March 24, 2025 • 38 mins
Chuck Zodda and Mike Armstrong discuss Trump's announcement that any country buying oil from Venezuela would face a 25% tariff. The richest Americans kept the economy booming. What happens if they stop spending? For CEOs, the $100M pay package is disappearing. Risky bonds aren't so risky in the long run. Roth IRAs are all the rage with the young crowd. The dumbest investment in the world was better than owning safe treasurys.
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Speaker 1 (00:00):
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(00:20):
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(00:42):
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(01:06):
and Mike Armstrong.
Speaker 2 (01:12):
Chuck, Mike and Tucker with you. Kicking off hour two
of the Financial exchange. We got the DOW of five
hundred and twenty nine points, the S and P is
up ninety one, the NASDAG up three hundred and sixty nine.
So a broad based rally taking place across major US
indices today. Probably nice little bit of a relief for
people that might have been nervous over the last few weeks.
(01:34):
But obviously, hey, we'll have to see how things continue
to evolve here. But certainly, you know, nice to see
a little bit of upward movement there after you know,
things were pretty dodgy for a little bit. We got
to a ten percent correction. That's never fun for anyone
to go through.
Speaker 3 (01:52):
Tenny.
Speaker 2 (01:53):
Sorry.
Speaker 3 (01:53):
Bit of breaking news on the tariffront as we speak,
not broad based, but President Trump saying any country that
purchases oil from Venezuela, we'll have to pay twenty five
percent tariff on trade with the United States. So there's that.
Speaker 2 (02:10):
I just googled Venezuela oil exports by a country because
I have no idea where Venezuela sends their oil. In fact,
the latest chart that I'm finding right now is from
twenty ten, so it's probably a little out of date.
I don't know where they send their oil, quite honestly,
so someone else is gonna have to do the legwork
on that. Let's see what year this is. Oh no,
(02:31):
this is two thousand and nine. Even even better, that's
really useful. So I don't know where they send their
oil right now, but they send it somewhere because I'm
sure they don't use it all domestically. Let's see, we've
got the ten year treasury selling off a bit up
to four point three two five percent, oil, also seeing
its price moving up. You've got oil at sixty eight
(02:51):
ninety nine on West Texas intermediate tripa national average four,
gas prices up another two tenths of ascent to three
twelve and eight tenths. And we've got gold today down
about four dollars and seventy cents nouns to threeenty sixteen
and seventy cents. So, after making some new all time
highs in the last week or so, just treading water
as it attempts to find some new direction here, we
(03:14):
got a piece here from Bloomberg Business Week. The headline
is the richest Americans keep the economy booming. What happens
if they stop spending? The answer is the economy goes
into a deep recession.
Speaker 3 (03:25):
Yeah, then we would be quite Screwgeanelle is the answer
to that question. So she also makes it seem as
there's also no signs of this happening. Yeah, I want
to caveat that that it's not an inevitability.
Speaker 2 (03:40):
It's not even something it's not even something that's showing
up in the data right now.
Speaker 3 (03:44):
Can we change when to if?
Speaker 2 (03:46):
Yes, if us wealthy people stop spending in trouble, it
would be catastrophic.
Speaker 3 (03:55):
Or even slow down.
Speaker 2 (03:56):
Well, if they slow down, it might not be catastrophice,
it could just be bad. But if they stopped spending, yes,
it would be very very bad.
Speaker 3 (04:03):
Why something we've talked about a fair bit. Today, the
top ten percent of income earners represent about half of
total consumer spending. That is, as far as I know,
an all time high since we've been tracking the data.
Speaker 2 (04:14):
Norm is like.
Speaker 3 (04:16):
And what's the norm? Right? Like, I guess the historical
average in the United States. I'm sure it differs country
to country, but yes, it is a very high portion today.
And if it all just suddenly stopped. That would be
hugely problematic, But again, you need some evidence. I guess
the only piece of evidence that she found here was
(04:39):
data from vantage Score, which is a credit scoring company,
and particularly found that the share of consumers making more
than one hundred and fifty thousand dollars who were sixty
to eighty nine days late on their debt payments. So
again pretty narrow group, but one hundred and fifty k
or more of household income and sixty to eighty nine
(04:59):
days laid on their debt payments, that rate more than
doubled in January compared to two years ago. My problem here,
because I don't have all the data, is did it
double from one to two or did it double from
fifteen to thirty? Because that's a huge difference, right.
Speaker 2 (05:11):
This is like, hey, you know, the risk of heart
attacks in eight year olds has doubled, but like it's
still still you know one one. I'm not saying that
actually has I'm just saying like it's equivalent to something
that doesn't really happen often. So I think, look, when
we talk about data points that we can look at
to tell if wealthy people are spending, there are probably
(05:34):
four or five that are the key drivers on this.
The first is housing. When you look at who actually
buys houses, it is not people with low incomes because
they often don't have any money saved for a down payment,
and especially in this environment, don't have the ability to
(05:56):
buy into this pricing right now. So when we talk
housing generally, we're talking people with above average incomes. Other places,
cars new cars, specifically, average transaction price for a new
vehicle continues to hover high forties like forty seven, forty
eight thousand. I haven't seen like the latest monthly data,
but it's been right around there. Someone who is earning
(06:19):
thirty thousand dollars a year in income is not buying
a new vehicle for forty eight thousand dollars. True, it
is someone who is making one hundred thousand, one hundred
and twenty one hundred and fifty two hundred thousand. Those
are the people that are buying those cars. Other things
that you can look at hotel and airplane travel stats
(06:40):
not just you know what you're seeing in terms of
passenger volume, but also here from the airlines in terms
of what they're seeing. That has been one area that
has been you know, guided down a little bit, and
that Delta came out and said, yeah, we're starting to
see some signs of, you know, a slowdown in air
travel bookings. That is also meshed with what we have
seen from hotels where every week the uh, the who
(07:03):
is it? Who puts this out? I want to make
sure that I get the uh, the name correct on
this it is? Who is?
Speaker 1 (07:11):
What?
Speaker 2 (07:11):
What does STR stand for? Even I don't know, but
there's an industry group STR that does stuff with the
hotel data and everything, and their data shows that occupancy
now in hotels starting to run a little bit below
trend levels for the last twenty five years, and that's
been you know, development in the last couple of weeks.
Speaker 3 (07:31):
Smith Travel Research.
Speaker 2 (07:33):
Sure that that sounds great. So ultimately, did you just
think of that?
Speaker 3 (07:38):
No, that's actually it is, ok refers to Smith Travel
Research of data benchmarking, analytics and marketplace insights.
Speaker 2 (07:48):
Sounds great. So you've got some signs that travel might
be slowing down a little bit. Yeah, the housing market,
you're seeing pressure on pricing, but you know, volumes are
still okay ish and phto sales, I don't think we've
seen any major shift in auto sales in terms of volumes.
Nothing discerned. It's been more from month to month, but
not nothing big there.
Speaker 3 (08:08):
The real areas that I can point to are, like
you said, airlines and hotels the only real two that
I can look at in terms of luxury that are
seeing a pullback. But as we pointed out, even on
the airline side, the pullback seemingly came in part from
domestic and business travel, yes, whereas international travel stayed up.
And that's the luxury of all luxuries, right, you do
(08:31):
not ninety nine percent of American employees do not need
to travel overseas for work. It's probably higher, Yeah, yeah,
it's a very small fraction of people who actually need
to travel overseas for work, and therefore that is a
huge discretionary item.
Speaker 2 (08:46):
So yes, if the richest Americans stopped spending, big problem.
Are there any signs of that? Maybe like one and
a half around the edges, But it's tet tiny little
things that we're seeing, And most of the data is
absolutely completely fine at this point, and we'll see how
it evolves to see if there is any shift there.
(09:06):
But I continue to come back to this. The hard
data right now is not showing a meaningful shift in
trajectory in the basically throughout the entirety of twenty twenty
five so far. We'll see where it goes, but for now,
you're not seeing any major shifts in consumer spending trends.
Speaker 3 (09:26):
By the way, Tucker gave us some quick data on
that venezuelan oil story.
Speaker 1 (09:30):
That was Ben actually did that, Ben died?
Speaker 3 (09:32):
All right? Thanks? Ben. China is the number one importer
of venezuelan oil, So I guess we're gonna slap an
additional twenty five percent there. Unclear.
Speaker 2 (09:41):
We'll have to see what happens.
Speaker 3 (09:43):
And they're already facing pretty big tariff rates as it is,
so we'll see what happens.
Speaker 2 (09:47):
Yeah, let's take a quick break. When we come back,
we'll do a little bit of trivia, and then we're
talking CEO pay packages right after this.
Speaker 1 (09:55):
Thanks to us six one, seven, three, six two thirteen
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(10:16):
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Speaker 4 (10:30):
All right. Time for trivia here on the Financial Exchange
on this day. Back in two thousand and five, the
US version of the Office premiered on NBC, starring Steve
Carell as Michael Scott. The Office won five Emmy Awards
during its run. Trivia question today for you who played
(10:51):
the office manager in the British version of the Office.
Once again, who played the office manager in the British
version of the Office, Be the fifth person today to
text us at six one seven three six two thirteen
eighty five with the correct answer, and you win a
brand new Financial Exchange Show t shirt.
Speaker 2 (11:11):
Once again.
Speaker 4 (11:11):
The fifth correct response to text us at six one
seven three six to two thirteen eighty five, we'll get
that T shirt. See complete contest rules at Financial exchainshow
dot com.
Speaker 2 (11:22):
Mike, we got a piece here in the Wall Street
Journal for CEO's one hundred million dollar pay packages are disappearing.
Speaker 3 (11:29):
Oh gosh, watch out international flights on Delta Airlines.
Speaker 2 (11:33):
I feel so bad for them.
Speaker 3 (11:36):
It is a bit surprising the tally. Uh if it
holds for twenty twenty four, where no CEOs has scored
one hundred million dollar pay day, that'd be the first
time in a decade without one hundred million dollar pay
package for a public company chief executive. And also somewhat
surprising because if you're listening to this, you should also
(11:56):
know that most of these pay packages are not based
on hash. Primarily, most executives love to get paid in
stock for a huge number of different reasons, but one
of them is the treatment of that stock after they're retired,
which is capital gains treatment rather than income treatment, or
even while they're working. In any case, what's surprising to
(12:17):
about me to this? About this to me, I can't
speak English today. I apologize. I'm hosting a radio program
I should be able to work on. That is that
it was also accompanied by a tremendous year of stock
market performance. So it's not as those stocks were down
by ten percent and no CEO made their comp based goals,
but rather stocks were up pretty substantially and no CEOs
(12:39):
got the one hundred million dollar bench mark. I think
there might be some pushback on the part of shareholders here,
especially after the Elon Musk Tesla package that got battled
out in court and some of that, But by and large,
I'm not sure really what to make of this, if anything.
Speaker 2 (12:56):
So putting it all together, so you got fewer CEOs
making smaller amounts of money because the average is up.
The average is up, yeap, fewer CEOs making more money, okay,
because making like more, making like obscene amounts of money.
It's all kind of like not I mean again, like
one hundred million versus ten million. It's like, okay, like whatever,
(13:19):
we'll take one, you know, it's fine. Uh So I
think that in trying to sort through what that means here,
I think there is a lot. I don't think it's
just the Elon Musk situation. I think it's optically trying
to avoid the appearance in a number of metrics of
(13:44):
how overpaid CEOs are. The metrics you know, average employee
compensation compared to CEO comp and stuff.
Speaker 3 (13:52):
Like, yeah, that was a new one that the SEC
started requiring a few years ago. Is hey, give us
your average employee comp and your CEO comp so you
can do any calculation of what multiple those represent.
Speaker 2 (14:03):
So some of it can be trying to you know,
fit into that type of stuff there. Some of this
also is hey, you know, like one just fluky thing alphabet.
Google's parent hasn't disclosed the twenty twenty four comp for
soonder Perchai, yet it is an equity award that he
gets every three years. Odds are it's going to be
(14:25):
pretty substantial. So I think, you know, like, what what
causes this where CEOs on the whole are being paid
more but the top end is being paid less. What
what do we take from that? Like, what what does
that tell us about how companies are trying to manage
their executive compensation?
Speaker 3 (14:47):
I think what it reads to me is there some
negative optics around the very very high end, right, it's
but they still need to be quite competitive with CEO
comp to get good ones. Yes, I think that's fair
because if the average is still going up, then it's
kind of what matters, right, the outliers are outliers, and
if the average is moving up, it just still means
that CEOs are raking in a boatload of money and
(15:09):
more on average than the previous year.
Speaker 2 (15:12):
So yeah, I don't know that there's any like huge
narrative or any story that you can take out of this.
It certainly isn't. Hey, CEOs aren't being compensated well anymore,
like it's the opposite action.
Speaker 3 (15:24):
And if you're you know, if you're on the board
and you have a fiduciary obligation to the shareholders, you
don't want to end up in court battling over a
CEO executive compensation plan. And if you're right in the middle,
you're probably not going to.
Speaker 1 (15:39):
Is that.
Speaker 3 (15:39):
Yeah, I don't know that I would read too much
more into it than that, other than again surprising for
it to, you know, not hit those thresholds when we
had such amazing stock market performance In both twenty three
and twenty.
Speaker 2 (15:52):
Four piece in Bloomberg Opinion titled risky bonds aren't so
risky in the long run, and what it talks about
is US high yield debt. Basically, Hey, it consistently offers
a significant premium in yield compared to what you get
on treasuries or just regular, you know, investment grade corporate bonds.
Speaker 3 (16:14):
You speak to just high yield or junk debt as
it's commonly referred to. And I don't know, just for
people out there that might not be frequent investors, you
or paying really close attention to quote unquote junk debt?
How does it earn that name? And how do people
look at it generally?
Speaker 2 (16:32):
So Mike comes to me and says, Chuck, I need
to borrow one hundred dollars, and I say, okay, Like,
how how many times have you borrowed a hundred dollars before? Well,
I've borrowed it, you know, eight times. Have you ever
default on it? Yeah? Once I did. Okay, Well I'm
going to demand more from Mike than Tucker, who says no,
I've got perfect credit and I've never you know, defaulted
on anything. So I might say, Tucker, I'm willing to
(16:54):
lend you one hundred dollars at four percent. Mike, I'm
gonna charge you eight right now, just because you know,
there's a chance that you don't pay me back, and
so I need to get paid some additional interests in
order to make up for that risk. So high yield
debt it's called junk debt because there's a greater chance
of the debt defaulting. Now, this is something where when
(17:14):
you look at the data that's shown by this Bloomberg piece,
it points out, look, you get paid, you know, significantly
more typically on high yield debt than traditional corporate debt
in order to hold it, and overall, the default rates
historically have not been crazy in the broad scheme of things,
(17:35):
and so you end up making out pretty well in
the long run if you're able to hold the high
yield debt over long periods of time fifteen twenty thirty years.
This raises a few different questions. The first is because
high yield debt is again at a greater risk of
default during times of stress and markets, it will trade
at a significant discount because the chance of default goes
(17:57):
up significantly.
Speaker 3 (17:58):
So, for example, according to the Saint Louis Fed, the
spread there this is data they collect from Bank of America,
the high yield Index option adjusted spread back in March
of twenty twenty was sitting at about nine percent YEP.
According to the same data, now that spread is sitting
about three and a quarter correct.
Speaker 2 (18:16):
So it's something where hey, if you can stomach significant volatility,
that's a prerequisite for being able to hold this long term,
Like not panic when things go badly, because then obviously
if you sell out at the bottom, your return is
quite bad. Other things, just because the you know, historical
rate of default is you know, not one hundred percent.
(18:36):
Uh you know, I think the historical rate of default
I don't have it here with me, but I think
you're generally looking you know, somewhere in the range of
like six to eight percent, sorry, three and a half
percent is what you're looking at. And look, you might say, Okay,
if I own, you know, a bunch of high yield bonds,
you know, through you know, some kind of investment product, Okay,
can stomach that. But the risk presented in any particular
(18:59):
issue is still really high compared to other kinds of bonds.
Because default is binary, it either happens or it doesn't,
you know, like you can't. You don't usually have like
a partial default. It's something where it either happens and
you get some kind of lower return you know, back
to you, or it doesn't. You continue on your merry way.
So this is a long way of saying, I don't
(19:22):
think that the title risky bonds aren't so risky in
the long run does justice to the risk that's actually
posed by high yield death quick break. When we come back,
we've got the Trivia answer.
Speaker 1 (19:41):
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(20:02):
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Speaker 4 (20:08):
Chriviy question today was who played the office manager in
the British version of the Office. That will be Ricky Gervas,
who played the bumbling office manager David Brent in the
original version of the show. The David Brant character was
renamed Michael Scott played by Steve Carell for the US version.
Mike from Newberry, New Hampshire is our winner today taking
(20:31):
home a brand new Financial looks Change Show T shirt
and we played trivia every day here on the Financial
looks Change. See complete contest rules at Financial Exchange Show
dot com.
Speaker 2 (20:42):
Mike, we got a piece in the Wall Street Journal.
It's titled roth iras All the Rage with the Young Crowd.
Speaker 3 (20:49):
How come there's a few pieces of it that I
think are appealing to the roth Ira One. It does
allow you to just lock in your tax rate right
like playing in Simple un know that whatever tax you
pay on your income today, you are not going to
be taxed on it. Again, if it's in the roth ira,
I'm thinking more likely, though, part of the roth Ira
(21:09):
desirability is your ability to tap that money before fifty
nine and a half. So that's not a great reason
to use it, but there is some truth to that that, Hey,
you can get at that money a lot easier than
say your traditional four oh one K.
Speaker 2 (21:23):
Or iram money.
Speaker 3 (21:24):
With that money, yeah, not all of it, but you
know your your contributions can come back out without paying
some big penalties and taxes, So that's part is pretty appealing.
I'll also say though, that for working individuals, this is
one of the areas that objectively, I think people make
mistakes on pretty frequently. Most plans offer both a traditional
four oh one K and a wroth for okay, so
(21:46):
let me like give an example of what I think
is pretty objectively a mistake. You've got two individuals that
are living together and are engaged. They're not yet married.
A couple is living together, they're engaged and combined. Right now,
Let's say they are pulling in you know, household income
(22:07):
in the I don't know, let's call it two hundred
thousand dollars range. But it's heavily weighted towards one of them. Sure,
and they're contributing to roths in those cases. And when
you look at that, you say, okay, well, an individual
might be paying then a thirty two percent tax rate
on that top income or maybe it's twenty four whatever
you land on. But like next year, you're going to
(22:30):
be married and suddenly be in a substantially lower income
tax bracket because of the waiting of your income. And
so you can look at some of these situations and say, wow, yeah,
that does not make any sense for somebody like that
to be putting money into a roth. I ray. The
other one that I see frequently are those who maybe
you commute to another state that's common here in New England,
(22:52):
but you live in it. You know, like, oh, yeah,
I work and live in Sorry, I live in New Hampshire,
but work in Massachusetts putting a bunch of money into
my wroth. IRA. What I'm doing there is I'm paying
Massachusetts income tax on money that's going into a wrath
that wouldn't otherwise need to pay mass Its income tax
if I just did the traditional And so it's a
(23:13):
complicated subject. Taxes in general are a pretty complicated subject.
And then when you intertwine it with all sorts of
rules when it comes to retirement accounts about rmds and
when the money can be tapped and penalties, it gets
it even more complex. What else do you see out
there in terms of the desirability or lack thereof when
it comes to roths.
Speaker 2 (23:32):
Well, I think the other thing just to remember is
whether it's a contribution to a WROTH or a traditional
retirement accounts, it doesn't necessarily have to be all or nothing,
because either way, you're basically trying to make a bet
on where you think your tax rate is going to
be in the future relative to today, And so I
think there has to be some humility there that none
(23:54):
of us know exactly where it's going to go from,
you know, whether you're talking federal taxes, state taxes, like
all these things can change dramatically over a twenty thirty
forty year career. Just look at how they've evolved over
the last thirty or forty years as an example. So
I think part of this is also, hey, if you have,
you know, multiple choices available to you, whether it's inside
an employer sponsored planner, outside you know, in self directed accounts.
(24:17):
It's something where I think that you can look at
it and say, hey, even if I, you know, almost
completely convinced that the WROTH is going to be best
for me, do I take like ten or fifteen percent
of my contributions for the year and put it in
a traditional IRA, just because I want to give myself
flexibility and have different types of accounts available depending on
(24:38):
how the tax situation evolves over time.
Speaker 3 (24:40):
We frequently talk about the types of things that come
up with a financial advisor, but I think frequently people
hone in on you know, they're here to make investments
for me, and frankly, that is just a piece of
what a financial advisor's life tape touches. And there are
some financial advisors out there, by the way, who don't
do investments right. There are financial advisors that charge an
hourly billable rate, that work on retainer. All sorts of
(25:02):
different situations and conversations to be had when it comes
to your financial life. If this is a question that
you're facing and you're looking for some guidance on the
subject of tax efficiency when it comes to your financial strategy,
give the folks at Armstrong a call and let us
educate you on how we work with our clients to
just deliver more confidence abround these decisions so that they
(25:24):
end up in the best place later in life. The
number for the Armstrong Advisor Group is eight hundred three
nine three four zero zero one. We offer free consultations
throughout New England via zoom whatever is most convenient, But
that number once again eight hundred three to nine three
four zero zero one.
Speaker 1 (25:42):
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 (25:58):
Head on from the Wall Street Journal that dumbest investment
in the world was better than owning safe treasuries.
Speaker 3 (26:04):
This might be a candidate actually for you know, a
candidate for at the time what was looked at as
maybe the dumbest investment in the world.
Speaker 2 (26:10):
It could be so basically, there was a one hundred
year dollar denominated bond that Argentina launched in twenty seventeen, and.
Speaker 3 (26:20):
I'm sure we laughed at it. Ourselves at the time.
Speaker 2 (26:22):
We might have. If you know anything about Argentina, it's
kind of a serial defaulter. They've had a few and
they have, you know, some some issues with how they've
run the country from a fiscal standpoint historically. And basically,
i'll quote here, the coupons investors received have more than
(26:45):
made up for the fall in the price of the
bonds down by a quarter. If the coupons had been
reinvested in the same bonds, an investor would have made
well over fifty percent against a loss of ten percent
for US thirty year bonds in a slight gain for
the US Treasury index. So here is why I don't
love this piece. It's like assuming that there's an end
(27:07):
date now.
Speaker 3 (27:09):
Yeah. So here's what it's doing is saying, look, you
bought a ARGENTINIANE hundred year bond in twenty seventeen, and
so far you have made more money than if you
had bought a thirty year US treasury Yes, and that
is objectively true. Yes, even though Argentina defaulted on the bond. Yes,
but you still have ninety two years to go.
Speaker 2 (27:30):
Yes.
Speaker 3 (27:32):
So yeah, it's a calling the race a little bit
before it's over I think is part of the problem here.
Speaker 2 (27:39):
And the other thing is, look, there's no guarantee that
you don't you said, like there's still time to go
and everything. But it's if something that was risky just
always paid off better, then people would pay more for it,
and so it would no longer pay off better. And
it's not to say this will or won't work, you know,
(28:01):
over the next five, ten, fifteen, or twenty years. I
have no idea. But it's also kind of it's like
in Apple's to Orangutang's comparison, Yeah, a little bit. You
know that This would be like looking at some cryptomeme
coin and being like, hey, you did better on this
than in US treasuries. Well, I'm not trying to take
(28:23):
risk with US treasuries. If I'm buying Argentinian one hundred
year bonds, I probably am, so I should expect it
to do better than my US bonds.
Speaker 3 (28:33):
Like it's it's it would be like Michael Armstrong entering
into a triathlon and sprinting. What's the what's the first
part of the triathlon? This swim?
Speaker 2 (28:43):
I don't know, I've ever done.
Speaker 3 (28:44):
One work a marathon and sprinting as fast as I
can to get even close to the front of the pack,
and everybody commenting being like, well, you know for the
first one to one hundredth of the race that Mike
Armstrong is sure in the lead here I better watch out, Like, well,
let's go and see how the next ninety two years perform.
Speaker 2 (29:05):
I just I guess it's not comparing equal levels of risk.
If you wanted to be like, hey, I'm doing a
comparison of Verizon bonds and AT and T bonds. Okay,
like now you're kind of in the same ballpark two telecoms,
you know which one do I think? But trying to
compare the return on an argentinean hundred year bond to
(29:27):
a US thirty year treasury bond, those are not the
same thing just because they have the word bond in them.
That would be like comparing Berkshire Hathaway to Long Island Blockchain.
Technically both equities very different, but they do very different things.
One is, you know, a giant multinational firm and the
(29:48):
other change its name from Long Island ice Tea when
blockchain became popular, right, just fine, But like they're not
the same just because they have equity, you know, as
there asset class. I also would say this probably wasn't
the dumbest investment in the world at the time. I mean,
this was in twenty seventeen. There were some dumb stuff
going on in twenty seventeen. We weren't quite like the
(30:11):
spack stuff of twenty twenty one, and meme coins were
still a few years away, but I'm sure they were
still Like twenty seventeen was still when the first crypto
cycle was going through. I think that's when Long Island
blockchain became a thing. Was that when the Jersey Deli
popped up? Or was that like twenty nineteen twenty twenty
the Jersey Deli was later. Yeah, so agreed.
Speaker 3 (30:32):
There were undoubtedly dumber investments than buying one hundred year
Argentinian bond, but yeah, that was that was a concerning one.
Speaker 2 (30:41):
So there's that. Let's take a quick break here. When
we come back, we'll do a little bit of stack roulette.
Speaker 1 (30:47):
There's only one show that follows well Street's continued volatility.
Keep it here all morning long on the Financial Exchange
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Speaker 4 (31:11):
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Speaker 2 (31:59):
Mike, what do you go for?
Speaker 3 (32:00):
Stuck Roula Bloomberg has a piece of today how to diversify
your portfolio with markets hitting turbulence and hits out a
bunch of things, and mainly it's about overseas investing and YadA, YadA, YadA.
But I want to ask, was anyone talking about investing
in Europe and Japan prior to Europe and Japanese markets
(32:22):
rallying ten percent in the opposite direction of US equity markets.
Speaker 2 (32:26):
Nope, so a few people, but they were feeling.
Speaker 3 (32:30):
Very few and far between. I do not remember this
being a discussion immediately after the election of President Trump, like, oh,
President Trump selected let's go buy European stocks? Like sure, No,
that was not the story or narrative that was playing out,
And so for that narrative to suddenly shift in that direction,
that would be cautious because oftentimes that's just purely as
a result of high returns driving driving stories in that direction.
(32:55):
The other thing I would be really cautious about is
understanding what most people talk about when they have heard
of diversification, right, Like, I'm not saying do or don't
invest in any of these things, but if you're going
to say diversify by investing in crypto as an example,
really understand what you're investing in and how it correlates
or doesn't to certain things, right, Like, the idea of
diversification is that you have different buckets of money that
(33:19):
do different things and perform in different ways. And if
all you do is invest in something that's just a
leveraged version of something else, you're not really accomplishing that.
Speaker 2 (33:28):
Yeah. And the promise of diversification is not better returns
all the time, right, it's actually lesser returns when things
are going well, and ideally better returns when things are
going badly, because not everything's moving up or down as
much as the worst or best things in your portfolio.
Speaker 3 (33:47):
So understand why you're diversifying first.
Speaker 2 (33:49):
Yeah.
Speaker 3 (33:49):
Is it because you're suddenly scared? Or is it because
it's a good reason to do so in a good
time for you to do so? And there's compelling reasons
for it.
Speaker 2 (33:56):
Mike, I want to go, Tucker, can you cue up
the time machine for us?
Speaker 4 (33:59):
Stand by?
Speaker 3 (34:00):
Okay?
Speaker 2 (34:01):
I want to make sure that we can take a
little trip back in time.
Speaker 4 (34:05):
Here.
Speaker 2 (34:08):
The year is twenty twenty one. Oh, it's not that
far the place the Suez Canal, ever given. We just
crossed the four year anniversary of the ever Given getting
stuck in the Suez Canal yesterday It was March twenty
third of twenty twenty one when the thirteen hundred foot
long two hundred and twenty four thousand ton Ever Given
(34:30):
became lodged in the Suez Canal for five days. We
all remember that little little front end loader trying to hey, Jimmy,
you gotta bring it to the left. No, no, no,
port is that way. No, to the starboard, to the starbird. Anyways,
(34:51):
four years ago we spent a week covering that ship
stuck in the Suez Canal, and we all made it through.
So I I just want to remind everyone that thank you,
when things seem at their worst, you can always get
a really big boat out of the canal. Ken what
else he got?
Speaker 3 (35:12):
Piece from Barons here about President Trump following Abraham Lincoln's example.
Speaker 2 (35:17):
I saw this one here, which is pretty.
Speaker 3 (35:19):
Confusing because I have to assume, you know, not a historian,
but I have to assume the US economy under Abraham
Lincoln in the eighteen hundreds was a fair bit different
than today's twenty first century economy.
Speaker 2 (35:32):
As you would expect, we had a pretty robust semiconductor
business domestically in the eighteen sixties. So the proposal is
there is no proposal. Mike, let's tell a spade is
spade this this piece makes no sense. It's comparing a
potential tax credit for home ownership to Lincoln signing the
(35:53):
Homestead Act of eighteen sixty two that let every adult
claim one hundred and sixty acres of land.
Speaker 3 (35:57):
Yeah, so that's the that's the time travel story I
thought we were going to. But let's just focus on
forget about the comparison between the two, because I think
it's nonsense. The tax credit idea, which, look, there's been
all sorts of tax credits and incentives to get Americans
into homes for decades. But as we've talked about many
(36:19):
times before, we can debate you know, the wealth generation
and creation from housing activity and all these different pieces.
But if your goal is to bring down the cost
of home ownership, paying a bunch of tax credits is
not going to do that.
Speaker 2 (36:36):
You're increasing demand without increasing supply, and all it means
that the price will go up by the amount of
the credit. See college and kind of some healthcare expenses too,
And so I just.
Speaker 3 (36:47):
We keep going back and like making believe that this
is makes some sort of economic sense. And you know,
goes through all this and how costly would be, and
that they would need to replace the revenue from elsewhere,
which you know, let's not even start on this, but like,
why don't we just take a If you really want
to bring down the cost of home ownership, then you
(37:08):
have to build more homes and create the incentives for that. Yes,
that needs to be in place, and the fact remains
that nobody actually wants that because that means that the
value of your home that you already own goes down.
Speaker 2 (37:22):
So on top of that, that's that's all. It is,
great statistic reference, did hear? Keep in mind that a
recent Tax Foundation poll found that sixty four percent of
Americans survey didn't know what was more valuable a tax
credit or tax deduction. So if you're trying to incentivize
Americans to buy homes and they don't know if a
(37:43):
tax credit or tax deduction is more valuable, that creates
some potential problems in terms of how you're trying to
incentivize them if they don't understand the incentives.
Speaker 3 (37:52):
Yeah, should work on some financial literacy.
Speaker 2 (37:54):
I guess beyond that. I say this as a proud homeowner.
Haven't we done enough to subsidize home ownership.
Speaker 3 (38:02):
See my three and a quarter year at three and
a quarter rate thirty year mortgage. I would think, so, you.
Speaker 2 (38:08):
Know, like, let's figure out ways to build more and
make it cheaper to build, and not just give everyone
another twenty five thousand dollars to buy the same homes
that already exist. I don't know's take a quick break
for the entire day. We'll be back tomorrow on the
Financial Exchange.
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
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the hosts. Do not reflect the opinions of Armstrong Advisory
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(01:06):
and Mike Armstrong.
Speaker 2 (01:12):
Chuck, Mike and Tucker with you. Kicking off hour two
of the Financial exchange. We got the DOW of five
hundred and twenty nine points, the S and P is
up ninety one, the NASDAG up three hundred and sixty nine.
So a broad based rally taking place across major US
indices today. Probably nice little bit of a relief for
people that might have been nervous over the last few weeks.
(01:34):
But obviously, hey, we'll have to see how things continue
to evolve here. But certainly, you know, nice to see
a little bit of upward movement there after you know,
things were pretty dodgy for a little bit. We got
to a ten percent correction. That's never fun for anyone
to go through.
Speaker 3 (01:52):
Tenny.
Speaker 2 (01:53):
Sorry.
Speaker 3 (01:53):
Bit of breaking news on the tariffront as we speak,
not broad based, but President Trump saying any country that
purchases oil from Venezuela, we'll have to pay twenty five
percent tariff on trade with the United States. So there's that.
Speaker 2 (02:10):
I just googled Venezuela oil exports by a country because
I have no idea where Venezuela sends their oil. In fact,
the latest chart that I'm finding right now is from
twenty ten, so it's probably a little out of date.
I don't know where they send their oil, quite honestly,
so someone else is gonna have to do the legwork
on that. Let's see what year this is. Oh no,
(02:31):
this is two thousand and nine. Even even better, that's
really useful. So I don't know where they send their
oil right now, but they send it somewhere because I'm
sure they don't use it all domestically. Let's see, we've
got the ten year treasury selling off a bit up
to four point three two five percent, oil, also seeing
its price moving up. You've got oil at sixty eight
(02:51):
ninety nine on West Texas intermediate tripa national average four,
gas prices up another two tenths of ascent to three
twelve and eight tenths. And we've got gold today down
about four dollars and seventy cents nouns to threeenty sixteen
and seventy cents. So, after making some new all time
highs in the last week or so, just treading water
as it attempts to find some new direction here, we
(03:14):
got a piece here from Bloomberg Business Week. The headline
is the richest Americans keep the economy booming. What happens
if they stop spending? The answer is the economy goes
into a deep recession.
Speaker 3 (03:25):
Yeah, then we would be quite Screwgeanelle is the answer
to that question. So she also makes it seem as
there's also no signs of this happening. Yeah, I want
to caveat that that it's not an inevitability.
Speaker 2 (03:40):
It's not even something it's not even something that's showing
up in the data right now.
Speaker 3 (03:44):
Can we change when to if?
Speaker 2 (03:46):
Yes, if us wealthy people stop spending in trouble, it
would be catastrophic.
Speaker 3 (03:55):
Or even slow down.
Speaker 2 (03:56):
Well, if they slow down, it might not be catastrophice,
it could just be bad. But if they stopped spending, yes,
it would be very very bad.
Speaker 3 (04:03):
Why something we've talked about a fair bit. Today, the
top ten percent of income earners represent about half of
total consumer spending. That is, as far as I know,
an all time high since we've been tracking the data.
Speaker 2 (04:14):
Norm is like.
Speaker 3 (04:16):
And what's the norm? Right? Like, I guess the historical
average in the United States. I'm sure it differs country
to country, but yes, it is a very high portion today.
And if it all just suddenly stopped. That would be
hugely problematic, But again, you need some evidence. I guess
the only piece of evidence that she found here was
(04:39):
data from vantage Score, which is a credit scoring company,
and particularly found that the share of consumers making more
than one hundred and fifty thousand dollars who were sixty
to eighty nine days late on their debt payments. So
again pretty narrow group, but one hundred and fifty k
or more of household income and sixty to eighty nine
(04:59):
days laid on their debt payments, that rate more than
doubled in January compared to two years ago. My problem here,
because I don't have all the data, is did it
double from one to two or did it double from
fifteen to thirty? Because that's a huge difference, right.
Speaker 2 (05:11):
This is like, hey, you know, the risk of heart
attacks in eight year olds has doubled, but like it's
still still you know one one. I'm not saying that
actually has I'm just saying like it's equivalent to something
that doesn't really happen often. So I think, look, when
we talk about data points that we can look at
to tell if wealthy people are spending, there are probably
(05:34):
four or five that are the key drivers on this.
The first is housing. When you look at who actually
buys houses, it is not people with low incomes because
they often don't have any money saved for a down payment,
and especially in this environment, don't have the ability to
(05:56):
buy into this pricing right now. So when we talk
housing generally, we're talking people with above average incomes. Other places,
cars new cars, specifically, average transaction price for a new
vehicle continues to hover high forties like forty seven, forty
eight thousand. I haven't seen like the latest monthly data,
but it's been right around there. Someone who is earning
(06:19):
thirty thousand dollars a year in income is not buying
a new vehicle for forty eight thousand dollars. True, it
is someone who is making one hundred thousand, one hundred
and twenty one hundred and fifty two hundred thousand. Those
are the people that are buying those cars. Other things
that you can look at hotel and airplane travel stats
(06:40):
not just you know what you're seeing in terms of
passenger volume, but also here from the airlines in terms
of what they're seeing. That has been one area that
has been you know, guided down a little bit, and
that Delta came out and said, yeah, we're starting to
see some signs of, you know, a slowdown in air
travel bookings. That is also meshed with what we have
seen from hotels where every week the uh, the who
(07:03):
is it? Who puts this out? I want to make
sure that I get the uh, the name correct on
this it is? Who is?
Speaker 1 (07:11):
What?
Speaker 2 (07:11):
What does STR stand for? Even I don't know, but
there's an industry group STR that does stuff with the
hotel data and everything, and their data shows that occupancy
now in hotels starting to run a little bit below
trend levels for the last twenty five years, and that's
been you know, development in the last couple of weeks.
Speaker 3 (07:31):
Smith Travel Research.
Speaker 2 (07:33):
Sure that that sounds great. So ultimately, did you just
think of that?
Speaker 3 (07:38):
No, that's actually it is, ok refers to Smith Travel
Research of data benchmarking, analytics and marketplace insights.
Speaker 2 (07:48):
Sounds great. So you've got some signs that travel might
be slowing down a little bit. Yeah, the housing market,
you're seeing pressure on pricing, but you know, volumes are
still okay ish and phto sales, I don't think we've
seen any major shift in auto sales in terms of volumes.
Nothing discerned. It's been more from month to month, but
not nothing big there.
Speaker 3 (08:08):
The real areas that I can point to are, like
you said, airlines and hotels the only real two that
I can look at in terms of luxury that are
seeing a pullback. But as we pointed out, even on
the airline side, the pullback seemingly came in part from
domestic and business travel, yes, whereas international travel stayed up.
And that's the luxury of all luxuries, right, you do
(08:31):
not ninety nine percent of American employees do not need
to travel overseas for work. It's probably higher, Yeah, yeah,
it's a very small fraction of people who actually need
to travel overseas for work, and therefore that is a
huge discretionary item.
Speaker 2 (08:46):
So yes, if the richest Americans stopped spending, big problem.
Are there any signs of that? Maybe like one and
a half around the edges, But it's tet tiny little
things that we're seeing, And most of the data is
absolutely completely fine at this point, and we'll see how
it evolves to see if there is any shift there.
(09:06):
But I continue to come back to this. The hard
data right now is not showing a meaningful shift in
trajectory in the basically throughout the entirety of twenty twenty
five so far. We'll see where it goes, but for now,
you're not seeing any major shifts in consumer spending trends.
Speaker 3 (09:26):
By the way, Tucker gave us some quick data on
that venezuelan oil story.
Speaker 1 (09:30):
That was Ben actually did that, Ben died?
Speaker 3 (09:32):
All right? Thanks? Ben. China is the number one importer
of venezuelan oil, So I guess we're gonna slap an
additional twenty five percent there. Unclear.
Speaker 2 (09:41):
We'll have to see what happens.
Speaker 3 (09:43):
And they're already facing pretty big tariff rates as it is,
so we'll see what happens.
Speaker 2 (09:47):
Yeah, let's take a quick break. When we come back,
we'll do a little bit of trivia, and then we're
talking CEO pay packages right after this.
Speaker 1 (09:55):
Thanks to us six one, seven, three, six two thirteen
eighty five with your comments and question about today's show,
and let us know what you think about the stories
we are covering. This is the Financial Exchange Radio Network.
Miss any of the show, catch up at your convenience
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(10:16):
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This is the Financial Exchange Radio Network.
Speaker 4 (10:30):
All right. Time for trivia here on the Financial Exchange
on this day. Back in two thousand and five, the
US version of the Office premiered on NBC, starring Steve
Carell as Michael Scott. The Office won five Emmy Awards
during its run. Trivia question today for you who played
(10:51):
the office manager in the British version of the Office.
Once again, who played the office manager in the British
version of the Office, Be the fifth person today to
text us at six one seven three six two thirteen
eighty five with the correct answer, and you win a
brand new Financial Exchange Show t shirt.
Speaker 2 (11:11):
Once again.
Speaker 4 (11:11):
The fifth correct response to text us at six one
seven three six to two thirteen eighty five, we'll get
that T shirt. See complete contest rules at Financial exchainshow
dot com.
Speaker 2 (11:22):
Mike, we got a piece here in the Wall Street
Journal for CEO's one hundred million dollar pay packages are disappearing.
Speaker 3 (11:29):
Oh gosh, watch out international flights on Delta Airlines.
Speaker 2 (11:33):
I feel so bad for them.
Speaker 3 (11:36):
It is a bit surprising the tally. Uh if it
holds for twenty twenty four, where no CEOs has scored
one hundred million dollar pay day, that'd be the first
time in a decade without one hundred million dollar pay
package for a public company chief executive. And also somewhat
surprising because if you're listening to this, you should also
(11:56):
know that most of these pay packages are not based
on hash. Primarily, most executives love to get paid in
stock for a huge number of different reasons, but one
of them is the treatment of that stock after they're retired,
which is capital gains treatment rather than income treatment, or
even while they're working. In any case, what's surprising to
(12:17):
about me to this? About this to me, I can't
speak English today. I apologize. I'm hosting a radio program
I should be able to work on. That is that
it was also accompanied by a tremendous year of stock
market performance. So it's not as those stocks were down
by ten percent and no CEO made their comp based goals,
but rather stocks were up pretty substantially and no CEOs
(12:39):
got the one hundred million dollar bench mark. I think
there might be some pushback on the part of shareholders here,
especially after the Elon Musk Tesla package that got battled
out in court and some of that, But by and large,
I'm not sure really what to make of this, if anything.
Speaker 2 (12:56):
So putting it all together, so you got fewer CEOs
making smaller amounts of money because the average is up.
The average is up, yeap, fewer CEOs making more money, okay,
because making like more, making like obscene amounts of money.
It's all kind of like not I mean again, like
one hundred million versus ten million. It's like, okay, like whatever,
(13:19):
we'll take one, you know, it's fine. Uh So I
think that in trying to sort through what that means here,
I think there is a lot. I don't think it's
just the Elon Musk situation. I think it's optically trying
to avoid the appearance in a number of metrics of
(13:44):
how overpaid CEOs are. The metrics you know, average employee
compensation compared to CEO comp and stuff.
Speaker 3 (13:52):
Like, yeah, that was a new one that the SEC
started requiring a few years ago. Is hey, give us
your average employee comp and your CEO comp so you
can do any calculation of what multiple those represent.
Speaker 2 (14:03):
So some of it can be trying to you know,
fit into that type of stuff there. Some of this
also is hey, you know, like one just fluky thing alphabet.
Google's parent hasn't disclosed the twenty twenty four comp for
soonder Perchai, yet it is an equity award that he
gets every three years. Odds are it's going to be
(14:25):
pretty substantial. So I think, you know, like, what what
causes this where CEOs on the whole are being paid
more but the top end is being paid less. What
what do we take from that? Like, what what does
that tell us about how companies are trying to manage
their executive compensation?
Speaker 3 (14:47):
I think what it reads to me is there some
negative optics around the very very high end, right, it's
but they still need to be quite competitive with CEO
comp to get good ones. Yes, I think that's fair
because if the average is still going up, then it's
kind of what matters, right, the outliers are outliers, and
if the average is moving up, it just still means
that CEOs are raking in a boatload of money and
(15:09):
more on average than the previous year.
Speaker 2 (15:12):
So yeah, I don't know that there's any like huge
narrative or any story that you can take out of this.
It certainly isn't. Hey, CEOs aren't being compensated well anymore,
like it's the opposite action.
Speaker 3 (15:24):
And if you're you know, if you're on the board
and you have a fiduciary obligation to the shareholders, you
don't want to end up in court battling over a
CEO executive compensation plan. And if you're right in the middle,
you're probably not going to.
Speaker 1 (15:39):
Is that.
Speaker 3 (15:39):
Yeah, I don't know that I would read too much
more into it than that, other than again surprising for
it to, you know, not hit those thresholds when we
had such amazing stock market performance In both twenty three
and twenty.
Speaker 2 (15:52):
Four piece in Bloomberg Opinion titled risky bonds aren't so
risky in the long run, and what it talks about
is US high yield debt. Basically, Hey, it consistently offers
a significant premium in yield compared to what you get
on treasuries or just regular, you know, investment grade corporate bonds.
Speaker 3 (16:14):
You speak to just high yield or junk debt as
it's commonly referred to. And I don't know, just for
people out there that might not be frequent investors, you
or paying really close attention to quote unquote junk debt?
How does it earn that name? And how do people
look at it generally?
Speaker 2 (16:32):
So Mike comes to me and says, Chuck, I need
to borrow one hundred dollars, and I say, okay, Like,
how how many times have you borrowed a hundred dollars before? Well,
I've borrowed it, you know, eight times. Have you ever
default on it? Yeah? Once I did. Okay, Well I'm
going to demand more from Mike than Tucker, who says no,
I've got perfect credit and I've never you know, defaulted
on anything. So I might say, Tucker, I'm willing to
(16:54):
lend you one hundred dollars at four percent. Mike, I'm
gonna charge you eight right now, just because you know,
there's a chance that you don't pay me back, and
so I need to get paid some additional interests in
order to make up for that risk. So high yield
debt it's called junk debt because there's a greater chance
of the debt defaulting. Now, this is something where when
(17:14):
you look at the data that's shown by this Bloomberg piece,
it points out, look, you get paid, you know, significantly
more typically on high yield debt than traditional corporate debt
in order to hold it, and overall, the default rates
historically have not been crazy in the broad scheme of things,
(17:35):
and so you end up making out pretty well in
the long run if you're able to hold the high
yield debt over long periods of time fifteen twenty thirty years.
This raises a few different questions. The first is because
high yield debt is again at a greater risk of
default during times of stress and markets, it will trade
at a significant discount because the chance of default goes
(17:57):
up significantly.
Speaker 3 (17:58):
So, for example, according to the Saint Louis Fed, the
spread there this is data they collect from Bank of America,
the high yield Index option adjusted spread back in March
of twenty twenty was sitting at about nine percent YEP.
According to the same data, now that spread is sitting
about three and a quarter correct.
Speaker 2 (18:16):
So it's something where hey, if you can stomach significant volatility,
that's a prerequisite for being able to hold this long term,
Like not panic when things go badly, because then obviously
if you sell out at the bottom, your return is
quite bad. Other things, just because the you know, historical
rate of default is you know, not one hundred percent.
(18:36):
Uh you know, I think the historical rate of default
I don't have it here with me, but I think
you're generally looking you know, somewhere in the range of
like six to eight percent, sorry, three and a half
percent is what you're looking at. And look, you might say, Okay,
if I own, you know, a bunch of high yield bonds,
you know, through you know, some kind of investment product, Okay,
can stomach that. But the risk presented in any particular
(18:59):
issue is still really high compared to other kinds of bonds.
Because default is binary, it either happens or it doesn't,
you know, like you can't. You don't usually have like
a partial default. It's something where it either happens and
you get some kind of lower return you know, back
to you, or it doesn't. You continue on your merry way.
So this is a long way of saying, I don't
(19:22):
think that the title risky bonds aren't so risky in
the long run does justice to the risk that's actually
posed by high yield death quick break. When we come back,
we've got the Trivia answer.
Speaker 1 (19:41):
Bringing the latest financial news straight to your radio. Every day.
It's the Financial Exchange on the Financial Exchange Radio Network.
The Financial Exchange Show podcast drops every day on Apple,
Spotify and iHeartRadio. Hit that subscribe button and leave us
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(20:02):
Radio Network.
Speaker 4 (20:08):
Chriviy question today was who played the office manager in
the British version of the Office. That will be Ricky Gervas,
who played the bumbling office manager David Brent in the
original version of the show. The David Brant character was
renamed Michael Scott played by Steve Carell for the US version.
Mike from Newberry, New Hampshire is our winner today taking
(20:31):
home a brand new Financial looks Change Show T shirt
and we played trivia every day here on the Financial
looks Change. See complete contest rules at Financial Exchange Show
dot com.
Speaker 2 (20:42):
Mike, we got a piece in the Wall Street Journal.
It's titled roth iras All the Rage with the Young Crowd.
Speaker 3 (20:49):
How come there's a few pieces of it that I
think are appealing to the roth Ira One. It does
allow you to just lock in your tax rate right
like playing in Simple un know that whatever tax you
pay on your income today, you are not going to
be taxed on it. Again, if it's in the roth ira,
I'm thinking more likely, though, part of the roth Ira
(21:09):
desirability is your ability to tap that money before fifty
nine and a half. So that's not a great reason
to use it, but there is some truth to that that, Hey,
you can get at that money a lot easier than
say your traditional four oh one K.
Speaker 2 (21:23):
Or iram money.
Speaker 3 (21:24):
With that money, yeah, not all of it, but you
know your your contributions can come back out without paying
some big penalties and taxes, So that's part is pretty appealing.
I'll also say though, that for working individuals, this is
one of the areas that objectively, I think people make
mistakes on pretty frequently. Most plans offer both a traditional
four oh one K and a wroth for okay, so
(21:46):
let me like give an example of what I think
is pretty objectively a mistake. You've got two individuals that
are living together and are engaged. They're not yet married.
A couple is living together, they're engaged and combined. Right now,
Let's say they are pulling in you know, household income
(22:07):
in the I don't know, let's call it two hundred
thousand dollars range. But it's heavily weighted towards one of them. Sure,
and they're contributing to roths in those cases. And when
you look at that, you say, okay, well, an individual
might be paying then a thirty two percent tax rate
on that top income or maybe it's twenty four whatever
you land on. But like next year, you're going to
(22:30):
be married and suddenly be in a substantially lower income
tax bracket because of the waiting of your income. And
so you can look at some of these situations and say, wow, yeah,
that does not make any sense for somebody like that
to be putting money into a roth. I ray. The
other one that I see frequently are those who maybe
you commute to another state that's common here in New England,
(22:52):
but you live in it. You know, like, oh, yeah,
I work and live in Sorry, I live in New Hampshire,
but work in Massachusetts putting a bunch of money into
my wroth. IRA. What I'm doing there is I'm paying
Massachusetts income tax on money that's going into a wrath
that wouldn't otherwise need to pay mass Its income tax
if I just did the traditional And so it's a
(23:13):
complicated subject. Taxes in general are a pretty complicated subject.
And then when you intertwine it with all sorts of
rules when it comes to retirement accounts about rmds and
when the money can be tapped and penalties, it gets
it even more complex. What else do you see out
there in terms of the desirability or lack thereof when
it comes to roths.
Speaker 2 (23:32):
Well, I think the other thing just to remember is
whether it's a contribution to a WROTH or a traditional
retirement accounts, it doesn't necessarily have to be all or nothing,
because either way, you're basically trying to make a bet
on where you think your tax rate is going to
be in the future relative to today, And so I
think there has to be some humility there that none
(23:54):
of us know exactly where it's going to go from,
you know, whether you're talking federal taxes, state taxes, like
all these things can change dramatically over a twenty thirty
forty year career. Just look at how they've evolved over
the last thirty or forty years as an example. So
I think part of this is also, hey, if you have,
you know, multiple choices available to you, whether it's inside
an employer sponsored planner, outside you know, in self directed accounts.
(24:17):
It's something where I think that you can look at
it and say, hey, even if I, you know, almost
completely convinced that the WROTH is going to be best
for me, do I take like ten or fifteen percent
of my contributions for the year and put it in
a traditional IRA, just because I want to give myself
flexibility and have different types of accounts available depending on
(24:38):
how the tax situation evolves over time.
Speaker 3 (24:40):
We frequently talk about the types of things that come
up with a financial advisor, but I think frequently people
hone in on you know, they're here to make investments
for me, and frankly, that is just a piece of
what a financial advisor's life tape touches. And there are
some financial advisors out there, by the way, who don't
do investments right. There are financial advisors that charge an
hourly billable rate, that work on retainer. All sorts of
(25:02):
different situations and conversations to be had when it comes
to your financial life. If this is a question that
you're facing and you're looking for some guidance on the
subject of tax efficiency when it comes to your financial strategy,
give the folks at Armstrong a call and let us
educate you on how we work with our clients to
just deliver more confidence abround these decisions so that they
(25:24):
end up in the best place later in life. The
number for the Armstrong Advisor Group is eight hundred three
nine three four zero zero one. We offer free consultations
throughout New England via zoom whatever is most convenient, But
that number once again eight hundred three to nine three
four zero zero one.
Speaker 1 (25:42):
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 (25:58):
Head on from the Wall Street Journal that dumbest investment
in the world was better than owning safe treasuries.
Speaker 3 (26:04):
This might be a candidate actually for you know, a
candidate for at the time what was looked at as
maybe the dumbest investment in the world.
Speaker 2 (26:10):
It could be so basically, there was a one hundred
year dollar denominated bond that Argentina launched in twenty seventeen, and.
Speaker 3 (26:20):
I'm sure we laughed at it. Ourselves at the time.
Speaker 2 (26:22):
We might have. If you know anything about Argentina, it's
kind of a serial defaulter. They've had a few and
they have, you know, some some issues with how they've
run the country from a fiscal standpoint historically. And basically,
i'll quote here, the coupons investors received have more than
(26:45):
made up for the fall in the price of the
bonds down by a quarter. If the coupons had been
reinvested in the same bonds, an investor would have made
well over fifty percent against a loss of ten percent
for US thirty year bonds in a slight gain for
the US Treasury index. So here is why I don't
love this piece. It's like assuming that there's an end
(27:07):
date now.
Speaker 3 (27:09):
Yeah. So here's what it's doing is saying, look, you
bought a ARGENTINIANE hundred year bond in twenty seventeen, and
so far you have made more money than if you
had bought a thirty year US treasury Yes, and that
is objectively true. Yes, even though Argentina defaulted on the bond. Yes,
but you still have ninety two years to go.
Speaker 2 (27:30):
Yes.
Speaker 3 (27:32):
So yeah, it's a calling the race a little bit
before it's over I think is part of the problem here.
Speaker 2 (27:39):
And the other thing is, look, there's no guarantee that
you don't you said, like there's still time to go
and everything. But it's if something that was risky just
always paid off better, then people would pay more for it,
and so it would no longer pay off better. And
it's not to say this will or won't work, you know,
(28:01):
over the next five, ten, fifteen, or twenty years. I
have no idea. But it's also kind of it's like
in Apple's to Orangutang's comparison, Yeah, a little bit. You
know that This would be like looking at some cryptomeme
coin and being like, hey, you did better on this
than in US treasuries. Well, I'm not trying to take
(28:23):
risk with US treasuries. If I'm buying Argentinian one hundred
year bonds, I probably am, so I should expect it
to do better than my US bonds.
Speaker 3 (28:33):
Like it's it's it would be like Michael Armstrong entering
into a triathlon and sprinting. What's the what's the first
part of the triathlon? This swim?
Speaker 2 (28:43):
I don't know, I've ever done.
Speaker 3 (28:44):
One work a marathon and sprinting as fast as I
can to get even close to the front of the pack,
and everybody commenting being like, well, you know for the
first one to one hundredth of the race that Mike
Armstrong is sure in the lead here I better watch out, Like, well,
let's go and see how the next ninety two years perform.
Speaker 2 (29:05):
I just I guess it's not comparing equal levels of risk.
If you wanted to be like, hey, I'm doing a
comparison of Verizon bonds and AT and T bonds. Okay,
like now you're kind of in the same ballpark two telecoms,
you know which one do I think? But trying to
compare the return on an argentinean hundred year bond to
(29:27):
a US thirty year treasury bond, those are not the
same thing just because they have the word bond in them.
That would be like comparing Berkshire Hathaway to Long Island Blockchain.
Technically both equities very different, but they do very different things.
One is, you know, a giant multinational firm and the
(29:48):
other change its name from Long Island ice Tea when
blockchain became popular, right, just fine, But like they're not
the same just because they have equity, you know, as
there asset class. I also would say this probably wasn't
the dumbest investment in the world at the time. I mean,
this was in twenty seventeen. There were some dumb stuff
going on in twenty seventeen. We weren't quite like the
(30:11):
spack stuff of twenty twenty one, and meme coins were
still a few years away, but I'm sure they were
still Like twenty seventeen was still when the first crypto
cycle was going through. I think that's when Long Island
blockchain became a thing. Was that when the Jersey Deli
popped up? Or was that like twenty nineteen twenty twenty
the Jersey Deli was later. Yeah, so agreed.
Speaker 3 (30:32):
There were undoubtedly dumber investments than buying one hundred year
Argentinian bond, but yeah, that was that was a concerning one.
Speaker 2 (30:41):
So there's that. Let's take a quick break here. When
we come back, we'll do a little bit of stack roulette.
Speaker 1 (30:47):
There's only one show that follows well Street's continued volatility.
Keep it here all morning long on the Financial Exchange
Radio Network. Find daily interviews and full shows of the
Financial Exchange on how Were YouTube page. Like us on
YouTube and get caught up on anything and everything you
might have missed. This is the Financial Exchange Radio Network.
Speaker 4 (31:11):
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in part by the US Virgin Islands Department of Tourism.
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Speaker 2 (31:59):
Mike, what do you go for?
Speaker 3 (32:00):
Stuck Roula Bloomberg has a piece of today how to diversify
your portfolio with markets hitting turbulence and hits out a
bunch of things, and mainly it's about overseas investing and YadA, YadA, YadA.
But I want to ask, was anyone talking about investing
in Europe and Japan prior to Europe and Japanese markets
(32:22):
rallying ten percent in the opposite direction of US equity markets.
Speaker 2 (32:26):
Nope, so a few people, but they were feeling.
Speaker 3 (32:30):
Very few and far between. I do not remember this
being a discussion immediately after the election of President Trump, like, oh,
President Trump selected let's go buy European stocks? Like sure, No,
that was not the story or narrative that was playing out,
And so for that narrative to suddenly shift in that direction,
that would be cautious because oftentimes that's just purely as
a result of high returns driving driving stories in that direction.
(32:55):
The other thing I would be really cautious about is
understanding what most people talk about when they have heard
of diversification, right, Like, I'm not saying do or don't
invest in any of these things, but if you're going
to say diversify by investing in crypto as an example,
really understand what you're investing in and how it correlates
or doesn't to certain things, right, Like, the idea of
diversification is that you have different buckets of money that
(33:19):
do different things and perform in different ways. And if
all you do is invest in something that's just a
leveraged version of something else, you're not really accomplishing that.
Speaker 2 (33:28):
Yeah. And the promise of diversification is not better returns
all the time, right, it's actually lesser returns when things
are going well, and ideally better returns when things are
going badly, because not everything's moving up or down as
much as the worst or best things in your portfolio.
Speaker 3 (33:47):
So understand why you're diversifying first.
Speaker 2 (33:49):
Yeah.
Speaker 3 (33:49):
Is it because you're suddenly scared? Or is it because
it's a good reason to do so in a good
time for you to do so? And there's compelling reasons
for it.
Speaker 2 (33:56):
Mike, I want to go, Tucker, can you cue up
the time machine for us?
Speaker 4 (33:59):
Stand by?
Speaker 3 (34:00):
Okay?
Speaker 2 (34:01):
I want to make sure that we can take a
little trip back in time.
Speaker 4 (34:05):
Here.
Speaker 2 (34:08):
The year is twenty twenty one. Oh, it's not that
far the place the Suez Canal, ever given. We just
crossed the four year anniversary of the ever Given getting
stuck in the Suez Canal yesterday It was March twenty
third of twenty twenty one when the thirteen hundred foot
long two hundred and twenty four thousand ton Ever Given
(34:30):
became lodged in the Suez Canal for five days. We
all remember that little little front end loader trying to hey, Jimmy,
you gotta bring it to the left. No, no, no,
port is that way. No, to the starboard, to the starbird. Anyways,
(34:51):
four years ago we spent a week covering that ship
stuck in the Suez Canal, and we all made it through.
So I I just want to remind everyone that thank you,
when things seem at their worst, you can always get
a really big boat out of the canal. Ken what
else he got?
Speaker 3 (35:12):
Piece from Barons here about President Trump following Abraham Lincoln's example.
Speaker 2 (35:17):
I saw this one here, which is pretty.
Speaker 3 (35:19):
Confusing because I have to assume, you know, not a historian,
but I have to assume the US economy under Abraham
Lincoln in the eighteen hundreds was a fair bit different
than today's twenty first century economy.
Speaker 2 (35:32):
As you would expect, we had a pretty robust semiconductor
business domestically in the eighteen sixties. So the proposal is
there is no proposal. Mike, let's tell a spade is
spade this this piece makes no sense. It's comparing a
potential tax credit for home ownership to Lincoln signing the
(35:53):
Homestead Act of eighteen sixty two that let every adult
claim one hundred and sixty acres of land.
Speaker 3 (35:57):
Yeah, so that's the that's the time travel story I
thought we were going to. But let's just focus on
forget about the comparison between the two, because I think
it's nonsense. The tax credit idea, which, look, there's been
all sorts of tax credits and incentives to get Americans
into homes for decades. But as we've talked about many
(36:19):
times before, we can debate you know, the wealth generation
and creation from housing activity and all these different pieces.
But if your goal is to bring down the cost
of home ownership, paying a bunch of tax credits is
not going to do that.
Speaker 2 (36:36):
You're increasing demand without increasing supply, and all it means
that the price will go up by the amount of
the credit. See college and kind of some healthcare expenses too,
And so I just.
Speaker 3 (36:47):
We keep going back and like making believe that this
is makes some sort of economic sense. And you know,
goes through all this and how costly would be, and
that they would need to replace the revenue from elsewhere,
which you know, let's not even start on this, but like,
why don't we just take a If you really want
to bring down the cost of home ownership, then you
(37:08):
have to build more homes and create the incentives for that. Yes,
that needs to be in place, and the fact remains
that nobody actually wants that because that means that the
value of your home that you already own goes down.
Speaker 2 (37:22):
So on top of that, that's that's all. It is,
great statistic reference, did hear? Keep in mind that a
recent Tax Foundation poll found that sixty four percent of
Americans survey didn't know what was more valuable a tax
credit or tax deduction. So if you're trying to incentivize
Americans to buy homes and they don't know if a
(37:43):
tax credit or tax deduction is more valuable, that creates
some potential problems in terms of how you're trying to
incentivize them if they don't understand the incentives.
Speaker 3 (37:52):
Yeah, should work on some financial literacy.
Speaker 2 (37:54):
I guess beyond that. I say this as a proud homeowner.
Haven't we done enough to subsidize home ownership.
Speaker 3 (38:02):
See my three and a quarter year at three and
a quarter rate thirty year mortgage. I would think, so, you.
Speaker 2 (38:08):
Know, like, let's figure out ways to build more and
make it cheaper to build, and not just give everyone
another twenty five thousand dollars to buy the same homes
that already exist. I don't know's take a quick break
for the entire day. We'll be back tomorrow on the
Financial Exchange.
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