Speaker 6: to combine its food business with McCormick, creating a new
20:58
Speaker 6: entity worth over sixty five billion dollars including debt. The
21:01
Speaker 6: deal marks a major strategy shift for Unilever, allowing it
21:05
Speaker 6: to focus on beauty, personal care, and home products. Both
21:09
Speaker 6: Unilever and McCormick stocks are down by three percent on
21:12
Speaker 6: the news. Meanwhile, Marvel Technology stock rallying eight percent after
21:16
Speaker 6: Nvidia announced it will invest two billion dollars in Marvel
21:19
Speaker 6: as part of a strategic partnership. Shares in Appellas Pharmaceuticals
21:24
Speaker 6: rocketing one hundred and thirty five percent higher after Biogen
21:28
Speaker 6: announced it will acquire the company for five point six
21:30
Speaker 6: billion dollars in cash. Biogen down by four percent. Eli
21:34
Speaker 6: Lilly grid To agreed to buy Sleep drug Makers and
21:38
Speaker 6: Tessa Pharmaceuticals in a deal worth up to seven point
21:42
Speaker 6: eight billion dollars, Lily rising by three percent, while Contesta
21:46
Speaker 6: stock jumping forty five percent and shares in Shoemaker all
21:50
Speaker 6: Birds down by six percent after the company entered in
21:54
Speaker 6: agreement with American Exchange Group to sell all of its
21:57
Speaker 6: intellectual property and other assets and liabilities for thirty nine
22:01
Speaker 6: million dollars. I'm talking for Silva and that is Wall
22:05
Speaker 6: Street watch Mark.
22:06
Speaker 2: One of the results of the conflict in Iran and
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Speaker 2: the results of it are been all sorts of changes,
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Speaker 2: in particular developing nations across Asia, and some have rolled
22:18
Speaker 2: out four day work weeks, working from home, other changes.
22:22
Speaker 2: But the imagery that I keep seeing are the well,
22:26
Speaker 2: a few weeks ago it was the long lines at
22:28
Speaker 2: gas stations in places like the Philippines. These days it's
22:32
Speaker 2: actually very empty streets in what are typically you know,
22:35
Speaker 2: bustling cities and metropolises with you know, people racing all over.
22:40
Speaker 5: The imagery of it.
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Speaker 2: The only like view I have in my head is
22:45
Speaker 2: the nineteen seventies US, when you know, cars would line
22:48
Speaker 2: up for hours at the gas station to get there
22:51
Speaker 2: to get their limited fuel. What happened in the nineteen seventies,
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Speaker 2: BBC asks, Are we heading for something worse in twenty
23:00
Speaker 2: twenty six? My answer would be not unless the FED
23:03
Speaker 2: like screws this all up royally. But what's your view
23:06
Speaker 2: on the answer to that question? How could this be
23:09
Speaker 2: similar to or perhaps worse than the nineteen seventies here
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Speaker 2: in the US?
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Speaker 4: Well, similar in the sense that we are being hit
23:17
Speaker 4: with a stagflationary shock rise in the price of oil
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Speaker 4: that SAPs demand and boosts prices at a time when
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Speaker 4: underlying inflation was already high, not as high as it
23:30
Speaker 4: was for the nineteen seventy three seventy four OPEC embargo
23:36
Speaker 4: that we now call the first oil shock of that decade,
23:39
Speaker 4: but core inflation was elevated because the FED let the
23:42
Speaker 4: economy run hot. If that sounds familiar, it's because we
23:45
Speaker 4: just lived through that. Inflation has come down by a
23:47
Speaker 4: lot since twenty twenty two, largely because energy prices came
23:51
Speaker 4: down and the job market.
23:52
Speaker 3: Softened a little bit. So some lucky.
23:55
Speaker 4: Factors in there. FED didn't have to impose a lot
23:59
Speaker 4: of sacrifice in terms of unemployment on the economy to
24:03
Speaker 4: get inflation down, but they didn't get it down to
24:06
Speaker 4: their goal.
24:06
Speaker 3: MIC.
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Speaker 4: We've talked about that a lot. So we're facing now
24:11
Speaker 4: this boost in prices, that price rising will result in
24:21
Speaker 4: hitting at a time when underlying inflation was already above
24:23
Speaker 4: the Fed's target. In that sense, it's similar to the
24:27
Speaker 4: policymaking errors of the nineteen seventies.
24:32
Speaker 2: What I don't see right now is a FED that's saying,
24:34
Speaker 2: and we should lower rates because of the threat to unemployment.
24:38
Speaker 2: J Powell was speaking just yesterday. I'll quote him here.
24:40
Speaker 2: You can have a series of these supply shocks and
24:43
Speaker 2: that can lead the public generally businesses, price setters, households
24:46
Speaker 2: to start expecting higher inflation over time.
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Speaker 5: Why wouldn't they? It would seem to me that anyone
24:53
Speaker 5: that's at the Federal Reserve J.
24:55
Speaker 2: Powell, especially given you what we was written about handing
25:00
Speaker 2: out a book about the nineteen seventies ahead of his
25:04
Speaker 2: term as the.
25:05
Speaker 5: Chair of the Federal Reserve.
25:07
Speaker 2: But even a new incoming FED like I can't think
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Speaker 2: of anything more embarrassing as a Federal Reserve official to
25:15
Speaker 2: being compared to the poor leadership at the FED during
25:20
Speaker 2: the nineteen seventies.
25:21
Speaker 5: So I don't know.
25:23
Speaker 2: It just seems unlikely to me that we have policy
25:26
Speaker 2: choices that replicate that.
25:28
Speaker 4: The FED chair in the seventies, Arthur Burns, was a
25:32
Speaker 4: pre eminent business cycle economist. He was one of the
25:36
Speaker 4: leading sort of economic intellectuals of his time. That might
25:39
Speaker 4: be a little bit of an overstatement, but it's not
25:41
Speaker 4: much of one. He was no like Milton Friedman, you know,
25:44
Speaker 4: wasn't like Nobel laureate caliber.
25:46
Speaker 5: And am I overstating it? By he's remembered in history.
25:50
Speaker 2: You know, in spite of his he's remembered in history
25:52
Speaker 2: as a good embarrassment to the role, is he not?
25:55
Speaker 3: Yeah, he was we and he knew it though.
25:56
Speaker 4: But he gave a speech in eighty two it's called
25:59
Speaker 4: something like the Anguish of Central Banking, like he was
26:03
Speaker 4: tortured by the experience of the seventies. The point I
26:05
Speaker 4: was going to make, Mike is that they didn't have
26:07
Speaker 4: the tools and the theoretical apparatus that we have today.
26:12
Speaker 4: So what happened in the seventies was bound to happen.
26:15
Speaker 4: We didn't know enough about how monetary policy worked, and
26:19
Speaker 4: nobody was talking about expectations.
26:21
Speaker 3: In that decade.
26:22
Speaker 4: Stagflation was a term that was invented during that decade
26:25
Speaker 4: because we didn't know what to call this weird phenomenon
26:29
Speaker 4: of rising unemployment and rising inflation. Those two things normally
26:34
Speaker 4: went in opposite directions. So the seventies would have happened
26:38
Speaker 4: whether it was Arthur Burns's chair or the eighties or
26:41
Speaker 4: a decade earlier, because we hadn't learned those lessons yet.
26:45
Speaker 4: I hold policymakers today to a higher standard because we've
26:49
Speaker 4: seen what can happen when policymakers overestimate the productive potential
26:53
Speaker 4: of the economy, which they did in the seventies. They
26:55
Speaker 4: didn't know they were doing that at the time. They
26:57
Speaker 4: didn't even use those terms at the time. So we
27:00
Speaker 4: know better today because of their mistakes, and yet we
27:04
Speaker 4: appear to be, in a smaller sense at this point
27:08
Speaker 4: repeating some of those mistakes.
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Speaker 2: Yeah, I guess, I just don't see the repeating those
27:15
Speaker 2: mistakes to me would be basically saying that, Hey, we're
27:18
Speaker 2: going to absorb this price shock and we're going to
27:20
Speaker 2: be lowering interest rates because of the trends that we
27:22
Speaker 2: are seeing in unemployment, and I don't doubt that we
27:25
Speaker 2: could get there right I do generally accept that I
27:29
Speaker 2: don't care what the inflation rate is. If unemployment gets
27:32
Speaker 2: the six percent, I think this FED is probably going
27:34
Speaker 2: to cut even if inflation expectations are quite high, and
27:37
Speaker 2: we then might have the ability to screw this up again.
27:41
Speaker 5: But I don't know.
27:43
Speaker 2: I'm not sure that I see it right now in
27:45
Speaker 2: any of the case. We gotta take quick break when
27:47
Speaker 2: we come back. Todd Lusky from law firm of Krishkin
27:49
Speaker 2: Dolan joining us next here on the Financial Exchange.
27:52
Speaker 1: From market moves to retirement planning strategy. Follow the Financial
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28:02
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28:25
Speaker 2: Joining us now is Todd Lusky from the law firm
28:27
Speaker 2: of Cushing and Dolan. Here and end of the month, Todd,
28:31
Speaker 2: So thanks for joining us. Appreciate it.
28:33
Speaker 7: Oh, always a pleasure.
28:35
Speaker 2: So we're talking today about life estates and I just
28:40
Speaker 2: need a one toho one. So what is a life
28:43
Speaker 2: of state and what do you find are the most
28:44
Speaker 2: common misconceptions about them?
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Speaker 5: All right?
28:47
Speaker 7: So two points one. A life of state is simply
28:50
Speaker 7: a nugget of ownership in a piece of property, only
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Speaker 7: your primary residence, So don't mix it up with rental
28:58
Speaker 7: properties or anything else. So it's a nugget of ownership
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Speaker 7: that you get to keep, which gives you the right
29:04
Speaker 7: to live there and the right to collect income if
29:08
Speaker 7: you rent it. And that's about it. And then you
29:11
Speaker 7: give away the remainder piece, which is usually based on
29:16
Speaker 7: your age, a much bigger chunk than you're actually keeping,
29:21
Speaker 7: even though you are the one that has the right
29:23
Speaker 7: to live there the rest of your life, and then
29:26
Speaker 7: you give away the rest either to kids generally or
29:29
Speaker 7: to an irrevocable trust.
29:32
Speaker 2: Okay, I think I generally understand how it works, and
29:36
Speaker 2: so I'm going to lean right in here because I
29:38
Speaker 2: can see how people might potentially misuse them here. But
29:43
Speaker 2: what do people think they're doing with when they create
29:45
Speaker 2: a life estate and how do you usually see it
29:48
Speaker 2: go wrong?
29:49
Speaker 7: Yeah, that's really the issue, right, It's like what do
29:52
Speaker 7: you actually end up having. So many people have these,
29:54
Speaker 7: but I don't think they really understand what they have
29:57
Speaker 7: because now, like what goes wrong is, oh, okay, I'm
30:00
Speaker 7: living there. I'm fine, I'm not renting it as my home,
30:04
Speaker 7: nothing to do, and then I want to move. Well,
30:06
Speaker 7: that's the biggest problem, because now if you want to
30:08
Speaker 7: move and you've given the house to your children, and
30:10
Speaker 7: guess who's permission you need? Bang, you need three kids,
30:13
Speaker 7: four kids? How many kids are that are on the
30:15
Speaker 7: d that's a problem. And then if I want to
30:18
Speaker 7: sell it and they're nice enough to sell it, you
30:20
Speaker 7: got to go to this IRS table based on your age,
30:23
Speaker 7: and then you have to calculate how much of the
30:25
Speaker 7: proceeds actually go to you and how much go to
30:28
Speaker 7: the children. So if you're like eighty years old seventy
30:31
Speaker 7: five years old, you might only be keeping twenty twenty
30:35
Speaker 7: five percent.
30:35
Speaker 3: Of the proceeds.
30:36
Speaker 7: Most of the proceeds are going to go to them.
30:39
Speaker 7: And if they don't live there, if they have to
30:40
Speaker 7: pay capital gains tax on it because they don't get
30:42
Speaker 7: the capital gains exclusion that you get for owning and
30:45
Speaker 7: using your primary residence. So there's permission, there's adverse tax consequences.
30:50
Speaker 7: And lastly, you don't have all the money you need
30:53
Speaker 7: to buy your new home because they have it, so
30:57
Speaker 7: there can be problems with it. There are benefits, but folks,
31:01
Speaker 7: that's what the guide is all about, calculating the consequences
31:04
Speaker 7: of a life estate. There are pros, there are cons
31:07
Speaker 7: they're listed in the guide. And there's also the three
31:10
Speaker 7: times that I suggest you do it only three times.
31:14
Speaker 7: They're in the guide. So learn all the tax issues,
31:17
Speaker 7: all the control issues, and learn what you have. If
31:20
Speaker 7: you have one, get the guide. If you don't have one,
31:23
Speaker 7: call and get it before you get one, and maybe
31:26
Speaker 7: you can figure out what's the right way to go
31:29
Speaker 7: with this or overall planning folks. End of the month,
31:33
Speaker 7: call and get it. Calculating the consequences of a life
31:36
Speaker 7: estate eight six six eight four eight five six nine
31:40
Speaker 7: nine or Legal Exchange Show dot com again eight six
31:44
Speaker 7: six eight four eight five six nine nine or Legal
31:48
Speaker 7: Exchange Show dot com.
31:50
Speaker 5: Todd, Thank you so much, Always a pleasure.
31:53
Speaker 1: The proceeding was paid for and the views expressed are
31:55
Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
31:57
Speaker 1: or Armstrong Advisory may contact you offering legal or investment services.
32:00
Speaker 1: Kushing and Armstrong did not endorse each other and are
32:02
Speaker 1: not affiliated.
32:04
Speaker 2: Mark story that we have not covered in a month
32:07
Speaker 2: plus because of Iran tariffs. Tariffs are putting businesses in crisis.
32:12
Speaker 2: A bunch of them have sued the federal government and
32:16
Speaker 2: again I think it's been about a month since we've
32:18
Speaker 2: covered this, but no real movement, it seems on the
32:23
Speaker 2: refund process. And in the meantime, businesses who large businesses
32:28
Speaker 2: who pay the tariffs are fine. Costco can afford to
32:32
Speaker 2: wait this out and pay the attorneys to file the lawsuits.
32:35
Speaker 2: But smaller businesses, especially those that import a lot of
32:38
Speaker 2: their product, have been struggling and really hoping to see
32:43
Speaker 2: a quick resolution to all of this when it just
32:46
Speaker 2: doesn't seem like it's coming.
32:48
Speaker 4: Yeah, they don't want to give the money back, is
32:50
Speaker 4: the long and the short of it. And you can
32:52
Speaker 4: understand why. Without that one hundred and change billion in
32:56
Speaker 4: tariff revenue, the deficit would have gone up last year,
33:01
Speaker 4: no matter how you want to measure it in absolute
33:03
Speaker 4: terms or relative to the size of the economy. So
33:08
Speaker 4: politically it would be sort of embarrassing, I guess, although
33:12
Speaker 4: I'm sure they'd find a way to spend it, and
33:13
Speaker 4: most people are distracted by the front burner issue of
33:17
Speaker 4: gas prices and stuff as we've been talking about.
33:19
Speaker 5: Yeah, no doubt.
33:20
Speaker 2: And I think this is where it comes back down
33:22
Speaker 2: to is for small businesses that had to take out
33:25
Speaker 2: loans to pay these tariffs, they're facing a double whammy here. One,
33:29
Speaker 2: they have these outstanding loans that are usually pretty high
33:32
Speaker 2: interest that they need to keep paying on. Two, they
33:35
Speaker 2: charge their customers a whole lot more money for the
33:37
Speaker 2: products that they sold them, and those customers are coming
33:40
Speaker 2: back and saying, yeah, this pen that I bought, you know,
33:44
Speaker 2: because I'm really interested in unique pens from Italy that
33:47
Speaker 2: I need to buy.
33:48
Speaker 5: I'm not just making that up.
33:49
Speaker 2: This was the story from the Wall Street Journal of
33:51
Speaker 2: a company that took out a three hundred something thousand
33:54
Speaker 2: dollars loan in order to pay the tariff on their
33:57
Speaker 2: special pens. Those customers are going to becoming back to
34:00
Speaker 2: you and saying, hey, you know I paid forty bucks
34:02
Speaker 2: for this pen. I know that ten of that went
34:04
Speaker 2: to tariffs. You're getting the money back. I want my
34:06
Speaker 2: money back. And those same businesses have are taken out loans,
34:11
Speaker 2: in some cases laid off employees and are just struggling
34:13
Speaker 2: to get by. So I don't know my hope here.
34:16
Speaker 2: The the Supreme Court tossed the decision about refunds back
34:20
Speaker 2: to the lower courts, and you would generally hope that
34:24
Speaker 2: for small businesses at the very least, the government sets
34:28
Speaker 2: up a pretty easy refund process where hey, you put
34:32
Speaker 2: in some basic information and they verify how much you're
34:36
Speaker 2: owed and get it done relatively quickly. Because the alternative,
34:40
Speaker 2: you know, if you paid three hundred and twenty thousand
34:42
Speaker 2: dollars in tariffs over the course of the year. I
34:46
Speaker 2: suspect that you cannot hire a pretty well qualified tariff
34:51
Speaker 2: litigation attorney for less than three hundred and twenty thousand
34:55
Speaker 2: dollars to litigate this for you, And so you're kind
34:58
Speaker 2: of stuck between a rock and a hard place if
35:00
Speaker 2: that is the only method to recouping your losses from this.
35:03
Speaker 5: So we will see how that all plays out. On
35:05
Speaker 5: the other end of this.
35:06
Speaker 2: It does mean a whole bunch of cash going back
35:08
Speaker 2: into the system, and perhaps that changes businesses views on
35:14
Speaker 2: their outlook on hiring and a whole bunch of other things.
35:17
Speaker 2: But it doesn't seem like there's gonna be a real
35:20
Speaker 2: rush to the door in terms of cash coming back
35:22
Speaker 2: to those companies.
35:23
Speaker 4: And there's a secondary sorry Mike, please, there's a secondary
35:28
Speaker 4: market for these claims, like people are selling them for
35:30
Speaker 4: like dimes or pennies on the dollar, and there's this
35:33
Speaker 4: little cottage industry that's cropped up, and we'll be hearing
35:35
Speaker 4: about these for probably years of lawyers of enterprising I'll
35:40
Speaker 4: just call them, lawyers who buy these claims again really
35:44
Speaker 4: cheap and then go out and pursue them, just as
35:45
Speaker 4: like they buy the Verizon bill you never paid fifteen
35:49
Speaker 4: years ago, and you get a phone call from a
35:51
Speaker 4: collection company. So there are So it's a natural pivot
35:55
Speaker 4: for a collection company or somebody like that, maybe a
35:58
Speaker 4: little bit more legally to buy these claims and pursue
36:03
Speaker 4: them possibly for years.
36:04
Speaker 2: You'd think that JG wentworth jumping in this game, right,
36:10
Speaker 2: I see their ads all the time, right, yeah, you
36:12
Speaker 2: gotta this is this is right up there, Alley. Hey,
36:15
Speaker 2: you know I will buy your future settlement for pennies
36:18
Speaker 2: on the dollar. I'm gonna give you cash now. It
36:21
Speaker 2: seems like a perfect transition for that business model. But nonetheless,
36:25
Speaker 2: that is the current state of all this. There's a
36:27
Speaker 2: court case working its way through, and you know one
36:30
Speaker 2: business that is hoping to kind of set the set
36:33
Speaker 2: the standard for how all this works. But in the meantime,
36:35
Speaker 2: it is immensely complicated. Again, I keep bringing this up,
36:38
Speaker 2: but remember how complicated this is. Because if you are
36:42
Speaker 2: an importer, you may have paid a reciprocal tariff from
36:47
Speaker 2: products from the European Union, plus a steel or aluminum tariff.
36:53
Speaker 2: On top of that, the reciprocal tariff was tossed out
36:56
Speaker 2: the steal aluminum tariff was not, And so you have
36:58
Speaker 2: to go back and calculate and say, okay, I paid
37:00
Speaker 2: a tariff total of thirty five percent. What portion of
37:05
Speaker 2: that was the steel and aluminum, What portion of that
37:08
Speaker 2: which is legal and not unconstitutional? What portion of it
37:12
Speaker 2: was the reciprocal Again, you would hope that the government
37:16
Speaker 2: and the you know, the company had pretty good records
37:19
Speaker 2: on that. My guess is that they in fact don't.
37:22
Speaker 2: And it's going to take a little while to calculate
37:24
Speaker 2: and figure out. Washington State following Massachusetts and adopting the
37:28
Speaker 2: new tax on incomes over a million dollars, good luck
37:33
Speaker 2: with that.
37:35
Speaker 5: Is all. I will say.
37:36
Speaker 2: The tax rate will increase to nine point nine percent
37:39
Speaker 2: on income over a million dollars, effective in twenty twenty eight.
37:44
Speaker 2: Here in Massachusetts we've had that for a few years.
37:46
Speaker 2: The collections on the tax actually came in well above estimates. However,
37:51
Speaker 2: many sources, the irs themselves, have indicated that Massachusetts residents
37:56
Speaker 2: in total took about four point two billion dollars in
37:58
Speaker 2: net income with them back in twenty twenty three by
38:01
Speaker 2: leaving the state. And so how much will that be
38:05
Speaker 2: exacerbated in other places that try and copy it? Is
38:07
Speaker 2: my Big Question quick break. A lot more to cover
38:10
Speaker 2: in the second hour. The financial exchange market's still positive,
38:13
Speaker 2: though deteriorating a little bit as we head to the
38:15
Speaker 2: eleven o'clock hour.