June 14, 2024 • 38 mins
Chuck Zodda and Mike Armstrong react to the University of Michigan consumer sentiment survey that came in much lower than expected. Why the stock market has risen even with no rate cuts. Elon Musk's pay victory removes cloud at Tesla, but fresh legal fight looms. Don't just set it and forget it when it comes to your money goals.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
The Financial Exchange is produced by MoneyMatters Radio and is hosted by employees of
the Armstrong Advisory Group, a registeredinvestment advisor that provides investment advisory services.
All opinions expressed are solely those ofthe hosts, do not reflect the opinions
of Armstrong Advisory or anyone else,and do not guarantee profit. Investments can
lose money. This program does notoffer any specific financial or investment advice.
(00:20):
Please consult your own financial, tax, and estate planning advisors before making any
investment decisions. Armstrong and Money MattersRadio do not compensate each other for referrals
and are not affiliated. This isThe Financial Exchange, with Chuck Zada and
Mike Armstrong, your exclusive look atbusiness and financial news affecting your day,
(00:41):
your city, your world. Stayinformed and up to date about economic and
market trends plus breaking business news everyday. The Financial Exchange is a proud
partner of the Disabled American Veterans Departmentof Massachusetts. Help us support our great
American heroes by visiting DAV five Kdot Boston and making a donation today.
The DAV five K Boston is presentedby Veterans Development Corporation. This is the
(01:07):
Financial Exchange with Chuck Zada and MikeArmstrong. Chuck, Mike and Tucker with
you here on a Friday. Alittle bit more economic data coming out.
At ten am this morning, wereceived the University of Michigan consumer sentiment data.
Included in there is also some inflationexpectations data, and the consumer sentiment
(01:29):
data came in worse than anticipated,declining from sixty nine point one to sixty
five point six. The inflation expectationsdata for the next year coming in at
three point three percent, same asit was the uh prior reading, and
infulation expectations for the next five yearsthe survey coming in with a reading of
three point one percent, up fromthree Mike, does any of this matter?
(01:57):
The right answers No, I hearyeah. I'm trying to find a
reason why it might. I meanexpectations for this, by the way,
for the day were for the datato improve month over months, So expectations.
I think we're coming in at seventytwo on the sentiment survey and you
got a sixty five point six.I hate to say nothing something doesn't matter
at all, But to your point, this data has not been indicative of
(02:23):
anything for the last couple of years, and so to say that it suddenly
is going to matter now when it'smeant nothing over the last few years in
terms of properly guiding towards inflation orproperly guiding towards recession is really tough for
me to make some sort of justificationthere. And I want to talk about
the inflation piece in particular because oneof the key components of inflation models that
(02:45):
economists use is inflation expectations. Yep. And so if you have five years
I'm sorry, next to your inflationexpectations at three point three percent, I
know, people say, Allgie,well that's higher than the FEDS target of
two percent, Like this is thisis bad, Mike. Since nineteen eighty
three, when inflation was effectively vanquished, so forty one years vanquished. Nice,
(03:07):
yeah, vanquished beyond inflation Yeah yeah. What do you think inflation expectations
have run for the next year onthis University of Michigan survey since eighty three
between three and four percent? Threepoint one two. Yeah, we're three
to three now now. During theyou know, twenty twenty two period,
(03:30):
inflation expectations were running north of fivepercent, So you say, okay,
like this is you know, problematic, but inflation expectations we're in the you
know three two to three three rangebasically the whole post financial crisis period,
and you didn't see any meaningful,you know, jumping inflation. So it's
it's you don't need to get inflationexpectations down to two percent because they're basically
(03:51):
never there. Do you want toknow when the last time is that inflation
expectations were two percent or below?Oh eight, February two thousand and nine.
That's the last time inflation expectations inthis survey were under two percent.
Any other guesses is to other timesthat they've been under there in the last
forty years eighty seven, eighty eight, eighty seven, they did not get
(04:15):
there. There's only two other timesthat they've been there two oh one September
eleventh, Yeah, and two thousandand three after the tech bubble finally finished
bursting. Those are the only timesin the last forty years that inflation expectations
have been back down to two percentor below. Okay, So it's not
really something that happens. So likepeople be like, oh, like it's
(04:36):
still at three to three inflation expectationshang out right around three percent. It's
where people generally expected. It's actuallya sign that you're pretty well anchored if
you're in kind of that two eightto three four range is kind of where
they've spent most of their time.Outside of a few key periods. They
were higher in the early nineteen ninetiesafter the outbreak of the First Gulf War.
(04:59):
They were or higher in the firstpart of two thousand and eight.
Remember when oil prices went to onehundred and fifty a barrel and gas prices
were north of four to fifty agallon back in two thousand and eight before
the bottom fell out of everything.Yeah, I seem to recall that.
Other than that, you basically justhang out two eight to three four.
That's where you live. I'm willingto say that I don't think this matters
much for if in future recession orinflation, if inflation expectations went up to
(05:26):
like three seven or three eight tobe, oh hey there's something here.
They're hanging out at three to three. That doesn't mean that inflation is going
to be three to three. Yeah. I would be interested in overlaying this
on election results when there's an incumbentrunning. I think that might be an
interesting type of thing. I haven'tdone that the reading, so I don't
(05:47):
know if there's anything there but thehigh on this reading. You know,
if I take a look at alltime highs the Michigan sentiment, actually,
I've only got this data going backto the eighties, I don't think there's
any there there when it comes towhat you're looking and four mic now,
well like just eyeballing it. Sure, the highest readings that we ever had
on this were in two thousand yep. Al Gore basically running as an extension
(06:10):
of the Clinton government lost. Yeah, am I wrong? Yeah? I
believe he lost that race. Hedid, but not exactly an incumbent,
not exactly. But again it's basically, hey, if you liked what ID
is vice president for the last eightyears, do this. I hear you.
(06:30):
Uh, two thousand and four.Heading into that election, you were
in the nineties, which the averageon this series is like right around eighty
five. So okay, Bush winstwo thousand and eight. We know was
a landslide towards Obama. The sentimentthere was some of the worst ever because
the economy was one of the worstever. At that point because literally the
like the banks were closing. Yep, it was. It was very quite
(06:54):
bad twenty twelve. The last readingthat we had was in the mid seventies.
Obama wins a reelection twenty sixteen.You've got no incumbents knowing with any
relation. It was in the ninetiesPresident Trump wins twenty twenty. In November,
(07:15):
the reading was seventy six incumbent loses. I beIN it. Yeah,
it doesn't say it insistence. Idon't know if there's any there there when
it comes to this, it's justwhen you look at the correlations that you
have with consumer sentiment, they tendto be three things. How are gas
prices, what's the stock market doing, what's unemployment doing? Those are the
(07:40):
three things that are the closest proxiesto it and that feed into it and
have the highest correlations. So rightnow, stock markets at almost all time
highs. Unemployment's building a little bit, so maybe you got that. And
gas prices are basically in the samespot they were last year, probably a
little higher than people would like tosee. You'd probably like to see a
little to three a gallon, butthey are what they are. But I
(08:03):
think the point would be that underthose three measures, historically this reading would
have been better. What is bringingit down is inflation? No, I
think so it's it's stock priced atall time high, inflation at near fifty
you know, still close to fiftyyear lows, and inflation sorry, unemployment
at near fifty year lows, andgas prices I mean, I guess near
(08:26):
five year lows. So yeah,it's it's an interesting read. But to
your point, I'm not. Idon't think it necessarily tells you anything about
election. I definitely don't think ittells you anything about where inflation is going.
Maybe it gives you some sense ofwhere consumers are on spending and things
like that over the next year,but even that I have to I have
(08:46):
to doubt, because again, thesenumbers were so thrown off by inflation over
the last few years that I'm notsure how useful it is. Yeah,
And on the gas price piece,So the way that I try to look
at this is inflation just so youcan see like how gas prices have evolved
over time and gas prices historically,like you basically have gas prices slightly higher
(09:09):
than their historical average right now ininflation adjusted terms. If you're look at
for the times when gas was reallyexpensive two thousand and eight, yep,
twenty eleven through twenty fourteen, thesummer of twenty two, I remember,
that's when gas got to you know, five a gallon. Those are kind
of in the last thirty years,the times when you could point to gas
(09:31):
being really expensive. Times it wasreally cheap, basically the whole nineties through
two thousand and four, twenty fifteenthrough twenty seventeen, and most of twenty
twenty and early twenty twenty twenty.Yeah, spring of twenty twenty, where
you could fill your pool up withgas and get paid for it. You
wouldn't really be able to do anythingwith the pool because it's not really a
(09:54):
great thing to jump into to cooloff after you've been running or working in
the yard. Oh got it,and your yard smells pretty bad, then
I bet it keeps the bugs away. Yeah, definitely would keep the bugs
away. Probably keep the bugs away. It would probably have a bit of
an issue with you too. Yeah, probably clogs up your filter in the
pool. Yeah, I would thinkso, you know, I would think,
so, don't run the heater.Let's take a quick break when we
(10:18):
come back we'll talk about why thestock market has risen with even with no
FED rate cuts. The Financial Exchangeis now available on your Alexis smart speaker
has to play the Financial Exchange andcatch up on anything you might have missed.
This is the Financial Exchange Radio Network, breaking business and financial news first
(10:39):
throughout the day, only here onthe Financial Exchange Radio Network. All right,
so there's a piece of the NewYork Times. It's titled why the
stock market has risen and even withno rate cuts? To be clear about
(11:05):
why this is a relevant question.Markets were anticipating six seven rate cuts when
you went into twenty twenty four,and that expectation has now been moved to
about two. So it is arelevant question as to you know, hey,
expectations were for big rate cuts.They haven't come this year. Markets
have reached new all time highs.That's why the questions being asked, Chuck,
(11:28):
The reason why the market has risenis because companies have gotten more expensive.
The forward pe ratio and the Sand P five hundred has gone up.
It is such a Mark Fandetty answerto this question. Well, no,
it's not that companies are making boatloadsmore money now like the stock market.
(11:48):
They're making a little bit more money. The stock market this year if
we look at the S and Pfive hundred is up sixteen hang on,
sorry, thirteen point four to fourpercent. So I think the m more
relevant question is why has sentiments improvedat the same time that interest rates have
stayed higher for longer? Because that'swhat's happened here, right, It's not
(12:09):
that companies have gotten significantly more profitable. It's that people have become more willing
to pay higher prices for stocks.They're not expecting anything bad to happen.
That's that's why. Sure, ifyou look at the stock market the way
that you actually have to look atit, it should be required actually by
law that you look at it thisway. It's it's a series of probabilities.
(12:33):
It's basically, hey, here's howmuch companies can make if things go
well, and here's how much theymake if things go badly. What probability
do I assign to those two events. Now, obviously there's more than two
events, but this is really whatmarkets are telling you. So in a
normal time, where you know thingsare going well, stocks typically trade the
S and P five hundred as awhole typically trades like eighteen to nineteen times
(12:56):
forward earnings. That's where it typicallysits when when things are going badly,
when you get into recession, usuallygo down to like thirteen to fifteen times
forward earnings, and when things area little bit you know, hot,
you trade like twenty to twenty twotimes, which is the range that we're
in right now in terms of forwardearning. So what markets are telling you
right now is, hey, wedon't think anything bad is gonna happen.
(13:18):
We feel really not like you andme, but markets are saying, hey,
us, the market feels good aboutwhere stocks are and we don't think
anything bad is going to happen there. And if something bad does happen,
we think it'll be addressed in shortorder. And by the way, the
piece on the rate cuts that youhave to keep in mind, right,
for markets to say at the endof last year that we were going to
(13:39):
get six rate cuts, that wasalso pricing in a slight probability of a
bad economy. Right, if you'retalking about six rate cuts, it's not
purely because or not. Again,we're assigning probabilities to all sorts of things.
There was a probable scenario there wheresome of these rate cuts were coming
because unemploymently was jumping to four anda half all of a sudden, and
(14:01):
the economy wasn't looking so good.And so you have wiped at least for
the first half of the year thatscenario off the table, and so that
you know, feeds into these factorsabout what the economy is doing too.
Well. Let's let's talk about ratecuts, and let's have like some real
talk about rate cuts. The lastthree times that the federal actually last four
(14:22):
times the Federal Reserve has gone throughand cut interest rates by more than one
percent in a series of cuts oryeah, okay, yeah, nineteen ninety
US recession stocks do very badly.Two thousand and two US recession, I'm
sorry, two thousand and one USrecession. Yeah, stocks do very badly.
(14:43):
Two thousand and eight US recession stocksdo very badly. Twenty twenty US
recession stocks do very badly for threeweeks, and then we pump so much
money into the system that it gets, you know, overwhelmed. Rate cuts
very rarely are Hey, we're justgoing to do one cut and then we're
in the right spot now. NineteenNope, twenty nineteen, No, when
(15:11):
did we did the rate cuts byPowell at the right before COVID twenty eighteen,
and they would have continued if notfor like again, they you were
going to have a recession then anyways, probably like we went through that whole
thing where everyone's like, oh,they're going to keep hiking through nineteen and
I was like, no, they'renot going to hike it all in nineteen
and they couldn't. The last timethat you had the Fed conducting any kind
(15:33):
of policy where they were going throughcuts and the US did not go into
recession was nineteen ninety eight. It'skind of the outlier in all this.
Yes, otherwise you start getting ratecuts, you usually don't stop with a
couple. It's usually because the economysucks. It's usually because the economy goes
to hell in a hand basket andwith it the stock market ends up getting
(15:54):
whacked. So if you want likethe danger scenario for or still like like,
I don't usually try to spook people, right, Like, I'm not
usually the spooker. Chuck jumps behind, jumps out from behind walls and doors
all the time, just trying toI got my jazz hands going and every
(16:14):
Yeah, here's the thing, ifyou actually want to be scared, and
I'm not saying that you should be, then a real meaningful US recession,
if it were to occur, shouldscary if you're an equity holder at this
point. And here's why. Rightnow, the US stock market, the
S and P five hundred is trading, according to fact set, at twenty
point nine times forward earnings. Whatdoes that mean, I'm sorry, twenty
(16:37):
point seven? What does that mean? If the S and P is making
Let's say that the S and Pcompanies on a weighted average are making one
hundred dollars a year over the nexttwelve months, the SNP is trading at
two thousand and seventy. It's it'ssteep, Okay. The other thing that
you got to remember, the Sand P five hundred right now is projected
to see eleven percent earnings growth thisyear and around nine to eleven next year.
(17:02):
It's almost twenty percent total. Here'swhat. Here's what happens in a
recession. Earning stop growing. Infact, usually they go down a little
bit, anywhere from ten to fifteenpercent. So now immediately you go from
being trading twenty times forward earnings.Now you're looking like you're trading like twenty
(17:22):
three, twenty four times forward earnings. Remember, in a recession usually go
from being you know where you arenow to somewhere between thirteen and fifteen times
forward earnings. Your downside potential ifa conventional recession and subsequent normal you know
move in stocks happens on that you'retalking to like a forty percent dip inequities
at that point. And I'm notsaying that this will happen because remember I'm
(17:48):
very skeptical that you have any kindof meaningful recession. Still, I'm not
there with with where we are.But if you like, if you want
something to be a afraid of,it's the fact that rate cuts usually happen
when you're heading into recession. Andif a conventional recession happens and stocks behave
as they historically have, that's thekind of downside that you have potential potentially
(18:14):
out there, given valuations where theyare right now. Thanks Boogeyman. So
now that I've completed that, again, most of the time I sit here
and I'm like, hey, guys, like, stop being scared of stuff,
because usually the bad stuff it's justpeople talk about it in order to
make themselves sound smart, because yousound really smart when you talk about,
oh, here's the bad thing thatcould happen. The thing that usually makes
(18:36):
you money and stock in the stockmarket is believing that good things will happen.
Because for one hundred and fifty yearsthe stock market, that's kind of
what it's happened. And even whenthe bad things do happen, there's short
term disruptions. This is also thepoint where I go through my speech,
I'm like, hey, if youlooked at like the twentieth century and looked
at like World War One, WorldWar II, the Korean War, JFK
being assassinated, Vietnam, Reagan almostbeing assassinated, almost impeachment, another almost
(19:00):
impeachment, golf wour one, andyou go through all this stuff and you're
like, oh, like, whata horrible like one hundred years stocks must
have been. No, they weregreat. They were they were great.
Other things were pretty bad. Butit doesn't markers. It doesn't mean that
they'll be great in the next hundredyears. But bad stuff happens and companies
figure out how to make money.They are greedy, They've always been greedy.
(19:22):
I'm not saying greedy is good orbad I'm just saying that it is.
I don't know. That's where Iam. Quick break here when we
come back. We got Wall StreetWatch. Like us on Facebook and follow
(19:45):
us on Twitter at TFV show.Breaking business news is always first right here
on the Financial Exchange Radio Network.Time now for Wall Street Watch a complete
look and what's moving markets so farinto today right here on the Financial Exchange
Radio Network. Well, with thisinflation and fed filled week coming to a
(20:08):
close, markets today are pulling backa little bit right now. The Dow
is down by over three quarters ofa percent, or three hundred and two
points. S and P five hundredis down about a half a percent or
twenty four points, and the Nasdaqis off by only nineteen points. Russell
two thousand selling off by one inthree quarters of a percent, ten year
treasureeled down by three basis points nowat four point two zero percent, and
(20:33):
crude oil mostly flat tipping into negativeterritory trading at seventy eight dollars in fifty
two cents a barrel. Shares inAdobe surging by fourteen percent after the software
company posted stronger than expected earnings andrevenue for the first quarter and also hiked
its full year sales outlook. Thecompany said interest in AI was attracting new
customers, and with the news,JP Morgan upgraded shares to overweight from neutral,
(20:59):
saying a Zobe is poised for smoothersailing ahead following its strong quarter.
Meanwhile, Tesla shares are down byabout two percent after Elon musk pay packages
and plan to move its legal hometo Texas was approved by shareholders. Mike
and Chuck will have more on thatcoming up here. Elsewhere, URH posted
a larger than expected quarterly loss,while its sales forecast for the current quarter
(21:23):
also missed expectations. Shares in theluxury furniture chain are down by eighteen percent.
Boeing down by two percent after TheNew York Times reported that the FAA
opened an investigation surrounding counter for titaniumused in some recently manufactured planes. Separately,
Boeing is also investigating a quality problemwith its undelivered seven eighty seven Dreamliner
(21:48):
planes. And another update on thememestock front for those of you who even
care. After Keith Gill seemingly increasedhis ownership in game Stop. According to
new screenshot he posted last night toReddit, Game Stopped down by three and
a half percent. I'm Tucker Silva, and that's Wall Street. Watch what
do you got for me? Mikeon Elon Musk. I know the big
pay vote went through yesterday seventy threepercent in uh sorry, seventy two percent
(22:12):
of shareholders in favor of the paypackage, the exact same one that passed
by a similar percentage seventy three percentin twenty eighteen. And so the interesting
part of this is it doesn't necessarilychange the outcome of that vote in Delaware,
where shareholders filed suit against the Teslaboard saying that they have breached their
(22:33):
fiduciary duty by putting this package infront of shareholders in the first place.
But gosh, it sure seems toadd to evidence that, hey, you
know, voters understand what they arevoting, because part of the lawsuit in
the first place was that again theboard breached its fiduciaria duty and that shareholders
hadn't fully been informed about the paypackage before the original vote. There's now
(22:57):
been a second vote, and Ihave a very tough time believing that any
shareholder doesn't fully understand what this paypackage means at this point. Correct.
I do want to Matt Levine isa columnist at Bloomberg, and he had
a piece on this yesterday that waspublished at one fifty two pm, so
it was after we discussed it inthe morning. And Matt Levine, if
(23:18):
you're not familiar with him, hewas an m and a lawyer at basically
the premier M and A firm inNew York City for like fifteen years.
So he knows his stuff when itcomes to corporate law and things like that.
And he's also just really dry andkind of funny about these things.
(23:38):
And so I enjoy reading his takeson them because they're way more informed than
than mine are. And so acouple things on this that he points out
as as going through this, I'mjust gonna read it because it's better than
I could say. First, nobodythinks that winning this vote automatically reinstates Musk's
options package, or the same waythat winning the Texas vote more or less
(24:03):
automatically moves Tesla to Texas. Itgives Tesla's lawyers some better arguments to the
Delaware judge that must keep his paypackage, but it's not automatic. A
few different problems. First, thejudge struck down the original twenty eight rule
twenty eighteen vote because she ruled thatshareholders were not fully informed. Of course,
shareholders knew everything about the economic termsof the pay package, but the
(24:23):
judge rule that Tesla's board of directorswas too much in the pocket of Musk
and Tesla did not fully disclose thoseconflicts to shareholders. This struck me as
kind of a weird complaint. Wetalked about this as well. Again,
the shareholders knowingly approved the economic terms. But fine, it's easy enough to
fix on a revote. They basicallydisclosed all this stuff. Yep. He
then says, okay, so theseare the conflicts that she found in the
(24:44):
twenty eighteen process. But what ifthere are new conflicts. For example,
Musk's threat to do his artificial intelligenceprojects at other companies is driving the board
to bring back this pay package.Strikingly, the board hasn't conditioned holding the
vote withdrawing his threat or committing notto carry this out if the shareholders approve
this. So there's still are otherconflicts that are there, is what he's
(25:10):
saying. Other problems are much moreboring, And you say, how could
something be more boring than that?Chuck, That was pretty boring. Well,
I don't know. The CEO holdingthe company hostage is kind of is
not that boring? This one's boring. Another problem is accounting. That's boring.
Yeah. In twenty eighteen, Tesselgave Musk a giant pile of options,
all struck at the money. Theexercise price of the options was equal
(25:33):
to the stock price at the time. Then the stock went up ten or
twenty fold, and now the optionsare worth tons of money. That was
the point. They were meant tomotivate him to push up the stock price.
Now, of course, the optionsare very in the money, and
giving Musk new in the money optionswould be very bad. Giving an executive
at the money options gives good taxand accounting treatment because it's a motivational tool.
The options don't pay out unless heincreases the stock price. Giving him
(25:56):
a giant slug of options that arealready in the money is disfavored, and
as THEO Francis reports, if Teslawins shareholder support for reviving the pay package,
it raises a twenty five billion dollarquestion. Does the company's profit take
a big hit for reissuing options inthe money? Tesla says no, because
they've already booked the cost of theoriginal award, so it argues that reinstating
(26:18):
the same package shouldn't add any expense. Other accountants say the approach doesn't reflect
the facts that a court found theoriginal award was adopted improperly and any reinstatement
amounts to giving Musk the stock optionsanew which is a far costlier proposition.
Yeah, that's what it sounds liketo me. The price tag could surpass
twenty five billion, which is tentimes with Tesla originally reported and more than
(26:41):
the company's last two years of pretax profits combined. According to Sharavam Ragerpowla,
a Columbia University accounting professor, Teslawould have to book that number as
the compensation expense. Lavine says,I don't have any idea about this,
and no one really does. No, it's gonna be fought out in I
r S courts if again, that'sonly if Tesla's even able to overturn the
(27:07):
Delaware ruling. So there's a lotgoing on here where this is, you
know, step one. But again, even people who are really informed as
to how this stuff works basically say, don't know what's gonna happen now,
which is just wild. Yeah.Yeah, it's again probably only interesting for
(27:29):
a specific corner of the financial world, but this is a pretty wild thing
for a compensation package to be sopublicly thrown out. Again, I don't
think I'm exaggerating by see by sayingthat the CEO is basically holding the hostage
company with his threats around where wherehe goes next and what sort of technology
he does or doesn't develop within thecompany. It's a pretty I don't know,
(27:52):
fascinating series of things when it comesto Tesla. Right now, let's
take a quick break here. Whenwe come back, we'll talking about five
steps for a midyear financial check up. Miss any of the show. The
Financial Exchange Show podcast is available onApple, Spotify, and iHeartRadio. Hit
the subscribe button and leave us afive star review. This is the Financial
(28:15):
Exchange Radio Network. The Financial ExchangeShow podcast drops every day on Apple,
Spotify, and iHeartRadio. Hit thatsubscribe button and leave us a five star
review. You're listening to the FinancialExchange Radio Network. This segment of The
Financial Exchange is brought to you inpart by the US Virgin Islands Department of
(28:37):
Tourism. The US Virgin Islands isthe perfect destination for your next vacation.
Enjoy Saint Croix, Saint Thomas orSaint John. Enjoy Pristine Beach's world class
dining and fall naturally and rhythm withthe heartbeat of the Islands. There's no
passport required, real money to exchange. Go to visit USBI dot com and
book your trip today. That's visitUSBI dot com. All right, Mike.
(28:59):
There's a piece from CNBC. It'stitled Don't just set it and forget
it on money goals. Five stepsfor a mid to year financial checkup.
What are the five? Michael,review your cash flow. Focus on high
interest rates, that's a separate one. Boost emergency and retirement savings, Take
tackle taxes early and protect your assets. And if we're talking about a mid
(29:22):
year financial checkup, Chuck, Idon't know how you would rank these,
but I think for me, atleast in terms of the people that I'm
talking to on a regular basis,I'm putting focus on highest high interest rates
as the top priority right now.I don't think it's the most impactful that
anybody can tackle. And if you'reway behind on your emergency fund or something
else, then that should take ahigher priority. But in terms of most
(29:47):
people I'm talking about and talking to, I feel like that is the biggest
opportunity that folks are missing out onas higher interest rates, And I don't
really understand why because it's so easyto take advantage of them right now.
Yeah, I always think that cashflow is the most important thing, no
matter what. Yeah, ultimately yourcash flow is what matters. But yeah,
(30:07):
we've talked about how not enough peoplehave been optimizing what they can do
from an interest rate perspective on theirsavings, and so yeah, I think
that those are you know, rightup there. I know when they talk
about protecting your assets, I knowa lot of people's minds go to like
nursing homes and things like that.But what I'll say is beyond even that
level of protection, right, ifyou haven't done an evaluation, you know,
(30:30):
maybe you got married five years agoand now have two kids, and
you haven't evaluated your insurance since thatperiod of time. Like I see that
stuff all the time. You shouldbe evaluating insurance on an annual basis,
absolutely anytime it comes up for renewal, Right, you should be looking at
those things. And it's not justoh well, I've got coverage through work,
like, okay, that's great.But if you lose your job and
(30:52):
are suddenly in a different role andyou can't take your insurance with you,
and suddenly maybe you also get hitwith some sort of illness, you might
not be able buy insurance in thefuture. So I think evaluating those things
on protecting your assets is a goodone. I mean, look, when
we talk about investments, oftentimes wedo say like looking setting and forgetting it
can be the best strategy sometimes isjust to kind of get your stuff correct
(31:18):
from the beginning and then don't respondto every single change in the market.
When it comes to your personal finances, it's different. It is different.
It does require unfortunately, pretty consistentmonitoring. It does if you're in a
situation where we're telling you this andyou're consistently sweeping it under the rug.
(31:41):
And I understand why that happens.It happens to everyone. The ability and
willingness to just put things aside becausethey're too much work and too stressful to
deal with is common. But ifyou do a bit of a self assessment
and realize, look, these justaren't things that I'm like to deal with
on my own, because I've gottoo much going on in my personal life,
(32:04):
because I'm too busy, or becauseit just doesn't interest me, or
it confuses me. These are allpotential good reasons for you to sit down
with somebody who will hold your feetto the fire and help you assess these
things on a regular basis, becauseunlike you know the investments in your four
oh one k, unlike you knowan investment plan or other parts of your
life, setting it and forgetting itdoesn't oftentimes work when it comes to your
(32:30):
overall financial and retirement strategy. Ifyou have questions along these lines and you're
looking for a partner to help youget this stuff down and evaluate it annually
to make sure you are in agood position heading into retirement, call the
Armstrong Advisory Group our phone numbers eighthundred three nine three four zero zero one.
(32:50):
We have locations throughout New England,Massachusetts, New Hampshire, Maine,
Connecticut, Rhode Island. Will sitdown with you in person free consultation to
help you evaluate you your own financialscenarios and where it might lead you.
Again, that phone number for theArmstrong Advisory Group is eight hundred three nine
three four zero zero one. Theproceeding was paid for by Armstrong Advisory Group,
(33:12):
a registered investment advisor. Nothing inthe ad or in any Armstrong guide
a specific financial, legal, ortax advice. Consult your own financial,
tax into state planning advisors before makingany investment decisions. Armstrong may contact you
to offer investment advisory services. Ifyou've ever been on Nantucket or Martha's Vineyard
and just been sitting around as it'sgetting close to sun set, and you
(33:35):
say, man, you know whatwould make this better right now? A
little bit of marijuana. Hell yeah, good news for you. The Massachusetts
Cannabis Control Commission just put in placean administrative order to allow for marijuana to
be shipped from the mainland to Martha'sVineyard and Nantucket. Previously, all products
(33:55):
sold on either of the islands hadto be grown on that specific island in
order to do so, and thishas been a problem because a number of
facilities have been closing down in recentyears because they're just not profitable year round,
like they can't do it. Thisnow allows for shipping of mainland Massachusetts
marijuana to the islands, so longas it doesn't go in US waters.
(34:20):
Yes, it has to stay instate territorial water, which I was just
taking a look at the map hereand a chuck, I'll share it with
you. But there is that inthe middle there. How is a Nantucket
Sound and it's not Massachusetts water.The Nantucket Sound is not Massachusetts water apparently
not. Yeah, so they're gonnaneed to hug the coastline when they're shipping
this stuff. And I would imaginethe Coast Guard will probably have some boats
(34:42):
just sitting in the Nantucket Sound tomake sure that you're not transporting cannabis through
that little area there. But yeah, if you want to go from Peetown
to Nantucket, for example, you'regonna have to go in a pretty roundabout
fashion to get there. Can't weget like you can't use the National Guard
because it's the National Guard, Butcan't we get like the state to go
and occupy that area and claim it. I want to invade us. Yes,
(35:05):
I want to do what China isdoing in the South China Sea.
I want Massachusetts to do a NantucketSound. So you basically want to pull
the vote that Texas does every year. I want to I want to start
building artificial islands in Nantucket Sound.To reclaim it for Massachusetts. It is
kind of confusing to me that forwhatever reason there's this little sliver, it's
(35:27):
not for whatever reason, it's stateterritorial waters. I think are defined.
They're like ten miles off the coastor something like that. Okay, and
Nantucket Sound is wider than that,and so that gap. But the wild
thing is that if either of theyjust got to build the islands up,
if the bottom part of Cape Codwere like three miles further south, it
would just be a donut hole inthe middle. That's not Massachusetts territorial waters.
(35:50):
So we gotta do something to claimthat. Mic I'm gonna go out
there and I'm just gonna start shovelingsand. I'm gonna bring a lotus sand
today. I'm gonna go like Andydo Frame from Shawshank Redemption. I'm gonna
bring a load of sand to DeadPockets and we'll just see if I can
build a little island there and justplant the Massachusetts flag in the middle and
claim that for us. Yeah,yeah, it feels like that should be
(36:14):
ours. Then we can build agreenhouse there right. Well, you wouldn't
need to, because you can ship. I'm just saying you like, if
you, let's say that you've gota facility that's growing stuff on the cape,
you got to do a roundabout thing. You can't cut through that little
sliver that's not that's national waters notor is that international waters. I don't
(36:36):
even know. I believe it's domesticUS waters. But regardless, I do
find it very interesting right now ifyou go talk to anybody in this industry
that the companies are not doing terriblywith there's too much, way too much.
There's too much weed, way toomuch production, way too many producers
that don't quite have the quality downapparently, and then a lot of it
(37:01):
sounds like the business planning side ofthis was not done terribly well. It
was, Oh boy, there's gonnabe legal cannabis. Demand is gonna be
through the roof. Don't worry aboutinterest rates, don't worry about debt,
don't worry about rench, don't worryabout anything. This is going to take
off. And then you know,you get a few years out. Interest
rates are sitting at well, youknow, seven percent on mortgages, meaning
(37:22):
if you want to borrow money toset up a cannabis shop, I got
to imagine you're up over ten percent, and I'm sure there was an initial
surge, but at the end ofthe day, legalizing cannabis, I don't
think suddenly converted a bunch of noncannabis users to cannabis users ultimately, is
what it seems like. I alsodo love this piece. The Commissioner,
Bruce Stebbins called the rule chains avery important step to ensuring the health of
(37:45):
cannabis operators and the five hundred summedical consumers on the islands. It's not
the medical consumers that were the problem. Yeah, I think it was the
tourists. It's it's the tourists.I'm sorry, really on vacation. It's
the tourists. So uh yeah,but uh yeah. So again, we
(38:05):
we gotta get that that ocean claimfrom Massachusetts somehow. I don't know how,
but we're gonna figure it out.Let's take a quick break. When
we come back. We got morefinancial exchange coming up in a bit.
The Financial Exchange is produced by MoneyMatters Radio and is hosted by employees of
the Armstrong Advisory Group, a registeredinvestment advisor that provides investment advisory services.
All opinions expressed are solely those ofthe hosts, do not reflect the opinions
of Armstrong Advisory or anyone else,and do not guarantee profit. Investments can
lose money. This program does notoffer any specific financial or investment advice.
(00:20):
Please consult your own financial, tax, and estate planning advisors before making any
investment decisions. Armstrong and Money MattersRadio do not compensate each other for referrals
and are not affiliated. This isThe Financial Exchange, with Chuck Zada and
Mike Armstrong, your exclusive look atbusiness and financial news affecting your day,
(00:41):
your city, your world. Stayinformed and up to date about economic and
market trends plus breaking business news everyday. The Financial Exchange is a proud
partner of the Disabled American Veterans Departmentof Massachusetts. Help us support our great
American heroes by visiting DAV five Kdot Boston and making a donation today.
The DAV five K Boston is presentedby Veterans Development Corporation. This is the
(01:07):
Financial Exchange with Chuck Zada and MikeArmstrong. Chuck, Mike and Tucker with
you here on a Friday. Alittle bit more economic data coming out.
At ten am this morning, wereceived the University of Michigan consumer sentiment data.
Included in there is also some inflationexpectations data, and the consumer sentiment
(01:29):
data came in worse than anticipated,declining from sixty nine point one to sixty
five point six. The inflation expectationsdata for the next year coming in at
three point three percent, same asit was the uh prior reading, and
infulation expectations for the next five yearsthe survey coming in with a reading of
three point one percent, up fromthree Mike, does any of this matter?
(01:57):
The right answers No, I hearyeah. I'm trying to find a
reason why it might. I meanexpectations for this, by the way,
for the day were for the datato improve month over months, So expectations.
I think we're coming in at seventytwo on the sentiment survey and you
got a sixty five point six.I hate to say nothing something doesn't matter
at all, But to your point, this data has not been indicative of
(02:23):
anything for the last couple of years, and so to say that it suddenly
is going to matter now when it'smeant nothing over the last few years in
terms of properly guiding towards inflation orproperly guiding towards recession is really tough for
me to make some sort of justificationthere. And I want to talk about
the inflation piece in particular because oneof the key components of inflation models that
(02:45):
economists use is inflation expectations. Yep. And so if you have five years
I'm sorry, next to your inflationexpectations at three point three percent, I
know, people say, Allgie,well that's higher than the FEDS target of
two percent, Like this is thisis bad, Mike. Since nineteen eighty
three, when inflation was effectively vanquished, so forty one years vanquished. Nice,
(03:07):
yeah, vanquished beyond inflation Yeah yeah. What do you think inflation expectations
have run for the next year onthis University of Michigan survey since eighty three
between three and four percent? Threepoint one two. Yeah, we're three
to three now now. During theyou know, twenty twenty two period,
(03:30):
inflation expectations were running north of fivepercent, So you say, okay,
like this is you know, problematic, but inflation expectations we're in the you
know three two to three three rangebasically the whole post financial crisis period,
and you didn't see any meaningful,you know, jumping inflation. So it's
it's you don't need to get inflationexpectations down to two percent because they're basically
(03:51):
never there. Do you want toknow when the last time is that inflation
expectations were two percent or below?Oh eight, February two thousand and nine.
That's the last time inflation expectations inthis survey were under two percent.
Any other guesses is to other timesthat they've been under there in the last
forty years eighty seven, eighty eight, eighty seven, they did not get
(04:15):
there. There's only two other timesthat they've been there two oh one September
eleventh, Yeah, and two thousandand three after the tech bubble finally finished
bursting. Those are the only timesin the last forty years that inflation expectations
have been back down to two percentor below. Okay, So it's not
really something that happens. So likepeople be like, oh, like it's
(04:36):
still at three to three inflation expectationshang out right around three percent. It's
where people generally expected. It's actuallya sign that you're pretty well anchored if
you're in kind of that two eightto three four range is kind of where
they've spent most of their time.Outside of a few key periods. They
were higher in the early nineteen ninetiesafter the outbreak of the First Gulf War.
(04:59):
They were or higher in the firstpart of two thousand and eight.
Remember when oil prices went to onehundred and fifty a barrel and gas prices
were north of four to fifty agallon back in two thousand and eight before
the bottom fell out of everything.Yeah, I seem to recall that.
Other than that, you basically justhang out two eight to three four.
That's where you live. I'm willingto say that I don't think this matters
much for if in future recession orinflation, if inflation expectations went up to
(05:26):
like three seven or three eight tobe, oh hey there's something here.
They're hanging out at three to three. That doesn't mean that inflation is going
to be three to three. Yeah. I would be interested in overlaying this
on election results when there's an incumbentrunning. I think that might be an
interesting type of thing. I haven'tdone that the reading, so I don't
(05:47):
know if there's anything there but thehigh on this reading. You know,
if I take a look at alltime highs the Michigan sentiment, actually,
I've only got this data going backto the eighties, I don't think there's
any there there when it comes towhat you're looking and four mic now,
well like just eyeballing it. Sure, the highest readings that we ever had
on this were in two thousand yep. Al Gore basically running as an extension
(06:10):
of the Clinton government lost. Yeah, am I wrong? Yeah? I
believe he lost that race. Hedid, but not exactly an incumbent,
not exactly. But again it's basically, hey, if you liked what ID
is vice president for the last eightyears, do this. I hear you.
(06:30):
Uh, two thousand and four.Heading into that election, you were
in the nineties, which the averageon this series is like right around eighty
five. So okay, Bush winstwo thousand and eight. We know was
a landslide towards Obama. The sentimentthere was some of the worst ever because
the economy was one of the worstever. At that point because literally the
like the banks were closing. Yep, it was. It was very quite
(06:54):
bad twenty twelve. The last readingthat we had was in the mid seventies.
Obama wins a reelection twenty sixteen.You've got no incumbents knowing with any
relation. It was in the ninetiesPresident Trump wins twenty twenty. In November,
(07:15):
the reading was seventy six incumbent loses. I beIN it. Yeah,
it doesn't say it insistence. Idon't know if there's any there there when
it comes to this, it's justwhen you look at the correlations that you
have with consumer sentiment, they tendto be three things. How are gas
prices, what's the stock market doing, what's unemployment doing? Those are the
(07:40):
three things that are the closest proxiesto it and that feed into it and
have the highest correlations. So rightnow, stock markets at almost all time
highs. Unemployment's building a little bit, so maybe you got that. And
gas prices are basically in the samespot they were last year, probably a
little higher than people would like tosee. You'd probably like to see a
little to three a gallon, butthey are what they are. But I
(08:03):
think the point would be that underthose three measures, historically this reading would
have been better. What is bringingit down is inflation? No, I
think so it's it's stock priced atall time high, inflation at near fifty
you know, still close to fiftyyear lows, and inflation sorry, unemployment
at near fifty year lows, andgas prices I mean, I guess near
(08:26):
five year lows. So yeah,it's it's an interesting read. But to
your point, I'm not. Idon't think it necessarily tells you anything about
election. I definitely don't think ittells you anything about where inflation is going.
Maybe it gives you some sense ofwhere consumers are on spending and things
like that over the next year,but even that I have to I have
(08:46):
to doubt, because again, thesenumbers were so thrown off by inflation over
the last few years that I'm notsure how useful it is. Yeah,
And on the gas price piece,So the way that I try to look
at this is inflation just so youcan see like how gas prices have evolved
over time and gas prices historically,like you basically have gas prices slightly higher
(09:09):
than their historical average right now ininflation adjusted terms. If you're look at
for the times when gas was reallyexpensive two thousand and eight, yep,
twenty eleven through twenty fourteen, thesummer of twenty two, I remember,
that's when gas got to you know, five a gallon. Those are kind
of in the last thirty years,the times when you could point to gas
(09:31):
being really expensive. Times it wasreally cheap, basically the whole nineties through
two thousand and four, twenty fifteenthrough twenty seventeen, and most of twenty
twenty and early twenty twenty twenty.Yeah, spring of twenty twenty, where
you could fill your pool up withgas and get paid for it. You
wouldn't really be able to do anythingwith the pool because it's not really a
(09:54):
great thing to jump into to cooloff after you've been running or working in
the yard. Oh got it,and your yard smells pretty bad, then
I bet it keeps the bugs away. Yeah, definitely would keep the bugs
away. Probably keep the bugs away. It would probably have a bit of
an issue with you too. Yeah, probably clogs up your filter in the
pool. Yeah, I would thinkso, you know, I would think,
so, don't run the heater.Let's take a quick break when we
(10:18):
come back we'll talk about why thestock market has risen with even with no
FED rate cuts. The Financial Exchangeis now available on your Alexis smart speaker
has to play the Financial Exchange andcatch up on anything you might have missed.
This is the Financial Exchange Radio Network, breaking business and financial news first
(10:39):
throughout the day, only here onthe Financial Exchange Radio Network. All right,
so there's a piece of the NewYork Times. It's titled why the
stock market has risen and even withno rate cuts? To be clear about
(11:05):
why this is a relevant question.Markets were anticipating six seven rate cuts when
you went into twenty twenty four,and that expectation has now been moved to
about two. So it is arelevant question as to you know, hey,
expectations were for big rate cuts.They haven't come this year. Markets
have reached new all time highs.That's why the questions being asked, Chuck,
(11:28):
The reason why the market has risenis because companies have gotten more expensive.
The forward pe ratio and the Sand P five hundred has gone up.
It is such a Mark Fandetty answerto this question. Well, no,
it's not that companies are making boatloadsmore money now like the stock market.
(11:48):
They're making a little bit more money. The stock market this year if
we look at the S and Pfive hundred is up sixteen hang on,
sorry, thirteen point four to fourpercent. So I think the m more
relevant question is why has sentiments improvedat the same time that interest rates have
stayed higher for longer? Because that'swhat's happened here, right, It's not
(12:09):
that companies have gotten significantly more profitable. It's that people have become more willing
to pay higher prices for stocks.They're not expecting anything bad to happen.
That's that's why. Sure, ifyou look at the stock market the way
that you actually have to look atit, it should be required actually by
law that you look at it thisway. It's it's a series of probabilities.
(12:33):
It's basically, hey, here's howmuch companies can make if things go
well, and here's how much theymake if things go badly. What probability
do I assign to those two events. Now, obviously there's more than two
events, but this is really whatmarkets are telling you. So in a
normal time, where you know thingsare going well, stocks typically trade the
S and P five hundred as awhole typically trades like eighteen to nineteen times
(12:56):
forward earnings. That's where it typicallysits when when things are going badly,
when you get into recession, usuallygo down to like thirteen to fifteen times
forward earnings, and when things area little bit you know, hot,
you trade like twenty to twenty twotimes, which is the range that we're
in right now in terms of forwardearning. So what markets are telling you
right now is, hey, wedon't think anything bad is gonna happen.
(13:18):
We feel really not like you andme, but markets are saying, hey,
us, the market feels good aboutwhere stocks are and we don't think
anything bad is going to happen there. And if something bad does happen,
we think it'll be addressed in shortorder. And by the way, the
piece on the rate cuts that youhave to keep in mind, right,
for markets to say at the endof last year that we were going to
(13:39):
get six rate cuts, that wasalso pricing in a slight probability of a
bad economy. Right, if you'retalking about six rate cuts, it's not
purely because or not. Again,we're assigning probabilities to all sorts of things.
There was a probable scenario there wheresome of these rate cuts were coming
because unemploymently was jumping to four anda half all of a sudden, and
(14:01):
the economy wasn't looking so good.And so you have wiped at least for
the first half of the year thatscenario off the table, and so that
you know, feeds into these factorsabout what the economy is doing too.
Well. Let's let's talk about ratecuts, and let's have like some real
talk about rate cuts. The lastthree times that the federal actually last four
(14:22):
times the Federal Reserve has gone throughand cut interest rates by more than one
percent in a series of cuts oryeah, okay, yeah, nineteen ninety
US recession stocks do very badly.Two thousand and two US recession, I'm
sorry, two thousand and one USrecession. Yeah, stocks do very badly.
(14:43):
Two thousand and eight US recession stocksdo very badly. Twenty twenty US
recession stocks do very badly for threeweeks, and then we pump so much
money into the system that it gets, you know, overwhelmed. Rate cuts
very rarely are Hey, we're justgoing to do one cut and then we're
in the right spot now. NineteenNope, twenty nineteen, No, when
(15:11):
did we did the rate cuts byPowell at the right before COVID twenty eighteen,
and they would have continued if notfor like again, they you were
going to have a recession then anyways, probably like we went through that whole
thing where everyone's like, oh,they're going to keep hiking through nineteen and
I was like, no, they'renot going to hike it all in nineteen
and they couldn't. The last timethat you had the Fed conducting any kind
(15:33):
of policy where they were going throughcuts and the US did not go into
recession was nineteen ninety eight. It'skind of the outlier in all this.
Yes, otherwise you start getting ratecuts, you usually don't stop with a
couple. It's usually because the economysucks. It's usually because the economy goes
to hell in a hand basket andwith it the stock market ends up getting
(15:54):
whacked. So if you want likethe danger scenario for or still like like,
I don't usually try to spook people, right, Like, I'm not
usually the spooker. Chuck jumps behind, jumps out from behind walls and doors
all the time, just trying toI got my jazz hands going and every
(16:14):
Yeah, here's the thing, ifyou actually want to be scared, and
I'm not saying that you should be, then a real meaningful US recession,
if it were to occur, shouldscary if you're an equity holder at this
point. And here's why. Rightnow, the US stock market, the
S and P five hundred is trading, according to fact set, at twenty
point nine times forward earnings. Whatdoes that mean, I'm sorry, twenty
(16:37):
point seven? What does that mean? If the S and P is making
Let's say that the S and Pcompanies on a weighted average are making one
hundred dollars a year over the nexttwelve months, the SNP is trading at
two thousand and seventy. It's it'ssteep, Okay. The other thing that
you got to remember, the Sand P five hundred right now is projected
to see eleven percent earnings growth thisyear and around nine to eleven next year.
(17:02):
It's almost twenty percent total. Here'swhat. Here's what happens in a
recession. Earning stop growing. Infact, usually they go down a little
bit, anywhere from ten to fifteenpercent. So now immediately you go from
being trading twenty times forward earnings.Now you're looking like you're trading like twenty
(17:22):
three, twenty four times forward earnings. Remember, in a recession usually go
from being you know where you arenow to somewhere between thirteen and fifteen times
forward earnings. Your downside potential ifa conventional recession and subsequent normal you know
move in stocks happens on that you'retalking to like a forty percent dip inequities
at that point. And I'm notsaying that this will happen because remember I'm
(17:48):
very skeptical that you have any kindof meaningful recession. Still, I'm not
there with with where we are.But if you like, if you want
something to be a afraid of,it's the fact that rate cuts usually happen
when you're heading into recession. Andif a conventional recession happens and stocks behave
as they historically have, that's thekind of downside that you have potential potentially
(18:14):
out there, given valuations where theyare right now. Thanks Boogeyman. So
now that I've completed that, again, most of the time I sit here
and I'm like, hey, guys, like, stop being scared of stuff,
because usually the bad stuff it's justpeople talk about it in order to
make themselves sound smart, because yousound really smart when you talk about,
oh, here's the bad thing thatcould happen. The thing that usually makes
(18:36):
you money and stock in the stockmarket is believing that good things will happen.
Because for one hundred and fifty yearsthe stock market, that's kind of
what it's happened. And even whenthe bad things do happen, there's short
term disruptions. This is also thepoint where I go through my speech,
I'm like, hey, if youlooked at like the twentieth century and looked
at like World War One, WorldWar II, the Korean War, JFK
being assassinated, Vietnam, Reagan almostbeing assassinated, almost impeachment, another almost
(19:00):
impeachment, golf wour one, andyou go through all this stuff and you're
like, oh, like, whata horrible like one hundred years stocks must
have been. No, they weregreat. They were they were great.
Other things were pretty bad. Butit doesn't markers. It doesn't mean that
they'll be great in the next hundredyears. But bad stuff happens and companies
figure out how to make money.They are greedy, They've always been greedy.
(19:22):
I'm not saying greedy is good orbad I'm just saying that it is.
I don't know. That's where Iam. Quick break here when we
come back. We got Wall StreetWatch. Like us on Facebook and follow
(19:45):
us on Twitter at TFV show.Breaking business news is always first right here
on the Financial Exchange Radio Network.Time now for Wall Street Watch a complete
look and what's moving markets so farinto today right here on the Financial Exchange
Radio Network. Well, with thisinflation and fed filled week coming to a
(20:08):
close, markets today are pulling backa little bit right now. The Dow
is down by over three quarters ofa percent, or three hundred and two
points. S and P five hundredis down about a half a percent or
twenty four points, and the Nasdaqis off by only nineteen points. Russell
two thousand selling off by one inthree quarters of a percent, ten year
treasureeled down by three basis points nowat four point two zero percent, and
(20:33):
crude oil mostly flat tipping into negativeterritory trading at seventy eight dollars in fifty
two cents a barrel. Shares inAdobe surging by fourteen percent after the software
company posted stronger than expected earnings andrevenue for the first quarter and also hiked
its full year sales outlook. Thecompany said interest in AI was attracting new
customers, and with the news,JP Morgan upgraded shares to overweight from neutral,
(20:59):
saying a Zobe is poised for smoothersailing ahead following its strong quarter.
Meanwhile, Tesla shares are down byabout two percent after Elon musk pay packages
and plan to move its legal hometo Texas was approved by shareholders. Mike
and Chuck will have more on thatcoming up here. Elsewhere, URH posted
a larger than expected quarterly loss,while its sales forecast for the current quarter
(21:23):
also missed expectations. Shares in theluxury furniture chain are down by eighteen percent.
Boeing down by two percent after TheNew York Times reported that the FAA
opened an investigation surrounding counter for titaniumused in some recently manufactured planes. Separately,
Boeing is also investigating a quality problemwith its undelivered seven eighty seven Dreamliner
(21:48):
planes. And another update on thememestock front for those of you who even
care. After Keith Gill seemingly increasedhis ownership in game Stop. According to
new screenshot he posted last night toReddit, Game Stopped down by three and
a half percent. I'm Tucker Silva, and that's Wall Street. Watch what
do you got for me? Mikeon Elon Musk. I know the big
pay vote went through yesterday seventy threepercent in uh sorry, seventy two percent
(22:12):
of shareholders in favor of the paypackage, the exact same one that passed
by a similar percentage seventy three percentin twenty eighteen. And so the interesting
part of this is it doesn't necessarilychange the outcome of that vote in Delaware,
where shareholders filed suit against the Teslaboard saying that they have breached their
(22:33):
fiduciary duty by putting this package infront of shareholders in the first place.
But gosh, it sure seems toadd to evidence that, hey, you
know, voters understand what they arevoting, because part of the lawsuit in
the first place was that again theboard breached its fiduciaria duty and that shareholders
hadn't fully been informed about the paypackage before the original vote. There's now
(22:57):
been a second vote, and Ihave a very tough time believing that any
shareholder doesn't fully understand what this paypackage means at this point. Correct.
I do want to Matt Levine isa columnist at Bloomberg, and he had
a piece on this yesterday that waspublished at one fifty two pm, so
it was after we discussed it inthe morning. And Matt Levine, if
(23:18):
you're not familiar with him, hewas an m and a lawyer at basically
the premier M and A firm inNew York City for like fifteen years.
So he knows his stuff when itcomes to corporate law and things like that.
And he's also just really dry andkind of funny about these things.
(23:38):
And so I enjoy reading his takeson them because they're way more informed than
than mine are. And so acouple things on this that he points out
as as going through this, I'mjust gonna read it because it's better than
I could say. First, nobodythinks that winning this vote automatically reinstates Musk's
options package, or the same waythat winning the Texas vote more or less
(24:03):
automatically moves Tesla to Texas. Itgives Tesla's lawyers some better arguments to the
Delaware judge that must keep his paypackage, but it's not automatic. A
few different problems. First, thejudge struck down the original twenty eight rule
twenty eighteen vote because she ruled thatshareholders were not fully informed. Of course,
shareholders knew everything about the economic termsof the pay package, but the
(24:23):
judge rule that Tesla's board of directorswas too much in the pocket of Musk
and Tesla did not fully disclose thoseconflicts to shareholders. This struck me as
kind of a weird complaint. Wetalked about this as well. Again,
the shareholders knowingly approved the economic terms. But fine, it's easy enough to
fix on a revote. They basicallydisclosed all this stuff. Yep. He
then says, okay, so theseare the conflicts that she found in the
(24:44):
twenty eighteen process. But what ifthere are new conflicts. For example,
Musk's threat to do his artificial intelligenceprojects at other companies is driving the board
to bring back this pay package.Strikingly, the board hasn't conditioned holding the
vote withdrawing his threat or committing notto carry this out if the shareholders approve
this. So there's still are otherconflicts that are there, is what he's
(25:10):
saying. Other problems are much moreboring, And you say, how could
something be more boring than that?Chuck, That was pretty boring. Well,
I don't know. The CEO holdingthe company hostage is kind of is
not that boring? This one's boring. Another problem is accounting. That's boring.
Yeah. In twenty eighteen, Tesselgave Musk a giant pile of options,
all struck at the money. Theexercise price of the options was equal
(25:33):
to the stock price at the time. Then the stock went up ten or
twenty fold, and now the optionsare worth tons of money. That was
the point. They were meant tomotivate him to push up the stock price.
Now, of course, the optionsare very in the money, and
giving Musk new in the money optionswould be very bad. Giving an executive
at the money options gives good taxand accounting treatment because it's a motivational tool.
The options don't pay out unless heincreases the stock price. Giving him
(25:56):
a giant slug of options that arealready in the money is disfavored, and
as THEO Francis reports, if Teslawins shareholder support for reviving the pay package,
it raises a twenty five billion dollarquestion. Does the company's profit take
a big hit for reissuing options inthe money? Tesla says no, because
they've already booked the cost of theoriginal award, so it argues that reinstating
(26:18):
the same package shouldn't add any expense. Other accountants say the approach doesn't reflect
the facts that a court found theoriginal award was adopted improperly and any reinstatement
amounts to giving Musk the stock optionsanew which is a far costlier proposition.
Yeah, that's what it sounds liketo me. The price tag could surpass
twenty five billion, which is tentimes with Tesla originally reported and more than
(26:41):
the company's last two years of pretax profits combined. According to Sharavam Ragerpowla,
a Columbia University accounting professor, Teslawould have to book that number as
the compensation expense. Lavine says,I don't have any idea about this,
and no one really does. No, it's gonna be fought out in I
r S courts if again, that'sonly if Tesla's even able to overturn the
(27:07):
Delaware ruling. So there's a lotgoing on here where this is, you
know, step one. But again, even people who are really informed as
to how this stuff works basically say, don't know what's gonna happen now,
which is just wild. Yeah.Yeah, it's again probably only interesting for
(27:29):
a specific corner of the financial world, but this is a pretty wild thing
for a compensation package to be sopublicly thrown out. Again, I don't
think I'm exaggerating by see by sayingthat the CEO is basically holding the hostage
company with his threats around where wherehe goes next and what sort of technology
he does or doesn't develop within thecompany. It's a pretty I don't know,
(27:52):
fascinating series of things when it comesto Tesla. Right now, let's
take a quick break here. Whenwe come back, we'll talking about five
steps for a midyear financial check up. Miss any of the show. The
Financial Exchange Show podcast is available onApple, Spotify, and iHeartRadio. Hit
the subscribe button and leave us afive star review. This is the Financial
(28:15):
Exchange Radio Network. The Financial ExchangeShow podcast drops every day on Apple,
Spotify, and iHeartRadio. Hit thatsubscribe button and leave us a five star
review. You're listening to the FinancialExchange Radio Network. This segment of The
Financial Exchange is brought to you inpart by the US Virgin Islands Department of
(28:37):
Tourism. The US Virgin Islands isthe perfect destination for your next vacation.
Enjoy Saint Croix, Saint Thomas orSaint John. Enjoy Pristine Beach's world class
dining and fall naturally and rhythm withthe heartbeat of the Islands. There's no
passport required, real money to exchange. Go to visit USBI dot com and
book your trip today. That's visitUSBI dot com. All right, Mike.
(28:59):
There's a piece from CNBC. It'stitled Don't just set it and forget
it on money goals. Five stepsfor a mid to year financial checkup.
What are the five? Michael,review your cash flow. Focus on high
interest rates, that's a separate one. Boost emergency and retirement savings, Take
tackle taxes early and protect your assets. And if we're talking about a mid
(29:22):
year financial checkup, Chuck, Idon't know how you would rank these,
but I think for me, atleast in terms of the people that I'm
talking to on a regular basis,I'm putting focus on highest high interest rates
as the top priority right now.I don't think it's the most impactful that
anybody can tackle. And if you'reway behind on your emergency fund or something
else, then that should take ahigher priority. But in terms of most
(29:47):
people I'm talking about and talking to, I feel like that is the biggest
opportunity that folks are missing out onas higher interest rates, And I don't
really understand why because it's so easyto take advantage of them right now.
Yeah, I always think that cashflow is the most important thing, no
matter what. Yeah, ultimately yourcash flow is what matters. But yeah,
(30:07):
we've talked about how not enough peoplehave been optimizing what they can do
from an interest rate perspective on theirsavings, and so yeah, I think
that those are you know, rightup there. I know when they talk
about protecting your assets, I knowa lot of people's minds go to like
nursing homes and things like that.But what I'll say is beyond even that
level of protection, right, ifyou haven't done an evaluation, you know,
(30:30):
maybe you got married five years agoand now have two kids, and
you haven't evaluated your insurance since thatperiod of time. Like I see that
stuff all the time. You shouldbe evaluating insurance on an annual basis,
absolutely anytime it comes up for renewal, Right, you should be looking at
those things. And it's not justoh well, I've got coverage through work,
like, okay, that's great.But if you lose your job and
(30:52):
are suddenly in a different role andyou can't take your insurance with you,
and suddenly maybe you also get hitwith some sort of illness, you might
not be able buy insurance in thefuture. So I think evaluating those things
on protecting your assets is a goodone. I mean, look, when
we talk about investments, oftentimes wedo say like looking setting and forgetting it
can be the best strategy sometimes isjust to kind of get your stuff correct
(31:18):
from the beginning and then don't respondto every single change in the market.
When it comes to your personal finances, it's different. It is different.
It does require unfortunately, pretty consistentmonitoring. It does if you're in a
situation where we're telling you this andyou're consistently sweeping it under the rug.
(31:41):
And I understand why that happens.It happens to everyone. The ability and
willingness to just put things aside becausethey're too much work and too stressful to
deal with is common. But ifyou do a bit of a self assessment
and realize, look, these justaren't things that I'm like to deal with
on my own, because I've gottoo much going on in my personal life,
(32:04):
because I'm too busy, or becauseit just doesn't interest me, or
it confuses me. These are allpotential good reasons for you to sit down
with somebody who will hold your feetto the fire and help you assess these
things on a regular basis, becauseunlike you know the investments in your four
oh one k, unlike you knowan investment plan or other parts of your
life, setting it and forgetting itdoesn't oftentimes work when it comes to your
(32:30):
overall financial and retirement strategy. Ifyou have questions along these lines and you're
looking for a partner to help youget this stuff down and evaluate it annually
to make sure you are in agood position heading into retirement, call the
Armstrong Advisory Group our phone numbers eighthundred three nine three four zero zero one.
(32:50):
We have locations throughout New England,Massachusetts, New Hampshire, Maine,
Connecticut, Rhode Island. Will sitdown with you in person free consultation to
help you evaluate you your own financialscenarios and where it might lead you.
Again, that phone number for theArmstrong Advisory Group is eight hundred three nine
three four zero zero one. Theproceeding was paid for by Armstrong Advisory Group,
(33:12):
a registered investment advisor. Nothing inthe ad or in any Armstrong guide
a specific financial, legal, ortax advice. Consult your own financial,
tax into state planning advisors before makingany investment decisions. Armstrong may contact you
to offer investment advisory services. Ifyou've ever been on Nantucket or Martha's Vineyard
and just been sitting around as it'sgetting close to sun set, and you
(33:35):
say, man, you know whatwould make this better right now? A
little bit of marijuana. Hell yeah, good news for you. The Massachusetts
Cannabis Control Commission just put in placean administrative order to allow for marijuana to
be shipped from the mainland to Martha'sVineyard and Nantucket. Previously, all products
(33:55):
sold on either of the islands hadto be grown on that specific island in
order to do so, and thishas been a problem because a number of
facilities have been closing down in recentyears because they're just not profitable year round,
like they can't do it. Thisnow allows for shipping of mainland Massachusetts
marijuana to the islands, so longas it doesn't go in US waters.
(34:20):
Yes, it has to stay instate territorial water, which I was just
taking a look at the map hereand a chuck, I'll share it with
you. But there is that inthe middle there. How is a Nantucket
Sound and it's not Massachusetts water.The Nantucket Sound is not Massachusetts water apparently
not. Yeah, so they're gonnaneed to hug the coastline when they're shipping
this stuff. And I would imaginethe Coast Guard will probably have some boats
(34:42):
just sitting in the Nantucket Sound tomake sure that you're not transporting cannabis through
that little area there. But yeah, if you want to go from Peetown
to Nantucket, for example, you'regonna have to go in a pretty roundabout
fashion to get there. Can't weget like you can't use the National Guard
because it's the National Guard, Butcan't we get like the state to go
and occupy that area and claim it. I want to invade us. Yes,
(35:05):
I want to do what China isdoing in the South China Sea.
I want Massachusetts to do a NantucketSound. So you basically want to pull
the vote that Texas does every year. I want to I want to start
building artificial islands in Nantucket Sound.To reclaim it for Massachusetts. It is
kind of confusing to me that forwhatever reason there's this little sliver, it's
(35:27):
not for whatever reason, it's stateterritorial waters. I think are defined.
They're like ten miles off the coastor something like that. Okay, and
Nantucket Sound is wider than that,and so that gap. But the wild
thing is that if either of theyjust got to build the islands up,
if the bottom part of Cape Codwere like three miles further south, it
would just be a donut hole inthe middle. That's not Massachusetts territorial waters.
(35:50):
So we gotta do something to claimthat. Mic I'm gonna go out
there and I'm just gonna start shovelingsand. I'm gonna bring a lotus sand
today. I'm gonna go like Andydo Frame from Shawshank Redemption. I'm gonna
bring a load of sand to DeadPockets and we'll just see if I can
build a little island there and justplant the Massachusetts flag in the middle and
claim that for us. Yeah,yeah, it feels like that should be
(36:14):
ours. Then we can build agreenhouse there right. Well, you wouldn't
need to, because you can ship. I'm just saying you like, if
you, let's say that you've gota facility that's growing stuff on the cape,
you got to do a roundabout thing. You can't cut through that little
sliver that's not that's national waters notor is that international waters. I don't
(36:36):
even know. I believe it's domesticUS waters. But regardless, I do
find it very interesting right now ifyou go talk to anybody in this industry
that the companies are not doing terriblywith there's too much, way too much.
There's too much weed, way toomuch production, way too many producers
that don't quite have the quality downapparently, and then a lot of it
(37:01):
sounds like the business planning side ofthis was not done terribly well. It
was, Oh boy, there's gonnabe legal cannabis. Demand is gonna be
through the roof. Don't worry aboutinterest rates, don't worry about debt,
don't worry about rench, don't worryabout anything. This is going to take
off. And then you know,you get a few years out. Interest
rates are sitting at well, youknow, seven percent on mortgages, meaning
(37:22):
if you want to borrow money toset up a cannabis shop, I got
to imagine you're up over ten percent, and I'm sure there was an initial
surge, but at the end ofthe day, legalizing cannabis, I don't
think suddenly converted a bunch of noncannabis users to cannabis users ultimately, is
what it seems like. I alsodo love this piece. The Commissioner,
Bruce Stebbins called the rule chains avery important step to ensuring the health of
(37:45):
cannabis operators and the five hundred summedical consumers on the islands. It's not
the medical consumers that were the problem. Yeah, I think it was the
tourists. It's it's the tourists.I'm sorry, really on vacation. It's
the tourists. So uh yeah,but uh yeah. So again, we
(38:05):
we gotta get that that ocean claimfrom Massachusetts somehow. I don't know how,
but we're gonna figure it out.Let's take a quick break. When
we come back. We got morefinancial exchange coming up in a bit.
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Cardiac Cowboys
The heart was always off-limits to surgeons. Cutting into it spelled instant death for the patient. That is, until a ragtag group of doctors scattered across the Midwest and Texas decided to throw out the rule book. Working in makeshift laboratories and home garages, using medical devices made from scavenged machine parts and beer tubes, these men and women invented the field of open heart surgery. Odds are, someone you know is alive because of them. So why has history left them behind? Presented by Chris Pine, CARDIAC COWBOYS tells the gripping true story behind the birth of heart surgery, and the young, Greatest Generation doctors who made it happen. For years, they competed and feuded, racing to be the first, the best, and the most prolific. Some appeared on the cover of Time Magazine, operated on kings and advised presidents. Others ended up disgraced, penniless, and convicted of felonies. Together, they ignited a revolution in medicine, and changed the world.
The Joe Rogan Experience
The official podcast of comedian Joe Rogan.