September 30, 2025 • 38 mins
Mike Armstrong and Paul Lane discuss the release of the JOLTS report that showed job openings slightly exceeded forecasts. How government shutdowns affect the US economy. US economy will only get murkier if key data is delayed in shutdown. Rise of 'accidental landlords' is bad news for investors who bet big on rentals. Exxon to cut 2,000 jobs in global restructuring. Gen X is about to face the biggest Social Security decision.
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Episode Transcript
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Speaker 1 (00:00):
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(01:06):
and Paul Lane.
Speaker 2 (01:10):
Good morning, Welcome back to the Financial Exchange.
Speaker 3 (01:13):
It's Mike, Paul and Tucker with you on the cusp
of a government shutdown in what do we have here
fourteen ish hours? If it all goes seemingly according to
plan now, it doesn't seem anybody too opposed to a
government shutdown right now, So it looks like it's very
like that happened. But I'll always say with all of this,
just like the fiscal cliffs, like don't bother talking about
(01:36):
the likelihood of it until it actually happens, because we've
seen plenty of these where an eleventh hour deal gets
done and the government doesn't shut down, or it shuts
down for six hours, and it's all meaningless to begin with.
But we are heading towards one of those shutdowns. We'll
talk about the ramifications of that for the economy, for
data that we receive for everyday workers out there. But
(01:56):
at ten am this morning, we got what could be
the last labor market report of the week, because it's
been already disclosed that if the government does shut down,
Thursday's and Friday's job data will not be released because
the people that release it won't have it won't be
working and so therefore can't release it. So today we
(02:17):
got what's referred to as the JOLTS Report, that's an
acronym for the Job Openings and Labor Turnover Survey. Measured
things back in August, so you know, slightly outdated here,
but it looks at the last day of August to
try and measure what was going on with stagnation or
turnover in the labor market. As the name of the
(02:38):
report suggests. What did we find here, Paul, I mean
headline here was that the number of job openings didn't
really change much. We were sitting here at seven point
two million in August, which is around where we were
the previous month.
Speaker 4 (02:50):
Yeah, that's the headline number. The seven point two million
or four point three percent unchanged there. In terms of
the quits rate, which is a proxy for labor market
mobility we often talk about in twenty twenty one. In
twenty twenty two, we saw a really robust growth in
this quits rate because the job market was quite strong.
(03:13):
It has been quite stagnant over the course of this year,
and again for the month of August, we saw that
that rate was little changed at three point two percent.
I believe it got to levels in twenty one and
twenty two that, you know, signfically stronger than that. What
was it at that point in time.
Speaker 2 (03:34):
The peak? Yeah, I don't know the numbers. Ratio.
Speaker 4 (03:39):
Yeah, but ultimately, if you look across all these different categories,
for the most part, we didn't see anything that moved
the needle significantly. There was a modest revision to July's
reports that was revised upward by about twenty seven thousand,
but all in all, very little change across some of
these major categories here in this Jolts report.
Speaker 3 (04:01):
Yeah, at this point, again, you know that ratio that
we always talk about, there's approximately seven point four million
unemployed people in this economy right now and seven point
two million jobs open at this moment. So unlike back
in twenty twenty two when employers were scrambling and clamoring
for employees, it's now.
Speaker 2 (04:22):
Approximately equally weighted.
Speaker 3 (04:24):
Or a little bit more in the employer's favor here,
because again, even with all the noise about actual job
openings and which companies are really trying to hire, there's
only seven point two million job openings right now, and
there's seven point four million people looking to fill those jobs.
The other piece that this survey does is give us
some data every month on the state of hirings and firings,
(04:46):
and that stuff has been a little changed here as well,
but I do think it's worth going through, especially on
the sector stuff. There's a little bit of interesting data here,
and so jumping through separations, so total separations, those include quits,
lay discharges, So if you left your job for any
reason at all, then you're counted in this data. Again,
(05:06):
this is surveys. They're not doing a census of every
worker out in the country, but they are trying to
make a gas based on those that they survey. In August,
the number and rate of total separations didn't change much,
sitting at five point one million or three point two percent.
The quits specifically, we look at because that kind of
tells you employee confidence. Right, If you're confident enough to
(05:28):
quit your job, it's either because you're retiring and you're
done for that reason, or you're confident enough that you
can go find another job.
Speaker 2 (05:37):
Right, those are only two reasons I can think of.
Speaker 3 (05:39):
I'm sure there are others too, but by and large,
that's what they're trying to measure here and that has
not been changing much. We sat at three point one million,
about one point nine percent of the workforce is quitting
right now in a month time.
Speaker 4 (05:51):
And I did find that peak data. It was November
of twenty twenty one, where we saw four and a
half million people quit their jobs and the quits rate
peaked at three percent. So, just to give context to
the number that you just say, I think I misquoted
that number earlier two percent quits rate.
Speaker 3 (06:05):
So we're there now in terms of where that's changing.
I think unsurprisingly, the quits rate in construction is pretty high,
fifty six thousand people in the most recent month. That
does not speak to me people are getting out of construction.
To me, it speaks of, Hey, I've been working this
construction job and I've got a job offer to do
(06:25):
another type of construction out there.
Speaker 2 (06:27):
Maybe I am working on.
Speaker 3 (06:29):
Homes and instead I'm going to go work on data
centers because I got to raise there, or whatever the
change might be. There's some confidence, as you can imagine,
in that sector that is facing increased demand because of
data center construction, lower demand because of home construction, but
pretty dramatically lower supply of labor due to deportations and
(06:49):
changes to that industry. Last look that we had at
estimates in the construction industry was that roughly half of
people there either were undocumented themselves or had immediately immediate
family members who are undocumented immigrants. And so you just
think about the makeup of the composition of that one
labor force, and you know, you can see how it's
(07:10):
changed pretty dramatically here in terms of.
Speaker 2 (07:13):
Declining quits rates.
Speaker 3 (07:14):
Accommodation and food services saw it a drop in the
quits rate. Arts, entertainment, recreation also saw a drop there,
and layoffs still just aren't really happening. The number of
layoffs and discharges in August sat at one point seven million.
The rate has been tremendously low, at one point one
percent of the total workforce getting laid off, and where
(07:35):
it's happening again isn't really relevant because you're not seeing
it really happen much at all. So again, why we're
focusing on this labor market report. Hypothetically it could be
the last one that you get prior to the next
Federal Reserve meeting. The Federal Reserve is not subject to
the openings and closings of the government. They are just
(07:56):
a kind of quasi government agency that funds themselves. A
government shutdown does not affect the FED and the majority
of the work that they do, and their next meeting
is a pretty far away. It's a full month away
at this stage, so it would have to be a
fairly long government shutdown for the data to not come
out prior to the next meeting. But look, in twenty twelve,
we had a sixty one day government shutdown. Is it
(08:19):
possible that we get there with this one. Anything's possible. Unlikely,
but anything's possible. If that were to happen, then you know,
this is the last labor market report hypothetically we could
get prior to that October twenty ninth meeting when the
FED is very likely to be cutting rates by another
quarter of percent. And nothing about this report I think,
(08:40):
would contradict the path that the FED has been on.
Speaker 2 (08:43):
No, no, no, no, it.
Speaker 3 (08:45):
Doesn't you know, dramatically support big further rate cuts, but
does not tell you anything about you know, employee confidence
gaining or the labor market further deteriorating through layoffs. It
just kind of maintains the status quot, and the status
quot has been hey, unemployments. Relatively low labor supply is
kind of confusing, but employers are generally holding on to
(09:09):
their employees.
Speaker 2 (09:10):
They're just not hiring at a rapid rate. No, HET's
what it is. Confirmed, No hire, no fire. That's basically
been it. Let's take a quick break.
Speaker 3 (09:16):
When we come back, Let's talk a bit about this
looming government shut down. What typically happens during them, How
long do they oftentimes last? What happens to the economy,
the markets during them? That's all next here on the
Financial Exchange.
Speaker 1 (09:29):
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Speaker 3 (10:29):
Well, we seem to be heading towards a government shut
down here, Paul. And while normally, you know, normally Democrats
are the ones trying to avert something like this based
on their views of how government should work, they seem
more than willing this time to let it shut down
over this. I think there's a fair bit of politics
at play here, with their base feeling like they have
(10:51):
done nothing over the course of the last You don't
see you're so that are pushing them to go this direction.
But politics aside here it seems fairly likely. You never
know until you actually see the shutdown. But what sort
of effects should we expect? And maybe we start with
the easiest, which is the stock market. And I would
take all of this with a grain of salt. Whenever
(11:11):
you hear somebody quote, hey, what happens to the stock
market during a government shutdown? They're going to give you
an answer, and the answer is generally going to be
a measurement of averages. And the problem when you do
that is, one, we don't have a government shutdown every year.
These are reasonably rare, and so you have to look
(11:31):
at your sample size because right if you're saying, hey,
there's been seventeen government shutdowns, let's measure what happened on
average with stocks, well, that's a really small sample size
and it doesn't textualize what's going on. The other piece
here is whenever you're talking about, oh, what did stocks do,
did they go up or down during this period of time,
Remember that stocks usually go up, and the longer you measure,
(11:55):
the more likely they are to have gone up during
that period of time. And so you can't just say, oh,
it's a coin toss. It's not a coin to us.
Stocks usually do go up and so therefore important measure.
But according to Morgan Stanley, government shutdowns have had a
pretty minimal negative impact on the stock market. The S
and P five hundred index gained an average of four
point four percent during such events. But taking a look
(12:20):
at other areas, they do point out that sometimes defense
and healthcare sectors can struggle during this period of time
because they're heavily reliant on government payments and contracts, and
so that can take a bit of a hit. Since
ninety five, the defense sector gained five point two percent,
so again didn't really affect their healthcare sector gained two
point three compare percent. So again I don't really see
(12:44):
much of a trend to play here in the stock market.
On average, stocks go up most of the time when
the government shut its down. That's not much of an exception.
What else should we think about when it comes to
the shutdown and it comes to the economy, financial markets,
or just you know, folks that are out there, they're working.
Speaker 4 (13:00):
Yeah, like you said, stock market, I wouldn't really worry
about it too much. There was a quote in that
same Morgan Stanley piece on some evans. Since nineteen seventy six,
the US tenure treasury has fallen aboutero point six percent
during shutdowns. Again, i'll echo Mike's point on small sample
size here. I had read fourteen shutdowns since nineteen eighty one.
(13:23):
I think you had said seventeen, So there's not many
of these days out there. The ten year treasury. Just
for listeners out there, is the benchmark on the lending market,
particularly for longer term loans such as mortgages and things
of that nature. You've already had the US tenure treasury
come down quite a bit over the course of the
last few months or so. We now sit at they
(13:45):
give me the bund yield for Germany. That's not really
going to help me too much here.
Speaker 2 (13:49):
Jimy C's been doing that recently, don't failing.
Speaker 4 (13:52):
I don't need the German ten year bun for my tenure.
It's at four point one two percent. But when I
went over to a C see they seem to default
to the German tenure, which doesn't really help us for
the financial change here in the United States.
Speaker 2 (14:06):
It is buggy though.
Speaker 4 (14:07):
Yeah, So anyway, it's at four point one point one.
We were as high as four seven five back at
the beginning of the year here. So that has a
trickle down impact to mortgage rates that we've seen come down.
And we've talked about this idea of perhaps getting below
that six percent threshold as a a maybe perhaps a
catalyst for.
Speaker 2 (14:27):
The real estate market.
Speaker 4 (14:28):
So those two things, again I would take with massive
grains of solid these this government shutdown could be so
short in nature that these statistics could be just completely
wasted by by tomorrow or Friday, depending on how things go.
Speaker 2 (14:42):
But I would say.
Speaker 4 (14:43):
From just a general day to day for listeners out there,
TSA is something that would certainly be impacted. So if
you're you're traveling out there, TSA will continue to work without.
Speaker 2 (14:56):
Pay, but they just won't get paid. Yeah, they won't
get paid. And we did tend to call out when
that happens exactly.
Speaker 4 (15:01):
We did see an uptick in absences for the twenty
eighteen twenty nineteen shutdown that TSA workers called out of work,
and then for our show most importantly for all the
listeners out there, if we don't have as much economic data,
that makes Tucker's job harder, so so sympathize with that
as well.
Speaker 3 (15:19):
In terms of the most recent shutdown, that was twenty eighteen,
twenty nineteen, only three hundred thirty oh yeah, only three
hundred forty thousand employees were furloughed during that period of time.
But that was only a partial government shutdown. Congress had
actually passed some spending bills which kept parts of the
government open, which is a kind of weird one if
you go back twelve years ago, eight hundred thousand employees
were furloughed.
Speaker 4 (15:40):
And that's what we would be more on the line
this time around for that amount of furloughing for government employee.
Speaker 3 (15:46):
Big questions that I don't know what to do with.
The Trump administration has talked about mass firings if funding lapses.
I guess maybe I have no idea how to process
something like that or estimate what could happen with it.
We talked about data that might slow down or not
be released. Let's private business, right, So if you are
(16:07):
a defense contractor, you know, might you be affected by this?
Well we have some precedent for that too. Back in
twenty thirteen, Lockheed Martin for a load three thousand employees
who worked in government facilities. You know, some have measured
that the government shutdowns in the past have ultimately affected
job growth overall in the economy, because look, the federal
(16:30):
government is a big employer.
Speaker 2 (16:32):
And there are a whole lot of.
Speaker 3 (16:35):
I guess attached industries to that that don't get paid
during a shutdown. I mean, think about COVID right, Like,
when you don't have a whole bunch of people going
into the office, there are all sorts of businesses that
tag along to that, food services businesses, cleaning businesses that
also further their employees. The longer something like this lasts.
In terms of its effect on economic growth, candid affect GDP.
(16:58):
Sure will GDP if it's a six hour government shutdown. No,
So I'm not sure exactly how to measure all of that.
In the likelihood of it being a problem, I will say, Okay, Look,
if this doesn't last long, it's not a big deal.
If it lasts quite some time, and by quite some time,
(17:19):
I'm thinking thirty to sixty days, the biggest thing that
I can think of that really starts to matter other
than the individual's lives who are not getting paid and
are facing a pretty tough job market to go and
quit into. I really think about the fog of war
moment that the FED is facing right now. That was
(17:40):
a lot of f's, a lot of the literation. They're
sorry about that, But the FED has been looking at
this economy, this labor market, and really admitting that they
are struggling to figure out what is going on. They're
talking about the supply of labor due to deportations, the
supply of labor due to retirement of baby boomers, thinking
(18:00):
through job growth and AI and it's all of these
different effects on the state of the labor market. And
then on the other side, trying to figure out what
exactly is happening with tariffs, what could happen in the
future with tariffs, you know, the court cases that are
looming on them, and what that impact is on inflation.
And so look, does a small government shut down inject
(18:23):
a whole lot of additional uncertainty into their No, but
any higher degree of uncertainty is going to make it
more difficult for the FED to do their job.
Speaker 2 (18:33):
And so you know, if otherwise.
Speaker 3 (18:35):
The data would have really been screaming cut interest rates
more or pause on your interest rate setting path, they're
probably not going to have that data. In the event
of a shutdown, They're going to be less likely to
take that action. So I think what this, what a
shutdown does, is locks them into a path that they're on. So,
for instance, if the government shuts down for you know,
(18:57):
thirty days, I think it is an almost definite fact
that the FED is going to cut rates by twenty
five basis points at the next meeting, and they would
not be willing to move in one direction or another.
Speaker 4 (19:06):
Yeah, because you'll have no evidence to the contrary. So
they'll continue to be basically walking around with the lights off,
trying to figure out what's going on in an are
a difficult situation. They'll be like me last night at
one in the morning, trying to get my infant daughter
back to sleep and not be able to find that
go for you couldn't find her binkie lights off.
Speaker 2 (19:23):
Same situation for the FED. Yeah, same thing.
Speaker 3 (19:26):
Jay's looking for his banking quick break Wall Street watches Next.
Speaker 1 (19:41):
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Street Watch a complete look at what's moving market so
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Speaker 5 (20:00):
Markets dipping into negative territory, with all signs pointing toward
a government shutdown, penning a last minute deal. A shutdown
would delay the jobs before coming this Friday, while a
prolonged shutdown could also delay the Consumer Price index due
in mid October. Investors are also assessing the latest job
opening's data posted just a short time ago, which came
(20:22):
mostly in line with estimates. Right now, The Dow is
down by a quarter of a percent, or one hundred
and seventy eighteen points lower. S and P five hundred
is down a tenth of a percent or ten points lower.
NASDAK down nearly two tenths of one percent, or thirty
nine points lower. RUSS two thousand is down by a
third of a percent. Tenure Treasury yield down two basis
(20:43):
points at four point one one five percent. In crude
oiled down nearly one and a half percent, trading at
sixty two dollars and fifty six cents a barrel. Some
breaking news this hour after The Wall Street Journal reported
the White House is planning to unveil a direct to
consumer website for Americans to buy drugs dubbed trump ur X,
(21:04):
as well as announced that Pfizer plans to lower prices
on several of its medications in the US. Pfizer shares
are climbing four percent. Meanwhile, Spotify's Daniel x stepping down
from his role as CEO after founding the company nearly
two decades ago. Ck will be succeeded by new co
CEOs and will serve as executive chairman. Spotify shares are
(21:26):
falling nearly five percent, Elsewhere Core We've jumping fourteen percent
after the company agreed to a multi year deal with Meta,
where Core We've will provide Meta with fourteen point two
billion dollars of aiicloud infrastructure Investment Bank Jefferies posted stronger
than expected earnings in a jump in quarterly revenue, where
(21:47):
M and A advisory revenue hit a record high, pointing
to a deal making revival. On Wall Street, shares are
down by two percent. Ski operator Veil Resorts down about
two percent after the company reported a wider than expected
loss for the previous quarter. Past product sales for the
coming season also declined. And after today's closing bell, we'll
see earnings from Nike. I'm Tucker Silva and that is
(22:10):
Wall Street watch.
Speaker 2 (22:13):
Paul and Tyler.
Speaker 3 (22:13):
The other day I was driving on the highway and
I missed my exit and I accidentally reverse. I accidentally,
and I recommend you do that in West Roxbury. Okay,
I understand how that happens. How does one become an
accidental landlord? This is not making a ton of sense
to me. It seems like a multi step process that
one would need to take to allow tenants into their
(22:35):
home and start receiving payments from them. So I'm just
a bit confused by the term. But Paul, what is
an accidental landlord? According to the Wall Street Journal.
Speaker 4 (22:42):
According to the Wall Street Journal and Mike, accidental landlord
is someone who just has people walk into their house
all all of a sudden and I and start giving
them checks and eating their food. No, that sounds like
probably someone's college age student coming back in after graduating.
What it actually is is people who have listed their
(23:03):
homes for sale but had no luck selling them, and
instead they pivot to renting out the property as they
wait to list their home again.
Speaker 3 (23:12):
Okay, so I had no long term intentions of being
a landlord, but don't want to sell right now, so
I took a number of steps to rent it out instead.
Speaker 2 (23:19):
I can understand that exactly.
Speaker 4 (23:22):
Instead, where we've seen uptick of these rentals or accidental
landlords occurring is in probably the parts of the country
that you'd imagine if you listen to our show that
are a little bit oversupplied in terms of inventory. Places
like Atlanta, Dallas, Phoenix, Houston, Tampa, and Charlotte are areas
(23:42):
where there is a lot more inventory than there are buyers.
Some of that is kind of the tailwind from the pandemic,
or initially what was the tailwind to build a lot
of supply that now there is not the aggregate demand for.
Speaker 3 (23:57):
So I have a client who almost wound up in
this situation several months ago, and I'm just confused as
to how people don't really seemingly do the math on
this stuff. But here was her situation. She bought a
new place to live because the old one just wasn't
exactly what they were looking for, moved in and you know,
(24:21):
had the flexibility in her finances to be able to
own both properties at the same time. And when she
went to sell the old property was not quite finding
that the price that her realtor had initially suggested, the
price that she initially paid for it was.
Speaker 2 (24:35):
Not really getting the demand that she needed.
Speaker 3 (24:39):
So she turned to, hey, might I consider renting this
out for a period of time and did the math,
and effectively, what we did is we calculated a cap rate.
And if you're not familiar with the cap rate, it's
the same thing as a dividend yield on a stock.
It's basically just effectively, what is your net operating income
off the property, divided by the property's value. Were you
(25:01):
to sell it and walk away with something, and you can,
you know, take all three sorts of things into consideration here,
but your net operating income would basically be your rent
minus your property taxes and HOA fee if that exists,
your insurance, you know, all those expenses that count for that,
divided by your property value. And for me, I tend
(25:21):
to look at the net property value after you pay
your realtor and attorneys all that stuff to list the property.
Speaker 2 (25:27):
And get it done.
Speaker 3 (25:28):
But however you want to look at it, you come
up with this rate, and to me, that should be
the only real defining factor when considering do I rent
out of property or sell it? Like if I'm faced
with this situation, obviously there's taxes, there's other considerations, But
how much am I comfortable generating off of this property?
That's the number you care about it. It's not just
(25:49):
the income that you might produce on an annual basis.
You have to compare it to something because otherwise you're
not taking into account opportunity cost. And in her case
what we found is, yeah, for the rent that she
could get compared to the sky high insurance costs, there
had just been bunch of damage from the hurricane that
swept through, plus the HOA fees. She was sitting on
(26:11):
a cap rate of about one percent. Wow, And I said, why,
I mean, lower the lower the price. What are we
doing here? There's no sense in renting this out. You're
gonna deal with the headache of a landlord, the uncertainty
of how long it would take to get that person
in there and keep them, compared to just taking a
slightly lower price on the sale. Just go sell this thing?
Speaker 2 (26:30):
Got it?
Speaker 3 (26:30):
And I just don't see I think with real estate
in particular, because there is not a public market where
you go and mark your your condo to the market
every day. There's also just some there's emotions, emotions that
come into this.
Speaker 2 (26:48):
Yeah, more so than I think.
Speaker 4 (26:49):
You said that this was kind of a recent person.
So she's trying to break even or something.
Speaker 2 (26:53):
Or precisely, Yeah, moved down the drink code. I don't
want to sell for less than I paid. You don't
want to sell for less I paid for you.
Speaker 3 (27:00):
All of those things come into play, and I think
that's why you end up in this situation where there
are suddenly more people renting out their properties or just
leaving them vacant because they're not quite getting the price
that they want.
Speaker 2 (27:11):
On the property. And I always just go back to
what a missed opportunity costs there.
Speaker 4 (27:15):
Sure, and what doesn't get talked about enough with real estate.
There are plenty of people who have been incredibly successful
from developing a lot of properties. So I'm not against
at all, but whenever gets discussed like it does with
the stock market, you have anyone you talk to, they
have their stories of oh I got bludgeoned in two
thousand and eight, and that's true. But real estate doesn't
(27:36):
always work out in your favor, and people don't talk
about times where they don't make a substantial profit from
particular sales. But this is just something that is just
a to be clear, it's a small percentage of the market.
I mean, we're talking about two to three percent of
homes that are listed that are falling into this camp.
(27:56):
It's not so abundant that it's it's all over the
es hey.
Speaker 3 (27:59):
I mean the opportunity cost piece that I talked to
her about was Okay, look, not that you were considering
doing this, but you can generate one percent a year
in rent net rent off of this property with more headaches,
with more headaches, or you could go buy a CD
for four percent, right. I think it was closer to
five percent at the time. Yeah, And that's not a
fair comparison because the CD has no possibility of appreciating,
(28:21):
whereas hypothetically the piece of real estate does.
Speaker 2 (28:24):
But man, what I mean?
Speaker 3 (28:26):
You know, I do think there are a lot of
people in that same situation, because guess what, when those
landlords go and rent and you know, find the tenant
for that rental, those prices aren't looking great in a
lot of cases, and especially when you factor in all
the carrying costs on some of these properties, between insurance,
which guess what, you need better insurance if you're renting,
and all of the other costs associated with rising costs
(28:48):
in places like Florida. I think there's a lot of
people that are in that lady situation of oh yeah,
I really can't generate a whole lot on this What
am I? What am I really looking for here? Let's
take quick break when we come back Exxon looking at
some stiff job cuts here. We'll be covering that next
on the Financial Exchange.
Speaker 1 (29:07):
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Speaker 2 (29:30):
Network, Paul.
Speaker 3 (29:41):
The energy sector has been kind of struggling this year.
I mean, you have seen very little movement on oil prices.
We started the year on West Texas Cruise sitting at
let me pull the exact price level. We're sitting at
seventy one, seventy two on January thirty or December thirty first,
we're now sitting at six two five. You had some
(30:01):
dips there, a little bit of a spike back in June,
but generally speaking, we haven't seen much movement on oil.
Companies are making money at those prices, like Exxon has
plenty of profit at sixty dollars a barrel oil, but
they're not exactly making big investments. And the announcement today
is that they're going to be cutting two thousand workers
as the job losses in that area just continue to
(30:24):
mount here on I don't know, kind of lackluster oil
pricing and profit margins.
Speaker 2 (30:30):
It's a really difficult business. It's just so boomer bust.
Speaker 4 (30:33):
If you look at the sector performance year by year
on the energy sector in twenty one and twenty two,
best performing sector was energy and we all recall how
high gas prices got in July of twenty two. I
think they hit their peak. But since then, like you mentioned,
there has been just a lot less demand or for
good fortune, you know, prices have stayed relatively stable. What
(30:55):
energy companies have learned over the last ten to fifteen
years through these boomer bus cycles is efficiency is critical,
and the mistakes that they made back in I think
it was twenty twelve twenty thirteen that area where energy
companies struggled was they put too much capex or too
many resources towards drilling, and ultimately when prices came down
or demand suffered, they were left hole in the bag
(31:17):
a bit. So what you'll see is these constant announcements
on really focusing on profits and efficiency as as you
mentioned it, like that sixty dollars barrel. Chevron is doing
a similar move. They're cutting fifteen to twenty percent of
their workflow reshifting their headquarters. So this seems to be
something that is a trend across the energy sector. And
(31:38):
it only becomes problematic when you know you don't have
the domestic production. But domestic production has been rising even
though headcount has suffered.
Speaker 3 (31:47):
Paul, it's the last day to get a copy of
the new guide from the Armstrong Advisory Group, and it's
all about inflation and financial plans, and I think this
one is especially relevant right now. Again, we're not dealing
with twenty twenty two like inflation, nineteen seventies like inflation.
But if there's one risk of the Fed's current path,
and to be clear, the fed's current path is cutting
(32:07):
rates out of concern for the labor market, the risk
would be that they're misreading the situation and inflation is
actually the piece that's about to take off. And so
when we talk about inflation and when you talk about
it with your clients, Paul, specifically, here's what I focus on.
For a married couple approaching retirement at age sixty five,
(32:28):
the likelihood that at least one of them lives until
ninety is really high. It's over a coin flip at
this stage that at least one of these people lives
until ninety years old. That is a length of retirement
that our parents and grandparents did not plan for and
didn't need to plan for, And suddenly, you know, with
(32:48):
where we are today, it's realistic for people to be
facing twenty five thirty years of retirement. How do you
prepare for inflation in a scenario like.
Speaker 4 (32:56):
That, It's really important to do thorough planning on There's
another state study that had read Allons did a retirement
study where sixty four percent of people surveyed were more
concerned about outliving their money than death, which is pretty
stark to hear that in a survey. So as a
result of that, you have to make sure that your
portfolio's position as best as possible to whether inflation in
(33:19):
the future. The problem can en lie that if you
just sit in cash and pick up what now is
available three or four percent, if inflation runs at two
three percent, it erodes away your return. So at least
having those conversations is not to say that you can
predict where inflation is going to go, but being as
thorough as possible from a planning perspective with your allocation is.
Speaker 2 (33:40):
The best you can do with it.
Speaker 3 (33:41):
I don't know about you, Paul, but in my experience,
folks that I work with that are heading to retirement
are far more concerned about a market crash than they
are inflation, and their portfolios reflect to that. And for
most of them, they're focused on the wrong risk. They're
scared of the market crash, but for most of them,
that's not the thing that's going to derail their financial plan.
(34:03):
What's going to derail their financial plan is unanticipated inflation.
And it could come in the way of health care costs,
it could come in the way of tax inflation. But
those are the real risks that I think most people
underestimate and need to prepare better for. If you are
concerned about inflation in your financial plan, I mean it
takes all forms this twenty twenty six, for instance, So
(34:24):
security recipients are expecting about a two zero point seven
percent cost of living adjustments. Guess what medicare costs going
up over eleven percent. It's going to erode that cost
of living adjustment that people rely upon. If you're looking
for strategies to combat inflation in your retirement, call the
Armstrong Advisory Group. Get a copy of our brand new
guide Inflation and your Retirement Plan. You can get it
(34:47):
by calling eight hundred three nine three four zero zero one.
Guess what it's September thirtieth. It's the last day of
the month. Your last opportunity to get a copy of
this guide the number eight hundred three nine three four
zero zero one, or you can request it online at
Armstrong Advisory dot com.
Speaker 1 (35:05):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal, or tax advice. Consult
your own financial, tax into state planning advisors before making
any investment decisions. Armstrong may contact you to offer investment
advisory services.
Speaker 3 (35:21):
If you are a member of gen X and you're
listening to this program right now, I have a question
for you. When did you get so old? The oldest
members of gen X are turning sixty this year.
Speaker 2 (35:33):
How is that possible?
Speaker 3 (35:35):
Means that I'm getting old too, But dear God, sixty
years old gen X members are now turning this year
and are suddenly I mean, I feel like they're still
talking about college funding and owning homes and all of
the complexities there. But realistically, this is a generation that's
now more focused on probably so security planning than they
(35:56):
are about college funding and the other big stages of
life that I tend to think of when I again,
you just associate these things with different generations based on
your work experience.
Speaker 2 (36:07):
And things like that.
Speaker 3 (36:08):
And when I think of Gen X, I think about, Okay,
I gotta develop a college plan for them. I got
to figure out a mortgage payoff plan. No, we're talking
about social security planning now.
Speaker 2 (36:16):
For this generation, I feel like they're the most forgotten generation.
Speaker 3 (36:19):
They get the least pressure, Nobody hates them, nobody loves them.
Speaker 4 (36:22):
There just for Millennials and Baby Boomers were talked about frequently.
Millennials get beat, were the punching bag, but now less so.
I think Generation Z has taken that mantle. And Baby
Boomers get a lot of press because they were the
biggest ones out there, but you forget about Gen X.
Social security is something that is a concern if you
talk to a lot of these folks. I'm sure Mike
you hear it. But probably the most common question I
(36:44):
get asked from people in this age range is is
it going to be there for me? What's your answer.
Speaker 2 (36:49):
I don't know.
Speaker 4 (36:51):
I hope so twenty thirty three is when it's set
to to deplete on that, not that it's going to
don't quote me on that, cuote me on I don't know,
but certainly you'd think that the government would take steps.
But I can guarantee you that they'll do similar things
to the government shutdown. It will probably not be resolved
until later than it should be.
Speaker 3 (37:13):
More than any other generation, this one is going to
face probably the most angst about that funding question. Right
for baby boomers, it was far off enough that you
could kind of ignore it a little bit. I mean
not if you're the youngest generation of Baby Boomers, because
then you're still in this deciding stage. But for the
Gen xers it's going to be the biggest looming issue
when it comes to Social Security is how will they
(37:35):
fund the program to ensure that my benefits continue my
personal belief they will, And so don't base your decision
on that, or at least not entirely on that factor.
But look, you know, we talk about this all the time.
The most important thing with social Security is that once
you go and file it, except for some very rare circumstances,
(37:56):
you can't change your mind, so no matter what you do,
just educate yourself on it before you make a decision
that can't be reversed when it happens to be with
Social Security quick Break A lot more to cover in
the second hour. We're going to be joined by Jessica
Caldwell from Edmunds, Todd Lutsky from Christikan Dolan.
Speaker 2 (38:11):
Stay tuned. Lot more to go here on the Financial Exchange,
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
registered investment advisor. All opinions expressed are solely those of
the hosts. Do not reflect the opinions of Armstrong Advisory
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(00:20):
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(01:06):
and Paul Lane.
Speaker 2 (01:10):
Good morning, Welcome back to the Financial Exchange.
Speaker 3 (01:13):
It's Mike, Paul and Tucker with you on the cusp
of a government shutdown in what do we have here
fourteen ish hours? If it all goes seemingly according to
plan now, it doesn't seem anybody too opposed to a
government shutdown right now, So it looks like it's very
like that happened. But I'll always say with all of this,
just like the fiscal cliffs, like don't bother talking about
(01:36):
the likelihood of it until it actually happens, because we've
seen plenty of these where an eleventh hour deal gets
done and the government doesn't shut down, or it shuts
down for six hours, and it's all meaningless to begin with.
But we are heading towards one of those shutdowns. We'll
talk about the ramifications of that for the economy, for
data that we receive for everyday workers out there. But
(01:56):
at ten am this morning, we got what could be
the last labor market report of the week, because it's
been already disclosed that if the government does shut down,
Thursday's and Friday's job data will not be released because
the people that release it won't have it won't be
working and so therefore can't release it. So today we
(02:17):
got what's referred to as the JOLTS Report, that's an
acronym for the Job Openings and Labor Turnover Survey. Measured
things back in August, so you know, slightly outdated here,
but it looks at the last day of August to
try and measure what was going on with stagnation or
turnover in the labor market. As the name of the
(02:38):
report suggests. What did we find here, Paul, I mean
headline here was that the number of job openings didn't
really change much. We were sitting here at seven point
two million in August, which is around where we were
the previous month.
Speaker 4 (02:50):
Yeah, that's the headline number. The seven point two million
or four point three percent unchanged there. In terms of
the quits rate, which is a proxy for labor market
mobility we often talk about in twenty twenty one. In
twenty twenty two, we saw a really robust growth in
this quits rate because the job market was quite strong.
(03:13):
It has been quite stagnant over the course of this year,
and again for the month of August, we saw that
that rate was little changed at three point two percent.
I believe it got to levels in twenty one and
twenty two that, you know, signfically stronger than that. What
was it at that point in time.
Speaker 2 (03:34):
The peak? Yeah, I don't know the numbers. Ratio.
Speaker 4 (03:39):
Yeah, but ultimately, if you look across all these different categories,
for the most part, we didn't see anything that moved
the needle significantly. There was a modest revision to July's
reports that was revised upward by about twenty seven thousand,
but all in all, very little change across some of
these major categories here in this Jolts report.
Speaker 3 (04:01):
Yeah, at this point, again, you know that ratio that
we always talk about, there's approximately seven point four million
unemployed people in this economy right now and seven point
two million jobs open at this moment. So unlike back
in twenty twenty two when employers were scrambling and clamoring
for employees, it's now.
Speaker 2 (04:22):
Approximately equally weighted.
Speaker 3 (04:24):
Or a little bit more in the employer's favor here,
because again, even with all the noise about actual job
openings and which companies are really trying to hire, there's
only seven point two million job openings right now, and
there's seven point four million people looking to fill those jobs.
The other piece that this survey does is give us
some data every month on the state of hirings and firings,
(04:46):
and that stuff has been a little changed here as well,
but I do think it's worth going through, especially on
the sector stuff. There's a little bit of interesting data here,
and so jumping through separations, so total separations, those include quits,
lay discharges, So if you left your job for any
reason at all, then you're counted in this data. Again,
(05:06):
this is surveys. They're not doing a census of every
worker out in the country, but they are trying to
make a gas based on those that they survey. In August,
the number and rate of total separations didn't change much,
sitting at five point one million or three point two percent.
The quits specifically, we look at because that kind of
tells you employee confidence. Right, If you're confident enough to
(05:28):
quit your job, it's either because you're retiring and you're
done for that reason, or you're confident enough that you
can go find another job.
Speaker 2 (05:37):
Right, those are only two reasons I can think of.
Speaker 3 (05:39):
I'm sure there are others too, but by and large,
that's what they're trying to measure here and that has
not been changing much. We sat at three point one million,
about one point nine percent of the workforce is quitting
right now in a month time.
Speaker 4 (05:51):
And I did find that peak data. It was November
of twenty twenty one, where we saw four and a
half million people quit their jobs and the quits rate
peaked at three percent. So, just to give context to
the number that you just say, I think I misquoted
that number earlier two percent quits rate.
Speaker 3 (06:05):
So we're there now in terms of where that's changing.
I think unsurprisingly, the quits rate in construction is pretty high,
fifty six thousand people in the most recent month. That
does not speak to me people are getting out of construction.
To me, it speaks of, Hey, I've been working this
construction job and I've got a job offer to do
(06:25):
another type of construction out there.
Speaker 2 (06:27):
Maybe I am working on.
Speaker 3 (06:29):
Homes and instead I'm going to go work on data
centers because I got to raise there, or whatever the
change might be. There's some confidence, as you can imagine,
in that sector that is facing increased demand because of
data center construction, lower demand because of home construction, but
pretty dramatically lower supply of labor due to deportations and
(06:49):
changes to that industry. Last look that we had at
estimates in the construction industry was that roughly half of
people there either were undocumented themselves or had immediately immediate
family members who are undocumented immigrants. And so you just
think about the makeup of the composition of that one
labor force, and you know, you can see how it's
(07:10):
changed pretty dramatically here in terms of.
Speaker 2 (07:13):
Declining quits rates.
Speaker 3 (07:14):
Accommodation and food services saw it a drop in the
quits rate. Arts, entertainment, recreation also saw a drop there,
and layoffs still just aren't really happening. The number of
layoffs and discharges in August sat at one point seven million.
The rate has been tremendously low, at one point one
percent of the total workforce getting laid off, and where
(07:35):
it's happening again isn't really relevant because you're not seeing
it really happen much at all. So again, why we're
focusing on this labor market report. Hypothetically it could be
the last one that you get prior to the next
Federal Reserve meeting. The Federal Reserve is not subject to
the openings and closings of the government. They are just
(07:56):
a kind of quasi government agency that funds themselves. A
government shutdown does not affect the FED and the majority
of the work that they do, and their next meeting
is a pretty far away. It's a full month away
at this stage, so it would have to be a
fairly long government shutdown for the data to not come
out prior to the next meeting. But look, in twenty twelve,
we had a sixty one day government shutdown. Is it
(08:19):
possible that we get there with this one. Anything's possible. Unlikely,
but anything's possible. If that were to happen, then you know,
this is the last labor market report hypothetically we could
get prior to that October twenty ninth meeting when the
FED is very likely to be cutting rates by another
quarter of percent. And nothing about this report I think,
(08:40):
would contradict the path that the FED has been on.
Speaker 2 (08:43):
No, no, no, no, it.
Speaker 3 (08:45):
Doesn't you know, dramatically support big further rate cuts, but
does not tell you anything about you know, employee confidence
gaining or the labor market further deteriorating through layoffs. It
just kind of maintains the status quot, and the status
quot has been hey, unemployments. Relatively low labor supply is
kind of confusing, but employers are generally holding on to
(09:09):
their employees.
Speaker 2 (09:10):
They're just not hiring at a rapid rate. No, HET's
what it is. Confirmed, No hire, no fire. That's basically
been it. Let's take a quick break.
Speaker 3 (09:16):
When we come back, Let's talk a bit about this
looming government shut down. What typically happens during them, How
long do they oftentimes last? What happens to the economy,
the markets during them? That's all next here on the
Financial Exchange.
Speaker 1 (09:29):
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Speaker 5 (09:55):
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Speaker 3 (10:29):
Well, we seem to be heading towards a government shut
down here, Paul. And while normally, you know, normally Democrats
are the ones trying to avert something like this based
on their views of how government should work, they seem
more than willing this time to let it shut down
over this. I think there's a fair bit of politics
at play here, with their base feeling like they have
(10:51):
done nothing over the course of the last You don't
see you're so that are pushing them to go this direction.
But politics aside here it seems fairly likely. You never
know until you actually see the shutdown. But what sort
of effects should we expect? And maybe we start with
the easiest, which is the stock market. And I would
take all of this with a grain of salt. Whenever
(11:11):
you hear somebody quote, hey, what happens to the stock
market during a government shutdown? They're going to give you
an answer, and the answer is generally going to be
a measurement of averages. And the problem when you do
that is, one, we don't have a government shutdown every year.
These are reasonably rare, and so you have to look
(11:31):
at your sample size because right if you're saying, hey,
there's been seventeen government shutdowns, let's measure what happened on
average with stocks, well, that's a really small sample size
and it doesn't textualize what's going on. The other piece
here is whenever you're talking about, oh, what did stocks do,
did they go up or down during this period of time,
Remember that stocks usually go up, and the longer you measure,
(11:55):
the more likely they are to have gone up during
that period of time. And so you can't just say, oh,
it's a coin toss. It's not a coin to us.
Stocks usually do go up and so therefore important measure.
But according to Morgan Stanley, government shutdowns have had a
pretty minimal negative impact on the stock market. The S
and P five hundred index gained an average of four
point four percent during such events. But taking a look
(12:20):
at other areas, they do point out that sometimes defense
and healthcare sectors can struggle during this period of time
because they're heavily reliant on government payments and contracts, and
so that can take a bit of a hit. Since
ninety five, the defense sector gained five point two percent,
so again didn't really affect their healthcare sector gained two
point three compare percent. So again I don't really see
(12:44):
much of a trend to play here in the stock market.
On average, stocks go up most of the time when
the government shut its down. That's not much of an exception.
What else should we think about when it comes to
the shutdown and it comes to the economy, financial markets,
or just you know, folks that are out there, they're working.
Speaker 4 (13:00):
Yeah, like you said, stock market, I wouldn't really worry
about it too much. There was a quote in that
same Morgan Stanley piece on some evans. Since nineteen seventy six,
the US tenure treasury has fallen aboutero point six percent
during shutdowns. Again, i'll echo Mike's point on small sample
size here. I had read fourteen shutdowns since nineteen eighty one.
(13:23):
I think you had said seventeen, So there's not many
of these days out there. The ten year treasury. Just
for listeners out there, is the benchmark on the lending market,
particularly for longer term loans such as mortgages and things
of that nature. You've already had the US tenure treasury
come down quite a bit over the course of the
last few months or so. We now sit at they
(13:45):
give me the bund yield for Germany. That's not really
going to help me too much here.
Speaker 2 (13:49):
Jimy C's been doing that recently, don't failing.
Speaker 4 (13:52):
I don't need the German ten year bun for my tenure.
It's at four point one two percent. But when I
went over to a C see they seem to default
to the German tenure, which doesn't really help us for
the financial change here in the United States.
Speaker 2 (14:06):
It is buggy though.
Speaker 4 (14:07):
Yeah, So anyway, it's at four point one point one.
We were as high as four seven five back at
the beginning of the year here. So that has a
trickle down impact to mortgage rates that we've seen come down.
And we've talked about this idea of perhaps getting below
that six percent threshold as a a maybe perhaps a
catalyst for.
Speaker 2 (14:27):
The real estate market.
Speaker 4 (14:28):
So those two things, again I would take with massive
grains of solid these this government shutdown could be so
short in nature that these statistics could be just completely
wasted by by tomorrow or Friday, depending on how things go.
Speaker 2 (14:42):
But I would say.
Speaker 4 (14:43):
From just a general day to day for listeners out there,
TSA is something that would certainly be impacted. So if
you're you're traveling out there, TSA will continue to work without.
Speaker 2 (14:56):
Pay, but they just won't get paid. Yeah, they won't
get paid. And we did tend to call out when
that happens exactly.
Speaker 4 (15:01):
We did see an uptick in absences for the twenty
eighteen twenty nineteen shutdown that TSA workers called out of work,
and then for our show most importantly for all the
listeners out there, if we don't have as much economic data,
that makes Tucker's job harder, so so sympathize with that
as well.
Speaker 3 (15:19):
In terms of the most recent shutdown, that was twenty eighteen,
twenty nineteen, only three hundred thirty oh yeah, only three
hundred forty thousand employees were furloughed during that period of time.
But that was only a partial government shutdown. Congress had
actually passed some spending bills which kept parts of the
government open, which is a kind of weird one if
you go back twelve years ago, eight hundred thousand employees
were furloughed.
Speaker 4 (15:40):
And that's what we would be more on the line
this time around for that amount of furloughing for government employee.
Speaker 3 (15:46):
Big questions that I don't know what to do with.
The Trump administration has talked about mass firings if funding lapses.
I guess maybe I have no idea how to process
something like that or estimate what could happen with it.
We talked about data that might slow down or not
be released. Let's private business, right, So if you are
(16:07):
a defense contractor, you know, might you be affected by this?
Well we have some precedent for that too. Back in
twenty thirteen, Lockheed Martin for a load three thousand employees
who worked in government facilities. You know, some have measured
that the government shutdowns in the past have ultimately affected
job growth overall in the economy, because look, the federal
(16:30):
government is a big employer.
Speaker 2 (16:32):
And there are a whole lot of.
Speaker 3 (16:35):
I guess attached industries to that that don't get paid
during a shutdown. I mean, think about COVID right, Like,
when you don't have a whole bunch of people going
into the office, there are all sorts of businesses that
tag along to that, food services businesses, cleaning businesses that
also further their employees. The longer something like this lasts.
In terms of its effect on economic growth, candid affect GDP.
(16:58):
Sure will GDP if it's a six hour government shutdown. No,
So I'm not sure exactly how to measure all of that.
In the likelihood of it being a problem, I will say, Okay, Look,
if this doesn't last long, it's not a big deal.
If it lasts quite some time, and by quite some time,
(17:19):
I'm thinking thirty to sixty days, the biggest thing that
I can think of that really starts to matter other
than the individual's lives who are not getting paid and
are facing a pretty tough job market to go and
quit into. I really think about the fog of war
moment that the FED is facing right now. That was
(17:40):
a lot of f's, a lot of the literation. They're
sorry about that, But the FED has been looking at
this economy, this labor market, and really admitting that they
are struggling to figure out what is going on. They're
talking about the supply of labor due to deportations, the
supply of labor due to retirement of baby boomers, thinking
(18:00):
through job growth and AI and it's all of these
different effects on the state of the labor market. And
then on the other side, trying to figure out what
exactly is happening with tariffs, what could happen in the
future with tariffs, you know, the court cases that are
looming on them, and what that impact is on inflation.
And so look, does a small government shut down inject
(18:23):
a whole lot of additional uncertainty into their No, but
any higher degree of uncertainty is going to make it
more difficult for the FED to do their job.
Speaker 2 (18:33):
And so you know, if otherwise.
Speaker 3 (18:35):
The data would have really been screaming cut interest rates
more or pause on your interest rate setting path, they're
probably not going to have that data. In the event
of a shutdown, They're going to be less likely to
take that action. So I think what this, what a
shutdown does, is locks them into a path that they're on. So,
for instance, if the government shuts down for you know,
(18:57):
thirty days, I think it is an almost definite fact
that the FED is going to cut rates by twenty
five basis points at the next meeting, and they would
not be willing to move in one direction or another.
Speaker 4 (19:06):
Yeah, because you'll have no evidence to the contrary. So
they'll continue to be basically walking around with the lights off,
trying to figure out what's going on in an are
a difficult situation. They'll be like me last night at
one in the morning, trying to get my infant daughter
back to sleep and not be able to find that
go for you couldn't find her binkie lights off.
Speaker 2 (19:23):
Same situation for the FED. Yeah, same thing.
Speaker 3 (19:26):
Jay's looking for his banking quick break Wall Street watches Next.
Speaker 1 (19:41):
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 market so
far today right here on the Financial Exchange Radio Network.
Speaker 5 (20:00):
Markets dipping into negative territory, with all signs pointing toward
a government shutdown, penning a last minute deal. A shutdown
would delay the jobs before coming this Friday, while a
prolonged shutdown could also delay the Consumer Price index due
in mid October. Investors are also assessing the latest job
opening's data posted just a short time ago, which came
(20:22):
mostly in line with estimates. Right now, The Dow is
down by a quarter of a percent, or one hundred
and seventy eighteen points lower. S and P five hundred
is down a tenth of a percent or ten points lower.
NASDAK down nearly two tenths of one percent, or thirty
nine points lower. RUSS two thousand is down by a
third of a percent. Tenure Treasury yield down two basis
(20:43):
points at four point one one five percent. In crude
oiled down nearly one and a half percent, trading at
sixty two dollars and fifty six cents a barrel. Some
breaking news this hour after The Wall Street Journal reported
the White House is planning to unveil a direct to
consumer website for Americans to buy drugs dubbed trump ur X,
(21:04):
as well as announced that Pfizer plans to lower prices
on several of its medications in the US. Pfizer shares
are climbing four percent. Meanwhile, Spotify's Daniel x stepping down
from his role as CEO after founding the company nearly
two decades ago. Ck will be succeeded by new co
CEOs and will serve as executive chairman. Spotify shares are
(21:26):
falling nearly five percent, Elsewhere Core We've jumping fourteen percent
after the company agreed to a multi year deal with Meta,
where Core We've will provide Meta with fourteen point two
billion dollars of aiicloud infrastructure Investment Bank Jefferies posted stronger
than expected earnings in a jump in quarterly revenue, where
(21:47):
M and A advisory revenue hit a record high, pointing
to a deal making revival. On Wall Street, shares are
down by two percent. Ski operator Veil Resorts down about
two percent after the company reported a wider than expected
loss for the previous quarter. Past product sales for the
coming season also declined. And after today's closing bell, we'll
see earnings from Nike. I'm Tucker Silva and that is
(22:10):
Wall Street watch.
Speaker 2 (22:13):
Paul and Tyler.
Speaker 3 (22:13):
The other day I was driving on the highway and
I missed my exit and I accidentally reverse. I accidentally,
and I recommend you do that in West Roxbury. Okay,
I understand how that happens. How does one become an
accidental landlord? This is not making a ton of sense
to me. It seems like a multi step process that
one would need to take to allow tenants into their
(22:35):
home and start receiving payments from them. So I'm just
a bit confused by the term. But Paul, what is
an accidental landlord? According to the Wall Street Journal.
Speaker 4 (22:42):
According to the Wall Street Journal and Mike, accidental landlord
is someone who just has people walk into their house
all all of a sudden and I and start giving
them checks and eating their food. No, that sounds like
probably someone's college age student coming back in after graduating.
What it actually is is people who have listed their
(23:03):
homes for sale but had no luck selling them, and
instead they pivot to renting out the property as they
wait to list their home again.
Speaker 3 (23:12):
Okay, so I had no long term intentions of being
a landlord, but don't want to sell right now, so
I took a number of steps to rent it out instead.
Speaker 2 (23:19):
I can understand that exactly.
Speaker 4 (23:22):
Instead, where we've seen uptick of these rentals or accidental
landlords occurring is in probably the parts of the country
that you'd imagine if you listen to our show that
are a little bit oversupplied in terms of inventory. Places
like Atlanta, Dallas, Phoenix, Houston, Tampa, and Charlotte are areas
(23:42):
where there is a lot more inventory than there are buyers.
Some of that is kind of the tailwind from the pandemic,
or initially what was the tailwind to build a lot
of supply that now there is not the aggregate demand for.
Speaker 3 (23:57):
So I have a client who almost wound up in
this situation several months ago, and I'm just confused as
to how people don't really seemingly do the math on
this stuff. But here was her situation. She bought a
new place to live because the old one just wasn't
exactly what they were looking for, moved in and you know,
(24:21):
had the flexibility in her finances to be able to
own both properties at the same time. And when she
went to sell the old property was not quite finding
that the price that her realtor had initially suggested, the
price that she initially paid for it was.
Speaker 2 (24:35):
Not really getting the demand that she needed.
Speaker 3 (24:39):
So she turned to, hey, might I consider renting this
out for a period of time and did the math,
and effectively, what we did is we calculated a cap rate.
And if you're not familiar with the cap rate, it's
the same thing as a dividend yield on a stock.
It's basically just effectively, what is your net operating income
off the property, divided by the property's value. Were you
(25:01):
to sell it and walk away with something, and you can,
you know, take all three sorts of things into consideration here,
but your net operating income would basically be your rent
minus your property taxes and HOA fee if that exists,
your insurance, you know, all those expenses that count for that,
divided by your property value. And for me, I tend
(25:21):
to look at the net property value after you pay
your realtor and attorneys all that stuff to list the property.
Speaker 2 (25:27):
And get it done.
Speaker 3 (25:28):
But however you want to look at it, you come
up with this rate, and to me, that should be
the only real defining factor when considering do I rent
out of property or sell it? Like if I'm faced
with this situation, obviously there's taxes, there's other considerations, But
how much am I comfortable generating off of this property?
That's the number you care about it. It's not just
(25:49):
the income that you might produce on an annual basis.
You have to compare it to something because otherwise you're
not taking into account opportunity cost. And in her case
what we found is, yeah, for the rent that she
could get compared to the sky high insurance costs, there
had just been bunch of damage from the hurricane that
swept through, plus the HOA fees. She was sitting on
(26:11):
a cap rate of about one percent. Wow, And I said, why,
I mean, lower the lower the price. What are we
doing here? There's no sense in renting this out. You're
gonna deal with the headache of a landlord, the uncertainty
of how long it would take to get that person
in there and keep them, compared to just taking a
slightly lower price on the sale. Just go sell this thing?
Speaker 2 (26:30):
Got it?
Speaker 3 (26:30):
And I just don't see I think with real estate
in particular, because there is not a public market where
you go and mark your your condo to the market
every day. There's also just some there's emotions, emotions that
come into this.
Speaker 2 (26:48):
Yeah, more so than I think.
Speaker 4 (26:49):
You said that this was kind of a recent person.
So she's trying to break even or something.
Speaker 2 (26:53):
Or precisely, Yeah, moved down the drink code. I don't
want to sell for less than I paid. You don't
want to sell for less I paid for you.
Speaker 3 (27:00):
All of those things come into play, and I think
that's why you end up in this situation where there
are suddenly more people renting out their properties or just
leaving them vacant because they're not quite getting the price
that they want.
Speaker 2 (27:11):
On the property. And I always just go back to
what a missed opportunity costs there.
Speaker 4 (27:15):
Sure, and what doesn't get talked about enough with real estate.
There are plenty of people who have been incredibly successful
from developing a lot of properties. So I'm not against
at all, but whenever gets discussed like it does with
the stock market, you have anyone you talk to, they
have their stories of oh I got bludgeoned in two
thousand and eight, and that's true. But real estate doesn't
(27:36):
always work out in your favor, and people don't talk
about times where they don't make a substantial profit from
particular sales. But this is just something that is just
a to be clear, it's a small percentage of the market.
I mean, we're talking about two to three percent of
homes that are listed that are falling into this camp.
(27:56):
It's not so abundant that it's it's all over the
es hey.
Speaker 3 (27:59):
I mean the opportunity cost piece that I talked to
her about was Okay, look, not that you were considering
doing this, but you can generate one percent a year
in rent net rent off of this property with more headaches,
with more headaches, or you could go buy a CD
for four percent, right. I think it was closer to
five percent at the time. Yeah, And that's not a
fair comparison because the CD has no possibility of appreciating,
(28:21):
whereas hypothetically the piece of real estate does.
Speaker 2 (28:24):
But man, what I mean?
Speaker 3 (28:26):
You know, I do think there are a lot of
people in that same situation, because guess what, when those
landlords go and rent and you know, find the tenant
for that rental, those prices aren't looking great in a
lot of cases, and especially when you factor in all
the carrying costs on some of these properties, between insurance,
which guess what, you need better insurance if you're renting,
and all of the other costs associated with rising costs
(28:48):
in places like Florida. I think there's a lot of
people that are in that lady situation of oh yeah,
I really can't generate a whole lot on this What
am I? What am I really looking for here? Let's
take quick break when we come back Exxon looking at
some stiff job cuts here. We'll be covering that next
on the Financial Exchange.
Speaker 1 (29:07):
The financial Exchange is now available on your Alexis smart
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Hit the subscribe button and leave us a five star review.
(29:28):
This is the Financial Exchange Radio.
Speaker 2 (29:30):
Network, Paul.
Speaker 3 (29:41):
The energy sector has been kind of struggling this year.
I mean, you have seen very little movement on oil prices.
We started the year on West Texas Cruise sitting at
let me pull the exact price level. We're sitting at
seventy one, seventy two on January thirty or December thirty first,
we're now sitting at six two five. You had some
(30:01):
dips there, a little bit of a spike back in June,
but generally speaking, we haven't seen much movement on oil.
Companies are making money at those prices, like Exxon has
plenty of profit at sixty dollars a barrel oil, but
they're not exactly making big investments. And the announcement today
is that they're going to be cutting two thousand workers
as the job losses in that area just continue to
(30:24):
mount here on I don't know, kind of lackluster oil
pricing and profit margins.
Speaker 2 (30:30):
It's a really difficult business. It's just so boomer bust.
Speaker 4 (30:33):
If you look at the sector performance year by year
on the energy sector in twenty one and twenty two,
best performing sector was energy and we all recall how
high gas prices got in July of twenty two. I
think they hit their peak. But since then, like you mentioned,
there has been just a lot less demand or for
good fortune, you know, prices have stayed relatively stable. What
(30:55):
energy companies have learned over the last ten to fifteen
years through these boomer bus cycles is efficiency is critical,
and the mistakes that they made back in I think
it was twenty twelve twenty thirteen that area where energy
companies struggled was they put too much capex or too
many resources towards drilling, and ultimately when prices came down
or demand suffered, they were left hole in the bag
(31:17):
a bit. So what you'll see is these constant announcements
on really focusing on profits and efficiency as as you
mentioned it, like that sixty dollars barrel. Chevron is doing
a similar move. They're cutting fifteen to twenty percent of
their workflow reshifting their headquarters. So this seems to be
something that is a trend across the energy sector. And
(31:38):
it only becomes problematic when you know you don't have
the domestic production. But domestic production has been rising even
though headcount has suffered.
Speaker 3 (31:47):
Paul, it's the last day to get a copy of
the new guide from the Armstrong Advisory Group, and it's
all about inflation and financial plans, and I think this
one is especially relevant right now. Again, we're not dealing
with twenty twenty two like inflation, nineteen seventies like inflation.
But if there's one risk of the Fed's current path,
and to be clear, the fed's current path is cutting
(32:07):
rates out of concern for the labor market, the risk
would be that they're misreading the situation and inflation is
actually the piece that's about to take off. And so
when we talk about inflation and when you talk about
it with your clients, Paul, specifically, here's what I focus on.
For a married couple approaching retirement at age sixty five,
(32:28):
the likelihood that at least one of them lives until
ninety is really high. It's over a coin flip at
this stage that at least one of these people lives
until ninety years old. That is a length of retirement
that our parents and grandparents did not plan for and
didn't need to plan for, And suddenly, you know, with
(32:48):
where we are today, it's realistic for people to be
facing twenty five thirty years of retirement. How do you
prepare for inflation in a scenario like.
Speaker 4 (32:56):
That, It's really important to do thorough planning on There's
another state study that had read Allons did a retirement
study where sixty four percent of people surveyed were more
concerned about outliving their money than death, which is pretty
stark to hear that in a survey. So as a
result of that, you have to make sure that your
portfolio's position as best as possible to whether inflation in
(33:19):
the future. The problem can en lie that if you
just sit in cash and pick up what now is
available three or four percent, if inflation runs at two
three percent, it erodes away your return. So at least
having those conversations is not to say that you can
predict where inflation is going to go, but being as
thorough as possible from a planning perspective with your allocation is.
Speaker 2 (33:40):
The best you can do with it.
Speaker 3 (33:41):
I don't know about you, Paul, but in my experience,
folks that I work with that are heading to retirement
are far more concerned about a market crash than they
are inflation, and their portfolios reflect to that. And for
most of them, they're focused on the wrong risk. They're
scared of the market crash, but for most of them,
that's not the thing that's going to derail their financial plan.
(34:03):
What's going to derail their financial plan is unanticipated inflation.
And it could come in the way of health care costs,
it could come in the way of tax inflation. But
those are the real risks that I think most people
underestimate and need to prepare better for. If you are
concerned about inflation in your financial plan, I mean it
takes all forms this twenty twenty six, for instance, So
(34:24):
security recipients are expecting about a two zero point seven
percent cost of living adjustments. Guess what medicare costs going
up over eleven percent. It's going to erode that cost
of living adjustment that people rely upon. If you're looking
for strategies to combat inflation in your retirement, call the
Armstrong Advisory Group. Get a copy of our brand new
guide Inflation and your Retirement Plan. You can get it
(34:47):
by calling eight hundred three nine three four zero zero one.
Guess what it's September thirtieth. It's the last day of
the month. Your last opportunity to get a copy of
this guide the number eight hundred three nine three four
zero zero one, or you can request it online at
Armstrong Advisory dot com.
Speaker 1 (35:05):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal, or tax advice. Consult
your own financial, tax into state planning advisors before making
any investment decisions. Armstrong may contact you to offer investment
advisory services.
Speaker 3 (35:21):
If you are a member of gen X and you're
listening to this program right now, I have a question
for you. When did you get so old? The oldest
members of gen X are turning sixty this year.
Speaker 2 (35:33):
How is that possible?
Speaker 3 (35:35):
Means that I'm getting old too, But dear God, sixty
years old gen X members are now turning this year
and are suddenly I mean, I feel like they're still
talking about college funding and owning homes and all of
the complexities there. But realistically, this is a generation that's
now more focused on probably so security planning than they
(35:56):
are about college funding and the other big stages of
life that I tend to think of when I again,
you just associate these things with different generations based on
your work experience.
Speaker 2 (36:07):
And things like that.
Speaker 3 (36:08):
And when I think of Gen X, I think about, Okay,
I gotta develop a college plan for them. I got
to figure out a mortgage payoff plan. No, we're talking
about social security planning now.
Speaker 2 (36:16):
For this generation, I feel like they're the most forgotten generation.
Speaker 3 (36:19):
They get the least pressure, Nobody hates them, nobody loves them.
Speaker 4 (36:22):
There just for Millennials and Baby Boomers were talked about frequently.
Millennials get beat, were the punching bag, but now less so.
I think Generation Z has taken that mantle. And Baby
Boomers get a lot of press because they were the
biggest ones out there, but you forget about Gen X.
Social security is something that is a concern if you
talk to a lot of these folks. I'm sure Mike
you hear it. But probably the most common question I
(36:44):
get asked from people in this age range is is
it going to be there for me? What's your answer.
Speaker 2 (36:49):
I don't know.
Speaker 4 (36:51):
I hope so twenty thirty three is when it's set
to to deplete on that, not that it's going to
don't quote me on that, cuote me on I don't know,
but certainly you'd think that the government would take steps.
But I can guarantee you that they'll do similar things
to the government shutdown. It will probably not be resolved
until later than it should be.
Speaker 3 (37:13):
More than any other generation, this one is going to
face probably the most angst about that funding question. Right
for baby boomers, it was far off enough that you
could kind of ignore it a little bit. I mean
not if you're the youngest generation of Baby Boomers, because
then you're still in this deciding stage. But for the
Gen xers it's going to be the biggest looming issue
when it comes to Social Security is how will they
(37:35):
fund the program to ensure that my benefits continue my
personal belief they will, And so don't base your decision
on that, or at least not entirely on that factor.
But look, you know, we talk about this all the time.
The most important thing with social Security is that once
you go and file it, except for some very rare circumstances,
(37:56):
you can't change your mind, so no matter what you do,
just educate yourself on it before you make a decision
that can't be reversed when it happens to be with
Social Security quick Break A lot more to cover in
the second hour. We're going to be joined by Jessica
Caldwell from Edmunds, Todd Lutsky from Christikan Dolan.
Speaker 2 (38:11):
Stay tuned. Lot more to go here on the Financial Exchange,
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