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What could kill the current market rally? · The Financial Exchange Show

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Chuck Zutta and Mike Armstrong.
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Speaker 2: It's Chuck, Mike, and Tucker here with the on the
1:15
final day of September twenty twenty four. And as we
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sit here today, Mike, in what is historically the worst
1:25
month on record for the stock market based on historical
1:29
seasonal patterns, the S and P five hundred is still
1:33
up significantly for the month, a couple percentage points. And thus, again,
1:39
I know we haven't closed yet. I know there's still
1:41
a little bit of time.
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Speaker 3: Yeah, we could sell off by ten percent today, but
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sure we could.
1:45
Speaker 2: You know, look, all would take in order for us
1:47
to get you know, a down month would be you know,
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a three percent sell off, which is still one hundred
1:51
and eighty points almost on the S and P five hundred,
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and would.
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Speaker 3: Be you know, a rather large late day move.
1:57
Speaker 2: But to this point it looks to be, you know,
2:01
increasingly likely that the S and P is going to
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finish in positive territory. Despite the outcry on September ninth
2:10
that hey, it's just another down September for the S
2:14
and P five hundred, uh and gosh.
2:17
Speaker 3: We just better get used to it, And what do
2:19
you think about all that? Tucker? Did I introduce Bennis Tucker? Yeah,
2:23
you did. That's all right. Well, actually I don't know
2:26
if it's all right, Chuck, It's fine, it's totally totally.
2:30
That wasn't a very good Tucker impression. By the way,
2:32
you need to work on that. You listen to him
2:34
for like two hours every day. You gotta get his
2:36
voice down at this stage. How would you do a
2:37
Tucker impression? I don't. I don't do impressions. Okay, I'm
2:40
glad to hear that.
2:41
Speaker 2: In any case, So we've got a market that has
2:43
continued to move to all time highs, and naturally, all
2:47
time highs make people nervous because it feels like you
2:51
have further to fall, which is kind of true. But ultimately,
2:55
like at any point, you can lose one hundred percent,
2:57
so it's not really that you have further to fall.
3:00
You can always lose one hundred percent of your mark,
3:02
your money in the stock market.
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Speaker 3: Yeah, I would say the all time high piece is
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a little bit less relevant in a lot of people's
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views compared to the different metrics you can use to
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measure the priciness of the stock market. You know, we
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hit new all time highs, but probably in the majority
3:21
of years, so you know, the all time high is
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less relevant to me than how those stock prices compared
3:28
to the earnings that they generate and what that might
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mean for future. And look, this is a market that
3:32
is priced deeeply right now. According to factsets earnings insight,
3:36
the forward twelve month PE ratio, meaning the ratio of
3:39
current prices to the next twelve months of earnings of
3:43
the S and P five hundred, which are just guesses,
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which your guesses, is twenty one point six. And by
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the way, this is what I'm gonna say, is gonna
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sound weird. This is an expensive twenty one point six
3:54
times forward earnings. And what I mean by that is
3:56
over the next the next three quarters that we have
3:59
projection four really four quarters h Q three, earnings are
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projected to be growing at four point six percent annually
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Q four fourteen point nine, Q one of next year
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fourteen to five, Q two of next year thirteen six.
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So you got you know, basic like almost in calendar,
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your twenty twenty five projections are for fifteen point one
4:18
percent earnings growth. So what I'm saying on this is
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that the earnings growth that's priced in is robust as well.
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If you had twenty one point six x you know
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future earning, you know forward earnings, and forward earnings growth
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is three percent, you can make a case that that's
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a cheaper you know, multiple than what you're sticking on
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less less to overcome.
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Speaker 2: There's more than has to go right in order to
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fill that value, this valuation than that one. So stocks
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are priced expensively. And what this does mean is that, hey,
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if something does go wrong recession, rebound, in inflation, war
4:54
in the Middle East that you know evolves over time,
4:57
there is further for the market to potent dip there
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because things are priced more sharply. What valuations don't do
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in any way, shape or form is tell you when
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the market is going to dip. And this is an
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important thing that you have to remember. Just because a
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stock or an index is expensive doesn't mean that it's
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going to fall apart imminently.
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Speaker 3: How long did you know, Chuck, or can you look
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up how long forward pes have been over twenty on
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the S and P five hundred during this cycle, because
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I think it's been over a year now, right, Uh,
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we've had a couple brief dips below. I'll have to
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see where I can pull that data from. Yeah, I
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didn't have any way of actually figuring out what the
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answer to that is, heyn I know a source that
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I can use. Just keep talking to the point that
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Chuck is making. We've been at an elevated price on
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the stock market for some time now, and you know
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we're less elevated now than we were in twenty twenty one.
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And in neither of those cases did you have a
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compelling long term devaluation of the stock market. And so
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these things can tell you. Where it may be useful
6:11
is to come up and say, yeah, I mean, based
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on the fact that we're at such a high starting
6:16
point with the markets at all time highs plus price
6:19
to earnings ratios, when you look at over the next decade,
6:22
it's tougher for me to find a reason why markets
6:25
would perform as well as the last decade. But gives
6:28
me nothing in terms of oh, and this is when
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it's all going to come tumbling down.
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Speaker 2: I got some data for you, Okay, So the S
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and P five hundred, aside from a brief period earlier
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this year, has been over a twenty x forward PE
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really since like the end of January of this year,
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so you know, almost nine months prior to that. It's
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been most of twenty twenty through twenty twenty one over
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that valuation, so almost a full two years. And the
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last time prior to that that you were over that
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was during the tech bubble, where one point we were
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north of like twenty six twenty five twenty six x
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forward earnings, but we were over. And again the data
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I have here only goes back to nineteen ninety nine,
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but the S and P five hundreds forward PE was
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over twenty for pretty much all of ninety nine, two thousand,
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two thousand and one, and a brief period twenty in
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two thousand and two as well, despite the index falling
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during that time. So again it's it's it's not something
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where you just say, well, stocks are expensive, they have
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to fall. It's no, stocks are expensive and if they
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do fall, it could be a little bit worse, but
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it's not that they have to fall now. And the
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other thing that you have to remember stocks can correct
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two different ways. I know, we hear the term stock correction,
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we're like, oh, well, that means, you know, a ten
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percent decline in a security or an index or whatever.
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Speaker 3: But stocks can also correct through time.
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Speaker 2: And I know that sounds like, oh, like stocks are
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correcting through time, man, how do they do that?
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Speaker 3: The answer is, hey, they might just not go anywhere.
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Speaker 2: You know, you might have a twenty one multiple on
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you know, the S and P five hundred now, and yeah,
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one way that could resolve is by the S and
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P going back down to forty five hundred. The other
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way I could resolve is, hey, earnings could continue to grow,
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but we could grow increasingly pessimistic about future earnings growth,
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and so the S ANDP just stays, you know, between
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six thousand and fifty five hundred for the next year,
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and stocks become cheaper through that, so very much possible too,
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or they might go up, Like just because something's expensive
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doesn't mean it can't get more expensive, remember that too.
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Speaker 3: So our friend Paula Monica writes today, you know, here's
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what could kill the rally, and the answer seems to
8:46
be something that shifts the sentiment about the state of things.
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Speaker 2: I mean, ultimately, what kills all rallies at some point
8:54
is either growth or inflation. Growth going down or inflation
8:57
going up. That is the death of rallies. We haven't
9:01
seen any of those problems this year. You know the
9:04
latest revision that we got on Q two, GDP up higher, yep,
9:08
three percent. Have you looked at GDP now recently the
9:11
Atlanta Fed. No, I have, And let me tell you it,
9:15
it looks. It looks wonderful. I'm not saying this will
9:17
or won't happen. The September twenty seventh update, last Friday's
9:21
update for GDP now three point one percent.
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Speaker 3: Oh, it's cooking, it's hot, steamy. So the risk that
9:29
I think Paul speaks to here that slows down at
9:33
some point I would agree to is, Yeah, that slows
9:35
down at some point. And the fact of the matter
9:37
is that you never know what exactly a market is
9:40
pricing in. But does this read to you like a
9:43
market that is immensely concerned about looming recession?
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Speaker 1: No?
9:48
Speaker 3: Does it look like a market to you that's worried
9:50
that the FED is going to have to pause their
9:52
rate cutting cycle because inflation rebounds. No, I also don't
9:55
think that should be a concern. I don't think so either.
9:57
But you know, any change to the narrative here, any
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shift to the narrative about what's going to happen here
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in terms of growth and people's feelings towards it would
10:06
be enough to kill the rally. Yes, yes, that's uh,
10:09
that's kind of where we are. Let's take a quick
10:11
break right now.
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Speaker 2: I want to talk a little bit about what's going
10:15
on in the Carolinas right now after Hurricane Helene went
10:19
through there. I know we have, you know, some other
10:21
market stuff to talk about, but the start there, the
10:23
Hallen stuff matters and is quite honestly much more important
10:27
than what's going on with everything other than AI in markets.
10:32
So let's go to that and we'll talk about that
10:34
when we return.
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Speaker 2: All right, I need to talk a little bit about
11:37
the situation in basically everywhere that's been impacted by Hurricane Helene.
11:43
Speaker 3: Carolina's Tennessee seems like some of the worst of it,
11:46
although I haven't seen much from Yeah, I mean, Rorna
11:48
just seems always more prepared for this that type of
11:50
thing at this stage. But I don't know they're more prepared.
11:53
Speaker 2: I mean, like the stuff on the Florida coast is
11:56
still pretty bad. But a few things to note about
12:00
how this impacts things economically. Obviously, Look, we could talk
12:03
at length about, you know, just how bad some of
12:06
the devastation and flooding is, but we are a business show. Ultimately,
12:10
we're looking at Hey, what's the potential economic impact of
12:15
all of this and a.
12:17
Speaker 3: Couple of things.
12:18
Speaker 2: The first thing is, look, in the short term, you're
12:21
obviously going to see a significantly decreased overall amount of
12:24
economic activity in those areas, just because, like as an example,
12:28
I've spent quite a bit of time on the west
12:31
coast of Florida in the Tampa Saint Pete area. The
12:34
beaches there are basically washed into the yards of houses
12:38
right now. You've got cars that are you know, put
12:40
through the first floors of houses and stuff like that.
12:43
The area is basically inaccessible to travel for the next
12:47
week or so at least until you can start to
12:49
get that beach of the sand just off the roads
12:51
and everything, like again four or five feet of sand
12:54
in some cases on these roads. So all the tourists
12:57
who are planning on heading down there, they can't go.
13:00
Any of your beachfront hotels and stuff are closed because
13:02
you can't even get there.
13:03
Speaker 3: Right now. Much of the Carolinas region and Mountain Redgion
13:08
there are no power, likely to no power.
13:11
Speaker 2: You got roads that are taken out by flooding water,
13:13
so they're inaccessible by road. Like you're not going to
13:16
be able to get to these areas for quite a while. Again,
13:19
from an economic activity standpoint, not as much generated there
13:23
when you talk about you know, the mountains of western
13:26
Carolinas and eastern Tennessee. There's not as much there, But
13:30
you still have some big communities that are obviously, look
13:32
on a personal level impacted, you know, really significantly. But
13:37
it's something where you try to figure out, Okay, what's
13:39
the overall economic impact, and the greater one is probably
13:42
down in Florida just because of the population size and
13:45
scale there. Georgia as well as you go through Atlanta.
13:48
But Atlanta seems to have been spared the worst of
13:51
the flooding, even though it still is quite swampy at
13:54
the moment. So you look at this and you say, okay,
13:57
and the short term there's going to be a decreased
13:59
in activity as result of this. Intermediate to long term, hey,
14:03
there's going to be a ton of rescue funds that
14:05
get devoted to you know, clean up and rebuilding and
14:08
things like that, and so that tends to be a
14:09
creative to the economy and the long term there. But
14:12
one of the wrinkles that we need to be prepared
14:15
for is the fact that big hurricanes can have a
14:19
big impact on jobs data sure and looking at data.
14:25
This was compiled by Renaissance Macro. I found it online here.
14:30
And if you look at, you know, the impact on
14:33
payrolls from large hurricanes. They look at some of the
14:37
big ones that have happened over the last you know,
14:39
twenty twenty five years, starting with Ivan in Florida, which
14:43
caused the subsequent month payroll to be about thirty thousand
14:47
lower than the previous one. Some of that can just
14:50
be you know, regular fluctuations and this and that. But
14:52
look what I can tell you is all the hurricanes
14:54
they cited here that you know, the major ones that
14:56
have hit in the last decade or two, they.
15:00
Speaker 3: All been you know, downward moves.
15:02
Speaker 2: Katrina obviously you know the size and scale there is,
15:05
you know, not unparalleled, but it's it's significant. You're talking
15:09
about a decrease in jobs from one month to the
15:12
next of about one hundred and thirty thousand jobs Wilma,
15:17
about fifty thousand, Ike, about twenty five thousand, Superstorm Sandy
15:22
about forty thousand, IRMA in Florida, about one hundred and
15:26
fifty thousand Aida in Louisiana about forty thousand barrel in
15:30
Texas about twenty five thousand. So you look at this
15:33
and you say, look, we've got something that's you know,
15:35
pretty significant, that's stretched across multiple states. It is very
15:40
very likely as a result of this, that the October
15:44
jobs data, which we're not going to get until the
15:46
first week in November. Remember, so this is looking out
15:48
a month now. It's very likely that you are going
15:52
to see that October jobs data be terrible to quite terrible. Yeah,
15:56
the payroll collection data, the the data window that happens
16:01
there is October six to twelve, So it starts next
16:04
Monday and goes for a week. You're not gonna have
16:07
these areas back to normal by then. And so regardless
16:12
of what we get this week for the September jobs report,
16:16
the October data is likely to be a complete train wreck.
16:19
And this is before you even get to the fact
16:22
that we have this doc worker strike that is looming
16:25
to night right tonight at midnight, and how that potentially
16:29
impacts other industries that might say, hey, we're going to
16:32
be you know, putting furloughing workers starting next week or
16:35
something like that. Right as this data collection begins. So
16:38
the October numbers could look really, really bad, is where
16:42
I'm going with this.
16:43
Speaker 3: So we've been obsessed over inflation data. If you look
16:48
back over the last couple of years, that's been the
16:50
only data point that matters. We've made the point on
16:51
this program that that's really irrelevant for the future of
16:55
markets at this point in time. It's not going to
16:57
shake things. Can you think of anything more important than
17:00
labor market readings over the next few months in terms
17:03
of just the overall economic narrative of this economy. No.
17:07
Speaker 2: And the problem is, like the October one you have
17:09
to disregard now like you are you already have to
17:11
just say, look, it's it's going to show either no
17:14
growth or contraction. Probably the only way that I think
17:19
you can even look at it like in any meaningful
17:21
way is if it comes in like close to where
17:23
it was, you know, pre if you come in anywhere
17:26
near like one hundred thousand, it's like, oh wow, there's
17:28
more strength here than we thought.
17:31
Speaker 3: But everything else is going to do.
17:32
Speaker 2: You have to expect it to be bad because this
17:34
is what we've seen with hurricanes and how they affect
17:37
payroll data.
17:37
Speaker 3: And this is a pretty bad one that's hit. Yeah,
17:40
and then the pilon effects of that looming dock workers strike,
17:44
which we will talk about, but you know, yeah, the
17:46
impact there for freight companies, for rail companies, for retailers,
17:52
all of the above in terms of product that's going
17:55
to be moving around the Eastern Seaboard of the next
17:58
few months. This has the to be severely disrupted on
18:01
the not only the retail side, but on the actual
18:04
labor market side too, because those forty five thousand DOC
18:07
workers certainly wouldn't be the only ones not working should
18:10
they go on strike.
18:11
Speaker 2: Well, look, and the other thing that you got to remember, Look,
18:15
dock workers go on strike.
18:16
Speaker 3: It's one thing.
18:18
Speaker 2: There's one group that really matters when it comes to strikes,
18:20
and that's the teamsters. Okay, the teamsters act in solidarity with.
18:25
Speaker 3: Their other unions.
18:27
Speaker 2: They're not going to just be like, yeah, we're gonna
18:29
be okay picking up you know, all these other goods,
18:32
and like a lot of times you're gonna see slow
18:34
downs in terms of what they agree to do as well. Yeah,
18:37
because they want to support other unions. I mean, it's
18:40
it's one. So this is something where if you're Ja
18:44
Powell and you're trying to figure out what the heck
18:46
to do.
18:48
Speaker 3: You're October dat.
18:49
Speaker 2: You're kind of like, well, I can't even use this
18:52
because it's just like it's going to show things are
18:55
really bad. Yeah, and you like, what am I going
19:00
to do with this? Because it's not because of anything
19:02
long term? The problem that you have then if you
19:06
have to basically say, look the October data, we have
19:09
to buy a large disregard on the labor front. Well,
19:12
now you're waiting to get the November data. You don't
19:14
get that until early December. Hey, a lot of cofferent
19:19
a couple months, and so you might be behind the
19:21
eight ball in either way if the economy's either slowing
19:24
and you're not realizing how much, or what if all
19:27
these doc workers strikes and things, what if they cause
19:29
more inflation because of good shortages and things like that?
19:32
You got some real potential problems here. Coming to take
19:35
a quick break. When we come back, it's Wall Street Watch.
19:42
Speaker 1: Like us on Facebook and follow us on Twitter at
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TFE show. Breaking business news is always first right here
19:49
on the Financial Exchange Radio Network. Time now for Wall
19:54
Street Watch, a complete look at what's moving markets so
19:57
far today Right here on the Financial Exchange Radio Network. Well.
20:03
Speaker 4: Markets are currently down as we make our way through
20:06
the last trading day of the month. The Dow is
20:10
down fifty eight points, or just over one tenth of
20:12
a percent, The S and P five hundred is down
20:15
three point eight points or just under a tenth of
20:18
a percent, and the Nasdaq is down ten points as well.
20:24
Neo shares are down or up twelve percent after the
20:26
Chinese electric vehicle maker announced it will receive a cash
20:29
injection of thirteen point three billion yuan for its Neo China.
20:34
Strategic Investors will provide three point three billion yuan of
20:37
that injection, with the rest coming from Neo Inc. The transactions,
20:41
which are expected to be completed by the end of
20:43
the year, will reduce Neo inc. Steake in Neo China
20:46
to eighty eight point three percent, down from ninety two
20:49
point one percent. Stillanta's shares are down thirteen percent after
20:53
the automaker trimmed its full year outlook, citing a deteriorating
20:56
global industry backdrop. Ford and GM we're also lower in sympathy.
21:01
Ali Baba's stock is up two point five percent after
21:05
China's Central Bank announced it would tell banks to cut
21:07
mortgage rates on existing home loans before the end of
21:10
next month. This also spurred a broader rally among China stocks,
21:14
which saw their best day of trading since two thousand
21:16
and eight. Rocket rocket Lab shares are up two point
21:20
seven percent, extending the more than twelve percent gain seen
21:23
during Friday session. On Friday, the aerospace and defense name
21:27
received a price target increase from Key Bank Capital Markets,
21:31
which cited increased visibility in rocket Lab's ability to scale
21:35
its business. And finally, CVS healthstock is up three percent
21:40
after The Wall Street Journal reported that hedge fund glen
21:42
View Capital, a major shareholder in the company, was expected
21:46
to meet with CVS leadership on Monday to propose fixes
21:49
for the struggling business. This could be the first step
21:52
in an activist push. I am Ben Kitchen, and that
21:56
was Wall Street Watch.
21:57
Speaker 2: Mike, there's a piece here in the Wall Street Journal
21:59
talking about how in the last three months we've seen
22:01
a pretty decent sized shift in markets in terms of, Hey,
22:07
what's been you know, really acting as leadership here? And
22:11
it's not the stuff that's been acting as leadership for
22:13
you know, the the year and a half going into Q.
22:16
Speaker 3: Three broadening away from artificial intelligence is what's being discussed here.
22:21
Here are the best performing sectors in Q three in
22:25
order utilities. It's not really interesting, not really technology.
22:31
Speaker 2: We've got real estate, we have industrials, we have consumer discretionary,
22:41
we have Sorry, I'm just trying to match up like
22:42
colors and things on my screen to what is what
22:45
materials is next? Consumer staples, healthcare, communications services, technology and
22:56
then energy. Technology has been the second worst performing sector
22:59
over the last three months. It's in the S and
23:00
P five hundred, which is.
23:03
Speaker 3: Kind of wild. Like you, yeah, you think about what's
23:05
drive driven all the returns over the last two years.
23:07
Speaker 2: Yeah, so the last three months has been very different
23:12
in terms of you know, what we've what we've seen here.
23:17
The question, this is the the trillion dollar question in investing,
23:21
is what I am seeing temporary or permanent? Didn't look
23:25
and investing Nothing is permanent. But by permanent, I just mean, hey,
23:28
is this is a long enough shift that you know
23:30
it's going to stick around? And look, technology has been
23:36
driven by a small group of companies that have benefited
23:39
from the AI boom, Video, Microsoft MD. They're not going
23:45
out of business anytimes. It's not that, but you can
23:48
have companies that get ahead of themselves as far as
23:50
valuation and projections and things like that. And so ultimately
23:54
what's going to determine this, in my opinion, is whether
23:58
AI can actually eat the world old or not.
24:01
Speaker 3: Yeah, there's a few things happening here at once. On
24:04
the technology side, in particular, it does seem as though
24:07
more questions are being asked of these tech titans as
24:11
to what's the long term plan here? Or forget about
24:15
the long term plan, like what's the next few quarters
24:17
plan here? In terms of what you're spending and when
24:19
it's actually going to pay off for shareholders? And that's
24:24
maybe less of a question for Nvidia and more of
24:26
a question for Microsoft and others, but for in Vidio
24:29
it's just you know, hey, if these questions are being
24:31
asked of Microsoft, how long can you can continue to
24:35
sell these semiconductors. On the everything else part of the market,
24:41
there seems to be an acceptance of, I don't know,
24:47
increased optimism about the soft landing. That's I think where
24:55
I would land on everything else. I mean, yeah, utilities
24:57
are having their heyday right now because you know, related
25:01
to some of the tech stuff, real estate has not
25:03
gone through the calamity that everybody was worried about, and
25:06
we're seeing rates coming down substantially. There are other factors
25:09
at work here, but they all seem to tie into
25:12
when we talk about everything other than artificial intelligence. A
25:15
lot of it ties into me of this optimism about
25:19
and I'm optimistic too, about what this economy could look
25:22
like if we don't end up at five percent unemployment. Right,
25:27
just imagine for a moment what this economy looks like
25:30
if you keep unemployment under four and a half percent,
25:33
but by this time next year you've got interest rates
25:36
on thirty year mortgages with a five in front of them.
25:40
That's a very different time. I don't know if they
25:42
get there though.
25:42
Speaker 2: That's the thing, like, if you don't see unemployment move
25:46
up in that fashion, I don't know if you necessarily
25:49
get to thirty year fixed rate mortgages with a five
25:52
in front of you, you might not.
25:53
Speaker 3: I mean, we're here at what six, We've been pretty close.
25:56
We've been as low as what six one five on
25:58
the thirty years six to two right now. I don't
26:00
think it would shock me to get into the high fives.
26:03
That's not that far of a swing. But you're right,
26:06
I mean, without a devastating recession, it is tough to
26:10
envision exactly how you get to a five point eight
26:13
percent mortgage. For example. Let's take a quick break here.
26:16
Speaker 2: When we come back, we're talking China when we return,
26:20
and then Uranium.
26:23
Speaker 1: This is your home for the most comprehensive coverage of
26:26
the economy and the trends on Wall Street. This is
26:29
the Financial Exchange Radio Network. Missed one of our shows.
26:34
Catch up anytime by asking your Alexis Smart speaker to
26:37
play the Financial Exchange. This is the Financial Exchange Radio Network.
26:46
Speaker 3: To talk a little bit about China. Here. China.
26:51
Speaker 2: Just over the last week, it's like every day just announcing, hey,
26:56
we got this policy to stimulate the economy in full
26:59
Oprah style. You get some yuan, and you get some yuan,
27:03
and you get some yuan at a discounted rates. And
27:07
that's kind of what we've been seeing here. And so
27:09
Chinese markets have just been rocking and rolling for the
27:12
first time.
27:13
Speaker 3: In a while.
27:13
Speaker 2: And again, here's the thing. Chinese stock markets they shut
27:18
down tomorrow for another week.
27:20
Speaker 3: For a week.
27:21
Speaker 2: Yeah, okay, it's Golden Week in China, which means there
27:24
is no trading that's going to happen then, so there's
27:26
all this excitement in advance of it. But we've seen
27:30
stimulus attempts from China before in the last couple of years,
27:33
and they kind of flutter for a few you know,
27:36
days or weeks and then fizzle out. This is different
27:40
to a certain extent in terms of the scale, but
27:42
I don't.
27:43
Speaker 3: Know if it's there. I mean, there are many people
27:45
who are further experts on China than I am who
27:48
are calling it different this time.
27:49
Speaker 2: It still is just somewhat droppy in a bucket e
27:55
in terms of how big it is compared to you know,
27:59
the size of the overall Chinese economy, and some of
28:01
it might just be, hey, this is preventing the Chinese
28:04
economy from falling apart rather than actually stimulating it to
28:07
go anywhere, right.
28:08
Speaker 3: So I mean things, you have seen one some of
28:10
the best stock market performance you've seen out of China
28:12
in over a decade, so you know, nothing as needs
28:16
at there that's been significant. You have seen the biggest
28:21
bank in the country announce pretty significant cuts to interest
28:26
rates really across the board, the government releasing restrictions on
28:31
investments and ownership in second properties, So investment properties there
28:38
were you know, higher interest rates, higher deposit requirements there
28:41
for second properties. They are releasing a whole bunch of
28:44
those and just generally cutting rates across the board and
28:50
putting more in the way of stimulus. I think the
28:53
question b does this solve what are you know, pretty
28:57
widely accepted to be some of the big problems with
29:00
the Chinese economy. One, you have a youth unemployment rate
29:04
that they finally stopped, you know, discussing and reporting on
29:09
because it got so was it like a fifth of
29:13
young China twenty five percent.
29:14
Speaker 2: They got rid of the series for like nine months
29:17
and then brought it back and it was magically at
29:18
like fifteen percent.
29:19
Speaker 3: Right, So nobody buys that. But nonetheless, youth unemployment massive
29:23
issue in that country. Real estate sector a complete and
29:28
utter mess, uh, because they allowed it to become a
29:32
bubble and then had to slowly release that bubble and
29:34
now seemed to be trying to maybe just reinflate that bubble,
29:37
I guess. And then the third piece, which is I
29:42
guess more of an overall long term issue, which is
29:47
you know, Chinese citizens' willingness and ability to support the
29:52
economy through consumerism. And so you know, I'm not sure which,
29:58
if any of these those stimulus measures fix. But what
30:02
seems different this time is at least language that seems
30:06
very committed to not only are we doing this now,
30:08
but we're going to remain supportive of these sectors for
30:11
a longer period of time. Yep. So again, I don't
30:15
know if that's enough to change things on the ground.
30:17
And I think it could prop up the real estate sector.
30:21
I don't think it really does much of anything in
30:24
regard to the sentiment in China the average consumer of Hey,
30:28
can I afford to spend my savings? Will I have
30:31
any comfort whatsoever that there will be a safety net
30:34
if I fall down?
30:35
Speaker 2: Here folks, The Armstrong Advisory Group has a guide available
30:40
this month, and if you check your calendars, it's September thirtieth,
30:43
which means it's the last day of September, last chance
30:46
to get the guide. It's titled Frequently Asked Questions about
30:51
RMD's Required minimum Distributions. And I answer some of the
30:54
big questions that people have about require distributions. Who needs
30:58
to take them? When do you need tom? How are
31:01
they calculating how much do you need to take? What
31:03
are the penalties on these How does it work with
31:05
inherited iras now that they've changed the rules, you know,
31:08
almost well almost half a dozen times.
31:11
Speaker 3: Yeah, I think that's accurate.
31:12
Speaker 2: And so this guide helps to work through some of
31:15
those questions that you have to make sure you stay
31:17
on the right side of the law and regulations and
31:20
are taking those rmds so that you don't end up penalized.
31:24
Speaker 3: How do you get it?
31:25
Speaker 2: Call eight hundred three nine three four zero zero one. Again,
31:29
this is the last day that this guide is going
31:33
to be offered, So you call eight hundred three nine
31:37
three four zero zero one, and that is how you
31:40
request the guide. Frequently ask questions about rmds. That number
31:45
again is eight hundred three nine three four zero zero one,
31:49
and this is the last day to get the guide.
31:51
Frequently ask questions about rmds.
31:54
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
31:57
registered investment advisor. Nothing in the ad or in any
31:59
arms Strung guide to specific financial, legal or tax advice.
32:02
Consult your own financial tax into state planning advisors before
32:05
making any investment decisions. Armstrong may contact you to offer
32:08
investment advisory services, like.
32:10
Speaker 2: Let's talk a little bit about cobalt and lithium, two
32:12
things that sound really interesting, but ultimately we don't know
32:16
anything about What do you mean we like you and
32:20
I not the collective universe now humans do you and I?
32:24
I have no idea about lithium. I know it's used
32:26
in batteries. I know it's important. I have no idea
32:29
anything else about it, if I'm being honest, Yeah, fair enough.
32:31
Speaker 3: I know one thing I knew about it was it
32:33
seemed like we sure didn't have enough of it to
32:36
satisfy the demand from electric vehicles and other battery storage.
32:39
A few years ago. That was sure. He was being
32:42
talked about in the same way that oil was going
32:45
to you know, the end of oil, peak oil. Same
32:48
arguments were being made about lithium. It's so impossible to
32:52
get out of the ground, really difficult, dirty, It's all
32:55
in China. What's going to happen here? There are a
32:58
lot of I think harrisons that could have been made
33:01
to the arguments over big oil, you know, or peak oil,
33:05
rather from I don't know. Peak oil has been discussed
33:08
many times, but you know, nineties comes to mind.
33:11
Speaker 2: Sure, And so ultimately what this piece here from Bloomberg
33:16
is talking about is, hey, you do have these these
33:20
minerals you know, with them and cobalt and things like
33:22
that that are important for either building batteries or electric motors.
33:27
And when you look at you know, how these markets
33:32
are functioning right now? The prices have come down significantly
33:35
because the demand simply hasn't been there in the quantities
33:38
that people thought it would be.
33:40
Speaker 3: It's two sides as well. I mean, there's there's a
33:43
demand side where yes, many automakers are now pulling back
33:46
on their EV production plans. But China also apparently either
33:52
misread or didn't care about the state of the market here,
33:55
and probably a little bit of both oversupplied things pretty
33:57
considerably in that space.
34:00
Speaker 2: And so you've got these inventories that have just been accumulating.
34:03
I'll quota from the piece, even the most optimistic I
34:06
think it would take eighteen to twenty four months to
34:08
clear the surplus. More circumspect observers talk about five years
34:12
or longer. And so you've just seen a complete collapse
34:15
in the pricing on these and what that means is, look,
34:19
let's say that you do see ramped up demand for these,
34:22
you might not see increased production because companies that ramped
34:24
up production previously, not inside of China, are feeling a
34:28
little bit snake bit by it. They're saying, look, we
34:30
spent all this money and prices fell apart, like we
34:32
didn't get any return on investment. Maybe we're even going
34:34
out of business as a result of this. And it's
34:37
kind of similar to the twenty fifteen situation that we
34:40
saw develop in energy markets where Russia said, look, we're
34:45
gonna pump as much as we can in order to
34:46
try to flood the market and put a bunch of
34:48
US shale producers out of business. And now, as a result,
34:51
a full decade later, your energy companies are sitting there saying, yeah,
34:55
we've had some profits, but we're not gonna get greedy
34:57
on this, because we tried that once before and it
35:01
worked badly. So no, we're not going to increase production, which,
35:04
by the way, has turned out to be the right
35:05
thing is demand has been lighter on oil going forward
35:08
than people expected. But in you know, these commodity markets,
35:14
you don't know exactly how it's gonna end up.
35:15
Speaker 3: Playing. This article is once again pointed in or produced
35:21
in a way that makes it seem as though China
35:25
very intentionally brought the market for lithium and cobalt to
35:29
its knees and has now oversupplied the world with these
35:33
products and prices plunging. This is not a desirable outcome
35:39
for China. No, China has invested likely billions of dollars
35:44
in mining of rare earth materials here and has now
35:47
oversupplied the market like they have with other areas such
35:50
as automobiles, where prices are now plunging globally for these
35:56
for these rare earth materials. And again, all a lot
36:00
of this depends on whether or not the United States
36:02
and other countries choose to import this stuff from China
36:04
or slap massive tariffs on it. But it has the
36:07
potential to make battery production globally a fair bit cheaper.
36:12
And again, I just go back to this worry we
36:16
seem to have at Oh, you know, China's got their
36:19
act together. They can snap their fingers and you know,
36:23
suddenly supply the world with cobalt and put us all
36:25
out of business. And that's true. They did seem to
36:29
be able to snap their fingers and quickly, you know,
36:31
supply the world with cobalt and lithium, but they also
36:34
seemingly have no idea what the future demand is going
36:38
to look like for some of these things, and completely
36:41
misread markets on many many occasions.
36:43
Speaker 2: Yeah, I don't think this was intentional. It might have
36:47
just been that they didn't care about the concerns. Maybe,
36:49
you know, like they might we don't care about the mark.
36:51
Who cares if we lose money on this, right, like,
36:54
just get us the lithium. Yeah, and that is it
36:59
necess necessarily a winning strategy.
37:01
Speaker 3: In the long run. Yeah, you're right. I don't know, like,
37:04
did they want to just say we don't want anyone
37:06
else in the world to be able to do this profitably,
37:10
so we're going to take the market the same thing
37:11
they've done with solar panels, for example, where you pretty
37:15
much cannot make solar panelers anywhere other than China because
37:19
they just oversupply the entire market and creater prices.
37:22
Speaker 2: Yeah, it's it's one of those situations where you're trying
37:25
to figure out is this due to malice or incompetence,
37:29
and it's.
37:30
Speaker 3: The answer is it doesn't. Sometimes it doesn't really matter,
37:32
It doesn't necessarily matter. It's probably a little bit of both.
37:35
Speaker 2: And the other thing that I do find interesting on
37:37
this stuff, it's like, look, if you got all these
37:39
excess inventories, all right, like someone out there, if you're
37:42
smart and you have you know, no immediate term horizon
37:46
for you know, needing this. Okay, Like, I don't know
37:50
how you store lithium. I don't know if it like
37:52
sure it doesn't spoil like eggs, you know, but I
37:55
don't know if like there's things where you can't store
37:57
it for like five years.
37:59
Speaker 3: Do you think can that can store lithium in the
38:01
same place that they keep their strategic maple syrup reserve.
38:03
Speaker 2: They can wrap it in the maple syrup to prevent degradation.
38:09
Now we're talking sounds great. Actually it's probably awful.
38:14
Speaker 3: Yum lithium.
38:15
Speaker 2: It's probably very bad. Let's take a quick break here.
38:17
When we come back, we got hour two coming up.