June 10, 2025 • 38 mins
Mike Armstrong and Paul Lane discuss U.S. and China try to undo devastating trade curbs. Inflation expectations declined across all horizons, NY Fed says. Lawmakers traded stocks heavily as Trump rolled out ‘Liberation Day’ tariffs. Moody’s sounds alarm on private funds for individuals. A college degree is no longer a risk-free investment.
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Speaker 1 (00:00):
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(01:06):
and fall Lane.
Speaker 2 (01:10):
Good morning, Happy Tuesday. Welcome back to the Financial Exchange.
It's Mike, Paul and Tucker with you here the day
before CPI is released. We'll get an inflation reading tomorrow morning.
The Apple Developers Conference has been ongoing. We've got some
general discussions about inflation expectations as well, according to the
(01:30):
New York Federal Reserve. But before all of that, we're
entering day two of negotiations in London between the United
States and China when it comes to trade generally more
specifically rare earth material, semiconductor, student visas, etc. And we
have a piece from the New York Times to kick
things off. Clock ticks. Is us in China try to
(01:54):
undo devastating trade curbs? Bob oh, Yeah, this is not
a like, yeah, this is not a dramatic enough talk.
Clock we need. We need some sort of really earth
shattering you know, maybe the one from uh, never mind,
let's move on. Uh. The clock ticks according to the
(02:15):
New York Times. So my question for you, Paul, is
this real or is New York Times needing some clickbait
on a quiet June Tuesday, Because it reads more to
me like the latter. I don't see any clock ticking.
There's no deadline that we have with China and Trade
that we must meet before world's collide. Uh And frankly,
(02:41):
I don't really expect anything to happen out of all
of this. Either best case scenario, Yeah, these series of meetings,
best case scenario, trade terriffts don't move up, maybe they
move slightly down and we hopefully get some magnets. Yes,
I know I sound like a seven year old, but
(03:01):
that's genuinely what I think is the best case scenario
out of these negotiations. Let's frame what I guess why
I feel that way If I am China going into
this and I know that the rest of the world
is freaking out over my magnets. My what's the samarium? Mum,
I gotta say, prepping for the show today. You know
(03:23):
our background in finance diving into these rare earth going
back to eighth grade chemistry, Paul.
Speaker 3 (03:28):
I'm glad my chemistry grades aren't publicly available because I
am not qualifying to speak to some of these.
Speaker 2 (03:35):
So they have this stranglehold on these rare earth elements.
They're probably a little annoyed that US keeps restricting in
video's latest and greatest semiconductor trips from going over there,
especially given how much they've invested in AI recently. They're
probably not terribly happy that some of their students are
no longer able to attend Harvard, or at least it's
(03:57):
being called into question. But generally, the only thing you
care about right now is, hey, can the United States
or will the United States go back into pretty much
trade embargo world with China. That is the lever that
I think the United States has that's equivalent to China's
rare earth materials, because quite honestly, I don't see how
the United States kicking out a bunch of students is
(04:18):
even close to the same scale as China. Saying you
can't have the rare earth materials that you use to
manufacture cars and fighter jets right seems like just kind
of an uneven, uneven sequence there. And so if you're
China and you're looking at that threat of those big
giant tariffs, it's a real threat. It does exist, But
(04:41):
you're also saying, hey, let's try and play this out
here for a little while. Let's not let's not do
anything rash, because the Supreme Court in the next few
weeks in the United States might just tell the Trump administration, Hey,
all those tariffs that you used, the rules that you
use to impose tariffs on China, on the European Union
and just about every other country in the world, they
were illegal. You need to refund all the money, and
(05:02):
you can't use that again next time. Very fair, right, Like,
why would you negotiate with the United States if you
are China right now? And I'm not using this as
a criticism of the courts. I think that you want
to have checks on presidential power. We talked a lot
about that. As much as I think President Trump might
be right to slap tariffs on China, I don't know
that they want the next president being able to use
(05:24):
this to summarily say, yeah, we're punishing is real because
of something we don't like. So we will see what
the courts think about all of this. But at the
end of the day, that's why my expectations for this
are rather low. I would be very content if we
came out of this with a meaningful increase or a
(05:45):
meaningful agreement on rare earth materials coming back into the
United States and no new tariffs going on. And that's
where I kind of land as my best case.
Speaker 3 (05:56):
But I just don't know why China would be on
board with that. What's our concession in that agreement? Really?
Speaker 2 (06:06):
Yeah, I guess lower tariffs on Chinese made good, right, right?
That thirty percent is going down even lower because that'll,
you know.
Speaker 3 (06:14):
To reinvigorate the exports. Yeah, China to the unit.
Speaker 2 (06:17):
The Chinese economy is not good right now. They've they've
got unemployment problems, they've got deflation problems, and you know,
we make this it's all always very US centric and
US focused, But that export of those rare earth materials
wasn't going to Europe either. Those magnets haven't been going
to Volvo or Volkswagen either. They they've been pretty much
(06:39):
halted globally. And so you know, to some degree, China
wants to play ball here too and say, hey, you
know if we if we ultimately piss off everybody in
the room, then then that's probably not going to work
out well for us either. And we have some vested
interest in playing nice here and there. So I very
much doubt we're heading back to one hundred percent TARA
(07:00):
as a result of these negotiations. But look, the United
States and China have deep differences of opinion in terms
of how the global economy does and should work. Those
aren't going to be solved by a five day negotiation
period in London with the United States and China, and
(07:22):
that's probably, you know, you need some sort of degree
of understanding if we're going to get to the point
where trade truly opens up between these two countries. And
so instead, I think you have small deals here and there.
Right If the Chinese want to appease the Trump administration,
they can go out and buy a bunch of agricultural goods,
or frankly even just announced that they plan to go
out and buy agricultural goods to free up some of
(07:45):
that trade imbalance. The US desperately wants some of these
rare earth materials. So I'm sure that there will be something.
There's already been something announced on that as of last Friday,
but big sweeping trade deal, man, I'd be really surprised.
Speaker 3 (08:02):
No, I would be surprised to And really, what this emphasizes, Mike,
the further we get along from April is how intertwined
the global economy is in terms of like these rare
earth materials, for example, things that you and I, at
least unless you were really buffed up on your scenarian
before the show came out. It's just not something that
(08:23):
I knew how much dominance China had in the space.
And this is not new news if you go back,
you know historically this goes back decades. But it does
reemphasize that China needs the purchases on our into things.
There are rare earth materials that we need from them,
and in Europe as well. Just to me, it continues
to reinforce that point that it truly is a globally
(08:43):
intertwined economy.
Speaker 2 (08:45):
Yeah, and look, this has been China's play. The reason
that China is the only one to manufacture this is
not because these are actually rare and China just got
lucky these rare earth materials. I know this has been
reported everywhere, but they are everywhere. You can get them
in the United States, you can mind them here. Why
isn't it happening here? I account as twofold one. It's messy.
(09:10):
Just you know, we actually have a little bit of
respect for the environment here. We generally don't want to
make a whole bunch of people move and pollute their
water in order to get some of this stuff out
of the ground, which China doesn't have much of an
issue with.
Speaker 3 (09:23):
Two doesn't make enough fun.
Speaker 2 (09:24):
We don't really like to subsidize these types of industries.
It's like, think about how unpopular the Biden bill on
you know, subsidizing even semiconductors was, And you get to
the idea that, yeah, the United States doesn't want to
be a state owned enterprise that minds samarium, but that's
(09:45):
what China has done. And so when you have those
dueling factors right, it's not economically feasible to get the
stuff out of the ground because of how cheap China
will do it for and sell it for. And two
you'll destroy the environment by doing so, or least it'll
be really expensive to not destroy the environment by doing so.
And you get to a point where you say, okay,
unless this is going to be a state owned enterprises
(10:07):
that runs these minds, we're just going to do it
in China.
Speaker 3 (10:10):
Right, because you can't entice any publicly traded company or
any company out there to endeavor this.
Speaker 2 (10:14):
You know, China will just put you out of business tomorrow.
Speaker 3 (10:16):
They and they've done it before in instances here historically
where they bankrupted some companies that tried this out in
California where it just wasn't viable. And if you look
at samarium just specifically, which is used in pretty much
solely military applications and in fighter jets for Lockey Martin,
as a business producing samarium, if you're just going to
have one customer out there, it's not an enticing market
(10:38):
to go into and not a very profitable one either.
Speaker 2 (10:41):
Let's take a quick break. When we come back, I
want to move along from try. We will be revisiting
China because as much as they're doing have already done
this in rare with materials, there's growing evidence that they
are taking the same approach with vehicles, and I want
to get to that. But I want to talk a
bit about inflation expectations. We have the CPI Report coming
up to tomorrow. Inflation expectations are next year. On the
(11:03):
Financial Exchange.
Speaker 1 (11:04):
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Speaker 2 (11:44):
Paul tomorrow will have a consumer price index inflation reading
general expectations medium forecast is coming in at a zero
point two percent month of a month increase year over year,
expected to come in at two point four percent. Takeaways
on inflation. I know there are some genuine concerns about things,
(12:04):
but it would seem to me that a lot of
that front renting on trade tariffs and the concern that
car prices and electronics prices were going to shoot up
at some point. I don't know. I'm hearing a lot
less of that today than I was just a couple
months ago. Would you generally agree?
Speaker 3 (12:22):
I would agree. It doesn't seem like as much as
there's those headline stories on Target and Walmart, you know,
changing prices on certain names. I just don't feel like
that's become overly prevalent other than the news stories that
we've heard. But I haven't heard that from an experiential standpoint.
Speaker 2 (12:36):
And yet, whenever I talk to a professional money manager
or economists and you talk about, hey, what do you
think will define the next five years, most that I
talked to. You know, there's some concerns about deficits, trade,
et cetera. But most of the ones that I talk to,
it's all about higher the normal inflation, and maybe higher
(12:58):
the normal growth too, is something that plays out there.
But high growth, high inflation, and you know, all of
that caused by what we're seeing already today, higher government spending,
higher barriers to trade, et cetera, et cetera. So we
have seen those short term expectations come in a little
bit tighter, whether it is the University of Michigan surveys
(13:21):
that we'll get every month, or this New York Fed
survey which found that the decline was most significant projections
for year ahead price growth, which just month over month
declined to three point two percent from the three point
six percent read back in April. Three year inflation fell
to three from three point two. And so generally speaking,
(13:42):
I think most investors and most consumers are just expecting
prices to keep going up, but not quite as fast.
I don't know. I keep going back to I'll believe
the inflation when I see it, and that you know
that we ended up getting a lot of it in
twenty twenty one and twenty twenty two. But I kept
(14:04):
saying even then, like, you know, I think that this
should cause inflation, but let's wait until it actually shows
up before you start doing anything. I think that's probably
going to be the federal reserves approach to That's.
Speaker 3 (14:13):
The challenging part of this, and we've talked about this
a lot. When examining the impact of these tariffs, it
often seems as if we're just pushing the deadline to
see whether or not these are going to be inflationary
further and further because there has been so much change
in policy over the time that there was this idea
that perhaps we'd see it as early as the summer.
I think now general consensus is that more the fall
(14:36):
is where we look to see potentiary impact on the
inflationary front, whether it's back to school season or some
of these other measures. It's just spent harder to really
wrap your arms around the impact. The longer it goes on.
The longer, maybe consumers or individuals that get pulled kind
of don't you know, overlay it as a concern out there, right,
I'm married about it.
Speaker 2 (14:56):
Yeah, certainly I can paint a picture. Hey, this fall,
you've got fifty percent steel and aluminum tariffs in place,
and so every canned good that you consume, every you know,
car part, and you know, anything that we manufacture with
those products gets more expensive, not only because we are
paying those higher tariffs because you don't produce some of
(15:17):
this stuff domestically, but hey, if that's the going rate
for stealing illunum, then domestic producers are going to you know,
raise their prices too. So I get how you could
see that type of thing and compound it with tariffs
on China and other countries, and you could pretty quickly
see that being the case. On the other hand, what
if you get a Supreme Court ruling on August first
(15:38):
that says, no, all the tariffs that the Trump are
nearly all the tariffs that Trump administration have it imposed
since April, no since March, we're illegal and they must
refund all of those to the payers of those tariffs,
which is probably what would happen if they deemed them
to be illegal. I don't know that you would see deflation,
but you certainly wouldn't see any big inflation. Right, You're
(16:01):
going to suddenly have a bunch of companies sitting on
tariffs that they thought they were going to need to
charge their customers, probably already did charge their customers and
now are getting a reimbursement of those And so I
don't know where all of this goes, but I come
back to the same thing, and I think the Federal
Reserve is playing the same game here, which is there
are risks to the upside both on inflation and on unemployment.
(16:26):
We have no idea if either of them are going
to come to pass, and if they do, in what
order they will come. And you're probably not going to
do much until that happens. And so to your point,
if we're not now expecting higher inflation until maybe even
this fall, I hesitate to see how the mortgage rates
or Fed funds rates are going to go anywhere in
(16:48):
the near future.
Speaker 3 (16:49):
I can't make the argument to lower base on the
data that we have now.
Speaker 2 (16:53):
But yeah, the only argument you have would be the
last three months of unemployment data now have gotten slightly worse, right,
very slightly worse. It's been a rounding error as to
whether or not you saw four point three versus four
point one percent unemployment. And so if that trend were
(17:14):
to continue and by fall you had four point five
percent unemployment. Okay, and now now I'm proven wrong and
you have a different story playing out here. But there's
a lot of cards that need to fall for that
to actually happen. And again, the further this time gets
away from these high tariffs, I think you're seeing more
(17:34):
and more confidence from business owners and others working in
different areas that were previously ringing the alarm bells about
recession and where this economy was going to go.
Speaker 3 (17:44):
It seems like sentiment has really improved from a lot
of these surveys. But the hardest part has been the
actual hard data. There really hasn't been tremendous takeaways. I mean,
like the labor market stuff. There's some weakness, but nothing
that's really definitive. On the other front on the hard
economic data.
Speaker 2 (18:03):
Yeah, look, the corporate earnings have been solid. Companies have
not been on mass laying people off. They've also been
delaying a lot of plans. Yes, they've been delaying a
lot of plans, and so even those delays can contribute
to a weak labor market. But I even think about
so I keep hearing about all these college students who
(18:26):
are having a tough time finding a job, and I
do believe it, because I keep hearing it over and
over again. The youth unemployment rate is high, college grad
unemployment rate is high. We had a job opening and
we're interviewing candidates. I think that something like half of
them or maybe two thirds of them either canceled last
second or no showed on our interviews. Really wow, And
(18:47):
so I keep tossing this around, like, yeah, I keep
hearing about this. I read it, and then I go
have a very different experience. I mean, massive numbers of
applications to the job and very well qualified candidates and
all of that stuff. But on the other hand, two
thirds of them either canceled last menda or no showed
an interview. And You're like, how do I how do
(19:07):
I put these two together and make sense of them?
And so it is a confusing market right now, and
I think that things are just in some bit of
holding pattern or stasis until you get some real clarity
on are the terriffs legal, are they going to be
used in the same way for the second half of
the year, and will this tax bill pass? Quick break,
We've got Wall Street Watch coming up next.
Speaker 1 (19:42):
Like us on Facebook and follow us on Twitter at
TFE Show breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall Street.
Watch a complete look at what's moving markets so far
today right here on the Financial Exchange Radio Network.
Speaker 4 (20:02):
Markets are in weight and C mode on day two
of trade talks in London between the US and China.
Investors are also ready for an inflation reading duout tomorrow morning.
Speaker 3 (20:12):
In the Consumer Price Index.
Speaker 4 (20:14):
Right now, the Dow is completely flat, SMP five hundred
up by fourteen points, and the Nasdaq is up by
three tenths of one percent. Russell two thousand is up
by eight tenths of one percent, Tenure treasure Feld is
down by one basis point now at four point four
to six percent, and Crew to Oil up another one
percent higher, trading just below sixty six dollars a barrel.
(20:37):
Apple held its annual Developers Conference yesterday and seemingly underwhelmed
investors on its Apple Intelligence advancements. The bigger focus of
the Tech Giants event involved its software facelift, marking its
first significant redesign of its iOS software since twenty thirteen.
Apple shares are up modestly today. Meanwhile, US listed shares
(20:58):
of Taiwan Semiconduct up over two and a half percent
after the chip maker saw its revenue jump nearly forty
percent compared with last year. Elsewhere, Tesla shares are rebounding
one and a half percent after the stock was downgraded
by Baird yesterday. In addition to the ongoing feud between
CEO Elon Musk and President Trump, the New York Times
(21:19):
is reporting that Meta is forming a new artificial intelligence
research lab and bringing on Alexander Wang, the founder and
CEO of startup Scale AI. Meta is also in advanced
talks to invest more than ten billion dollars in Scale
ai AI. Excuse me that, according to a report from Bloomberg,
Meta shares are up about one percent. According to CNBC,
(21:42):
Paramount told employees it would be reducing its workforce by
three and a half percent. Paramount shares are flat. JM
Smucker posted lower sales and swung to a loss in
the latest quarter. The food maker's guidance also missed expectations.
Jam Smucker shares are sinking by thirteen percent. In after
today's closing bell, we'll see earnings from GameStop, I, Tucker, Silva,
(22:06):
and that's Wallstree Watch.
Speaker 2 (22:08):
I would like to talk about corruption and insider trading
Paul special, specifically with our elected officials. So there's been
a lot made, for instance of President Trump's special dinner
that he had when was that back in like March May? Sorry,
so he hosted a dinner with two hundred and twenty
(22:29):
holders of a cryptocurrency that bears his name, and tough
to look at this as anything other than buying your
way into a meeting with the president. It was very blatant,
very front and center, and I think deservedly got a
lot of criticism about the way it was structured. The
problem I see is all of those criticizing it have
(22:51):
almost no leg to stand on because instead of doing
these conflict of interest deals out in the front, what
they've done instead of the last thirty years has been
behind closed doors, with insider trading on knowledge that they
have that is really difficult to charge them with. So,
you know, if you don't like this, then you probably
shouldn't like what you've seen from the likes of all
(23:12):
elected officials and all presidents pasts that have done this
in some different way, just shadyer behind closed doors would
be my opinion. But Wall Street Journal is reporting today
that lawmakers traded stocks heavily as President Trump ruled out
Liberation Day tariffs. I can guarantee there were select lawmakers
that had inside knowledge about what was coming on this front.
(23:33):
And you have massive trading that was probably done on
inside information that will never be charged because it's really
difficult to do with lawmakers. And I keep thinking about
this and going back to one solution. If you are
an elected official pretty much at the level of like
I think governor and then anything federally, you just can't
(23:58):
own stocks. You certainly can can't trade them. Yeah, and
we need to have this across the board. And you
know what, you give them a capital gains waiver. Right,
so you say, look, yeah, we understand you're an elected
official that owns twenty million dollars worth of ex on mobile.
You would have to pay a boatload of taxes if
you went and sold it. Fine, you can transfer your
(24:18):
cost basis. You have to transfer it into an exchange fund.
Like you know, just owning an index of US stocks
is fine, but you can't you still can't trade that.
But you're not even allowed to own the stocks. We
won't charge you a capital gain on it because you're
an elected official and that'd be punishing. That'd be unfair
if we said, hey, you're elected now, so you have
to sell all of your stocks and pay a bunch
of taxes. No, that's fine. You can you can transfer
(24:41):
your positions into a general index that holds US stocks.
But it can't even be industry specific. It has to
just be the you know, some index. I don't care
who decides this, the S and P five hundred or
something along those lines. So long as you're holding office,
you cannot trade that index. You can't buy it and
sell it when you know that President Trump's about to
roll out tariffs or the next president's about to raise
(25:03):
taxes or shut down the economy due to a due
to a COVID disease. And that's the deal, that's the
trade off. We're going to give you a gift on
the tax side, we're going to allow you to defer
the taxes and you know, have zero taxes for getting
rid of your shares. But this blind trust crap, where
you know you're allowed to have it managed by somebody
(25:24):
else who allegedly you don't talk to and you know
you don't influence. It's garbage. It's absolute garbage. It's it's
it's completely one of the major reasons that everyone distrusts
American politicians, and it's also bipartisan.
Speaker 3 (25:42):
I don't understand why the public markets do a better
job with this than the government official. It's like, we
work with a lot of clients who work in specific
industries that have very strict regulations as to what they
can buy and sell down to a sector, and there's
blackout windows and all sorts of other things. Why can't
that same sort of implementation be levied on government officials?
(26:04):
Baffles me every time this comes up. I don't understand
what judges too, Actually I didn't name them.
Speaker 2 (26:10):
Judges have to be you know, like, oh, yeah, I'm
overhearing a course on a court case on whether or
not Google should be broken up. But I can trade
in and out of Google stock, right. That is literally
what you're allowed to do today. Yeah, so long as
you can make an argument that it wasn't based on
non public material information, you are allowed to do that.
You might have an ethics inquiry, but there is no
(26:31):
rule barring the judge who is sitting on Google's case
from buying and selling Google stock while he is sitting
on that case.
Speaker 3 (26:38):
With the proliferation of index funds out there. There are
many a multitude of investment options for them to go into.
You could set I wouldn't maybe hammer on the sector pieces.
I would just say you can have sector ETFs if
you want, but you can't trade them. You can only
trade them these certain windows of the year, whether that's
when lawmakers are in recess or whatever you want. It
(26:58):
just like a public there are many this mic and
you and I and I feel like Chuck, all of
us have battered around the segment a hundred times on
the show. It's just beating it down, but nothing changes.
And you know why nothing changes is because they make money.
They make money.
Speaker 2 (27:11):
It's self interest. You make the rules. Of course, they're
not going to outlaw themselves from being able to make
a whole bunch of money on private information.
Speaker 3 (27:18):
It's just like the step up and basis and some
of these other tax concepts that come up around, you know,
election time. These elected officials are incentivized by them too,
which is why you can sort of know that perhaps
you have a good chance of these staying in place
because the elected officials benefit from it.
Speaker 2 (27:33):
And people wonder why there's no outrage about President Trump
holding this dinner of people buying his cryptocurrency. It's because
all of you have been doing this but shadier for
the last fifty years and getting away with it, so
of course there's no outrage over this one. All he's
doing is, you know, shining a light on it and
just admit pretty much admitting it, like, yeah, you want
(27:54):
to buy a dinner with me, go ahead and buy
my meme coin. I don't know, at least it's not
lying to you. Let's take a quick break. When we
come back, what do we want to do next? I
want to talk about all these pieces on where markets
go next, since apparently all these all these writers have
a much better idea of whether or not the S
(28:15):
and P five hundred has room to rally. That's next
here on the Financial Exchange.
Speaker 1 (28:19):
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USVII dot com.
Speaker 2 (29:14):
Paul. The subject of private equity and private credit has
been getting a lot of headline news recently. Moody's This
Morning is now coming out and sounding the alarm on
private funds, specifically their goal of marketing to individuals. There's
been discussion about having these types of products available in
four oh one k's, for example. We're not there yet,
(29:35):
but that's that's been some of the discussion before we
even get there. Can can you help define the idea
of private equity and private credit and how it exists
today and we don't need to st you know, the
scale is massive now compared to where it was twenty
years ago, but just what is it for those that
aren't really eligible to participate participate in it today.
Speaker 3 (29:53):
Yes, So typically where private equities incorporated in terms of
the financial market, it's largely with pensions and elements, large
pools of capital.
Speaker 2 (30:03):
Big family offices. Right, if you're managing money for the
Walton family, you might be participating in something like this.
Speaker 3 (30:09):
Where there's an array of investments that could underline these
private equity funds. They're sector specific. There's all sorts of
different ways, and basically what they're looking to do is
find a way to generate a differentiated return above and
beyond that of the standard capital markets that regular Joe
investor may be may have access to, like the S
and P they're trying to outpace that through access into
(30:31):
private deals in any array of spaces out there. It
can be technology, infrastructure. They can take on many different
machinations here.
Speaker 2 (30:39):
Which is why we talk about these unicorns. Right. You
have these companies that are billion dollar valuations that are
privately held. Right. Big Open AI is a nonprofits space
weird one but space example. All these types of companies
that you can't access as a public investor can be
accessed through private equity markets, and the same goes for
lending right on the other side of that private credit
(31:01):
where you are lending money to all sorts of investors,
many times private companies that you know, these are unrated bonds.
They are not things that hit the public markets in
trade in any way. They are just held on private
balance sheets. The idea has been, hey, you know, would
these be appropriate for individual investors, small time investors that
(31:23):
don't traditionally get access to them. Clearly they're popular amongst billionaires,
and maybe that's a good place for them. I think,
you know, on the surface, why would anyone be talking
about this, Well, because the four to one K market
is massive. You have billions of trillions of dollars. I
don't know how much money is in the for to
win K market, probably trillions of dollars that you could
(31:45):
potentially access there, and hey, you know, wouldn't this be
a great market to access moodies? I think, interestingly, I
don't know why they're the ones that are ringing the
alarm bell here, but basically saying like, hey, this is
a bad idea, not for those individual investors, but rather
for the companies themselves. Basically, hey, if you start getting
(32:05):
into this, you are not prepared to deal with the
amount of regulation you will need to deal with in
order to do this, and you risk having some serious
reputation risk by going about this, which I have to
say I fully agree. I think generally speaking that individual
investors should have some access to this type of thing
(32:26):
if they really want to. I don't agree with a
lot of the rules that are out there, such as, hey,
you can only invest in this type of product if
you have a quarter million dollars of income or a
million dollars in net worth. I don't know. Those always
seemed kind of arbitrary to me, Like if somebody is
really interested in private equity and they only make one
hundred and fifty grand and they take a class on
(32:47):
how to invest in it, who am I to say, no,
you can't. It seemed to me like, you know, if
so long as somebody wants to get the education, I'm
not really sure why we would put these restrictions on it.
But realistically, I don't think private equity wants that person's money.
They might have a half a million dollar investment minimum
to even put money into all of this, and the
(33:07):
risk that you have out there. To be really clear,
there is no real transparency into these funds. If you
own a bunch of debt that's in there, you don't
know that it's gone bad until it goes bad. There's
no Moody's downgrading it, there's no real transparency into what's
in here. And you have big liquidity risks as well.
(33:29):
If you're an investor who does own something private. This
could be a private equity fund, it could be something else,
but something where it contains liquidity restrictions. It's really important
to understand how that fits into your portfolio. It could
be anything from an annuity to a private equity fund,
(33:51):
but understanding the When we talk about risks, I feel
like everyone's mind immediately goes to stock market crashing. That's
the only risk that people tend to focus on. And
my point to investors over and over is it's an
important thing for you to understand and focus on. But
have you considered what the risk is to your portfolio
(34:13):
if half of it is tied up in private holdings
that you can't sell. Have you considered the risk to
your portfolio if inflation runs half a percent higher than
you're predicting for the next twenty years. And what I
find when I test some of those things is people
are far less prepared to deal with those types of
risks and often over prepared to deal with the market
(34:33):
crashing by fifty percent, which frankly usually doesn't happen. If
you have questions along those lines, if you are evaluating
your own retirement plan and finding some of these things
are ringing true to you, give the folks that I'm
Strong Advisory Group a call. We offer free consultations on
your retirement plan and your investment strategy so that you
(34:55):
can get a coherent and cohesive look at everything that
you're doing and really look under the hood to understand it.
That free consultation is available by calling eight hundred three
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zero one.
Speaker 1 (35:14):
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Speaker 2 (35:29):
Paul, do you want to talk about college degrees or
digital shelves?
Speaker 3 (35:32):
I want to do the college degrees.
Speaker 2 (35:34):
Yeah, So Alison Schreeger writes, and I think she has
a really interesting perspective on this. Her unifying theory of
finance is that everything goes seriously wrong when people start
seeing something a bond, mortgage backed security, crypto exchange, whatever
it is, as risk free when it really isn't risk
free in any meaningful way. And her point is that's
(35:55):
exactly how a college degree was treated over the last
thirty or some odd years. There's no rest you can
borrow as much money as you need to get it,
and everyone who gets a college degree makes more money
after they graduate. Right. That's I don't think I'm exaggerating
too much by saying that. That's kind of the summary
of how college has been treated for the last thirty years,
(36:15):
and certainly was the message I was delivered as a kid. Yes,
go get a college degree. Otherwise have fun working that
landscaping job for the rest of your life and breaking.
Speaker 3 (36:25):
Your opportunities we limited. And I sit here, you know,
I just had a baptism for my youngest daughter over
the weekend, and some five twenty nine contributions went in
after that, and you'd really scrutinize the investment that we're
going to be making eighteen years from now in college.
Is it going to return? Are we going to generate
a return on an investment? And I continue to wonder
at the cost that we're at on the college side,
(36:46):
and this conversation has gone on for decades, is it
really going to justify it? I mean, particularly the problem
that I have most is, you know, investing a degree
that's not going to get the commensurate income return if
you're leveraging yourself the substantial amount of debt to do it,
you know, to be a social worker for example, and
taking on hundreds of thousands of debt you need a
(37:07):
graduate degree to do exactly. You just know that you're
not You're going to be constrained from an income perspective
to be able to pay that out. And so it
is something that you wonder, how is the education industry
going to evolve over the next twenty years or so.
It hasn't changed since we have these concerns thirty years ago,
but who knows that the folds.
Speaker 2 (37:26):
One thing that I'm very slightly encouraged by, which is
that thirty year inflation number on college education has been
in the high single digits, I believe, And if you're
willing to look at just the last decade it has come,
it's still gone up, but the rate of inflation has
slowed considerably. I know that's not the most encouraging news, like,
(37:47):
oh yeah, now education is one hundred thousand dollars, where
if it continued to be one hundred and thirty. But
I do see more scrutiny. I do see people taking
a second look at that. And clearly enrollment numbers are
also down, especially among especially among men. Enrollment numbers and
for your institutions are down. You can take that as
(38:08):
maybe good news scrutinizing it. You can also take it
as really bad news that men are going to fall
further behind. But nonetheless that's definitely occurring. Markets are in
positive territory. We're gonna take a quick break and we'll
have a full recap in the second hour of the show.
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(00:20):
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(01:06):
and fall Lane.
Speaker 2 (01:10):
Good morning, Happy Tuesday. Welcome back to the Financial Exchange.
It's Mike, Paul and Tucker with you here the day
before CPI is released. We'll get an inflation reading tomorrow morning.
The Apple Developers Conference has been ongoing. We've got some
general discussions about inflation expectations as well, according to the
(01:30):
New York Federal Reserve. But before all of that, we're
entering day two of negotiations in London between the United
States and China when it comes to trade generally more
specifically rare earth material, semiconductor, student visas, etc. And we
have a piece from the New York Times to kick
things off. Clock ticks. Is us in China try to
(01:54):
undo devastating trade curbs? Bob oh, Yeah, this is not
a like, yeah, this is not a dramatic enough talk.
Clock we need. We need some sort of really earth
shattering you know, maybe the one from uh, never mind,
let's move on. Uh. The clock ticks according to the
(02:15):
New York Times. So my question for you, Paul, is
this real or is New York Times needing some clickbait
on a quiet June Tuesday, Because it reads more to
me like the latter. I don't see any clock ticking.
There's no deadline that we have with China and Trade
that we must meet before world's collide. Uh And frankly,
(02:41):
I don't really expect anything to happen out of all
of this. Either best case scenario, Yeah, these series of meetings,
best case scenario, trade terriffts don't move up, maybe they
move slightly down and we hopefully get some magnets. Yes,
I know I sound like a seven year old, but
(03:01):
that's genuinely what I think is the best case scenario
out of these negotiations. Let's frame what I guess why
I feel that way If I am China going into
this and I know that the rest of the world
is freaking out over my magnets. My what's the samarium? Mum,
I gotta say, prepping for the show today. You know
(03:23):
our background in finance diving into these rare earth going
back to eighth grade chemistry, Paul.
Speaker 3 (03:28):
I'm glad my chemistry grades aren't publicly available because I
am not qualifying to speak to some of these.
Speaker 2 (03:35):
So they have this stranglehold on these rare earth elements.
They're probably a little annoyed that US keeps restricting in
video's latest and greatest semiconductor trips from going over there,
especially given how much they've invested in AI recently. They're
probably not terribly happy that some of their students are
no longer able to attend Harvard, or at least it's
(03:57):
being called into question. But generally, the only thing you
care about right now is, hey, can the United States
or will the United States go back into pretty much
trade embargo world with China. That is the lever that
I think the United States has that's equivalent to China's
rare earth materials, because quite honestly, I don't see how
the United States kicking out a bunch of students is
(04:18):
even close to the same scale as China. Saying you
can't have the rare earth materials that you use to
manufacture cars and fighter jets right seems like just kind
of an uneven, uneven sequence there. And so if you're
China and you're looking at that threat of those big
giant tariffs, it's a real threat. It does exist, But
(04:41):
you're also saying, hey, let's try and play this out
here for a little while. Let's not let's not do
anything rash, because the Supreme Court in the next few
weeks in the United States might just tell the Trump administration, Hey,
all those tariffs that you used, the rules that you
use to impose tariffs on China, on the European Union
and just about every other country in the world, they
were illegal. You need to refund all the money, and
(05:02):
you can't use that again next time. Very fair, right, Like,
why would you negotiate with the United States if you
are China right now? And I'm not using this as
a criticism of the courts. I think that you want
to have checks on presidential power. We talked a lot
about that. As much as I think President Trump might
be right to slap tariffs on China, I don't know
that they want the next president being able to use
(05:24):
this to summarily say, yeah, we're punishing is real because
of something we don't like. So we will see what
the courts think about all of this. But at the
end of the day, that's why my expectations for this
are rather low. I would be very content if we
came out of this with a meaningful increase or a
(05:45):
meaningful agreement on rare earth materials coming back into the
United States and no new tariffs going on. And that's
where I kind of land as my best case.
Speaker 3 (05:56):
But I just don't know why China would be on
board with that. What's our concession in that agreement? Really?
Speaker 2 (06:06):
Yeah, I guess lower tariffs on Chinese made good, right, right?
That thirty percent is going down even lower because that'll,
you know.
Speaker 3 (06:14):
To reinvigorate the exports. Yeah, China to the unit.
Speaker 2 (06:17):
The Chinese economy is not good right now. They've they've
got unemployment problems, they've got deflation problems, and you know,
we make this it's all always very US centric and
US focused, But that export of those rare earth materials
wasn't going to Europe either. Those magnets haven't been going
to Volvo or Volkswagen either. They they've been pretty much
(06:39):
halted globally. And so you know, to some degree, China
wants to play ball here too and say, hey, you
know if we if we ultimately piss off everybody in
the room, then then that's probably not going to work
out well for us either. And we have some vested
interest in playing nice here and there. So I very
much doubt we're heading back to one hundred percent TARA
(07:00):
as a result of these negotiations. But look, the United
States and China have deep differences of opinion in terms
of how the global economy does and should work. Those
aren't going to be solved by a five day negotiation
period in London with the United States and China, and
(07:22):
that's probably, you know, you need some sort of degree
of understanding if we're going to get to the point
where trade truly opens up between these two countries. And
so instead, I think you have small deals here and there.
Right If the Chinese want to appease the Trump administration,
they can go out and buy a bunch of agricultural goods,
or frankly even just announced that they plan to go
out and buy agricultural goods to free up some of
(07:45):
that trade imbalance. The US desperately wants some of these
rare earth materials. So I'm sure that there will be something.
There's already been something announced on that as of last Friday,
but big sweeping trade deal, man, I'd be really surprised.
Speaker 3 (08:02):
No, I would be surprised to And really, what this emphasizes, Mike,
the further we get along from April is how intertwined
the global economy is in terms of like these rare
earth materials, for example, things that you and I, at
least unless you were really buffed up on your scenarian
before the show came out. It's just not something that
(08:23):
I knew how much dominance China had in the space.
And this is not new news if you go back,
you know historically this goes back decades. But it does
reemphasize that China needs the purchases on our into things.
There are rare earth materials that we need from them,
and in Europe as well. Just to me, it continues
to reinforce that point that it truly is a globally
(08:43):
intertwined economy.
Speaker 2 (08:45):
Yeah, and look, this has been China's play. The reason
that China is the only one to manufacture this is
not because these are actually rare and China just got
lucky these rare earth materials. I know this has been
reported everywhere, but they are everywhere. You can get them
in the United States, you can mind them here. Why
isn't it happening here? I account as twofold one. It's messy.
(09:10):
Just you know, we actually have a little bit of
respect for the environment here. We generally don't want to
make a whole bunch of people move and pollute their
water in order to get some of this stuff out
of the ground, which China doesn't have much of an
issue with.
Speaker 3 (09:23):
Two doesn't make enough fun.
Speaker 2 (09:24):
We don't really like to subsidize these types of industries.
It's like, think about how unpopular the Biden bill on
you know, subsidizing even semiconductors was, And you get to
the idea that, yeah, the United States doesn't want to
be a state owned enterprise that minds samarium, but that's
(09:45):
what China has done. And so when you have those
dueling factors right, it's not economically feasible to get the
stuff out of the ground because of how cheap China
will do it for and sell it for. And two
you'll destroy the environment by doing so, or least it'll
be really expensive to not destroy the environment by doing so.
And you get to a point where you say, okay,
unless this is going to be a state owned enterprises
(10:07):
that runs these minds, we're just going to do it
in China.
Speaker 3 (10:10):
Right, because you can't entice any publicly traded company or
any company out there to endeavor this.
Speaker 2 (10:14):
You know, China will just put you out of business tomorrow.
Speaker 3 (10:16):
They and they've done it before in instances here historically
where they bankrupted some companies that tried this out in
California where it just wasn't viable. And if you look
at samarium just specifically, which is used in pretty much
solely military applications and in fighter jets for Lockey Martin,
as a business producing samarium, if you're just going to
have one customer out there, it's not an enticing market
(10:38):
to go into and not a very profitable one either.
Speaker 2 (10:41):
Let's take a quick break. When we come back, I
want to move along from try. We will be revisiting
China because as much as they're doing have already done
this in rare with materials, there's growing evidence that they
are taking the same approach with vehicles, and I want
to get to that. But I want to talk a
bit about inflation expectations. We have the CPI Report coming
up to tomorrow. Inflation expectations are next year. On the
(11:03):
Financial Exchange.
Speaker 1 (11:04):
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Speaker 2 (11:44):
Paul tomorrow will have a consumer price index inflation reading
general expectations medium forecast is coming in at a zero
point two percent month of a month increase year over year,
expected to come in at two point four percent. Takeaways
on inflation. I know there are some genuine concerns about things,
(12:04):
but it would seem to me that a lot of
that front renting on trade tariffs and the concern that
car prices and electronics prices were going to shoot up
at some point. I don't know. I'm hearing a lot
less of that today than I was just a couple
months ago. Would you generally agree?
Speaker 3 (12:22):
I would agree. It doesn't seem like as much as
there's those headline stories on Target and Walmart, you know,
changing prices on certain names. I just don't feel like
that's become overly prevalent other than the news stories that
we've heard. But I haven't heard that from an experiential standpoint.
Speaker 2 (12:36):
And yet, whenever I talk to a professional money manager
or economists and you talk about, hey, what do you
think will define the next five years, most that I
talked to. You know, there's some concerns about deficits, trade,
et cetera. But most of the ones that I talk to,
it's all about higher the normal inflation, and maybe higher
(12:58):
the normal growth too, is something that plays out there.
But high growth, high inflation, and you know, all of
that caused by what we're seeing already today, higher government spending,
higher barriers to trade, et cetera, et cetera. So we
have seen those short term expectations come in a little
bit tighter, whether it is the University of Michigan surveys
(13:21):
that we'll get every month, or this New York Fed
survey which found that the decline was most significant projections
for year ahead price growth, which just month over month
declined to three point two percent from the three point
six percent read back in April. Three year inflation fell
to three from three point two. And so generally speaking,
(13:42):
I think most investors and most consumers are just expecting
prices to keep going up, but not quite as fast.
I don't know. I keep going back to I'll believe
the inflation when I see it, and that you know
that we ended up getting a lot of it in
twenty twenty one and twenty twenty two. But I kept
(14:04):
saying even then, like, you know, I think that this
should cause inflation, but let's wait until it actually shows
up before you start doing anything. I think that's probably
going to be the federal reserves approach to That's.
Speaker 3 (14:13):
The challenging part of this, and we've talked about this
a lot. When examining the impact of these tariffs, it
often seems as if we're just pushing the deadline to
see whether or not these are going to be inflationary
further and further because there has been so much change
in policy over the time that there was this idea
that perhaps we'd see it as early as the summer.
I think now general consensus is that more the fall
(14:36):
is where we look to see potentiary impact on the
inflationary front, whether it's back to school season or some
of these other measures. It's just spent harder to really
wrap your arms around the impact. The longer it goes on.
The longer, maybe consumers or individuals that get pulled kind
of don't you know, overlay it as a concern out there, right,
I'm married about it.
Speaker 2 (14:56):
Yeah, certainly I can paint a picture. Hey, this fall,
you've got fifty percent steel and aluminum tariffs in place,
and so every canned good that you consume, every you know,
car part, and you know, anything that we manufacture with
those products gets more expensive, not only because we are
paying those higher tariffs because you don't produce some of
(15:17):
this stuff domestically, but hey, if that's the going rate
for stealing illunum, then domestic producers are going to you know,
raise their prices too. So I get how you could
see that type of thing and compound it with tariffs
on China and other countries, and you could pretty quickly
see that being the case. On the other hand, what
if you get a Supreme Court ruling on August first
(15:38):
that says, no, all the tariffs that the Trump are
nearly all the tariffs that Trump administration have it imposed
since April, no since March, we're illegal and they must
refund all of those to the payers of those tariffs,
which is probably what would happen if they deemed them
to be illegal. I don't know that you would see deflation,
but you certainly wouldn't see any big inflation. Right, You're
(16:01):
going to suddenly have a bunch of companies sitting on
tariffs that they thought they were going to need to
charge their customers, probably already did charge their customers and
now are getting a reimbursement of those And so I
don't know where all of this goes, but I come
back to the same thing, and I think the Federal
Reserve is playing the same game here, which is there
are risks to the upside both on inflation and on unemployment.
(16:26):
We have no idea if either of them are going
to come to pass, and if they do, in what
order they will come. And you're probably not going to
do much until that happens. And so to your point,
if we're not now expecting higher inflation until maybe even
this fall, I hesitate to see how the mortgage rates
or Fed funds rates are going to go anywhere in
(16:48):
the near future.
Speaker 3 (16:49):
I can't make the argument to lower base on the
data that we have now.
Speaker 2 (16:53):
But yeah, the only argument you have would be the
last three months of unemployment data now have gotten slightly worse, right,
very slightly worse. It's been a rounding error as to
whether or not you saw four point three versus four
point one percent unemployment. And so if that trend were
(17:14):
to continue and by fall you had four point five
percent unemployment. Okay, and now now I'm proven wrong and
you have a different story playing out here. But there's
a lot of cards that need to fall for that
to actually happen. And again, the further this time gets
away from these high tariffs, I think you're seeing more
(17:34):
and more confidence from business owners and others working in
different areas that were previously ringing the alarm bells about
recession and where this economy was going to go.
Speaker 3 (17:44):
It seems like sentiment has really improved from a lot
of these surveys. But the hardest part has been the
actual hard data. There really hasn't been tremendous takeaways. I mean,
like the labor market stuff. There's some weakness, but nothing
that's really definitive. On the other front on the hard
economic data.
Speaker 2 (18:03):
Yeah, look, the corporate earnings have been solid. Companies have
not been on mass laying people off. They've also been
delaying a lot of plans. Yes, they've been delaying a
lot of plans, and so even those delays can contribute
to a weak labor market. But I even think about
so I keep hearing about all these college students who
(18:26):
are having a tough time finding a job, and I
do believe it, because I keep hearing it over and
over again. The youth unemployment rate is high, college grad
unemployment rate is high. We had a job opening and
we're interviewing candidates. I think that something like half of
them or maybe two thirds of them either canceled last
second or no showed on our interviews. Really wow, And
(18:47):
so I keep tossing this around, like, yeah, I keep
hearing about this. I read it, and then I go
have a very different experience. I mean, massive numbers of
applications to the job and very well qualified candidates and
all of that stuff. But on the other hand, two
thirds of them either canceled last menda or no showed
an interview. And You're like, how do I how do
(19:07):
I put these two together and make sense of them?
And so it is a confusing market right now, and
I think that things are just in some bit of
holding pattern or stasis until you get some real clarity
on are the terriffs legal, are they going to be
used in the same way for the second half of
the year, and will this tax bill pass? Quick break,
We've got Wall Street Watch coming up next.
Speaker 1 (19:42):
Like us on Facebook and follow us on Twitter at
TFE Show breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall Street.
Watch a complete look at what's moving markets so far
today right here on the Financial Exchange Radio Network.
Speaker 4 (20:02):
Markets are in weight and C mode on day two
of trade talks in London between the US and China.
Investors are also ready for an inflation reading duout tomorrow morning.
Speaker 3 (20:12):
In the Consumer Price Index.
Speaker 4 (20:14):
Right now, the Dow is completely flat, SMP five hundred
up by fourteen points, and the Nasdaq is up by
three tenths of one percent. Russell two thousand is up
by eight tenths of one percent, Tenure treasure Feld is
down by one basis point now at four point four
to six percent, and Crew to Oil up another one
percent higher, trading just below sixty six dollars a barrel.
(20:37):
Apple held its annual Developers Conference yesterday and seemingly underwhelmed
investors on its Apple Intelligence advancements. The bigger focus of
the Tech Giants event involved its software facelift, marking its
first significant redesign of its iOS software since twenty thirteen.
Apple shares are up modestly today. Meanwhile, US listed shares
(20:58):
of Taiwan Semiconduct up over two and a half percent
after the chip maker saw its revenue jump nearly forty
percent compared with last year. Elsewhere, Tesla shares are rebounding
one and a half percent after the stock was downgraded
by Baird yesterday. In addition to the ongoing feud between
CEO Elon Musk and President Trump, the New York Times
(21:19):
is reporting that Meta is forming a new artificial intelligence
research lab and bringing on Alexander Wang, the founder and
CEO of startup Scale AI. Meta is also in advanced
talks to invest more than ten billion dollars in Scale
ai AI. Excuse me that, according to a report from Bloomberg,
Meta shares are up about one percent. According to CNBC,
(21:42):
Paramount told employees it would be reducing its workforce by
three and a half percent. Paramount shares are flat. JM
Smucker posted lower sales and swung to a loss in
the latest quarter. The food maker's guidance also missed expectations.
Jam Smucker shares are sinking by thirteen percent. In after
today's closing bell, we'll see earnings from GameStop, I, Tucker, Silva,
(22:06):
and that's Wallstree Watch.
Speaker 2 (22:08):
I would like to talk about corruption and insider trading
Paul special, specifically with our elected officials. So there's been
a lot made, for instance of President Trump's special dinner
that he had when was that back in like March May? Sorry,
so he hosted a dinner with two hundred and twenty
(22:29):
holders of a cryptocurrency that bears his name, and tough
to look at this as anything other than buying your
way into a meeting with the president. It was very blatant,
very front and center, and I think deservedly got a
lot of criticism about the way it was structured. The
problem I see is all of those criticizing it have
(22:51):
almost no leg to stand on because instead of doing
these conflict of interest deals out in the front, what
they've done instead of the last thirty years has been
behind closed doors, with insider trading on knowledge that they
have that is really difficult to charge them with. So,
you know, if you don't like this, then you probably
shouldn't like what you've seen from the likes of all
(23:12):
elected officials and all presidents pasts that have done this
in some different way, just shadyer behind closed doors would
be my opinion. But Wall Street Journal is reporting today
that lawmakers traded stocks heavily as President Trump ruled out
Liberation Day tariffs. I can guarantee there were select lawmakers
that had inside knowledge about what was coming on this front.
(23:33):
And you have massive trading that was probably done on
inside information that will never be charged because it's really
difficult to do with lawmakers. And I keep thinking about
this and going back to one solution. If you are
an elected official pretty much at the level of like
I think governor and then anything federally, you just can't
(23:58):
own stocks. You certainly can can't trade them. Yeah, and
we need to have this across the board. And you
know what, you give them a capital gains waiver. Right,
so you say, look, yeah, we understand you're an elected
official that owns twenty million dollars worth of ex on mobile.
You would have to pay a boatload of taxes if
you went and sold it. Fine, you can transfer your
(24:18):
cost basis. You have to transfer it into an exchange fund.
Like you know, just owning an index of US stocks
is fine, but you can't you still can't trade that.
But you're not even allowed to own the stocks. We
won't charge you a capital gain on it because you're
an elected official and that'd be punishing. That'd be unfair
if we said, hey, you're elected now, so you have
to sell all of your stocks and pay a bunch
of taxes. No, that's fine. You can you can transfer
(24:41):
your positions into a general index that holds US stocks.
But it can't even be industry specific. It has to
just be the you know, some index. I don't care
who decides this, the S and P five hundred or
something along those lines. So long as you're holding office,
you cannot trade that index. You can't buy it and
sell it when you know that President Trump's about to
roll out tariffs or the next president's about to raise
(25:03):
taxes or shut down the economy due to a due
to a COVID disease. And that's the deal, that's the
trade off. We're going to give you a gift on
the tax side, we're going to allow you to defer
the taxes and you know, have zero taxes for getting
rid of your shares. But this blind trust crap, where
you know you're allowed to have it managed by somebody
(25:24):
else who allegedly you don't talk to and you know
you don't influence. It's garbage. It's absolute garbage. It's it's
it's completely one of the major reasons that everyone distrusts
American politicians, and it's also bipartisan.
Speaker 3 (25:42):
I don't understand why the public markets do a better
job with this than the government official. It's like, we
work with a lot of clients who work in specific
industries that have very strict regulations as to what they
can buy and sell down to a sector, and there's
blackout windows and all sorts of other things. Why can't
that same sort of implementation be levied on government officials?
(26:04):
Baffles me every time this comes up. I don't understand
what judges too, Actually I didn't name them.
Speaker 2 (26:10):
Judges have to be you know, like, oh, yeah, I'm
overhearing a course on a court case on whether or
not Google should be broken up. But I can trade
in and out of Google stock, right. That is literally
what you're allowed to do today. Yeah, so long as
you can make an argument that it wasn't based on
non public material information, you are allowed to do that.
You might have an ethics inquiry, but there is no
(26:31):
rule barring the judge who is sitting on Google's case
from buying and selling Google stock while he is sitting
on that case.
Speaker 3 (26:38):
With the proliferation of index funds out there. There are
many a multitude of investment options for them to go into.
You could set I wouldn't maybe hammer on the sector pieces.
I would just say you can have sector ETFs if
you want, but you can't trade them. You can only
trade them these certain windows of the year, whether that's
when lawmakers are in recess or whatever you want. It
(26:58):
just like a public there are many this mic and
you and I and I feel like Chuck, all of
us have battered around the segment a hundred times on
the show. It's just beating it down, but nothing changes.
And you know why nothing changes is because they make money.
They make money.
Speaker 2 (27:11):
It's self interest. You make the rules. Of course, they're
not going to outlaw themselves from being able to make
a whole bunch of money on private information.
Speaker 3 (27:18):
It's just like the step up and basis and some
of these other tax concepts that come up around, you know,
election time. These elected officials are incentivized by them too,
which is why you can sort of know that perhaps
you have a good chance of these staying in place
because the elected officials benefit from it.
Speaker 2 (27:33):
And people wonder why there's no outrage about President Trump
holding this dinner of people buying his cryptocurrency. It's because
all of you have been doing this but shadier for
the last fifty years and getting away with it, so
of course there's no outrage over this one. All he's
doing is, you know, shining a light on it and
just admit pretty much admitting it, like, yeah, you want
(27:54):
to buy a dinner with me, go ahead and buy
my meme coin. I don't know, at least it's not
lying to you. Let's take a quick break. When we
come back, what do we want to do next? I
want to talk about all these pieces on where markets
go next, since apparently all these all these writers have
a much better idea of whether or not the S
(28:15):
and P five hundred has room to rally. That's next
here on the Financial Exchange.
Speaker 1 (28:19):
The Financial Exchange streams live on YouTube. Subscribe to our
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Text us six one seven three six two one three
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Speaker 4 (28:44):
This segment of The Financial Exchange is part to in
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Virgin Islands are Saint Croix, St.
Speaker 2 (28:52):
Thomas and Saint John.
Speaker 4 (28:53):
And are consistently voted one of the top Caribbean vacation destinations.
Enjoy world class cuisine, pristine beaches, rich history, and a
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USVII dot com.
Speaker 2 (29:14):
Paul. The subject of private equity and private credit has
been getting a lot of headline news recently. Moody's This
Morning is now coming out and sounding the alarm on
private funds, specifically their goal of marketing to individuals. There's
been discussion about having these types of products available in
four oh one k's, for example. We're not there yet,
(29:35):
but that's that's been some of the discussion before we
even get there. Can can you help define the idea
of private equity and private credit and how it exists
today and we don't need to st you know, the
scale is massive now compared to where it was twenty
years ago, but just what is it for those that
aren't really eligible to participate participate in it today.
Speaker 3 (29:53):
Yes, So typically where private equities incorporated in terms of
the financial market, it's largely with pensions and elements, large
pools of capital.
Speaker 2 (30:03):
Big family offices. Right, if you're managing money for the
Walton family, you might be participating in something like this.
Speaker 3 (30:09):
Where there's an array of investments that could underline these
private equity funds. They're sector specific. There's all sorts of
different ways, and basically what they're looking to do is
find a way to generate a differentiated return above and
beyond that of the standard capital markets that regular Joe
investor may be may have access to, like the S
and P they're trying to outpace that through access into
(30:31):
private deals in any array of spaces out there. It
can be technology, infrastructure. They can take on many different
machinations here.
Speaker 2 (30:39):
Which is why we talk about these unicorns. Right. You
have these companies that are billion dollar valuations that are
privately held. Right. Big Open AI is a nonprofits space
weird one but space example. All these types of companies
that you can't access as a public investor can be
accessed through private equity markets, and the same goes for
lending right on the other side of that private credit
(31:01):
where you are lending money to all sorts of investors,
many times private companies that you know, these are unrated bonds.
They are not things that hit the public markets in
trade in any way. They are just held on private
balance sheets. The idea has been, hey, you know, would
these be appropriate for individual investors, small time investors that
(31:23):
don't traditionally get access to them. Clearly they're popular amongst billionaires,
and maybe that's a good place for them. I think,
you know, on the surface, why would anyone be talking
about this, Well, because the four to one K market
is massive. You have billions of trillions of dollars. I
don't know how much money is in the for to
win K market, probably trillions of dollars that you could
(31:45):
potentially access there, and hey, you know, wouldn't this be
a great market to access moodies? I think, interestingly, I
don't know why they're the ones that are ringing the
alarm bell here, but basically saying like, hey, this is
a bad idea, not for those individual investors, but rather
for the companies themselves. Basically, hey, if you start getting
(32:05):
into this, you are not prepared to deal with the
amount of regulation you will need to deal with in
order to do this, and you risk having some serious
reputation risk by going about this, which I have to
say I fully agree. I think generally speaking that individual
investors should have some access to this type of thing
(32:26):
if they really want to. I don't agree with a
lot of the rules that are out there, such as, hey,
you can only invest in this type of product if
you have a quarter million dollars of income or a
million dollars in net worth. I don't know. Those always
seemed kind of arbitrary to me, Like if somebody is
really interested in private equity and they only make one
hundred and fifty grand and they take a class on
(32:47):
how to invest in it, who am I to say, no,
you can't. It seemed to me like, you know, if
so long as somebody wants to get the education, I'm
not really sure why we would put these restrictions on it.
But realistically, I don't think private equity wants that person's money.
They might have a half a million dollar investment minimum
to even put money into all of this, and the
(33:07):
risk that you have out there. To be really clear,
there is no real transparency into these funds. If you
own a bunch of debt that's in there, you don't
know that it's gone bad until it goes bad. There's
no Moody's downgrading it, there's no real transparency into what's
in here. And you have big liquidity risks as well.
(33:29):
If you're an investor who does own something private. This
could be a private equity fund, it could be something else,
but something where it contains liquidity restrictions. It's really important
to understand how that fits into your portfolio. It could
be anything from an annuity to a private equity fund,
(33:51):
but understanding the When we talk about risks, I feel
like everyone's mind immediately goes to stock market crashing. That's
the only risk that people tend to focus on. And
my point to investors over and over is it's an
important thing for you to understand and focus on. But
have you considered what the risk is to your portfolio
(34:13):
if half of it is tied up in private holdings
that you can't sell. Have you considered the risk to
your portfolio if inflation runs half a percent higher than
you're predicting for the next twenty years. And what I
find when I test some of those things is people
are far less prepared to deal with those types of
risks and often over prepared to deal with the market
(34:33):
crashing by fifty percent, which frankly usually doesn't happen. If
you have questions along those lines, if you are evaluating
your own retirement plan and finding some of these things
are ringing true to you, give the folks that I'm
Strong Advisory Group a call. We offer free consultations on
your retirement plan and your investment strategy so that you
(34:55):
can get a coherent and cohesive look at everything that
you're doing and really look under the hood to understand it.
That free consultation is available by calling eight hundred three
nine three four zero zero one. Again, it's the Armstrong
Advisory Group at eight hundred three nine three four zero
zero one.
Speaker 1 (35:14):
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 2 (35:29):
Paul, do you want to talk about college degrees or
digital shelves?
Speaker 3 (35:32):
I want to do the college degrees.
Speaker 2 (35:34):
Yeah, So Alison Schreeger writes, and I think she has
a really interesting perspective on this. Her unifying theory of
finance is that everything goes seriously wrong when people start
seeing something a bond, mortgage backed security, crypto exchange, whatever
it is, as risk free when it really isn't risk
free in any meaningful way. And her point is that's
(35:55):
exactly how a college degree was treated over the last
thirty or some odd years. There's no rest you can
borrow as much money as you need to get it,
and everyone who gets a college degree makes more money
after they graduate. Right. That's I don't think I'm exaggerating
too much by saying that. That's kind of the summary
of how college has been treated for the last thirty years,
(36:15):
and certainly was the message I was delivered as a kid. Yes,
go get a college degree. Otherwise have fun working that
landscaping job for the rest of your life and breaking.
Speaker 3 (36:25):
Your opportunities we limited. And I sit here, you know,
I just had a baptism for my youngest daughter over
the weekend, and some five twenty nine contributions went in
after that, and you'd really scrutinize the investment that we're
going to be making eighteen years from now in college.
Is it going to return? Are we going to generate
a return on an investment? And I continue to wonder
at the cost that we're at on the college side,
(36:46):
and this conversation has gone on for decades, is it
really going to justify it? I mean, particularly the problem
that I have most is, you know, investing a degree
that's not going to get the commensurate income return if
you're leveraging yourself the substantial amount of debt to do it,
you know, to be a social worker for example, and
taking on hundreds of thousands of debt you need a
(37:07):
graduate degree to do exactly. You just know that you're
not You're going to be constrained from an income perspective
to be able to pay that out. And so it
is something that you wonder, how is the education industry
going to evolve over the next twenty years or so.
It hasn't changed since we have these concerns thirty years ago,
but who knows that the folds.
Speaker 2 (37:26):
One thing that I'm very slightly encouraged by, which is
that thirty year inflation number on college education has been
in the high single digits, I believe, And if you're
willing to look at just the last decade it has come,
it's still gone up, but the rate of inflation has
slowed considerably. I know that's not the most encouraging news, like,
(37:47):
oh yeah, now education is one hundred thousand dollars, where
if it continued to be one hundred and thirty. But
I do see more scrutiny. I do see people taking
a second look at that. And clearly enrollment numbers are
also down, especially among especially among men. Enrollment numbers and
for your institutions are down. You can take that as
(38:08):
maybe good news scrutinizing it. You can also take it
as really bad news that men are going to fall
further behind. But nonetheless that's definitely occurring. Markets are in
positive territory. We're gonna take a quick break and we'll
have a full recap in the second hour of the show.
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