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Are stocks truly expensive right now? · The Financial Exchange Show

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Speaker 1: a donation Today. Face is the Financial Exchange with Mike
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Speaker 1: Armstrong and Mark Vandetti.
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Speaker 2: Good morning, Happy Tuesday, Welcome back to the Financial Exchange
1:14
Speaker 2: on a Tuesday. After a significant market rally yesterday, major
1:18
Speaker 2: indices up more than one in three quarters percent and
1:21
Speaker 2: as that got over two in general, optimism fleeting back
1:25
Speaker 2: into markets after what I would describe as very opaque
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Speaker 2: reports of lessening of tariffs from the White House is
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Speaker 2: how I will describe it. But we'll be going into
1:36
Speaker 2: that more today. Obviously still all about trade at this
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Speaker 2: point in time. We also received a whole bunch of
1:43
Speaker 2: data over the course of the last hour here. Consumer
1:46
Speaker 2: confidence was released six minutes ago. We've got home price
1:50
Speaker 2: indices from SMP that we're released I think about an
1:53
Speaker 2: hour or maybe more ago, and so we'll be diving
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Speaker 2: into that data as well. But the first things first, market,
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Speaker 2: I don't like attributing any single market rally to any
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Speaker 2: single thing, but very clearly yesterday at least investors back
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Speaker 2: on the optimism bandwagon, which they've been on for a
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Speaker 2: couple of days now on sentiment shift from the White House,
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Speaker 2: and then ties into this piece from Bloomberg, which is wow,
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Speaker 2: catch counting your eggs before they hatch. Wall Street sees
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Speaker 2: signs that worst of US stock sell off is over,
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Speaker 2: and they cite a few equity strategists, including those of
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Speaker 2: JP Morgan, Chase Morgan, Stanley, Evercore I, saying that the
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Speaker 2: worst of the downtour turn is likely behind them. I
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Speaker 2: think there's gonna be a number of articles we read
2:42
Speaker 2: today and that we report on today that are falling
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Speaker 2: into the category of proceed with caution, because this entire
2:50
Speaker 2: article cites these people as saying, hey, worst is probably over,
2:53
Speaker 2: and then provides no evidence as to whether or not
2:55
Speaker 2: they have any sort of track record of predicting this
2:58
Speaker 2: sort of thing. But your take on markets over the
3:01
Speaker 2: course of the last week or so and what we've
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Speaker 2: been seeing in terms of what could be a beginning
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Speaker 2: of a turnaround here after markets last Thursday or is
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Speaker 2: it two Thursday years ago closed in that correction territory?
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Speaker 3: Mark Well.
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Speaker 4: I think articles like this are why I mostly hate
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Speaker 4: the financial press. Occasionally they go out and do actual journalism,
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Speaker 4: quote researchers who are esteemed and respected and write decent stuff,
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Speaker 4: but most of it is just filler, and one sympathizes
3:33
Speaker 4: they do have to produce daily editions of these papers.
3:38
Speaker 4: Not many people buy the papers anymore, so you got
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Speaker 4: to fill it up with something. But stocks moved randomly
3:44
Speaker 4: on a given day doesn't make doesn't sell newspapers now
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Speaker 4: yesterday it may now have been random, you say, as
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Speaker 4: you point out there was a catalyst. It was that
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Speaker 4: tariffs may not be as horrible as originally thought. That's
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Speaker 4: not much of an inspiring headline either, though, I mean
3:59
Speaker 4: that is just it right. Yeah, this stuff may not
4:01
Speaker 4: be as quite as damaging. It'll be quite damaging, but
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Speaker 4: not as severely damaging perhaps, although we don't know because
4:07
Speaker 4: policy changes two three times a day now may not
4:10
Speaker 4: be as horrible as we thought five minutes ago, but
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Speaker 4: just wait five minutes it could be worse. That's sort
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Speaker 4: of where that's how I filter this stuff.
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Speaker 3: Yep.
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Speaker 4: Maybe stocks needed to bounce. They were down several percentage
4:20
Speaker 4: points y're to date. It is only natural in the
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Speaker 4: absence of any definitive evidence of economic calamity or less dramatically,
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Speaker 4: just to slow down. A lot of people are calling
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Speaker 4: for it. Some of the data that you'll talk about
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Speaker 4: today is pointing in that direction, but no hard evidence yet.
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Speaker 4: So stocks maybe ask themselves if they could. Stocks aren't
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Speaker 4: investors aren't a monolith, aren't a collective, But it feels
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Speaker 4: like it's easier to think about it that way, to
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Speaker 4: attribute a personality to the market. And maybe it just
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Speaker 4: felt like bouncing back yesterday, a little bit of randomness,
4:55
Speaker 4: a little bit of substance. But as you say, Mike,
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Speaker 4: that substance seems pretty weak.
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Speaker 3: Yeah.
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Speaker 2: Look, fundamentally, we've talked about this many times. The core
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Speaker 2: figures that we look at to get a reading on
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Speaker 2: the current state of the economy, spending, unemployment, inflation, all
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Speaker 2: of those things are fundamentally printing pretty solid numbers. Everything
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Speaker 2: that we've been talking about has had to do with
5:18
Speaker 2: any of the downturn or concern about the future that
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Speaker 2: we've talked about has had to do with surveys when
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Speaker 2: you ask people about how they feel about things in
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Speaker 2: the future, concerns that we have on the likely effective
5:29
Speaker 2: tariffs on things like inflation and GDP, but none of
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Speaker 2: that has actually showed up in the data. And I
5:34
Speaker 2: think that probably contributes as well. Is Look, the data
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Speaker 2: in and of itself in the absence of tariffs is
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Speaker 2: pretty good, and things could still turn positive if things
5:46
Speaker 2: go in one direction or another. I think important to
5:49
Speaker 2: contextualize as well. Mark, we did get a ten percent
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Speaker 2: market sell off, and I think there's a lot of
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Speaker 2: buy the dip mentality that always takes place, especially by
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Speaker 2: retail traders and in markets. Did we get to what
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Speaker 2: could be described as an inexpensive market or how would
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Speaker 2: you categorize just how expensive this market remains today compared
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Speaker 2: to other parts of points of time in modern history.
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Speaker 4: Let me first say stocks are data. They are hard data.
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Speaker 4: They do anticipate investment. They are the only continuous, real
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Speaker 4: time poll that we have on investor sentiment. We report
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Speaker 4: sentiment surveys a lot, but stocks are the ultimate sentiment survey.
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Speaker 4: They don't anticipate, They don't predict, that is, growth perfectly,
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Speaker 4: but they often do signal a downturn. And sometimes that's
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Speaker 4: because they're picking up on negative sentiment. Sometimes it's because
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Speaker 4: if a company can't raise capital, it can't make investments
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Speaker 4: in that itself leads to an economic downturn. So I
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Speaker 4: just want to point out that sometimes we poop, or
6:47
Speaker 4: I do anyway big market pullbacks, but I shouldn't, particularly
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Speaker 4: when they're persistent and widespread. By that, I mean broad.
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Speaker 3: Day to day unimportant trend.
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Speaker 4: More yeah, more so so I just want to make
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Speaker 4: that point. I don't want to entirely dismiss what could
7:06
Speaker 4: sometimes be chalked up to random movements. There are a
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Speaker 4: few channels through which stocks affect the real economy. To
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Speaker 4: answer your question about valuations, and we talked about this
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Speaker 4: internally this morning, so thank you for setting me up
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Speaker 4: for something that was kind of softball, kind of on
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Speaker 4: the tip of my tongue. You hear frequently that stocks
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Speaker 4: are expensive, or that homes are expensive. For that matter,
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Speaker 4: what does that mean relative to You should always ask
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Speaker 4: yourself relative to what? And one common measure looks set
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Speaker 4: past values of stocks, either last year's earnings relative to
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Speaker 4: last year's earnings relative to a longer span of times.
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Speaker 4: Earnings may be adjusted for inflation. So when you look
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Speaker 4: at stocks relative to say, longer term inflation adjusted earnings,
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Speaker 4: sometimes this is represented by the cyclically adjusted or so
7:51
Speaker 4: called Schiller named after the guy that first popularized the
7:55
Speaker 4: concept price to earnings ratio stocks. Depending on what you
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Speaker 4: think is the right cyclically adjusted price to earnings ratio?
8:02
Speaker 4: Do you want to use the long we got one
8:03
Speaker 4: hundred and fifty years worth of data, you want to
8:06
Speaker 4: use all of that? If you do stocks look like
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Speaker 4: they're fifty percent overvalued? You want to just use the
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Speaker 4: last ten years of it, maybe because you think the
8:12
Speaker 4: economy changes frequently and it's not a good idea to
8:14
Speaker 4: use the longer term benchmark, just like you wouldn't ask
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Speaker 4: how long did it take me to run a mile
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Speaker 4: when I was twenty and you're fifty now? Like that's
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Speaker 4: not fair? Sure, So maybe we just look at the
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Speaker 4: last ten years. In that case, stocks look like they're
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Speaker 4: about twenty or so percent overvalued, and by that I mean.
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Speaker 3: Compared to the way they were for the last decade.
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Speaker 4: Yeah, I guess that was self explodin.
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Speaker 3: It's hard.
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Speaker 4: They didn't need to expand on that, but thank you, Michael.
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Speaker 4: So it depends, Mike on you on your reference point
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Speaker 4: how severely The answer to the question how severely overvalued
8:44
Speaker 4: or stocks depends on what benchmark you want to use.
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Speaker 4: And I don't mean benchmark like the S and P
8:48
Speaker 4: five hundred in decks. I mean your own reference point.
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Speaker 4: So maybe twenty, maybe thirty percent, Maybe that doesn't matter.
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Speaker 2: It might not, but I think good to contextualize. Because
8:58
Speaker 2: we have seen stock price fall. People may not remember
9:03
Speaker 2: how quickly that can happen. It was just a few
9:04
Speaker 2: years ago, in twenty twenty two that we saw twenty
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Speaker 2: percent market pullback. But I always get asked that question
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Speaker 2: whenever you see a market pullback, Hey, our stock's cheap.
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Speaker 2: Now is this a good entry point? And nobody ultimately
9:15
Speaker 2: has that answer, because we could now embark on a
9:17
Speaker 2: fifty percent market rally for all I know. But I
9:20
Speaker 2: think answering it with some data of hey, okay, Marcus
9:23
Speaker 2: just went through a ten percent sell off. When I
9:24
Speaker 2: look at them now contextually, how do they compare it
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Speaker 2: to their average pricing over the last decade or last
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Speaker 2: three decades, allows you to go into that type of
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Speaker 2: decision a bit more informed than you otherwise would.
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Speaker 4: We're going to talk about tariffs and policy over the
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Speaker 4: course of the program today, Mike, And one thing that
9:40
Speaker 4: comes to the one thing that's a forefront at the
9:44
Speaker 4: forefront of my mind. Anyway, whether you like these policies
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Speaker 4: or not, they're going to fundamentally change I don't know
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Speaker 4: how deeply, but the objective is to the objective is
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Speaker 4: to fundamentally change the structure of the economy. Yes, why
9:58
Speaker 4: would you attach the same earnings multiple for say the
10:02
Speaker 4: next ten years worth of to arrive at your estimate
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Speaker 4: of the next ten years worth of returns that you
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Speaker 4: thought was reasonable for the last ten years. If you
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Speaker 4: also think the fundamental structure of the economy was going
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Speaker 4: to change, there's another.
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Speaker 2: You'd have to believe that it's going to fundamentally restructure
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Speaker 2: the economy in favor of capital more so than it
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Speaker 2: already is.
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Speaker 4: But in eras when in periods of history when tariffs
10:22
Speaker 4: were higher and growth was growth was more attributable to
10:28
Speaker 4: internal activity. Imports and exports were smaller percentage of GDP,
10:33
Speaker 4: which is how we measure economic activity. The earnings multiple
10:37
Speaker 4: on stocks was much lower than and I emphasize much
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Speaker 4: than like half as much. So if you want to
10:43
Speaker 4: go back to that, and it's the avowed objective of
10:46
Speaker 4: current policy to go back to some kind of golden era, well,
10:49
Speaker 4: let me tell you about the Golden era and what
10:51
Speaker 4: stocks were priced at about half of what they were
10:53
Speaker 4: priced at today, bonds throughout the Golden era, and it's
10:57
Speaker 4: fine if you want to go back to that, but
10:59
Speaker 4: just keep in that a lot of stuff was a
11:02
Speaker 4: lot cheaper. Interest rates were a lot real interest rates
11:04
Speaker 4: were a lot higher. You might say well, is it
11:06
Speaker 4: because of that? Are you asserting that there's cause and
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Speaker 4: effect in operation here? No, not necessarily. I'm merely pointing
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Speaker 4: out that the pes we've been using in an age
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Speaker 4: of globalization and other structural characters characteristics of the economy
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Speaker 4: which some people now want to change, those valuation metrics
11:25
Speaker 4: may no longer be valid.
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Speaker 2: Let's take a quick break when we come back before
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Speaker 2: moving on to trade, I do want to talk about
11:31
Speaker 2: consumer confidence.
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Speaker 3: Data that was released just this morning. At ten am.
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Speaker 2: We'll get a full read on what consumers are feeling
11:38
Speaker 2: about the state of things and their futures. That's next
11:40
Speaker 2: here on the Financial Exchange.
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11:45
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Speaker 3: Mark.
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Speaker 2: At ten am this morning, the Conference Board released their
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Speaker 2: Consumer Sentiment Survey, one of many places that surveys consumers
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Speaker 2: about how they feel about the economy rather than actual
12:27
Speaker 2: data reports such as unemployment, consumer spending, other retail sales,
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Speaker 2: things like that that actually attempt to measure through surveys
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Speaker 2: how much consumers are spending or taking on debt, things
12:39
Speaker 2: along those lines. But these are nonetheless important because they
12:42
Speaker 2: can very much become self fulfilling prophecies. The other popular
12:46
Speaker 2: one is from the University of Michigan, which has been
12:48
Speaker 2: doing consumer sentiments survey since the nineteen sixties. This one
12:52
Speaker 2: has existed since the mid nineteen eighties. In any case,
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Speaker 2: what you have been seeing in all of these surveys,
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Speaker 2: they've been pretty pretty universal. Over the course of the
13:03
Speaker 2: last three months when it comes to turning expectations for
13:07
Speaker 2: the US economy, the Consumer Confidence Index fell in the
13:11
Speaker 2: month of March to ninety two point nine. Uh that
13:15
Speaker 2: was a fall of seven point two points. The benchmark
13:19
Speaker 2: for this all just so you have some frame of
13:21
Speaker 2: reference in nineteen eighty five when they first did this,
13:24
Speaker 2: they created the index and said, okay, that's one hundred
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Speaker 2: and so are we better or worse than nineteen eighty
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Speaker 2: five in in terms of confidence in the economy? But
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Speaker 2: to me, that's not the really important or telling pieces
13:37
Speaker 2: of this, the confidence was driven primarily by consumers over
13:42
Speaker 2: fifty five years old, and then to a lesser extent
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Speaker 2: those between thirty five and fifty five. Confidence actually increased
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Speaker 2: among consumers who are under thirty five, so I don't
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Speaker 2: know what to make of that. Precisely could be interest
13:55
Speaker 2: rates having come down a little bit of the course
13:56
Speaker 2: of the last few months. I would attribute the fifty
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Speaker 2: five and older piece primarily to equity holdings market stock
14:04
Speaker 2: market sensitive that that seems to me to be a
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Speaker 2: big piece of it. The decline was also broad based
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Speaker 2: across income groups, the only exception being households earning one
14:14
Speaker 2: hundred and twenty five thousand dollars or more per year,
14:18
Speaker 2: so that they were actually more confident than the overall group.
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Speaker 2: Other pieces that I found interesting so the seventeen point
14:29
Speaker 2: seven percent of consumers said business conditions were good. That
14:32
Speaker 2: was down from nineteen percent back in February. So clearly
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Speaker 2: expectations about is it a good time to start a
14:40
Speaker 2: business or you know, expand a business, those are largely
14:44
Speaker 2: negative at the moment. And then views about the labor
14:46
Speaker 2: market actually improved a little bit in March, so I
14:50
Speaker 2: don't have much to tie that to other than hey,
14:53
Speaker 2: if you're not seeing layoffs at this point, you might
14:55
Speaker 2: start improving your view on the state of the economy.
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Speaker 2: So in terms of those we continue to see this
15:04
Speaker 2: same thing which we've seen play out of the last
15:06
Speaker 2: few years. When you ask people what they think is
15:09
Speaker 2: going to happen next, they're really negative. If you ask
15:13
Speaker 2: them how they are doing right now, they're by and
15:16
Speaker 2: large pretty positive. So the Present Situations Index, for example,
15:20
Speaker 2: is sitting, you know, pretty much around where it has
15:25
Speaker 2: been over the last few years. It's not overly negative.
15:28
Speaker 2: But when you take a look at the Expectations index,
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Speaker 2: that's lower than it has been really any time since
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Speaker 2: the early twenty tens.
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Speaker 4: They're just looking at the primary series, the consumer Confidence Index,
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Speaker 4: the one that you mentioned. It's been languishing for some time.
15:44
Speaker 4: It got back to pre COVID levels briefly in call
15:48
Speaker 4: it early twenty twenty one, before inflation kicked in, which
15:51
Speaker 4: soured everybody on everything, and that still seems to taint
15:55
Speaker 4: people's perception of overall economic health. With a couple of
15:59
Speaker 4: with the extra option of a couple blips, confidence has
16:02
Speaker 4: not gotten anywhere near where it was, largely during Trump's
16:06
Speaker 4: first term, it was quite high in a historic in
16:09
Speaker 4: a historical excuse me, since that reference point, that eighteen,
16:14
Speaker 4: that index, that index year you mentioned nineteen eighty five
16:16
Speaker 4: equals one or one hundred. If you think about what
16:19
Speaker 4: was happening in eighty five, that was a year pretty
16:20
Speaker 4: robust expansion. So think of a value of one hundred
16:24
Speaker 4: as people being pretty optimistic or at least as optimistic
16:27
Speaker 4: as as consistent with an economy expanding vigorously. We're now
16:31
Speaker 4: several percentage points below that, but that's been the norm
16:34
Speaker 4: again for the past several years, despite pretty healthy in
16:37
Speaker 4: real terms now after inflation terms, economic growth over the
16:40
Speaker 4: last couple of years, really four or five years since COVID,
16:43
Speaker 4: and very very low unemployment on average.
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Speaker 2: I think you know, as we've spoken about, it appears
16:49
Speaker 2: to me that inflation plays a huge role in people's
16:53
Speaker 2: perceptions about the state of the economy compared to unemployment.
16:57
Speaker 2: Generally speaking from the sentiment surveys we've seen, like you
17:01
Speaker 2: take a look at how they reacted in times of
17:03
Speaker 2: high unemployment like March of twenty twenty compared to how
17:06
Speaker 2: they reacted in twenty twenty two when we saw high
17:08
Speaker 2: inflation and it really was heavily weighted towards people dislike
17:13
Speaker 2: inflation quite a bit. When you take a look at
17:17
Speaker 2: likelihood of recession, which is, you know, obviously on our
17:21
Speaker 2: minds here, consumers perceived likelihood of a US recession over
17:24
Speaker 2: the next twelve months held steady in March, did not
17:26
Speaker 2: really move anywhere, sitting right around sixty seven to sixty
17:30
Speaker 2: eight percent saying that a US recession is likely over
17:32
Speaker 2: the next twelve months. To give you some idea, in
17:36
Speaker 2: late twenty two or early twenty three, we were sitting
17:38
Speaker 2: around seventy two to seventy three percent. So during that
17:42
Speaker 2: you know, high inflation period in twenty twenty two, when
17:44
Speaker 2: growth was slowing, things were a little bit worse in
17:47
Speaker 2: terms of those expectations. Anything else catching your eye here,
17:51
Speaker 2: I think what I would continue to say is these
17:56
Speaker 2: sentiment surveys, as Jerome Powell in the US conference just
18:00
Speaker 2: last week acknowledged, haven't really indicated much of anything over
18:04
Speaker 2: the last few years. And so when he was asked
18:07
Speaker 2: about this type of survey that this data obviously wasn't
18:09
Speaker 2: available to him last Wednesday. But when he was asked
18:12
Speaker 2: about these surveys, he said, look, it's important for us
18:14
Speaker 2: to be looking at them. We put them into our models,
18:17
Speaker 2: we consider all of them. But it's also important to
18:19
Speaker 2: acknowledge that for the last few years they haven't really
18:22
Speaker 2: worked in terms of indicating recession, for example, and the
18:25
Speaker 2: question becomes, hey, was that a one off or is
18:29
Speaker 2: this some sort of new normal In terms of how
18:31
Speaker 2: people respond.
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Speaker 4: To them, you have to look at it in the
18:33
Speaker 4: context of what else is going on and stocks wobbling wobbling.
18:40
Speaker 4: I should say there are some other as you pointed
18:44
Speaker 4: out it earlier, not a lot of hard data pointing
18:46
Speaker 4: to cracks in the economic foundation yet. But you take
18:50
Speaker 4: this in the context of the things that some of
18:55
Speaker 4: the other data financial data points specifically that we are seeing.
18:59
Speaker 4: Taken in the context of what they might be pointing to,
19:03
Speaker 4: it adds to the evidence of some potential softness.
19:06
Speaker 2: I guess markets have turned very slightly positive for the day.
19:11
Speaker 2: We've We're be covering all of that and a whole
19:14
Speaker 2: lot more next with Wall Street Watch, but Dow, SMP
19:17
Speaker 2: and NASDAC all slightly and positive territory after a really
19:20
Speaker 2: solid finish yesterday.
19:22
Speaker 3: Wall Street Watch is next.
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Speaker 1: today right here on the Financial Exchange Radio Network.
19:59
Speaker 5: All after yesterday strong rally driven by optimism around reports
20:03
Speaker 5: and more targeted tariffs, markets today are modestly extending their
20:07
Speaker 5: gains as investors react to new consumer confidence data released
20:12
Speaker 5: about half an hour ago. Right now, the dial up
20:15
Speaker 5: by sixty points, just over a tenth of a percent.
20:18
Speaker 5: SMP five hundred is up two tenths of a percent
20:22
Speaker 5: or eleven points, and the NASDAC also up two tenths
20:25
Speaker 5: of a percent or thirty six points. Of RUSS two
20:27
Speaker 5: thousand actually pulling back by nearly half a percent at
20:31
Speaker 5: the moment. Ten year treasure reeled flat at four point
20:34
Speaker 5: three two percent, and crude oil up about half a percent,
20:38
Speaker 5: treading at sixty nine dollars and forty six cents a barrel.
20:42
Speaker 5: Sad news from the tech world this morning after Samsung
20:44
Speaker 5: co CEO Jonghi Han died from cardiac arrest earlier today.
20:49
Speaker 5: The South Korean technology giant has already been going through
20:52
Speaker 5: a business slide that leaders have called a crisis. Meanwhile,
20:55
Speaker 5: the Wall Street Journal is reporting that Boeing is seeking
20:58
Speaker 5: to withdraw from an earlier agreement to plead guilty in
21:02
Speaker 5: a long running criminal case that blamed the company for
21:04
Speaker 5: deceiving regulators before two deadly crashes. Boeing shares are up
21:09
Speaker 5: by half a percent. Elsewhere, Tesla shares down about a
21:12
Speaker 5: third of a percent following new sales data out of Europe,
21:15
Speaker 5: or sales plunged for a second consecutive month in February
21:20
Speaker 5: despite an overall increase in demand for evs at other
21:25
Speaker 5: car makers. Trump Media shares up by eight percent after
21:28
Speaker 5: the company signed an agreement with Crypto dot Com to
21:31
Speaker 5: launch ETFs and other related products. Universe shares down by
21:36
Speaker 5: fourteen percent after Cinta's terminated discussions to acquire the workwere
21:41
Speaker 5: provider in a deal that would have been worth two
21:43
Speaker 5: hundred and seventy five dollars per share in cash. KB
21:47
Speaker 5: Holmes first quarter results miss earnings in revenue expectations, while
21:51
Speaker 5: the company also cut its fiscal twenty twenty five revenue outlook.
21:55
Speaker 5: That stock down by four percent. In after today's closing bell, well,
22:00
Speaker 5: we'll see video game Retailler Game Stop report their quarterly results.
22:05
Speaker 5: I'm Tucker Silvan. That's Wall Street watch.
22:08
Speaker 2: Mark going a little bit out of order here, But
22:11
Speaker 2: did you submit a bracket for our internal fun March mad.
22:17
Speaker 4: For the privilege of being humiliated every day?
22:20
Speaker 3: Yep. By the I don't think we've ever discussed this
22:24
Speaker 3: on air.
22:24
Speaker 2: So in our office here where we broadcast the radio
22:29
Speaker 2: station from, we have an annual March Madness pool where
22:34
Speaker 2: one of our Chuck who you hear on the radio regularly,
22:37
Speaker 2: just insults everyone who submitted a bracket, whether they win
22:40
Speaker 2: or lose. Really, it's really reasonable practice because he does
22:45
Speaker 2: not pick on anyone in particular. Just you know, whether
22:48
Speaker 2: you accidentally picked the best bracket or the worst bracket,
22:51
Speaker 2: he's going to tear you apart. And I won last year,
22:54
Speaker 2: even though I have famously never watched a single game
22:58
Speaker 2: of college basketball, and I'm not one hundred percent sure
23:01
Speaker 2: I've ever watched a single game of professional basketball either,
23:03
Speaker 2: but I'm sure I have at some point. In any case,
23:07
Speaker 2: You're probably wondering why I'm talking about this, and the
23:09
Speaker 2: answer is because Massachusetts regulators are currently probing the company
23:13
Speaker 2: robin Hood, which seems like is kind of an annual
23:17
Speaker 2: tradition over at the Massachusetts Securities Regulator probing robin Hood
23:20
Speaker 2: over something, but actually speaks to something that we've been
23:23
Speaker 2: talking about pretty regularly on the show, which is this
23:27
Speaker 2: merging and I think confusion that's being created between what
23:34
Speaker 2: is gambling and what is investing. And so I want
23:38
Speaker 2: to dive into this one here, Mark, because it hits
23:41
Speaker 2: a little bit close to home to us with our
23:43
Speaker 2: day jobs as investment advisors. But what robin Hood has
23:47
Speaker 2: done here is opened up a platform by which customers
23:50
Speaker 2: of theirs can place bets on basically futures. And it's
23:56
Speaker 2: unclear how directly linked this is to your broke Bridge account.
24:00
Speaker 2: For example, can I actually go and bet on March
24:03
Speaker 2: Madness within my investment account at robin Hood or do
24:08
Speaker 2: I need to open up something new and sign a
24:12
Speaker 2: bunch of disclosures and open a new trading account. But
24:16
Speaker 2: I was interested in just your take on this or
24:18
Speaker 2: if I'm being too dramatic, because with the rise of
24:22
Speaker 2: things like this, where hey, my investment platform, Robinhood, which
24:28
Speaker 2: falls into the same category as say, falls into the
24:33
Speaker 2: same categories as say, Charles Schwab and Fidelity in a
24:36
Speaker 2: lot of ways is now saying hey, we're getting into
24:39
Speaker 2: gambling in a way that has traditionally been reserved to
24:44
Speaker 2: casinos and other online brokerages or sorry, other online betting sources.
24:50
Speaker 2: The other piece to this, too is this isn't the
24:52
Speaker 2: only area that I would consider to be gambling. You know,
24:55
Speaker 2: when we think about single day options ETFs or leverage
24:59
Speaker 2: single stock, these are all kind of getting into new
25:02
Speaker 2: areas of quote unquote investing that I'm not sure any
25:07
Speaker 2: professional investor would genuinely consider anything but gambling.
25:10
Speaker 3: So go ahead. I mean, am I being over leading now?
25:13
Speaker 4: I don't think you are. I think the pendulum is
25:15
Speaker 4: now swinging under the new I'm gonna call it a regime,
25:18
Speaker 4: don't text in. I call every political a political a
25:25
Speaker 4: leadership class of regime. So under the current regime, as
25:28
Speaker 4: opposed to the Biden regime, the new regime is committed
25:33
Speaker 4: to deregulation, hands off approach with respect to finance. The
25:36
Speaker 4: old regime was a lot more stringent. So the pendulum,
25:40
Speaker 4: to me, is just swinging in the other direction after
25:42
Speaker 4: God forbid. But we're gonna have another market crash at
25:44
Speaker 4: some point. I'm not predicting it, but we all know
25:46
Speaker 4: it's gonna happen. I hope it doesn't happen for a
25:47
Speaker 4: long time, but it will. All this crap is gonna
25:49
Speaker 4: forgive me, but it is largely crap. It's inducing adrenaline
25:53
Speaker 4: junkies to go out and do dumb things. And we
25:55
Speaker 4: should get back to the point about where do you
25:57
Speaker 4: draw the line between investing and speculating too, because it
26:01
Speaker 4: is not a it is not a stark line.
26:03
Speaker 2: And I struggle with it too because I am generally
26:06
Speaker 2: in favor of, hey, educate, deregulate, Let people do what
26:09
Speaker 2: the hell they want, right, whether that comes your money, yeah,
26:12
Speaker 2: when it comes to gambling and a casino, whether it
26:14
Speaker 2: comes to betting on sports. You know, frankly, you know
26:17
Speaker 2: there's been a big push to deregulate the use of
26:20
Speaker 2: certain drugs and all of which kind of not my business, right,
26:24
Speaker 2: Like I kind of take a hands off approach to
26:28
Speaker 2: all of that and say, look, if people want to
26:30
Speaker 2: go do that, then whatever they want to do. But
26:34
Speaker 2: in this context, you do. What worries me about it
26:38
Speaker 2: is do the lines get so blurred to the point
26:42
Speaker 2: where a new investor in their twenties and thirties a
26:45
Speaker 2: few decades from now has no real life.
26:48
Speaker 4: This will have all been crashed down. Yeah, people will
26:52
Speaker 4: look back at this just like they looked at the
26:54
Speaker 4: speculation of the twenties and banks engaging in investment activities
26:59
Speaker 4: in the twenties and things. How could people have been
27:01
Speaker 4: so stupid? And pendulum will swing in the other direction
27:04
Speaker 4: in the interim. Yeah, it will confuse people who haven't
27:07
Speaker 4: had the benefit of say four h one k education
27:10
Speaker 4: at work, where they teach you about the difference between investing,
27:13
Speaker 4: which is generally done in generative things like stocks which
27:18
Speaker 4: have a yield. They invest in companies that in turn
27:20
Speaker 4: have earnings that are tied to economic growth, we call
27:23
Speaker 4: those generative. Or you own debt, which is just a loane,
27:27
Speaker 4: but a publicly traded one. So there are Although the
27:31
Speaker 4: line is not a fine and sort of firm one,
27:34
Speaker 4: I think most people could agree on where to draw it.
27:37
Speaker 4: And this kind of stuff clearly falls on the pure
27:41
Speaker 4: speculation you're likely to lose your shirt side of the line.
27:45
Speaker 2: But there are other things that, after acknowledge of have
27:47
Speaker 2: existed for decades, Like you know, you could buy a
27:51
Speaker 2: triple leveraged single country stock ETF two decades ago. So
27:57
Speaker 2: some of the stuff isn't all that new, and I
27:58
Speaker 2: wouldn't really consider that to be investing.
28:01
Speaker 4: The person underlying is in that, to use an investment term,
28:04
Speaker 4: the underlying in that case is something generative. That'd be
28:06
Speaker 4: like borrowing on margin to buy a stock.
28:09
Speaker 3: You're levered.
28:10
Speaker 4: You're leveraged or levered up in finance jargon, as long
28:14
Speaker 4: as the underlying thing is generative, even though you're using
28:16
Speaker 4: it speculatively. And I know this sounds like a very
28:19
Speaker 4: fine line here that I'm maybe not treading too well,
28:24
Speaker 4: but you know, it's sort of like you know it
28:27
Speaker 4: when you see it. And there are things that are
28:29
Speaker 4: clearly not There are underlying investments or activities that are
28:33
Speaker 4: clearly not generative, that are clearly pure gambling, And this,
28:36
Speaker 4: by definition is is gambling.
28:38
Speaker 3: Yes, betting on march madness. That's there.
28:40
Speaker 2: We can draw the line there. But you're right, other
28:42
Speaker 2: areas get more confusing, right, like, Okay, the underlying is
28:45
Speaker 2: a single security and you're betting on the single day
28:47
Speaker 2: performance of that single How is that.
28:49
Speaker 4: Any different than me buying a stock on margin and
28:51
Speaker 4: my brokers not selling it the next day, And anybody
28:54
Speaker 4: will do any broker very respectable A broker will do
28:56
Speaker 4: that for you.
28:57
Speaker 3: Yeah. Yeah, so still probably gambling, but probably doesn't cross
29:02
Speaker 3: the line I think is.
29:02
Speaker 4: Anything other than long term buy and hold, I guess
29:05
Speaker 4: is a type of gambling. Sure, yeah, but we're maybe
29:09
Speaker 4: we're too libertarian, like if you want to lose everything,
29:12
Speaker 4: you know, we want to lose the kids college money.
29:14
Speaker 4: It's a free country.
29:15
Speaker 2: Yeah, that's that's kind of been my approach as well.
29:18
Speaker 2: But I think the more I see about how specifically
29:22
Speaker 2: young men are interacting with gambling, I don't know. I
29:26
Speaker 2: don't have an answer, but I get worried about what
29:28
Speaker 2: the eventual outcome.
29:30
Speaker 4: Does every generation feel that way?
29:31
Speaker 3: Maybe, Oh, this technicies. It's not like we probably was
29:35
Speaker 3: a cud.
29:35
Speaker 4: Probably we all fall into that.
29:37
Speaker 2: Let's take a quick break when we come back. Forget
29:41
Speaker 2: about trade wars and teriffs. This is the real threat
29:43
Speaker 2: to your money. It's from MarketWatch. Will be covering it
29:45
Speaker 2: next here on the Financial Exchange.
29:48
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30:59
Speaker 2: Forget trade wars and tariffs. This is the real threat
31:02
Speaker 2: to your money and the answer, according to market Watch anyway,
31:05
Speaker 2: is debt. So let's talk about I guess different debt
31:10
Speaker 2: crises and how they've played out, because I think it
31:13
Speaker 2: is fair to say. Maybe you can correct me, but
31:16
Speaker 2: I think it's generally fair to say that many financial
31:20
Speaker 2: crises that result in big drawdowns in stocks have been
31:24
Speaker 2: either caused or preceded by debt issues of one sort
31:29
Speaker 2: or another.
31:31
Speaker 3: Maybe is that an overstatement?
31:32
Speaker 4: What do you think of when you think of financial
31:34
Speaker 4: crises like the bank failures during the Great Depression? Sure,
31:38
Speaker 4: you think of they say Latin America in the early
31:40
Speaker 4: nineteen eighties.
31:41
Speaker 3: I'd say great recession.
31:43
Speaker 4: Great recession.
31:44
Speaker 3: Yep.
31:44
Speaker 4: I was just trying to go chronologically. I was thinking,
31:46
Speaker 4: did I miss anything in between? There was a debt
31:48
Speaker 4: crisis in Russia in nineteen ninety eight, there was a
31:52
Speaker 4: debt crisis in Southeast Asia the year before that. Those
31:55
Speaker 4: are regional contained. The FED did have to respond. But
31:58
Speaker 4: I think so your question was is are I'll rephrase
32:02
Speaker 4: it a little bit, if you'll allow me, our financial
32:05
Speaker 4: crises associated with fiscal problems and debt problems, the two
32:11
Speaker 4: of which are And yeah, of course absolutely in the
32:15
Speaker 4: old days, like the Great Depression days, we were all
32:17
Speaker 4: on something called the gold standard, so monetary policy could
32:20
Speaker 4: not be run independently of your exchange rate. And this
32:24
Speaker 4: is one hundred years ago and it's really relevant today,
32:26
Speaker 4: So I'm not going to expand on it, though we
32:28
Speaker 4: might get back on the gold standard after whatever resolution
32:32
Speaker 4: to our debt crisis, if it is a crisis in
32:36
Speaker 4: this country happens. But anyway, what I've had everyone's little
32:39
Speaker 4: bit different, Mike, is what I'm trying to say. But
32:40
Speaker 4: I think as a general statement, yes, of course I
32:42
Speaker 4: wouldn't argue with that.
32:43
Speaker 2: What I have a tougher time figuring out and sorting
32:46
Speaker 2: through in my mind, is when you think about the
32:48
Speaker 2: increase in debt let's just say over the last five
32:51
Speaker 2: years since COVID, and you.
32:52
Speaker 3: Look at sources of it, and where are the problems. Right.
32:55
Speaker 2: You can look at auto loans and yeah, they're heading
32:59
Speaker 2: to it's hired to fall, but they're not sizable enough
33:02
Speaker 2: to sink the entire economy. They're also not so much
33:05
Speaker 2: more sizable than they were pre COVID when adjusted for inflation.
33:08
Speaker 2: The same goes for credit card debt. Default rates are
33:11
Speaker 2: still relatively low when compared to other periods of time,
33:14
Speaker 2: and the total level of the debt, Yeah, adjusted for inflation,
33:17
Speaker 2: isn't that much different than twenty nineteen. Mortgage loans, for example,
33:21
Speaker 2: look far more attractive in terms of balances and equities
33:26
Speaker 2: compared to the Great Recession.
33:28
Speaker 3: Corporate debt maybe a bit of a different story there.
33:31
Speaker 2: I know that that has been an area of concern,
33:34
Speaker 2: but all of that, you know, doesn't even compare to
33:36
Speaker 2: what we've run up at the US government level and
33:41
Speaker 2: with all of those other sources.
33:42
Speaker 3: Right, if I saw, you know, people.
33:44
Speaker 2: Borrowing a ton of money on their mortgages, way more
33:47
Speaker 2: than the value of the equity in their homes, you
33:49
Speaker 2: can pretty easily draw a line to where that stops working.
33:52
Speaker 2: I have a much tougher time drawing that line when
33:54
Speaker 2: it comes to the United States government borrowing say six
33:57
Speaker 2: percent of GDP for the last three years, and how
33:59
Speaker 2: that plays out in terms of your portfolio.
34:02
Speaker 4: The problem is not debt, As stupid as that statement sounds,
34:05
Speaker 4: bear with me. The problem is growth. As long as
34:07
Speaker 4: you're growing from the government's point of view, now, as
34:10
Speaker 4: long as you're growing faster than the interest rate on
34:13
Speaker 4: your debt. I'm oversimplifying a little bit there. Debt as
34:16
Speaker 4: a percentage of the economy will come down. The problem
34:20
Speaker 4: is slow growth. So if you're coupling now slower growth
34:24
Speaker 4: due to tariffs, even though the political propaganda line is no,
34:28
Speaker 4: no tariffs are going to raise the growth rate, nobody thinks.
34:31
Speaker 4: No serious person thinks that. I understand why politicians would
34:34
Speaker 4: want to tell you that, but no serious person thinks that.
34:36
Speaker 4: So we shouldn't subscribe to that fantasy either. If that
34:38
Speaker 4: slows down growth and we can't get the debt under control,
34:42
Speaker 4: and that's in the lap of Congress. Now, there's only
34:44
Speaker 4: so much musk and the administration can do without Congress,
34:47
Speaker 4: which controls the purse exercising some fiscal discipline. We're in
34:52
Speaker 4: trouble now because the average interest rate on government debt
34:54
Speaker 4: is over three percent, something like three and a half.
34:56
Speaker 4: You could google that and get a quick answer. It's
34:58
Speaker 4: somewhere in the three to four percent range. That's faster
35:01
Speaker 4: than economic growth has been the past couple of years.
35:03
Speaker 4: That's faster than any serious person thinks economic growth can
35:07
Speaker 4: be based on underlying structural forces. So to me, Mike,
35:11
Speaker 4: this headline is really asks the wrong question. It makes
35:14
Speaker 4: the wrong point. Debt is in itself, in and of itself,
35:17
Speaker 4: not the problem. And this is true of people too,
35:19
Speaker 4: right Mike, if you have somebody comes to use this
35:21
Speaker 4: as I have one hundred K and debt, Okay, what
35:23
Speaker 4: do you make? Yeah, wouldn't that be your first question?
35:25
Speaker 3: Absolutely?
35:26
Speaker 2: When it comes to the household stories around debt, That's
35:31
Speaker 2: where I want to hone in on here, because I
35:34
Speaker 2: feel as though when it comes to debt, people are
35:37
Speaker 2: either on opposite ends of the spectrum. It's always bad
35:40
Speaker 2: or I am up to my eyeballs and then some
35:43
Speaker 2: and I have no idea how to dig out. There
35:45
Speaker 2: are intelligent ways to use debt, and I think it's
35:48
Speaker 2: a common question that we see all the time. Hey,
35:51
Speaker 2: you know, I've got this loan outstanding. I also have
35:54
Speaker 2: a company match in my four O one K I'm
35:55
Speaker 2: getting offered this. What do I do with my next dollar?
35:59
Speaker 2: How do I go up out approaching a student loan
36:01
Speaker 2: or a mortgage that I have outstanding. I'm nearing retirement
36:04
Speaker 2: and I've still got this thirty year mortgage. There's going
36:06
Speaker 2: to be an extra ten years on it once I retire.
36:09
Speaker 2: It sure would be great to have that paid off.
36:11
Speaker 2: How do you approach those one off debt situations when
36:14
Speaker 2: it comes to your personal financial scenario. If you are
36:18
Speaker 2: addressing questions like those and not sure where to turn
36:21
Speaker 2: to next for that guidance, please give the folks at Armstrong.
36:24
Speaker 3: Advisory Group a call. We work with our.
36:26
Speaker 2: Clients to assess their overall financial situation to be able
36:30
Speaker 2: to answer questions like that, where does the next dollar go?
36:33
Speaker 2: The number for the Armstrong Advisory Group is eight hundred
36:36
Speaker 2: three nine three four zero zero one. We book free
36:39
Speaker 2: consultations across New England via zoom over the phone whatever
36:42
Speaker 2: is easiest for you, but take the first step by
36:44
Speaker 2: calling us at eight hundred three nine three for zero
36:48
Speaker 2: zero one.
36:49
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
36:52
Speaker 1: registered investment advisor. Nothing in the ad or in any
36:54
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
36:57
Speaker 1: your own financial tax and to state planning advice before
37:00
Speaker 1: making any investment decisions. Armstrong may contact you to offer
37:03
Speaker 1: investment advisory services.
37:05
Speaker 2: Twenty three and meters is going bankrupt and puts about
37:08
Speaker 2: fifteen million users DNA info on the auctioning block here
37:12
Speaker 2: particularly interesting case of bankruptcy. Right when we talk about
37:18
Speaker 2: give me a company that's recently declared bankruptcy. Joanne Fabrics,
37:22
Speaker 2: Joanne Fabrics. Party City is another one that comes to
37:25
Speaker 2: mind now that you mentioned Joanne Fabrics.
37:28
Speaker 3: There's a bunch of.
37:29
Speaker 2: Assets that you auction off, the buildings, the leases, well
37:33
Speaker 2: the leases of the liabilities, but the buildings, the actual
37:36
Speaker 2: stuff in there. In this case, what you have is
37:39
Speaker 2: what you might consider the most possible personal information that
37:42
Speaker 2: you have on fifteen million different customers, and.
37:46
Speaker 3: It's going to be auctioned off to the highest bidder.
37:49
Speaker 2: I'm not immensely concerned about this, but it's just fascinating
37:53
Speaker 2: to me that what you have here is you'd argue, right,
37:57
Speaker 2: is there anything that you consider can consider more per
38:00
Speaker 2: sen in this like your genetic fabric is going to
38:03
Speaker 2: be sold, probably as intellectual property to another entity. I'm
38:07
Speaker 2: guessing a drug company or something like that that could
38:09
Speaker 2: pick it up and use it in some meaningful way.
38:11
Speaker 2: But fascinating. Twenty three and meters declaring bankruptcy markets remain
38:14
Speaker 2: in positive territory. Will be right back with the second
38:17
Speaker 2: hour the Financial Exchange