The Fagan Financial Report

May 25th, 2025. 

Episode Transcript

Speaker 1 (00:00):
Good morning, and welcome to the Capitol District's Money and
Investment program. You're listening to the Faguan financial report, weather crummy.
It's a Friday morning where I recording the show Friday
morning and getting ready for the relatively long holiday weekend.
Got Monday off. I see you drinking a cup of coffee.

Speaker 2 (00:19):
Down a little bit.

Speaker 1 (00:19):
Ye has slowed down a little bit, you know, so
have the Mets. We've got the Dodgers. The Dodgers in
town this weekend. But right now it's about forty three degrees. Yeah,
Memorial Day weekend, the ice fishing this weekend maybe and
uh and we'll go from there. But life is good.
Gardens are coming up. I lost as of this moment,

(00:42):
I lost kale and a Brussels sprout plant to whatever
is back there.

Speaker 2 (00:49):
I've lost the kale.

Speaker 1 (00:52):
Yeah, I'm gonna go out and get some more, go
and get some more.

Speaker 2 (00:55):
Yeah, So I got and then so I went to
that edible uprising. It's really yeah, it's behind you know,
the South Troy baseball field literally up off Campbells. But
they do a great job. They have so many you know,
they have like a virtual farm standing and then they
have like a plant sale. But they had three different
types of kale. I think I had like long leaf kale.

(01:16):
They had nice little nervous.

Speaker 1 (01:20):
Put the cucumbers in.

Speaker 2 (01:22):
I put cucumbers in. They grow up something, don't they.

Speaker 1 (01:27):
I'm using two cattle panels that are eight feet long
and about four feet they're like fencing. I'm a zip
tie them together and create like a v. Yeah, and
then they'll grow up that and then I'll be happy.

Speaker 2 (01:39):
Well, yield some cucumbers yielding. What's nice about cucumbers is
you know you can eat them raw, you know, so
like what's your thing? It's edib raw this year? Nice,
But like you have so many things that go bad
if you you know, if I probably had one hundred
zuoch last year.

Speaker 1 (02:00):
Yeah, I know, you know. I was gonna say this
and like and I think it's right. But it's the
temperature of the soil that matters, not the air. And
unfortunately we're taking this.

Speaker 2 (02:10):
I'm just in it. I'm an I'm a very amateur gardener,
so am I.

Speaker 1 (02:14):
But Dennis dot Fagan at Faganassociates dot com. If you
know the answer to that, it's it's a temperature. Well,
certainly if it's freezing and below freezing and the leaves,
you know, go ye a freeze, then you got a problem.
But the fact that it's cool out isn't as much
of a problem over a short period of time if
the soil is warm, right, I think I'm right on that. Anyways,

(02:34):
let's get to it two minutes and thirty seconds in.
But I love to garden. You love to garden. I'm
sure there's lots of gardeners out there. And if you
ever have any tips, please feel free to email us
at Dennis dot Fagan at Fagan Associates dot com. We
don't take we too. We'll take some thoughts on the market,
for sure. But what we're gonna talk about today some
economic news. Sales of existing homes initial cunts on the plumpets,

(02:59):
talk about that the l E. I. Moody's downgrade of
US government debt late last week ten downside risks to
the US economic outlook from Apollo Torsten Slock, chief econoiss
of apollow long term bond yields a rise. We're going
to take tackle that in the first half and the
second half. Bitcoin continues to churn add or near record
his and make record highs, and we'll talk a little

(03:21):
bit about that. We have some bitcoin. We wish we
had more, but it's almost like the black sheep of
the investment family. It's tough to have them, you know,
talk a little bit about that. Touch on, let me
see what's in this pile of barney rubble diverging paths
target in Walmart. You know if if you if you
picked the consumer staple sector and thought, Okay, I'm gonna

(03:43):
be okay, you know, you would have would have made
a mistake.

Speaker 2 (03:48):
Yeah, you know, I don't want to get right into it,
but I will too. Walmart has a two point nine
percent net profit margin. Like I mean, in your in.
Trump's telling them, you know, you can't raise prices because
of because of these tariffs. Well they kind of have to, right,
you know, we really do We really expect a company

(04:09):
in a capitalistic society to have negative profit margins. That's
what he's saying. It's price control.

Speaker 3 (04:15):
That I mean, that would be a well most of
Walmarts groceries, groceries are are most of the most of
Walmart's what they what they sell is actually manufactured in
the United States, So I don't think would hurt them
now I think the issue the right, the overriding issue,
and I come down, Look, I come down and I
feel for what Trump says.

Speaker 1 (04:36):
President Trump says in as much that like some of
these companies have huge profit margins, and and you know
you've said it on the air several times, and this
is not the radio show really to do it. It
might be an NPR show for crying out loud, but
you know, we are capitalistic society. No, we don't believe
in price controls. Companies have moved from defined benefit plans

(04:59):
to define country contribution plans. You mentioned on the air
how some of the larger companies limit limit hours work
their structure, they're hours, they're hourly employees, so they don't
have to pay X benefits. So there are certain things
that companies can do to make make the labor more appealing.
But it's a globally, it's it's a challenging environment. Globally,

(05:22):
Walmart's profit margins are thin, and it's not the role
of the president to really put price controls in, uh
for for Walmart. But I do feel I do feel like,
you know, we went from a society where companies, and
my opinion, felt they had they at one point in time,
laying off an employee was not what's harder to do

(05:45):
than it is now. Uh, for companies, they're much less
employee motivated.

Speaker 2 (05:51):
Maybe that's just I heard someone on CNBC come in
and talk about how the four to one K was
the best invention for for everyone. Ever, it's like, no,
it's not, you know, putting the putting the stress on
the employee as as opposed to you know, forty fifty
years ago when about fifty percent of the working force
head pensions is not the best invention anymore. It's it's

(06:17):
it's just really unfair in my opinion, say, hey, up,
if you didn't invest in the stock market, it's your fault.
You should you should have been invested in your four
one K and you know a lot of the lot
of people in the world don't have that ability to
and uh the temperament. Yeah.

Speaker 1 (06:31):
So well, the other thing, too, is if that's the
best invention, if that's the best financial invention in the world,
you know, because certainly there's slice bread, there's the wheel,
there's fire, you know, but if so, if I think,
you know, if that's the case, then let's let's let
people invest their Oh, social security in the stock market. Yeah,
so there's there, but there's been that debate for a while.

(06:53):
I think on that. So, but you know, I do think.

Speaker 4 (06:56):
That privatize privatizing social So what do you think about
President Trump on social media stating Friday morning, I've long
ago informed Tim Cook of Apple that expect the iPhones
that will be sold in the United States of America
will be manufactured and built in the United States, not
India or any place else.

Speaker 1 (07:16):
This is untruth social If that is not the case,
the tariff of at least twenty five percent must be
paid by Apple to the US. There's been some studies
that suggest that the cost of an iPhone will move
from one thousand dollars to thirty five hundred dollars. So
if you a stick of twenty five percent tariff on
Apple phones coming into the US, they'll go to twelve fifty,

(07:38):
We'll say. And I think that's what Apple has to decide.
Is it cheaper to manufacture them outside the US still
and then bring them into the US. Now, I think
what President Trump would do at that point in time
is pressure Apple to eat the tariff as he did.
What do you pressure to eat the tariff. Was it Walmart? Yeah, yeah, Walmart,
what she's talking about? Yeah, sure, Walmart. Now that's up

(08:02):
to Apple to do or not to do. But if not,
or let's say they eat part of the tariff, let's
say they eat half the tariff as far as property.

Speaker 2 (08:09):
You know, and I guess, And then that brings you
into another thing. Even with technology, Apple was down about
three percent before the ballast. You know, we want to
be a company of innovation, a country a country of innovation.
So you know, by forcing these companies to eat tariffs,
that in turn makes them decreases their ability to spend

(08:30):
on CAPEX spending and continue to create innovation. So I
don't agree with bringing manufacturing back home, but I do
agree with transferring Apples manufacturing out of China. Someone just
wrote a book about the fact how basically Apple has

(08:51):
built they're so reliant on China. Now that is they're
really turning back. You know, they spend about fifty five
billion dollars a year in CAPEC spending in China, and
you know, I do think that they should be spending
a little bit more elsewhere. I'm not sure if we'll
ever manufacture iPhones in the United States again, but I

(09:13):
do think that decreasing our reliance on China is important,
you know, mostly for national security.

Speaker 1 (09:21):
And if I look, if I you know, I don't know.

Speaker 2 (09:23):
And they also say, you know, basically, what we've done
with China and manufacturing the iPhone in China is create
people who are experts in manufacturing the iPhone in China,
which in turn has allowed them, like high wy to
create a phone that is you know, basically fifty percent
of all phones in the in the world now sold
our high Wise. So we've given them this free education

(09:45):
to create their own businesses, right, you know.

Speaker 1 (09:47):
That's so yeah, But you know, they also say that
China has a very uh nomadic workforce. I think you
were the one. Yeah, where they'll they'll you know, the
different labor when when different things are in season, they
will move like whole cities, you know, millions of people

(10:08):
into a different area and then they'll focus on let's
say the holiday, or they'll focus on something else, you know,
I know, and I think the other and as Americans
to the core, you know, you know, it's it's it's
you know, when you say manufacture outside the United States,
it's not un American to say that, but there is

(10:30):
a point where it's cost effective for a company to
manufacture outside the United States, and it's beneficial for the
US consumer to manufacture out of the United States. You know.
President Trump had said, look, you know, do what you
can to bring bring manufacturing home to the extent that
you can and still have you know, serve your shareholders. Well,

(10:51):
well fine. The other thing too, is like you can't
we can't go from a defined benefit plan to a
defined contribution plan, which is a four oh one K
which relies on the stock market going up over time,
and then squeeze profits like this.

Speaker 2 (11:03):
You know.

Speaker 1 (11:04):
So and you know, we can easily identify the problems,
it's hard to identify the solution. And you know, and
and and you know and and and also when you
think about the unintended consequences of trying to identify a solution,
it's it's almost impossible. Yeah.

Speaker 2 (11:17):
I think that's the biggest risk to the market right
now is we've been calling this what the administration is
doing right now in experiment, so experiment for but even
know how this is going to play out. So the
the more things that you do that are outside of
the norm and you can't back test, the more chances
there are for a black Swan event or something to

(11:38):
happen that was unforeseen. It's like, oh, we should have
thought about that. Yeah, that's after the market is down
twenty percent, you.

Speaker 1 (11:44):
Know, So right, are we saying the range of potential
outcomes of a Trump presidency are much different and much
broader than that of a traditional politician, And and you know,
and and and and so we'll so see. But the
market is add are near record highs, within the within
the within a stonestro maybe five or six percent. We
are in the lull of tariffs, and I think that
has a lot to do with it. The ninety day,

(12:05):
I guess pause to allow for discussion begin with everybody
but China. Let's say April ninth or so, so we
have until July and n They think the closer we
get to that, the more the market will, the more
violatile the market will become. I think the US and
in China paused there or we reduced tariffs on China

(12:28):
for I think from one hundred and forty five percent
to forty five percent or so, uh, within the past
two or three weeks. So that'll be and we have that.

Speaker 2 (12:36):
Big, big, beautiful which I think is the.

Speaker 1 (12:39):
Big beautiful tax bill that and that is the official
name of it, isn't it The big beautiful tax bill
that passed the House and now goes to the Senate
where it seems to be going to have much more
problems getting through. But we'll see on the on the Uh,
you're ready to move, so you're ready to move along
to the economic front or no, yeah, of course. Sales

(12:59):
of existing home homes down five tens of a percent
to a seasonally adjusted four million units during April from
four to four point oh two million units during March,
down two percent year over year. According to the National
Association of Realtors, Total housing inventory registered at the end
of April was one point four to five million units,
up nine percent for March and twenty point eight percent

(13:19):
from one year ago, so inventories up. Unsold inventory sits
at a four point four months supply at the current salespace,
up up from four point zero months in March and
three point five so you have a inventory up sales
kind of flat, so you have more houses coming on
the market. Meeting is median existing home price for all
housing types. That is the same number of houses below
and above this price was four hundred and fourteen thousand.

(13:43):
We did see also the Freddie mac on housing or
mortgage rates took back above seven percent on the Moody's
downgrade of US debt, So you have that kind of
pushing mortgage rates up. So the housing market still remains
in some of the the duldrums many think. And I think,

(14:03):
you know, I think the latter part of this year
will be a better time if I was, if I
was a buyer of a home, I would let the
whole tariff thing play out and I would let see
what happens to the economy. And I'm not not you know,
I'm saying in general, like you know, if you need
a home grade, if you're looking for home and one

(14:24):
comes along, great, But but I would think the ladder
put the fourth quarter, you know, which is generally speaking
a soft time for sales. You know, you know, maybe
maybe things look a little bit better for if I
was a buyer, like in Florida, you know, see see
how many Canadians really don't come back that type of thing,
and in Arizona, like but yeah, I don't know, I.

Speaker 2 (14:44):
Have you know, and I think the housing market is
just kind of continue to be you know, a struggle
as we say, like what forty people don't have mortgages,
People are living longer, people are living in their homes longer.
So I think, uh, you know, and but you know,
I think you're gonna have to wait for some turnover
and you know, some people that die unfortunately to see

(15:04):
you know, major turnover in housing unless we get some
you know, in my opinion, some legislation that makes building
a little bit easier. I think, you know, we're in
for a little bit of a struggle in the housing market,
and it's just a supplying demand issue right now.

Speaker 1 (15:18):
Which you know doesn't votes kind of well for lows
and home depot. Yeah, people, you know, so maybe fixing
up their houses things like that.

Speaker 2 (15:26):
Sherman Williams median.

Speaker 1 (15:27):
Age of a home buyer. Yeah, sure, Williams of the
painting Company.

Speaker 2 (15:30):
Yeah, what is the this is in it?

Speaker 1 (15:32):
Thirty eight. It's thirty eight to me, up from thirty
five just two years ago. So that's the first time
home buyer is thirty eight years old. Now you're thirty six,
or you'll be thirty six, thirty five, you'll be thirty six.
Sam is thirty seven, she'll be thirty eight. You know,
so we got with that, got going. So still doldrums
in the housing market. Initial claims from employment benefits down

(15:56):
to two twenty seven generally speaking. And the reason we
bring this up every week or most weeks about unemployment
and the labor market is kind of a lagging indicator.
Nobody wants to really lay anybody who off. You cut
marketing expenses, you cut maybe capital expenditures in new equipment
and new plants, maybe first if you see a slow

(16:17):
than in the kindom. But nobody wants to upset the
life of an employee. Despite what I said earlier that
you know, American companies are less concerned about that, They're
still concerned about, you know, upsetting especially smaller businesses. Most
people don't realize that the vast majority of business in
the United States are relatively small. They're not publicly traded.
There are many, many more people working for these small
businesses than they have working for large businesses. So you know,

(16:40):
if you have twenty five or thirty employees and you
have to lay two people off, it really reverberates through
the whole organization, right, And so twenty and fifty thousand
initial claims from employment fend, it's kind of like to
bend the historic line in the standard. If we go
above that on on a consistent basis, that kind of
indicates weakness in the housing market. That's why we bring

(17:00):
it up to put some context to what we talk
about here. That's why I just went through the last
couple of minutes. But right now they're at two hundred
twenty seven thousand, the four week growing averages at two
thirty one to five, and continuing claims are nineteen at
one point nine ozh three million, all still showing a
decent labor market, which is plus. And finally this week,

(17:23):
the US Index of Leading Economic Indicators down one percent
during April after declining eight tens of percent in March.
With the Leading Index of Leading Economic Indicators is a
compilation of different really areas average hours, labor market, consumer

(17:44):
sentiment CPI, PPI, things like that, inflation numbers that go
into this, and it's down two percent of the trailing
to a month. So we have economy just kind of
like you know, mulling along, and that's kind of why
we sow GDP down three tens and percent in the
first co ord of the year.

Speaker 2 (18:01):
Anything to add to that nothing Sorry Moody's Moody's downgrade
US debt. I think, you know, that's kind of the
hot topic this year. It pushed a thirty year bond
over five percent. I don't think it was just that.
I think it was that as well as the tax
bill that was or the big beautiful bill that was passed.
The Big beautiful bill looks to add about what three

(18:25):
trillion dollars worth of debt onto the US balance sheet.
More debt, obviously is not good. I think the biggest fear,
in my opinion, is the unsustainability I guess of these
this higher interest rate environment. Josh Brown said something that
I thought was very insightful. It says, the US Treasury

(18:48):
bond is like the Sun. Every other asset classes like
a planet, orbiting that Sun, deriving light and heat from it,
and maintaining its own place in the firmament accordingly, So
I know, right, So, I think that's well said, and
you know what gives uh, you know, I think what
is so special about the United States, the United States

(19:09):
economy and the government really is the the the trust
that we have in in in US government debt. And
I think that trust has dissipated a little bit, uh
with this downgrade, you know, adding more debt. So I think, uh,
you know, it's something that we need to continue to watch.

(19:30):
And I think what we saw from President Trump a
few months ago when he initiated that ninety day pauses,
we saw him actually paying attention to that, that bond
yield drive. So I think that's you know, obviously a
good thing. But I think that's when we start to
re issue more and more of our debt at these

(19:51):
higher interest rates, there goes all the dodge things. Whatever
dodge saved. I don't think we know what dose saved
or whatever, but it's it's kind of irrelevant if we
have to pay, you know, repay people at a percent higher.

Speaker 1 (20:06):
It's a drop in the bucket. If the debt is
thirty seven trillion dollars and now we're paying you know,
four percent of that thirty seven or five percent of
that thirty seven trillion rather than four percent. Yeah, that
that is the big that's the albatross or the elephant
in the room for the market is interest rates. The
responsibility of interest rates. You know, who's responsible for the debt.

(20:27):
And we have certainly a lot of domestic debt that
you know, the Americans are on US debt, a lot
of foreign countries own US debt and you just don't know.
You just when you when you don't have control of
the debt, then that's not comfortable feeling. And think about
it in your own life. You know, don't have control
over something for the future, that's not a comfortable feeling.

(20:49):
And I think that's what's going on right now. So
the Moody's downgrades that debt, interest rates trend up a
little bit, and that was different than a few years
back when the S and P down the US debt
and interest rates went down. You think interest rates, you know,
if there's more demand for debt, interest rates go down
because you know, more demand pushes you know, pushes interest

(21:12):
rates down because there's more demand for it. And this
was a circular statement. So the less demand, you know,
pushes interest rates up. You know, the price of the
bonds go down and interest rates go up.

Speaker 2 (21:23):
So yeah, because the rates have to rise to entice investors.

Speaker 1 (21:29):
Entice investors. So if you have the stock market which
does eight or nine or ten percent a year, and
you have interest rates at zero or one, that's a
no brainer. You invest in the stock market. But if
interistrates are four or now the twenty years at five,
not that I would invest in the twenty year, but
even the ten year at four and a half. Now
it's like, well, jeez, maybe i won't have the worry
of the stock market and I'll get four and a half.
That's not nine. But maybe I'll maybe I'm not going

(21:50):
to invest all my money there, but maybe I'll bring
my asset allocation model down from you know, seventy percent
in the stock market to sixty. So that provides a
headwind to the stock market. The higher interust rates go,
I think more importantly, and we'll get into this a
little bit in the second half because we only have
a couple of minutes left. More importantly, you know, it
provides a real liquidity problem, a crowding out problem. There's

(22:12):
only there's only so much borrowing that can be done.
If if the government has to borrow a lot of
money and and to pay off its loans, then that's
less And then then if you and I want to
invest money in debt, we're gonna we're gonna maybe invest
in treasuries over over corporations, which makes their funding more difficult,

(22:32):
and they have to lift interstates themselves to entice them.
That's so. So there's a lot of things. You know, Josh
Brown had a good example when he used the sun.
But this is the problem of the debt. I'll equate it,
which is his examples. Better to eat in chicken wings.
You eat chicken wings your whole life, no problem, no problem,
I feel great. Boom, you have a heart attack. And

(22:53):
I think that's who knows when it's gonna come with
a problem with the debt. But at some point in time,
if we don't rein it in, there is going to
be a problem, and it may be sudden, just like
a heart attack. Answer chicken wings. But this debt is
kind of like chicken wings. It's it's you're we're eating
them in their whole life, and it's gonna come home
to roost. To get a chicken wings roost.

Speaker 2 (23:11):
Yeah, I don't know. It has to come home.

Speaker 1 (23:13):
I felt, Yeah, it does at some point in time.
And this budget isn't helping. And and look, I'm not
blaming Trump because of Democrats were just as much a
fault during the Obama administration with their tax their Inflation
and Reduction Act, which was, which was kind of a
not a great description of that because it's nothing to
reduce inflation. Biden say, okay, yeah, I'm on a rolls. Anyways,

(23:39):
so second half we'll talk about some of the downside risks,
the higher interest rates and the economic outlook a little
more and White buying your bitcoin, yeah, and uh some
other great information. Right now, it's ten thirty on the
station depend Upon for News Whether information news took a
ten and one o three to one w g Y.
Good morning. Become back to the second half five of

(24:01):
the Capitol District's Money and Investment Program. You're listening to
the Fagan Financial Report. I'm Dennis Fagan, sitting here with
my son Aaron, as we do every Sunday right here
in news ta K ten and one o three one
o three point one w g Y. We're recording this
on a Friday morning. So if we talk about the
weather being crummy, I think I think the weather for

(24:21):
Sunday is supposed to be decent. Though the second half
of the world. What's decent in the sixties? How about this,
what's decent? No rain, Although although we do like rain,
if Fagan associates, we like the garden Monday tomorrow is hi,
have seventy two at least right now, and then seventy
seven on Tuesday, right when it's time to go back
to work. And then in the seventies, Sam, your sister twins.

(24:47):
One of them homes. Yeah, one of them's home, Milo home.
Finley's still uh, still getting better. They were a little early.

Speaker 2 (24:56):
Yeah, you know they're healthy and text.

Speaker 1 (24:58):
Sunday is their one month birthday? You know today if
you're listening today, it's one month. One goes by fast now.

Speaker 2 (25:04):
Yeah.

Speaker 1 (25:05):
April twenty fifth.

Speaker 2 (25:06):
Oh, okay, born on a Friday, So I was you.

Speaker 1 (25:10):
Mom said the same thing. They're one month old. No,
they're not one month. Oh, they're four weeks old.

Speaker 2 (25:14):
Wow, it was four weeks ago.

Speaker 1 (25:15):
Yeah, four weeks ago today and then Sunday, So how
old esme? May is born in the fifteenth of July, right, Yeah,
she's ten months and your son Jude, yeah, crazy, crazy
time goes by. There's a gardener for you, your a
little pal.

Speaker 2 (25:31):
Yeah.

Speaker 1 (25:31):
You told him everywhere, aren't you.

Speaker 2 (25:33):
Yeah?

Speaker 1 (25:34):
Yeah, he's nice.

Speaker 2 (25:35):
Hey, we went to the plants une. Yeah, I got
he got some. He picked out some Swiss chart he
never grown up before, but I don't think it's that difficult.
Leafy things are usually that difficult, but they're hard to maintain.
Sometimes they get charges.

Speaker 1 (25:48):
Big No, but Swiss charts different. It's big. It's a
big leaf. It's like collar greens and stuff like. That's big,
healthy leaf, like spinach. It's it's the it's the leaves
that are wilt easy. They don't will you.

Speaker 2 (25:57):
And I gotta get my blueberry bushes.

Speaker 1 (25:59):
I know.

Speaker 2 (26:00):
I don't know where to put them, though.

Speaker 1 (26:01):
You just gotta get that cares. Got to get to
called out what do they call it, the pick axe?
Get the pick axe because you chop through some some uh.
I gotta do that too. I got I got two
raspberry bushes, which Mom was not happy about because raspberry
is rude under and they come up there and uh.
And I also got six Mexican sunflowers at the Lazy

(26:22):
bus up in brand Lake.

Speaker 2 (26:23):
That's nice.

Speaker 1 (26:24):
I love it. I love those. They're gorgeous. Anyways, let's
get right to it. So we're talking to the first
half about Moodies downgrading us dead unintended consequences, you know,
and you know we try to, you know, equate your
life to unintended consequences you know about you know, you know,
speeding and we're doing whatever. You know, you don't you

(26:45):
don't intend things for to happen, but you just don't
know once you give up that you know the first
you know, I never got in a bar fight, you know,
but I often talk about the tariffs that when that
first punch is thrown, you control the first punch, you
don't control anything that happens thereafter. And I think that's
what you have to be concerned about really with the
US debt.

Speaker 2 (27:04):
And I think, you know, when we got off this
show off the first half, I was like, man, that's
tough to talk about live on air. And you can
talk about stocks and stock evaluations all day because it's
almost like a second language to us. The bond market.
You know, we do know it very well, but it
is such a complex beast that it's hard to explain

(27:25):
in like easy currents and layman's terms. So and as
as you were just saying, there's so many unintended consequence
to everything every single move someone makes. Even you know,
you were talking this week about how you know, Japan
has raised their interest rates which makes them pay off more,
and they're one of our largest debt holders, which means
they might not buy as many debt instruments from US,

(27:46):
which could then weaken the demand, which could then have
prices interest rates go up a little bit. So you know,
there's a lot that goes into the bond market. And
the more complex something is, again, the more unintended consequences
can come from that.

Speaker 1 (28:01):
So if you look at Japanese Japanese debt to GDP
in twenty twenty four, it's two and thirty seven percent.
You know, that means Japanese government debt is two point
three times the size of its economy. So they're servicing
of that debt is is you know, a decent percentage

(28:22):
or larger percentage, you know, and it's only about nine
trillion dollars. Ours is thirty seven trillions. But but their
gd their GDP is a lot lower. So if their
their debt is nine trillion dollars, their GDP is probably
going to be about you know, four trillion dollars in
and around there. Uh, their GDP is four trillion, Our

(28:44):
debt is thirty seven trillion. Our our GDP is about
thirty trillion, So our g debt to GDP is like
the point is is that as as as Japanese interest
rates go up, then their debt service, their cost of
servicing their own debt go up, and.

Speaker 2 (29:06):
Their economy is not growing at the same pack at.

Speaker 1 (29:08):
The same pace. In fact, their economy went down. And
now their ten year right now, they're their ten year
government bond sitting at one point five to four percent,
all right. Two years ago that was below one percent.
So you have their debt to GDP or their their
cost of servicing their debt is going up by fifty
percent if you're talking about just the ten year note. Again,
they have different durations of or different maturity levels. But

(29:31):
the point is that what you said, maybe they'll buy
less treasuries just because it is going to cost them
more to service their debt now. And it's interesting with
the buyer market. And it's interesting if you think you've
got thirty percent of your money there if you retire,
or forty percent. You know, it pays to kind of
get familiar with it. Let's say the government offers a
twenty year note at five percent. The more interesting is,

(29:55):
and you mentioned this the first have very succinctly, the
more interest and bid there is for that, it drives
the yield down because let's let's say let's say we
have four people in the room and you say, well,
i'll buy that government node for five point oh five percent,
and I say five percent, and Bob says four point
nine percent, and so and so says four point eight percent.

(30:17):
The government's going to award the person with the four
point eight percent right, because they want to pay the
lest Now, if there's not as much bidding and the
lowest bid is five percent, then interest rates go up.
And I think that's that's what happens. So really the
demand for the demand and the supply kind of go together,
just like the stock market. But as the demand goes down,

(30:39):
the interest rates go up for bonds generally speaking, and
just like stocks. People why people don't get it is
is demand for stocks go down, the stock price goes down.
As the demand for bonds goes down, the interest rates
go up because the bond price goes down. And I
think a lot of people don't get that, you know,
and it is hard to explain. So so tourist and

(31:01):
slock unless you jump in there, because I've been talking
a lot. He got into some you know, ten ten
downside risks to the US economy, you.

Speaker 2 (31:09):
Know, and I know we already touched on some of them,
but you know Moody's downgrade, you know, increasing borrowing costs
for the US consumers and firms. And I think that's uh,
the biggest risk to the to the stock market and
obviously bond market right now is that is that rising
interest rate. And what you know, so we have a
rising interest rate, you know, if if if we have

(31:32):
a slowing economy, which you know pp I was at
two point four percent, which is is slowing. So if
we have a slowing economy and Trump saying, hey, Powell,
you need to cut rates, you know, if he eventually
does cut rates, what does that do?

Speaker 1 (31:48):
Right, Well, if inflation is going down with the PPI,
you know, then you know they cut rates in front
of that. But the producer if you look at producer
prices and consumer prices, uh, they're probably bottoming. You know,
maybe interest rates, but I think the FED would have
the Fed is gonna be hard pressed the cut rates
if inflation remains constantly, I guess, and.

Speaker 2 (32:11):
You know, they can cut rates and that will affect
the shorter side of duration in the in the in treasuries.
But you know, all and longer duration treasuries probably won't
be as affected. They're more affected by the inflation. Inflation

(32:32):
is and also the trustworthiness of the US dollar and
and in our bonds. So you know, again an experiment,
that's what's kind of going on right now.

Speaker 1 (32:41):
So inflation expectations will impact longer term bonds, FED action
and more so than shorter term. FED action impacts shorter
turn bonds more more so than longer turn bonds. So
I do think that they, you know, and then and
the FED and and and the in the Biden minute,

(33:02):
excuse me, the Trump administration or someone at odds as
to where where interest rates should go. I think the
FED is taking await and see attitude, and Trump is like, no,
you know, you've got to get these interest rates lower.
But if they do drop interest rates and we and
we have inflation from tariffs, which again maybe it's an

(33:22):
unintended consequence from President Trump, but it's an intended consequence
from from the vast majority of economists out there, then
I think you have the FED, you know, caught in
a box.

Speaker 2 (33:31):
And we talk about stagflation a lot, but I think
stagnation of cappac spending is another thing. That we have
to worry about. And we saw decors come out and
have good earnings, but the stock drop ninety percent because
they're like, we don't know what's going to happen in
the second doctor drop nineteen percent, So you know, who
knows what's going to happen in the latter half of

(33:54):
this year and early next year. So I think just
the uncertainty in you know, the global economy leads apex
spending to maybe stall out a little.

Speaker 1 (34:01):
Bit, right, I'm that's right, you know, just on deckers.
You know, we don't own any We've been looking at it.
What's it down there? Is it down down? This morning? Yeah?

Speaker 2 (34:11):
And this is Friday morning. It was down Hoka Teva brand,
and it's a great company. Companies, they're for guidance, they
didn't have any And what did they say for nineteen
percent my computer's network?

Speaker 1 (34:21):
Right, yeah, and what do they say that? Basically they
attributed that.

Speaker 2 (34:25):
To uncertainty in the market and market And.

Speaker 1 (34:27):
I'm not surprised at all with that, really, you know,
I am surprised at the market reaction to it. Yeah,
but we should take a look at that.

Speaker 2 (34:33):
Then twenty four fift nineteen point four five is it.

Speaker 1 (34:37):
Really so downside risk the US economy from apollo, trade
deal uncertainty and trade war retaliation risk. I think you
got that. You also have you know, what is Kindada
doing right now? What what is France doing right now?
What's the UK doing right now?

Speaker 2 (34:53):
Yeah, and you know, I think we saw that with
h I think it was at the beginning of this
week that our our bond bond auctions were very weak.
So you know, as you were just saying, you know,
what are the retaliatory measures other countries are doing that
have unintended consequences on the United States?

Speaker 1 (35:12):
And what are these countries doing? Are they negotiating behind
the scenes themselves against the United States? You know, we're
kind of up up against it, you know. So we'll
see what happens with that business planning. You mentioned capec spending,
consumer spending slowing, we can higher prices and stores. You've
got uncertainty with the economy. When you have economic uncertainty.

(35:33):
I met with a woman on and her husband on Thursday.
They canceled the trip to Alaska because of the economic uncertainty.
I think they were a little over the top on that,
but so be it. And that's one thing you don't
want to do. Well, we can get into a whole
other thing. On your portfolio is designed with three or
four or five bear markets intended bear markets over your lifetime,

(35:55):
you retired lifetime. Because bear markets are part of the
economic cycle, the stock market cycle. They come every three
or four or five years, so you plan for them.
That's why you assume a rate of distribution of four
or five percent, so that over full economic cycle, your
principle will be intact. So really, my fear is that

(36:17):
when we design these retirement programs for people there and
I know you probably feel the same way that in
you don't want someone to get to be eighty and
have canceled trips because of their fear of the of
the of the market cycles and have a lot of
money and not really experiences to look back on, you
know what I mean. Yeah, so people get to be
too old, there's a lower tourism's potential for an economic downtterm.

Speaker 2 (36:42):
A student loan debt just restarted. Yeah, so you know,
no one has had to collect on the United States
has not collected on defaulted loans since you know, the
pandemic March twenty twenty, and so there's forty three million
people who own money one point six trillion dollars. So
I think that's something that we have to keep an
eye on, is you know, those debt repayments of those
forty three million people and what that means to you know,

(37:05):
spending in the economy where you know, we where people
have been spending with those student loans.

Speaker 1 (37:11):
You know, give me your okay, let's move to something
that's a little more fun you know, to be right,
you know, although you know, I think it's funny because
the bond market is probably the most probably the most
you know, certainly the whole tariff negotiations, but I think
the bond market is something that really we've got to
keep an eye. Where do you think we are in

(37:32):
terms of average maturities and stuff like that on our
bond holdings there.

Speaker 2 (37:36):
I would say between three and five years. Would you say,
we have a lot in shorter term? No, you know,
we have a lot in bil which is I think
three to six months or six to nine months, So
I would say between I don't know, I don't know
on the average. You know, it's tough because we have
so many bonds, but you know, we are from you know,
extremely short out to about five years.

Speaker 1 (37:58):
But that is short in general. Yeah, and we'll we'll
have that number for you next week. But yeah, I
would number.

Speaker 2 (38:04):
For everyone next week. I think you have to stay
on the shorter end. But I think if interest rates
do continue to rise, it does take a uh you
should it does merit a look to you know, extend
that out to you know, five seven years, And.

Speaker 1 (38:17):
I think I agree with you. I think I agree
with that whole hardly. Right now we're happy, like we're
getting probably four percent on our money markets, we're getting
four percent on the bil As you mentioned. There's just
treasuries that come do certainly within a year, and I
think it's different. I think it's like six, like you said,
three or six months. And then we have some term
treasury ETFs that come do in twenty five, twenty seven,

(38:38):
twenty or excuse me, twenty seven, twenty nine, and thirty one,
some individual treasuries, but the vast fast, fast majority come
do within five or six years and skew to the
shorter end of that.

Speaker 2 (38:49):
For you know, and I think that you know, I
know one client in general that is always looking to
catch the top of interest rates. And you know, when
I look at the bond market and the fixed incomes
out of your portfolio. From a financial planning aspect, you
want to you want to get what's right for you.
You know, yeah, I think you try to. You know,
you can play the bond mark a little bit. But
if you see four four and a half percent in

(39:10):
your in your fixed income allocation calls from for three
and a half to four over your retirement, you know,
you have to lock that in, you know, you especially
on treasuries, if you you know, if you try to
play that up, it might go to five, it might
go to six, and you miss that. The consequences are
just too great in my opinion.

Speaker 1 (39:28):
Yeah, I agree.

Speaker 2 (39:28):
You know, if you run, if you have a lot
of if you have a lot sitting in this money
market account, to try to you know, get five five.
Oh hey, the two year might hit five and then
it doesn't and you're stuck at your money market at
three and that can have some major consequences on your
retirement income.

Speaker 1 (39:44):
Well, yeah, right, if you can lock in four four
and a half or five, if you're sixty five and
you can lock that in for five years, that puts
you now at seventy you know, so that puts you
if you if you look at your active retirement life,
let's say from sixty five to eighty active, if you're lucky,
if for you and your partner or spouse, that's one

(40:05):
third of your active life you've locked in. So I
think we know that that that that that buying or
competition for hey, maybe I'll get a little higher, maybe
a lit'll get a little bit higher. In my opinion,
having done this for forty years, you hear since twenty eleven,
should be offset by let me add some predictability into
my fixed incomes out of my portfolio for a third
of my active retirement life.

Speaker 2 (40:26):
Even if you you know, let's say you'll see you
one hundred thousand dollars and it's four percent right now
and you're hoping for five that's five hundred dollars in
a year, four hundred thousand dollars, is it really worth
the downsides?

Speaker 1 (40:38):
You know bitcoin?

Speaker 2 (40:41):
You know, at the beginning of this show, my my,
my talk about bitcoin, I guess was going to be like,
you know what we saw this week. We saw some
uncertainty in the bond market, and we had we had uh,
you know, gold do a little bit well but we
also had bitcoin do a little bit. Well, so that's great.
As this show has gone on in the last hour

(41:02):
and we saw Apple say, hey, we're gonna cut We're
gonna we're gonna impose tariffs. We saw the Dow drop
five hundred points, and we saw bitcoin go from about
uh one ten to one oh eight, you know. So
it's it's had a little bit of a reverse and
you know, it's it's kind of uh mimicking some riskier

(41:22):
assets with which it is. So I think we have
to continue to watch bitcoin and not as much the price,
but how it reacts to bond news, uh, United States
dollar news and things like that.

Speaker 1 (41:39):
What do you think, Well, I think that you made
a good point at the top of the top of
your your your your little piece here on bitcoin. Sometimes
it responds to gold and the potential for inflation. Sometimes
it responds to the NASDAC or a risky asset, you know.
And and so it's very difficult. I think bitcoin, I

(42:01):
said before the show, it's kind of like the black sheep,
you know what I mean. It's tough to own, it's
tough to hang with. I have some about four or
five percent of my portfolio I've seen it go from
you know, one hundred and ten thousand dollars to ten
thousand dollars a coin. You know, I'm just committed to
that piece from a fiduciary perspective, fiduciary from as a fiduciary, yeah,

(42:24):
I would say people should have one or two percent
of their portfolio.

Speaker 2 (42:27):
And I say one to I see I say two
to three where I'm talking to people on.

Speaker 1 (42:31):
The phone, but it's I don't mean there. But it's
difficult for for us to lay that out there, you know,
across all portfolios, because the response of investors is almost
testa like where you have people on the left and right.
You know, people on the left now don't like Tesla,
so you really it's hard to put it in someone's
portfolio right across that because it's such a political magnet.

(42:56):
Bitcoins the same way people, you know, they either love
it or hate it. But a lot of the vast,
vast majority of people don't know enough about it.

Speaker 2 (43:04):
You know, and ourselves included. I would say, you know,
you try, you try to know as much as possible
about it, but it's such a complex, mathematical whatever. What
would you consider bitcoin?

Speaker 1 (43:17):
Well, an algorithm.

Speaker 2 (43:19):
You know.

Speaker 1 (43:19):
I think that you know, and there's twenty one million
out there, and I think as you close in unsatisfying
those full of twenty one million, I think the price
goes higher as long as it continues to be adopted,
you know, regulatorily and by the by the investing public.

Speaker 2 (43:31):
And I know today is a little bit of a distraction.
I guess of what I've been saying with you know,
how it's been following as the dollar has been decreasing
in strength, you've seen a rise in bitcoin. I think
that will be the overriding theme over the next one
two three years. It's it's stability and how it it
is more and more of a storage of value and

(43:53):
more and more acting like golden I do think that's
where it is headed, right.

Speaker 1 (43:59):
I agree, don't think it's in I think it's more
of a storage value than anything. I'm just seeing these
uh comments coming out. Trump says he wants a straight
fifty percent tarif on the EU on the beginning of
June first, because trade talks are stuck. So the ninety
day reprieve is basically over. And I think that's probably
why the I think I think you're gonna get a
lot of Uh, you're gonna get You're gonna get a

(44:19):
lot of back and forth and rhetoric and and you
know that type of thing. As this plays out in that,
I think he's a deal maker. He's a deal maker exactly.
So I think we we said this earlier on the
show that as the deadlines increase, the volatility will increase.
And I think I think you're seeing that now, and
then Mark, we'll see haven't saying that. We'll see how

(44:40):
We'll see how that plays out. But so I do think, yeah,
I think bitcoin, Bitcoin is a store of value. I
think everyone should have one or two. It is you distract, Yeah,
I am. It's a lightning rod. And because it's a
lightning rod, we really don't as a fiduciary put that
in people's portfolios. Uh you know, we have some.

Speaker 2 (45:01):
You have a lot of people that are retired as well,
so it just doesn't really fit into their into their
into their investments.

Speaker 1 (45:09):
And then I guess when I'm one of the last
maybe not. Finally, we've got about pre minutes to go
diverging paths. We do.

Speaker 2 (45:16):
We do.

Speaker 1 (45:17):
We push out two things a week to our clients,
a weekly snapshot that goes out Sunday morning at eight Aaron.
Ryan's been doing it since Sam's on attorney leave and
they both they kind of switch off. Anyways, It talks
about getting the sector right, but getting the company wrong.
And I think, you know, if we use something something
that people understand, like uh, like the sector consumer staple sector,

(45:42):
the XLP, you.

Speaker 2 (45:43):
Know, I agree, I agree to, I agree to a
certain extent. But nowadays you can even get this sect.
Some companies are just such a biggest, biggest components big,
such a huge component of a sector like Chevron and
Next is like forty two percent of XLA. You know, financials,
Berkshire's thirteen percent or something like that. So I think

(46:06):
that's much easier said than done, because you know, the
largest companies in the world have such a pull on
the sector.

Speaker 1 (46:13):
Right, So you're but what you're saying is luck. I mean,
if you if you buy Excellent and Chevron, you're getting
forty percent of the XLA. So so it's it's you know,
buy those two, which I understand that you know, And
so the larger, the larger the domination of the top
two or three components of the sector, the easier is
to go with individual securities. But if you were to

(46:35):
go to like consumer staples and you go Costco is
the largest attending at Walmart a nine, and then targets
around to and change. I think you're you're you are saying,
all right, I'm going to invest if you like the sector,
you might as well go with the XLP to give
you to give you st alocation to the entire sector

(46:58):
and pick one stock or two because you may have
picked Target and targets down around thirty or forty percent
over the past year. Walmart's up fifty percent over the
past year. The xlp's up nine, which is kind of
in line with the market. So rather than making a
big mistake and saying, oh my gosh, I like Target,
you might end up, you know, on the wrong side

(47:18):
in the right sector. And that's what you don't want
to do some downside. Yeah, So what we try to
do is what do you try to do with with
with building up portfolio as far as that goes, you.

Speaker 2 (47:28):
Know, I think the I think you have to figure
out a from an investment standpoint, what you are good
at evaluating, what sectors you're good at evaluating, And that's
what we do. And then we use ETFs to to
support those individual stocks. So for instance, we liked a
lot of international this year, so we went with like

(47:50):
a DGT which is an international ETF, SCCHF which is
a global ETF. Both SDHF was an international ETF. So
you know, we try to combined, uh, you know, ETFs
as well as individual stocks to give you know, people
a little diversity and you know, a little bit better
of an overall return.

Speaker 1 (48:10):
And that works well for us, you know, a couple
of individual stocks, and then.

Speaker 2 (48:13):
We always try to have a correlation to the S
and P five hundred because you know, we know the
we know the American stock market goes up over time.
And what you don't want to do is you know, basically,
you know, from an investment standpoint, if the market's of
twenty percent, you're up eighteen percent, that's great. If the
markets have twenty percent, you're up ten that there's a problem.
So you want that correlation to the stock market because

(48:34):
you have you have the ability to back test that
over time.

Speaker 1 (48:38):
Good point. All right, thanks for listening. Gives call during
the week five four check us out no where but
Fagan asset dot com. Thanks to everybody those that served
in the laborers for a Memorial Day. Take care by
bye