October 10, 2025 • 39 mins
Is the economy headed for a slowdown; or a tech-fueled boom?
In this episode of Something More with Chris Boyd, Chris is joined by Russ Ball and Brian Regan, Senior Portfolio Manager at Wealth Enhancement Group, for a deep dive into the economic outlook heading into Q4.
In this episode of Something More with Chris Boyd, Chris is joined by Russ Ball and Brian Regan, Senior Portfolio Manager at Wealth Enhancement Group, for a deep dive into the economic outlook heading into Q4.
They unpack:
The hidden drag of tariffs, student loans, and slowing job growth
The explosive growth of AI infrastructure and its market impact
Why utilities and semiconductors may be the “picks and shovels” of the AI boom
How a steepening yield curve could benefit regional banks
The surprising strength of gold and long-term bonds
Portfolio strategies to balance risk and opportunity
The explosive growth of AI infrastructure and its market impact
Why utilities and semiconductors may be the “picks and shovels” of the AI boom
How a steepening yield curve could benefit regional banks
The surprising strength of gold and long-term bonds
Portfolio strategies to balance risk and opportunity
Whether you're concerned about recession risks or excited by the AI revolution, this episode offers a thoughtful, data-driven perspective on how to position your investments for the months ahead.
Listen now at SomethingMoreWithChrisBoyd.com or wherever you get your podcasts.
#Q4Outlook #MarketInsights #AIInvesting #TariffImpact #PortfolioStrategy #FinancialPlanning #ChrisBoydPodcast #WealthEnhancement #GoldInvesting #YieldCurve #RegionalBanks #InvestmentOutlook #EconomicUpdate #SmartInvestingMark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcome to Something More with Chris Boyd.
Chris Boyd is a certified financial planner, practitioner,
and senior vice president and financial advisor at
Wealth Enhancement Group, one of the nation's largest
registered investment advisors.
We call it Something More because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is, your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay Christopher Boyd.
Welcome, and thanks for being with us for
another episode of Something More with Chris Boyd.
I'm here with Russ Ball and Brian Regan.
All of us are from the AMR team
(00:42):
at Wealth Enhancement.
Brian is our team's senior portfolio manager, so
we're going to talk to him a little
bit about Outlook.
Brian, it's hard to believe it's been about
six months since the day the tariffs were
announced.
The Liberation Day.
(01:04):
It's been six months since Liberation Day, and
here we are, and maybe a little more
now, but here we are.
We went through that roller coaster earlier, and
markets just have been incredibly strong.
Nothing seems to get in their way with
regard to just higher highs.
So let's talk about it, what to expect,
(01:27):
and we'll think about it as we look
forward and what's happening in our economy.
Yeah, it's interesting you say that.
I mean, it seems like it was smooth
sailing and all that, but that first month
was far from smooth sailing.
I definitely have a few more gray hairs.
Yeah.
What markets look at, like 20% sell
-offs, right, from their highs at that point?
(01:49):
It's almost funny to me that you get
three, six months away from an event like
that, people were just like, oh, good.
I don't know what we were worried about.
In 2022, we had a pretty significant bear
market.
I find that it's pretty common for people
just to forget about that altogether, right?
People would just be like, oh, investing has
(02:10):
been so easy, and it's like, we had
a bear market in 2018, in 2020, in
2022, and we had the tariff tantrum here
in 2025.
So if this is easy to you, then
God bless you.
(02:30):
I would say, though, that to your point,
it's a great point to remind people, as
we get complacent with higher highs, and it's
exciting to see great returns as we go
through the year, it's important to step back
and recognize that markets do fluctuate.
(02:53):
It's normal for markets to have a decline,
as we just illustrated, of about 20%
or sometimes more.
Routinely, every few years, it's not at all
uncommon to see that kind of a disruption.
It can be more frequently, it can be
less frequently, but it's not uncommon at all.
(03:16):
As an investor, what we've been talking about
in some of our client meetings lately, Brian,
is to point out to people like, well,
what if things went down by 30%?
How would that affect your forecast?
Or how would you feel about it?
Does it change the way you think about
your tolerance for risk?
(03:36):
Oftentimes, when we show the forecast, right, Russ,
with the financial plan, the impact is not
devastating.
It's pretty much business as usual.
They can sustain that.
But psychologically, would they be tolerant of the
disruption and the anxiety that often comes with
(03:59):
that?
Having seen a financial plan in context sometimes
can give you that confidence to say, okay,
I have some cash reserves, I have some
liquidity that I could utilize, and therefore, I
see the plan could stomach that kind of
a disruption, and I'd still be okay throughout
(04:19):
my retirement.
That maybe can help people to navigate when
these things do happen.
But I think for most people, when you
have a disruption of, say, 30% or
something, it's very anxiety-laden, you know?
Well, what's interesting about that too, right, like
all things equal, if the market were to
(04:40):
go down 30%, you should be more bullish.
Yeah.
And if the market were to go up
30%, you should be less bullish.
But I would say with 95 out of
100 people, that's the exact opposite case.
So, you know, that's always something that, as
advisors, we need to keep in mind when
people call us and say, you know, I
want to be taking more risk.
(05:00):
Are you guys seeing what's happening?
It's like, well, that's what happened.
That's not what's happening, right?
We don't want it to happen in the
future with any, you know, complete clarity.
So, you know, it's worth reminding yourself that
regularly that you are human and you have
a bias, and that bias is often dependent
(05:21):
on what has just recently happened in the
market.
So does that cause you to think differently
as you look ahead in this environment after
we've had a pretty nice run this year
and followed by following two previous years that
were pretty fabulous run up?
(05:44):
Does this cause you to think differently?
I don't think that you should take that
in any kind of, you know, variable in
your decision making, right?
It's not what has the market done, it's
where are we now, what's happening now, right?
So when I do my fair value analysis,
(06:04):
which, you know, Chris, you've seen, it doesn't
have any reflection on what happened in the
past.
It's all about what the Y60 earnings are,
what interest rates are today, what people think
earnings are going to be in the future,
what people think, or what I think is
a reasonable long-term expected growth rate.
And you put all that together and I
(06:25):
come up with a fair value analysis that
has nothing to do with the last two
years.
Yeah, you're not looking backward in any of
those data points.
Yeah, that's a good point.
Now, what happened over the last two years,
that changes what the price is today.
And I could bear what I think the
fair value of the market should be and
what the price is.
Relative to where it is.
Yeah, yeah.
Right.
But I don't say, hey, look, the market's
(06:46):
up 25% in the last six months,
you know, it has to go down.
That's not even a question in my head.
You know, the market went up for good
reasons.
Interest rates were lower.
We dialed back on tariffs.
The worst fears on the earnings hit expected
from, you know, we were having 150%
(07:08):
tariffs on certain countries at certain points.
That's a dramatic effect and change in the
landscape of things that we are here sitting
at between 50% and 18% net
tariff rate.
So, you know, it's still not good.
And that's, you know, part of what I
wanted to discuss here, right?
There's one of the reasons, one of the
(07:29):
things that people also get wrong is they
expect when an event happens, it's going to
show up in economic data, you know, immediately.
Right.
Well, you know, some people, some folks will
say, look, there's been no effect on the
economy because of tariffs.
We did hear that recently from a gentleman
we were talking with.
He made that very point.
Yeah, I'm blown away by that statement.
First of all, it takes some time to
(07:50):
happen, right?
Like there's lead time between ordering things, coming
into the border, getting taxed, you know, getting
shipped on rails and getting to the storefront
and getting into your pocket, right?
Companies are going to go through the inventory
that wasn't tariff first.
So, if there was pull forward, which there
was plenty of, you know, leading up to
(08:11):
April because we knew tariffs were going to
happen, even if we didn't know how extreme
they were, they're going to go through that
inventory first and they're not going to raise
price.
So, it might take 90 days on average,
let's say, for us to go through that
existing inventory, three months, and before we actually
start seeing any kind of price hikes.
It's possible that companies will take a margin
(08:34):
hit, right?
But they're not going to reflect 100%
of that tariffs.
That's not only possible, it's likely.
And sometimes they do it to either gain
market share on competitors that are raising price.
But ultimately, you know, companies are kind of
charging as much as they possibly can, right?
They're typically not leaving money on the table.
(08:54):
So, you know, eventually the demand for the
product is going to dial back if they
have to raise price because of tariff concerns.
And, you know, that's going to hurt their
bottom line.
But it can take time.
And then even after all that happens, there's
at least a month lag on the inflation
(09:14):
data, right?
So, what have we seen since April?
Well, what we have seen is what was
a robust job market become a bad job
market.
Let's just be blunt about it.
We aren't even getting BLS data this past
month, this past week, because the government is
(09:34):
shut down.
The government shutdown means that, you know, people
aren't working, even though it's illegal for them
not to get back pay when the government
does reopen.
You know, the country has had a funny
relationship with the law recently.
And, you know, that looks like it's possible
that they might not get back pay and
might be, you know, some of them might
be furloughed indefinitely, which, you know, is really
(09:56):
just a layoff.
But, you know, ADP had a negative number.
We shed jobs last month according to ADP.
And ADP is a big payroll processing company.
They have insight into many organizations across the
country.
To me, it's arguably a better metric than
(10:17):
doing the BLS surveys, where they go out
to businesses and say, you know, are you
hiring?
Are you not hiring?
The continuing claims, the initial claims, we're seeing
a tick up in initial claims.
We're seeing a tick up in long term
unemployed.
We're seeing a dramatic tick down in the
(10:39):
openings, job openings.
Same time, we're seeing, you know, what I
call the big three dragging on the economy.
We have tariffs, which Fidelity thinks is only
going to be a $250 billion drag on
the economy.
Fine.
You know, potential growth is $500 billion.
$250 billion is a pretty dramatic cut, you
(11:01):
know, working at 1%.
Torsten Slag from Apollo thinks it's going to
be a 70 basis point hit because of
tariffs.
In addition to that, you have student loans.
Student loans were...
What's going on with student loans?
You mentioned something about that in something I
was reading that you wrote.
And has that been a really big drag?
(11:23):
I didn't realize that's been such a big
issue.
Sure.
It's a huge issue.
I'm not quite sure it's in the data
now, but it's going to filter out again.
These things take time, right?
So a couple of things happened.
People didn't have to pay their student loans
for a while following the pandemic from four
or five years.
And then they got turned back on.
(11:45):
And then in addition to that, after some
lag time, nonpayment started getting reported to credit
bureau agencies.
So think of the effect of that, right?
During the pandemic, you didn't have to pay
your student loan.
Many people got checks in the mail.
They were able to pay down their debts.
They were able to dramatically improve their credit
score.
(12:06):
Fast forward four years, they have a 7
% interest.
45 million people have student loans.
10% of them are in default now.
It's a straight up line.
So that's 4.5 million people that are
taking a sizable hit to their student loans.
These are middle to upper middle income people,
(12:28):
people with college degrees for the most part.
Now, if you think about the hit to
their credit, the hit to their income, their
buying power dramatically decreases, right?
Either the line of credits that they have,
they're going to get tottered.
Pay more next time they borrow money because
their credit score will be higher or lower.
(12:49):
They won't be able to borrow.
If you think of the loosening in the
housing market right now, it's rather significant even
as interest rates are coming down or even
as mortgage rates have come down some.
We've seen more loosening in the housing market
throughout the country.
I know the data says the Northeast and
the Midwest is not loosening, but I can
(13:10):
tell you from experience living here in the
Northeast, it is without a doubt loosening from
the tightest levels that it was in.
I think a large part of that is
because people have lower credit scores and less
disposable income.
Now, add on top of that, that people
might have been reaching for houses between 2022
and 2025 because they were trying to catch
(13:32):
onto the gravy train that was increasing prices,
might feel the need to sell their houses.
So inventory might be going up.
Maybe they thought interest rates were going to
fall dramatically down to 3%.
That hasn't happened.
It hasn't even come close to happening.
So you see this kind of thing building
on itself.
These issues compound on themselves.
(13:53):
Tariffs are a singular issue, mostly affecting goods.
There's about $4 trillion worth of imports in
this country.
I have an 18% tariff rate.
That comes out to $750 billion.
Fidelity says $250 billion.
I'm using that in my analysis just to
be nice.
But it could be a lot worse.
So you extrapolate that student loan, that decrease
(14:17):
in demand that I'm talking about, and then
you add on the lack of immigration.
Now, let's say that we had a million
people coming into the country, and now we
have a million people getting deported from the
country.
That's a 2 million person swing.
On average, those folks are making about $30
,000 a year.
You put that together, and we're talking another
(14:39):
significant detraction from the growth in the economy.
So you put all this together, and without
the other side of the economy, I think
without a doubt, we're in recession.
Between tariffs, student loans, the decrease in the
housing story.
We've seen an increase in bankruptcies over the
last two years.
(15:00):
Most recently, we just saw 11% year
-over-year change in bankruptcies.
Now, they're still not where they were in
the mid-2010s, but they're getting there pretty
rapidly.
So there's a lot to look out for
there.
You start talking about the strains on things
(15:20):
like private credit, and you can start to
see that build on itself a lot quicker.
Well, Brian, hearing you talk about it, it
sounds a little bit gloom and doom, the
way you're talking about all these risks.
But I don't get the sense that you're
actually feeling that it's a bad time to
(15:43):
be an investor.
Well, we have this other side of the
economy that's absolutely booming, and that is the
AI economy.
And the AI economy has huge tentacles.
If you think about what it takes to
build the AI future, we're talking about large
data centers.
We're talking about huge amounts of semiconductor chips,
(16:04):
whether they be GPUs, but also ASIC chips,
and you're going to need CPUs still too.
And we're talking hundreds and hundreds of billions
of dollars.
Just the hyperscalers alone are spending about $400
billion a year.
They're talking about data centers the size of
Manhattan throughout the world, not just in the
United States, but in South America, Saudi Arabia,
(16:27):
China, I mean everywhere.
So we're going to need capital equipment for
those semiconductors.
We're going to need foundries for those semiconductors.
Once the databases are built out, there's going
to be all sorts of applications.
For the cloud infrastructure, you're going to need
security.
It's going to need to be scalable.
The data is going to need to be
clean.
And that's before you can get to the
(16:47):
applications, like let's say autonomous driving, let's say
Roblox.
Right now, according to the AI experts of
the world, we're only scratching the surface on
what we can expect from the future of
AI.
But here and now today, there's hundreds and
hundreds of billions of dollars being spilled in
(17:08):
to build out these things.
So from power to data centers, that's kind
of where we are now, right?
The power build out and the data center
build out.
And that's been a big offset to this
tariff issue.
So I wouldn't say it's fair to say
that we haven't been hurt from the tariffs.
(17:31):
I would say that it is fair to
say that the AI story has saved us
from the negative effects that we would be
experiencing in the market if it weren't for
the AI story.
Let me ask you, and Russ, I don't
(17:52):
want to, you might have something you want
to ask as well, so feel free to
jump in.
But I keep hearing, in addition to my
own sentiment, I hear other people comment at
times that something about our current situation with
regard to AI feels similar to the late
(18:14):
90s.
That notion that there's a lot of money,
there's a recognition of the great potential of
this game-changing use of the internet or
computer age at that point.
PCs everywhere and so forth.
And then that the winners take time to
(18:37):
identify who really are going to be the
winners, how this is going to be applied.
That there's a lot of investment going into
artificial intelligence today, but will the way it
gets utilized and who will be the benefactors
as an investor that may materialize differently over
(19:00):
time?
I'm sure you've given this thought.
Do you mind commenting a little bit about
how do you think about this notion of,
gee, it feels like the late 90s in
a certain respect?
I think there's a lot of parallels.
I think be naive not to think so,
right?
We have a generational change going on in
(19:20):
the economy and a ton of money is
being thrown at it.
I think the big difference is most of
the money is coming from the cashflow of
these hugely profitable companies.
And I think that is the biggest difference
I'm seeing so far.
That's not true throughout the economy though.
For example, open AI has made a lot
(19:41):
of promises to a lot of companies without
having the cash to fulfill it.
So that is where I think a lot
of this rhetoric and comparison to the 90s
is really getting some fire behind it.
And that's because of the situation with open
AI.
There's a lot of promises without the there
(20:03):
there.
Now, the reality is, and people do, I've
seen more diagrams over the last week about
the circular nature of investments with vendors and
consumers and the whole AI ecosystem being dominated
by a handful of companies.
And the reality is that's all going to
(20:24):
get driven, in my humble opinion, through investor
money.
I think the capital is there to be
invested and they're going to be able to
raise money.
Open AI is still a nonprofit company.
It's laughable, but when they become a for
-profit company, when they go public, they're going
to be able to raise a lot of
equity capital.
They already have some revenue.
(20:45):
I'm familiar with their financial statements because they're
not public, but they have revenue.
They're going to be able to raise a
ton of money, which means they're going to
be able to raise a ton of debt
too.
I think people are only concentrated on the
equity capital, but for every dollar in equity
capital, they're going to be able to raise
at least $3 in debt, would be my
(21:05):
thinking.
Most likely convertible debt would be my guess.
And that's going to be the lifeblood of
that ecosystem.
Now, that's not unlike how the economy works
in general.
I mean, sure, these are some of the
bigger companies, but this is a new industry
and there's some reasons to be concerned there.
(21:27):
But I'd be working out for a couple
things.
Does the investment money dry up?
And does the shortage in computing power change
into an excess?
If we have an excess in computing power,
well, you don't need to buy Nvidia chips
anymore.
You don't need to buy Broadcom chips anymore.
You don't need AMD chips anymore, right?
You don't need any more data centers, which
(21:48):
means you don't need Eaton, which is an
industrial company.
Yeah.
I mean, you remember fiber optics and the
way the whole telecommunications got impacted by suddenly
there was this immense investment that had been
made, and maybe it just wasn't needed as
much at a certain point.
(22:09):
Yeah.
And then I think, I tried to think
creatively about these things.
We have this other side of the economy.
I don't think the AI story is completely
insulated by the weakness in the other side
of the economy, right?
So let's say that you have a weakness
in a white collar workers, for example, and
you don't need as many copilot seats.
(22:31):
Well, Microsoft's revenues growth will suffer.
Are they going to pull back on their
AI spending because of that, right?
So you could have a decrease in investment,
even though it's completely unrelated to the AI
story.
It could be another part of their business
that they need to make up for by
pulling back on investment.
(22:53):
They have to pay their right hand with
their left hand, in a sense.
So it's more complicated than just kind of
getting wrapped up in one way or another.
These things are related and they do speak
to each other.
But right now, my understanding is there's still
a shortage in computing power, and I don't
think that there is any shortage of capital
(23:13):
to fund all these ventures.
So the outlook is promising in that regard.
To me it is, right?
So how have we expressed this in our
portfolios throughout the year?
Well, you can't ignore the part of the
economy that's suffering.
You can't do that, right?
You have to have some things that are
a little bit more defensive than your portfolio.
(23:34):
And if you did ignore it, you probably
did very well.
But does that mean that it's going to
be repeatable in the future?
Yeah, I mean, when you invest, you want
your process to be repeatable and defensible, right?
But we also used April as an opportunity
to lean into the AI story because we
got a lot of these great companies on
(23:55):
sale.
So we got into semiconductors and we've been
in utilities for a while.
Utilities are a big beneficiary because of the
enormous amount of power that these data centers
are going to need, right?
To give you an idea, there's more data
centers under construction right now than there are
data centers in general.
So there's actual real shovels in the dirt,
(24:15):
right?
This isn't just kind of a hope and
a prayer thing.
So we've done very well there.
We leaned into some more NASDAQ 100 names.
And those are the positive sides of our
portfolio, right?
And the negative sides of our portfolio have
been the healthcares and the staples and the
low volatility type stuff that just hasn't been
(24:39):
participating.
Why?
Because things seem good, as they've been driven
by the AI side of things.
And there's just been no reason for them
to accelerate.
And as frustrating as they can be in
my portfolio, you also have to have the
discipline to keep them in there to some
degree and not get irrational about the prospects
(25:02):
for the future.
So that idea of the utilities, you've made
this, you know, that picks and shovels kind
of notion talked about before.
You don't have to only be in maybe
semiconductors to still benefit from the AI theme.
There's other ways to benefit from that.
And that utilities is maybe one of those
examples that's maybe a different risk dynamic, but
(25:26):
it still is going to get some benefit.
Well, the fact that it's a different risk
dynamic is amazing, right?
Because that means you're allowed to have the
semiconductor exposure that would typically gross up the
risk in your portfolio, at least on a
quantitative level, because you're taking such a historically
low risk type of investment in the utilities.
(25:47):
So when they both do well, you know,
it's a grand slam.
It's something to celebrate because for a reasonable
amount of risk, you got a lot of
return.
Now, I would say the one big benefit
from being invested, you know, diversifying and being
invested across the spectrum to some degree, and
(26:08):
acknowledging that that negative part of the economy
exists, has been international stocks.
So international stocks have really benefited from the
falling dollar.
The falling dollar really started during the tariff
tantrum.
And justifiably, you know, some money left the
United States and tried to find another home.
(26:30):
You know, one of the big beneficiaries of
that has been international because typically those stocks
are priced another currency.
So, you know, a one for one decline
in the dollar typically means a one for
one increase in those stocks to some degree,
right?
So if you've had international exposure, if you
insisted on diversifying away, you did very, very
well there.
(26:50):
And, you know, I can only say that
I wish we had more.
I'm glad that I'm glad that we were
investing that.
Why we had some.
Yeah.
Yeah.
The other thing this year too, the other
thing is that the longer term, high quality,
investment grade bonds have done exceptionally well as
well, too, because as interest rates have come
(27:12):
down with fears of a worsening economy, those
positions have done well too.
So what I wanted you to talk about
next to just that, how they're sort of,
and that often plays into another theme as
it relates to your investing outlook for the
remainder of the year.
So way on the equity side as well,
(27:34):
but elaborate on, you know, this, this dynamic
of it's confusing to people when you talk
about interest rates, because we focus on the
Fed and the expectation that, well, the, there
is a presumption that the Fed is going
to continue to reduce interest rates to some
extent.
So interest rates may be falling.
(27:54):
And on the one hand, that seems like
that would be unattractive to investors in that
declining interest rates means I'm going to get
less yield.
And, and then that whole dynamic of what
happens on the short end, isn't necessarily what
happens on the long end.
And maybe just elaborate on how that, what
(28:15):
you're envisioning there and how that's playing into
some of the way you're thinking about finding
opportunities.
Yeah.
I mean, a lot to talk about there.
Interest rates are a very important aspect of
the economy.
And there's a good argument from David Kelly,
JP Morgan's chief economist, who believes that a
(28:37):
small change in the Fed funds rate, which
we had, that we've had so far in
the last month, and, you know, that we're
expecting to have throughout the rest of the
year, you know, the expectation is for two
more cuts, is actually a negative because there
are so many people, you know, of the
(28:57):
baby boom generation, which has the majority of
the wealth that have had the great benefit
of having higher interest rates without taking any
risk.
And it's been contributing to their budget and
their cashflow.
And when you take away 20% of
that, you know, all of a sudden what
has been a tailwind for the economy is
now a headwind.
(29:18):
So there's, there's that kind of, you know,
point of view.
Yeah.
Yeah.
Yeah.
I think we all assume that interest rates
will go down and economic activity will go
up.
And I believe that he estimated that that
effect to be of the effect of around
a hundred billion dollars, which is, you know,
(29:39):
again, going back, the expected growth of the
economy is $500 billion in any given year.
On average, if you take away a hundred
billion, that's a big impact.
And the reason for that, the other reason
for that he says is that the people
borrowing money have mostly fixed rate debt, which
he's right about, right?
Most people, the majority of the debt that
(30:00):
people have is through their mortgage, which most
people have gotten religion and have a fixed
rate mortgage.
So, you know, is it, if you're borrowing
money at 20% of your credit card,
if you, if you start borrowing at 1975,
is it really going to change your spending
habits?
Probably not, right?
Your student loans are fixed grade and, you
(30:21):
know, 10% of people already can't pay
that anyways.
You know, the, the majority of the borrowers
probably aren't going to be affected.
It's more about future borrowing than, than, than
past borrowing and past borrowing is important in
this case because it affects, you know, your,
your debt service payments going forward.
So he, he makes a good argument that
(30:43):
short changes, small changes will actually be detrimental
and you have to make a big change.
So his thought process is if you cut
75 basis points, fine, but that means you're
going to have to cut 300 basis points.
And I, you know, from that point of
view, if that, if that is your point
of view, I think you need to have
(31:03):
more exposure on the longer end of the
curve because that means that the economy is
going to be very, very weak.
And you know, we're not going to have
the inflation that the market expects right now.
The market expects over the next year to
have inflation of 3%.
Then after that, the expectation isn't supposed to
come down.
Now, 3% is very high, right?
We're supposed to have 2% inflation and
(31:24):
the federal reserve seems to be ignoring that.
Why are they ignoring that?
Well, you know, you could say it's political
pressure or you could say that they expect
the current tariffs to roll off 12 months
from now.
But sure, that's possible, but you also could
make the argument that we haven't seen the
effects of tariffs yet.
(31:46):
So 12 months from now, you know, we
might only be in the full throes of
tariffs, but either way, you know, that is
their position.
And you know, if you believe what David
Kelly is saying, then you want to get
longer out on the ill curve.
You know, that's probably not a good outlook
for the labor market.
(32:09):
That means that things could get much worse
before they get better.
It's probably not a good outlook for the
stock market.
Things could get, you know, that, I mean,
that's pretty much you saying that we're probably
going to have a recession unless this AI
build continues to keep us out of one.
(32:30):
Thinking about how you invest in stocks as
well though, correct?
Certain kind of industries.
Yeah.
So let's say, you know, we disagree with
David Kelly's assessment, right?
And we go with the market consensus.
The market consensus is we're going to have
3% inflation and 1% growth over
the next year.
(32:51):
We're going to avoid a recession.
We're going to have 1% growth.
Okay.
That's consensus.
Now that means that you should have interest
rates of at least 4%.
And we're going to have a few more
cuts here this year.
You know, according to the consensus, which means
what do we have?
We'll have a Fed funds rate that is
(33:13):
below 4%.
We're going to have longer on the curve,
higher than 4%.
And that is called a steepening yield curve.
One's coming down and one's rising.
In fact, as we cut, we might see
expectations for growth in the future increase in
the future.
Maybe not necessarily over the next year as
David, you know, as David Kelly is saying,
(33:34):
you know, it could get worse before it
gets better, but out in the future, 10
years in the future, which is what was
reflected in the 10-year bond, you might
see increased growth and you might also see
increased inflation, which we'll say is four plus,
right?
If 2% inflation and 2% growth
is the longer term goal, you know, we'll
say it's at least 4%.
So that gives you a steepening yield curve.
(33:57):
Now, what benefits from steepening yield curve?
The biggest sector that benefits is banks, particularly
regional banks, really, because what can they do?
They can borrow short.
They could take your deposits and pay you
less, whether they be time deposits, broker deposits,
checking accounts, they could pay you even less
than they're paying today, right?
(34:17):
And they can lend for more.
And this is, you know, an arbitrage that's
very typical throughout banks.
And yes, there is a mismatch in durations
most of the time.
And that's why we have things like, you
know, the Fed Fund.
That's why we have Fed Funds.
That's why we have a discount window.
You know, lots of different ways for banks
to get liquidity that me and you couldn't
(34:39):
get as a non-regulated bank.
So, you know, if you think financials are
going to benefit through that scenario, well, that
might be a place that you want to
put your equity capital.
Now, keep in mind that if things get
really bad and the longer end comes down
as well, you know, you might not get
that arbitrage and you might have a credit
(34:59):
event.
So you don't want to like over-index
the financials, right?
There's always a discipline to find the right
sizing that you want in your portfolio.
But that's an area that I'm very interested
in right now.
In addition to that, you know, I've written
about this and I've talked about it extensively
and it's headline news right now, but gold
(35:19):
has done very, very well.
And I always say that I look at
gold as a global currency with a 0
% interest rate.
Now, if you look at all the other
global currencies throughout the world, where are their
short-term interest rates headed?
Well, if they're heading closer to zero and
the economy is getting worse, then gold should
(35:40):
get more competitive.
And so, you know, I think that's another
place that you could go.
And there's this huge benefit, right?
And you think of, all right, you're in
the AI names, you're in the AI sector,
the AI part of the economy, and you
have this other part of the economy that's
not doing well, but you want to diversify
away from the AI a little bit, right?
(36:01):
What are some places that you can go
where, you know, if the expectations for a
poor economy on this other side, you might
get some diversification benefit, right?
You don't want to just be on one
side of the boat, but you also just
don't want to like lose money on the
other side.
You want to try to find smart ways
to be diversified.
(36:22):
And I think those are two ways that,
you know, we can do it better going
forward in the next quarter.
Excellent.
We're going to talk more in future weeks
and so forth.
Maybe we'll include some discussion about this notion
of how to mitigate risk or how with
some innovative approaches we're trying to use to
think about how to manage risk while giving
(36:44):
us the opportunity to take risk with parts
of our portfolio.
Certainly, that might be one of them, but
there's other things that we've found that to
be interesting and worthy of consideration.
Listen, we'll wrap things up here because we've
gone a little bit long, but Brian, if
our listeners are thinking that, gee, this sounds
(37:08):
like it's pretty deliberate and thoughtful, you know,
it's a reminder to say, look, we take
an approach, we call it active allocation with
our team here.
If you'd like to learn more about how
we can help with anything you might be
looking at with your investing, you'd like to
get a second opinion on what's your portfolio
positioned like and with some of these considerations,
(37:31):
where there might be risks and how we
might be able to help you navigate that,
don't hesitate to reach out to our team.
We're here to be a resource.
For our clients, Brian, you've got a webinar
coming up pretty soon.
What is the date of that that we've
(37:51):
got that?
October what?
October 28th.
28th.
And for our clients, we'll be putting that
out to you in an email.
We'll do a version that'll be available for
the public as well posted on our YouTube
and our webpage at somethingmorewithchrisboyd.com.
(38:12):
So, with that, Brian, thanks for some really
interesting stuff.
Lots to consider, lots to evaluate, and I'm
glad you're doing a great job keeping us
on track.
Thanks for being with us today.
Thank you.
Until next time, everybody keeps driving for Something
More.
Thank you for listening to Something More with
(38:33):
Chris Boyd.
Call us for help, whether it's for financial
planning or portfolio management, insurance concerns, or those
quality of life issues that make the money
matters matter.
Whatever's on your mind, visit us at somethingmorewithchrisboyd
.com or call us toll free at 866
-771-8901 or send us your questions to
(38:56):
amr-info at wealthenhancement.com.
You're listening to Something More with Chris Boyd
Financial Talk Show.
Wealth Enhancement Advisory Services and Jay Christopher Boyd
provide investment advice on an individual basis to
clients only.
Proper advice depends on a complete analysis of
all facts and circumstances.
The information given on this program is general
financial comments and cannot be relied upon as
pertaining to your specific situation.
(39:18):
Wealth Enhancement Group cannot guarantee that using the
information from this show will generate profits or
ensure freedom from loss.
Listeners should consult their own financial advisors or
conduct their own due diligence before making any
financial decisions.
Welcome to Something More with Chris Boyd.
Chris Boyd is a certified financial planner, practitioner,
and senior vice president and financial advisor at
Wealth Enhancement Group, one of the nation's largest
registered investment advisors.
We call it Something More because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is, your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay Christopher Boyd.
Welcome, and thanks for being with us for
another episode of Something More with Chris Boyd.
I'm here with Russ Ball and Brian Regan.
All of us are from the AMR team
(00:42):
at Wealth Enhancement.
Brian is our team's senior portfolio manager, so
we're going to talk to him a little
bit about Outlook.
Brian, it's hard to believe it's been about
six months since the day the tariffs were
announced.
The Liberation Day.
(01:04):
It's been six months since Liberation Day, and
here we are, and maybe a little more
now, but here we are.
We went through that roller coaster earlier, and
markets just have been incredibly strong.
Nothing seems to get in their way with
regard to just higher highs.
So let's talk about it, what to expect,
(01:27):
and we'll think about it as we look
forward and what's happening in our economy.
Yeah, it's interesting you say that.
I mean, it seems like it was smooth
sailing and all that, but that first month
was far from smooth sailing.
I definitely have a few more gray hairs.
Yeah.
What markets look at, like 20% sell
-offs, right, from their highs at that point?
(01:49):
It's almost funny to me that you get
three, six months away from an event like
that, people were just like, oh, good.
I don't know what we were worried about.
In 2022, we had a pretty significant bear
market.
I find that it's pretty common for people
just to forget about that altogether, right?
People would just be like, oh, investing has
(02:10):
been so easy, and it's like, we had
a bear market in 2018, in 2020, in
2022, and we had the tariff tantrum here
in 2025.
So if this is easy to you, then
God bless you.
(02:30):
I would say, though, that to your point,
it's a great point to remind people, as
we get complacent with higher highs, and it's
exciting to see great returns as we go
through the year, it's important to step back
and recognize that markets do fluctuate.
(02:53):
It's normal for markets to have a decline,
as we just illustrated, of about 20%
or sometimes more.
Routinely, every few years, it's not at all
uncommon to see that kind of a disruption.
It can be more frequently, it can be
less frequently, but it's not uncommon at all.
(03:16):
As an investor, what we've been talking about
in some of our client meetings lately, Brian,
is to point out to people like, well,
what if things went down by 30%?
How would that affect your forecast?
Or how would you feel about it?
Does it change the way you think about
your tolerance for risk?
(03:36):
Oftentimes, when we show the forecast, right, Russ,
with the financial plan, the impact is not
devastating.
It's pretty much business as usual.
They can sustain that.
But psychologically, would they be tolerant of the
disruption and the anxiety that often comes with
(03:59):
that?
Having seen a financial plan in context sometimes
can give you that confidence to say, okay,
I have some cash reserves, I have some
liquidity that I could utilize, and therefore, I
see the plan could stomach that kind of
a disruption, and I'd still be okay throughout
(04:19):
my retirement.
That maybe can help people to navigate when
these things do happen.
But I think for most people, when you
have a disruption of, say, 30% or
something, it's very anxiety-laden, you know?
Well, what's interesting about that too, right, like
all things equal, if the market were to
(04:40):
go down 30%, you should be more bullish.
Yeah.
And if the market were to go up
30%, you should be less bullish.
But I would say with 95 out of
100 people, that's the exact opposite case.
So, you know, that's always something that, as
advisors, we need to keep in mind when
people call us and say, you know, I
want to be taking more risk.
(05:00):
Are you guys seeing what's happening?
It's like, well, that's what happened.
That's not what's happening, right?
We don't want it to happen in the
future with any, you know, complete clarity.
So, you know, it's worth reminding yourself that
regularly that you are human and you have
a bias, and that bias is often dependent
(05:21):
on what has just recently happened in the
market.
So does that cause you to think differently
as you look ahead in this environment after
we've had a pretty nice run this year
and followed by following two previous years that
were pretty fabulous run up?
(05:44):
Does this cause you to think differently?
I don't think that you should take that
in any kind of, you know, variable in
your decision making, right?
It's not what has the market done, it's
where are we now, what's happening now, right?
So when I do my fair value analysis,
(06:04):
which, you know, Chris, you've seen, it doesn't
have any reflection on what happened in the
past.
It's all about what the Y60 earnings are,
what interest rates are today, what people think
earnings are going to be in the future,
what people think, or what I think is
a reasonable long-term expected growth rate.
And you put all that together and I
(06:25):
come up with a fair value analysis that
has nothing to do with the last two
years.
Yeah, you're not looking backward in any of
those data points.
Yeah, that's a good point.
Now, what happened over the last two years,
that changes what the price is today.
And I could bear what I think the
fair value of the market should be and
what the price is.
Relative to where it is.
Yeah, yeah.
Right.
But I don't say, hey, look, the market's
(06:46):
up 25% in the last six months,
you know, it has to go down.
That's not even a question in my head.
You know, the market went up for good
reasons.
Interest rates were lower.
We dialed back on tariffs.
The worst fears on the earnings hit expected
from, you know, we were having 150%
(07:08):
tariffs on certain countries at certain points.
That's a dramatic effect and change in the
landscape of things that we are here sitting
at between 50% and 18% net
tariff rate.
So, you know, it's still not good.
And that's, you know, part of what I
wanted to discuss here, right?
There's one of the reasons, one of the
(07:29):
things that people also get wrong is they
expect when an event happens, it's going to
show up in economic data, you know, immediately.
Right.
Well, you know, some people, some folks will
say, look, there's been no effect on the
economy because of tariffs.
We did hear that recently from a gentleman
we were talking with.
He made that very point.
Yeah, I'm blown away by that statement.
First of all, it takes some time to
(07:50):
happen, right?
Like there's lead time between ordering things, coming
into the border, getting taxed, you know, getting
shipped on rails and getting to the storefront
and getting into your pocket, right?
Companies are going to go through the inventory
that wasn't tariff first.
So, if there was pull forward, which there
was plenty of, you know, leading up to
(08:11):
April because we knew tariffs were going to
happen, even if we didn't know how extreme
they were, they're going to go through that
inventory first and they're not going to raise
price.
So, it might take 90 days on average,
let's say, for us to go through that
existing inventory, three months, and before we actually
start seeing any kind of price hikes.
It's possible that companies will take a margin
(08:34):
hit, right?
But they're not going to reflect 100%
of that tariffs.
That's not only possible, it's likely.
And sometimes they do it to either gain
market share on competitors that are raising price.
But ultimately, you know, companies are kind of
charging as much as they possibly can, right?
They're typically not leaving money on the table.
(08:54):
So, you know, eventually the demand for the
product is going to dial back if they
have to raise price because of tariff concerns.
And, you know, that's going to hurt their
bottom line.
But it can take time.
And then even after all that happens, there's
at least a month lag on the inflation
(09:14):
data, right?
So, what have we seen since April?
Well, what we have seen is what was
a robust job market become a bad job
market.
Let's just be blunt about it.
We aren't even getting BLS data this past
month, this past week, because the government is
(09:34):
shut down.
The government shutdown means that, you know, people
aren't working, even though it's illegal for them
not to get back pay when the government
does reopen.
You know, the country has had a funny
relationship with the law recently.
And, you know, that looks like it's possible
that they might not get back pay and
might be, you know, some of them might
be furloughed indefinitely, which, you know, is really
(09:56):
just a layoff.
But, you know, ADP had a negative number.
We shed jobs last month according to ADP.
And ADP is a big payroll processing company.
They have insight into many organizations across the
country.
To me, it's arguably a better metric than
(10:17):
doing the BLS surveys, where they go out
to businesses and say, you know, are you
hiring?
Are you not hiring?
The continuing claims, the initial claims, we're seeing
a tick up in initial claims.
We're seeing a tick up in long term
unemployed.
We're seeing a dramatic tick down in the
(10:39):
openings, job openings.
Same time, we're seeing, you know, what I
call the big three dragging on the economy.
We have tariffs, which Fidelity thinks is only
going to be a $250 billion drag on
the economy.
Fine.
You know, potential growth is $500 billion.
$250 billion is a pretty dramatic cut, you
(11:01):
know, working at 1%.
Torsten Slag from Apollo thinks it's going to
be a 70 basis point hit because of
tariffs.
In addition to that, you have student loans.
Student loans were...
What's going on with student loans?
You mentioned something about that in something I
was reading that you wrote.
And has that been a really big drag?
(11:23):
I didn't realize that's been such a big
issue.
Sure.
It's a huge issue.
I'm not quite sure it's in the data
now, but it's going to filter out again.
These things take time, right?
So a couple of things happened.
People didn't have to pay their student loans
for a while following the pandemic from four
or five years.
And then they got turned back on.
(11:45):
And then in addition to that, after some
lag time, nonpayment started getting reported to credit
bureau agencies.
So think of the effect of that, right?
During the pandemic, you didn't have to pay
your student loan.
Many people got checks in the mail.
They were able to pay down their debts.
They were able to dramatically improve their credit
score.
(12:06):
Fast forward four years, they have a 7
% interest.
45 million people have student loans.
10% of them are in default now.
It's a straight up line.
So that's 4.5 million people that are
taking a sizable hit to their student loans.
These are middle to upper middle income people,
(12:28):
people with college degrees for the most part.
Now, if you think about the hit to
their credit, the hit to their income, their
buying power dramatically decreases, right?
Either the line of credits that they have,
they're going to get tottered.
Pay more next time they borrow money because
their credit score will be higher or lower.
(12:49):
They won't be able to borrow.
If you think of the loosening in the
housing market right now, it's rather significant even
as interest rates are coming down or even
as mortgage rates have come down some.
We've seen more loosening in the housing market
throughout the country.
I know the data says the Northeast and
the Midwest is not loosening, but I can
(13:10):
tell you from experience living here in the
Northeast, it is without a doubt loosening from
the tightest levels that it was in.
I think a large part of that is
because people have lower credit scores and less
disposable income.
Now, add on top of that, that people
might have been reaching for houses between 2022
and 2025 because they were trying to catch
(13:32):
onto the gravy train that was increasing prices,
might feel the need to sell their houses.
So inventory might be going up.
Maybe they thought interest rates were going to
fall dramatically down to 3%.
That hasn't happened.
It hasn't even come close to happening.
So you see this kind of thing building
on itself.
These issues compound on themselves.
(13:53):
Tariffs are a singular issue, mostly affecting goods.
There's about $4 trillion worth of imports in
this country.
I have an 18% tariff rate.
That comes out to $750 billion.
Fidelity says $250 billion.
I'm using that in my analysis just to
be nice.
But it could be a lot worse.
So you extrapolate that student loan, that decrease
(14:17):
in demand that I'm talking about, and then
you add on the lack of immigration.
Now, let's say that we had a million
people coming into the country, and now we
have a million people getting deported from the
country.
That's a 2 million person swing.
On average, those folks are making about $30
,000 a year.
You put that together, and we're talking another
(14:39):
significant detraction from the growth in the economy.
So you put all this together, and without
the other side of the economy, I think
without a doubt, we're in recession.
Between tariffs, student loans, the decrease in the
housing story.
We've seen an increase in bankruptcies over the
last two years.
(15:00):
Most recently, we just saw 11% year
-over-year change in bankruptcies.
Now, they're still not where they were in
the mid-2010s, but they're getting there pretty
rapidly.
So there's a lot to look out for
there.
You start talking about the strains on things
(15:20):
like private credit, and you can start to
see that build on itself a lot quicker.
Well, Brian, hearing you talk about it, it
sounds a little bit gloom and doom, the
way you're talking about all these risks.
But I don't get the sense that you're
actually feeling that it's a bad time to
(15:43):
be an investor.
Well, we have this other side of the
economy that's absolutely booming, and that is the
AI economy.
And the AI economy has huge tentacles.
If you think about what it takes to
build the AI future, we're talking about large
data centers.
We're talking about huge amounts of semiconductor chips,
(16:04):
whether they be GPUs, but also ASIC chips,
and you're going to need CPUs still too.
And we're talking hundreds and hundreds of billions
of dollars.
Just the hyperscalers alone are spending about $400
billion a year.
They're talking about data centers the size of
Manhattan throughout the world, not just in the
United States, but in South America, Saudi Arabia,
(16:27):
China, I mean everywhere.
So we're going to need capital equipment for
those semiconductors.
We're going to need foundries for those semiconductors.
Once the databases are built out, there's going
to be all sorts of applications.
For the cloud infrastructure, you're going to need
security.
It's going to need to be scalable.
The data is going to need to be
clean.
And that's before you can get to the
(16:47):
applications, like let's say autonomous driving, let's say
Roblox.
Right now, according to the AI experts of
the world, we're only scratching the surface on
what we can expect from the future of
AI.
But here and now today, there's hundreds and
hundreds of billions of dollars being spilled in
(17:08):
to build out these things.
So from power to data centers, that's kind
of where we are now, right?
The power build out and the data center
build out.
And that's been a big offset to this
tariff issue.
So I wouldn't say it's fair to say
that we haven't been hurt from the tariffs.
(17:31):
I would say that it is fair to
say that the AI story has saved us
from the negative effects that we would be
experiencing in the market if it weren't for
the AI story.
Let me ask you, and Russ, I don't
(17:52):
want to, you might have something you want
to ask as well, so feel free to
jump in.
But I keep hearing, in addition to my
own sentiment, I hear other people comment at
times that something about our current situation with
regard to AI feels similar to the late
(18:14):
90s.
That notion that there's a lot of money,
there's a recognition of the great potential of
this game-changing use of the internet or
computer age at that point.
PCs everywhere and so forth.
And then that the winners take time to
(18:37):
identify who really are going to be the
winners, how this is going to be applied.
That there's a lot of investment going into
artificial intelligence today, but will the way it
gets utilized and who will be the benefactors
as an investor that may materialize differently over
(19:00):
time?
I'm sure you've given this thought.
Do you mind commenting a little bit about
how do you think about this notion of,
gee, it feels like the late 90s in
a certain respect?
I think there's a lot of parallels.
I think be naive not to think so,
right?
We have a generational change going on in
(19:20):
the economy and a ton of money is
being thrown at it.
I think the big difference is most of
the money is coming from the cashflow of
these hugely profitable companies.
And I think that is the biggest difference
I'm seeing so far.
That's not true throughout the economy though.
For example, open AI has made a lot
(19:41):
of promises to a lot of companies without
having the cash to fulfill it.
So that is where I think a lot
of this rhetoric and comparison to the 90s
is really getting some fire behind it.
And that's because of the situation with open
AI.
There's a lot of promises without the there
(20:03):
there.
Now, the reality is, and people do, I've
seen more diagrams over the last week about
the circular nature of investments with vendors and
consumers and the whole AI ecosystem being dominated
by a handful of companies.
And the reality is that's all going to
(20:24):
get driven, in my humble opinion, through investor
money.
I think the capital is there to be
invested and they're going to be able to
raise money.
Open AI is still a nonprofit company.
It's laughable, but when they become a for
-profit company, when they go public, they're going
to be able to raise a lot of
equity capital.
They already have some revenue.
(20:45):
I'm familiar with their financial statements because they're
not public, but they have revenue.
They're going to be able to raise a
ton of money, which means they're going to
be able to raise a ton of debt
too.
I think people are only concentrated on the
equity capital, but for every dollar in equity
capital, they're going to be able to raise
at least $3 in debt, would be my
(21:05):
thinking.
Most likely convertible debt would be my guess.
And that's going to be the lifeblood of
that ecosystem.
Now, that's not unlike how the economy works
in general.
I mean, sure, these are some of the
bigger companies, but this is a new industry
and there's some reasons to be concerned there.
(21:27):
But I'd be working out for a couple
things.
Does the investment money dry up?
And does the shortage in computing power change
into an excess?
If we have an excess in computing power,
well, you don't need to buy Nvidia chips
anymore.
You don't need to buy Broadcom chips anymore.
You don't need AMD chips anymore, right?
You don't need any more data centers, which
(21:48):
means you don't need Eaton, which is an
industrial company.
Yeah.
I mean, you remember fiber optics and the
way the whole telecommunications got impacted by suddenly
there was this immense investment that had been
made, and maybe it just wasn't needed as
much at a certain point.
(22:09):
Yeah.
And then I think, I tried to think
creatively about these things.
We have this other side of the economy.
I don't think the AI story is completely
insulated by the weakness in the other side
of the economy, right?
So let's say that you have a weakness
in a white collar workers, for example, and
you don't need as many copilot seats.
(22:31):
Well, Microsoft's revenues growth will suffer.
Are they going to pull back on their
AI spending because of that, right?
So you could have a decrease in investment,
even though it's completely unrelated to the AI
story.
It could be another part of their business
that they need to make up for by
pulling back on investment.
(22:53):
They have to pay their right hand with
their left hand, in a sense.
So it's more complicated than just kind of
getting wrapped up in one way or another.
These things are related and they do speak
to each other.
But right now, my understanding is there's still
a shortage in computing power, and I don't
think that there is any shortage of capital
(23:13):
to fund all these ventures.
So the outlook is promising in that regard.
To me it is, right?
So how have we expressed this in our
portfolios throughout the year?
Well, you can't ignore the part of the
economy that's suffering.
You can't do that, right?
You have to have some things that are
a little bit more defensive than your portfolio.
(23:34):
And if you did ignore it, you probably
did very well.
But does that mean that it's going to
be repeatable in the future?
Yeah, I mean, when you invest, you want
your process to be repeatable and defensible, right?
But we also used April as an opportunity
to lean into the AI story because we
got a lot of these great companies on
(23:55):
sale.
So we got into semiconductors and we've been
in utilities for a while.
Utilities are a big beneficiary because of the
enormous amount of power that these data centers
are going to need, right?
To give you an idea, there's more data
centers under construction right now than there are
data centers in general.
So there's actual real shovels in the dirt,
(24:15):
right?
This isn't just kind of a hope and
a prayer thing.
So we've done very well there.
We leaned into some more NASDAQ 100 names.
And those are the positive sides of our
portfolio, right?
And the negative sides of our portfolio have
been the healthcares and the staples and the
low volatility type stuff that just hasn't been
(24:39):
participating.
Why?
Because things seem good, as they've been driven
by the AI side of things.
And there's just been no reason for them
to accelerate.
And as frustrating as they can be in
my portfolio, you also have to have the
discipline to keep them in there to some
degree and not get irrational about the prospects
(25:02):
for the future.
So that idea of the utilities, you've made
this, you know, that picks and shovels kind
of notion talked about before.
You don't have to only be in maybe
semiconductors to still benefit from the AI theme.
There's other ways to benefit from that.
And that utilities is maybe one of those
examples that's maybe a different risk dynamic, but
(25:26):
it still is going to get some benefit.
Well, the fact that it's a different risk
dynamic is amazing, right?
Because that means you're allowed to have the
semiconductor exposure that would typically gross up the
risk in your portfolio, at least on a
quantitative level, because you're taking such a historically
low risk type of investment in the utilities.
(25:47):
So when they both do well, you know,
it's a grand slam.
It's something to celebrate because for a reasonable
amount of risk, you got a lot of
return.
Now, I would say the one big benefit
from being invested, you know, diversifying and being
invested across the spectrum to some degree, and
(26:08):
acknowledging that that negative part of the economy
exists, has been international stocks.
So international stocks have really benefited from the
falling dollar.
The falling dollar really started during the tariff
tantrum.
And justifiably, you know, some money left the
United States and tried to find another home.
(26:30):
You know, one of the big beneficiaries of
that has been international because typically those stocks
are priced another currency.
So, you know, a one for one decline
in the dollar typically means a one for
one increase in those stocks to some degree,
right?
So if you've had international exposure, if you
insisted on diversifying away, you did very, very
well there.
(26:50):
And, you know, I can only say that
I wish we had more.
I'm glad that I'm glad that we were
investing that.
Why we had some.
Yeah.
Yeah.
The other thing this year too, the other
thing is that the longer term, high quality,
investment grade bonds have done exceptionally well as
well, too, because as interest rates have come
(27:12):
down with fears of a worsening economy, those
positions have done well too.
So what I wanted you to talk about
next to just that, how they're sort of,
and that often plays into another theme as
it relates to your investing outlook for the
remainder of the year.
So way on the equity side as well,
(27:34):
but elaborate on, you know, this, this dynamic
of it's confusing to people when you talk
about interest rates, because we focus on the
Fed and the expectation that, well, the, there
is a presumption that the Fed is going
to continue to reduce interest rates to some
extent.
So interest rates may be falling.
(27:54):
And on the one hand, that seems like
that would be unattractive to investors in that
declining interest rates means I'm going to get
less yield.
And, and then that whole dynamic of what
happens on the short end, isn't necessarily what
happens on the long end.
And maybe just elaborate on how that, what
(28:15):
you're envisioning there and how that's playing into
some of the way you're thinking about finding
opportunities.
Yeah.
I mean, a lot to talk about there.
Interest rates are a very important aspect of
the economy.
And there's a good argument from David Kelly,
JP Morgan's chief economist, who believes that a
(28:37):
small change in the Fed funds rate, which
we had, that we've had so far in
the last month, and, you know, that we're
expecting to have throughout the rest of the
year, you know, the expectation is for two
more cuts, is actually a negative because there
are so many people, you know, of the
(28:57):
baby boom generation, which has the majority of
the wealth that have had the great benefit
of having higher interest rates without taking any
risk.
And it's been contributing to their budget and
their cashflow.
And when you take away 20% of
that, you know, all of a sudden what
has been a tailwind for the economy is
now a headwind.
(29:18):
So there's, there's that kind of, you know,
point of view.
Yeah.
Yeah.
Yeah.
I think we all assume that interest rates
will go down and economic activity will go
up.
And I believe that he estimated that that
effect to be of the effect of around
a hundred billion dollars, which is, you know,
(29:39):
again, going back, the expected growth of the
economy is $500 billion in any given year.
On average, if you take away a hundred
billion, that's a big impact.
And the reason for that, the other reason
for that he says is that the people
borrowing money have mostly fixed rate debt, which
he's right about, right?
Most people, the majority of the debt that
(30:00):
people have is through their mortgage, which most
people have gotten religion and have a fixed
rate mortgage.
So, you know, is it, if you're borrowing
money at 20% of your credit card,
if you, if you start borrowing at 1975,
is it really going to change your spending
habits?
Probably not, right?
Your student loans are fixed grade and, you
(30:21):
know, 10% of people already can't pay
that anyways.
You know, the, the majority of the borrowers
probably aren't going to be affected.
It's more about future borrowing than, than, than
past borrowing and past borrowing is important in
this case because it affects, you know, your,
your debt service payments going forward.
So he, he makes a good argument that
(30:43):
short changes, small changes will actually be detrimental
and you have to make a big change.
So his thought process is if you cut
75 basis points, fine, but that means you're
going to have to cut 300 basis points.
And I, you know, from that point of
view, if that, if that is your point
of view, I think you need to have
(31:03):
more exposure on the longer end of the
curve because that means that the economy is
going to be very, very weak.
And you know, we're not going to have
the inflation that the market expects right now.
The market expects over the next year to
have inflation of 3%.
Then after that, the expectation isn't supposed to
come down.
Now, 3% is very high, right?
We're supposed to have 2% inflation and
(31:24):
the federal reserve seems to be ignoring that.
Why are they ignoring that?
Well, you know, you could say it's political
pressure or you could say that they expect
the current tariffs to roll off 12 months
from now.
But sure, that's possible, but you also could
make the argument that we haven't seen the
effects of tariffs yet.
(31:46):
So 12 months from now, you know, we
might only be in the full throes of
tariffs, but either way, you know, that is
their position.
And you know, if you believe what David
Kelly is saying, then you want to get
longer out on the ill curve.
You know, that's probably not a good outlook
for the labor market.
(32:09):
That means that things could get much worse
before they get better.
It's probably not a good outlook for the
stock market.
Things could get, you know, that, I mean,
that's pretty much you saying that we're probably
going to have a recession unless this AI
build continues to keep us out of one.
(32:30):
Thinking about how you invest in stocks as
well though, correct?
Certain kind of industries.
Yeah.
So let's say, you know, we disagree with
David Kelly's assessment, right?
And we go with the market consensus.
The market consensus is we're going to have
3% inflation and 1% growth over
the next year.
(32:51):
We're going to avoid a recession.
We're going to have 1% growth.
Okay.
That's consensus.
Now that means that you should have interest
rates of at least 4%.
And we're going to have a few more
cuts here this year.
You know, according to the consensus, which means
what do we have?
We'll have a Fed funds rate that is
(33:13):
below 4%.
We're going to have longer on the curve,
higher than 4%.
And that is called a steepening yield curve.
One's coming down and one's rising.
In fact, as we cut, we might see
expectations for growth in the future increase in
the future.
Maybe not necessarily over the next year as
David, you know, as David Kelly is saying,
(33:34):
you know, it could get worse before it
gets better, but out in the future, 10
years in the future, which is what was
reflected in the 10-year bond, you might
see increased growth and you might also see
increased inflation, which we'll say is four plus,
right?
If 2% inflation and 2% growth
is the longer term goal, you know, we'll
say it's at least 4%.
So that gives you a steepening yield curve.
(33:57):
Now, what benefits from steepening yield curve?
The biggest sector that benefits is banks, particularly
regional banks, really, because what can they do?
They can borrow short.
They could take your deposits and pay you
less, whether they be time deposits, broker deposits,
checking accounts, they could pay you even less
than they're paying today, right?
(34:17):
And they can lend for more.
And this is, you know, an arbitrage that's
very typical throughout banks.
And yes, there is a mismatch in durations
most of the time.
And that's why we have things like, you
know, the Fed Fund.
That's why we have Fed Funds.
That's why we have a discount window.
You know, lots of different ways for banks
to get liquidity that me and you couldn't
(34:39):
get as a non-regulated bank.
So, you know, if you think financials are
going to benefit through that scenario, well, that
might be a place that you want to
put your equity capital.
Now, keep in mind that if things get
really bad and the longer end comes down
as well, you know, you might not get
that arbitrage and you might have a credit
(34:59):
event.
So you don't want to like over-index
the financials, right?
There's always a discipline to find the right
sizing that you want in your portfolio.
But that's an area that I'm very interested
in right now.
In addition to that, you know, I've written
about this and I've talked about it extensively
and it's headline news right now, but gold
(35:19):
has done very, very well.
And I always say that I look at
gold as a global currency with a 0
% interest rate.
Now, if you look at all the other
global currencies throughout the world, where are their
short-term interest rates headed?
Well, if they're heading closer to zero and
the economy is getting worse, then gold should
(35:40):
get more competitive.
And so, you know, I think that's another
place that you could go.
And there's this huge benefit, right?
And you think of, all right, you're in
the AI names, you're in the AI sector,
the AI part of the economy, and you
have this other part of the economy that's
not doing well, but you want to diversify
away from the AI a little bit, right?
(36:01):
What are some places that you can go
where, you know, if the expectations for a
poor economy on this other side, you might
get some diversification benefit, right?
You don't want to just be on one
side of the boat, but you also just
don't want to like lose money on the
other side.
You want to try to find smart ways
to be diversified.
(36:22):
And I think those are two ways that,
you know, we can do it better going
forward in the next quarter.
Excellent.
We're going to talk more in future weeks
and so forth.
Maybe we'll include some discussion about this notion
of how to mitigate risk or how with
some innovative approaches we're trying to use to
think about how to manage risk while giving
(36:44):
us the opportunity to take risk with parts
of our portfolio.
Certainly, that might be one of them, but
there's other things that we've found that to
be interesting and worthy of consideration.
Listen, we'll wrap things up here because we've
gone a little bit long, but Brian, if
our listeners are thinking that, gee, this sounds
(37:08):
like it's pretty deliberate and thoughtful, you know,
it's a reminder to say, look, we take
an approach, we call it active allocation with
our team here.
If you'd like to learn more about how
we can help with anything you might be
looking at with your investing, you'd like to
get a second opinion on what's your portfolio
positioned like and with some of these considerations,
(37:31):
where there might be risks and how we
might be able to help you navigate that,
don't hesitate to reach out to our team.
We're here to be a resource.
For our clients, Brian, you've got a webinar
coming up pretty soon.
What is the date of that that we've
(37:51):
got that?
October what?
October 28th.
28th.
And for our clients, we'll be putting that
out to you in an email.
We'll do a version that'll be available for
the public as well posted on our YouTube
and our webpage at somethingmorewithchrisboyd.com.
(38:12):
So, with that, Brian, thanks for some really
interesting stuff.
Lots to consider, lots to evaluate, and I'm
glad you're doing a great job keeping us
on track.
Thanks for being with us today.
Thank you.
Until next time, everybody keeps driving for Something
More.
Thank you for listening to Something More with
(38:33):
Chris Boyd.
Call us for help, whether it's for financial
planning or portfolio management, insurance concerns, or those
quality of life issues that make the money
matters matter.
Whatever's on your mind, visit us at somethingmorewithchrisboyd
.com or call us toll free at 866
-771-8901 or send us your questions to
(38:56):
amr-info at wealthenhancement.com.
You're listening to Something More with Chris Boyd
Financial Talk Show.
Wealth Enhancement Advisory Services and Jay Christopher Boyd
provide investment advice on an individual basis to
clients only.
Proper advice depends on a complete analysis of
all facts and circumstances.
The information given on this program is general
financial comments and cannot be relied upon as
pertaining to your specific situation.
(39:18):
Wealth Enhancement Group cannot guarantee that using the
information from this show will generate profits or
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