August 26, 2025 • 36 mins
Mike and Marc offer follow-up thoughts to the potential fring of Lisa Cook and the importance of Fed independence. Plus, does the cost of home insurance continue to remain elevated? Has it plateued? Or could it they go higher? A discussion about Roth IRA vs Roth 401(k) contributions. AI data centers continue to cause concerns about the supply of electricity. And, Stack Roulette.
Mark as Played
Transcript
Episode Transcript
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Speaker 1 (00:00):
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(01:03):
Face is the Financial Exchange with Mike Armstrong and Mark Vandetti.
Speaker 2 (01:11):
Good morning, Welcome back to the Financial Exchange. It's Mike,
Mark and Tucker with you on a Tuesday with markets.
They're pretty boring today. We don't need to get into
it that they're mixed now slightly off has to be
a NASDAK slightly positive. But the big story of the
day remains President Trump's firing of Federal Reserve official Lisa Cook,
(01:32):
who was appointed during the Biden administration, and big questions
about FED independence and the president's ability to remove a
sitting Federal Reserve governor. For since the existence of the FED,
it has been run as an independent agency.
Speaker 1 (01:48):
No.
Speaker 3 (01:49):
Nineteen fifty one ish Great. If you're interested in this topic,
well go ahead, Mike.
Speaker 2 (01:53):
Than now please, I want to be corrected.
Speaker 3 (01:55):
Great recently. The only reason that this is top of
mind for me. Great recent paper and your called Journal
of Economic Perspectives, not something a lot of people probably
typically crack open. But there's very little math in JEP.
Journal of Economic Perspectives articles. If you're interested in this
most recent, most recent issue came out last week. It
(02:15):
chronicles the fed's history, it's fight for independence during and
after World War Two. Truman kept pressure on the FED
to keep shortterm interest rates low to finance the big debt.
There was an explosion in inflation. The FED finally wrestled
control away from politicians. It took another few decades to
get politicians to stop.
Speaker 2 (02:37):
Yeah, it was.
Speaker 3 (02:38):
It was a long fight. And so this idea that
the Fed's autonomy is sacrasanct is relatively modern from roughly
Vulgar who was a tough bird onward and Clinton kind
of enshrined it was. I was gonna say a tough fella,
but that that didn't sound right. So tough character an
(03:00):
honorary character.
Speaker 2 (03:02):
So the media is portraying this as another hit on
FED independence, and I do think it is based on
the way that it is the found done. They were
looking for, you know, reasons to be able to excuse
members of the FED. They found one here, and the
means by which they did so, which is not presenting
(03:22):
any evidence of the crime that she allegedly committed, is
being I think accurately portrayed as another hit on central
bank independence. And the question.
Speaker 3 (03:33):
Both can be true, right, she could have done something
very stupid and left herself open to this, yes, and
they can also have been looking for a reason.
Speaker 2 (03:39):
To hundred percent. So where we land on all this
is it's likely end up in courts and we're about
to likely find out does a president have the ability
to remove a federal reserve governor? And what do they
mean by having cause? Because it's pretty clear I believe
from the charter that the sitting the president hand remove
(04:00):
someone for cause. But is allegation of an unproven crime
from some time in the past adequate is a completely
unknown answer to me.
Speaker 3 (04:13):
Yeah, putting that aside, what we talked about in the
last hour for those just joining us now, I think
is probably more within our wheelhouse, which is why is
FED independence important? And the short answer we said Mike
in the last hour was because credibility, the belief that
if the FED says they're going to squash inflation, they're
actually going to do it, come hell or high water.
(04:35):
They're going to inflict pain on the economy.
Speaker 2 (04:37):
Even if it happens right before an election.
Speaker 3 (04:38):
If you believe they're going to do that, it'll prices
will adjust more quickly. Firms will adjust their prices, consumers
will adjust their and firms will adjust their inflation expectations
and any required disinflation. Think of that as medicine will
be more easily tolerated, will occur with fewer side effects.
To continue with the analogy, that's why fed into pay
(05:00):
and it is important, Mike in a word, credibility.
Speaker 2 (05:02):
Right. The other side of this that is less important,
I think, but easier to understand from just a political perspective,
is when it comes to something like this removing and
appointing new Federal Reserve governors, are you comfortable with any
sitting president having the authority to do that? And my
(05:25):
answer is no, even if I am comfortable with this
president's ability to do it, I'm just not universally comfortable
with it. And that is my I don't know that's
been I think one common theme of our views on
the past twenty years of executive power expansion is yeah,
(05:46):
when you pave the way for this, you are creating
new powers for the next president. And historically what's happened
is you go from one side to another when it
comes to control of the White House.
Speaker 3 (05:57):
The reason is you want monetary policymakers i e. The
people who run the FED, the Federal Reserve. You want
them to be focused on both inflation and unemployment. But
you want to be confident, and again I'm alluding to
credibility here that when the time comes, they'll make the
tough decision to get inflation under control. Part of the
Fed's issue in twenty twenty one twenty twenty two is
(06:18):
that people weren't sure how much emphasis the FED placed
on inflation versus unemployment because only a couple of years
before they had changed since revised again last week, they
had changed their monetary policy framework. It seemed to deemphasize
fighting inflation over getting unemployment as low as possible, whatever
(06:38):
that means, different subject entirely. So people doubted the Fed's resolved.
Their credibility was called into question, which is why Powell
adopted that kind of tough guy persona starting in twenty
twenty two. He knew expectations were elevated. He had to
get them back under control. The problem with letting politicians
get more involved and Trump's just a more aggressive version
(07:00):
of what every president, as you pointed out in the
last hour, Mike would like to be. He wants to
dictate interest rates himself. As soon as you believe that
political considerations will trump No pun but it's the right word.
Inflation considerations expectations become deanchored, so to speak, and fighting
inflation when the time comes and it will again, becomes
(07:20):
all the more difficult in terms of economic costs.
Speaker 2 (07:24):
Moving on from the independence argument of the Federal Reserve,
we do have an upcoming meeting here in less than
a month, September seventeenth, where interest rates are widely expected
to be brought down by a quarter of a percent.
According to CME Group, we are looking at an eighty
seven point three percent probability of rates being a quarter
(07:44):
percent lower after that meeting. Where it goes from there, though,
I think, is a much more question.
Speaker 3 (07:49):
Mike, you can't help but bring independence back into the discussion.
What the Fed does in September doesn't matter at all
compared to the insulation of the Fed from political decisions.
Over the long term, It doesn't matter at all. Nobody
will remember what the Fed did. Do you remember what A.
Vulkar's predecessor, Miller was his name. I believe Carter replaced
(08:14):
He brought Miller back to Treasury, put Vulcar at the Fed.
Do you remember what his last monetary? Of course not.
I'm asking a stupid question, and I don't even remember
who succeeded who So I'm obviously clueless myself. This is
insignificant in the scheme of things. The independence argument is
the issue, the only issue until this gets resolved. Now,
(08:34):
not to say we shouldn't and won't discuss other things,
but it's impossible to just talk about what's going to
happen in September without thinking about what happened last night
implies for what happens in subsequent meetings.
Speaker 2 (08:47):
Yeah, you're right. If we are facing down nine percent
inflation again, or if we are facing an economy that
was surging in unemployment, we might be having an additional
conversation about the FED and its responsibility. But at this
point in time, especially, there is no argument other than
what happens with central bank independence. Mark's fired up.
Speaker 3 (09:06):
He's right now because inflation I'm thinking, No, I just
I'm actually.
Speaker 2 (09:09):
Drawing a chart over his Wall Street Journal article.
Speaker 3 (09:13):
Because inflation remains elevated. The Fed's in a pickle already. Yeah,
this just puts the pickle in a pickle jar with
a lot of other pickles. I don't know, if Chuck
we're here, he'd have a better yeah than a than
a jar of pickles. I mean, any five year old
would have a better analogy than one I just came
up with. Let's be honest, but this makes it all
the more difficult. Look, financial markets look forward. As an investor,
(09:34):
you buy a stock not because you think it's going
to go up over the next few days. Maybe some
people do, but most investors are long term investors. They
are counting on equities appreciating in excess of the rate
of return on bonds or whatever you could own without
risk over the next five, ten years or longer. Stocks
are thus priced based on what investors think will happen
(09:55):
over the long term. It's it's more so than at
any point in my adult life. Difficult today to make
that assessment because we don't know whether or not the
Fed's gonna be independent in a couple of years. Lisa
Cook may have done something very stupid, possibly even illegal,
in which case, yes, she's been targeted, but you also
you know you got caught stupid. That's a little cruel
(10:18):
and I'm prejudging, but more important, more important, Trump does
want to take the FED over. Nobody doubts that he
said it. Take the guy at his word. He thinks
he knows interest rates better than anybody else. What does
that mean for future inflation? You think it'll be higher
or lower than if the Fed were independent. That's a
rhetorical question.
Speaker 1 (10:35):
Of course, it's going to be higher.
Speaker 3 (10:36):
Whether it's Trump or Vance or President AOC God forbid.
As you talked about in the last hour, We're gonna
have higher inflation going forward because of all this monkey business.
The Pandora's box has been opened.
Speaker 1 (10:48):
Here.
Speaker 2 (10:49):
All right, here's what I made you do. Mark, Yes, sir,
slap your hands on the table a couple more times.
We're gonna take quick break. We're gonna distress. We're gonna
talk about home insurance. After this quick break, we were
right back.
Speaker 1 (11:00):
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this week we'll continue to look at some of the
(11:56):
famous participants in World War Two. Question today, which comedy
legends served as a combat engineer during the Battle of
the Bulge? Once again, which comedy legend served as a
combat engineer during the Battle of the Bulge. And I'll
give you a hint. He's ninety nine years old and
(12:17):
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(12:40):
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Speaker 2 (12:43):
Mark, I want to turn to a subject we talked
a fair bit about, which is homeowners insurance, car insurance.
Really really all those types of insurance products that are
just skyrocketing and cost over the last few years. And
I have to admit, I do know that insurance cost
across the country, especially concentrated in a few areas, are
(13:05):
through the roof. That part is not debatable. What I
am having a really tough time getting a read on
is are we through the worst of that now and
we are normalizing at these higher prices like I have
heard reported on and seen reported on in markets like Florida,
or are we on the cusp of seeing this just
(13:26):
balloon into a different animal across the country as insurance
companies react to a number of factors, not only you know,
change in climate and these factors. I honestly I can't
get a read on that. I did hear reports recently
from Florida that, yeah, it's been a mess for years.
The state insured has been having to take on more
(13:48):
and more policies. But after the state cracked down on
all of these you know, roofing scams and damaged lawsuits,
after a Florida allowed prices to adjust quite as dramatically
as they have, no insurers are actually re entering the
state and finding ways to make money at these higher
(14:10):
prices and therefore people are dropping off of those plans.
But that's certainly not how this piece would put it.
Speaker 3 (14:17):
So some of it is the frequency and the magnitude
of extreme weather events, whether or not, regardless of how
you think what's driving climate change, Rather it's happening. Just
look at your insurance bill, or ask somebody in Florida
or parts of California or any place that's exposed to
extreme weather events. So you have to accept that premise
(14:37):
climate change is happening, forget about whether or not humans
are causing it. If that bothers you, and it's going
to drive extreme weather events that will in turn drive
property damage and make some areas too expensive to insure.
Speaker 2 (14:52):
There's other factors, so yeah, go ahead. There's other factors
too that are pointed out right. There are labor shortages
for home construction and vehicle reconstruction. There are all sorts
of inflation problems.
Speaker 3 (15:04):
Which makes which makes it more expensive rebuild pairs.
Speaker 2 (15:07):
Yeah, so you need to rebuild that home that flooded,
it's going to be more expensive to do it now
than it was previously. In the case of cars, they
are a heck of a lot more expensive to repair
because of all the sensors and technology that goes into them,
because of all of the disruptions elsewhere across the globe,
plimate change. Reinsurance is expensive, right, you buy it from Farmers.
Farmers then reinsures through a big carrier as well. That
(15:28):
reinsurance cost is up, and they do point out I
don't know that this one rings true to me. Consumer
credit score is dropping due to student debt repayments would
drive insurance costs up. But if that's happening across the board,
then I don't know that it really results in much
of it in overall increase. But to me, I do
think that if I am to take all the data
(15:50):
that I've seen, I do think that we are getting
to a more normalized place. But that normalized place is
insurance costs that are way more expensive than they were
five years ago. And I'm not but I think it's
part of why we're seeing such weakness in the housing
market in Florida, for example. It's not just because things
are oversupplied. It's because the cost of ensuring your home
(16:12):
is literally up three, four, five x compared to where
it was just ten years ago.
Speaker 3 (16:16):
In some cases, Yeah, this is going to sound insensitive
and obvious, but people are going to move elsewhere. That's
what prices do. Prices or signals, they contain information. It's
not obvious. We take that for granted, which is why
you let the price mechanism work.
Speaker 2 (16:31):
Which is also why the dumbest policy that both Florida
and California have adopted, if you are trying to look
at all this and get a good read on it,
is for the state run insurers of last resort to
come in and subsidize the cost of insurance.
Speaker 3 (16:47):
Yeah, because it distorts that mechanism.
Speaker 2 (16:49):
It distorts that market, right, I mean, the insurance companies
are sending you a signal it is really expensive if
you want to live in a hurricane alley. It is
really expensive if you want to live in the forest
where there's always a bunch of forest fires, and so
don't do that, or if you do, we're going to
make you pay a heck of a lot of money
to rebuild your home once it burns down or floods.
Speaker 3 (17:08):
Yeah, that's the way insurance is, and thats.
Speaker 2 (17:10):
The way it should work. When when states get involved
in saying, oh, well, no, you can't raise prices that
much because it'll drive people out of our state. I
get why they do it. They need to they're elected
officials and they need to be re elected. But you
are just causing a bigger problem down the road, as
we saw in Florida, where a bunch of insurers just said, Okay,
(17:31):
sounds good, see you later. We're not going to be
forced to do business in your state, so we'll just
find somewhere else to do business.
Speaker 3 (17:38):
But the question you started with, have prices plateaued as
the price of insurance plateaued or will it continue.
Speaker 2 (17:44):
To go up? That it's really tough.
Speaker 3 (17:47):
The biggest driver is probably extreme weather event yes, right,
of all of those that you cited, there are other contributors,
but that's probably the largest.
Speaker 2 (17:55):
So the statistic I found just really compelling this data
bank rate the average annual premium for just a generic
three hundred thousand dollars home insurance policy in Louisiana last
year six two hundred and seventy four dollars in Vermont,
that same play on cost eight hundred and thirty four dollars.
(18:16):
Totally understand why it should, but that is such a
dramatic difference that I was just a bit taken aback.
Speaker 3 (18:25):
Yeah, that makes that makes the difference in risks very relatable.
That's what prices are supposed to do. Express these things
in a common unit that we can all relate.
Speaker 2 (18:36):
To its Yeah, yeah, it's uncomfortable.
Speaker 3 (18:38):
But that's the way it's supposed to work.
Speaker 2 (18:40):
We have got to take a quick break in a
minute here. When we come back, we're going to be
talking a little bit about wroth accounts. Obviously big growing
popularity over the last few years. How does one decide
whether or not they should be participating in their wrath
versus traditional four oh one k or iro Wall Street
(19:01):
Watch next and the trivia winner after that quick break.
Speaker 1 (19:20):
Bringing the latest financial news straight to your radio. Every day,
It's the Financial Exchange on the Financial Exchange Radio Network.
Time now for Wall Street Watch a complete look at
what's moving markets so far today right here on the
Financial Exchange Radio Network.
Speaker 4 (19:39):
Well, markets are mixed but mostly quiet, as investors mostly
shrugging off the latest development between President Trump and the FED,
where Trump ordered the removal of FED Governor Lisa Cook. However,
Cook said Trump has no authority to fire her and
won't resign right now. The Dow is off by only
thirty five points, about a tenth of a percent. SMP
(20:01):
five hundred is completely flat at the moment, and the
Nasdaq is edging thirteen points higher. Russell two thousand is
up by six tenths of one percent, ten year treasureel
at four point two seven five percent, and crude oil
off nearly two percent, now trading at sixty three dollars
in fifty eight cents a barrel. Shares an Eli Lilly
(20:22):
up about three percent after the pharmaceutical giant's weight loss
pill cleared another lay straight stage trial. The higher dose
of the pill help patients lose ten point five percent
of their weight on average at seventy two weeks, compared
to just two point two percent weight loss in the
placebo group. Meanwhile, eight and C said it would buy
(20:43):
some wireless spectrum licenses from Echo Star for twenty three
billion dollars, sending shares an echo Star jumping eighty percent higher,
while eight and T stock is down over one percent. Elsewhere,
retailers including Canada goose vf Core and Rocky Brands are
seeing gains after Baird upgraded the stocks to outperform. Truest
(21:06):
upgraded ship maker AMD to buy from hold. Where the
analysts noted that Hyperscale customers have been increasingly partnering with
the company and expressing trust interest in deploying AMD at scale.
AMD shares are climbing over one percent higher. Interactive Brokers
will join the S and P five hundred replacing Walgreens,
(21:27):
and Digital identity management company Octa will report their earnings
after today's closing bill. I'm Tucker Silva and Mattis Wall
Street Watch and in the previous segment we asked you
the trivia question which Comedy Legends served as a combat
engineer during the Battle of the Bulge. That would be
mel Brooks. Martin from Berkeley, Mass is our winner today,
(21:49):
taking home a Financial Exchange Show t shirt. Congrats to Martin,
and we play trivia every day here in the Financial
Exchange See complete contest rules at Financial Exchange Show dot com.
Speaker 2 (22:00):
CNBC asks about roth iras versus roth Flora one ks,
and quite honestly, I don't feel as though that's the
right question, so it brings up a few points about
the two, and I do see people making this mistake.
Sometimes many people can contribute to both a roth ira
or a wroth for a one K. If you make
too much money, you cannot do the IRA option. The
(22:25):
IRA offers you, in my mind, at least one piece
of additional flexibility, which is early withdrawals. You can go
and touch your wroth IRA prior to fifty nine and
a half for some of that money in a way
that you really can't with your four A one K,
And so that does give you some additional flexibility. But
my point would be, if you're putting money into a
(22:49):
wroth in order to be able to pull it out
a few years from now, you maybe shouldn't be considering
doing it in the first place. So I'm not sure
that that's a huge advantage in my mind. Right, If
you're saving money for a home and you want the
flexibility of the roth iray like, yeah, that's not a
great a great reason to do so For most people,
the four to one K option is going to provide
(23:09):
far more benefit. You're going to get matching contributions from
your employer. In most cases, you're going to get way
higher contribution limits, I think because all the plan sponsors
have bought their congress people in order to make sure
that those contribution limits are much higher for four oh
one k's rather than self directed I rays. There are
just a ton of advantages to those retirement plans that
(23:30):
just don't exist for regular old traditional I rays and
wroth IRA rays.
Speaker 3 (23:36):
So max out on your employer sponsored plan. As a
general rule, it's different for everybody, but as a rule,
you should consider contributing as much as you can to
your employer sponsored plan and then with any excess potential savings.
Speaker 2 (23:49):
Because there's always exception if you're eligible. Like you know, honestly,
there are some really bad employer sponsored plans that are
out there. I've seen them, you know, employer sponsored plans
that tie up your money for a decade in an annuity.
There there are employee sponsored plans that are egregiously expensive
to contribute to. But as a rule of thumb, like, yeah,
(24:10):
a lot of them are pretty darn good, pretty darn compelling,
and come with a bunch of other benefits alongside them
that people don't always take advantage of.
Speaker 3 (24:19):
And not everybody's eligible for a roth IRA.
Speaker 2 (24:22):
Right for a roth ira and not everybody's even eligible
for a traditional iray right. If if you or your
spouse make too much, it can it can phase you
out of your ability to contribute to it. That all
of that haven't been said. Employer sponsored plans, I think
people are generally good about enrolling in them because their
(24:42):
employers haven't been defaulted in defaulted in, so like positive
when it comes to just about everything else traditional versus ROTH.
You know, how do I invest in them? What are
all these options? What do they mean for me? There
is a ton of confusion out there for good reason.
They are co complex products, and they are about to
become a little bit more complex over the course of
(25:03):
the next few years, with the DL taking a look
at things like annuities and private equity that can be
put into these as options for investors. They won't all
happen immediately, but many of them could be included in
the future. If you have questions about your employer plan
and how it's going to work for you in retirement,
(25:24):
which by the way, is a whole subject. We didn't
even get into how well or poorly these devices work
once you're actually retired and pulling money out of them.
Please give our folks at Armstrong Advisory Group a call
the numbers eight hundred three nine three for zero zero one.
We provide free consultations with folks about their overall financial strategy,
which obviously includes the huge junk of portion of their
(25:47):
net worth that folks have in those employer plans. And
there's all sorts of complexities that go into it. Again,
that number eight hundred three nine three for zero zero one.
Speaker 1 (25:57):
The proceeding was paid for by Armstrong Advisory Groups, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal or tax advice. Consult
your own financial tax into state planning advisors before making
any investment decisions. Armstrong make contact you to offer investment
advisory services.
Speaker 2 (26:13):
Average annual power bills in the year through May increased
at a pace of six percent year over year so far,
and it seems as though, according to most experts, it's
pretty easy to determine where the blame goes for that,
which is the massive new demand that has come online
(26:34):
from artificial intelligence.
Speaker 3 (26:37):
Yeah, this like universal agreement on that, isn't there.
Speaker 2 (26:39):
It's really not.
Speaker 3 (26:40):
I've not seen anybody's site. Sometimes a spurt of economic
growth would increase demand for electricity for obvious reasons. Economy
still seems to be growing out or above a shorts
trend rate, but that's probably not the culprit. Every serious
attempt at attribution year points to AI data center.
Speaker 2 (26:58):
It is like a single easiest economic lesson of supply
and demand that I think you can come up with.
Speaker 3 (27:04):
Yeah, surprisingly helpful framework supplying.
Speaker 2 (27:08):
Very simply put, electricity supply is pretty darn fixed in
the short term. You can't easily bring on a nuclear
power plant or a new gas powered or coal powered
fire power plant. Yeah, and you are suddenly having all
of these new online models for artificial intelligence demanding a
(27:28):
whole bunch of new electricity in order to generate the
responses that are needed to make them work. And so
you have electricity electricity costs going up, just as we
talked about and predicted at length here. It's again not
rocket science on this one. You have supply and demand
for electricity and a massive new demand for it without
(27:48):
the ability to rapidly increase the supply.
Speaker 3 (27:50):
Benefits of AI better materialize and soon, or we're gonna
have a serious economic hangover. That's not my Yeah, a
lot of people are increasingly concerned about the shall we say,
over investment in AI and AI related Yeah.
Speaker 2 (28:08):
We talked about this a little bit briefly yesterday, but
I think it is worth mentioning again the amount of
investment that these massive behemoths have made so far. While
a lot of excitement that it's due, well, it's generated
a ton of excitement, it's largely just been a transfer
of cash from a bunch of very cash heavy businesses Facebook,
Google to name two of them, over to a new
(28:31):
emerging company in video. It's been we're going to buy
all of your chips and we're going to try and
do something cool with it. To this point, I won't
say they haven't done anything cool with it, but they
certainly haven't done anything profitable with it.
Speaker 3 (28:45):
Do you see mit study over the weekend?
Speaker 2 (28:47):
No?
Speaker 3 (28:48):
The upshot, I'll be quick, just five percent of integrated
AI pilots, So experiments with generative AI, working them into
your existing workflow software, stuff like that, just five percent?
Or extract any value now that maybe that's not unusual.
They don't provide a reference point like what percentage of
fiber optic investments increased in a measurable way the bottom
(29:09):
line of whatever, But the researchers in it have concluded
that so far the return on investment is negligible.
Speaker 2 (29:20):
The upshot to all of this is that many people
are making the comparison to I don't even know the
names of the companies that invested all the money and
laying the fiber optic cable to make the Internet happen.
And so the question those companies spent a ton of
money and were very highly valued for a long period
of time, and then they don't even exist anymore because
(29:41):
all they did was build the groundwork for new companies
to come around, disrupt and invest. And in the meantime,
you had a giant crash in the dot com bubble
that sent stocks down a lot in that intermediate period
of time. I won't quote the amount because.
Speaker 3 (29:56):
Eighty three percent was the fall in the Nasdaq. I
know you knew that you would just try to shield
people from it, but.
Speaker 2 (30:01):
I didn't remember it is eighty three percent.
Speaker 3 (30:03):
Eighty two to eighty three percent following lastech.
Speaker 2 (30:05):
Yeah, so that is the question that's being raised by many,
is hey, our Facebook and Google just doing what those
companies did back in nineteen ninety something and laying the
groundwork from before the native companies to completely disrupt their business.
Speaker 3 (30:17):
Mind it, it happens over and I know you know this,
It happens over and over again. This exuberance over investment
followed by a crash railroads come to mind. It's sort
of like the textbook example. There was useful infrastructure left over,
just as there was after the dot com crash. So
maybe this is unavoidable and even in some ways helpful,
although you'd like to think we could achieve it without
(30:37):
a market bubble followed by a very painful bursting of
that bubble. But it's not unusual.
Speaker 2 (30:43):
Quick break when we come back. Stacker lettas next.
Speaker 1 (30:46):
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to noon non Serious XM's Business radio channel one thirty two.
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and breaking business news every day The Financial Exchange live
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Speaker 2 (31:20):
A little bit of good news out there for folks,
say a tax refund surge likely to be coming next year.
The basic story here is the new Trump tax cuts
that were put into place, most of them backdated to
January first of this year, not all. Several of them
go into place in twenty twenty six. But because of that,
(31:40):
and because of the amount that people have already withheld
plus the IRS coming out and announcing that withholding levels
are going to remain the same for the current calendar year.
What it's likely to result in is a whole bunch
of people who are withholding currently more taxes than they
need to, especially when it comes to things like taxes
on tips, deductions on not deductions on Social Security. The
(32:03):
new sixty five plus age tax deductions likely the resulting
a whole bunch of people receiving larger refunds next year
than anticipated. The author of this story and MarketWatch makes
the argument that that's a good reason for the Fed
to hold interest rates steady, and I think that argument's
(32:24):
a little bit more convoluted. I mean, I generally think
that the Fed should probably be pretty hesitant to lower
interest rates in general right now for other reasons. But
quite honestly, the amount of refunds going to people wasn't
one of them. But it is true. Look, when people
get refunds, they tend to spend them, and if those
refunds are going to be larger than usual in the
(32:45):
beginning March of twenty twenty six, then we might expect
a big surgeon.
Speaker 3 (32:49):
The politicians set it up that way it's an election year.
They knew big refunds were going to hit only months
before the elections. Some of that, as you say, will
be spent. Economic growth is already running at its potential rate,
maybe a little bit above. Who knows what it'll be
in a year. So yeah, it should be taken into
consideration by monetary policy makers. That that all makes sense.
(33:11):
I do find economic context.
Speaker 2 (33:13):
I do find that part of this job exceedingly difficult.
Right The job of anybody that's trying to analyze what
comes next for the economy and markets is part of
it is analyzing, Okay, not only what would I do
had I control, like what do I think the FED
(33:33):
should do? But what will they actually do? Is an
increasingly difficult thing to do, especially you know it's length
about independence and stuff like that. But setting aside your
own personal views of hey, this is how economics work
and this is clearly what's going on the economy, and
putting yourself in the shoes of J. Powell and that
twelve member board to say, okay, but what would they
(33:54):
do in this?
Speaker 3 (33:55):
This is you've just articulated something called the Lucas critique,
named after Bob Lucas, Nobel Laureate died last year. His
point is that statistical estimates of responses of say spending
to a tax cut or a refund, they can't be
relied on in the future because of expectations. People know
that if they spend, the FED will leave rates where
it is where they are, so they won't spend. What
(34:18):
Lucas basically said is that these relationships are not He
might have called it policy invariant, meaning if people expect
the FED to tighten because they get a tax refund,
they won't spend it in the first place. So you
end up with this feedback because of expectations. That causes
traditional relationships, historical statistical if you will relationships to break down.
(34:43):
And I wonder, Mike, if maybe that's what's going on
in markets today. There's all this hullabaloo about Trump attacking
the FED, which he is. Trump wanted to control interest rates,
which he does. He's a boss, he wants to control everything.
Speaker 2 (34:55):
Well, beyond all that he said, I'm just saying.
Speaker 3 (34:57):
I'm just explained it's his personality. He wants to control everything,
and Constitution maybe says differently. We're gonna find out. That's
how I view it. Simple framework. Markets aren't reacting much.
Even the bond market. You would think, holy mackerel, the
president's about to take control of interest the money supply
more accurately, this means high inflation in the future. The
yield on very long term government debt is up a bit,
(35:19):
but nothing suggesting cataclysm. Why is that? Perhaps because of
expectations people don't think he'll follow through, because he's fears
rising long term rates. If he does follow through, it
gets complicated, is what I'm saying, and there is no
solution as a result.
Speaker 2 (35:35):
It does get complicated, and it just reminds me to
not read too much into day to day moves in
any market, because they oftentimes make no sense in the
context of things. Yeah, it's just, yeah, it's sometimes tough
to read what all of these things mean. Markets remain
in slightly mixed territory, now currently off four points less
(35:56):
than less than one twentieth of one percent to the
SMP up by less than two points less than one
twenty percent of the NASDAC, with the biggest move of
the day here up twenty three points or one tenth
of a percent. Checking out the bond market here, as
Mark mentioned, we've got the yield on the ten year
Treasury now sitting at four point two seven three percent,
(36:18):
not a big move either. And heading over to energy
markets for a moment, we've got the price of oil
down two percent today. That's the biggest move in any
market that I've seen so far, down to sixty three
forty five a barrel. That is all the time we
have for today's financial exchange. We'll be right back at
it tomorrow. Folks, have a great rest of your day.
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(01:03):
Face is the Financial Exchange with Mike Armstrong and Mark Vandetti.
Speaker 2 (01:11):
Good morning, Welcome back to the Financial Exchange. It's Mike,
Mark and Tucker with you on a Tuesday with markets.
They're pretty boring today. We don't need to get into
it that they're mixed now slightly off has to be
a NASDAK slightly positive. But the big story of the
day remains President Trump's firing of Federal Reserve official Lisa Cook,
(01:32):
who was appointed during the Biden administration, and big questions
about FED independence and the president's ability to remove a
sitting Federal Reserve governor. For since the existence of the FED,
it has been run as an independent agency.
Speaker 1 (01:48):
No.
Speaker 3 (01:49):
Nineteen fifty one ish Great. If you're interested in this topic,
well go ahead, Mike.
Speaker 2 (01:53):
Than now please, I want to be corrected.
Speaker 3 (01:55):
Great recently. The only reason that this is top of
mind for me. Great recent paper and your called Journal
of Economic Perspectives, not something a lot of people probably
typically crack open. But there's very little math in JEP.
Journal of Economic Perspectives articles. If you're interested in this
most recent, most recent issue came out last week. It
(02:15):
chronicles the fed's history, it's fight for independence during and
after World War Two. Truman kept pressure on the FED
to keep shortterm interest rates low to finance the big debt.
There was an explosion in inflation. The FED finally wrestled
control away from politicians. It took another few decades to
get politicians to stop.
Speaker 2 (02:37):
Yeah, it was.
Speaker 3 (02:38):
It was a long fight. And so this idea that
the Fed's autonomy is sacrasanct is relatively modern from roughly
Vulgar who was a tough bird onward and Clinton kind
of enshrined it was. I was gonna say a tough fella,
but that that didn't sound right. So tough character an
(03:00):
honorary character.
Speaker 2 (03:02):
So the media is portraying this as another hit on
FED independence, and I do think it is based on
the way that it is the found done. They were
looking for, you know, reasons to be able to excuse
members of the FED. They found one here, and the
means by which they did so, which is not presenting
(03:22):
any evidence of the crime that she allegedly committed, is
being I think accurately portrayed as another hit on central
bank independence. And the question.
Speaker 3 (03:33):
Both can be true, right, she could have done something
very stupid and left herself open to this, yes, and
they can also have been looking for a reason.
Speaker 2 (03:39):
To hundred percent. So where we land on all this
is it's likely end up in courts and we're about
to likely find out does a president have the ability
to remove a federal reserve governor? And what do they
mean by having cause? Because it's pretty clear I believe
from the charter that the sitting the president hand remove
(04:00):
someone for cause. But is allegation of an unproven crime
from some time in the past adequate is a completely
unknown answer to me.
Speaker 3 (04:13):
Yeah, putting that aside, what we talked about in the
last hour for those just joining us now, I think
is probably more within our wheelhouse, which is why is
FED independence important? And the short answer we said Mike
in the last hour was because credibility, the belief that
if the FED says they're going to squash inflation, they're
actually going to do it, come hell or high water.
(04:35):
They're going to inflict pain on the economy.
Speaker 2 (04:37):
Even if it happens right before an election.
Speaker 3 (04:38):
If you believe they're going to do that, it'll prices
will adjust more quickly. Firms will adjust their prices, consumers
will adjust their and firms will adjust their inflation expectations
and any required disinflation. Think of that as medicine will
be more easily tolerated, will occur with fewer side effects.
To continue with the analogy, that's why fed into pay
(05:00):
and it is important, Mike in a word, credibility.
Speaker 2 (05:02):
Right. The other side of this that is less important,
I think, but easier to understand from just a political perspective,
is when it comes to something like this removing and
appointing new Federal Reserve governors, are you comfortable with any
sitting president having the authority to do that? And my
(05:25):
answer is no, even if I am comfortable with this
president's ability to do it, I'm just not universally comfortable
with it. And that is my I don't know that's
been I think one common theme of our views on
the past twenty years of executive power expansion is yeah,
(05:46):
when you pave the way for this, you are creating
new powers for the next president. And historically what's happened
is you go from one side to another when it
comes to control of the White House.
Speaker 3 (05:57):
The reason is you want monetary policymakers i e. The
people who run the FED, the Federal Reserve. You want
them to be focused on both inflation and unemployment. But
you want to be confident, and again I'm alluding to
credibility here that when the time comes, they'll make the
tough decision to get inflation under control. Part of the
Fed's issue in twenty twenty one twenty twenty two is
(06:18):
that people weren't sure how much emphasis the FED placed
on inflation versus unemployment because only a couple of years
before they had changed since revised again last week, they
had changed their monetary policy framework. It seemed to deemphasize
fighting inflation over getting unemployment as low as possible, whatever
(06:38):
that means, different subject entirely. So people doubted the Fed's resolved.
Their credibility was called into question, which is why Powell
adopted that kind of tough guy persona starting in twenty
twenty two. He knew expectations were elevated. He had to
get them back under control. The problem with letting politicians
get more involved and Trump's just a more aggressive version
(07:00):
of what every president, as you pointed out in the
last hour, Mike would like to be. He wants to
dictate interest rates himself. As soon as you believe that
political considerations will trump No pun but it's the right word.
Inflation considerations expectations become deanchored, so to speak, and fighting
inflation when the time comes and it will again, becomes
(07:20):
all the more difficult in terms of economic costs.
Speaker 2 (07:24):
Moving on from the independence argument of the Federal Reserve,
we do have an upcoming meeting here in less than
a month, September seventeenth, where interest rates are widely expected
to be brought down by a quarter of a percent.
According to CME Group, we are looking at an eighty
seven point three percent probability of rates being a quarter
(07:44):
percent lower after that meeting. Where it goes from there, though,
I think, is a much more question.
Speaker 3 (07:49):
Mike, you can't help but bring independence back into the discussion.
What the Fed does in September doesn't matter at all
compared to the insulation of the Fed from political decisions.
Over the long term, It doesn't matter at all. Nobody
will remember what the Fed did. Do you remember what A.
Vulkar's predecessor, Miller was his name. I believe Carter replaced
(08:14):
He brought Miller back to Treasury, put Vulcar at the Fed.
Do you remember what his last monetary? Of course not.
I'm asking a stupid question, and I don't even remember
who succeeded who So I'm obviously clueless myself. This is
insignificant in the scheme of things. The independence argument is
the issue, the only issue until this gets resolved. Now,
(08:34):
not to say we shouldn't and won't discuss other things,
but it's impossible to just talk about what's going to
happen in September without thinking about what happened last night
implies for what happens in subsequent meetings.
Speaker 2 (08:47):
Yeah, you're right. If we are facing down nine percent
inflation again, or if we are facing an economy that
was surging in unemployment, we might be having an additional
conversation about the FED and its responsibility. But at this
point in time, especially, there is no argument other than
what happens with central bank independence. Mark's fired up.
Speaker 3 (09:06):
He's right now because inflation I'm thinking, No, I just
I'm actually.
Speaker 2 (09:09):
Drawing a chart over his Wall Street Journal article.
Speaker 3 (09:13):
Because inflation remains elevated. The Fed's in a pickle already. Yeah,
this just puts the pickle in a pickle jar with
a lot of other pickles. I don't know, if Chuck
we're here, he'd have a better yeah than a than
a jar of pickles. I mean, any five year old
would have a better analogy than one I just came
up with. Let's be honest, but this makes it all
the more difficult. Look, financial markets look forward. As an investor,
(09:34):
you buy a stock not because you think it's going
to go up over the next few days. Maybe some
people do, but most investors are long term investors. They
are counting on equities appreciating in excess of the rate
of return on bonds or whatever you could own without
risk over the next five, ten years or longer. Stocks
are thus priced based on what investors think will happen
(09:55):
over the long term. It's it's more so than at
any point in my adult life. Difficult today to make
that assessment because we don't know whether or not the
Fed's gonna be independent in a couple of years. Lisa
Cook may have done something very stupid, possibly even illegal,
in which case, yes, she's been targeted, but you also
you know you got caught stupid. That's a little cruel
(10:18):
and I'm prejudging, but more important, more important, Trump does
want to take the FED over. Nobody doubts that he
said it. Take the guy at his word. He thinks
he knows interest rates better than anybody else. What does
that mean for future inflation? You think it'll be higher
or lower than if the Fed were independent. That's a
rhetorical question.
Speaker 1 (10:35):
Of course, it's going to be higher.
Speaker 3 (10:36):
Whether it's Trump or Vance or President AOC God forbid.
As you talked about in the last hour, We're gonna
have higher inflation going forward because of all this monkey business.
The Pandora's box has been opened.
Speaker 1 (10:48):
Here.
Speaker 2 (10:49):
All right, here's what I made you do. Mark, Yes, sir,
slap your hands on the table a couple more times.
We're gonna take quick break. We're gonna distress. We're gonna
talk about home insurance. After this quick break, we were
right back.
Speaker 1 (11:00):
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Speaker 4 (11:13):
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trivia here on the Financial Exchange. Continuing are our World
War II theme here in the month of August, and
this week we'll continue to look at some of the
(11:56):
famous participants in World War Two. Question today, which comedy
legends served as a combat engineer during the Battle of
the Bulge? Once again, which comedy legend served as a
combat engineer during the Battle of the Bulge. And I'll
give you a hint. He's ninety nine years old and
(12:17):
appeared in an episode of Only Murders in the Building
two years ago. Be the fourth person today to text
us at six one seven three six two thirteen eighty
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to Texas to the number six one seven three six
two thirteen eighty five will win that T shirt. See
(12:40):
complete contest rules at Financial Exchange Show dot com.
Speaker 2 (12:43):
Mark, I want to turn to a subject we talked
a fair bit about, which is homeowners insurance, car insurance.
Really really all those types of insurance products that are
just skyrocketing and cost over the last few years. And
I have to admit, I do know that insurance cost
across the country, especially concentrated in a few areas, are
(13:05):
through the roof. That part is not debatable. What I
am having a really tough time getting a read on
is are we through the worst of that now and
we are normalizing at these higher prices like I have
heard reported on and seen reported on in markets like Florida,
or are we on the cusp of seeing this just
(13:26):
balloon into a different animal across the country as insurance
companies react to a number of factors, not only you know,
change in climate and these factors. I honestly I can't
get a read on that. I did hear reports recently
from Florida that, yeah, it's been a mess for years.
The state insured has been having to take on more
(13:48):
and more policies. But after the state cracked down on
all of these you know, roofing scams and damaged lawsuits,
after a Florida allowed prices to adjust quite as dramatically
as they have, no insurers are actually re entering the
state and finding ways to make money at these higher
(14:10):
prices and therefore people are dropping off of those plans.
But that's certainly not how this piece would put it.
Speaker 3 (14:17):
So some of it is the frequency and the magnitude
of extreme weather events, whether or not, regardless of how
you think what's driving climate change, Rather it's happening. Just
look at your insurance bill, or ask somebody in Florida
or parts of California or any place that's exposed to
extreme weather events. So you have to accept that premise
(14:37):
climate change is happening, forget about whether or not humans
are causing it. If that bothers you, and it's going
to drive extreme weather events that will in turn drive
property damage and make some areas too expensive to insure.
Speaker 2 (14:52):
There's other factors, so yeah, go ahead. There's other factors
too that are pointed out right. There are labor shortages
for home construction and vehicle reconstruction. There are all sorts
of inflation problems.
Speaker 3 (15:04):
Which makes which makes it more expensive rebuild pairs.
Speaker 2 (15:07):
Yeah, so you need to rebuild that home that flooded,
it's going to be more expensive to do it now
than it was previously. In the case of cars, they
are a heck of a lot more expensive to repair
because of all the sensors and technology that goes into them,
because of all of the disruptions elsewhere across the globe,
plimate change. Reinsurance is expensive, right, you buy it from Farmers.
Farmers then reinsures through a big carrier as well. That
(15:28):
reinsurance cost is up, and they do point out I
don't know that this one rings true to me. Consumer
credit score is dropping due to student debt repayments would
drive insurance costs up. But if that's happening across the board,
then I don't know that it really results in much
of it in overall increase. But to me, I do
think that if I am to take all the data
(15:50):
that I've seen, I do think that we are getting
to a more normalized place. But that normalized place is
insurance costs that are way more expensive than they were
five years ago. And I'm not but I think it's
part of why we're seeing such weakness in the housing
market in Florida, for example. It's not just because things
are oversupplied. It's because the cost of ensuring your home
(16:12):
is literally up three, four, five x compared to where
it was just ten years ago.
Speaker 3 (16:16):
In some cases, Yeah, this is going to sound insensitive
and obvious, but people are going to move elsewhere. That's
what prices do. Prices or signals, they contain information. It's
not obvious. We take that for granted, which is why
you let the price mechanism work.
Speaker 2 (16:31):
Which is also why the dumbest policy that both Florida
and California have adopted, if you are trying to look
at all this and get a good read on it,
is for the state run insurers of last resort to
come in and subsidize the cost of insurance.
Speaker 3 (16:47):
Yeah, because it distorts that mechanism.
Speaker 2 (16:49):
It distorts that market, right, I mean, the insurance companies
are sending you a signal it is really expensive if
you want to live in a hurricane alley. It is
really expensive if you want to live in the forest
where there's always a bunch of forest fires, and so
don't do that, or if you do, we're going to
make you pay a heck of a lot of money
to rebuild your home once it burns down or floods.
Speaker 3 (17:08):
Yeah, that's the way insurance is, and thats.
Speaker 2 (17:10):
The way it should work. When when states get involved
in saying, oh, well, no, you can't raise prices that
much because it'll drive people out of our state. I
get why they do it. They need to they're elected
officials and they need to be re elected. But you
are just causing a bigger problem down the road, as
we saw in Florida, where a bunch of insurers just said, Okay,
(17:31):
sounds good, see you later. We're not going to be
forced to do business in your state, so we'll just
find somewhere else to do business.
Speaker 3 (17:38):
But the question you started with, have prices plateaued as
the price of insurance plateaued or will it continue.
Speaker 2 (17:44):
To go up? That it's really tough.
Speaker 3 (17:47):
The biggest driver is probably extreme weather event yes, right,
of all of those that you cited, there are other contributors,
but that's probably the largest.
Speaker 2 (17:55):
So the statistic I found just really compelling this data
bank rate the average annual premium for just a generic
three hundred thousand dollars home insurance policy in Louisiana last
year six two hundred and seventy four dollars in Vermont,
that same play on cost eight hundred and thirty four dollars.
(18:16):
Totally understand why it should, but that is such a
dramatic difference that I was just a bit taken aback.
Speaker 3 (18:25):
Yeah, that makes that makes the difference in risks very relatable.
That's what prices are supposed to do. Express these things
in a common unit that we can all relate.
Speaker 2 (18:36):
To its Yeah, yeah, it's uncomfortable.
Speaker 3 (18:38):
But that's the way it's supposed to work.
Speaker 2 (18:40):
We have got to take a quick break in a
minute here. When we come back, we're going to be
talking a little bit about wroth accounts. Obviously big growing
popularity over the last few years. How does one decide
whether or not they should be participating in their wrath
versus traditional four oh one k or iro Wall Street
(19:01):
Watch next and the trivia winner after that quick break.
Speaker 1 (19:20):
Bringing the latest financial news straight to your radio. Every day,
It's the Financial Exchange on the Financial Exchange Radio Network.
Time now for Wall Street Watch a complete look at
what's moving markets so far today right here on the
Financial Exchange Radio Network.
Speaker 4 (19:39):
Well, markets are mixed but mostly quiet, as investors mostly
shrugging off the latest development between President Trump and the FED,
where Trump ordered the removal of FED Governor Lisa Cook. However,
Cook said Trump has no authority to fire her and
won't resign right now. The Dow is off by only
thirty five points, about a tenth of a percent. SMP
(20:01):
five hundred is completely flat at the moment, and the
Nasdaq is edging thirteen points higher. Russell two thousand is
up by six tenths of one percent, ten year treasureel
at four point two seven five percent, and crude oil
off nearly two percent, now trading at sixty three dollars
in fifty eight cents a barrel. Shares an Eli Lilly
(20:22):
up about three percent after the pharmaceutical giant's weight loss
pill cleared another lay straight stage trial. The higher dose
of the pill help patients lose ten point five percent
of their weight on average at seventy two weeks, compared
to just two point two percent weight loss in the
placebo group. Meanwhile, eight and C said it would buy
(20:43):
some wireless spectrum licenses from Echo Star for twenty three
billion dollars, sending shares an echo Star jumping eighty percent higher,
while eight and T stock is down over one percent. Elsewhere,
retailers including Canada goose vf Core and Rocky Brands are
seeing gains after Baird upgraded the stocks to outperform. Truest
(21:06):
upgraded ship maker AMD to buy from hold. Where the
analysts noted that Hyperscale customers have been increasingly partnering with
the company and expressing trust interest in deploying AMD at scale.
AMD shares are climbing over one percent higher. Interactive Brokers
will join the S and P five hundred replacing Walgreens,
(21:27):
and Digital identity management company Octa will report their earnings
after today's closing bill. I'm Tucker Silva and Mattis Wall
Street Watch and in the previous segment we asked you
the trivia question which Comedy Legends served as a combat
engineer during the Battle of the Bulge. That would be
mel Brooks. Martin from Berkeley, Mass is our winner today,
(21:49):
taking home a Financial Exchange Show t shirt. Congrats to Martin,
and we play trivia every day here in the Financial
Exchange See complete contest rules at Financial Exchange Show dot com.
Speaker 2 (22:00):
CNBC asks about roth iras versus roth Flora one ks,
and quite honestly, I don't feel as though that's the
right question, so it brings up a few points about
the two, and I do see people making this mistake.
Sometimes many people can contribute to both a roth ira
or a wroth for a one K. If you make
too much money, you cannot do the IRA option. The
(22:25):
IRA offers you, in my mind, at least one piece
of additional flexibility, which is early withdrawals. You can go
and touch your wroth IRA prior to fifty nine and
a half for some of that money in a way
that you really can't with your four A one K,
And so that does give you some additional flexibility. But
my point would be, if you're putting money into a
(22:49):
wroth in order to be able to pull it out
a few years from now, you maybe shouldn't be considering
doing it in the first place. So I'm not sure
that that's a huge advantage in my mind. Right, If
you're saving money for a home and you want the
flexibility of the roth iray like, yeah, that's not a
great a great reason to do so For most people,
the four to one K option is going to provide
(23:09):
far more benefit. You're going to get matching contributions from
your employer. In most cases, you're going to get way
higher contribution limits, I think because all the plan sponsors
have bought their congress people in order to make sure
that those contribution limits are much higher for four oh
one k's rather than self directed I rays. There are
just a ton of advantages to those retirement plans that
(23:30):
just don't exist for regular old traditional I rays and
wroth IRA rays.
Speaker 3 (23:36):
So max out on your employer sponsored plan. As a
general rule, it's different for everybody, but as a rule,
you should consider contributing as much as you can to
your employer sponsored plan and then with any excess potential savings.
Speaker 2 (23:49):
Because there's always exception if you're eligible. Like you know, honestly,
there are some really bad employer sponsored plans that are
out there. I've seen them, you know, employer sponsored plans
that tie up your money for a decade in an annuity.
There there are employee sponsored plans that are egregiously expensive
to contribute to. But as a rule of thumb, like, yeah,
(24:10):
a lot of them are pretty darn good, pretty darn compelling,
and come with a bunch of other benefits alongside them
that people don't always take advantage of.
Speaker 3 (24:19):
And not everybody's eligible for a roth IRA.
Speaker 2 (24:22):
Right for a roth ira and not everybody's even eligible
for a traditional iray right. If if you or your
spouse make too much, it can it can phase you
out of your ability to contribute to it. That all
of that haven't been said. Employer sponsored plans, I think
people are generally good about enrolling in them because their
(24:42):
employers haven't been defaulted in defaulted in, so like positive
when it comes to just about everything else traditional versus ROTH.
You know, how do I invest in them? What are
all these options? What do they mean for me? There
is a ton of confusion out there for good reason.
They are co complex products, and they are about to
become a little bit more complex over the course of
(25:03):
the next few years, with the DL taking a look
at things like annuities and private equity that can be
put into these as options for investors. They won't all
happen immediately, but many of them could be included in
the future. If you have questions about your employer plan
and how it's going to work for you in retirement,
(25:24):
which by the way, is a whole subject. We didn't
even get into how well or poorly these devices work
once you're actually retired and pulling money out of them.
Please give our folks at Armstrong Advisory Group a call
the numbers eight hundred three nine three for zero zero one.
We provide free consultations with folks about their overall financial strategy,
which obviously includes the huge junk of portion of their
(25:47):
net worth that folks have in those employer plans. And
there's all sorts of complexities that go into it. Again,
that number eight hundred three nine three for zero zero one.
Speaker 1 (25:57):
The proceeding was paid for by Armstrong Advisory Groups, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal or tax advice. Consult
your own financial tax into state planning advisors before making
any investment decisions. Armstrong make contact you to offer investment
advisory services.
Speaker 2 (26:13):
Average annual power bills in the year through May increased
at a pace of six percent year over year so far,
and it seems as though, according to most experts, it's
pretty easy to determine where the blame goes for that,
which is the massive new demand that has come online
(26:34):
from artificial intelligence.
Speaker 3 (26:37):
Yeah, this like universal agreement on that, isn't there.
Speaker 2 (26:39):
It's really not.
Speaker 3 (26:40):
I've not seen anybody's site. Sometimes a spurt of economic
growth would increase demand for electricity for obvious reasons. Economy
still seems to be growing out or above a shorts
trend rate, but that's probably not the culprit. Every serious
attempt at attribution year points to AI data center.
Speaker 2 (26:58):
It is like a single easiest economic lesson of supply
and demand that I think you can come up with.
Speaker 3 (27:04):
Yeah, surprisingly helpful framework supplying.
Speaker 2 (27:08):
Very simply put, electricity supply is pretty darn fixed in
the short term. You can't easily bring on a nuclear
power plant or a new gas powered or coal powered
fire power plant. Yeah, and you are suddenly having all
of these new online models for artificial intelligence demanding a
(27:28):
whole bunch of new electricity in order to generate the
responses that are needed to make them work. And so
you have electricity electricity costs going up, just as we
talked about and predicted at length here. It's again not
rocket science on this one. You have supply and demand
for electricity and a massive new demand for it without
(27:48):
the ability to rapidly increase the supply.
Speaker 3 (27:50):
Benefits of AI better materialize and soon, or we're gonna
have a serious economic hangover. That's not my Yeah, a
lot of people are increasingly concerned about the shall we say,
over investment in AI and AI related Yeah.
Speaker 2 (28:08):
We talked about this a little bit briefly yesterday, but
I think it is worth mentioning again the amount of
investment that these massive behemoths have made so far. While
a lot of excitement that it's due, well, it's generated
a ton of excitement, it's largely just been a transfer
of cash from a bunch of very cash heavy businesses Facebook,
Google to name two of them, over to a new
(28:31):
emerging company in video. It's been we're going to buy
all of your chips and we're going to try and
do something cool with it. To this point, I won't
say they haven't done anything cool with it, but they
certainly haven't done anything profitable with it.
Speaker 3 (28:45):
Do you see mit study over the weekend?
Speaker 2 (28:47):
No?
Speaker 3 (28:48):
The upshot, I'll be quick, just five percent of integrated
AI pilots, So experiments with generative AI, working them into
your existing workflow software, stuff like that, just five percent?
Or extract any value now that maybe that's not unusual.
They don't provide a reference point like what percentage of
fiber optic investments increased in a measurable way the bottom
(29:09):
line of whatever, But the researchers in it have concluded
that so far the return on investment is negligible.
Speaker 2 (29:20):
The upshot to all of this is that many people
are making the comparison to I don't even know the
names of the companies that invested all the money and
laying the fiber optic cable to make the Internet happen.
And so the question those companies spent a ton of
money and were very highly valued for a long period
of time, and then they don't even exist anymore because
(29:41):
all they did was build the groundwork for new companies
to come around, disrupt and invest. And in the meantime,
you had a giant crash in the dot com bubble
that sent stocks down a lot in that intermediate period
of time. I won't quote the amount because.
Speaker 3 (29:56):
Eighty three percent was the fall in the Nasdaq. I
know you knew that you would just try to shield
people from it, but.
Speaker 2 (30:01):
I didn't remember it is eighty three percent.
Speaker 3 (30:03):
Eighty two to eighty three percent following lastech.
Speaker 2 (30:05):
Yeah, so that is the question that's being raised by many,
is hey, our Facebook and Google just doing what those
companies did back in nineteen ninety something and laying the
groundwork from before the native companies to completely disrupt their business.
Speaker 3 (30:17):
Mind it, it happens over and I know you know this,
It happens over and over again. This exuberance over investment
followed by a crash railroads come to mind. It's sort
of like the textbook example. There was useful infrastructure left over,
just as there was after the dot com crash. So
maybe this is unavoidable and even in some ways helpful,
although you'd like to think we could achieve it without
(30:37):
a market bubble followed by a very painful bursting of
that bubble. But it's not unusual.
Speaker 2 (30:43):
Quick break when we come back. Stacker lettas next.
Speaker 1 (30:46):
The Financial Exchange is now available every day from eleven
to noon non Serious XM's Business radio channel one thirty two.
Stay informed about the latest from Wall Street, fiscal policy,
and breaking business news every day The Financial Exchange live
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Speaker 2 (31:20):
A little bit of good news out there for folks,
say a tax refund surge likely to be coming next year.
The basic story here is the new Trump tax cuts
that were put into place, most of them backdated to
January first of this year, not all. Several of them
go into place in twenty twenty six. But because of that,
(31:40):
and because of the amount that people have already withheld
plus the IRS coming out and announcing that withholding levels
are going to remain the same for the current calendar year.
What it's likely to result in is a whole bunch
of people who are withholding currently more taxes than they
need to, especially when it comes to things like taxes
on tips, deductions on not deductions on Social Security. The
(32:03):
new sixty five plus age tax deductions likely the resulting
a whole bunch of people receiving larger refunds next year
than anticipated. The author of this story and MarketWatch makes
the argument that that's a good reason for the Fed
to hold interest rates steady, and I think that argument's
(32:24):
a little bit more convoluted. I mean, I generally think
that the Fed should probably be pretty hesitant to lower
interest rates in general right now for other reasons. But
quite honestly, the amount of refunds going to people wasn't
one of them. But it is true. Look, when people
get refunds, they tend to spend them, and if those
refunds are going to be larger than usual in the
(32:45):
beginning March of twenty twenty six, then we might expect
a big surgeon.
Speaker 3 (32:49):
The politicians set it up that way it's an election year.
They knew big refunds were going to hit only months
before the elections. Some of that, as you say, will
be spent. Economic growth is already running at its potential rate,
maybe a little bit above. Who knows what it'll be
in a year. So yeah, it should be taken into
consideration by monetary policy makers. That that all makes sense.
(33:11):
I do find economic context.
Speaker 2 (33:13):
I do find that part of this job exceedingly difficult.
Right The job of anybody that's trying to analyze what
comes next for the economy and markets is part of
it is analyzing, Okay, not only what would I do
had I control, like what do I think the FED
(33:33):
should do? But what will they actually do? Is an
increasingly difficult thing to do, especially you know it's length
about independence and stuff like that. But setting aside your
own personal views of hey, this is how economics work
and this is clearly what's going on the economy, and
putting yourself in the shoes of J. Powell and that
twelve member board to say, okay, but what would they
(33:54):
do in this?
Speaker 3 (33:55):
This is you've just articulated something called the Lucas critique,
named after Bob Lucas, Nobel Laureate died last year. His
point is that statistical estimates of responses of say spending
to a tax cut or a refund, they can't be
relied on in the future because of expectations. People know
that if they spend, the FED will leave rates where
it is where they are, so they won't spend. What
(34:18):
Lucas basically said is that these relationships are not He
might have called it policy invariant, meaning if people expect
the FED to tighten because they get a tax refund,
they won't spend it in the first place. So you
end up with this feedback because of expectations. That causes
traditional relationships, historical statistical if you will relationships to break down.
(34:43):
And I wonder, Mike, if maybe that's what's going on
in markets today. There's all this hullabaloo about Trump attacking
the FED, which he is. Trump wanted to control interest rates,
which he does. He's a boss, he wants to control everything.
Speaker 2 (34:55):
Well, beyond all that he said, I'm just saying.
Speaker 3 (34:57):
I'm just explained it's his personality. He wants to control everything,
and Constitution maybe says differently. We're gonna find out. That's
how I view it. Simple framework. Markets aren't reacting much.
Even the bond market. You would think, holy mackerel, the
president's about to take control of interest the money supply
more accurately, this means high inflation in the future. The
yield on very long term government debt is up a bit,
(35:19):
but nothing suggesting cataclysm. Why is that? Perhaps because of
expectations people don't think he'll follow through, because he's fears
rising long term rates. If he does follow through, it
gets complicated, is what I'm saying, and there is no
solution as a result.
Speaker 2 (35:35):
It does get complicated, and it just reminds me to
not read too much into day to day moves in
any market, because they oftentimes make no sense in the
context of things. Yeah, it's just, yeah, it's sometimes tough
to read what all of these things mean. Markets remain
in slightly mixed territory, now currently off four points less
(35:56):
than less than one twentieth of one percent to the
SMP up by less than two points less than one
twenty percent of the NASDAC, with the biggest move of
the day here up twenty three points or one tenth
of a percent. Checking out the bond market here, as
Mark mentioned, we've got the yield on the ten year
Treasury now sitting at four point two seven three percent,
(36:18):
not a big move either. And heading over to energy
markets for a moment, we've got the price of oil
down two percent today. That's the biggest move in any
market that I've seen so far, down to sixty three
forty five a barrel. That is all the time we
have for today's financial exchange. We'll be right back at
it tomorrow. Folks, have a great rest of your day.
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