December 13, 2024 • 38 mins
Chuck Zodda and Mike Armstrong discuss another market prediction for 2025, this time a 20% rise for the stock market. Broadcom revenue surges on semiconductor business momentum. Fed to cut one more time this year before slowing pace in 2025. The Fed can't ignore all of Trump's intentions. Trump's tax cuts may fail to drive much, if any, economic growth. How seniors can donate more to charity and pay less in taxes.
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Episode Transcript
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Speaker 1 (00:00):
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Speaker 2 (01:13):
Yesterday, our top story was the piece from market Watch.
It was titled Nasdak reaches twenty thousand for the first time.
Here's why that could spell trouble for investors in early
twenty twenty five. Today, our top story from Barons is
why the stock market could gain another twenty percent in
twenty twenty five. Barons is owned by whom I would
(01:38):
imagine Barons blown by Wall Street Journal, which isn't owned
by David Jones, who owns market Watch Dal joneson is it?
Speaker 3 (01:49):
Yeah, it is okay, so same parent company too. Writing
these two pieces. I know they didn't appear in the
same exact article and they are all very opinion based.
Speaker 2 (01:58):
But yeah, there we go.
Speaker 3 (02:00):
We have one subsidiary of Dow Jones saying look out, folks,
because then NASZAC reached all time highs and therefore, according
to mister Steinberg, sure, I think that's where they interviewed
Colony Group CIO. You know, look out because my gut
tells me things aren't going to go well, and Baron's
here saying look out because stocks gained another twenty percent. Chuck,
(02:24):
Here's the.
Speaker 2 (02:25):
Thing, So when there actually is an interesting point in this,
and that point is we talk a lot about the
long term trends of the stock MARKETO. Depending on like
the exact years you use, and you know, whether it
was called the S and P five hundred or whether
it was its predecessors. Historically you look at and you say,
(02:45):
US stocks generally have averaged between nine and twelve percent
a year long term. Mike, do you know what they
tend to make when they don't go down in a year?
So take out the years where the S and P
five hundred lost money. Oh, I see, I guess it
would have to be fifteen to eighteen. It's around twenty percent.
So like one of the mistakes that investors do make
(03:08):
is thinking, hey, like, if it's a good year for
the stock market, it's gonna be up like twelve to fifteen. No,
when this when stocks go up, they do tend to
go up in larger numbers. Typically now not all the time. Again,
it's still on you know, there's a distribution of this.
I'm not saying they always do, but when stocks move up,
they tend to move up meaningfully on the other side
(03:30):
of things, when they go down, they tend to go
down meaningfully, like year's like twenty eighteen, where the market
loses like one percent by the end of the year. Abnormal.
Those are kind of the weird ones, like that's not
really normal to see single digit returns in either direction.
It's usually either hey, you made a bunch of money
for the year, or you lost a decent chunk of
money for the year. It's it's very rarely in between.
(03:51):
When you look at the actual numbers, there's still again
it's it's still is a distribution in terms of you
know what you get overall, but it's it's not something
where you're consistently like, hey, it was eight percent this
year and it was ten percent. Like let's just do
the last twenty five years as an example, please plus
(04:14):
twenty eight plus twenty six minus eighteen plus twenty eight
plus eighteen plus thirty one minus four plus twenty one
plus eleven plus one plus thirteen plus thirty two plus
sixteen plus two plus fifteen plus twenty six minus thirty
seven plus five plus fifteen plus ten plus twenty six
minus twenty two minus twelve minus ten plus twenty one
(04:36):
plus twenty eight plus thirty three plus twenty two plus
thirty seven plus one, So that's going back to ninety four.
That's thirty one years.
Speaker 3 (04:43):
Actually I counted five where the returns were single digits
in either direction.
Speaker 2 (04:48):
So this illustrates my point is that even though the
average long term returns might be nine to twelve percent,
you very rarely actually generate like high single digit returns.
It's usually either meaningful double digits or meaningful meaningful double
digits either.
Speaker 3 (05:05):
Way that the stocks are gonna be great or stocks
are gonna sucks your point.
Speaker 2 (05:08):
Yeah, I mean occasionally, Look again, you get a handful
of times, like sixteen percent of the time in the
last thirty one years you ended up with stocks in
single digits either way. Yeah, But most of the time
they either win meaningfully or lose meaningfully. And this is
what I mean by volatility is built into the market.
It is a feature of equities that stocks usually either
(05:31):
make a lot of money or lose a lot of money.
They very rarely just hang out.
Speaker 3 (05:35):
Can I I'm gonna pull another quote from here. The
S and P five hundredth price to earnings ratio at
around twenty two times next year is expected earnings is
approaching frothy? If twenty two times future earnings isn't frothy,
where is our frothy definition? Because from what I am aware,
there's been three moments in US history where stocks have
been at twenty two times plus.
Speaker 2 (05:55):
So I actually have a great metric here from Bank
of America on this. Oh it's got their their their
froth maker, not their froth maker. But this is from
like they publish stuff like every day because it's Bank
of America and they got three hundred thousand people working
for them. Yes, so they looked at twenty different s
(06:16):
and P five hundred valuations and they said, hey, like
where is this relative to its historical norm? Like where
is today compared to its historical norm? Or okay, go ahead,
basically like how yeah, how far like above or below average?
Is it relative to the long term average? Trailing PE
(06:37):
ratio is seventy four percent above its historical average. Okay,
now again, interest we can talk about like why that's
the case, but I'm just gonna give you all the numbers.
Trailing gap PE so generally accepted accounting principles, so not
using you know, weird things like adjusted earnings in this
and that ninety six percent above its historical norm. Forward
pe it's thirty nine percent above its norm, trailing normalized
(07:01):
PE forty five percent above schill Er PE one hundred
and thirteen percent above price to book, ninety six percent
above enterprise value to ebit a fifty one percent above
trailing PEG ratio so PE basically divided by growth ten
percent above forward PEG, nine point nine percent above price
to free cash flow, twenty five percent above enterprise value
(07:23):
to sale, seventy percent above normalized earnings return premium forty
bless you forty nine percent below, which means that they're
actually it was a loud one. It was cooking. I
try my best to keep it, which actually made is
like no earnings return. There's no earnings premium there the
S and P five hundred in oil terms, so like
(07:47):
relative to the price of oil. I don't know why
that matters, but they included in their list, So whatever
two hundred and fifteen percent above its norm, the S
and P five hundred relative to gold, thirty seven percent
above its norm, the S and P five hundred relative
to the Russell two thousand forward pees twenty two percent
above its norm. S and P five hundred market cap
relative to GDP. So basically, how big is the S
(08:09):
and P relative to the US economy one hundred and
fifty eight percent above its norm? Okay, so long story short.
Speaker 3 (08:16):
Many of those sound like frothy numbers to me, But
take that with what.
Speaker 2 (08:21):
You hy froth Yeah, Look, this is a market where
if anything meaningful goes wrong, there's significant downside potential. Now,
it doesn't mean that something meaningful is going to go
wrong tomorrow, the next day, or the day after whatever.
Speaker 3 (08:39):
And I'll remind folks that it sure looked like things
were going to go significantly wrong over the last couple
of years. We had Silicon Valley Banking bank collapse, we
had a PSM rule recession indicator. We had a number
of things just in twenty twenty three and twenty twenty four,
which were fantastic years for stocks that ge when they
were occurring, sure looked like they were pretty bad.
Speaker 2 (08:59):
Which gets back to my overall point that I make
all the time, which is stuff's always going wrong in
the world, and most of the time we figure out
how to deal with it. The problem is when we don't,
and then it becomes like the bigger problems that you
know result in either you know, meaningful downturns or you know,
meaningful geopolitical conflict and stuff like that. But most of
the time we kind of figure it out. I'm not
(09:22):
saying that it makes the world perfect or anything. It's
more just like, hey, like, I guess this is how
it is, and we'll deal with it. So yeah, I
think that the interesting thing about these two top pieces
that we covered today and yesterday is they are illustrative
of what you actually see in the market. It typically
either makes a bunch of money or loses it. It's
(09:42):
rare that you have a stock market year where you're like, yeah,
we made four percent in the market this year. Great.
So I think that you could view these as, you know,
two potential views. But the problem is that they're not
published together and with The perfect piece, in my opinion,
is one where someone says, hey, here's the bull case
(10:04):
for next year, here's the bear case for next year.
Here are the factors that could steer you any other
of these directions, and these are the things that you
need to be mindful of as you get there. And
I know that's wishy washing.
Speaker 3 (10:15):
It's not a very good headline. Catcher there, Chuck, totally
get it.
Speaker 2 (10:18):
Okay, but Listenke, we got to do better, Michael, we
got to do better. I don't know what would we
rip on if we didn't have people publishing pieces. No,
I'm saying we have to They can do worse. Okay,
got it. That gives us material that keeps the show going.
But we gotta do better. Agreed. Let's take a quick break.
(10:41):
When we talk about someone doing better on the back side,
We'll talk about Broadcom because their stock is up about
twenty percent today, so they must be doing pretty darn good.
Speaker 1 (10:51):
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Speaker 2 (11:52):
Mike So Broadcom reported earnings. Was it this morning or yesterday? Yesterday?
After the bell? They're twenty one percent this morning and
broad coom. If you're not familiar with them, uh, you
should get familiar with them because they have a market
cap now of over a trillion dollars. They are a
semiconductor company that does all kinds of different stuff anything
(12:13):
from you know, networking to storage, all kinds of different things.
Like they're they're all over the place. What I'm really
struggling to wrap my head around on this is why
the valuation is where it is. And here's why it's
it's not a no. It is the poo poo their
(12:36):
business and Vidia I can look at it and say, okay,
in Vidia has a market cap of three and a
half trillion dollars. They got one hundred and you know,
fifteen billion dollars in revenue, and they make sixty billion
dollars a year off that Broadcom had. You know, again,
even if they repeat this quarter here, they made four
(12:57):
point three two billion dollars in proper fit. That's up
about you know, fifteen percent from a year ago. But okay,
like fifteen percent profit growth is you know, fine on
like a sixteen billion dollar profit company, but the margins
(13:18):
are thinner than you have with companies like in Nvidia.
There's no sign that there's some kind of clear mode.
And it's it's not to say that Broadcom should like
go out of business or anything, but from a valuation perspective,
I mean, you talk about like how nutty it is.
The pe ratio on them is one hundred ninety, the
forward pe is thirty five, and you're kind of sitting
(13:39):
there going, okay, like what's going on here because it's
just not exactly showing accelerat no, Like it's it's a
fine company that's growing at a good clip, but like
in Nvidia is a company that's showing you know, two
hundred percent yearly profit growth, and even like quarter to quarter.
Now the profit growth is still in the mid teens,
(13:59):
and that's valued at forty six times forward earning. So
how is this getting two thirds of the multiple when
it's growing at like a quarter of the pace.
Speaker 3 (14:07):
I think the answer is that there's just a lot
of stuff in the AI semiconductor space right now that.
Speaker 2 (14:15):
Looks frothy. It's a company like this is. I don't
want people to be like, oh, Chuck doesn't like anything
that's good, Like, no, I don't like some things that
are good, but there's other things that I look at
them just like it's fine, but I don't get it.
Speaker 3 (14:32):
Yeah, And I think it's a different question than we
were asking of in video six months ago. The question
of in video was can this continue to grow at
such a breakneck pace? Broadcom's already not growing at such
a breakneck pace and still being valued quite I won't
say exorbitantly, I'll say expensively.
Speaker 2 (14:53):
So here, like you look, get just a comparison again,
in Video's valued you know three and a half times
what Broadcom is. Sure in video revenue growth, it's it's
five year compound revenue growth is thirty nine percent a year.
It's growing revenue forty percent a year for the last
five years on average. Most of that compressed in the
last year and a half. Sure, it's earnings per share
(15:13):
are growing at forty eight percent a year over the
last five years. So you're growing profit faster than you're
growing revenue, and you're pressed and you're basically doubling your
profit every like seven quarters yea, which is good. Broadcomm
Its revenue growth is eleven percent a year. It's earnings
(15:34):
growth and this is for the last five years. It's
earnings growth over that time is three percent a year.
Again in and of itself, still impressive. Still a well
run company that's highly profitable. But yeah, it doesn't really compare.
One of these things is not like the other, and
there's only two things, so that thing is Broadcom. Let's
(15:56):
see piece from Bloomberg. The Fed's gonna cut one more
time this year before slowing their pace next year. Congratulations,
we looked at the FED fund's futures market.
Speaker 3 (16:07):
Yeah, I don't know who this piece is for.
Speaker 2 (16:10):
This isn't Bloomberg. Nobody's subscribing to tell me.
Speaker 3 (16:13):
Show me the one Bloomberg subscriber that is unaware that
the FED is cutting rates.
Speaker 2 (16:17):
This year, they don't exist. It's a fine piece. I
guess this is the kind of piece. The place that
it is is wrong. Yeah today, Yeah, and it is
a great service then informing people about what's going on
in the broader market for the APOR, you know exactly,
(16:38):
like and stuff like that should be in like USA
today or the AP because I do think we need
broader access to talking about this stuff because there's a
whole bunch of people that don't realize that the FED
doesn't cut mortgage rates. That's where we come in. We
cut mortgage rates. Yes, gosh, I had no idea. I
time that wrong. What button do I press on that? Yeah,
(17:00):
there's nothing interesting here. It's okay, the Fit's probably going
to cut next week almost a certainty, and no one
really knows what the pace of cuts is going to
be next year. I think that's that's good. Like, that's
that's a fine summary there. I do want to talk
a little bit about what we are seeing in uh,
the treasury market right now, not even just the treasury market,
(17:21):
the treasury market and the S and P five hundred.
There's no volatility. It's just flat dom like everything is
just very very muted as far as projections for future volatility,
and it's been calm also, like realized volatility has been
pretty quiet as well. For how I mean, you know
(17:44):
we had some SP five hundred has been calm all year. Statistically,
this is going to be like the third or fourth
least volatile year in S and P five hundred history.
Speaker 3 (17:55):
I want to focus just on that volatility piece for
a minute, because I continue to get points from people
and I was had a client in earlier this week
and she says, Man, it just it feels like things.
Speaker 2 (18:07):
Are way more volatile than I remember.
Speaker 3 (18:10):
And I had to make it a point to where that, like,
it's not statistically the markets are not more volatile. And
I think where this affects a lot of people and
why they feel as though markets are more volatile, is
that the Dow's trading over forty thousand right now. Bigger numbers,
it's just pure play bigger numbers. And it's not just
bigger numbers on the index, it's bigger numbers for people
(18:32):
in general.
Speaker 2 (18:33):
Remember that when you were going.
Speaker 3 (18:35):
Through the Great Financial Crisis eight the Dow got as
low as seventy six hundred. So the numbers that we
were talking about are massively larger. In her case, it
was also a situation of well, yes, not only are
the Dow numbers bigger, but your portfolio is bigger. And
so when we do have a one percent sell off,
(18:55):
you're talking about a much larger figure that you're seeing
when you go log into your accounts or single day
move upwards. It feels more volatile to you because the
numbers are bigger, and the numbers are bigger everywhere in
your personal portfolio as well as in.
Speaker 2 (19:08):
The indices themselves. But bigger numbers are good. Yeah, I
don't think there's much to be complaining about it.
Speaker 3 (19:14):
No, it.
Speaker 2 (19:16):
Seems worse because of what you just outlined, But ultimately
you want the problem of hey, I lost more money
today than I've ever lost before. Well, that's because you
had more money today than you ever had before. More
money to lose, you know, Warren Buffet's not like, gee,
I lost a million dollars, what do I do? It's well,
I got a few billions, and it's fine. Let's take
a quick break here when we come back. We got
(19:36):
Wall Street.
Speaker 1 (19:37):
Watch Like us on Facebook and follow us on Twitter
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Wall Street watch a complete look at what's moving markets
(19:57):
so far today right here on the Financial Exchange Radio Network.
Speaker 4 (20:01):
Markets are edging higher on the final trading day of
the week, as the Dow looks to snap at six
day losing streak, or its longest losing streak since April.
Right now, the Dow is flats, SMP five hundred is
edging six points higher, and the Nasdaq is up by
a third of a percent or sixty five points of
(20:22):
Rustle two thousand is off four tenths of a percent,
ten year Treasure reeled up four basis points at four
point three seven percent, and crude oil is up nearly
one percent higher, trading at seventy dollars in sixty four
cents a barrel. Broadcom shares jumping by twenty one percent
after the chip and software company posted a significant jumping
(20:43):
quarterly revenue and said it saw big opportunities ahead for
its AI business. Broadcom also hiked its quarterly dividend. Meanwhile,
Costco reported higher quarterly sales and said customers are starting
to spend slightly more as inflation comes down. Over the
warehouse club chain said it saw a split customer base
(21:04):
willing to pay the highest and lowest prices. Costco shares
are up by half a percent, Elsewhere shares and Restoration
hardware jumping by nearly fifteen percent after the furniture company
swung to a quarterly profit and guided for fourth quarter
revenue growth of eighteen two twenty percent from a year ago,
and Boeing shares up by about half a percent after
(21:26):
the aircraft maker said it would invest one one billion
dollars to boost production of its seven eighty seven Dreamliner
jets as it seeks to address a growing backlog. I'm
Tucker Silvain. That's Wall Street watch.
Speaker 2 (21:40):
Piece from Bill Dudley in Bloomberg Opinion today. It's titled
the Fed Can't ignore All Trump's intentions Bill Dudley. If
you're not familiar with him, he was the president of
the Federal Reserve Bank of New York from twenty and
nine through twenty eighteen. I feel like he might write
something almost weekly in Bloomberg Opinion. Now. I don't know.
Maybe this is what he does in addition to the
(22:01):
postfit speaking circuit. But what's he talking about in terms
of ignoring Trump's intentions?
Speaker 3 (22:06):
Well, So the commentary has been from the Federal Reserve
when asked about policy that's going to be upcoming, is uh,
you know, we don't guess, we don't speculate, and we
don't assume. And that's a very reasonable policy to have,
especially when you don't know who is going to be
the next president.
Speaker 2 (22:22):
Yeah, I think that's fair today, you do.
Speaker 3 (22:26):
And the point that Dudley makes is that's not a
good enough answer when you now know who the president
is and who has made very public their intentions when
it comes to certain things. I still would air on
the caution of Jerome Powell's response to that question, which is,
we don't guess, we don't speculate, and we don't assume.
But there's a few things like the Federal Reserve doesn't
just again put their finger in the air and determine
(22:48):
where rates go. They build models. They lick the finger first, Yes,
they do lick the finger first, then stick it in
the air. They build actual models to assume what the
what is going to happen with the economy, and so
a few things that you probably should take into account
if you're doing this would be baseline, tax is not
going up in twenty twenty six, that was probably part
of your model going into twenty twenty four. That should
(23:10):
probably come out of that model based on what you
know now. But if you're asking Jerome Powell in the
FED to start contemplating and modeling out the effects of
things like no taxes on social Security tips over time,
mass immigration reform and deportations, or higher tariffs on all
(23:30):
sorts of countries, I think Jerome Powell's answer absolutely should
be we don't guess, we don't speculate, we don't assume,
because you have no actual idea what's going to go
into place here.
Speaker 2 (23:40):
Yeah, I think Look, I'm a long standing believer that
the FED should say less at all potential times in
the world, and as such, I'm kind of okay with
Powell just continuing to say, like, yeah, we don't assuily.
What harm comes from Powell saying that, I guess is
(24:02):
my question? Yeah, I don't think much, especially right now.
Speaker 3 (24:08):
If you're saying that in March and Congress is in
the middle of passing a mass deportation bill or something
like that, then Okay, that's a different period of time
and something else that you need to fixate on, or
tariffs are about to be implemented or.
Speaker 2 (24:23):
This, that or the other.
Speaker 3 (24:24):
But today, what can you do with any of the
campaign promises or pledges that have been put out there
when it comes to their effects on the economy.
Speaker 2 (24:34):
My answer would be very, very not much. You know
who I think would be a great if I were
president one day? You know who I think would be
a great FED chair, Bill Belichick. Yeah, just no smiles,
no answers. Bill. Can you tell us a little bit
about how the unemployment rate might be impacting how you're
(24:56):
approaching policy. Well, we're on a next week, Bill, You're
not you're not coaching football anymore. Well, the data will
be what the data will be. Oh, okay, thanks, I
think that would be great. I have to say I
need less talk from the FED. Yeah. The reason and
(25:18):
this is something that's also just bothersome to me. The
reason why we think more communication from the FED is
preferred is quite literally, because we think, hey, if we
just say things the right way about money, we'll be
able to avoid the like if if we message how
we're going to make money, like how how money is
(25:38):
going to be handled, that we'll be able to avoid
problems in the future, as opposed to no, like, actually
go and execute policy and leave the talking to other people.
Speaker 3 (25:51):
Well, there's there's one piece of communication that I think
is imperative on the Federal reserves part and has been
studied to the extent they're able to convince the American
public that they are able to control inflation and get
it down in the future. Sure, that's an important one
because of the inflation expectations that we always talk about.
Speaker 2 (26:11):
I'd do it through actions, not through words.
Speaker 3 (26:13):
It's fair, but you know what, the average American isn't
going to see the actions or understand the actions and
have a tough time conveying them. Whereas if Jerome Powell
comes out and says, don't worry, folks, we got this,
then for some people out there, I think it does
have an effect of saying, yeah, it's twenty twenty one.
Car prices are crazy. But Jerome Powell just told me
(26:35):
that he's going to get inflation down, So I'm going
to wait on that purchase rather than, oh, I'm going
to buy that car now because I'm worried it's going
to go up another twenty percent next year. So that's
the one area where those communications I think are relevant
are important and kind of comically. I also think it's
one of the less truthful things that they say, but
I think it is important.
Speaker 2 (26:55):
Well, look, every leader who's at least, you know, worth
their salt always tells you they haven't figured out. Yeah. Now,
internally they might be talking to their second in command going, hey,
how are we gonna do this? But like the publicly,
you don't want your leader being like, no, we don't
know how to handle this. I mean, yeah, if you
(27:17):
start saying that, then you got real problems. So that's
what we've got going on with the FED. Here. Let's
take a quick break, and when we come back, we'll
talk about another piece from Bloomberg. It's titled Trump's tax
cuts may fail to drive much if any economic boost
will cover that when we come back.
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Speaker 2 (28:04):
All right, Mike, we got a piece here in Bloomberg Opinion.
It's titled Trump's tax cuts may fail to drive much,
if any, economic boost. Do we think this is legit
or not? Well, let's talk about it depends what tax
cuts those are. We haven't seen any tax cuts yet
because he's not he's the president yet not the president.
Speaker 3 (28:24):
I think it is fair to say that if he
simply extends the twenty seventeen Tax Cuts and Jobs Act,
which would maintain tax rates exactly where they are now,
that's not going to boost the economy. It would boost
that the economy compared to where Kamala Harris wanted to see
rates worship president. But that's all we're talking about. Let's
talk about where we are now versus where we might.
Speaker 2 (28:46):
Go in the right. Let's just put out a hypothetical
where the corporate tax rate gets cut by another five
percent and individual tax brackets come down by another two
to three percent each. Like, I don't know what the
numbers end up being there, but let's say that that's
what we see. Yeah, I mean, would it have an
economic boost? Sure?
Speaker 3 (29:03):
Would it be nearly as radical and substantial as what
we saw in twenty seventeen? Very clearly not very obviously
not because of where this economy is right now, and
just looking at the dollars to look at how much
that would cut and put in American taxpayer's pockets as
(29:24):
a percentage of GDP or a percentage of the value
of the stock market, or any number of different measures,
it is a fraction of what was able to be
done back in twenty seventeen.
Speaker 2 (29:35):
I'm not sure look at this point, with where we
currently sit, I'm not sure that the answer, whether it's
on the tax side or the spending side, is hey,
we need more money in the economy to grow it faster.
And the reason why I say this, the key difference
is between now in twenty sixteen. Twenty sixteen GDP was
(29:58):
growing at one point eight percent. This year's growing at
two seven so it's already growing much faster. Unemployment rate
in twenty sixteen was five percent. Now it's four to one.
Remember the unemployment rate over Trump's term until the pandemic
hit declined into the high threes, so you had more
people that were coming into the workforce and working. Another one.
The age twenty five to fifty four employment to population
(30:20):
ratio seventy eight percent of people in that age group
were working back then, eighty point nine percent. Now it's
eighty point four percent are working today. There are there
are fewer people aged twenty five to fifty four that
can get into working because remember there's always some percentage
that is either taking care of kids, taking care of parents, uh,
(30:41):
just you know, goofing off, or going back to school
for you know, masters and this and that.
Speaker 3 (30:46):
We've we've talked about this. If you release a bunch
of money into the economy right now.
Speaker 2 (30:52):
Where will it go? Where? Where will where will it
find slack? Because let's talk about what economic what real
economic growth actually is. Real economic growth is making more
stuff or making more experiences, but like making more sellable
good sellable goods and things. The way that you do
(31:14):
that there are two ways. The first increase the number
of hours worked, which is not like hey, everyone work
an extra ten hours, but it's it's generally, hey, more
people come into the workforce, and that's how you get
more hours worked. It's the additional labor or make more
stuff during each hour worked. And there's literally no way
(31:34):
that you can whether legislatively or executively, that's actually it.
I think say, hey, you all make more stuff during
your hours that you're working like, that's not how product
If we could just legislate productivity, it would be great.
We'd be like you and I would be on Mars
right now. But you can't legislate productivity.
Speaker 3 (31:56):
And countries that try, like China, have trouble with it.
Speaker 2 (32:00):
It's it's a it's a problem. Live in this factory
for the next six months. So I again, I keep
coming back to, this is a different situation than the
one that President Trump came into during his first term
and expecting the same as far as hey, we're just
gonna do a big tax cut and that's gonna goose
(32:20):
you know, the economy. I'm not sure that that's the case.
It's not a President Trump thing. It's not like it's
it's not in anyone. It's just this is where the
economy is now. It's in a really different place than
it was a few years, eight years back. Now, if
you end up, let's say that you end up in
(32:40):
a situation where, hey, the labor market concerns that we've
had last couple of weeks, we've seen enough taking jobos claims.
Let's say those continue, and let's say we get some
kind of mild recession next year. Okay, now you've got
a case where, yeah, maybe there is something on the
fiscal side that makes sense, But that's a big leap
because we we still haven't seen anything meaningful on the
labor market side that would indicate a lot of slack
(33:04):
there yet.
Speaker 3 (33:05):
Reality is, though, Chuck, I think if we were to
acknowledge it, the likelihood is we will get a tax
cut in early twenty twenty five. It's probably one of
the first things that will make its way through Congress.
It might just be a lock in of the existing
tax code, but it will still be a tax cut
compared to where we are right now. There are other
things that do seem fairly likely. The complicated piece of
(33:28):
all of this is what will it mean for the
short term and what will it mean.
Speaker 2 (33:31):
For the long term? Totally?
Speaker 3 (33:33):
Do you, as President Trump, ask the American public to
make a few years of sacrifice in order to get
this economy into a place where it should and needs
to be long term through vast immigration reform and changes
to tariffs and lower taxes. But what does all that
workout to mean? What will it mean for prices? What
(33:55):
will it mean at the end of the day for
a lot of people for their four oh one K plans,
and nobody has the answers to any and all of
these things. But if you have spent the last forty
five days or so trying to digest that and thinking
about do I make changes to my own financial situation,
to my own investment portfolio, to my retirement strategy based
(34:19):
on the trajectory change that has occurred with American politics
over the last few months, here, I would encourage you
to take a pause and sit down with a professional
that helps guide through the long term, because it can
be very tempting to make dramatic changes when there are
dramatic political changes.
Speaker 2 (34:37):
And the consistent.
Speaker 3 (34:40):
Communication that I hear from you, Chuck, and that we
try to convey to our clients at Armstrong is you
need to temper expectations because ultimately nobody knows exactly where
the path will be. But if you have questions along
those lines, if you're trying to sort out what all
of this might mean for you and your personal financial situation,
whether it is your retirement accounts and how those are invested,
(35:04):
whether it's whether to refinance or move. In twenty twenty five,
We'd love to sit down with you and use us
as a sounding board so you can try and figure out.
We'll sit on the same side of the table as
you and work to evaluate your overall strategy. The phone
number for the Armstrong Advisory Group is eight hundred three
nine three four zero zero one. Set a new year's
(35:26):
resolution to get your financial house in order so that
you feel good about your financial future. Again that number
eight hundred three nine three for zero zero one.
Speaker 1 (35:36):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal, or tax advice. Consult
your own financial, tax, and estate planning advisors before making
any investment decisions. Armstrong may contact you to offer investment
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Speaker 2 (35:53):
Here from the Wall Street Journal how seniors can donate
more to charity and pay less than taxes. That that
sounds lovely, doesn't it. It does.
Speaker 3 (36:00):
Yeah, this is something that's been getting a little bit.
It seems to me like the in the financial services world,
the Roth conversions of a decade ago, where a few
people were doing them, were really new about them, but
this is becoming more popular now, especially since the Trump
era tax cuts.
Speaker 2 (36:18):
Here's the rule.
Speaker 3 (36:20):
You can always make charitable donations, and you can always
itemize them on your tax return. But for what's the
latest reading, eighty percent of Americans do not itemize on
their tax return, not because they're lazy, but purely because
the standard deduction is pretty big.
Speaker 2 (36:36):
Pretty big.
Speaker 3 (36:37):
So if you are over the age of seventy and
a half, you are likely on the cusper already in
required minimum distribution territory, and it allows you to do
something called a qualified charitable distribution. This to me is
the kind of holy grail that's only available to those
retirees over the age of seventy and a half. But
(36:58):
it is a really tax effective way to support the
causes that you may already be doing so. And it's
also pretty unknown to the general public and not terribly
well understood. And so this is one of those that
you need to do some research on before you do
it because there are strict rules around how it is done.
Speaker 2 (37:18):
Yes, but it's a real opportunity for a lot of retiaries.
The big premise on it is, look, you take the
money directly from an IRA and give it directly to
a charity. It never even hits your tax return, so
it doesn't show up on things like your adjusted gross
in come or modified adjusted gross income, which can impact
your Medicare premiums and things along those lines. It doesn't
(37:39):
end up getting hit by if you're in a certain
tax bracket. The three point eight serve tax on that
investment income, so it allows you to have potentially more
efficient management of your taxes in retirement. But it is
something where you do want to consult with a qualified
tax advisor on this because it's a little bit more
(38:00):
complex than just saying, oh, like, I'm gonna do this.
If you do it wrong, then it does you don't
get any of the benefits from it right, So chat
with your tax advisor about qualified charitable donations to see
if it makes sense on your end. Quick break here
we got more financial exchange and just a bit
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
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the hosts. Do not reflect the opinions of Armstrong Advisory
or anyone else. Investments can lose money. This program does
not offer any specific financial or investment advice. Please consult
your own financial, tax, and estate planning advisors before making
(00:21):
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(01:05):
by Veterans Development Corporation. This is the Financial Exchange with
Chuck Zana and Mike Armstrong.
Speaker 2 (01:13):
Yesterday, our top story was the piece from market Watch.
It was titled Nasdak reaches twenty thousand for the first time.
Here's why that could spell trouble for investors in early
twenty twenty five. Today, our top story from Barons is
why the stock market could gain another twenty percent in
twenty twenty five. Barons is owned by whom I would
(01:38):
imagine Barons blown by Wall Street Journal, which isn't owned
by David Jones, who owns market Watch Dal joneson is it?
Speaker 3 (01:49):
Yeah, it is okay, so same parent company too. Writing
these two pieces. I know they didn't appear in the
same exact article and they are all very opinion based.
Speaker 2 (01:58):
But yeah, there we go.
Speaker 3 (02:00):
We have one subsidiary of Dow Jones saying look out, folks,
because then NASZAC reached all time highs and therefore, according
to mister Steinberg, sure, I think that's where they interviewed
Colony Group CIO. You know, look out because my gut
tells me things aren't going to go well, and Baron's
here saying look out because stocks gained another twenty percent. Chuck,
(02:24):
Here's the.
Speaker 2 (02:25):
Thing, So when there actually is an interesting point in this,
and that point is we talk a lot about the
long term trends of the stock MARKETO. Depending on like
the exact years you use, and you know, whether it
was called the S and P five hundred or whether
it was its predecessors. Historically you look at and you say,
(02:45):
US stocks generally have averaged between nine and twelve percent
a year long term. Mike, do you know what they
tend to make when they don't go down in a year?
So take out the years where the S and P
five hundred lost money. Oh, I see, I guess it
would have to be fifteen to eighteen. It's around twenty percent.
So like one of the mistakes that investors do make
(03:08):
is thinking, hey, like, if it's a good year for
the stock market, it's gonna be up like twelve to fifteen. No,
when this when stocks go up, they do tend to
go up in larger numbers. Typically now not all the time. Again,
it's still on you know, there's a distribution of this.
I'm not saying they always do, but when stocks move up,
they tend to move up meaningfully on the other side
(03:30):
of things, when they go down, they tend to go
down meaningfully, like year's like twenty eighteen, where the market
loses like one percent by the end of the year. Abnormal.
Those are kind of the weird ones, like that's not
really normal to see single digit returns in either direction.
It's usually either hey, you made a bunch of money
for the year, or you lost a decent chunk of
money for the year. It's it's very rarely in between.
(03:51):
When you look at the actual numbers, there's still again
it's it's still is a distribution in terms of you
know what you get overall, but it's it's not something
where you're consistently like, hey, it was eight percent this
year and it was ten percent. Like let's just do
the last twenty five years as an example, please plus
(04:14):
twenty eight plus twenty six minus eighteen plus twenty eight
plus eighteen plus thirty one minus four plus twenty one
plus eleven plus one plus thirteen plus thirty two plus
sixteen plus two plus fifteen plus twenty six minus thirty
seven plus five plus fifteen plus ten plus twenty six
minus twenty two minus twelve minus ten plus twenty one
(04:36):
plus twenty eight plus thirty three plus twenty two plus
thirty seven plus one, So that's going back to ninety four.
That's thirty one years.
Speaker 3 (04:43):
Actually I counted five where the returns were single digits
in either direction.
Speaker 2 (04:48):
So this illustrates my point is that even though the
average long term returns might be nine to twelve percent,
you very rarely actually generate like high single digit returns.
It's usually either meaningful double digits or meaningful meaningful double
digits either.
Speaker 3 (05:05):
Way that the stocks are gonna be great or stocks
are gonna sucks your point.
Speaker 2 (05:08):
Yeah, I mean occasionally, Look again, you get a handful
of times, like sixteen percent of the time in the
last thirty one years you ended up with stocks in
single digits either way. Yeah, But most of the time
they either win meaningfully or lose meaningfully. And this is
what I mean by volatility is built into the market.
It is a feature of equities that stocks usually either
(05:31):
make a lot of money or lose a lot of money.
They very rarely just hang out.
Speaker 3 (05:35):
Can I I'm gonna pull another quote from here. The
S and P five hundredth price to earnings ratio at
around twenty two times next year is expected earnings is
approaching frothy? If twenty two times future earnings isn't frothy,
where is our frothy definition? Because from what I am aware,
there's been three moments in US history where stocks have
been at twenty two times plus.
Speaker 2 (05:55):
So I actually have a great metric here from Bank
of America on this. Oh it's got their their their
froth maker, not their froth maker. But this is from
like they publish stuff like every day because it's Bank
of America and they got three hundred thousand people working
for them. Yes, so they looked at twenty different s
(06:16):
and P five hundred valuations and they said, hey, like
where is this relative to its historical norm? Like where
is today compared to its historical norm? Or okay, go ahead,
basically like how yeah, how far like above or below average?
Is it relative to the long term average? Trailing PE
(06:37):
ratio is seventy four percent above its historical average. Okay,
now again, interest we can talk about like why that's
the case, but I'm just gonna give you all the numbers.
Trailing gap PE so generally accepted accounting principles, so not
using you know, weird things like adjusted earnings in this
and that ninety six percent above its historical norm. Forward
pe it's thirty nine percent above its norm, trailing normalized
(07:01):
PE forty five percent above schill Er PE one hundred
and thirteen percent above price to book, ninety six percent
above enterprise value to ebit a fifty one percent above
trailing PEG ratio so PE basically divided by growth ten
percent above forward PEG, nine point nine percent above price
to free cash flow, twenty five percent above enterprise value
(07:23):
to sale, seventy percent above normalized earnings return premium forty
bless you forty nine percent below, which means that they're
actually it was a loud one. It was cooking. I
try my best to keep it, which actually made is
like no earnings return. There's no earnings premium there the
S and P five hundred in oil terms, so like
(07:47):
relative to the price of oil. I don't know why
that matters, but they included in their list, So whatever
two hundred and fifteen percent above its norm, the S
and P five hundred relative to gold, thirty seven percent
above its norm, the S and P five hundred relative
to the Russell two thousand forward pees twenty two percent
above its norm. S and P five hundred market cap
relative to GDP. So basically, how big is the S
(08:09):
and P relative to the US economy one hundred and
fifty eight percent above its norm? Okay, so long story short.
Speaker 3 (08:16):
Many of those sound like frothy numbers to me, But
take that with what.
Speaker 2 (08:21):
You hy froth Yeah, Look, this is a market where
if anything meaningful goes wrong, there's significant downside potential. Now,
it doesn't mean that something meaningful is going to go
wrong tomorrow, the next day, or the day after whatever.
Speaker 3 (08:39):
And I'll remind folks that it sure looked like things
were going to go significantly wrong over the last couple
of years. We had Silicon Valley Banking bank collapse, we
had a PSM rule recession indicator. We had a number
of things just in twenty twenty three and twenty twenty four,
which were fantastic years for stocks that ge when they
were occurring, sure looked like they were pretty bad.
Speaker 2 (08:59):
Which gets back to my overall point that I make
all the time, which is stuff's always going wrong in
the world, and most of the time we figure out
how to deal with it. The problem is when we don't,
and then it becomes like the bigger problems that you
know result in either you know, meaningful downturns or you know,
meaningful geopolitical conflict and stuff like that. But most of
the time we kind of figure it out. I'm not
(09:22):
saying that it makes the world perfect or anything. It's
more just like, hey, like, I guess this is how
it is, and we'll deal with it. So yeah, I
think that the interesting thing about these two top pieces
that we covered today and yesterday is they are illustrative
of what you actually see in the market. It typically
either makes a bunch of money or loses it. It's
(09:42):
rare that you have a stock market year where you're like, yeah,
we made four percent in the market this year. Great.
So I think that you could view these as, you know,
two potential views. But the problem is that they're not
published together and with The perfect piece, in my opinion,
is one where someone says, hey, here's the bull case
(10:04):
for next year, here's the bear case for next year.
Here are the factors that could steer you any other
of these directions, and these are the things that you
need to be mindful of as you get there. And
I know that's wishy washing.
Speaker 3 (10:15):
It's not a very good headline. Catcher there, Chuck, totally
get it.
Speaker 2 (10:18):
Okay, but Listenke, we got to do better, Michael, we
got to do better. I don't know what would we
rip on if we didn't have people publishing pieces. No,
I'm saying we have to They can do worse. Okay,
got it. That gives us material that keeps the show going.
But we gotta do better. Agreed. Let's take a quick break.
(10:41):
When we talk about someone doing better on the back side,
We'll talk about Broadcom because their stock is up about
twenty percent today, so they must be doing pretty darn good.
Speaker 1 (10:51):
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Speaker 2 (11:52):
Mike So Broadcom reported earnings. Was it this morning or yesterday? Yesterday?
After the bell? They're twenty one percent this morning and
broad coom. If you're not familiar with them, uh, you
should get familiar with them because they have a market
cap now of over a trillion dollars. They are a
semiconductor company that does all kinds of different stuff anything
(12:13):
from you know, networking to storage, all kinds of different things.
Like they're they're all over the place. What I'm really
struggling to wrap my head around on this is why
the valuation is where it is. And here's why it's
it's not a no. It is the poo poo their
(12:36):
business and Vidia I can look at it and say, okay,
in Vidia has a market cap of three and a
half trillion dollars. They got one hundred and you know,
fifteen billion dollars in revenue, and they make sixty billion
dollars a year off that Broadcom had. You know, again,
even if they repeat this quarter here, they made four
(12:57):
point three two billion dollars in proper fit. That's up
about you know, fifteen percent from a year ago. But okay,
like fifteen percent profit growth is you know, fine on
like a sixteen billion dollar profit company, but the margins
(13:18):
are thinner than you have with companies like in Nvidia.
There's no sign that there's some kind of clear mode.
And it's it's not to say that Broadcom should like
go out of business or anything, but from a valuation perspective,
I mean, you talk about like how nutty it is.
The pe ratio on them is one hundred ninety, the
forward pe is thirty five, and you're kind of sitting
(13:39):
there going, okay, like what's going on here because it's
just not exactly showing accelerat no, Like it's it's a
fine company that's growing at a good clip, but like
in Nvidia is a company that's showing you know, two
hundred percent yearly profit growth, and even like quarter to quarter.
Now the profit growth is still in the mid teens,
(13:59):
and that's valued at forty six times forward earning. So
how is this getting two thirds of the multiple when
it's growing at like a quarter of the pace.
Speaker 3 (14:07):
I think the answer is that there's just a lot
of stuff in the AI semiconductor space right now that.
Speaker 2 (14:15):
Looks frothy. It's a company like this is. I don't
want people to be like, oh, Chuck doesn't like anything
that's good, Like, no, I don't like some things that
are good, but there's other things that I look at
them just like it's fine, but I don't get it.
Speaker 3 (14:32):
Yeah, And I think it's a different question than we
were asking of in video six months ago. The question
of in video was can this continue to grow at
such a breakneck pace? Broadcom's already not growing at such
a breakneck pace and still being valued quite I won't
say exorbitantly, I'll say expensively.
Speaker 2 (14:53):
So here, like you look, get just a comparison again,
in Video's valued you know three and a half times
what Broadcom is. Sure in video revenue growth, it's it's
five year compound revenue growth is thirty nine percent a year.
It's growing revenue forty percent a year for the last
five years on average. Most of that compressed in the
last year and a half. Sure, it's earnings per share
(15:13):
are growing at forty eight percent a year over the
last five years. So you're growing profit faster than you're
growing revenue, and you're pressed and you're basically doubling your
profit every like seven quarters yea, which is good. Broadcomm
Its revenue growth is eleven percent a year. It's earnings
(15:34):
growth and this is for the last five years. It's
earnings growth over that time is three percent a year.
Again in and of itself, still impressive. Still a well
run company that's highly profitable. But yeah, it doesn't really compare.
One of these things is not like the other, and
there's only two things, so that thing is Broadcom. Let's
(15:56):
see piece from Bloomberg. The Fed's gonna cut one more
time this year before slowing their pace next year. Congratulations,
we looked at the FED fund's futures market.
Speaker 3 (16:07):
Yeah, I don't know who this piece is for.
Speaker 2 (16:10):
This isn't Bloomberg. Nobody's subscribing to tell me.
Speaker 3 (16:13):
Show me the one Bloomberg subscriber that is unaware that
the FED is cutting rates.
Speaker 2 (16:17):
This year, they don't exist. It's a fine piece. I
guess this is the kind of piece. The place that
it is is wrong. Yeah today, Yeah, and it is
a great service then informing people about what's going on
in the broader market for the APOR, you know exactly,
(16:38):
like and stuff like that should be in like USA
today or the AP because I do think we need
broader access to talking about this stuff because there's a
whole bunch of people that don't realize that the FED
doesn't cut mortgage rates. That's where we come in. We
cut mortgage rates. Yes, gosh, I had no idea. I
time that wrong. What button do I press on that? Yeah,
(17:00):
there's nothing interesting here. It's okay, the Fit's probably going
to cut next week almost a certainty, and no one
really knows what the pace of cuts is going to
be next year. I think that's that's good. Like, that's
that's a fine summary there. I do want to talk
a little bit about what we are seeing in uh,
the treasury market right now, not even just the treasury market,
(17:21):
the treasury market and the S and P five hundred.
There's no volatility. It's just flat dom like everything is
just very very muted as far as projections for future volatility,
and it's been calm also, like realized volatility has been
pretty quiet as well. For how I mean, you know
(17:44):
we had some SP five hundred has been calm all year. Statistically,
this is going to be like the third or fourth
least volatile year in S and P five hundred history.
Speaker 3 (17:55):
I want to focus just on that volatility piece for
a minute, because I continue to get points from people
and I was had a client in earlier this week
and she says, Man, it just it feels like things.
Speaker 2 (18:07):
Are way more volatile than I remember.
Speaker 3 (18:10):
And I had to make it a point to where that, like,
it's not statistically the markets are not more volatile. And
I think where this affects a lot of people and
why they feel as though markets are more volatile, is
that the Dow's trading over forty thousand right now. Bigger numbers,
it's just pure play bigger numbers. And it's not just
bigger numbers on the index, it's bigger numbers for people
(18:32):
in general.
Speaker 2 (18:33):
Remember that when you were going.
Speaker 3 (18:35):
Through the Great Financial Crisis eight the Dow got as
low as seventy six hundred. So the numbers that we
were talking about are massively larger. In her case, it
was also a situation of well, yes, not only are
the Dow numbers bigger, but your portfolio is bigger. And
so when we do have a one percent sell off,
(18:55):
you're talking about a much larger figure that you're seeing
when you go log into your accounts or single day
move upwards. It feels more volatile to you because the
numbers are bigger, and the numbers are bigger everywhere in
your personal portfolio as well as in.
Speaker 2 (19:08):
The indices themselves. But bigger numbers are good. Yeah, I
don't think there's much to be complaining about it.
Speaker 3 (19:14):
No, it.
Speaker 2 (19:16):
Seems worse because of what you just outlined, But ultimately
you want the problem of hey, I lost more money
today than I've ever lost before. Well, that's because you
had more money today than you ever had before. More
money to lose, you know, Warren Buffet's not like, gee,
I lost a million dollars, what do I do? It's well,
I got a few billions, and it's fine. Let's take
a quick break here when we come back. We got
(19:36):
Wall Street.
Speaker 1 (19:37):
Watch Like us on Facebook and follow us on Twitter
at TFE show. Breaking business news is always first right
here on the Financial Exchange Radio Network. Time now for
Wall Street watch a complete look at what's moving markets
(19:57):
so far today right here on the Financial Exchange Radio Network.
Speaker 4 (20:01):
Markets are edging higher on the final trading day of
the week, as the Dow looks to snap at six
day losing streak, or its longest losing streak since April.
Right now, the Dow is flats, SMP five hundred is
edging six points higher, and the Nasdaq is up by
a third of a percent or sixty five points of
(20:22):
Rustle two thousand is off four tenths of a percent,
ten year Treasure reeled up four basis points at four
point three seven percent, and crude oil is up nearly
one percent higher, trading at seventy dollars in sixty four
cents a barrel. Broadcom shares jumping by twenty one percent
after the chip and software company posted a significant jumping
(20:43):
quarterly revenue and said it saw big opportunities ahead for
its AI business. Broadcom also hiked its quarterly dividend. Meanwhile,
Costco reported higher quarterly sales and said customers are starting
to spend slightly more as inflation comes down. Over the
warehouse club chain said it saw a split customer base
(21:04):
willing to pay the highest and lowest prices. Costco shares
are up by half a percent, Elsewhere shares and Restoration
hardware jumping by nearly fifteen percent after the furniture company
swung to a quarterly profit and guided for fourth quarter
revenue growth of eighteen two twenty percent from a year ago,
and Boeing shares up by about half a percent after
(21:26):
the aircraft maker said it would invest one one billion
dollars to boost production of its seven eighty seven Dreamliner
jets as it seeks to address a growing backlog. I'm
Tucker Silvain. That's Wall Street watch.
Speaker 2 (21:40):
Piece from Bill Dudley in Bloomberg Opinion today. It's titled
the Fed Can't ignore All Trump's intentions Bill Dudley. If
you're not familiar with him, he was the president of
the Federal Reserve Bank of New York from twenty and
nine through twenty eighteen. I feel like he might write
something almost weekly in Bloomberg Opinion. Now. I don't know.
Maybe this is what he does in addition to the
(22:01):
postfit speaking circuit. But what's he talking about in terms
of ignoring Trump's intentions?
Speaker 3 (22:06):
Well, So the commentary has been from the Federal Reserve
when asked about policy that's going to be upcoming, is uh,
you know, we don't guess, we don't speculate, and we
don't assume. And that's a very reasonable policy to have,
especially when you don't know who is going to be
the next president.
Speaker 2 (22:22):
Yeah, I think that's fair today, you do.
Speaker 3 (22:26):
And the point that Dudley makes is that's not a
good enough answer when you now know who the president
is and who has made very public their intentions when
it comes to certain things. I still would air on
the caution of Jerome Powell's response to that question, which is,
we don't guess, we don't speculate, and we don't assume.
But there's a few things like the Federal Reserve doesn't
just again put their finger in the air and determine
(22:48):
where rates go. They build models. They lick the finger first, Yes,
they do lick the finger first, then stick it in
the air. They build actual models to assume what the
what is going to happen with the economy, and so
a few things that you probably should take into account
if you're doing this would be baseline, tax is not
going up in twenty twenty six, that was probably part
of your model going into twenty twenty four. That should
(23:10):
probably come out of that model based on what you
know now. But if you're asking Jerome Powell in the
FED to start contemplating and modeling out the effects of
things like no taxes on social Security tips over time,
mass immigration reform and deportations, or higher tariffs on all
(23:30):
sorts of countries, I think Jerome Powell's answer absolutely should
be we don't guess, we don't speculate, we don't assume,
because you have no actual idea what's going to go
into place here.
Speaker 2 (23:40):
Yeah, I think Look, I'm a long standing believer that
the FED should say less at all potential times in
the world, and as such, I'm kind of okay with
Powell just continuing to say, like, yeah, we don't assuily.
What harm comes from Powell saying that, I guess is
(24:02):
my question? Yeah, I don't think much, especially right now.
Speaker 3 (24:08):
If you're saying that in March and Congress is in
the middle of passing a mass deportation bill or something
like that, then Okay, that's a different period of time
and something else that you need to fixate on, or
tariffs are about to be implemented or.
Speaker 2 (24:23):
This, that or the other.
Speaker 3 (24:24):
But today, what can you do with any of the
campaign promises or pledges that have been put out there
when it comes to their effects on the economy.
Speaker 2 (24:34):
My answer would be very, very not much. You know
who I think would be a great if I were
president one day? You know who I think would be
a great FED chair, Bill Belichick. Yeah, just no smiles,
no answers. Bill. Can you tell us a little bit
about how the unemployment rate might be impacting how you're
(24:56):
approaching policy. Well, we're on a next week, Bill, You're
not you're not coaching football anymore. Well, the data will
be what the data will be. Oh, okay, thanks, I
think that would be great. I have to say I
need less talk from the FED. Yeah. The reason and
(25:18):
this is something that's also just bothersome to me. The
reason why we think more communication from the FED is
preferred is quite literally, because we think, hey, if we
just say things the right way about money, we'll be
able to avoid the like if if we message how
we're going to make money, like how how money is
(25:38):
going to be handled, that we'll be able to avoid
problems in the future, as opposed to no, like, actually
go and execute policy and leave the talking to other people.
Speaker 3 (25:51):
Well, there's there's one piece of communication that I think
is imperative on the Federal reserves part and has been
studied to the extent they're able to convince the American
public that they are able to control inflation and get
it down in the future. Sure, that's an important one
because of the inflation expectations that we always talk about.
Speaker 2 (26:11):
I'd do it through actions, not through words.
Speaker 3 (26:13):
It's fair, but you know what, the average American isn't
going to see the actions or understand the actions and
have a tough time conveying them. Whereas if Jerome Powell
comes out and says, don't worry, folks, we got this,
then for some people out there, I think it does
have an effect of saying, yeah, it's twenty twenty one.
Car prices are crazy. But Jerome Powell just told me
(26:35):
that he's going to get inflation down, So I'm going
to wait on that purchase rather than, oh, I'm going
to buy that car now because I'm worried it's going
to go up another twenty percent next year. So that's
the one area where those communications I think are relevant
are important and kind of comically. I also think it's
one of the less truthful things that they say, but
I think it is important.
Speaker 2 (26:55):
Well, look, every leader who's at least, you know, worth
their salt always tells you they haven't figured out. Yeah. Now,
internally they might be talking to their second in command going, hey,
how are we gonna do this? But like the publicly,
you don't want your leader being like, no, we don't
know how to handle this. I mean, yeah, if you
(27:17):
start saying that, then you got real problems. So that's
what we've got going on with the FED. Here. Let's
take a quick break, and when we come back, we'll
talk about another piece from Bloomberg. It's titled Trump's tax
cuts may fail to drive much if any economic boost
will cover that when we come back.
Speaker 1 (27:34):
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Speaker 2 (28:04):
All right, Mike, we got a piece here in Bloomberg Opinion.
It's titled Trump's tax cuts may fail to drive much,
if any, economic boost. Do we think this is legit
or not? Well, let's talk about it depends what tax
cuts those are. We haven't seen any tax cuts yet
because he's not he's the president yet not the president.
Speaker 3 (28:24):
I think it is fair to say that if he
simply extends the twenty seventeen Tax Cuts and Jobs Act,
which would maintain tax rates exactly where they are now,
that's not going to boost the economy. It would boost
that the economy compared to where Kamala Harris wanted to see
rates worship president. But that's all we're talking about. Let's
talk about where we are now versus where we might.
Speaker 2 (28:46):
Go in the right. Let's just put out a hypothetical
where the corporate tax rate gets cut by another five
percent and individual tax brackets come down by another two
to three percent each. Like, I don't know what the
numbers end up being there, but let's say that that's
what we see. Yeah, I mean, would it have an
economic boost? Sure?
Speaker 3 (29:03):
Would it be nearly as radical and substantial as what
we saw in twenty seventeen? Very clearly not very obviously
not because of where this economy is right now, and
just looking at the dollars to look at how much
that would cut and put in American taxpayer's pockets as
(29:24):
a percentage of GDP or a percentage of the value
of the stock market, or any number of different measures,
it is a fraction of what was able to be
done back in twenty seventeen.
Speaker 2 (29:35):
I'm not sure look at this point, with where we
currently sit, I'm not sure that the answer, whether it's
on the tax side or the spending side, is hey,
we need more money in the economy to grow it faster.
And the reason why I say this, the key difference
is between now in twenty sixteen. Twenty sixteen GDP was
(29:58):
growing at one point eight percent. This year's growing at
two seven so it's already growing much faster. Unemployment rate
in twenty sixteen was five percent. Now it's four to one.
Remember the unemployment rate over Trump's term until the pandemic
hit declined into the high threes, so you had more
people that were coming into the workforce and working. Another one.
The age twenty five to fifty four employment to population
(30:20):
ratio seventy eight percent of people in that age group
were working back then, eighty point nine percent. Now it's
eighty point four percent are working today. There are there
are fewer people aged twenty five to fifty four that
can get into working because remember there's always some percentage
that is either taking care of kids, taking care of parents, uh,
(30:41):
just you know, goofing off, or going back to school
for you know, masters and this and that.
Speaker 3 (30:46):
We've we've talked about this. If you release a bunch
of money into the economy right now.
Speaker 2 (30:52):
Where will it go? Where? Where will where will it
find slack? Because let's talk about what economic what real
economic growth actually is. Real economic growth is making more
stuff or making more experiences, but like making more sellable
good sellable goods and things. The way that you do
(31:14):
that there are two ways. The first increase the number
of hours worked, which is not like hey, everyone work
an extra ten hours, but it's it's generally, hey, more
people come into the workforce, and that's how you get
more hours worked. It's the additional labor or make more
stuff during each hour worked. And there's literally no way
(31:34):
that you can whether legislatively or executively, that's actually it.
I think say, hey, you all make more stuff during
your hours that you're working like, that's not how product
If we could just legislate productivity, it would be great.
We'd be like you and I would be on Mars
right now. But you can't legislate productivity.
Speaker 3 (31:56):
And countries that try, like China, have trouble with it.
Speaker 2 (32:00):
It's it's a it's a problem. Live in this factory
for the next six months. So I again, I keep
coming back to, this is a different situation than the
one that President Trump came into during his first term
and expecting the same as far as hey, we're just
gonna do a big tax cut and that's gonna goose
(32:20):
you know, the economy. I'm not sure that that's the case.
It's not a President Trump thing. It's not like it's
it's not in anyone. It's just this is where the
economy is now. It's in a really different place than
it was a few years, eight years back. Now, if
you end up, let's say that you end up in
(32:40):
a situation where, hey, the labor market concerns that we've
had last couple of weeks, we've seen enough taking jobos claims.
Let's say those continue, and let's say we get some
kind of mild recession next year. Okay, now you've got
a case where, yeah, maybe there is something on the
fiscal side that makes sense, But that's a big leap
because we we still haven't seen anything meaningful on the
labor market side that would indicate a lot of slack
(33:04):
there yet.
Speaker 3 (33:05):
Reality is, though, Chuck, I think if we were to
acknowledge it, the likelihood is we will get a tax
cut in early twenty twenty five. It's probably one of
the first things that will make its way through Congress.
It might just be a lock in of the existing
tax code, but it will still be a tax cut
compared to where we are right now. There are other
things that do seem fairly likely. The complicated piece of
(33:28):
all of this is what will it mean for the
short term and what will it mean.
Speaker 2 (33:31):
For the long term? Totally?
Speaker 3 (33:33):
Do you, as President Trump, ask the American public to
make a few years of sacrifice in order to get
this economy into a place where it should and needs
to be long term through vast immigration reform and changes
to tariffs and lower taxes. But what does all that
workout to mean? What will it mean for prices? What
(33:55):
will it mean at the end of the day for
a lot of people for their four oh one K plans,
and nobody has the answers to any and all of
these things. But if you have spent the last forty
five days or so trying to digest that and thinking
about do I make changes to my own financial situation,
to my own investment portfolio, to my retirement strategy based
(34:19):
on the trajectory change that has occurred with American politics
over the last few months, here, I would encourage you
to take a pause and sit down with a professional
that helps guide through the long term, because it can
be very tempting to make dramatic changes when there are
dramatic political changes.
Speaker 2 (34:37):
And the consistent.
Speaker 3 (34:40):
Communication that I hear from you, Chuck, and that we
try to convey to our clients at Armstrong is you
need to temper expectations because ultimately nobody knows exactly where
the path will be. But if you have questions along
those lines, if you're trying to sort out what all
of this might mean for you and your personal financial situation,
whether it is your retirement accounts and how those are invested,
(35:04):
whether it's whether to refinance or move. In twenty twenty five,
We'd love to sit down with you and use us
as a sounding board so you can try and figure out.
We'll sit on the same side of the table as
you and work to evaluate your overall strategy. The phone
number for the Armstrong Advisory Group is eight hundred three
nine three four zero zero one. Set a new year's
(35:26):
resolution to get your financial house in order so that
you feel good about your financial future. Again that number
eight hundred three nine three for zero zero one.
Speaker 1 (35:36):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal, or tax advice. Consult
your own financial, tax, and estate planning advisors before making
any investment decisions. Armstrong may contact you to offer investment
advisory services PC.
Speaker 2 (35:53):
Here from the Wall Street Journal how seniors can donate
more to charity and pay less than taxes. That that
sounds lovely, doesn't it. It does.
Speaker 3 (36:00):
Yeah, this is something that's been getting a little bit.
It seems to me like the in the financial services world,
the Roth conversions of a decade ago, where a few
people were doing them, were really new about them, but
this is becoming more popular now, especially since the Trump
era tax cuts.
Speaker 2 (36:18):
Here's the rule.
Speaker 3 (36:20):
You can always make charitable donations, and you can always
itemize them on your tax return. But for what's the
latest reading, eighty percent of Americans do not itemize on
their tax return, not because they're lazy, but purely because
the standard deduction is pretty big.
Speaker 2 (36:36):
Pretty big.
Speaker 3 (36:37):
So if you are over the age of seventy and
a half, you are likely on the cusper already in
required minimum distribution territory, and it allows you to do
something called a qualified charitable distribution. This to me is
the kind of holy grail that's only available to those
retirees over the age of seventy and a half. But
(36:58):
it is a really tax effective way to support the
causes that you may already be doing so. And it's
also pretty unknown to the general public and not terribly
well understood. And so this is one of those that
you need to do some research on before you do
it because there are strict rules around how it is done.
Speaker 2 (37:18):
Yes, but it's a real opportunity for a lot of retiaries.
The big premise on it is, look, you take the
money directly from an IRA and give it directly to
a charity. It never even hits your tax return, so
it doesn't show up on things like your adjusted gross
in come or modified adjusted gross income, which can impact
your Medicare premiums and things along those lines. It doesn't
(37:39):
end up getting hit by if you're in a certain
tax bracket. The three point eight serve tax on that
investment income, so it allows you to have potentially more
efficient management of your taxes in retirement. But it is
something where you do want to consult with a qualified
tax advisor on this because it's a little bit more
(38:00):
complex than just saying, oh, like, I'm gonna do this.
If you do it wrong, then it does you don't
get any of the benefits from it right, So chat
with your tax advisor about qualified charitable donations to see
if it makes sense on your end. Quick break here
we got more financial exchange and just a bit
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