Let's Talk Money

August 5th, 2023

Episode Transcript

(00:00):
Can Good morning in welcome, thankyou so much for tuning in today.
Hope you are all having a greatSaturday. I'm doing well. I'm Ryan
Bouche and I am your host today. So happy to be here with all
of you, and again appreciate allof you listeners tuning in and get a
great show. A lot to talkabout. Give out the phone minds again,

(00:21):
one eight hundred talk WGY. That'sone eight hundred eight to five five
nine, four nine. We'd loveto hear from you if you have any
questions, thoughts, you know,wanting to know what's going on in the
markets. It's going on with interestrates, any financial planning topics that are
top of mind. Again, giveus a call. So a lot we
want to get into this week,focusing on, you know, just a

(00:45):
recap of the markets, kind ofhad a down week. Talk about what's
driving that, you know, higherlevel, looking at some market trends that
we're seeing over the last few weeks, maybe even after the last couple of
months, but certainly market trends.Is that leading us into the second half
of the year. We'll talk aboutFriday's jobs report for July. Not too

(01:07):
good, not too bad, youknow, kind of that goldilocks middle of
the ground, which may be agood thing moving forward. We had the
US get downgraded earlier in the weekthat had an effect on the markets.
Will touch upon that, just youknow what's driving that downgrade, How does
it impact fixed income, how doesit impact equities? In a whole slew
of other topics. You know,I'd say again, if you have questions,

(01:30):
give us call one eight hundred talkWGY. That's one eight hundred eight
two five, five, nine,four nine. And you know, today's
conversation and show is probably going tobe a lot more markets driven investment driven,
because I'm lucky to be joined byso colleague of mine from Bouchet,
our portfolio strategist Paulo la Pietra,who is can be part of today's show

(01:56):
as well. And so paul andI we meet every every week as part
of our investment committee and talk veryoften about the portfolios strategy and ways that
we can, you know, bestmanage it for our clients. So,
like I said, today's show probablya little bit more investment focused, in
portfolio focused, and so if youdo have questions around that, give us

(02:17):
a call. So Paulo, sorryfor the long intro, but welcome.
Glad to have you in here today. Yeah, no, thanks Ryan.
I think this is the first showthat me and you're done together. So
looking forward to that, looking forwardto taking a deep dive into investment.
So thanks for having me on.Awesome super so again, give us a

(02:40):
call. One eight hundred GUI.That's one eight hundred and eight two five,
five, nine four nine. Solet's just give a little recap of
this week. Really a down weekoverall, you know, the down we've
and we've seen this sort of newtrend recently, and we'll talk about this
as we talk about just overall marketlandscape right now, but you know,

(03:00):
down week overall, but the down, you know, held somewhat steady,
only down about one percent for theweek, THESMP down two point three percent,
and the NASDAC was down closer tothree percent. And again this is
kind of more of a trend wherewe see volatility, where we're seeing you
know, the NANASTAC kind of leadthe way down, which would kind of

(03:21):
be expected. We hadn't seen thatin quite some time. And you know,
I think a lot of the marketsreaction this week, certainly then from
some of the uncertainty over the USdebt downgrade earlier in the week. You
know, we had a decent jobsreport for July. You come out yesterday,
although the markets were down for theday. I think, you know,

(03:43):
if you kind of had two endsof the spectrum with some earnings late
Thursday with both Amazon and Apple.Amazon really popped yesterday, but you saw
Apple kind of lead the way down, being down over three percent on Friday,
So kind of we had some somemixed signals from earnings calls, and

(04:04):
yeah, I think that kind ofgets into a larger trend of probably what
we've been talking about POLO with clientsand with some of our you know,
I would say commentary, uh,you know, whether it's our our market
update or most recent webinar that wedid together a couple of weeks ago.
Um, But certainly I think thefocus probably is a little bit more on

(04:27):
earning season right now. I couldn'tagree more. You know, when we
looked at Amazon specifically, Amazon reallydid come out with some great beats.
You know, earning for share hada massive beat, revenue had a massive
deat. But I think we're thereal optimism. There was there big sector

(04:48):
in Amazon that Amazon Web Services thatcloud that came in with a pretty solid
beat as well, showing that youknow, companies are still continuing to spend
money on cloud services. We thoughtwe may see a slowdown there, and
then the other you know, uh, you know, nice beat there was
advertising, right, and that wassomething that could be a concern as companies

(05:13):
become more cost conscious thinking about dothey have the capital to spend on advertising.
Uh, And that came out witha solid beat. So certainly a
lot of optimism, not only forAmazon, but you know overall markets.
It just you know, Apple whocame out with some pieces as well.
It just saw some slowdown and youknow, um iPhone production and iPhone sales,

(05:34):
so saw some saw some selling there. But to your point, Ryan,
it's it's at this stage in theball game, it comes down to
earning, uh, in just aboutus keeping our ear to the ground,
watching those earnings and see how that'sgoing to affect the markets. Yeah.
I think so much of the focuslast year, in particular surrounding the FED

(05:58):
and inflation, with what interest rateswe're going to do with direction they were
going. It's still a big partI think of this current market cycle and
always most investment conversations do we doeslead back to don't fight the Fed.
But right now, you know,it does feel like we have a little
bit of a stabilization with rates,a little bit more clarity as as the

(06:23):
year has gone on, although youknow, from at this point, I
don't know, four or five monthsago, major swings in the interest rate
environment, major swings in terms ofexpectations of what the FED is going to
do. Back in March, ifyou remember, the market was expecting multiple
rate cuts before the end of theyear, and now you know there's it's

(06:45):
not a majority in terms of whatthe expectation is, but there's still a
high expectation of another rate hike beforethe end of this year. Although I
think yesterday's jobs report, if wewant to kind of take a look at
that, that does bring the focusback to the FED. That's an area
where I think the FED is islooking at closely. We've been talking about

(07:08):
it often with clients that hey,we're not going to see this interest rate
environment come down until we see softingin the labor market. And it is
it is as tight as tight canbe, but you know, the trend
is a little bit of a slowdown from what we've been seeing. You
know, last year, the averageaddition to jobs every month was about four

(07:31):
hundred thousand. The last two months, we're you know, we're right around
two hundred thousand jobs a month,and so we're still seeing unemployment rate come
down. We're still seeing a lotof tightness in a really strong labor market,
but the trend is slowing down,and so you know, if you
take a step back that, yeah, if you're worried about rates continuing to

(07:53):
hike, actually these jobs report isprobably a good thing. I think,
you know, I saw a headline. It's it's in that you know,
not too hot, not too cold. It's a goldilocks that we're looking for.
So probably a good thing in thegrand scheme of things. If you're
if you're still worried about continuing rateheights, I agree. You know,
I think the estimate there was fortwo hundred thousand jobs at it. We

(08:16):
came in a little bit softer.Uh, you know, with that unemployment
rate to your point, you know, sticking right around that three and a
half percent, we saw some wastegrowth there. So you know, it
shows us the consumers still going tobe in a good spot because we're in
a positive labor market, it's goingto remain tight, but also enough ammunition

(08:37):
I feel like for the FED seeinga little bit softer in that jobs report
number to potentially had you know,enough data there to you know, build
upon to keep rate steady and nothave to hype that one more additional time.
You know, J Powell has beenas transparent as he could be,
and he's been saying that there wasgoing to be two more additional rate hyps.

(08:58):
We solved one last month, sothat means there's potentially one more on
the table. But I think it'sgoing to come down to those job numbers,
which I think Friday was a positivein the in the fact that gives
them enough ammunition to hold. Butyou know, it's at this point it's
going to continue to come down tothe jobs numbers and then of course inflation
numbers as well. Yeah, andit's it's kind of an interesting dynamic.

(09:22):
And for those listeners out there thatdo have questions you want to talk about
this, talk about the markets asa whole, or any sort of financial
planning, retirement planning topics that aretop of mind for you. Again,
give me in pollow or call we'reat one eight hundred t WGY. That's
one eight hundred eight to five fivenine four nine. And yeah, you

(09:43):
know, the trend is slowing,and I think that could be a good
thing for UM again fed expectation andmaybe slowing or not hiking rates anymore at
this point. But we're still knowthe tightness and the strength of this labor
market is still showing up. Right. We're at three point five percent unemployment

(10:09):
labor participation for kind of the midrange twenty five to fifty four year olds.
We're back at pre pandemic levels,which is a good thing. You
know, a little bit cooling offin some of the hot sectors. They
saw services slowed down from from whereit was. Maybe that's not a huge
surprise as we're kind of getting towardsthe end of the summer. That's probably

(10:31):
a pretty typical trend in terms ofvacation holiday schedules for most Americans. But
you know, we're still seeing areasof strength and healthcare and other areas of
the economy, and the services economyhas been what's really been driving a lot
of our growth recently. We've talkedabout that in terms of how we've kind

(10:54):
of shifted from a consumer, especiallylike durable goods, which really we're spiking
and in driving inflation immediately after COVIDtoo. More recently it's kind of been
more of services, travel, leisure, some of these other areas that have
been keeping it high. But onthe flip side, you know, if
you're bringing inflation into the mix,yes, it's it's good that we're seeing

(11:18):
a little bit of a slowdown fromfrom the overall jobs being added, but
we're still seeing high wage growth,and wage growth is still in that mid
four range, which we've seen overthe last few months as well, and
I think that's going to be anarea where you know, we may not
see future hikes if we see aslowdown in the amount of jobs being added,

(11:41):
but certainly four and a half fourpoint four percent wage growth rate against
still it's good, good for theconsumer, good for the economy. I
mean, I'm not I'm not sayingit's a bad thing. It's it's certainly
a good thing, but it maylead to these rates being a little bit
higher for longer that we're seeing rightnow. Yeah, no, I agree.

(12:03):
You know, that's certainly been avery sticky area in the labor markets,
and when you couple the fact thatwage growth and you know, still
remaining strong, which to your pointis certainly a positive for the consumer.
You also need to think about youknow, real wages, right, so
what these consumers are earning compared tonow with inflation coming down, that means

(12:26):
more money in the pocket, andmore money in the pocket means more money
spent in the autonomy. That's somethingthat the FED needs to keep a close
eye on when they kind of lookat it and not on the core inflation
by headline inflation month over months.So definitely an area that needs to continue
to be looked at and could bea potential you know, area that's FED

(12:46):
sees more sticky and could have somesort of impact on interest rates. That's
that's certainly could be the case.Yeah, And I mean one of the
last points I came across this,uh last night, I think it was
in the Wall Street Journal, butthey're talking about kind of what's needed to
sort of maintain this unemployment rate.And so we think about right where we're

(13:09):
the last two months, maybe rightaround two hundred thousand jobs just maybe just
shy of two hundred thousand jobs beingadded per month, but now we're at
three point five percent unemployment, whichis historically low numbers, right, and
to keep that level into sustain thatmid three unemployment level, all we have
to do is add fifty five thousandjobs a month, which we're a long

(13:33):
ways from that level. And soagain, yes, we're seeing a slowdown.
Yes, I think it's good froma you know, the Fed may
not think that they have to rampup rates to kind of cool this growth,
but it's still in a range thatit's very strong. We should continue
to see tight labor, high wagescompetition in the jobs number. I didn't

(13:58):
I didn't look up the number thismorning, but I know last week,
you know, we have not quitetwice as many job openings as as job
seekers, a little bit less andtwice the amount, but you know,
still more job openings than job seekers. And again that's that's going to keep
that stickiness of wages and strength ofthe economy I think going for for a

(14:20):
little bit longer. So again,I think a lot of good out of
yesterday's report. Um, you know, it wasn't necessarily reflected in the market
yesterday, but that could have beenyou know a few other things going on,
you know, predominantly Apple being againwe talked about a little bit earlier
and being one of the largest companiesand in the world. Being the largest
company in the world has a bigimpact on the major industries. But overall,

(14:43):
I think it was a good jobsreport for July, and that's I
think going to be a main maindriver of where we see both the economy
rates and kind of being a realgood bell weather for for what's ahead.
So again, bone lines are open, give us a call one eight hundred
talk WGY one eight hundred, eighttwo five, five, nine, four

(15:05):
nine. So probably we're gonna goto a quick break and another minute or
so. But I think when wecome back, why don't we touch upon
the other big headline from this week. We'll we'll talk a little bit about
the US downgrade, what that means, how that impacts the market. We'll
go over that. We'll talk about, you know, how that touches upon
you know, we've talked about theFED and how the July jobs number may

(15:28):
impact what they do. Next,we can talk about interest rates, what
we're seeing in that side of themarket as opposed to just a stock market,
and we'll talk about some of thebigger themes that we've been discussing with
our clients and ways that we've beenyou know, updating the portfolio, making
tweaks to the portfolio to kind ofgo around and participate in some of those

(15:50):
themes. So again, one eighthundred Talk WGY. One eight hundred eight
two five, five, nine,four nine. You're listening to Let's Talk
Money here in eight ten in oneO three one WGY And welcome back to

(16:11):
Let's Talk Money here on eight tenand one to three one WGY. I'm
Ryan Bouche and I'm your co hosttoday. I'm joined by my colleague Paulo
La Pietra, who's our portfolio strategistand an advisor at Bouche Financial Group.
It's great to be with all ofyou and so happy you could tune in
and join us this morning. Giveus a call one eight hundred Talk WGY.

(16:33):
That's one eight hundred eight two five, five, nine, four nine.
Phone lines are open. If youwant to talk anything, markets,
investments, retirement planning, you nameit. Give us a call. We're
happy to take your questions and todive into a little bit more of a
conversation with you. Um So,Paulo, let's transition a little bit to

(16:53):
the US debt downrade. So thiscame out. This is a little bit
of a surprise, is to behonest, this came out. I think
Tuesday night definitely had an impact onthe markets. We saw volatility for the
rest of the week once that happened. Kind of you know, grand scheme
of things, trying to find theright wait, waited. Kind of a

(17:18):
big deal, but not really adeal at all. Um. You know,
there's there's three different ratings agencies,one of them being Fitch Ratings,
the others are SNPN Moodies. Theystill have the the US government debt at
triple A rated, which is thehighest. Fitch downgraded us to double A

(17:38):
plus and uh, I don't know. From my perspective, it was a
little bit of a surprise. Ididn't really see much of this being talked
about. But you know, onthe other hand, maybe maybe it was
a good thing that that we gotdowngraded a little bit. What do you
what are your thoughts follow Yeah,you know, it's tough. It's a
certain way to head live. Certainly, something that is you know, eye

(18:02):
popping to everybody when you see theUST being downgraded. It's not uncharged territory.
We saw the same in you know, twenty eleven. We saw some
volatility there. You know, inmy eyes, look all countries across the
world found themselves in similar situations withCOVID having to stimulate their economy really going

(18:22):
into those you know, quantitative easingenvironments, injecting a lot of money,
accumulating debt. So I don't thinkthat the US, you know, is
in a worse sense financially than anysort of developed country when we look at
you know, say Europe, EUall in very similar, you know,

(18:44):
situations. So in my eyes,I think it's more of a headline than
actual and material factor within the markets. But you know, we did see
some interest rate volatility, We sawsome selling on the long end. We
saw the ten year treasury preefuff overfour percent, And in my eyes,
that's an opportunity, it's an opportunityto lock in some good rates. And

(19:04):
so as far as the material andtackling forward, I don't see much coming
from it. We could see somecontinued volatility, you could see some investors
get a little skittish just because ofthat headline, But truly is an actual
factor within markets. I don't seetoo much their rye yeah, and I

(19:26):
think, you know, more sothan anything related to our economy, the
strength of the country, strength ofour consumer. It was really, you
know, more than anything, kindof a downgrade based on our politicians.
Really, it's a downgrade based onWashington. Right, we had the debt

(19:48):
ceiling fiasco that we ran into againthis past summer. Our politicians took it
to right to the end of theline before only you know, I guess
striking a deal if you want tocall it that. Really, you know,
once again kick the can down theroad where it's going to come up.
You know, in less than ayear and a half, it's coming

(20:10):
up January one, twenty twenty five, we're going to have another debt ceiling
negotiation. And I thought the biggesttakeaway that I saw on some of the
guidance and quotes from this downgrade waserosion of governance. And that's exactly what
it is. Right, We've we'vehad that that ceiling, our politicians digging
their heels. You know, theyfortunately were able to pass something so that

(20:37):
our debt wasn't defaulted on. Butyou know, that inconsistency in the way
that they are politicians just cannot worktogether on these things it's showing up as
as a problem with these ratings agencies, and that's really what drove it.
So you know, again it's notso much what we're seeing in the economy,
what we're seeing in the overall scopeof the US consumer and maybe the

(21:03):
ability. It's more of the governancethere. And I do I do worry.
I don't want to think about ittoo much now because we're still sixteen
months away, sixteen seventeen months awayfrom it. But you know, we're
gonna have an election next year andwe never overreact to that, so I
don't want to make that a biggerdeal than it needs to be. But
in this grand scheme of things,with the debt ceiling being right after those

(21:26):
elections, you know it's gonna bean interesting time for sure. And again
I don't even want to get toofar out in front of our skis on
this one, but it's gonna comeup again. Like I said, they
only kick the can down the roadon those conversations. At least we didn't
default. But it was funny becausewe had we had shared with clients how

(21:48):
one of the most impactful security atthat point when we were towards the end
or the beginning of June was theone month treasury and that is typically the
most boring security out there, butwe saw rates really fluctuating because the concern
of whether or not the US governmentwas going to be able to pay their

(22:10):
debts if the deal wasn't struck andnegotiated. So really interesting times. Again,
I think it has more to dowith that than anything else. Doesn't
worry me about the direction of oureconomy. Like I said, we had
a great jobs report, so addingplenty of jobs to keep up with our
unemployment rate and everything else. Soit's more of a sign of hopefully our

(22:33):
politicians can take it as a wakeup call to start, you know,
doing a better job when it comesto managing our our government debt and what's
right there. So we're coming uppretty close to news break, so we
got another thirty seconds or so.When we come back from the news break,

(22:55):
we will get into a little bitmore of you know, high level
market trends, what we're seeing,what we're seeing in the market, how
that's impacting some of our portfolio decisions, what we're doing for clients, both
on equity side as well as thefixed income side. And again We'll take
your calls. If you have anyquestions, give us a call. One
eight hundred Talk WGY. That's oneeight hundred eight two five five nine four

(23:18):
nine. Appreciate you all tuning in, stay with us through the news.
You are listening to Let's Talk Moneyhere in eight ten one o three one
WGY. And welcome back to Let'sTalk Money here in eight ten and one
oh three one WGY. I'm RyanBouche and I am your co host today.

(23:40):
I am joined by my colleague Paulale Pietra. He's a portfolio strategist
and advisor with Bruche Finance Group.So happy to have him in studio with
me, and so glad to bewith each and every one of you today.
So again, phone lines are open. Give us a call if you
have any questions. One eight hundredTalk WGY. That is one eight hundred

(24:02):
eight two five five nine four nine. So we talked a lot about the
July jobs report. Yeah, Ithink it wasn't reflected in Friday's market per
se, but I do think itwas a really positive jobs report on a
number of angles. One from youknow, still showing strength in the economy,
a little bit from again, ifyou're worried about continuing rate hikes from

(24:25):
the Fed. I think it waskind of a good in between number,
showing a little bit of a slowdown, a little bit under expectations,
but still solid, still strong,still able to kind of continue with the
strength that we're seeing in the overalleconomy, and certainly and in the labor
market and the tightness that we're seeingthere. Today, we talked a little

(24:47):
bit about what we saw with thecredit down grade for the US government debt.
Again not ideal per se, butI do think had a lot more
to do with Washington, our governanceand politician's ability to strike deals and negotiate
with one another. I do hopeit ends up being a little bit of

(25:08):
a wake up call to them toget back on track. You know,
the markets were bold till I don'tthink it's going to have much impact on
the stock market, but I dothink Paula you brought up, I think
it does have an impact a littlebit on our interest rates and what we
saw, especially with treasuries. Overthe next few days, we saw kind
of a spike in rates prior toFriday. Friday, they came back a

(25:33):
little bit. We had been beenseeing a little bit of a trend the
last week or two, rates onthe rise, and then they really wrote
pretty sharply. And you can thinkabout it, right, You want to
get paid more as a credit worthinesscomes down, So think about junk bonds
right there. You're going to geta higher yield than junk bonds. Now
they're a little bit more risky,and that's the risk premium you're getting for

(25:56):
holding in and lending to kind ofthose riskier borrowers. And with that downgrade
that one credit agency, Fitch,is saying essentially that you know, the
US government is a little bit riskierthan it was the day before when it
was triple A versus double A plush. So you you know, investors want
to get rewarded for that risk.And not a surprise that rates went up,

(26:19):
but I do think, you know, talking about what the expectation from
the Fed will be. I thinkFriday's jobs report sort of brought rates back
down a little bit because it wasn'ttoo strong of a job number. It
was kind of ranking that middle groundsweet spot where I think folks are probably
less inclined to think that the Fedis going to continue raising rates Paula,

(26:42):
Yeah, I agree. You know, the other element here too is and
you know many people do talk aboutit, but the lagging effect that comes
from raising rates, especially at theyou know, the face that the FED
has been doing that, and we'recertainly starting to see that in the economy.
You know, we've we've certainly madetremendous strides and inflation, you know,

(27:07):
with inflation headline and CORP coming downsignificantly from its ties last year in
June, and you know, consumersare certainly feeling that. You know,
we're looking at borrowing rates across theboard coming up pretty significantly. We see
that in the housing market, Wesee that in the car market. You
know, it's just looking at somedata this morning that I was selling that

(27:30):
the average interest rate on a newcar loan is about seven point two percent,
and the average interest rate on aused car loan now is around eleven
percent. You know, that's weighingon the consumer, and that's certainly going
to do what the Effect was beentrying to do since they've been raising interest
rates, and that's creating balance,right, bringing supply more towards demand.

(27:55):
We see, we see such adramatic imbalance going all the way back to
you know, the beginning of twentytwenty one, where there was limited supply
due to all the constraints around supplychains through to COVID, but there was
all that robust demand from all thestimulus that was injected into the economy to
make sure that we could survive throughyou know, that COVID recession and that

(28:18):
massive outweighing of demand and that shortsupply really uh, you know, casturbated
that that dramatic increase in prices,and now that we're seeing you know,
ving rates increase so dramatically, that'sreally going to slow down the consumer in
the sense of you know, havingsuch robust demand and getting it more in

(28:41):
the line was supplied. You know, I think that's uh, you know,
going to be a real positive.So I really hope that the fact,
you know, keeps that in theirmindset when they think about the forward
guidance on interest rate is you know, when they hike rates, there is
certainly a lagging effect, and wereally need to just out time for those
interest rate hikes to run its waythrough the autonomy before continuing the hike.

(29:06):
And I truly do feel that J. Powell Company over at the fed,
you know understand that concept. Yeah, And in car you ring up car
sales and got those rates are incredibledifferent, especially where we were not too
long ago. But I think there'ssome unintended consequences too, right that we're
seeing with the rate hikes, whereyou know, it slowed some areas where

(29:27):
inflation was running really really hot.You know, for a while it was
it was used cars and used carsales that were like really really just ramping
up. Car valuations were just goingthrough the roof on the early stages of
COVID, And that's come under control, and I'm assuming one of the big

(29:47):
leaders there in doing so is thateleven percent interest rate on used cars,
which is just such a high number. But on the flip side, I
saw some really interesting stats yesterday andit makes sense, right, we've talked
about it in terms of the stickyinflation number, how much of an impact
the housing market is having, andone of these unintended consequences, right,

(30:11):
you raise rates to slow down theeconomy. It's more expensive to borrow.
Hopefully that slows spending. It makesit more a little bit looks a little
bit better to start saving instead ofmaybe investing or doing projects right, because
rates are so high, you know, maybe set your money aside, you

(30:33):
know, get that great yield.That's what the FED is trying to do
when they raise rates slowdown inflation.But one of the big unintended consequences,
especially because of the I think probablythe velocity of how quickly rates went up,
was in the housing market right now. And it's a really interesting article
last night in the Wall Street Journal. It was an opinion piece. I'm

(30:56):
trying to pull it up today.I'm not finding it, so I don't
have his name. Who wrote itis an economist at the University of Chicago,
so one of you know, thebest especially finance in business schools out
there, and some of the setsthat he had. I mean, we
know that the housing market prices havebeen really up, and you know,
we had that in the beginning ofJuly. We had a great CPI report.

(31:19):
I think it was at maybe threepoint one percent apollo for overall CPI,
but the core inflation number, whichpulls away groceries some energy costs,
was still at like a four pointeight percent rate, so you know,
that was still really high. Andtwo of the main drivers we've already talked
about one being wages. So wetalked about the jobs report and how wage

(31:42):
inflation is still pretty high, inwage growth is still in that mid four
range. But the other big oneis home prices, and you know,
housing is about forty percent of thatcore CPI number. And even though you
would think with how high rates are, it would you know, cool the
housing market and bring prices down,the unintended consequence right now is that they

(32:06):
raise rates so quickly that no onewants to give up their three percent mortgage
that they had from a year anda half to two years ago, whether
it's three percent maybe three and ahalf. A lot of people have under
three because they refinanced. And sothere is no supply. So that said
two unintended consequences, right, Solimited supply and you brought up supplying demand

(32:27):
issues, so let's supply. It'sgoing to bring costs up. But the
other one, and I didn't reallythink about this as much, is that
typically new construction accounts for about tenpercent of housing sales, and new construction
is going to be more expensive rightthan an existing home. But right now,
because there's so few houses on themarket that I think, I think

(32:52):
the overall number of houses from prepandemic is like down forty percent or so,
but the other unintended consequences not thirtypercent. Or new construction makes up
thirty percent of houses on the marketand houses that are being sold, so
again unintended consequence more going towards thesenew construction. In construction costs are high.

(33:12):
New construction in general is higher thanexisting home prices, so us having
this snowball effect where you know,the FED is trying to cool the economy,
trying to bring inflation down, butat the same time, some of
their practices are keeping inflation higher.So it's just it's just a crazy dynamic
we're seeing now. And that's why, you know, we continue to talk
about it, and we continue tofeel that, you know, we probably

(33:34):
are in this like whether rates continueto go up, but we're probably in
this rates higher for longer. Andthat's really been a big theme of ours
all year. Yeah, I agreeon you know, and it's certainly when
we look back earlier this year,and they touch upon it a little bit
earlier in the show, that therewere certainly market expectations that rates we're going

(33:55):
to get caught in the second halfof this year, and certainly going into
twenty twenty four or but you know, when we really step back now and
look at the data, it certainlysupports the fact that race are going to
be higher for longer. You know, most likely that if the fat doesn't
raise you know, additional twenty fivebasis points in the coming months, that

(34:15):
they're going to at least hold wherewe currently are for you know, at
least a three to six month outlook. And that's really gone into a lot
of our investment decisions, both onthe equity side of the portfolio and certainly
on the fixed income side of theportfolio as well. And you know,
it's something that we certainly need tobe cognizant about, you know, going
forward. Uh, you know,it's it's been a unique year in the

(34:38):
stock market, you know, especiallywhen you think about what higher rate means
for both stocks and bonds. Youknow, you look on the equity side
of things and you see, youknow, higher rate. You know,
you open up an economic textbook thattraditionally means not well for tech, and
we saw a tremendous bounce back intech, you know, led by that

(34:59):
magnetic magnificent seven. So very unique. Uh, you know, certain lights
to say the least, but itcertainly shaped our investment decisions. Yeah.
I think that's a perfect example ofwhen we talk about the markets are always
forward looking, and you saw mostof that our performance and tech really kind

(35:19):
of show up when expectations were ofrate a pivot in rate decreases and pullbacks
for the end of the year.That was all kind of built into the
baked into the cake at the beginningpart of the year. And we've kind
of seen a slow down of bigtech as it's been more apparent that,
yeah, rates are going to stayhigher for longer, and as market expectations

(35:40):
that we're going to actually have morerate hikes versus rate cuts. You know,
big tech hes slow down a littlebit, and so you're always you
know, it's everyone's going to tryto time the market right in different ways,
whether putting money to work or makingchanges its portfolio. And you know,
one of the things we tried tojust beat into our client's heads is,

(36:00):
especially when they were so nervous aboutthe markets at the end of last
year, is that listen, ifyou're going to wait for positive headlines to
participate in the market, or youknow, to bring cat maybe a cast
in the sidelines and you're hesitant aboutgetting into the market. Well, if
you're going to start waiting for positiveheadlines, you're gonna miss the mark because

(36:22):
you know, we saw that shift. We started seeing positive headlines probably over
the last month, maybe five orsix weeks at most, and you know,
at that point you've missed and overtwenty percent on the SMP, probably
around thirty percent in the NASDAC fromtheir from their lows growth in the market.

(36:43):
And that's that's a big If youmiss those gains in the market,
that just builds upon itself over thelifetime of you know, whether you're you're
trying to get to retirement or throughretirement, it has such a such a
big impact. So he always goingto be forward thinking. I think,
you know, some of the trendsthat we've seen in the market this year

(37:04):
certainly been more forward looking. Anduh, you know, equities we've kind
of seen on a big scale,we've kind of seen a little bit shift
in the overall dynamics of the equitymarket over the last few weeks, um,
you know, not really coinciding withmid year point, but but right
around there. And I think that'ssomething that we can we can dive into

(37:25):
a little bit more um something we'vebeen We've been talking to clients a lot
about and you know, I'm onthe flip side. We've seen a big
change in the fixed income market,in the interest rate market and where rates
are going, what they're doing.I mean even today it was funny now,
kind of a misleading headline, butI got a good laugh out of
it. Was in Barren pitting WarrenBuffet. I think everyone probably listening for

(37:50):
most people know who Warren Buffett is, and pitting him against Bill Ackman,
who you know, big name,he'll he'll see him on CNBC. He
runs a big hedge fund out ofNew York Pershing Square Capital. But you
know he's he manages a lot ofmoney. He was kind of historically an
activist investor. But you know,on the one hand, Bill Ackman,
they're saying is going short treasuries andWarren Buffett is buying them or going long.

(38:14):
So kind of pitting them against eachother, but they're really at two
way way different ends of the spectrum. Bill Ackman is, you know,
saying she's short of treasuries. Well, he thinks that rates are going to
continue to go up on the longend, you know, the thirty year
realm of treasuries, whereas Warren Buffett'sjust buying a lot of three to six
month treasuries, where right now you'regetting five and a half percent on your

(38:37):
money going you know, on ashort term basis with the US government.
I mean that is, those arethe highest rates we've seen in close to
twenty years, and so a lotof opportunity. But you know, when
you look at the short end ofthe curve versus a long end. We've
talked about inverse yield curves, there'sso many different dynamics at play, and

(38:59):
so we've been we've been really strategic. And you know, we're gonna go
to a quick commercial break in anotherminute or so and we'll talk when we
get back. You know, bothon the equity side but also the fixed
income side. How we've been prettystrategic in terms of how we're allocating on
different parts of the yield curve.Because you know, the shorter end one
to three have looked attractive at differenttimes, the intermediate to longer five to

(39:22):
ten have looked attractive at other timesas well, and so they haven't always
lined up, and you have toreally weigh kind of what that means.
You know, where rates are,it's not always about getting the highest rates
because right now the highest rates arein the short end of the curve.
But you know that may not bethe best long term strategy overall. So
we'll talk a little bit about thatas well. So why don't we go

(39:43):
to a quick commercial break before weclose out the show again, you can
reach us when we come back.We'll have about ten minutes left. One
eight hundred Talk WGY. That's oneeight hundred eight two five, five,
nine, four nine. You're listeningto Let's Talk Money here on eight ten
and one to three one w andwelcome back to Let's stock money here in

(40:09):
eight ten and one oh three oneWGY. Got about ten minutes left,
Paula, let's let's close this thingout strong. I know you're you're next
athlete like to close games, closethe show in a strong fashion. So
for those listeners out there, appreciateyou tuning in. Give us a call
if you have any questions. Oneeight hundred Talk WGY. That's one eight

(40:30):
hundred eight two five, five,nine four nine. So as we sort
of look to wrap up the show, we've talked a little bit about the
stock market, a little bit aboutthe bond market. Touched upon jobs report
on Friday, not too good,not too bad. Talked to pile the

(40:50):
credit downgrade again, probably not ahuge deal. Hopefully it gets our politicians
a little bit of a wake upcall in Washington. But yeah, that's
yet to be seen. But Ihave some like some interesting stats kind of
just both on equity sides, butalso kind of leads into some of our
overall strategies and trends that we've beennoticing and talking to clients about. But

(41:16):
you know, one that that poppedup and I was reading about this a
little bit earlier this week, isyou know, when we talk about the
strength in the market, so overthe last I don't know, forty five
fifty years we've had we've had abouteight or nine years where January really popped,
right. We had a strong,strong start to this year. SMP

(41:37):
was up eight or nine percent,the Nasdaq was up in double digits.
Maybe you know, I don't know, off the top of I had twelve
thirteen percent. And in those years, you know, the trend is typically
pretty good. We've we've seen reallyreally strong growth in the markets. When
we start off the year really strong. We were coming off really lows.
The S ANDP was down twenty fivepercent back in last year October, the

(42:00):
NASTAC was down about thirty five percentdating back to last December, So we
were coming off lows. We hada really strong January typically is a very
good sign for the markets, andyou know that trend has by and large
continued so far year to date.The big divergence, though, is actually
this time of year, right,and so we're seeing volatility in the market.

(42:22):
We're seeing it, you know alittle bit probably from the downgrade this
week, and we're just seeing kindof probably a little bit flatter of a
market. You know. The bigtakeaway for me is in this data is
that this is actually kind of normal. Right. August historically has sort of
been a volatile month. September isactually historically kind of the worst month for
stocks. We don't have to getinto that right now, but in terms

(42:45):
of seeing some of the volatility nowand the average we usually see in these
really strong, up positive markets,quarter three kind of being a weaker quarter.
And so again, don't try tobase everything on some of those trends
and history, because I always historyis a guy but it's never the you
know, rule of thumb in thepresent or future. But I just saw

(43:07):
some of those stats were really interesting, and you know, when we think
about some of the volatility right now, would wouldn't be too overly concerned.
I don't see anything right now.I mean, most market expectations and earnings
expectations going forward has been you know, revised. On the upside, we're
still seeing good earnings, as youbrought up earlier, Pollo, So I

(43:28):
think that's all a positive. Butyou know, we may we're always going
to see some market pullbacks from timeto time, and I don't think that
is entirely out of the question.But you know, on top of that,
you know, when you look atthe major indusseries right and how much
they are driven by kind of thoselargest companies. We've actually seen some pretty
good um market participation elsewhere since aboutmid May, Polo, and I think

(43:52):
that's been you know, a realgood sign of the overall markets. I
couldn't agree more. You know,seeing that prupting the market is certainly positive,
and you know we've been seeing thatin you know, small cats and
midcaps. You know, when Ilook at small caps at midcaps, something
that really popped in my eyes asvaluations, and you know, four evaluations

(44:15):
were specifically looking at PE Radio,so their price compared to their earnings.
And on a historical basis, whenwe look at small caps, their twenty
year average is about sixteen point fivefor their PE and they're currently trading right
around twelve point six five. Andwith midcaps, you know, the twenty
year historical trends a little a littleunder sixteen and they're trading right now on

(44:39):
twelve point six. And I'm personallya guy that wants to buy things at
discounts, whether that's a home,a car, or stocks, I want
to make sure that I'm getting adiscount on that. And that's certainly where
midcaps and small casts are being pricedright now. And you know, we've
seen the markets respond to that.To your point, I'm looking at its

(45:00):
chart right here, starting from Junefirst of this year, we could see
that small caps are up about twelvepercent from that time, midcaps are off
about eleven percent, and the nattacksonly up about seven point five percent,
and the SMP five hundred is onlyup about seven percent. So we're starting
to see a little bit of outperformancethrough that window, and I think that

(45:23):
could be a positive sign for diversificationgoing forward. Yeah, both for a
diversification and I think overall market trends. So you talked about small cap,
talked about midcaps. One of therecent trends along those lines, we saw
some strength. We wrote about thisin our last week's newsletter to clients,

(45:45):
but we're starting to see small capscyclicals kind of lead the charge and lead
the way, and that with thevolatility that we saw last year, that
is usually a really good sign forfuture economic growth. That's that's usually you
know, strength in an economic cycle. And when we look again big picture

(46:08):
over the last fifty years or so, most you know, the previous four
economic sort of expansionary phases, theytypically last eight eight and a half years.
And if we kind of go backand we look from you know,
the COVID, we're only a littlebit more than three years into this expansionary
cycle. So again, that couldbe a good thing moving forward. You

(46:29):
know, it doesn't mean we're notgoing to see volatility from time to time,
but I think it's it's really importantto kind of look at these big
picture themes and you know how thatimpacts and plays a role, and you
know there's a lot, there's alot to be sort of optimistic about,
I think moving forward from here.So probably we only got a few seconds
left. I appreciate you joining metoday and being a part of the show

(46:53):
is great, kind of just havinga little bit deeper dive into the investments
and what we're seeing in the markets. Any last we get about twenty seconds.
Any last closing thoughts, Paula hNo, nothing, nothing of significance.
I hope everybody listening today has greatrest of your weekend, and I
appreciate you tune and in and thanksfor having me on the show. Ryan,

(47:14):
Hi, pol awesome having you in. Thank you for joining us.
You're listening to Less Talk Money.You can join us tomorrow morning at eight am.