January 3, 2025 • 38 mins
Mike Armstrong and Paul Lane discuss Apple and Tesla's rough couple of days and how that is leading to the same doom and gloom articles as last year. What should you do if you sense the market is a little too frothy? Will 2025 be the year of investing dangerously? How are American workers becoming more productive? Social Security benefits are set to expand for millions.
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Episode Transcript
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Speaker 1 (00:00):
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(00:20):
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(01:03):
This is the Financial Exchange with Mike Armstrong and Paul.
Speaker 2 (01:07):
Lane, Happy Friday, Happy New Year, Welcome back to the
Financial Exchange. If you were disappointed with the way the
day ended yesterday during a volatile session, well then we've
got good news for you so far this morning, a
half hour into trading, with all markets in positive territory
here in the United States this morning. But Paul and Tucker,
(01:30):
I wanted to start with some immensely concerning news. Yesterday,
Tesla's stock was down.
Speaker 1 (01:39):
My god.
Speaker 2 (01:40):
But wait, there's more done dun Apple too, So uh,
you know, we might as well just turn in our chips,
shut it down, and go home. Because for the first
day of trading in twenty twenty five, two of the
Magnificent seven stocks traded down yesterday, and.
Speaker 3 (01:59):
I couldn't believe how many outlets were like leading with this.
Speaker 4 (02:02):
Our heads are falling off.
Speaker 1 (02:05):
I think text down day.
Speaker 4 (02:07):
It is the only conclusion here.
Speaker 2 (02:09):
Don't worry about the fact that Nvidia actually moved up
yesterday and the markets were barely off for the day.
But big things to know now that Apple and Tesla
had a single day of bad market returns. By the way,
this morning, Applestock also down in early trading and Tesla.
Let's see up to and a quarter percent. So we
(02:31):
tend to criticize pieces that come out in the first
few days of the year. I recognize there's probably not
a lot to write about over at Barns on the
first day of the year. But what happens in a
single day for any company, market, or anything else is
no indication whatsoever of what the rest of the year
will look like.
Speaker 5 (02:51):
I'm going to go against you a little bit here
in the sense of totally agree with all that. I
actually like the piece because it speaks more to the
broader market that we're in right now, where these magnificent
seven stocks. Forget what Apple did yesterday or Tesla did yesterday.
But more broadly speaking, if you look at last year,
(03:11):
if you look at the year before, the reason your
four one K listener or someone's portfoliout there has done
so well has come on the backs of these seven companies.
And I can't reiterate enough. And this piece does a
good job laying it out that fifty seven percent of
market gains last year, according to Dow Jones market data,
came from the seven companies that Mike and I talk
about all the time. This show Apple, Apple, Tesla, Amazon, Microsoft, Google, Nvidia,
(03:38):
and what's the last one Tesla. I don't know if
I mentioned that there, but the seven that we talk
about all the time. You look back the year prior
in twenty twenty three, sixty five percent of its gains
from the market came from these big seven companies. And
if you look at under the hood of some of
these businesses, there is reason for skepticism based on the valuations.
(04:00):
Tesla in particular always makes me scratch my head, but
it's been doing that for some years and it still
continues to reach, you know, a trillion and a half valuation,
where we just covered a story yesterday they sold less
cars in twenty twenty four than they did in twenty
twenty three. That's problematic because typically they've been doing double
digit increases percentage wise on their sales. That didn't happen
(04:23):
last year. It dropped by one percent yet first.
Speaker 2 (04:26):
Ever time, by the way that Tesla reported year over
year sales declines.
Speaker 4 (04:30):
You have a.
Speaker 5 (04:30):
Business yet that you know was up I believe, fifty
sixty percent last year, and you head into this year.
All the optimism surrounds this idea that they're going to
be rebranded as more focused on robotics and AI, but
yet those promises that they're making to deliver on these
new initiatives are out in twenty twenty seven for the
(04:52):
you know, self driving cybercab, and we know how Tesla
does with deadlines, their total bs, I mean, they never
hit them and they will delay things five or ten
years more. So the reason I like the piece is
because you have these two companies, and Apple is another
one we should talk about too, that is seeing a
little bit of weakness. I'm not as concerned about Apple
because I think Buffett has put it well that it's
(05:14):
more of a durable consumer brand in terms of how
entrenched iPhones are into our lives. But they are seeing
some weakness in China. So I think that point is
is you know of merriage?
Speaker 4 (05:26):
Yeah.
Speaker 2 (05:26):
I think there's plenty of fairness in this piece and
plenty of good points they made. For instance, you know
the perhaps just the title of the article is what's
bothering Me? But the point five hundred has fallen on
day one in three of the last four years, but
still not more than twenty.
Speaker 4 (05:40):
Percent annual gains.
Speaker 2 (05:42):
On the other occasion, in twenty twenty two, it rose
the first day, but then fell nineteen percent for the year,
So the first day of trading is completely irrelevant as
this as this article acknowledges, if you want to make
the point to which everyone should understand, that this entire
market for the last two years has been buoyed and
anchored by seven massive companies whose valuations are astronomical and
(06:05):
the likes of which we haven't seen since pre Dot
Com bubble.
Speaker 4 (06:08):
Those are excellent points to.
Speaker 2 (06:10):
Make, but you also must acknowledge that it doesn't tell
you anything about timing, It doesn't tell you anything about
when that might fall apart, and so it all comes
back to, I think a fundamental question of what's going
on with these big companies. So you made a good
point about Tesla. Tesla saw year over year sales declines
in spite of all the excitement about Elon Musk and
(06:31):
the future of that company. I brought it up yesterday.
I'm very, very curious to see how they compete in
a world where a lot more companies are putting out
luxury electric vehicles. Tesla has not gone into the competition
space with say the Nissan Leaf by offering a lower
price point, and they've probably or Elon Musk's actions and
(06:54):
you know, political outspokenness has probably angered many of its customers.
Will he attract new customers to the Tesla base? I
certainly think there's almost no hope of him competing for
his you know, with his company competing in markets outside
of Europe and the United States, and so how do
you continue to grow that company in spite of those challenges?
(07:14):
You mentioned Apple? Very different company, a very different position,
much more mature than Tesla, but year over year foreign
smartphone sales in China declined by forty seven percent last year.
Speaker 4 (07:29):
How do you.
Speaker 2 (07:29):
Continue to compete when the single largest market for a
smartphone demand is having a moment of I guess non
I guess having a moment of non Apple interest or
maybe a little bit nationalism.
Speaker 5 (07:47):
You know, they want to buy domestic. I mean, look
at the two companies we're talking about, Mike, both of
them in terms of their you know, sales in China
are being undercut by local options. Buid has sold one
one point seventy six million cars globally. That's the electric
vehicle company out of China. And same thing here with Huawei.
They've made a huge inroads in terms of their growth
(08:09):
and If you look at Apple's revenue in China, it
was about seventy two billion in twenty twenty three, sixty
six billion in twenty twenty four. Seventeen percent of its
revenue comes from those sales within IPO markets to China,
so it's not nothing. And Tim Cook is not making
multiple visits over there because he wants to be there.
He recognizes that this is an important market and an
(08:31):
area that it's worth mentioning as an erear to monitor
for Apple.
Speaker 2 (08:39):
Let's take a quick break when we come back. I
want to expand beyond just the Apples and Tesla's of
the world and get a view into where this market
actually stands and what historical precedent we have to compare
it to quick break, Big market Overview.
Speaker 4 (08:54):
Next here on the Financial Exchange.
Speaker 1 (08:56):
Whoa stream watch a full update on the market's performance
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Speaker 4 (09:25):
So Paul, as we turned to twenty twenty five.
Speaker 2 (09:27):
We have new Congress, a new president that will be
taking office in just a few short weeks, and a
new entrance to the stock market.
Speaker 4 (09:35):
We are entering twenty twenty five with.
Speaker 2 (09:39):
Following the best two years in the S and P
five hundred since the late nineties. The forward priced earnings
ratio on the S and P five hundred is sitting
at twenty five times the only time in history.
Speaker 4 (09:50):
It's been more expensive.
Speaker 2 (09:51):
That was just before the dot com crash in two
thousand and then the crash in twenty twenty two. So
the evaluations in twenty twenty one we're around these levels.
And if you are the average person sitting out there,
I don't know. Some are quite excited, some are maybe
a bit wary about where valuations are. How do you
approach the valuation question when you are speaking with folks
(10:15):
these days, because it it's easy to sweep under the
rug after the last few years of amazing performance, but
probably can't be ignored entirely.
Speaker 5 (10:24):
The tricky thing about valuations, and it's outlined here, is
that they are a good medium to long term way too.
Speaker 4 (10:32):
What does that mean?
Speaker 2 (10:33):
Like a medium long term how do we define that
like five to ten years, five to.
Speaker 5 (10:37):
Ten years, and then if you go twenty twenty five years.
These price earnings multiples are helpful to use as a
guide as from a contact standpoint to see as what
a stock is priced at, but from a short term perspective,
it's rather useless, useless as to whether or not this
twenty five times forward earnings for the S and P
five hundred reverts down to its me which I think
(10:58):
is around eighteen depending on what time period that you
look at. But really the reason that you invest, and
I like the way that this was laid out here
in this Bloomberg piece, is that ultimately, over our longer
period of time, you are banking on that the S
and P five hundred and in its constituents, the annual
(11:21):
annualized earnings growth for them over since the nineteen fifties
has averaged about seven percent. So you are betting on
companies that they are going to continue to grow their
earnings over time. Valuations will fluctuate over time, sometimes the
market will be cheap, sometimes will be expensive, but ultimately
you are participating as a shareholder in companies that are
going to continue to grow their earnings rather than the
(11:43):
alternative being sitting in cash or buying a bond. The
rates of return differ greatly in those two categories, and
that's what you are doing when you're being an equity investor.
Speaker 2 (11:55):
Yeah, I mean to speak to that medium to long
term view, right. If you go ask some of the
largest banks out there who put together their forecast over
the medium to long term. Rarely do they put together
like thirty year projections for markets, because I can't think
of much that's more useless than that. But go ask
Golden Sacks what they anticipate for the next decade of
(12:15):
equity market returns here in the US. I think they're
sitting at three percent a year. Last decade was like fourteen.
Go ask JP Morgan, go ask Merrill Lynch, Morgan Stanley.
You know, they are all hovering around these levels of
zero to three percent per year over the next decade.
But when you go ask their people, hey, what do
(12:36):
you think about markets for twenty twenty five, it's all
ten percent. We'll see markets appreciate by ten percent.
Speaker 4 (12:42):
And they could be right. Furthermore, valuations getting to these
levels is not.
Speaker 2 (12:46):
Always necessarily a sign of death to come. I'm looking
at the piece for Bloomberg that was written back in
March of twenty seventeen. What to make of these in
history S and P five hundred valuations? Rain in your
expectations for returns over the next decade or so. Something
(13:07):
happened in the stock market this week that has only
occurred twice since eighteen seventy one. Robert Schiller's favorite valuation
method for the S and P five hundred, the cyclically
adjusted price to earnings ratio reach thirty, is it time
to worry? Guess what the next seven years in equity markets?
I think did like two hundred percent, probably averaging you
(13:27):
fifteen percent per year. So it is simply not the
case that you can look at any of these methods
of pricing out equity markets and say definitively that, Okay,
we're in for a bad ten years. Is it fair
to look at two thousand and say, wow, that was
a pretty rough decade after we reached those levels back
prior to dot com bubble. Yeah, it's fair to make
(13:48):
that comparison because history is the only gud we have.
Speaker 4 (13:51):
But if you're just using.
Speaker 2 (13:52):
That to judge your portfolio allocation, then guess what you
probably missed out on two amazing years of stock market
returns in twenty twenty.
Speaker 4 (14:01):
Three and twenty twenty four.
Speaker 2 (14:03):
So I guess that's all I can say about it
is you certainly can't ignore valuations because historically they've been
a pretty good indicator of what's going to come in
the medium term. And if you're building out, say your
financial strategy, relying on ten percent returns for the next decade,
then you might be in real tough time. But that
(14:23):
comes back to what we always talk about on the
show is aligning your portfolio with your personal needs. Right,
Like those target date funds or any of those things
are not helpful tools when it comes to aligning with
your specific needs. If you look at the next ten
years of your life and say, oh, because I'm retiring
and I'm not taking of security, I'm gonna be spending
(14:45):
a whole boatload of money, then your portfolio needs to
look fundamentally different, maybe even from somebody that's older who
can afford to be more aggressive based on their specific makeup.
And that's what it always comes back to is customizing
this to yours and your specific portfolio. Twenty twenty five
will be the year of investing dangerously What does Katie
(15:09):
Martin from the Financial Times mean in this piece.
Speaker 4 (15:13):
Here, Paul?
Speaker 2 (15:15):
It seems to be based on the picture on the
front here the year of Trump and Jerome Powell once
again getting into it. But I don't know what investing
dangerously means.
Speaker 5 (15:27):
I read through the piece.
Speaker 4 (15:28):
Always seems a bit dangerous.
Speaker 5 (15:30):
I read through the piece and I don't really know
where she's getting at either here. Ultimately, she's just outlining
all the stuff that we talk about so frequently on
the show, this idea that there are risks at place
in terms of what the political landscape is going to
look like, what the economic policies are going to be
heading into this year. Obviously, there is a lot of
(15:53):
speculation in this market, frothy, whatever word you want to use,
particularly whether you look at micro strategies, and it's been
on bitcoin or bitcoin just as an asset class in general,
on the enthusiasm behind crypto, that there is some potential
out there for volatility. But that's the same case for
for every year. She basically lines out, you know, these
(16:13):
two different scenarios, quoting a portfolio manager, where you know
you could see inflation reawakening and concerns for the equity
and bond market, or you could see, you know, business
as usual on things marching along.
Speaker 1 (16:26):
It just seemed to kind of circle around.
Speaker 4 (16:28):
Yeah.
Speaker 2 (16:29):
I fortunately don't think that, you know, your Robin Hood
trading screen is going to try and stab you, So
she doesn't mean investing dangerously in that fashion. But I
guess as we head into twenty twenty five, I like
to think about what the what's the main narrative that's
going on there? And I think the main narrative that
I'm hearing is you have a very business friendly administration
(16:54):
coming into town, and you have an economy that has
been surprisingly resilient in twenty If we think about twenty
twenty four, leading in, it was, hey, an economy where
inflation is looking like it's defeated, but look out because
usually when that happens, recession occurs.
Speaker 4 (17:11):
And the narrative that you overcame.
Speaker 2 (17:13):
Was, well, recession didn't happen, and so stocks appreciated in
twenty twenty five. What's that same narrative, what's the wall
of worry to overcome? I suppose it would be that
investors are concerned about interest rates going back up and
inflation reigniting based on Trump's policies and so should that
not occur, then we have this potential wall of worry
(17:33):
to overcome and therefore stocks to appreciate based.
Speaker 4 (17:36):
On that feedback loop. But I don't know if that's
the dominant narrative out there right now.
Speaker 5 (17:41):
Six months ago, I would have said to you the
labor market, but that has sort of waned a little
bit here, and we'll see as we get some more
jobs data coming in is as if that should be
a concern anymore. But now I would probably say it
is the economic policies that is covering the most amount
of worry and skepticism out there in terms of what
(18:03):
will they look like and what sort of economic impact
will they have on the country. That to me, combined
with perhaps on a lesser scale, AI, and it's sort
of you know, when will we see material impact from it?
Those are the two things to me heading into twenty
five view.
Speaker 4 (18:20):
Yeah, I think that's about right.
Speaker 2 (18:23):
Obviously, the comparisons between AI and the dot com bubble
I think will continue to be made, and depending on
how much output and actual results we start seeing from
major companies like Microsoft could drive things. But to me,
the big question mark is around where FED policy goes
and the new narrative is, oh, we thought the Fed
(18:44):
was going to be able to cut a lot, they
might not be able to cut quite as much. In
the bad news camp, If you get a FED that
doesn't cut much at all in twenty twenty five and
in fact brings rates higher, then you could potentially have
a mini or significant repeat of twenty twenty two where
investors respond to higher than expected interest rates and inflation.
(19:05):
If instead the data just continues the way it has
and oil prices continue down and inflation generally remains tepid,
and maybe some of the more extreme policies that Donald
Trump has proposed that would result in inflation don't come
to the forefront, then again you could have this climbing
of wall of worry with interest rates lower, taxes lower,
(19:25):
and spending keeping up that could support this economy.
Speaker 4 (19:29):
Quick break. We'll have a full market recap next with
Wall Street Watch.
Speaker 1 (19:42):
Like us on Facebook and follow us on Twitter. Act
TFE show Breaking Business News is Paul Wain's first right
here on the Financial Exchange Radio Network. Time now for
Wall Street Watch a complete look at what's moving market
so far today right here on the financi shall exchange
radio network. All.
Speaker 3 (20:01):
After a bumpy start to twenty twenty five, markets today
are rebounding. The Dow is currently up by two hundred points,
just about half a percent. Highre SMP five hundred is
up by two thirds of a percent or thirty eight points.
NASDAC up nearly nine tenths of a percent to one
hundred and sixty seven points. RUSTED two thousand up by
(20:22):
about half a percent as well. Ten year Treasury il
is flat now at four point five seven percent, and
crude oil is up by about two thirds of a percent,
trading at seventy three dollars and sixty two cents a barrel.
Big news from the White House this morning after President
Biden officially blocked Japanese company Nippon Steal's fourteen point nine
(20:45):
billion dollar takeover of US Steal. In a statement, Biden
said US Steal will remain a proud American company, adding
that the domestic steel industry is a national security priority.
US steel shares are down by six percent on the news. Meanwhile,
the Department of Transportation find Jet Blue two million dollars
(21:06):
for chronically delayed flights, the first penalty of its kind.
The agency said jet Blue operated four routes that were
delayed at least one hundred and forty five times between
June of twenty twenty two through November of twenty twenty three.
Jet Blue shares down over two percent. Elsewhere, we're seeing
several stock grade updates for you.
Speaker 4 (21:25):
This morning.
Speaker 3 (21:26):
Chewy was upgraded by Wolf Research to outperform for peer
Perform with a firm named the online pet retailer a
top pick among Internet stocks, citing expectations for earnings upside,
a better macro macro backdrop in product catalysts as reasons
for optimism. Chewy up by five percent. Block shares also
up by five percent after Raymond James upgraded the stock
(21:49):
to outperform for market Perform, saying the fintech company is
trading at an attractive valuation even after its recent run,
and Hindenberg Research alleged that Carvana's recent turnaround is are
mirage supported with unstable loans in accounting manipulation, sending shares
an online in the online used car retailer down by
(22:10):
two percent. I'm Tucker Silvan, that's Wall Street Watch.
Speaker 2 (22:14):
There have been a number of things over the last
five years that have made the United States a bit
remarkable compared to its peers and unique compared to its peers.
Going back to the beginning of COVID, the development of UH,
the pace of deval of development of drugs and distribution
of those to massive amounts of business creation, and now
the the the use in generation of artificial intelligence. All
(22:38):
you know, largely headed here in the United States have
been incredible. But the truly remarkable pieces I see it
has been the ability for the United States to see
productivity growth that has far surpassed what we've seen historically,
as well as what other countries have been experiencing over
the last five years. Productivity, as we measure it here
is base is very basic. It's how much the average
(23:00):
worker gets done in an hour. Just think about it
that way.
Speaker 4 (23:04):
And I know not.
Speaker 2 (23:06):
Very few of us go out there and produce cars
or widgets or anything like that.
Speaker 4 (23:10):
But you can measure this pretty easily.
Speaker 2 (23:13):
The total output of the economy divided by the hours
worked and come up with a number. And that number
in the third quarter of this year rows two percent
compared with a year earlier. According to that Labor Department,
That marks the fifth quarter in a row with an
increase of two percent or better, and in the five
years before the pandemic, we've only really had two of
(23:35):
those quarters during that entire five year window, and over
the longer term have not been seeing productivity growth along
these lines. In other times that we've historically gotten pretty
solid productivity growth, it's actually come at times of pretty
ugly economic periods, because what you end up doing is
just reducing the denominator. So you lay off a bunch
(23:55):
of people, but stretch the remainder of them to be
able to still produce enough stuff for a short period
of time, and so you get some I won't call
it artificial productivity growth, but temporary productivity growth because you're
still hanging on with fewer workers. We're not doing that here, right,
We're getting productivity growth at the same time that more
people are working, more people are entering the labor market.
(24:16):
And that's in my mind, beyond everything else, you know,
beyond the stock market returns, beyond the economic growth, beyond
the ability to do away with inflation. This is the
piece that is all important to me. It doesn't not
to say that doesn't come with some downsides. Like I mentioned,
one of the key ways that you can get productivity
growth is by laying off a bunch of people, and
(24:38):
that's not great. But I can't point to a single
thing either as the main culprit for right. The easy
excuse would be, wow, look at all that artificial intelligence
is doing here. But I'm not convinced that's what we
are seeing as the main driver of productivity in twenty
twenty four and beyond here.
Speaker 5 (24:56):
No, I think that's too It's too early to say
that because it's just not as widespread the use now.
It does seem like anecdotally, more and more people I'm
speaking with are looking to incorporate the technology or indicating
instances where they've seen some productivity come out of it.
But to say the paint the overarching brush of just yeah,
(25:17):
everybody's betting from it. To me, that is too soon
to make that declaration.
Speaker 4 (25:21):
I don't know.
Speaker 5 (25:21):
If it's the ability to work the technology within our systems,
you able to work anywhere, You're able to complete tasks
through technology relatively seamlessly without too much manual initiative. But again,
it's hard when you're trying to categorize a whole economy
to point to one specific thing. But I would agree
(25:44):
with you that the sentiment I said before about the
S and P five hundred averaging annualized earnings growth of
seven percent over time since the nineteen fifties. This is
what you need. You need productivity. You need businesses to
be able to work more efficiently and drive their earnings further.
That's what you need to be a bullish investor on
the United States in general. Because the population growth we
(26:06):
talked about this, a little bit of that ain't coming.
So it's gonna have to be We're gonna have to
do more with less people.
Speaker 2 (26:12):
Because you can talk to your wife the other day
and she said she was signing up for three more kids, Paul.
Speaker 5 (26:16):
That's not gonna be medically possible. But that's we're not
getting the baby boomers are retiring. We're not gonna be
able to backfill it. The three of us have done
a good job marching the population growth for as best
we can, but as we talked about before, we're not
gonna get it. So you're gonna have to do more
with less. Productivity is the answer to that piece of it.
Speaker 2 (26:39):
There's a few things that I guess I can point
to as potential causes for productivity growth and a lot
of them unfortunately look temporary to me. I mean one
would just be a forced rapid adapt adoption of technology.
In twenty twenty, we just had this forced moment where
businesses that had never done anything over video conference, we're
(27:00):
forced to do so, right, Like even weird businesses like uh,
you know, suddenly electricians were needing to do inspections for
the homes that they were doing over video with the
with the inspector, right, not an industry that was traditionally
used to using technology.
Speaker 4 (27:15):
And I think that forced adoption maybe applying to other areas.
Speaker 2 (27:20):
They talk about how restaurants had to start using QR codes,
So how businesses started, you know, instead of flying their
people all across the country, started doing video conferencing a
lot more often. And I think some of that has
stuck around and maybe just the learning curve there of saying, hey,
we were forced to adopt this technology, so let's just
push it and go use this one too because it
(27:40):
seems interesting and we did fine with this one.
Speaker 5 (27:42):
I just think about you know, our firm is a
small example of that. We used to have We still
have a morning meme, but it used to be everyone
came into the office in our need Them headquarters met
in a conference room and then head out to respective
locations to around offices around the area, like a Wubern office.
You'd be coming in to need them just to go
to Wubern. Now that that's all held over video, everyone
starts at the point of where they're going to be
(28:04):
working for that particular day. Also, inter messaging applications. I
think that was something that we kind of pulled out
during the pandemic as well, the ability to just message
someone regarding a task or things like that. So I
think that does extrapolate out to other businesses, this idea
of forcing to be a little bit more flexible and
malleable with your business and incorporate technology sooner than you
(28:24):
would have because you had to.
Speaker 4 (28:26):
And so maybe there's some of that with AI too.
Speaker 2 (28:28):
Is companies that would have never considered it prior to
COVID or saying well, we did find.
Speaker 4 (28:32):
With this, so let's try that too. There's also been
this other piece that I guess.
Speaker 2 (28:37):
I just would point at the robust strength of the
economy of the last few years.
Speaker 4 (28:42):
New business creation since COVID has been through the roof.
Speaker 2 (28:45):
Yeah, and when you are starting a new business, you
tend to just operate more on a shoestring budget, and
maybe there's something to that productivity growth coming from that
as well. You take a look at the applications for
tax identification number, for example, and it's just been elevated
for the last five years compared to the previous five
and I think there's potentially something to that. There's certainly
(29:07):
a lot of failure in new businesses too, But when
you are as this article from the Wall Street Journal
interviews a guy who left a finance job to start
a gym, and he's doing everything. He's got two salespeople,
a few trainers, but other than that, he does HR,
he does payroll, He does sales, and you know that's
not something that you see when say, Planet Fitness opens
(29:31):
a new location. Let's take a quick break when we
come back. Something kind of snuck under the radar while
we were gone could have big tax and social security implications,
especially for workers here in New England. Quick Break will
be coming back with the Social Security Fairness Act next
on the Financial Exchange.
Speaker 1 (29:50):
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Speaker 4 (29:56):
All morning.
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Speaker 3 (30:22):
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Speaker 2 (31:00):
Across the country, we have a series of pension systems
for state and federal workers that are a mishmash because
they're all state run and have changed over the years
as well.
Speaker 4 (31:13):
According to.
Speaker 2 (31:15):
NASR, approximately two thirds of firefighters, police and other first
responders do not pay into Social Security. Forty percent of
public school teachers do not pay into Social Security, and
instead you contribute to a public retirement system instead of
that Social Security. Most to substantially all of the public
(31:37):
employees in Alaska, Colorado, Louisiana, Maine, Massachusetts, Nevada, and Ohio
do not pay into Social Security at all. And so
if you're listening here in Massachusetts or Maine, this is probably.
Speaker 4 (31:48):
A familiar story to you.
Speaker 2 (31:50):
You might not have worked as a teacher or a
firefighter or a police officer, but probably do know somebody
who has, and they might have talked to you about
these rules that affect their work and their Social Security benefits.
So let me give you an example. Let's imagine here
for a moment that actually I have a family member
who did this, worked in the private sector for several
(32:12):
decades as an architect. Then Great Recession hit, architecture firm
went under or dramatically reduced, and he started working for
one of the towns in their planning department. And I
think when he goes to retire, we'll have ten to
fifteen years of work in that job where he is
(32:32):
eligible for a pension from the Commonwealth of Massachusetts for
work in that role. He worked substantially number of years
in the private sector contributed to soci Security. But if
he did not work the full thirty years that's required
to do so, then even though he paid into Social
Security earned that Social Security benefit, the mere fact that
he had a period of time during his career that
(32:54):
he didn't do that would automatically reduce his Social Security
under the current laws. Paul was referring to a family
member of his where they worked their entire career in
the public sector, say in the teaching job here in
one of these states, where they're not covered by Social Security,
and they would be eligible for a pension. Because they're
(33:16):
getting a pension, they would normally be eligible for spousal
Social Security benefits, but those would be eliminated or severely reduced.
Usually you're eligible for like a half of your spouse's
Social Security benefits, but those could be eliminated or reduced
because they had private their public sector work for the state.
Both of those rules, the WEB and the GPO as
(33:37):
they're being discussed, are likely to be eliminated based on
a new bill that passed while we were kind of
in the midst of the Christmas and New Year's holidays.
It's sitting on Joe Biden's desk. It's likely to be
signed by January sixth. While it doesn't affect a lot
of employees across the country, it does have a big
(34:01):
concentration on teachers, firefighters, police officers, and has a huge
concentration here in Massachusetts in Maine, like I talked about,
because of the way in which our systems work. The
key message that you have to take away from all
of this is there could be a big benefit if
you're already retired, right this could change automatically a colorating
to the Social Security Administration. If you're already filed, you
(34:23):
don't need to change anything.
Speaker 4 (34:24):
Just make sure that.
Speaker 2 (34:25):
Your address is correct, is what they've put out there.
But if you are still working, you know, maybe you
are in your forties or fifties and thinking about a
career change in one direction or another, this can dramatically
affect how much income you're able to bring home in
retirement and completely upends the system that we've all been
working under for decades. If you have questions along those
lines of how these rule changes could change your retirement
(34:49):
security or how a career change. If you've been working,
say thirty years as a firefighter or a police officer,
and your pension isn't growing anymore, or you've been working
in the school systems and have been thinking about going
to the private schools, or something along those lines. These
could have huge ramifications for your choices. If you want
(35:10):
to learn more about how that will change and how
it might affect your retirement income and safety, give the
folks an Armstrong Advisory Group a call. We work with
our clients on evaluating their retirement income all the day
and we offer free consultations throughout New England. You can
call our offices at eight hundred three nine three four
zero zero one. Again that's Armstrong Advisory Group at eight
(35:33):
hundred three nine three for zero zero one.
Speaker 1 (35:36):
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Speaker 2 (35:52):
Paul, you bought your first home two years ago twenty twenty,
twenty twenty jeez, five years ago.
Speaker 4 (36:01):
Now, okay, talk to me about all the stuff that.
Speaker 2 (36:04):
You didn't plan on spending money on that you've had
to spend money on.
Speaker 5 (36:07):
Oh, since buying the house. Of the biggest surprises, let's see,
Uh having to replace the the oil the old tank.
That one was a surprise though it was at its
end of its life so far into owning the house?
Speaker 4 (36:26):
Did you have to replace the three or four years?
Speaker 5 (36:28):
Three or four years? But when I bought it, I
knew it was twenty years in they have a twenty
five year Oh central air?
Speaker 4 (36:37):
You know, I knew.
Speaker 5 (36:38):
I knew buying the house that we're gonna have to
deal with it eventually. Once a kid came along, that
pressure became immensely challenging.
Speaker 2 (36:46):
To having had a pregnant wife with twins when we
didn't have central air, I can I can vouch for
the fact that that could be difficult when you have
an August birthday.
Speaker 5 (36:56):
And then we had looked at doing something with the
screen and poor but I got the quote on that
and almost fell over. So that's no long or not
screen It continues to be screened. Yeah, it continues to
be screened, and not any walls to it.
Speaker 2 (37:13):
So I ask only because it's historically and traditionally been
one of the underlooked areas is all these additional cost
of ownership. You know, when you go onto redfinnor Zilow,
they give you an estimate of the monthly payment, but
that does not It can include insurance and property taxes,
but almost never does it include utilities or all the
other costs that come the lawn stuff.
Speaker 5 (37:32):
The leaves that that stuff is is either a huge
time commitment or a huge commitment.
Speaker 2 (37:38):
Yeah, And I bring it up too because I think
that there's likely to be increased transaction volume in twenty
twenty five. Maybe not substantially, but I wouldn't be surprised
if ten to fifteen percent more home sold. And these
costs around property taxes and insurance especially have been among
the highest levels of inflation that we have seen in CPI,
(38:00):
And so it's one of those areas that I think
there will be more housing activity and you don't want
to find yourself underestimating all those fun little costs that
creep into home ownership. Quick break a lot more to
cover in the second hour of the Financial Exchange.
Speaker 4 (38:16):
We'll be right back. Stay tuned
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
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(00:20):
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(00:43):
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(01:03):
This is the Financial Exchange with Mike Armstrong and Paul.
Speaker 2 (01:07):
Lane, Happy Friday, Happy New Year, Welcome back to the
Financial Exchange. If you were disappointed with the way the
day ended yesterday during a volatile session, well then we've
got good news for you so far this morning, a
half hour into trading, with all markets in positive territory
here in the United States this morning. But Paul and Tucker,
(01:30):
I wanted to start with some immensely concerning news. Yesterday,
Tesla's stock was down.
Speaker 1 (01:39):
My god.
Speaker 2 (01:40):
But wait, there's more done dun Apple too, So uh,
you know, we might as well just turn in our chips,
shut it down, and go home. Because for the first
day of trading in twenty twenty five, two of the
Magnificent seven stocks traded down yesterday, and.
Speaker 3 (01:59):
I couldn't believe how many outlets were like leading with this.
Speaker 4 (02:02):
Our heads are falling off.
Speaker 1 (02:05):
I think text down day.
Speaker 4 (02:07):
It is the only conclusion here.
Speaker 2 (02:09):
Don't worry about the fact that Nvidia actually moved up
yesterday and the markets were barely off for the day.
But big things to know now that Apple and Tesla
had a single day of bad market returns. By the way,
this morning, Applestock also down in early trading and Tesla.
Let's see up to and a quarter percent. So we
(02:31):
tend to criticize pieces that come out in the first
few days of the year. I recognize there's probably not
a lot to write about over at Barns on the
first day of the year. But what happens in a
single day for any company, market, or anything else is
no indication whatsoever of what the rest of the year
will look like.
Speaker 5 (02:51):
I'm going to go against you a little bit here
in the sense of totally agree with all that. I
actually like the piece because it speaks more to the
broader market that we're in right now, where these magnificent
seven stocks. Forget what Apple did yesterday or Tesla did yesterday.
But more broadly speaking, if you look at last year,
(03:11):
if you look at the year before, the reason your
four one K listener or someone's portfoliout there has done
so well has come on the backs of these seven companies.
And I can't reiterate enough. And this piece does a
good job laying it out that fifty seven percent of
market gains last year, according to Dow Jones market data,
came from the seven companies that Mike and I talk
about all the time. This show Apple, Apple, Tesla, Amazon, Microsoft, Google, Nvidia,
(03:38):
and what's the last one Tesla. I don't know if
I mentioned that there, but the seven that we talk
about all the time. You look back the year prior
in twenty twenty three, sixty five percent of its gains
from the market came from these big seven companies. And
if you look at under the hood of some of
these businesses, there is reason for skepticism based on the valuations.
(04:00):
Tesla in particular always makes me scratch my head, but
it's been doing that for some years and it still
continues to reach, you know, a trillion and a half valuation,
where we just covered a story yesterday they sold less
cars in twenty twenty four than they did in twenty
twenty three. That's problematic because typically they've been doing double
digit increases percentage wise on their sales. That didn't happen
(04:23):
last year. It dropped by one percent yet first.
Speaker 2 (04:26):
Ever time, by the way that Tesla reported year over
year sales declines.
Speaker 4 (04:30):
You have a.
Speaker 5 (04:30):
Business yet that you know was up I believe, fifty
sixty percent last year, and you head into this year.
All the optimism surrounds this idea that they're going to
be rebranded as more focused on robotics and AI, but
yet those promises that they're making to deliver on these
new initiatives are out in twenty twenty seven for the
(04:52):
you know, self driving cybercab, and we know how Tesla
does with deadlines, their total bs, I mean, they never
hit them and they will delay things five or ten
years more. So the reason I like the piece is
because you have these two companies, and Apple is another
one we should talk about too, that is seeing a
little bit of weakness. I'm not as concerned about Apple
because I think Buffett has put it well that it's
(05:14):
more of a durable consumer brand in terms of how
entrenched iPhones are into our lives. But they are seeing
some weakness in China. So I think that point is
is you know of merriage?
Speaker 4 (05:26):
Yeah.
Speaker 2 (05:26):
I think there's plenty of fairness in this piece and
plenty of good points they made. For instance, you know
the perhaps just the title of the article is what's
bothering Me? But the point five hundred has fallen on
day one in three of the last four years, but
still not more than twenty.
Speaker 4 (05:40):
Percent annual gains.
Speaker 2 (05:42):
On the other occasion, in twenty twenty two, it rose
the first day, but then fell nineteen percent for the year,
So the first day of trading is completely irrelevant as
this as this article acknowledges, if you want to make
the point to which everyone should understand, that this entire
market for the last two years has been buoyed and
anchored by seven massive companies whose valuations are astronomical and
(06:05):
the likes of which we haven't seen since pre Dot
Com bubble.
Speaker 4 (06:08):
Those are excellent points to.
Speaker 2 (06:10):
Make, but you also must acknowledge that it doesn't tell
you anything about timing, It doesn't tell you anything about
when that might fall apart, and so it all comes
back to, I think a fundamental question of what's going
on with these big companies. So you made a good
point about Tesla. Tesla saw year over year sales declines
in spite of all the excitement about Elon Musk and
(06:31):
the future of that company. I brought it up yesterday.
I'm very, very curious to see how they compete in
a world where a lot more companies are putting out
luxury electric vehicles. Tesla has not gone into the competition
space with say the Nissan Leaf by offering a lower
price point, and they've probably or Elon Musk's actions and
(06:54):
you know, political outspokenness has probably angered many of its customers.
Will he attract new customers to the Tesla base? I
certainly think there's almost no hope of him competing for
his you know, with his company competing in markets outside
of Europe and the United States, and so how do
you continue to grow that company in spite of those challenges?
(07:14):
You mentioned Apple? Very different company, a very different position,
much more mature than Tesla, but year over year foreign
smartphone sales in China declined by forty seven percent last year.
Speaker 4 (07:29):
How do you.
Speaker 2 (07:29):
Continue to compete when the single largest market for a
smartphone demand is having a moment of I guess non
I guess having a moment of non Apple interest or
maybe a little bit nationalism.
Speaker 5 (07:47):
You know, they want to buy domestic. I mean, look
at the two companies we're talking about, Mike, both of
them in terms of their you know, sales in China
are being undercut by local options. Buid has sold one
one point seventy six million cars globally. That's the electric
vehicle company out of China. And same thing here with Huawei.
They've made a huge inroads in terms of their growth
(08:09):
and If you look at Apple's revenue in China, it
was about seventy two billion in twenty twenty three, sixty
six billion in twenty twenty four. Seventeen percent of its
revenue comes from those sales within IPO markets to China,
so it's not nothing. And Tim Cook is not making
multiple visits over there because he wants to be there.
He recognizes that this is an important market and an
(08:31):
area that it's worth mentioning as an erear to monitor
for Apple.
Speaker 2 (08:39):
Let's take a quick break when we come back. I
want to expand beyond just the Apples and Tesla's of
the world and get a view into where this market
actually stands and what historical precedent we have to compare
it to quick break, Big market Overview.
Speaker 4 (08:54):
Next here on the Financial Exchange.
Speaker 1 (08:56):
Whoa stream watch a full update on the market's performance
today eight week days at ten thirty only here on
the Financial Exchange Radio Network. Thankst us six one, seven, three, six,
two thirteen eighty five with your comments and questions about
today's show, and let us know what you think about
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Radio Network.
Speaker 4 (09:25):
So Paul, as we turned to twenty twenty five.
Speaker 2 (09:27):
We have new Congress, a new president that will be
taking office in just a few short weeks, and a
new entrance to the stock market.
Speaker 4 (09:35):
We are entering twenty twenty five with.
Speaker 2 (09:39):
Following the best two years in the S and P
five hundred since the late nineties. The forward priced earnings
ratio on the S and P five hundred is sitting
at twenty five times the only time in history.
Speaker 4 (09:50):
It's been more expensive.
Speaker 2 (09:51):
That was just before the dot com crash in two
thousand and then the crash in twenty twenty two. So
the evaluations in twenty twenty one we're around these levels.
And if you are the average person sitting out there,
I don't know. Some are quite excited, some are maybe
a bit wary about where valuations are. How do you
approach the valuation question when you are speaking with folks
(10:15):
these days, because it it's easy to sweep under the
rug after the last few years of amazing performance, but
probably can't be ignored entirely.
Speaker 5 (10:24):
The tricky thing about valuations, and it's outlined here, is
that they are a good medium to long term way too.
Speaker 4 (10:32):
What does that mean?
Speaker 2 (10:33):
Like a medium long term how do we define that
like five to ten years, five to.
Speaker 5 (10:37):
Ten years, and then if you go twenty twenty five years.
These price earnings multiples are helpful to use as a
guide as from a contact standpoint to see as what
a stock is priced at, but from a short term perspective,
it's rather useless, useless as to whether or not this
twenty five times forward earnings for the S and P
five hundred reverts down to its me which I think
(10:58):
is around eighteen depending on what time period that you
look at. But really the reason that you invest, and
I like the way that this was laid out here
in this Bloomberg piece, is that ultimately, over our longer
period of time, you are banking on that the S
and P five hundred and in its constituents, the annual
(11:21):
annualized earnings growth for them over since the nineteen fifties
has averaged about seven percent. So you are betting on
companies that they are going to continue to grow their
earnings over time. Valuations will fluctuate over time, sometimes the
market will be cheap, sometimes will be expensive, but ultimately
you are participating as a shareholder in companies that are
going to continue to grow their earnings rather than the
(11:43):
alternative being sitting in cash or buying a bond. The
rates of return differ greatly in those two categories, and
that's what you are doing when you're being an equity investor.
Speaker 2 (11:55):
Yeah, I mean to speak to that medium to long
term view, right. If you go ask some of the
largest banks out there who put together their forecast over
the medium to long term. Rarely do they put together
like thirty year projections for markets, because I can't think
of much that's more useless than that. But go ask
Golden Sacks what they anticipate for the next decade of
(12:15):
equity market returns here in the US. I think they're
sitting at three percent a year. Last decade was like fourteen.
Go ask JP Morgan, go ask Merrill Lynch, Morgan Stanley.
You know, they are all hovering around these levels of
zero to three percent per year over the next decade.
But when you go ask their people, hey, what do
(12:36):
you think about markets for twenty twenty five, it's all
ten percent. We'll see markets appreciate by ten percent.
Speaker 4 (12:42):
And they could be right. Furthermore, valuations getting to these
levels is not.
Speaker 2 (12:46):
Always necessarily a sign of death to come. I'm looking
at the piece for Bloomberg that was written back in
March of twenty seventeen. What to make of these in
history S and P five hundred valuations? Rain in your
expectations for returns over the next decade or so. Something
(13:07):
happened in the stock market this week that has only
occurred twice since eighteen seventy one. Robert Schiller's favorite valuation
method for the S and P five hundred, the cyclically
adjusted price to earnings ratio reach thirty, is it time
to worry? Guess what the next seven years in equity markets?
I think did like two hundred percent, probably averaging you
(13:27):
fifteen percent per year. So it is simply not the
case that you can look at any of these methods
of pricing out equity markets and say definitively that, Okay,
we're in for a bad ten years. Is it fair
to look at two thousand and say, wow, that was
a pretty rough decade after we reached those levels back
prior to dot com bubble. Yeah, it's fair to make
(13:48):
that comparison because history is the only gud we have.
Speaker 4 (13:51):
But if you're just using.
Speaker 2 (13:52):
That to judge your portfolio allocation, then guess what you
probably missed out on two amazing years of stock market
returns in twenty twenty.
Speaker 4 (14:01):
Three and twenty twenty four.
Speaker 2 (14:03):
So I guess that's all I can say about it
is you certainly can't ignore valuations because historically they've been
a pretty good indicator of what's going to come in
the medium term. And if you're building out, say your
financial strategy, relying on ten percent returns for the next decade,
then you might be in real tough time. But that
(14:23):
comes back to what we always talk about on the
show is aligning your portfolio with your personal needs. Right,
Like those target date funds or any of those things
are not helpful tools when it comes to aligning with
your specific needs. If you look at the next ten
years of your life and say, oh, because I'm retiring
and I'm not taking of security, I'm gonna be spending
(14:45):
a whole boatload of money, then your portfolio needs to
look fundamentally different, maybe even from somebody that's older who
can afford to be more aggressive based on their specific makeup.
And that's what it always comes back to is customizing
this to yours and your specific portfolio. Twenty twenty five
will be the year of investing dangerously What does Katie
(15:09):
Martin from the Financial Times mean in this piece.
Speaker 4 (15:13):
Here, Paul?
Speaker 2 (15:15):
It seems to be based on the picture on the
front here the year of Trump and Jerome Powell once
again getting into it. But I don't know what investing
dangerously means.
Speaker 5 (15:27):
I read through the piece.
Speaker 4 (15:28):
Always seems a bit dangerous.
Speaker 5 (15:30):
I read through the piece and I don't really know
where she's getting at either here. Ultimately, she's just outlining
all the stuff that we talk about so frequently on
the show, this idea that there are risks at place
in terms of what the political landscape is going to
look like, what the economic policies are going to be
heading into this year. Obviously, there is a lot of
(15:53):
speculation in this market, frothy, whatever word you want to use,
particularly whether you look at micro strategies, and it's been
on bitcoin or bitcoin just as an asset class in general,
on the enthusiasm behind crypto, that there is some potential
out there for volatility. But that's the same case for
for every year. She basically lines out, you know, these
(16:13):
two different scenarios, quoting a portfolio manager, where you know
you could see inflation reawakening and concerns for the equity
and bond market, or you could see, you know, business
as usual on things marching along.
Speaker 1 (16:26):
It just seemed to kind of circle around.
Speaker 4 (16:28):
Yeah.
Speaker 2 (16:29):
I fortunately don't think that, you know, your Robin Hood
trading screen is going to try and stab you, So
she doesn't mean investing dangerously in that fashion. But I
guess as we head into twenty twenty five, I like
to think about what the what's the main narrative that's
going on there? And I think the main narrative that
I'm hearing is you have a very business friendly administration
(16:54):
coming into town, and you have an economy that has
been surprisingly resilient in twenty If we think about twenty
twenty four, leading in, it was, hey, an economy where
inflation is looking like it's defeated, but look out because
usually when that happens, recession occurs.
Speaker 4 (17:11):
And the narrative that you overcame.
Speaker 2 (17:13):
Was, well, recession didn't happen, and so stocks appreciated in
twenty twenty five. What's that same narrative, what's the wall
of worry to overcome? I suppose it would be that
investors are concerned about interest rates going back up and
inflation reigniting based on Trump's policies and so should that
not occur, then we have this potential wall of worry
(17:33):
to overcome and therefore stocks to appreciate based.
Speaker 4 (17:36):
On that feedback loop. But I don't know if that's
the dominant narrative out there right now.
Speaker 5 (17:41):
Six months ago, I would have said to you the
labor market, but that has sort of waned a little
bit here, and we'll see as we get some more
jobs data coming in is as if that should be
a concern anymore. But now I would probably say it
is the economic policies that is covering the most amount
of worry and skepticism out there in terms of what
(18:03):
will they look like and what sort of economic impact
will they have on the country. That to me, combined
with perhaps on a lesser scale, AI, and it's sort
of you know, when will we see material impact from it?
Those are the two things to me heading into twenty
five view.
Speaker 4 (18:20):
Yeah, I think that's about right.
Speaker 2 (18:23):
Obviously, the comparisons between AI and the dot com bubble
I think will continue to be made, and depending on
how much output and actual results we start seeing from
major companies like Microsoft could drive things. But to me,
the big question mark is around where FED policy goes
and the new narrative is, oh, we thought the Fed
(18:44):
was going to be able to cut a lot, they
might not be able to cut quite as much. In
the bad news camp, If you get a FED that
doesn't cut much at all in twenty twenty five and
in fact brings rates higher, then you could potentially have
a mini or significant repeat of twenty twenty two where
investors respond to higher than expected interest rates and inflation.
(19:05):
If instead the data just continues the way it has
and oil prices continue down and inflation generally remains tepid,
and maybe some of the more extreme policies that Donald
Trump has proposed that would result in inflation don't come
to the forefront, then again you could have this climbing
of wall of worry with interest rates lower, taxes lower,
(19:25):
and spending keeping up that could support this economy.
Speaker 4 (19:29):
Quick break. We'll have a full market recap next with
Wall Street Watch.
Speaker 1 (19:42):
Like us on Facebook and follow us on Twitter. Act
TFE show Breaking Business News is Paul Wain's first right
here on the Financial Exchange Radio Network. Time now for
Wall Street Watch a complete look at what's moving market
so far today right here on the financi shall exchange
radio network. All.
Speaker 3 (20:01):
After a bumpy start to twenty twenty five, markets today
are rebounding. The Dow is currently up by two hundred points,
just about half a percent. Highre SMP five hundred is
up by two thirds of a percent or thirty eight points.
NASDAC up nearly nine tenths of a percent to one
hundred and sixty seven points. RUSTED two thousand up by
(20:22):
about half a percent as well. Ten year Treasury il
is flat now at four point five seven percent, and
crude oil is up by about two thirds of a percent,
trading at seventy three dollars and sixty two cents a barrel.
Big news from the White House this morning after President
Biden officially blocked Japanese company Nippon Steal's fourteen point nine
(20:45):
billion dollar takeover of US Steal. In a statement, Biden
said US Steal will remain a proud American company, adding
that the domestic steel industry is a national security priority.
US steel shares are down by six percent on the news. Meanwhile,
the Department of Transportation find Jet Blue two million dollars
(21:06):
for chronically delayed flights, the first penalty of its kind.
The agency said jet Blue operated four routes that were
delayed at least one hundred and forty five times between
June of twenty twenty two through November of twenty twenty three.
Jet Blue shares down over two percent. Elsewhere, we're seeing
several stock grade updates for you.
Speaker 4 (21:25):
This morning.
Speaker 3 (21:26):
Chewy was upgraded by Wolf Research to outperform for peer
Perform with a firm named the online pet retailer a
top pick among Internet stocks, citing expectations for earnings upside,
a better macro macro backdrop in product catalysts as reasons
for optimism. Chewy up by five percent. Block shares also
up by five percent after Raymond James upgraded the stock
(21:49):
to outperform for market Perform, saying the fintech company is
trading at an attractive valuation even after its recent run,
and Hindenberg Research alleged that Carvana's recent turnaround is are
mirage supported with unstable loans in accounting manipulation, sending shares
an online in the online used car retailer down by
(22:10):
two percent. I'm Tucker Silvan, that's Wall Street Watch.
Speaker 2 (22:14):
There have been a number of things over the last
five years that have made the United States a bit
remarkable compared to its peers and unique compared to its peers.
Going back to the beginning of COVID, the development of UH,
the pace of deval of development of drugs and distribution
of those to massive amounts of business creation, and now
the the the use in generation of artificial intelligence. All
(22:38):
you know, largely headed here in the United States have
been incredible. But the truly remarkable pieces I see it
has been the ability for the United States to see
productivity growth that has far surpassed what we've seen historically,
as well as what other countries have been experiencing over
the last five years. Productivity, as we measure it here
is base is very basic. It's how much the average
(23:00):
worker gets done in an hour. Just think about it
that way.
Speaker 4 (23:04):
And I know not.
Speaker 2 (23:06):
Very few of us go out there and produce cars
or widgets or anything like that.
Speaker 4 (23:10):
But you can measure this pretty easily.
Speaker 2 (23:13):
The total output of the economy divided by the hours
worked and come up with a number. And that number
in the third quarter of this year rows two percent
compared with a year earlier. According to that Labor Department,
That marks the fifth quarter in a row with an
increase of two percent or better, and in the five
years before the pandemic, we've only really had two of
(23:35):
those quarters during that entire five year window, and over
the longer term have not been seeing productivity growth along
these lines. In other times that we've historically gotten pretty
solid productivity growth, it's actually come at times of pretty
ugly economic periods, because what you end up doing is
just reducing the denominator. So you lay off a bunch
(23:55):
of people, but stretch the remainder of them to be
able to still produce enough stuff for a short period
of time, and so you get some I won't call
it artificial productivity growth, but temporary productivity growth because you're
still hanging on with fewer workers. We're not doing that here, right,
We're getting productivity growth at the same time that more
people are working, more people are entering the labor market.
(24:16):
And that's in my mind, beyond everything else, you know,
beyond the stock market returns, beyond the economic growth, beyond
the ability to do away with inflation. This is the
piece that is all important to me. It doesn't not
to say that doesn't come with some downsides. Like I mentioned,
one of the key ways that you can get productivity
growth is by laying off a bunch of people, and
(24:38):
that's not great. But I can't point to a single
thing either as the main culprit for right. The easy
excuse would be, wow, look at all that artificial intelligence
is doing here. But I'm not convinced that's what we
are seeing as the main driver of productivity in twenty
twenty four and beyond here.
Speaker 5 (24:56):
No, I think that's too It's too early to say
that because it's just not as widespread the use now.
It does seem like anecdotally, more and more people I'm
speaking with are looking to incorporate the technology or indicating
instances where they've seen some productivity come out of it.
But to say the paint the overarching brush of just yeah,
(25:17):
everybody's betting from it. To me, that is too soon
to make that declaration.
Speaker 4 (25:21):
I don't know.
Speaker 5 (25:21):
If it's the ability to work the technology within our systems,
you able to work anywhere, You're able to complete tasks
through technology relatively seamlessly without too much manual initiative. But again,
it's hard when you're trying to categorize a whole economy
to point to one specific thing. But I would agree
(25:44):
with you that the sentiment I said before about the
S and P five hundred averaging annualized earnings growth of
seven percent over time since the nineteen fifties. This is
what you need. You need productivity. You need businesses to
be able to work more efficiently and drive their earnings further.
That's what you need to be a bullish investor on
the United States in general. Because the population growth we
(26:06):
talked about this, a little bit of that ain't coming.
So it's gonna have to be We're gonna have to
do more with less people.
Speaker 2 (26:12):
Because you can talk to your wife the other day
and she said she was signing up for three more kids, Paul.
Speaker 5 (26:16):
That's not gonna be medically possible. But that's we're not
getting the baby boomers are retiring. We're not gonna be
able to backfill it. The three of us have done
a good job marching the population growth for as best
we can, but as we talked about before, we're not
gonna get it. So you're gonna have to do more
with less. Productivity is the answer to that piece of it.
Speaker 2 (26:39):
There's a few things that I guess I can point
to as potential causes for productivity growth and a lot
of them unfortunately look temporary to me. I mean one
would just be a forced rapid adapt adoption of technology.
In twenty twenty, we just had this forced moment where
businesses that had never done anything over video conference, we're
(27:00):
forced to do so, right, Like even weird businesses like uh,
you know, suddenly electricians were needing to do inspections for
the homes that they were doing over video with the
with the inspector, right, not an industry that was traditionally
used to using technology.
Speaker 4 (27:15):
And I think that forced adoption maybe applying to other areas.
Speaker 2 (27:20):
They talk about how restaurants had to start using QR codes,
So how businesses started, you know, instead of flying their
people all across the country, started doing video conferencing a
lot more often. And I think some of that has
stuck around and maybe just the learning curve there of saying, hey,
we were forced to adopt this technology, so let's just
push it and go use this one too because it
(27:40):
seems interesting and we did fine with this one.
Speaker 5 (27:42):
I just think about you know, our firm is a
small example of that. We used to have We still
have a morning meme, but it used to be everyone
came into the office in our need Them headquarters met
in a conference room and then head out to respective
locations to around offices around the area, like a Wubern office.
You'd be coming in to need them just to go
to Wubern. Now that that's all held over video, everyone
starts at the point of where they're going to be
(28:04):
working for that particular day. Also, inter messaging applications. I
think that was something that we kind of pulled out
during the pandemic as well, the ability to just message
someone regarding a task or things like that. So I
think that does extrapolate out to other businesses, this idea
of forcing to be a little bit more flexible and
malleable with your business and incorporate technology sooner than you
(28:24):
would have because you had to.
Speaker 4 (28:26):
And so maybe there's some of that with AI too.
Speaker 2 (28:28):
Is companies that would have never considered it prior to
COVID or saying well, we did find.
Speaker 4 (28:32):
With this, so let's try that too. There's also been
this other piece that I guess.
Speaker 2 (28:37):
I just would point at the robust strength of the
economy of the last few years.
Speaker 4 (28:42):
New business creation since COVID has been through the roof.
Speaker 2 (28:45):
Yeah, and when you are starting a new business, you
tend to just operate more on a shoestring budget, and
maybe there's something to that productivity growth coming from that
as well. You take a look at the applications for
tax identification number, for example, and it's just been elevated
for the last five years compared to the previous five
and I think there's potentially something to that. There's certainly
(29:07):
a lot of failure in new businesses too, But when
you are as this article from the Wall Street Journal
interviews a guy who left a finance job to start
a gym, and he's doing everything. He's got two salespeople,
a few trainers, but other than that, he does HR,
he does payroll, He does sales, and you know that's
not something that you see when say, Planet Fitness opens
(29:31):
a new location. Let's take a quick break when we
come back. Something kind of snuck under the radar while
we were gone could have big tax and social security implications,
especially for workers here in New England. Quick Break will
be coming back with the Social Security Fairness Act next
on the Financial Exchange.
Speaker 1 (29:50):
The Financial Exchange streams live on YouTube. Like our page
and stay up to date on breaking business news.
Speaker 4 (29:56):
All morning.
Speaker 1 (29:57):
Long Face is the Financial Exchange Radio Network. If you
missed any of today's show, catch up whenever you want
on our YouTube page. Find daily show segments and full shows.
Just go to YouTube dot com and search for the
Financial Exchange. This is your home for breaking business and
financial news. This is the Financial Exchange Radio Network.
Speaker 3 (30:22):
The Financial Exchange is a proud partner of the Disabled
American Veterans Department of Massachusetts. By making a donation, you
can support the Veteran Advancement Program, which offers permanent and
transitional affordable housing to veterans and their dependents. The DAV
of Massachusetts is the only DAV department in the country
(30:43):
to lead a veterans housing initiative for single bets and
those with families. Visit DAV five k dot Boston to
make a donation today and make note for this year's
five K to be held on Saturday, November eighth. That's
DAV five k dot Boston.
Speaker 2 (31:00):
Across the country, we have a series of pension systems
for state and federal workers that are a mishmash because
they're all state run and have changed over the years
as well.
Speaker 4 (31:13):
According to.
Speaker 2 (31:15):
NASR, approximately two thirds of firefighters, police and other first
responders do not pay into Social Security. Forty percent of
public school teachers do not pay into Social Security, and
instead you contribute to a public retirement system instead of
that Social Security. Most to substantially all of the public
(31:37):
employees in Alaska, Colorado, Louisiana, Maine, Massachusetts, Nevada, and Ohio
do not pay into Social Security at all. And so
if you're listening here in Massachusetts or Maine, this is probably.
Speaker 4 (31:48):
A familiar story to you.
Speaker 2 (31:50):
You might not have worked as a teacher or a
firefighter or a police officer, but probably do know somebody
who has, and they might have talked to you about
these rules that affect their work and their Social Security benefits.
So let me give you an example. Let's imagine here
for a moment that actually I have a family member
who did this, worked in the private sector for several
(32:12):
decades as an architect. Then Great Recession hit, architecture firm
went under or dramatically reduced, and he started working for
one of the towns in their planning department. And I
think when he goes to retire, we'll have ten to
fifteen years of work in that job where he is
(32:32):
eligible for a pension from the Commonwealth of Massachusetts for
work in that role. He worked substantially number of years
in the private sector contributed to soci Security. But if
he did not work the full thirty years that's required
to do so, then even though he paid into Social
Security earned that Social Security benefit, the mere fact that
he had a period of time during his career that
(32:54):
he didn't do that would automatically reduce his Social Security
under the current laws. Paul was referring to a family
member of his where they worked their entire career in
the public sector, say in the teaching job here in
one of these states, where they're not covered by Social Security,
and they would be eligible for a pension. Because they're
(33:16):
getting a pension, they would normally be eligible for spousal
Social Security benefits, but those would be eliminated or severely reduced.
Usually you're eligible for like a half of your spouse's
Social Security benefits, but those could be eliminated or reduced
because they had private their public sector work for the state.
Both of those rules, the WEB and the GPO as
(33:37):
they're being discussed, are likely to be eliminated based on
a new bill that passed while we were kind of
in the midst of the Christmas and New Year's holidays.
It's sitting on Joe Biden's desk. It's likely to be
signed by January sixth. While it doesn't affect a lot
of employees across the country, it does have a big
(34:01):
concentration on teachers, firefighters, police officers, and has a huge
concentration here in Massachusetts in Maine, like I talked about,
because of the way in which our systems work. The
key message that you have to take away from all
of this is there could be a big benefit if
you're already retired, right this could change automatically a colorating
to the Social Security Administration. If you're already filed, you
(34:23):
don't need to change anything.
Speaker 4 (34:24):
Just make sure that.
Speaker 2 (34:25):
Your address is correct, is what they've put out there.
But if you are still working, you know, maybe you
are in your forties or fifties and thinking about a
career change in one direction or another, this can dramatically
affect how much income you're able to bring home in
retirement and completely upends the system that we've all been
working under for decades. If you have questions along those
lines of how these rule changes could change your retirement
(34:49):
security or how a career change. If you've been working,
say thirty years as a firefighter or a police officer,
and your pension isn't growing anymore, or you've been working
in the school systems and have been thinking about going
to the private schools, or something along those lines. These
could have huge ramifications for your choices. If you want
(35:10):
to learn more about how that will change and how
it might affect your retirement income and safety, give the
folks an Armstrong Advisory Group a call. We work with
our clients on evaluating their retirement income all the day
and we offer free consultations throughout New England. You can
call our offices at eight hundred three nine three four
zero zero one. Again that's Armstrong Advisory Group at eight
(35:33):
hundred three nine three for zero zero one.
Speaker 1 (35:36):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal or tax advice. Consult
your own financial tax into state planning advisors before making
any investment decisions. Armstrong make contact you to offer investment
advisory services.
Speaker 2 (35:52):
Paul, you bought your first home two years ago twenty twenty,
twenty twenty jeez, five years ago.
Speaker 4 (36:01):
Now, okay, talk to me about all the stuff that.
Speaker 2 (36:04):
You didn't plan on spending money on that you've had
to spend money on.
Speaker 5 (36:07):
Oh, since buying the house. Of the biggest surprises, let's see,
Uh having to replace the the oil the old tank.
That one was a surprise though it was at its
end of its life so far into owning the house?
Speaker 4 (36:26):
Did you have to replace the three or four years?
Speaker 5 (36:28):
Three or four years? But when I bought it, I
knew it was twenty years in they have a twenty
five year Oh central air?
Speaker 4 (36:37):
You know, I knew.
Speaker 5 (36:38):
I knew buying the house that we're gonna have to
deal with it eventually. Once a kid came along, that
pressure became immensely challenging.
Speaker 2 (36:46):
To having had a pregnant wife with twins when we
didn't have central air, I can I can vouch for
the fact that that could be difficult when you have
an August birthday.
Speaker 5 (36:56):
And then we had looked at doing something with the
screen and poor but I got the quote on that
and almost fell over. So that's no long or not
screen It continues to be screened. Yeah, it continues to
be screened, and not any walls to it.
Speaker 2 (37:13):
So I ask only because it's historically and traditionally been
one of the underlooked areas is all these additional cost
of ownership. You know, when you go onto redfinnor Zilow,
they give you an estimate of the monthly payment, but
that does not It can include insurance and property taxes,
but almost never does it include utilities or all the
other costs that come the lawn stuff.
Speaker 5 (37:32):
The leaves that that stuff is is either a huge
time commitment or a huge commitment.
Speaker 2 (37:38):
Yeah, And I bring it up too because I think
that there's likely to be increased transaction volume in twenty
twenty five. Maybe not substantially, but I wouldn't be surprised
if ten to fifteen percent more home sold. And these
costs around property taxes and insurance especially have been among
the highest levels of inflation that we have seen in CPI,
(38:00):
And so it's one of those areas that I think
there will be more housing activity and you don't want
to find yourself underestimating all those fun little costs that
creep into home ownership. Quick break a lot more to
cover in the second hour of the Financial Exchange.
Speaker 4 (38:16):
We'll be right back. Stay tuned
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