June 11, 2024 • 38 mins
Mike Armstrong and Paul Lane preview this week's Fed meeting. Why the Fed is in no rush to cut rates as economy holds up. Fed's higher-for-longer stance hits firms that expected cuts. Apple partners with OpenAI to rolls out new artificial intelligence system. Elon Musk says he will ban Apple devices if OpenAI is integrated into OS. 401(k) confusion abounds. Workers think they're saving, but they aren't really.
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DAV five K Boston is presented byVeterans Development Corporation to Face is the Financial
Exchange with Mike Armstrong and Paul Lane. Good morning, Welcome back to the
Financial Exchange. It's at Tuesday hereat ahead of a inflation and Federal Reserve
Wednesday, So big big day tomorrow, potential for wild swings in the market
(01:23):
because you've got an eight thirty inflationreport followed by a two thirty pm press
conference from Jerome Powell. Yesterday,in relatively calm trading, markets reach new
all time highs. Today, you'vegot some markets sharply down in the other
direction, NASDAK not very much soat all, but now all three hundred
and fifty points, nine tens ofpercent, the S and P off twenty
three points or four tens of percent, NASDAK off tenth of percent, and
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then the Russell two thousand, thosesmall caps off over more than one percent,
as the yield on the ten yeartreasury actually falls a little bit down
to four point four to four percentthis morning ahead of that Federal Reserve meeting.
We had some big announcements from Appleyesterday on the artificial intelligence front,
so we'll be covering that later.And then just more and more surveys of
(02:07):
people having completely bad information about notonly the economy but their own personal finances.
So we'll be talking about that abit later, but let's start off
with some FED talk here ahead oftomorrow's press conference. So no real question
here as to what is going tohappen at tomorrow's meeting, and that is
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nothing, Which isn't to say thatit's not important, right. I think
it's important to recognize that doing nothingis still a decision, and it's probably
the appropriate decision at this point.But the FED, i think, is
walking into a much murkier situation aboutthis economy today than where they were even
just a year ago, and whatto do next is a lot less clear
(02:50):
at this stage compared to those previoustimes. It's always been difficult over the
last six to twelve months to reallyfigure out what direction to go in.
I don't envy the position that theFED is in, but from a time
and perspective MIC, it seems likethe best cause here is just to,
like you said, kind of standpat. There are gonna benefit from a
relatively quiet schedule from a summer meetingperspective, where they'll meet again on the
(03:13):
thirty first of July. But thenthere's a pretty good layoff until they get
together again back in mid September,so they'll be able to digest more economic
reports as they come out. Butreally the focus here is you're getting sort
of mixed signals from the economy atthe moment. You're certainly seeing in some
areas a bit of a slowdown,so there is some perhaps rising pressure pressure
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for the FED to consider rate cuts, But ultimately, at this point in
time, with time on their sideand no clear indication that the economy is
significantly dropping, you just kind ofhave to stand pat for the moment.
Yeah, I think, So let'stalk about what those data points are.
Let's go back and forth here,because there are obviously some that are conveying
(03:58):
a pretty hot economy stef others thatare, you know, conveying some weakness.
So let's talk about the weakness datapoints. First, A revisions to
GDP and you know the GDP nowfeature are are looking at, you know,
total economic growth figures that are substantiallybelow where they were last year and
for the last few quarters, Soyou've got an overall GDP slow down,
it appeers what else do you use? Yeah, those, dear mind,
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just to drill down to those numbersthere. Q four of last year,
the economic growth for this country byGDP was three almost three and a half
percent. That's an annualized number,so it wasn't three and a half percent
in a quarter, but you know, three and a half percent annualize correct,
and to be fair, that issignificantly higher than what we typically average,
which is around two percent. Sothat was just a bang up number,
a really strong number. However,for Q one, the initial estimates
(04:43):
were one point six percent. Thosewere then revised downward on June fourth to
one point three percent for Q one. Now previewing Q two that is coming
in per GDP now around one pointeight percent, So certainly slowing from an
economic perspective, so that's one partof we're seeing a little bit slowing on
the GDP front. On the labormarket, you're sort of getting mixed signals
(05:05):
here. Certainly, we had thejobs report that came out last Friday where
two hundred and seventy some odd thousandjobs were added, but if you look
underneath the hood, you did haveunemployment tick up to that four percent level.
You all also have some indications outthere on the aggregate payroll growth that
has slowed a little bit. Ifyou look at those numbers, there's really
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a huge divergence on the job supportfront MIC where the establishment survey component of
the job support, which goes throughpayroll and wages, is seeing pretty substantial
growth. But if you surveyed thehouseholds and the individuals, that is pointing
to a more anemic labor market.So that's kind of the labor market unless
you have any other kind of takeson. Now. It was a very
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confusing report on Friday of last week, and like I mentioned yesterday, it's
the type of report that can existin a month or two, but not
long term. You had happen hereas a divergence of I think half a
million jobs between what businesses said theyhired, which was around two hundred what
was it, two sixty versus whathouseholds said they experienced, which was a
loss of a few hundred thousand jobs. So that can't you know, that
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can diverge for a period of time, but ultimately, either the business survey
or the household survey is telling thetrue story, and I don't think anybody
knows which one is which at thisstage. If you still believe that oil
is a good barometer of you know, global demand for all sorts of manufacturing
another activity. Well, that's nota good news story for growth either,
right, You've got I like thispersonally, but you know, oil peaked
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this year at about just shy ofeighty seven dollars a barrel back in April,
and since then it's declined by aboutten dollars a barrel. Got we
got even considerably lower than that afew weeks ago. But you know we're
sitting right now around seventy seven dollarsa barrel. So there's a number of
indicators that would say, hey,maybe we're facing a slow down, and
that slow down inflation will come.On the other hand, again, I
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think the main part is consumer spendingstill pretty strong. It's not dry off,
let's put it that way. Itmight not be increasing at such crazy
numbers as it did previously, butcertainly not dropping off. You also have
this other half of the labor marketstory. Like we said, we're not
sure which one is correct, butif you take a look at payrolls,
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if you take a look at againthe business side of the survey, these
companies are telling you that, hey, we're paying people more and we're still
hiring them. So there's a bitof a mixed story here, and I
think that's pretty good justification for whythe FED should hold on. But their
constant message to people is, hey, we're going to be data dependent,
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and unfortunately for the FED, thedata that they got on Friday was just
throwing into trash garbage, you know, Like it's great to say, hey,
we're going to be data dependent,but when that data is painting a
very murky picture about the economy,it puts them in a tough position.
So three meetings for the Federal Reservebefore the no, sorry, yes,
three meetings for the Federal Reserve priorto the elle Here, we've got one
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tomorrow July thirty first, like Paulmentioned, and then mid September. The
following one after that is the dayafter the elections. So for all those
calling the FED political and they willor won't do this, that or the
other, I mean, I've hypothesizedthat they wouldn't want to necessarily make a
move right before the election. Butit's been you know who criticized me on
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that, Mike what's Mike's name fromCNBC that came on last week, cent
totally from CNBC. You know,honestly looked at that said, you're telling
me that people are going to votebased on what the Fed moves interest rates
by at most a quarter percentage point. I don't really think so, and
so it is a fair counterpoint,and I don't really know that they will
or won't make any moves they saytheir message. By the way, just
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you know, this was asking methe other day, like, isn't there
some sort of historical unwritten rule aboutthe FED moot. No, there is
no unwritten rule, they say,and historically have done what they believe is
right for the economy at that particularpoint in time. If you want to
make an argument that, hey,the country's more divided and so they're less
likely to do something this time,maybe that's the case, but we certainly
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have no evidence of it, andthey would deny that themselves. So that's
what's going to be going on tomorrowat the Federal Reserve meeting. Like Paul
said, ninety nine point four percentchance that they do nothing at that meeting.
And if we look at, youknow, meetings prior to the election,
which would be the September eighteenth meeting, it's about a coin flip as
to whether rates will be right wherethey are now or slightly lower. Let's
(09:28):
take a quick break. When wecome back, let's talk a little bit
about the industries and companies that aredealing with these higher rates, what it
might mean for them. And thensome commentary from one of those heavily impacted
by higher rates but actually a littlebit positive on it, which would be
Morgan Stanley, CEO. We'll coverthose next. On the Financial Exchange.
(09:48):
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book your trip today. That's visitUSVII dot com. If you've heard anybody
call this moment in time the mostforecasted recession that didn't happen, Bloomberg has
a piece out today that kind ofexplains what's going on there and why so
many people would have anticipated a recessionat this point. They go out and
they interview a number of different businessowners in terms of how they're reacting to
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this higher interest rate environment. AndI'm sure they cherry picked the stories that
they were looking for here, butthey largely found that, Hey, you
know, a bunch of companies wereplanning on doing upgrades of one sort or
another and based on borrowing costs,weren't able to do so and have seen
a slow down in terms of theirbusiness. And you're shaking your head,
Paul, because I'm guessing you're respondingto the cherry picking type of story about
(11:22):
this. But there are real businessesthat are not moving forward with transactions or
not moving forward with expansions based onhigher interest rates. What would your counterpoint
be? No, I'm not againstthat notion. I mean that's this is
the whole intention of the FED inthe first place, is you increase interest
rates. As a result, businessesare more reticent to expand their factories,
(11:43):
to hire more employees, to spendmore because they're going to have to borrow
it at a higher rate of interest. Don't get me wrong, I understand
that that's the whole focus for thepremise of the FED. However, what
bothered me more about the piece isthis idea that you know, this Michigan
maker of cutting tools, they delayedspending this year because they thought they were
gonna be cuts. That's what's frustratingme the most is that's a cherry picking
(12:05):
notion to see everyone, in themost optimistic version in December of twenty twenty
three, anticipate that there will bethree cuts over the course of this year.
The cuts come at twenty five basispoint increments. So if you're at
five point three percent right now inthe FED funds rates are between five and
five and a quarter, three cutsto that is still going to land you
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at four and a quarter or fourand a half, depending on where it
ends up settling if they do gothrough the three. So this notion that
you're going to delay spending if you'rebarring on some sort of variable rate vehicle
out there that is four and aquarter plus a couple percentage basis points or
a couple hundred base points on topof that. Okay, you're talking about
borring costs maybe from eight percent tosix and a half or seven on a
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large scale deal. I'm not goingto completely bid that up. That's less,
but it's not so much less thatit should completely haul plans. We're
not talking about you weren't going togo back to five percent borring rates.
That just wasn't going to happen thisyear. And that's what frustrates me about
the piece is this idea that,oh, if we had gotten these cuts,
that would have really changing. That'sa cherry pickting aspect. Well yeah,
(13:09):
and remember too though, and whoknows where these people thought rates were
going to be, But remember thatwhile the Fed was saying, hey,
maybe there'd be three cuts this year, markets themselves. You know, if
you listen to the Fed, thenyou heard okay, yeah, rates are
going from the FED funds rate goingfrom five and a quarter to maybe four
and a half if you're lucky,If you listen to markets. It was
(13:30):
oh fed rate going from five anda quarter down to at some point,
I think it was one point sevenpercent of cuts being priced in, So
you know, going from five anda quarter down to below four percent was
what the market was telling you.In either case, the piece you remember
about this is, yes, thereare thousands, probably tens of thousands of
small businesses that are changing their plansbased on prevailing interest rates right now and
(13:56):
cutting spending, maybe cutting headcount hereand there. There are also some of
the largest employers in the country Walmart, Microsoft, Apple, that are barely
impacted by higher rates at all.In fact, they could be benefiting from
this right now. Apple in particular, I wonder if I can look this
up, so how much cash doesApple have on hand? No, these
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big behemoth companies, to further yourpoint, Mike, they're not as subject
to interest rate pressure. It's thesmall businesses that are going to be impacted
much more significantly by this. Buthey, you can't have it both ways.
Right As of March twenty twenty four, Apple was sitting on sixty seven
billion dollars. Now I don't knowthat they're earning five percent interest rate on
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that interest on that across the board, but they're sitting on sixty seven billion
dollars. They to my knowledge,have not needed to borrow any new money.
They took out a bunch of loansback in twenty twenty twenty one refinance.
They're dead at these fixed rates becauseagain, a company like Apple doesn't
need to go to a bank,right they just float a bond. It's
oversubscribed. They locked rates for adecade and so like. As is the
(15:03):
same with American households. There aresome households that are really struggling with higher
rates. There are some businesses arethat are as well. There are other
businesses, and the other businesses happento be some of the largest ones in
the country that do not have muchof an issue with this. And I
think Morgan Stanley talking about this isan interesting example here where you know,
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they have attempted to set up theirbusiness in a way that they are not
terribly worried about higher interest rates,which you know ultimately can cause a recession.
But the CEO's point is quoted assaying, you know, we know
we don't do unsecured credit in emergingmarkets, one of the typical areas that
has blown up historically when high USinterest rates hit credit cards through a loan
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cycle. You know again what weare exposed to during these points in time,
Morgan Stanley saying, hey, youknow, we're not hurting too much
with this higher interest rate environment.They've really shifted their business to be much
more focused on acquiring executive stock companyplans from different public companies out there,
as well as generating revenue from investmentbanking and the advisory side. Those kind
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of make up their income streams.So while they're immune on the interest rate
side of things, certainly they're subjectto the market which has done really well
this year but not discussed here.If the advisors be SMP five hundred and
fall by twenty percent, you havea large wealth management business that's not going
to do. So. You know, every business out there has its risks,
certainly in the financial industry, andthey're right, they're less subject to
(16:33):
sort of the interest rate side ofthings, but that doesn't mean that there's
a pressure elsewhere. Investment banking toothat can dry up really quickly. We
saw that over the course of twentytwenty three in terms of limited deal activity.
There. The one other piece thatI wanted to spin back to on
just household debt and the country ingeneral. Is I hate when news pieces
out there might use a dollar figureto say, this is the highest household
(16:56):
debt that we've reached as a country, seventeen point seventy billion. It's so
it just drives me insane because explainwhy so again they're pointing out that,
hey, US household debt all timehigh, sitting at seventeen what do you
say, trillion dollars pro seventeen pointseven trillion dollars of household debt is twenty
twenty four, that's an all timehigh. It just drives me insane because
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we all know about inflation in thiscountry that you got a pretty good lesson
on that. It was just youknow, this house in Needham is the
highest value that we've ever seen inhistory. Yeah, because fifty years ago
it wasn't worth as much because thedollar and the inflation level wasn't the same.
It's just that dollar figure piece.You have to use percentages when you're
doing these comparisons. And if youlook at household debt relative to GDP that
(17:41):
this country generates, we are nowherenear the levels of two thousand and eight,
which was close to one hundred percent. We sit at seventy five percent
household debt relative to what this countryproduces from a GDP's perspective. So that's
what drives me insane, is justa you repeat that figure for so INN
seven eight, when we were inthe middle of the what turned into a
(18:03):
mortgage crisis, household debt to GDPwas sitting at around one hundred percent ninety
eight point seven percent in Q oneof two thousand and eight, and we
have not been anywhere since. Iswhat that chart seems to indicate to men,
really downwards. So we're at seventyfour percent right now, hovering between
seventy four and seventy five. Andhistorically you look back, you know,
(18:23):
grand in the fifties and sixties,it was much lower than that. But
we're in a different barring cycle andGDP has changed significantly as well. But
really over the course of the lasttwenty five years, I will say it's
between seventy and seventy five, butreally peaking in around that two thousand and
eight to twenty ten range when theeconomy reversed. So that's why it drives
me crazy when you say seventeen pointseven trillion of household debt. Yeah,
(18:45):
things are more expensive than those dollarnumbers are bigger now, Yeah, Yeah,
that's a very very important context.We've been highlighting credit card debt reaching
all time highs, for example,and it's another good example of it.
Again, not a good thing.I do not applaud this number, but
when you look at the total outstandingcredit card debt, it's basically exactly where
it was in twenty nineteen plus twentypercent study default rate's study percentages. That's
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the better thing to focus on,where you look at historical Otherwise the stuff
can scare the living helm right right, just unfathom move, unfathomable. I
can't say that word levels of debtwhen you express it in dollars, but
when you express it in percentage ofGDP or percentage of historical numbers, you
start to question it a bit.Let's take a quick break. When we
come back full market update on WallStreet Watch. Like us on Facebook and
(19:45):
follow us on Twitter at TFE show. Breaking business news is always first right
here on the Financial Exchange Radio Network. Time now for Wall Street Watch a
complete look at what's moving market sofar? Aren't today right here on the
Financial Exchange Radio network. All Right. Markets are currently down kind of across
(20:07):
the board here. The Dow isdown two hundred and fifty points, but
that's heading in the right direction.It started the day off down three hundred
points. The S and P fivehundred is down just under seventeen points,
and Nasdaq is down twelve points currently. Eli Lilly shares are flat after a
panel of FDA advisors recommended the approvalof its alzheimer drug known as doneum PAB.
(20:33):
General Motors stock is up one pointthree percent after its board authorized a
six billion dollars stock buyback program.E Commerce company Shopify is up a one
and a quarter percent after JP Morganinitiated coverage with an overweight rating and a
client note. The investment firm saidthe recent pullback in Shopify stock whatever not
going to go continue there. Appleshares are up four percent a day after
(20:57):
the iPhone Makers Worldwide Developers Conference,where it revealed its artificial intelligent plans called
Apple Intelligent. The company also saidSiri will harness open Aiyes, Chat GPT,
Mike and Paul, We'll get moreinto that story next. Game Stop
shares are up two percent, continuingits volatile Ride. The video game retailer
(21:18):
fell about twelve percent yesterday, continuinga decline from Friday, spurred by a
surprise earnings report and Memes stock leaderKeith Gill's first live stream in a few
years. That is Wall Street Watch, Eye, am Ben Kitchen. Apple
stock up about four percent in earlytrading today. Yesterday, at their Worldwide
Developers Conference to close things out,they had a pretty big announcement when it
(21:42):
comes to artificial intelligence and finally answeringsome of the questions that investors and I
think some but not all, havebeen pressuring Apple on, which is what
are you going to do with AI? And the answer seems to be,
for now, we're going to usechat GPT in a bunch of stuff that
we do. So what was theactual announcement here? From a well,
I was going to ask you,what is the big announce what's the big
(22:03):
announcement? No, the big announcementis that you can now use chat GPT
on your iPhone to write your kida bedtime story used No, Mike,
you can do yeah exactly. Youcan do custom emojis and image generation on
IOSA teen. There is this storyback when blockchain was really popular and all
of the crypto sort of a phenomenonwhere there was this company, Long Island
(22:26):
Ice Tea that converted themselves into LongIsland blockchain and all of a sudden the
shocks. The stock shot up byan absorbitant amount of percentages in a given
period of time. And I'm notsaying Apple is anywhere near and that we
know they're behemoth, but this ideajust in general, Mike, if you
say you're doing something with AI nowimmediately here we have Apple up four percent
(22:48):
today and I read a new alltime high by the way I read all
this news. And I'm not sayingthere's anything against Apple as its core business
in terms of what it does,but what this rumored, you know AI
improvements are going to have, Howdoes that make make Apple more money?
Because iOS eighteen is going to allowme to do custom emojis and you know,
mess around with photos on my phone. I just don't understand that and
(23:08):
provide a better serie voice assistant,which has been atrocious in my opinion to
start with. My dad uses itfor text message. It drives me absolutely
and same when you're sitting in aroom with him and her. My wife
gets those texts from her father,and they are just you can't read him.
They are completely you have no ideawhat he's saying. But he asked
(23:30):
music because he can't really see hisphone screen very well and he hasn't figured
out how to increase the text size. What's doing? Option? What do
you think of this game? Period? Like? Just to hear him read
it off drives me crazy. Somaybe Siri is long due for these type
of updates. But bottom line,Mike, unless I'm missing something other than
just saying that they're partnering with openAi, which I guess is somewhat noteworthy
(23:52):
and exciting, these none of thesechanges to me seem like more money in
Apple's pocket right away. Well no, in fact, I think if there's
a really compelling argument that it willdetract from money in their pocket because who
knows exactly what the deal is withchat GPT, But what they've set up
here is not the same thing thatyou would do by you know, let's
say you go onto a web browserright now and access chat GPT, which
(24:17):
anybody can do right now. Oneof their versions is free. They also
have paid versions of chat GPT.That is not what Apple is doing because
quite honestly, that would be nothingthat would be nothing new from what you
can do on your iPhone to day. Instead, their plan is to integrate
that messaging directly, natively on yourphone. And what they are saying from
(24:40):
a privacy perspective here is that whilethis iteration of artificial intelligence will learn a
lot about you and will start,you know, guessing what you're going to
text and email and search and beable to basically move things faster along for
you, that same information that thelocal artificial intelligence learns about you will not
(25:04):
go back to GPT, will notgo back to open AI, will not
go even back to Apple to teachwell that actually hasn't been clarified, will
not go back to open AI andchat GPT to allow that artificial intelligence to
learn more about you and use yourtexting, your writing as a learning source
for the artificial intelligence. And forsome that's a big privacy concern. It's
(25:27):
okay, you know, what exactlyis this open AI? What is this
artificial intelligence utilizing my data for?And that's Apple's argument is, hey,
we you know, they've really builttheir brand at least over the last three
to five years on that privacy piece, right, Remember when they change their
Apple logo to the to the lock. At one point, they've really focused
(25:47):
on that, and that's their argumenthere, is Hey, unlike utilizing chat
GPT on a web browser, unlikeI'm guessing using Google's artificial intelligence on their
phones, We're going to keep thislocal and native to you and not allow
it to go back into the entireuniverse. To your point, though,
(26:07):
that ain't gonna be free, rightIf you're open AI, you're gonna need
to get paid for that because youget, from what I can tell,
no other benefit other than reputation.Sure, right, Like, yes,
my my software is being utilized onevery Apple phone that gets sold in the
future. That people just helps reputation. But those queries are not free.
(26:30):
That computing power is very expensive,and Apple is going to be paying for
it. We have no idea whatthey'll pay for it and whether or not
they'll ever have to charge Apple usersfor this service. That would be my
guess is if you're, you know, five years from now, if you're
going to continue to roll this outand have it widely available to all Apple
users, it ain't gonna be free, would be my guest. Yeah.
First, the first stop is massadoption, you know, getting everyone comfortable
(26:52):
with the technology and making it soembedded that you can't live without it.
Yep, but there is all sortsof data concerns that arise when you're dealing
with is behemoth tech companies and allthe money that's at stake out here is
to be clear, it seems likeApple is going to keep it separate.
But I feel like all of uscollectively kind of raise an eyebrower, roll
our eyes when you hear some ofthat INFI I would believe that the data
(27:15):
collected is not going to go backto open AI. I am quite confident
that well, Apple will learn awhole lot about artificial intelligence from the usage
of this type of software, andI will learn a lot more about you.
And you know what they do withthat information right certainly up you know,
send you upgrades on new products.Hey, maybe you should be utilizing
our music service, this, thator the other. But they can do
(27:37):
that. Now. The question tome would be, does artificial intelligence allow
them to learn enough about you thatthey can, you know, suck up
some of the revenue from Facebook andGoogle? Right, Like, how much
do those companies make in advertising dollarsand how much would companies pay for access
to know, Heyane is most definitelygoing to buy a grill in the next
(28:03):
six months, so flood him withads based on you know what we Apple
know about him. So that's ofinterest to me. Separately, Elon Musk
probably sour grapes rather than genuine concern, but saying that should open Ai get
fully integrated into the operating system ofApple, then he would ban all Apple
(28:25):
devices from his companies. So thatdoes not mean you wouldn't be able to
use X on an Apple device Twitter. It does mean that if you were
employed by Twitter, or by Teslaor by SpaceX, you would not be
able to have an Apple device,probably in the work environment or as a
(28:45):
as a work phone, which Appleyou know wouldn't care about because that's very
few of their total sales. Butalso my other argument is if Apple goes
and does this and you say,okay, no more Apple device is let's
go get some Googles instead. Guesswhat they're probably going to be doing it
too, right, Like, thereare what are you going to do?
(29:07):
Say? Hey, you know,going forward, if you work for Tesla,
you must use a Huawei device.I don't think so, I don't
think that's going to be the netresult. So Elon Musk was early on
part of the open ai team.They had a falling out. He's been
pretty public about his you know,complaints and concerns about open ai. Whether
(29:29):
or not they are genuine concerns aboutartificial intelligence. I have my doubts.
I think it's likely some sour grapesthat hey, this has been a really
successful product and I walked out onit, or it was forced out,
or you know, we don't exactlyknow, but it seems a lot like
sour grapes given that he is developinghis own artificial intelligence alongside all this.
That's all you need to say isthat he co founded open ai. There
was a falling out. They haddisagreement over the direction of the company.
(29:52):
Because, believe it or not,it was founded initially as a nonprofit.
It is built out, it's stillup serious as nonprofit. However, it
has a subsidiary arm that is,you know, generated for profit. And
here you sit today with Elon Muskhaving its own his own AI startup out
there. Like you mentioned, there'sa lot at stake for him, so
obviously he's going to do everything inhis power to use his public platform to
(30:15):
admonish, you know, open AIany way, shape or form that he
can. Let's take a quick breakwhen we come back, a couple of
financial news stories, one all aboutthis large cap stock rally and two about
confusion around four oh one k's.We'll be right back with that after this
miss any of the show. TheFinancial Exchange Show podcast is available on Apple,
(30:37):
Spotify, and iHeartRadio. Hit thesubscribe button and leave us a five
star review. This is the FinancialExchange Radio Network. This is your home
for the most comprehensive coverage of theeconomy and the trends on Wall Street.
This is the Financial Exchange Radio Network. I hate to say that we as
(31:03):
society are getting dumber, and Idon't think we are. I genuinely push
back on those stories, but wecertainly are getting further and further away from
facts. So I'm going to talkabout a few of these that are just
absolutely confounding to me. There's apiece out from is this barons? Who
put this together? Barons? Ithink today that according to principal who did
(31:26):
a survey, they looked at specificallypeople who are not contributing to a four
oh one K plan and they askedthem a bunch of questions, and a
surprising fact came out. Of thosepeople that were not contributing anything to their
four oh one K plan, fiftynine percent of them thought that they were
contributing to that plan. According toa Harris poll a few weeks ago,
(31:48):
fifty five percent of Americans think thatright now we are in a recession.
We are provably not. Forty ninepercent of Americans, again this is a
few weeks ago, thought that thestock market was down year over year.
In fact, it's near all timehighs. Yesterday it hit an all time
high. So again, and fortynine percent of people thought that unemployment is
(32:09):
at a fifty year high. Unemploymentis near a fifty year low. So
again, I'm not saying we're gettingdumber, but we certainly are paying a
lot less attention to facts. Andnone of these are harmless, but some
are more harmful than others. Mostharmful would be you're not contributing to your
(32:29):
own retirement and think that you are, like, am I the only person
that opens up a past up everyonce in a while and tries to figure
out where all my money's going?Just crazy? Right like this? This
is what everybody complains about why arewe not opening our paychecks anymore? Like
why do I have to pay Massachusettsall of this money? Oh that's why?
Okay, Oh, and then theregoes my four oh one K.
At least I can feel somewhat goodabout that piece. But man, it's
(32:52):
nearly sixty percent of people who arenot contributing anything think that they are and
clearly haven't opened up a paycheck tore through and understand what those different line
items are. Just insane. Imean. They mentioned one example where the
prior employers had the same retirement custodianplan, so they were at principal.
At another job, they went toa new company that also used principle,
(33:15):
so they had that existing balance outthere. So some people were under the
impression, hey, I have aprincipal account. It just keeps going.
Obviously, every single time you geta new job, you got to proactively
enroll in the four one K plan. It seems like the auto enrollment piece
is becoming more and more prevalent.YEA. They claim that for larger companies
that principal eighty percent of them areat that automatic enrollment. Only twenty nine
(33:37):
percent of their total clients though,of all sizes for principal use that automatic
enrollment feature, but it's so criticalto get in and get started early.
The other thing that frustrated me isthis notion that some people in this survey
noted that it was a bad timeto start contributing to a retirement. If
you have a thirty plus year worktime horizon, it's never a bad time.
(34:00):
Us you're gonna die tomorrow, it'sprobably a good time to start saving
for your retirement. Economic conditions aside, political conditions aside. Historically, if
you look at the market and investingover time, there's never a bad time
to do if you have a longtime horizon ahead of you, which many
people should have. If you're you'reworking so on a self assessment time and
(34:21):
I get this stuff like we're busy, everybody's busy. You might be working
two jobs, you might have threekids at home, and looking at this
stuff takes time. And so ifyou're going through that self assessment, and
you might be finding yourself in thiscategory, like ask yourself, do I
know how much of my paycheck goesto my retirement savings? Do I know
if I have life insurance through work? If you don't have time or don't
(34:45):
know the answers to those questions,Hey, go educate yourself and find out.
But b if you honestly self assessment, say I'm just not going to
dedicate the time to look at thisstuff and review it regularly, you're probably
a great candidate to talk to somebodywho will do that for you, a
financial advisor of some sort that's goingto keep you on a path so that
(35:07):
you're not surprised two years later sayingWow, I thought money was going to
my four h one K. Turnsout it's not, and I need to
do something about that now and playcatch up. If you're finding yourself in
those situations, and I don't knowthat a financial advisor is right for everyone,
right, there's a large portion ofpeople who do keep track of this
stuff, who spend the time dedicatingto it, and you might not need
(35:28):
that professional guidance. But if you'rehonestly self assessing and finding yourself in that
other category of I just don't havethe time, the knowledge, the expertise
to go invest in this, Ithink that genuinely that's a good opportunity to
speak with somebody who will do itand will keep your feet to the fire
on these things. And if you'dlike to talk to somebody at the Armstrong
Advisory Group, the phone number iseight hundred three nine three four zero zero
(35:51):
one. We have offices throughout NewEngland, from Portland, Maine down to
near the Hertford area of Connecticut,and we'll meet with you in person,
over the phone via zoom whatever's mostconvenient to assess your personal financial situation and
keep you on track. Once again, that phone number is eight hundred three
nine three four zero zero one,or you can book a callback at Armstrong
Advisory dot com. The proceeding waspaid for by Armstrong Advisory Group, a
(36:15):
registered investment advisor. Nothing in thead or in any Armstrong guide a specific
financial, legal, or tax advice. Consult your own financial, tax into
state planning advisors before making any investmentdecisions. Armstrong may contact you to offer
investment advisory services. The Baltimore keyshipping channel has now fully reopened after the
Francis Scott key bridge collapse. Thiswas such a disaster, so Chubb was
(36:38):
one of the insurers on this,and typically when you have a big claim
like this, an insurer we'll stepin. They'll go assess it. They'll
go, you know, try andfigure it out and see exactly what the
damage is going to be. Theymight end up suing the city in court.
They might you know, try andhold up the payments. In this
case. Chub the insurer of this, I don't remember what the limits were,
(37:00):
but they just said this is soclearly going to hit the maximum coverage
amount that there's no sense in usdelaying this or trying to figure out a
way to get out of paying.We're just going to pay the City of
Baltimore the entire amount od on thisinsurance policy immediately because it was such a
disaster. But traffic is again flowingthrough the channel fully reopened after the bridge
(37:22):
collapse. Going to be years,of course, before that thing gets reconstructed,
and there's probably hundreds of small businessesaround the bridge that are well going
to go out of business because theywon't have the customer traffic that they normally
would here. And the engineering featto get this thing not even fixed,
(37:43):
but just like to demolish this thingand get it out of the water and
refloat the boat was really fascinating toread about because there's really no playbook for
this sort of fifty thousand tons ofbridge wreckage from the Patsco River. Just
incredible that they were able to doit this officially. I mean, that's
just a tremendousness. I just getreally impressed by this stuff because you know,
(38:07):
in my line of work, there'sthere's nothing quite like that to end,
you know, to listen to somebodywill be like, oh, yeah,
if we snap this wire, thenthese three things are going to happen.
And yeah, just I get veryimpressed by engineering because it might as
well be magic to me. QuickBreak will be right back with a lot
more here on the Financial Exchange
The Financial Exchanges produced by Money MattersRadio and is hosted by employees of the
Armstrong Advisory Group, a registered investmentadvisor that provides investment advisory services. All
opinions expressed are solely those of thehosts, do not reflect the opinions of
Armstrong Advisory or anyone else, anddo not guarantee profit. Investments can lose
money. This program does not offerany specific financial or investment advice. Please
(00:20):
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(01:02):
DAV five K Boston is presented byVeterans Development Corporation to Face is the Financial
Exchange with Mike Armstrong and Paul Lane. Good morning, Welcome back to the
Financial Exchange. It's at Tuesday hereat ahead of a inflation and Federal Reserve
Wednesday, So big big day tomorrow, potential for wild swings in the market
(01:23):
because you've got an eight thirty inflationreport followed by a two thirty pm press
conference from Jerome Powell. Yesterday,in relatively calm trading, markets reach new
all time highs. Today, you'vegot some markets sharply down in the other
direction, NASDAK not very much soat all, but now all three hundred
and fifty points, nine tens ofpercent, the S and P off twenty
three points or four tens of percent, NASDAK off tenth of percent, and
(01:46):
then the Russell two thousand, thosesmall caps off over more than one percent,
as the yield on the ten yeartreasury actually falls a little bit down
to four point four to four percentthis morning ahead of that Federal Reserve meeting.
We had some big announcements from Appleyesterday on the artificial intelligence front,
so we'll be covering that later.And then just more and more surveys of
(02:07):
people having completely bad information about notonly the economy but their own personal finances.
So we'll be talking about that abit later, but let's start off
with some FED talk here ahead oftomorrow's press conference. So no real question
here as to what is going tohappen at tomorrow's meeting, and that is
(02:28):
nothing, Which isn't to say thatit's not important, right. I think
it's important to recognize that doing nothingis still a decision, and it's probably
the appropriate decision at this point.But the FED, i think, is
walking into a much murkier situation aboutthis economy today than where they were even
just a year ago, and whatto do next is a lot less clear
(02:50):
at this stage compared to those previoustimes. It's always been difficult over the
last six to twelve months to reallyfigure out what direction to go in.
I don't envy the position that theFED is in, but from a time
and perspective MIC, it seems likethe best cause here is just to,
like you said, kind of standpat. There are gonna benefit from a
relatively quiet schedule from a summer meetingperspective, where they'll meet again on the
(03:13):
thirty first of July. But thenthere's a pretty good layoff until they get
together again back in mid September,so they'll be able to digest more economic
reports as they come out. Butreally the focus here is you're getting sort
of mixed signals from the economy atthe moment. You're certainly seeing in some
areas a bit of a slowdown,so there is some perhaps rising pressure pressure
(03:38):
for the FED to consider rate cuts, But ultimately, at this point in
time, with time on their sideand no clear indication that the economy is
significantly dropping, you just kind ofhave to stand pat for the moment.
Yeah, I think, So let'stalk about what those data points are.
Let's go back and forth here,because there are obviously some that are conveying
(03:58):
a pretty hot economy stef others thatare, you know, conveying some weakness.
So let's talk about the weakness datapoints. First, A revisions to
GDP and you know the GDP nowfeature are are looking at, you know,
total economic growth figures that are substantiallybelow where they were last year and
for the last few quarters, Soyou've got an overall GDP slow down,
it appeers what else do you use? Yeah, those, dear mind,
(04:20):
just to drill down to those numbersthere. Q four of last year,
the economic growth for this country byGDP was three almost three and a half
percent. That's an annualized number,so it wasn't three and a half percent
in a quarter, but you know, three and a half percent annualize correct,
and to be fair, that issignificantly higher than what we typically average,
which is around two percent. Sothat was just a bang up number,
a really strong number. However,for Q one, the initial estimates
(04:43):
were one point six percent. Thosewere then revised downward on June fourth to
one point three percent for Q one. Now previewing Q two that is coming
in per GDP now around one pointeight percent, So certainly slowing from an
economic perspective, so that's one partof we're seeing a little bit slowing on
the GDP front. On the labormarket, you're sort of getting mixed signals
(05:05):
here. Certainly, we had thejobs report that came out last Friday where
two hundred and seventy some odd thousandjobs were added, but if you look
underneath the hood, you did haveunemployment tick up to that four percent level.
You all also have some indications outthere on the aggregate payroll growth that
has slowed a little bit. Ifyou look at those numbers, there's really
(05:25):
a huge divergence on the job supportfront MIC where the establishment survey component of
the job support, which goes throughpayroll and wages, is seeing pretty substantial
growth. But if you surveyed thehouseholds and the individuals, that is pointing
to a more anemic labor market.So that's kind of the labor market unless
you have any other kind of takeson. Now. It was a very
(05:45):
confusing report on Friday of last week, and like I mentioned yesterday, it's
the type of report that can existin a month or two, but not
long term. You had happen hereas a divergence of I think half a
million jobs between what businesses said theyhired, which was around two hundred what
was it, two sixty versus whathouseholds said they experienced, which was a
loss of a few hundred thousand jobs. So that can't you know, that
(06:10):
can diverge for a period of time, but ultimately, either the business survey
or the household survey is telling thetrue story, and I don't think anybody
knows which one is which at thisstage. If you still believe that oil
is a good barometer of you know, global demand for all sorts of manufacturing
another activity. Well, that's nota good news story for growth either,
right, You've got I like thispersonally, but you know, oil peaked
(06:30):
this year at about just shy ofeighty seven dollars a barrel back in April,
and since then it's declined by aboutten dollars a barrel. Got we
got even considerably lower than that afew weeks ago. But you know we're
sitting right now around seventy seven dollarsa barrel. So there's a number of
indicators that would say, hey,maybe we're facing a slow down, and
that slow down inflation will come.On the other hand, again, I
(06:53):
think the main part is consumer spendingstill pretty strong. It's not dry off,
let's put it that way. Itmight not be increasing at such crazy
numbers as it did previously, butcertainly not dropping off. You also have
this other half of the labor marketstory. Like we said, we're not
sure which one is correct, butif you take a look at payrolls,
(07:16):
if you take a look at againthe business side of the survey, these
companies are telling you that, hey, we're paying people more and we're still
hiring them. So there's a bitof a mixed story here, and I
think that's pretty good justification for whythe FED should hold on. But their
constant message to people is, hey, we're going to be data dependent,
(07:39):
and unfortunately for the FED, thedata that they got on Friday was just
throwing into trash garbage, you know, Like it's great to say, hey,
we're going to be data dependent,but when that data is painting a
very murky picture about the economy,it puts them in a tough position.
So three meetings for the Federal Reservebefore the no, sorry, yes,
three meetings for the Federal Reserve priorto the elle Here, we've got one
(08:01):
tomorrow July thirty first, like Paulmentioned, and then mid September. The
following one after that is the dayafter the elections. So for all those
calling the FED political and they willor won't do this, that or the
other, I mean, I've hypothesizedthat they wouldn't want to necessarily make a
move right before the election. Butit's been you know who criticized me on
(08:22):
that, Mike what's Mike's name fromCNBC that came on last week, cent
totally from CNBC. You know,honestly looked at that said, you're telling
me that people are going to votebased on what the Fed moves interest rates
by at most a quarter percentage point. I don't really think so, and
so it is a fair counterpoint,and I don't really know that they will
or won't make any moves they saytheir message. By the way, just
(08:43):
you know, this was asking methe other day, like, isn't there
some sort of historical unwritten rule aboutthe FED moot. No, there is
no unwritten rule, they say,and historically have done what they believe is
right for the economy at that particularpoint in time. If you want to
make an argument that, hey,the country's more divided and so they're less
likely to do something this time,maybe that's the case, but we certainly
(09:05):
have no evidence of it, andthey would deny that themselves. So that's
what's going to be going on tomorrowat the Federal Reserve meeting. Like Paul
said, ninety nine point four percentchance that they do nothing at that meeting.
And if we look at, youknow, meetings prior to the election,
which would be the September eighteenth meeting, it's about a coin flip as
to whether rates will be right wherethey are now or slightly lower. Let's
(09:28):
take a quick break. When wecome back, let's talk a little bit
about the industries and companies that aredealing with these higher rates, what it
might mean for them. And thensome commentary from one of those heavily impacted
by higher rates but actually a littlebit positive on it, which would be
Morgan Stanley, CEO. We'll coverthose next. On the Financial Exchange.
(09:48):
The latest news on inflation, theFED, the economy, and how the
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(10:16):
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(10:37):
book your trip today. That's visitUSVII dot com. If you've heard anybody
call this moment in time the mostforecasted recession that didn't happen, Bloomberg has
a piece out today that kind ofexplains what's going on there and why so
many people would have anticipated a recessionat this point. They go out and
they interview a number of different businessowners in terms of how they're reacting to
(10:58):
this higher interest rate environment. AndI'm sure they cherry picked the stories that
they were looking for here, butthey largely found that, Hey, you
know, a bunch of companies wereplanning on doing upgrades of one sort or
another and based on borrowing costs,weren't able to do so and have seen
a slow down in terms of theirbusiness. And you're shaking your head,
Paul, because I'm guessing you're respondingto the cherry picking type of story about
(11:22):
this. But there are real businessesthat are not moving forward with transactions or
not moving forward with expansions based onhigher interest rates. What would your counterpoint
be? No, I'm not againstthat notion. I mean that's this is
the whole intention of the FED inthe first place, is you increase interest
rates. As a result, businessesare more reticent to expand their factories,
(11:43):
to hire more employees, to spendmore because they're going to have to borrow
it at a higher rate of interest. Don't get me wrong, I understand
that that's the whole focus for thepremise of the FED. However, what
bothered me more about the piece isthis idea that you know, this Michigan
maker of cutting tools, they delayedspending this year because they thought they were
gonna be cuts. That's what's frustratingme the most is that's a cherry picking
(12:05):
notion to see everyone, in themost optimistic version in December of twenty twenty
three, anticipate that there will bethree cuts over the course of this year.
The cuts come at twenty five basispoint increments. So if you're at
five point three percent right now inthe FED funds rates are between five and
five and a quarter, three cutsto that is still going to land you
(12:26):
at four and a quarter or fourand a half, depending on where it
ends up settling if they do gothrough the three. So this notion that
you're going to delay spending if you'rebarring on some sort of variable rate vehicle
out there that is four and aquarter plus a couple percentage basis points or
a couple hundred base points on topof that. Okay, you're talking about
borring costs maybe from eight percent tosix and a half or seven on a
(12:48):
large scale deal. I'm not goingto completely bid that up. That's less,
but it's not so much less thatit should completely haul plans. We're
not talking about you weren't going togo back to five percent borring rates.
That just wasn't going to happen thisyear. And that's what frustrates me about
the piece is this idea that,oh, if we had gotten these cuts,
that would have really changing. That'sa cherry pickting aspect. Well yeah,
(13:09):
and remember too though, and whoknows where these people thought rates were
going to be, But remember thatwhile the Fed was saying, hey,
maybe there'd be three cuts this year, markets themselves. You know, if
you listen to the Fed, thenyou heard okay, yeah, rates are
going from the FED funds rate goingfrom five and a quarter to maybe four
and a half if you're lucky,If you listen to markets. It was
(13:30):
oh fed rate going from five anda quarter down to at some point,
I think it was one point sevenpercent of cuts being priced in, So
you know, going from five anda quarter down to below four percent was
what the market was telling you.In either case, the piece you remember
about this is, yes, thereare thousands, probably tens of thousands of
small businesses that are changing their plansbased on prevailing interest rates right now and
(13:56):
cutting spending, maybe cutting headcount hereand there. There are also some of
the largest employers in the country Walmart, Microsoft, Apple, that are barely
impacted by higher rates at all.In fact, they could be benefiting from
this right now. Apple in particular, I wonder if I can look this
up, so how much cash doesApple have on hand? No, these
(14:18):
big behemoth companies, to further yourpoint, Mike, they're not as subject
to interest rate pressure. It's thesmall businesses that are going to be impacted
much more significantly by this. Buthey, you can't have it both ways.
Right As of March twenty twenty four, Apple was sitting on sixty seven
billion dollars. Now I don't knowthat they're earning five percent interest rate on
(14:39):
that interest on that across the board, but they're sitting on sixty seven billion
dollars. They to my knowledge,have not needed to borrow any new money.
They took out a bunch of loansback in twenty twenty twenty one refinance.
They're dead at these fixed rates becauseagain, a company like Apple doesn't
need to go to a bank,right they just float a bond. It's
oversubscribed. They locked rates for adecade and so like. As is the
(15:03):
same with American households. There aresome households that are really struggling with higher
rates. There are some businesses arethat are as well. There are other
businesses, and the other businesses happento be some of the largest ones in
the country that do not have muchof an issue with this. And I
think Morgan Stanley talking about this isan interesting example here where you know,
(15:24):
they have attempted to set up theirbusiness in a way that they are not
terribly worried about higher interest rates,which you know ultimately can cause a recession.
But the CEO's point is quoted assaying, you know, we know
we don't do unsecured credit in emergingmarkets, one of the typical areas that
has blown up historically when high USinterest rates hit credit cards through a loan
(15:46):
cycle. You know again what weare exposed to during these points in time,
Morgan Stanley saying, hey, youknow, we're not hurting too much
with this higher interest rate environment.They've really shifted their business to be much
more focused on acquiring executive stock companyplans from different public companies out there,
as well as generating revenue from investmentbanking and the advisory side. Those kind
(16:10):
of make up their income streams.So while they're immune on the interest rate
side of things, certainly they're subjectto the market which has done really well
this year but not discussed here.If the advisors be SMP five hundred and
fall by twenty percent, you havea large wealth management business that's not going
to do. So. You know, every business out there has its risks,
certainly in the financial industry, andthey're right, they're less subject to
(16:33):
sort of the interest rate side ofthings, but that doesn't mean that there's
a pressure elsewhere. Investment banking toothat can dry up really quickly. We
saw that over the course of twentytwenty three in terms of limited deal activity.
There. The one other piece thatI wanted to spin back to on
just household debt and the country ingeneral. Is I hate when news pieces
out there might use a dollar figureto say, this is the highest household
(16:56):
debt that we've reached as a country, seventeen point seventy billion. It's so
it just drives me insane because explainwhy so again they're pointing out that,
hey, US household debt all timehigh, sitting at seventeen what do you
say, trillion dollars pro seventeen pointseven trillion dollars of household debt is twenty
twenty four, that's an all timehigh. It just drives me insane because
(17:18):
we all know about inflation in thiscountry that you got a pretty good lesson
on that. It was just youknow, this house in Needham is the
highest value that we've ever seen inhistory. Yeah, because fifty years ago
it wasn't worth as much because thedollar and the inflation level wasn't the same.
It's just that dollar figure piece.You have to use percentages when you're
doing these comparisons. And if youlook at household debt relative to GDP that
(17:41):
this country generates, we are nowherenear the levels of two thousand and eight,
which was close to one hundred percent. We sit at seventy five percent
household debt relative to what this countryproduces from a GDP's perspective. So that's
what drives me insane, is justa you repeat that figure for so INN
seven eight, when we were inthe middle of the what turned into a
(18:03):
mortgage crisis, household debt to GDPwas sitting at around one hundred percent ninety
eight point seven percent in Q oneof two thousand and eight, and we
have not been anywhere since. Iswhat that chart seems to indicate to men,
really downwards. So we're at seventyfour percent right now, hovering between
seventy four and seventy five. Andhistorically you look back, you know,
(18:23):
grand in the fifties and sixties,it was much lower than that. But
we're in a different barring cycle andGDP has changed significantly as well. But
really over the course of the lasttwenty five years, I will say it's
between seventy and seventy five, butreally peaking in around that two thousand and
eight to twenty ten range when theeconomy reversed. So that's why it drives
me crazy when you say seventeen pointseven trillion of household debt. Yeah,
(18:45):
things are more expensive than those dollarnumbers are bigger now, Yeah, Yeah,
that's a very very important context.We've been highlighting credit card debt reaching
all time highs, for example,and it's another good example of it.
Again, not a good thing.I do not applaud this number, but
when you look at the total outstandingcredit card debt, it's basically exactly where
it was in twenty nineteen plus twentypercent study default rate's study percentages. That's
(19:10):
the better thing to focus on,where you look at historical Otherwise the stuff
can scare the living helm right right, just unfathom move, unfathomable. I
can't say that word levels of debtwhen you express it in dollars, but
when you express it in percentage ofGDP or percentage of historical numbers, you
start to question it a bit.Let's take a quick break. When we
come back full market update on WallStreet Watch. Like us on Facebook and
(19:45):
follow us on Twitter at TFE show. Breaking business news is always first right
here on the Financial Exchange Radio Network. Time now for Wall Street Watch a
complete look at what's moving market sofar? Aren't today right here on the
Financial Exchange Radio network. All Right. Markets are currently down kind of across
(20:07):
the board here. The Dow isdown two hundred and fifty points, but
that's heading in the right direction.It started the day off down three hundred
points. The S and P fivehundred is down just under seventeen points,
and Nasdaq is down twelve points currently. Eli Lilly shares are flat after a
panel of FDA advisors recommended the approvalof its alzheimer drug known as doneum PAB.
(20:33):
General Motors stock is up one pointthree percent after its board authorized a
six billion dollars stock buyback program.E Commerce company Shopify is up a one
and a quarter percent after JP Morganinitiated coverage with an overweight rating and a
client note. The investment firm saidthe recent pullback in Shopify stock whatever not
going to go continue there. Appleshares are up four percent a day after
(20:57):
the iPhone Makers Worldwide Developers Conference,where it revealed its artificial intelligent plans called
Apple Intelligent. The company also saidSiri will harness open Aiyes, Chat GPT,
Mike and Paul, We'll get moreinto that story next. Game Stop
shares are up two percent, continuingits volatile Ride. The video game retailer
(21:18):
fell about twelve percent yesterday, continuinga decline from Friday, spurred by a
surprise earnings report and Memes stock leaderKeith Gill's first live stream in a few
years. That is Wall Street Watch, Eye, am Ben Kitchen. Apple
stock up about four percent in earlytrading today. Yesterday, at their Worldwide
Developers Conference to close things out,they had a pretty big announcement when it
(21:42):
comes to artificial intelligence and finally answeringsome of the questions that investors and I
think some but not all, havebeen pressuring Apple on, which is what
are you going to do with AI? And the answer seems to be,
for now, we're going to usechat GPT in a bunch of stuff that
we do. So what was theactual announcement here? From a well,
I was going to ask you,what is the big announce what's the big
(22:03):
announcement? No, the big announcementis that you can now use chat GPT
on your iPhone to write your kida bedtime story used No, Mike,
you can do yeah exactly. Youcan do custom emojis and image generation on
IOSA teen. There is this storyback when blockchain was really popular and all
of the crypto sort of a phenomenonwhere there was this company, Long Island
(22:26):
Ice Tea that converted themselves into LongIsland blockchain and all of a sudden the
shocks. The stock shot up byan absorbitant amount of percentages in a given
period of time. And I'm notsaying Apple is anywhere near and that we
know they're behemoth, but this ideajust in general, Mike, if you
say you're doing something with AI nowimmediately here we have Apple up four percent
(22:48):
today and I read a new alltime high by the way I read all
this news. And I'm not sayingthere's anything against Apple as its core business
in terms of what it does,but what this rumored, you know AI
improvements are going to have, Howdoes that make make Apple more money?
Because iOS eighteen is going to allowme to do custom emojis and you know,
mess around with photos on my phone. I just don't understand that and
(23:08):
provide a better serie voice assistant,which has been atrocious in my opinion to
start with. My dad uses itfor text message. It drives me absolutely
and same when you're sitting in aroom with him and her. My wife
gets those texts from her father,and they are just you can't read him.
They are completely you have no ideawhat he's saying. But he asked
(23:30):
music because he can't really see hisphone screen very well and he hasn't figured
out how to increase the text size. What's doing? Option? What do
you think of this game? Period? Like? Just to hear him read
it off drives me crazy. Somaybe Siri is long due for these type
of updates. But bottom line,Mike, unless I'm missing something other than
just saying that they're partnering with openAi, which I guess is somewhat noteworthy
(23:52):
and exciting, these none of thesechanges to me seem like more money in
Apple's pocket right away. Well no, in fact, I think if there's
a really compelling argument that it willdetract from money in their pocket because who
knows exactly what the deal is withchat GPT, But what they've set up
here is not the same thing thatyou would do by you know, let's
say you go onto a web browserright now and access chat GPT, which
(24:17):
anybody can do right now. Oneof their versions is free. They also
have paid versions of chat GPT.That is not what Apple is doing because
quite honestly, that would be nothingthat would be nothing new from what you
can do on your iPhone to day. Instead, their plan is to integrate
that messaging directly, natively on yourphone. And what they are saying from
(24:40):
a privacy perspective here is that whilethis iteration of artificial intelligence will learn a
lot about you and will start,you know, guessing what you're going to
text and email and search and beable to basically move things faster along for
you, that same information that thelocal artificial intelligence learns about you will not
(25:04):
go back to GPT, will notgo back to open AI, will not
go even back to Apple to teachwell that actually hasn't been clarified, will
not go back to open AI andchat GPT to allow that artificial intelligence to
learn more about you and use yourtexting, your writing as a learning source
for the artificial intelligence. And forsome that's a big privacy concern. It's
(25:27):
okay, you know, what exactlyis this open AI? What is this
artificial intelligence utilizing my data for?And that's Apple's argument is, hey,
we you know, they've really builttheir brand at least over the last three
to five years on that privacy piece, right, Remember when they change their
Apple logo to the to the lock. At one point, they've really focused
(25:47):
on that, and that's their argumenthere, is Hey, unlike utilizing chat
GPT on a web browser, unlikeI'm guessing using Google's artificial intelligence on their
phones, We're going to keep thislocal and native to you and not allow
it to go back into the entireuniverse. To your point, though,
(26:07):
that ain't gonna be free, rightIf you're open AI, you're gonna need
to get paid for that because youget, from what I can tell,
no other benefit other than reputation.Sure, right, Like, yes,
my my software is being utilized onevery Apple phone that gets sold in the
future. That people just helps reputation. But those queries are not free.
(26:30):
That computing power is very expensive,and Apple is going to be paying for
it. We have no idea whatthey'll pay for it and whether or not
they'll ever have to charge Apple usersfor this service. That would be my
guess is if you're, you know, five years from now, if you're
going to continue to roll this outand have it widely available to all Apple
users, it ain't gonna be free, would be my guest. Yeah.
First, the first stop is massadoption, you know, getting everyone comfortable
(26:52):
with the technology and making it soembedded that you can't live without it.
Yep, but there is all sortsof data concerns that arise when you're dealing
with is behemoth tech companies and allthe money that's at stake out here is
to be clear, it seems likeApple is going to keep it separate.
But I feel like all of uscollectively kind of raise an eyebrower, roll
our eyes when you hear some ofthat INFI I would believe that the data
(27:15):
collected is not going to go backto open AI. I am quite confident
that well, Apple will learn awhole lot about artificial intelligence from the usage
of this type of software, andI will learn a lot more about you.
And you know what they do withthat information right certainly up you know,
send you upgrades on new products.Hey, maybe you should be utilizing
our music service, this, thator the other. But they can do
(27:37):
that. Now. The question tome would be, does artificial intelligence allow
them to learn enough about you thatthey can, you know, suck up
some of the revenue from Facebook andGoogle? Right, Like, how much
do those companies make in advertising dollarsand how much would companies pay for access
to know, Heyane is most definitelygoing to buy a grill in the next
(28:03):
six months, so flood him withads based on you know what we Apple
know about him. So that's ofinterest to me. Separately, Elon Musk
probably sour grapes rather than genuine concern, but saying that should open Ai get
fully integrated into the operating system ofApple, then he would ban all Apple
(28:25):
devices from his companies. So thatdoes not mean you wouldn't be able to
use X on an Apple device Twitter. It does mean that if you were
employed by Twitter, or by Teslaor by SpaceX, you would not be
able to have an Apple device,probably in the work environment or as a
(28:45):
as a work phone, which Appleyou know wouldn't care about because that's very
few of their total sales. Butalso my other argument is if Apple goes
and does this and you say,okay, no more Apple device is let's
go get some Googles instead. Guesswhat they're probably going to be doing it
too, right, Like, thereare what are you going to do?
(29:07):
Say? Hey, you know,going forward, if you work for Tesla,
you must use a Huawei device.I don't think so, I don't
think that's going to be the netresult. So Elon Musk was early on
part of the open ai team.They had a falling out. He's been
pretty public about his you know,complaints and concerns about open ai. Whether
(29:29):
or not they are genuine concerns aboutartificial intelligence. I have my doubts.
I think it's likely some sour grapesthat hey, this has been a really
successful product and I walked out onit, or it was forced out,
or you know, we don't exactlyknow, but it seems a lot like
sour grapes given that he is developinghis own artificial intelligence alongside all this.
That's all you need to say isthat he co founded open ai. There
was a falling out. They haddisagreement over the direction of the company.
(29:52):
Because, believe it or not,it was founded initially as a nonprofit.
It is built out, it's stillup serious as nonprofit. However, it
has a subsidiary arm that is,you know, generated for profit. And
here you sit today with Elon Muskhaving its own his own AI startup out
there. Like you mentioned, there'sa lot at stake for him, so
obviously he's going to do everything inhis power to use his public platform to
(30:15):
admonish, you know, open AIany way, shape or form that he
can. Let's take a quick breakwhen we come back, a couple of
financial news stories, one all aboutthis large cap stock rally and two about
confusion around four oh one k's.We'll be right back with that after this
miss any of the show. TheFinancial Exchange Show podcast is available on Apple,
(30:37):
Spotify, and iHeartRadio. Hit thesubscribe button and leave us a five
star review. This is the FinancialExchange Radio Network. This is your home
for the most comprehensive coverage of theeconomy and the trends on Wall Street.
This is the Financial Exchange Radio Network. I hate to say that we as
(31:03):
society are getting dumber, and Idon't think we are. I genuinely push
back on those stories, but wecertainly are getting further and further away from
facts. So I'm going to talkabout a few of these that are just
absolutely confounding to me. There's apiece out from is this barons? Who
put this together? Barons? Ithink today that according to principal who did
(31:26):
a survey, they looked at specificallypeople who are not contributing to a four
oh one K plan and they askedthem a bunch of questions, and a
surprising fact came out. Of thosepeople that were not contributing anything to their
four oh one K plan, fiftynine percent of them thought that they were
contributing to that plan. According toa Harris poll a few weeks ago,
(31:48):
fifty five percent of Americans think thatright now we are in a recession.
We are provably not. Forty ninepercent of Americans, again this is a
few weeks ago, thought that thestock market was down year over year.
In fact, it's near all timehighs. Yesterday it hit an all time
high. So again, and fortynine percent of people thought that unemployment is
(32:09):
at a fifty year high. Unemploymentis near a fifty year low. So
again, I'm not saying we're gettingdumber, but we certainly are paying a
lot less attention to facts. Andnone of these are harmless, but some
are more harmful than others. Mostharmful would be you're not contributing to your
(32:29):
own retirement and think that you are, like, am I the only person
that opens up a past up everyonce in a while and tries to figure
out where all my money's going?Just crazy? Right like this? This
is what everybody complains about why arewe not opening our paychecks anymore? Like
why do I have to pay Massachusettsall of this money? Oh that's why?
Okay, Oh, and then theregoes my four oh one K.
At least I can feel somewhat goodabout that piece. But man, it's
(32:52):
nearly sixty percent of people who arenot contributing anything think that they are and
clearly haven't opened up a paycheck tore through and understand what those different line
items are. Just insane. Imean. They mentioned one example where the
prior employers had the same retirement custodianplan, so they were at principal.
At another job, they went toa new company that also used principle,
(33:15):
so they had that existing balance outthere. So some people were under the
impression, hey, I have aprincipal account. It just keeps going.
Obviously, every single time you geta new job, you got to proactively
enroll in the four one K plan. It seems like the auto enrollment piece
is becoming more and more prevalent.YEA. They claim that for larger companies
that principal eighty percent of them areat that automatic enrollment. Only twenty nine
(33:37):
percent of their total clients though,of all sizes for principal use that automatic
enrollment feature, but it's so criticalto get in and get started early.
The other thing that frustrated me isthis notion that some people in this survey
noted that it was a bad timeto start contributing to a retirement. If
you have a thirty plus year worktime horizon, it's never a bad time.
(34:00):
Us you're gonna die tomorrow, it'sprobably a good time to start saving
for your retirement. Economic conditions aside, political conditions aside. Historically, if
you look at the market and investingover time, there's never a bad time
to do if you have a longtime horizon ahead of you, which many
people should have. If you're you'reworking so on a self assessment time and
(34:21):
I get this stuff like we're busy, everybody's busy. You might be working
two jobs, you might have threekids at home, and looking at this
stuff takes time. And so ifyou're going through that self assessment, and
you might be finding yourself in thiscategory, like ask yourself, do I
know how much of my paycheck goesto my retirement savings? Do I know
if I have life insurance through work? If you don't have time or don't
(34:45):
know the answers to those questions,Hey, go educate yourself and find out.
But b if you honestly self assessment, say I'm just not going to
dedicate the time to look at thisstuff and review it regularly, you're probably
a great candidate to talk to somebodywho will do that for you, a
financial advisor of some sort that's goingto keep you on a path so that
(35:07):
you're not surprised two years later sayingWow, I thought money was going to
my four h one K. Turnsout it's not, and I need to
do something about that now and playcatch up. If you're finding yourself in
those situations, and I don't knowthat a financial advisor is right for everyone,
right, there's a large portion ofpeople who do keep track of this
stuff, who spend the time dedicatingto it, and you might not need
(35:28):
that professional guidance. But if you'rehonestly self assessing and finding yourself in that
other category of I just don't havethe time, the knowledge, the expertise
to go invest in this, Ithink that genuinely that's a good opportunity to
speak with somebody who will do itand will keep your feet to the fire
on these things. And if you'dlike to talk to somebody at the Armstrong
Advisory Group, the phone number iseight hundred three nine three four zero zero
(35:51):
one. We have offices throughout NewEngland, from Portland, Maine down to
near the Hertford area of Connecticut,and we'll meet with you in person,
over the phone via zoom whatever's mostconvenient to assess your personal financial situation and
keep you on track. Once again, that phone number is eight hundred three
nine three four zero zero one,or you can book a callback at Armstrong
Advisory dot com. The proceeding waspaid for by Armstrong Advisory Group, a
(36:15):
registered investment advisor. Nothing in thead or in any Armstrong guide a specific
financial, legal, or tax advice. Consult your own financial, tax into
state planning advisors before making any investmentdecisions. Armstrong may contact you to offer
investment advisory services. The Baltimore keyshipping channel has now fully reopened after the
Francis Scott key bridge collapse. Thiswas such a disaster, so Chubb was
(36:38):
one of the insurers on this,and typically when you have a big claim
like this, an insurer we'll stepin. They'll go assess it. They'll
go, you know, try andfigure it out and see exactly what the
damage is going to be. Theymight end up suing the city in court.
They might you know, try andhold up the payments. In this
case. Chub the insurer of this, I don't remember what the limits were,
(37:00):
but they just said this is soclearly going to hit the maximum coverage
amount that there's no sense in usdelaying this or trying to figure out a
way to get out of paying.We're just going to pay the City of
Baltimore the entire amount od on thisinsurance policy immediately because it was such a
disaster. But traffic is again flowingthrough the channel fully reopened after the bridge
(37:22):
collapse. Going to be years,of course, before that thing gets reconstructed,
and there's probably hundreds of small businessesaround the bridge that are well going
to go out of business because theywon't have the customer traffic that they normally
would here. And the engineering featto get this thing not even fixed,
(37:43):
but just like to demolish this thingand get it out of the water and
refloat the boat was really fascinating toread about because there's really no playbook for
this sort of fifty thousand tons ofbridge wreckage from the Patsco River. Just
incredible that they were able to doit this officially. I mean, that's
just a tremendousness. I just getreally impressed by this stuff because you know,
(38:07):
in my line of work, there'sthere's nothing quite like that to end,
you know, to listen to somebodywill be like, oh, yeah,
if we snap this wire, thenthese three things are going to happen.
And yeah, just I get veryimpressed by engineering because it might as
well be magic to me. QuickBreak will be right back with a lot
more here on the Financial Exchange
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