October 8, 2025 • 38 mins
Chuck Zodda and Marc Fandetti discuss the new Wall Street trade that is powering gold and hitting currencies. Why it doesn't take much for gold to move up. Is it time to brace for a market melt-up? Homeowners are pouning on the tiniest drop in mortgage rates. Is the bankruptcy of First Brands reminding anyone of 2007?
Mark as Played
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Episode Transcript
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Speaker 1 (00:00):
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(01:06):
and Mark Vandetti.
Speaker 2 (01:11):
Chuck, Mark and Tucker with you, and as we kick
things off here, we got stocks rebounding from yesterday's modest
decline with a modest rebound. Dare I say the S
and P five hundred's up point four percent twenty eight points,
the Dow is up about a quarter percent ninety six points,
(01:33):
and the Nasdaq can posit up one hundred and fifty
nine points, almost three quarters of a percent. So we
again pretty quiet week and equity trading overall, just not
a ton of movement there. Ten Yere Treasury also holding
pretty stable, down one basis point to four point one
point one seven percent. National average for thirty year fixed
rate mortgage is at six point thirty eight unchanged from yesterday.
(01:56):
So you basically have not seen much movement in mortgage
markets or in rates in the last few days. One
place that you are seeing quite a bit of movement,
and we're gonna talk honestly a lot about this today
is in gold, which continues to just be, you know,
just heading basically straight up for the last month and
(02:18):
a half or so, now up another sixty two dollars
announced to four thousan sixty six and forty cents and
then taking a look through, Actually it's not even the
biggest move we're seeing in commodities. Silver's up a couple
percentage points, Platinum up three percent. In palladium has been
absolutely ripping the last month as well. It's up thirty
percent over that time and up seven percent today to
(02:39):
new all now actually, you know, sorry, palladium is not
new all time highs, just new fifty two week highs
that you're seeing there. Oil also moving up today West
Text Inner Mediate up seventy four cents of barrel to
sixty two forty seven TRIPA national average for gas prices
nationwide continues to hover in that three ten to three
twenty range. We're down at touch over the last week,
(03:01):
going from three sixteen to three eleven, So you've seen
some improvement there, and maybe we get a chance to
finally break out to the downside and get a little
bit close to three dollars because we've been in this
range for gosh almost all the year between three ten
and three twenty. Maybe we get a little bit of
additional relief with the pumpin head down towards three dollars
(03:23):
a gallon in the coming days, let's talk about gold here, Mark,
because quite honestly, what we are seeing from gold this
year is impressive. But in the last month month and
a half, I guess since mid August has been really
impressive as well. So gold started this year at about
(03:45):
twenty six hundred bucks an ounce. It's sitting here now
at over four thousand, So you're up north of fifty
percent year to date now. And in particular, we've seen
almost a twenty percent move in the last month and
a half now in gold after consolidating sideways over the
course of the summer. And what do we think this
(04:09):
means when we look at the picture here, Mark.
Speaker 3 (04:13):
Well, there are a lot of reasons that researchers site
for a rise in gold. It might for gold's recent assent.
It might be most helpful to think about it from
through the lens of what are people trying to hedge?
What does gold represent? Why would you hold it? Aside
from its industrial use? There's some intrinsic demand for the
(04:35):
metal because it's used in things, but beyond that, why
would you hold it? Some people cite it's inflation hedging properties.
So the record there is very mixed. It went up
in the seventies when inflation was high, so people tend
to remember that and forget about the fact that gold
is not very highly correlated, doesn't move in the same
direction at the same time as inflation, at least in
(04:55):
the period since, so it's inflation hedging properties are kind
of questionable. The most persuasion argument I've seen is that
gold is an alternative as opposed to an alternative currency.
An alternative the dollar to the euro and to the
end and other currencies which could be debased as governments
print more to finance deficits over time. You might want
to think about gold as a safe asset generally, and
(05:18):
as an alternative to say, US treasuries and other very
high quality sovereign bonds. So one thing of note is
that real interest rates have been coming down at the
same time I'm using tips yields as my proxy there
trading inflation track and security yields for real rates, at
the same time gold has been going up.
Speaker 2 (05:38):
That's recent.
Speaker 3 (05:39):
The longer term correlation is also positive. It's not overwhelming,
but it's it's it's it's significant, and it's it's it's
conspicuously positive. So my best guess is Chuck A. Little
bit of randomness, a little bit of whatever's boosting all metals,
a little bit of safe ass set money safe asset
excuse me, demanded by safe asset, I mean something that
(05:59):
will be money good in a crisis, safe asset demand
relative to say, US treasuries. Maybe a combination of all
those things, in a little bit of speculative, a frenzy
type behavior too. There's always that element.
Speaker 2 (06:13):
I tend to think that I don't think there's anything
in the last year that's random chance when it comes
to gold. Yeah, I don't think this is in particular
in the last couple months. I think this is one trade.
I know. A lot of times on our show, I
(06:33):
try to say, hey, like there could be like multiple
reasons for this and that, and it's usually in the
context of you know, moves that we might see. We
talked about it a lot with interest rates and you know, treasuries,
and you know people like to say, oh, like whenever
you know yields go up, well, that's because people are
nervous about the debt. They never say anything when it
goes down, like did people become unnervous about the debt? No,
(06:54):
they didn't. In this case, the reason why I think
there's something that we can say conclusively about gold is
because it's not happening over a short period of time
days or weeks. It's happened over the course of the
full year. And it's also not just happening in the
in dollar terms, we're seeing gold rocketing up. You will
(07:15):
get all the major world currencies. Gold is appreciating dramatically
versus the yen. It's appreciating dramatically versus the Euro, versus
the yuan, versus the Australian dollar, the Canadian dollar, the rupee.
I mean you go through like the major like seven
eight world currencies that get used in you know, the
vast majority of transactions in the world, and gold is
(07:37):
strengthening versus all of them. And then you look at
the actions that are being taken across the world and
like we'll just do like hoping our a little airplane
and go like on a little trip. You can head
over to the EU and all they're talking about is, Yep,
we're gonna print five hundred billion dollars in additional defense
spending and we'll figure out how to do it. And
(08:00):
we're on like the sixty eighth French government. This year now.
I mean like it's it's like, okay, there's there's something there. Right.
You go and you take a look at Japan and
they just put in place leadership that is basically like, hey,
we want abinamis, but more like, throw another log on
(08:22):
the fire, and who cares if inflation is, you know,
with the highest we've seen it in Japan in decades.
Toss another log on the fire, and let's see what happens.
In the United States, we're sitting here and we're saying,
you know what, maybe six to eight percent annual deficits
aren't that bad. You know, maybe maybe we can live
with that. That'll be fine. You go to China, they're
(08:43):
printing trillions of you wan to try to bail out
bad loans within the country, and this and that. You
go across the board and there is this unrestrained fiscal
impulse of well, you know what, let's just run it
hot and spend our way out of you know, whatever
the problem might be. Like, this is not a US phenomenon,
(09:04):
it's not a europe phenomenon, it's not a Japan, it's
in everywhere phenomenon. And Gold is sniffing that out in
my opinion, and now specifically, market participants are sniffing out, hey,
if you're not sure, if you kind of look at
and you go, well, we don't really like any of
(09:24):
these currencies. They're all kind of a mess and there's
nowhere to hide. The place that people start to look
is in stuff like gold and other precious metals. And
those markets, by the way, are minuscule compared to the
amount of money that slashes around in currencies, and that's
why it doesn't take much to move gold fast.
Speaker 3 (09:47):
True institutional investors haven't really held gold as part of
the like I'm talking. When I say institutional, I mean
pensions endowments. You could put four one k's in there too,
but I'm thinking about pools of money governed by a board.
So pensions endowments, including multi eployer pensions. Maybe you're a plumber,
pipe fitter, carpenter, whatever you're in the New England Carpenter's
pension fund for example, or whatever region you reside in.
(10:07):
They're making those allocations. They're small, but they're making those allocations.
Now it's a little bitty it's a little idyo bit
of insurance into an asset that doesn't yield any Look,
I don't really get gold, but I shouldn't because I'm
a traditional researcher. It has no yield. Its value is
sort of psychological, and I'm not diminishing. Sure, I'm saying
that's the attractive element, but so is the value of
(10:28):
US treasuries to an extent, as a safe asset, you
believe in the full faith and credit of the US government.
You believe that in a period of acute turmoil, geopolitical, economic, whatever,
gold will retain value. Never mind, how the heck are
you gonna exchange it for anything without getting killed and
getting it?
Speaker 2 (10:45):
You know, people don't you know, I mean actually killed.
Speaker 3 (10:48):
Well, yeah, if I'm walking around with a sack of gold,
someone a lot tougher than me, which wouldn't take long
to find, it's gonna take it from me. So I
don't know what people think they're gonna do with it,
and negresses. Yeah, you know, just use me as an
example walking around with a sack of gold. You get
the idea very quickly about vulnerable. Does it have a
big dollar sign on it like Scrooge mcdoc. Yeah, their
coins are falling out because it's.
Speaker 2 (11:08):
Yeah, yeah, I've got a monocle and a big sack
of money and twisting your mustache.
Speaker 3 (11:14):
So I'm with you. I ticked off a bunch of
causes to start this segment, Chuck, but I'm with you.
I think it's acknowledgment that deficits are big and getting bigger,
that the debt is going to at some point be
unmanageable and consume us all that governments are gonna have
to inflate these debts away. Gold is a natural hedge
against very bad I think you called it a stupidity
hedge or something like that somebody did, And I like
(11:35):
that hedge against bad policy, and there's a lot of
bad policy going around right now, particularly here in the US.
Speaker 2 (11:40):
So I think that when when we look at the
action that we're seeing, and in particular the summer, I
can't tell you how many people I heard from the summer,
they're like, man, gold, gold went up, but it's not
really doing anything, and stocks are ripping, like, is is
this the time to like get rid of gold? And
my answer it was kind of consistently. Look, things tend
(12:01):
to correct in two different ways. The first is they
can correct through price, which is the one that you
don't want to see it's thing goes parabolic up and
goes parabolic down, and you're like, well, I'm glad that
we did that. It was it was fun, but it
wasn't that fun because I have exactly what I started with.
The other way that things tend to correct is through time,
(12:22):
and what gold went through this summer was a correction
in time where you go and you take a look
at where it was in mid April, and it had
gotten to about thirty two hundred bucks an ounce. It
never really went below their aside from one or two
days in May, it continued to kind of bounce off
like thirty four fifty an ounce for most of the
summer on the top side, so it was five to
(12:43):
six percent trading range, and then as soon as it
got a little bit of momentum in late August, it
has been off to the freaking races since then. And
it's not to say that like that's where it's going again,
like there are Here's the thing about gold, It has
long periods of really crappy performance punctuated by short periods
(13:03):
like this where it is incredibly explosive.
Speaker 3 (13:05):
What does that sound like? By the way, any insurance policy.
Speaker 2 (13:08):
Yes, which is exactly what it is.
Speaker 3 (13:10):
You bleed, you bleed, you bleed, and then.
Speaker 2 (13:12):
And so the big thing with gold is, hey, once
it goes through one of these explosive periods, it does
not give you a chance to get back in until
it finally does say, Okay, this is over, Like this
is what we've seen historically. So I think there's something
really interesting that's happening here. It's not just a US phenomenon.
(13:33):
This is a worldwide thing that we are seeing. And
that's why I think you're getting a lot of focus
and news on this side of things with the price
of It. Quick break here and when we come back,
it's trivia.
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Speaker 4 (14:25):
All right, let's do a little bit of trivia here
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(14:46):
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Speaker 2 (15:18):
Piece in the Financial Times, it's titled brace for a
Market melt up, and melt up is one of those terms.
It's kind of nebulous, like I don't think there's a
formal definition for melt up. And furthermore, why does it
melt up like nothing? When you when something melts, gravity
(15:39):
makes it fall. So I don't know where this term
came from either and it's like it's so hot so
they have to melt but they're gonna melt up, so
I don't poop poo. The idea of this in that
with with where we are right now, I think ultimately
like we keep getting a bunch of like everyone's out
(16:01):
there being like, well, this has to fall apart sometime.
This has to fall apart sometime, And the time when
things usually fall apart is when the last people are like,
well it can't fall apart now, and you know, maybe
we haven't gotten there yet. But it's also you just
look at the calendar and just from a mechanical standpoint,
you start getting towards your end and mark. You know
this from being in the institutional management business, where you
(16:25):
start getting towards you know, November and December, and every
fund out there is just trying to make their bogies
by year end. They're all chasing performance to try to
get that last bit. It's why we have, you know,
terms like the Santa Claus Rally and stuff like that,
is that you get this you know tailwind of managers
just chasing into year end. And there's a very real
case that you could sit here and be like, yeah,
(16:46):
there's still a bunch of money that got pulled off
to the sidelines, you know in April when people got nervous,
and institutions might try to, you know, make that up
because hedge fund performance this year hasn't been great and
maybe that chases the s and P five hundred, like
five I've to ten percent higher in the next few
months or so. There's a very reasonable case to be
(17:06):
made there. The countercase is that everyone in their grandmother
is now talking about this melt up, and that gets
me kind of interested in being like, oh, melt up,
Like that's you know, that's that's interesting. Why why do
all of you think that at this particular point in time,
after stocks have already run forty percent plus from the
April lows.
Speaker 3 (17:27):
Yeah, it is I think a normal last phase of
an exuberant bowl market for there to be a final pop,
and that for reasons that you cited that makes sense.
Of course, a bubble pops at its peak. It has to.
(17:49):
By definition, you know, what's the catalyst going to be?
I don't find the.
Speaker 2 (17:54):
Bubble doesn't pop. Is it really a bubble?
Speaker 3 (17:56):
Yeah? Was it a bubble to begin with?
Speaker 2 (17:57):
Right?
Speaker 3 (17:58):
And by bubble we should define that just mean when
something departs so much from fundamentals, and fundamentals mean what
you would value, in the case of a particular stock,
what you would value it at using a reasonable estimate
of future cash flows and the rate of return you
require to compensate you for the risk. With those two things,
you can bring the stream of dividend payments or the
(18:18):
eventual return of the eventual appreciation you experience when you
sell the security. You can bring those back to the
present literally a present value, compare that to what the
stock is paying today, and voila, you get a reasonable
estimate of fair value. You can compare that to current value,
and if something is way out of whack relative to
fair value, you might call that a bubble. Personally, I
(18:39):
see a lot of signs of serious excess. Of course,
I blame the Federal Reserve, which is responsible for financial conditions,
and it is baffling to me that they're easing into
an environment where financial conditions are about as loose as
they can get. Stocks continue to hit record highs, and
gold is telling us all something. As you pointed out,
I happen to agree with that. Honest people can disagree,
but gold appears to be telling us something, and the
(19:03):
value of other metals and assets appear to be too.
I don't think it's a coincidence that gold stocks, home
prices are all hitting all time highs. I left a
bunch of things out. Financial conditions are as loose as
they've ever been, underlying inflation remains elevated. I don't think
those things are a coincidence. Ultimately, that is the Fed's problem.
Speaker 2 (19:22):
Let's take a quick break. When we return, we've got
the Trivia answer, and we've got Wall Street.
Speaker 5 (19:28):
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Every day.
Speaker 1 (19:44):
It's the Financial Exchange on the Financial Exchange Radio Network.
Time now for Wall Street Watch. A complete look at
what's moving markets so far today right here on the
Financial Exchange Radio Network.
Speaker 4 (19:58):
Markets are rebund saying after yesterday's pullback as the government
shutdown continues into its second week. Right now, the Dow
is up three tenths of one percent, or one hundred
and thirty eight points, SMP five hundred, up half a
percent or thirty three points, NASDAC up three quarters of
one percent or one hundred and sixty nine points. Russell
(20:19):
two thousands up nearly seven tenths of one percent, tenyure
treasurreel down one basis point at four point one one
seven percent, and crude oil up nearly two percent higher,
trading at sixty two dollars and eighty two cents a barrel.
Well after its two and a half percent loss yesterday,
Oracle shares are rebounding about half a percent today. Oracles
(20:41):
recent pullback was driven by a report by The Information
saying the company's margins from its cloud business we're weaker
than an analysts were forecasting, and that Oracle is losing
money on some of its deals to rent out Nvidia chips. Meanwhile,
Equifact shares a rising nearly two percent after the company
said it would cut prices for mortgage scores. This comes
(21:02):
after fair Isaac last week said it would sell credit
scores directly to mortgage lenders by passing credit bureaus like Equifax. Elsewhere,
Tesla unveiled stripped down versions of his best selling SUV
and DAN. However, the lower prices don't quite cover the
recently expired seventy five hundred dollars EV tax credit. The
(21:23):
standard Model three costs about thirty seven thousand dollars, while
the standard model Y costs about forty thousand dollars. Tesla
stock is edging higher on the day. Ast Space Mobile
announced to deal with for Horizon to provide its customers
with sell service from Space beginning in twenty twenty six,
sending that stock jumping by ten percent. Verizon down modestly
(21:46):
in third quarter earning season will kick off tomorrow morning
as Pepsi and Delta will post their results ahead of
the open. Major banks including JP Morgan, Chase, Wells Fargo,
and Goldman Sachs will follow on Tuesday of next week.
I'm Tucker Silvan. That is Wall Street Watch, and in
the prior segment, we asked you the trivia question, what
(22:07):
is the name of Ralstein's popular children's book series. That's,
of course, Goosebumps. Emily from Westbrook Main And there's our
winner today taking on my Financial Exchange Show T shirt.
Congrats Emily, and we play trivia every day here in
the Financial Exchange. See complete contest rules at Financial Exchange
Show dot com.
Speaker 2 (22:25):
Market's talk a little bit about housing. First, we got
a piece from the Wall Street Journal. Homeowners are pouncing
on the tiniest drop in mortgage rates they did for
about a couple of weeks and then they've kind of,
you know, said okay, like all the people who wanted
to refinance kind of did, and so it's just the
blooms off that roa. So as an example, there's an index.
(22:48):
It's called the NBA Mortgage Refinance Index. It's run by
the Mortgage Bankers Association, as you would expect from the name,
and it measures uh, it's just an arbitrary number. Higher
means there's more activity, and lower means there's there's less.
So on September fifth, the reading on it was oney
(23:09):
ten for the refinance index. Don't you don't need to
know what that means. It doesn't mean that there were
a thousand refinances. It's compared to some arbitrary date in
the past, and whatever the reason why, the reason the
reading on September fifth was on thy ten. We then
saw interest rates drop heading into the FED meeting, and
(23:30):
for the next two weeks the reading was about sixteen hundred.
So there's a sixty percent bump in refinancing activity for
two weeks. The most most recent reading, my goodness, I
can't do anything. This segment, the most recent reading came
out this week and it's back down to eleven hundred
and eighty, so mortgage refinances have declined twenty five percent
(23:53):
since that two week boom. And this also coincides with
mortgage rates going back up like quarter percent. So we're
in a very interest rate sensitive environment right now. And
I also think that when you look at the NBA
Purchase Index, which they have as well, that's up very
modestly from the summer, about six seven percent right now.
(24:18):
But the other piece that you have to look at,
and this is data that we don't get from the NBA.
You get it from other sources. The dollar value, the
average size of the mortgage being taken out is smaller
than at this time last year, which means that home
prices are not moving up because you would be borrowing
more if they were generally the trend that we've seen.
(24:39):
So I think we're in a very rate sensitive environment
that quite honestly, in order to get the housing market
really moving, I think that national thirty year average has
to be somewhere in the five and a half percent range,
about three quarters of a percent below where it is today,
and you kind of extrapolate, Okay, what needs to happen
for rates to get there. The ten year treasury probably
(25:01):
has to get down into the three five, three six range.
Which of the ten year treasury is there, probably means
something's really wrong in the economy, and I don't know
that that really helps the housing market.
Speaker 3 (25:12):
Then, so big lenders must know what these trigger points
are because they know what their book of business consists of.
They know when people typically refinance. When I can save
two hundred bucks a month or more, that's my signal
to jump in there. Yeah, they know who in their
book that would apply to. Therefore they must know what
the thresholds are, so they're ready for this. Yes, that's
(25:33):
not really that's just a more of a question slash
slash observation. Okay, So that's one thing that occurs to me.
Banks know when this activity is going to pick up
and when it's unlikely to I guess the other thing
is people did seem to pounce. Was that more than
(25:54):
was that activity more than would have been expected by
big banks given the drop in rates, or was thattable?
If it was predictable, then people are behaving as usual.
I think this is the point I was trying to make,
which I got lost as I was pro bose it's fine. Yeah,
thanks you too, kind.
Speaker 2 (26:09):
Just keep going.
Speaker 3 (26:10):
Okay, No, we have no choice. So is that more
than would have been predicted by banks modeling? If so,
does that suggest people might think that that was a fleeting,
A just a fleeting, a revisiting of rates in them
we have dropped like sixty three or something. Thirty year
(26:32):
fixed rate was somewhere around there.
Speaker 2 (26:33):
Got down to six for a couple. Okay, it was
lower than that. Excuse me.
Speaker 3 (26:36):
So it went from like six mid sixes to very
low sixes. People pounced? Does that mean people think rates
are more likely to go up and stay up? In
other words, was the little frenzy of activity there more
than their models would have predicted. I don't know why
I'm asking this question because we can't answer it, but
that would be interesting to me. We just don't have
the data, folks.
Speaker 2 (26:54):
Armstrong Advisory Group is going to be hosting a seminar.
We have one tomorrow, but honestly, if you don't have
plans for tomorrow yet, you can obviously join us at
Margarita Hill Resort, Cape cod then. But we're also hosting
another one on October sixteenth, this one at the Showcase
Superlucks in Chestnut Hill. There's also gonna be a live
broadcast of the Financial Exchange, so you can come and
(27:16):
say hi to Mike and I and watch us as
we broadcast the show there, and then afterwards we're gonna
be going through discussion of some key economic topics and
taking a Q and A from the audience as well.
It's at the Showcase Superlucks in Chestnut Hill on October sixteenth.
That's a week from tomorrow. It's gonna rain all week
(27:37):
next week. Come inside and join us because you might
learn something and you'll get to stay out of the
rain too, which is always a positive when it's fifty
degrees outside. Again, Showcase Superlucks and Chestnut Hill on October sixteenth.
Eight hundred three nine three four zero zero one is
the number to call, or you can reserve a spot
at Armstrong Advisory dot com. That number again is eight
(28:00):
hundred three nine three four zero zero one.
Speaker 1 (28:04):
The proceeding was paid for by Armstrong Advisory Group, a
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Speaker 2 (28:20):
A couple weeks ago, we talked about the First Brand's bankruptcy.
They are in auto parts manufacturer. They make brands such
as fram oil, filters, and other things that you might
know from your vehicles. And basically, the long story short
is they took on way more debt than anyone thought
they had and now they can't pay it all back,
(28:40):
which is usually how bankruptcy happens, except for like the
way more debt than anyone thought they had. Creditors through
the summer thought they had like six billion in debt.
It's turning out they might have like twelve to fifteen billion.
No one's entirely sure because a lot of it was
off balance sheet and done through these repo agreements, and
it's just it's a mess. Jeffries, one of their credit
funds has about seven hundred and fifteen million dollars of
(29:03):
exposure linked to First Brands, making them one of the
largest creditors. And look, this is not the housing crisis.
I don't think it's the housing crisis.
Speaker 3 (29:15):
A you sound less confident than you did a week ago.
Speaker 2 (29:18):
Here's the thing. When you just have one company where
this happens. It can be a fluke, it can be
an off chance that there's something going on. There was
also the Tricolor bankruptcy just before that, also in the
auto space, a dealer and finanswer in that space, and
(29:40):
so you start to look around and say, huh, is
there something happening that's starting in the auto sector that
might like spill out from there. Just because now that
you're like starting to see what's going on with this
First Brands bankruptcy, the questions that are on everyone's mind
who's in that private credit space, whether it's auto related,
(30:02):
art related, hotel related, invoice related, whatever it is. Everyone
out there is sitting around looking going, well, what's this
thing that I own worth? And do I want to
keep it on my books or do I want to
try to sell it off to someone? And how much
are they going to pay me for it if I
(30:23):
can get it off my books? And that, to me,
it's not reminiscent of two thousand and eight, it's reminiscent
of two thousand and seven, because remember things started bubbling
up in early two thousand and seven in subprime. It
wasn't until eighteen months later that things really blew up.
Speaker 3 (30:39):
Yeah, I agree to me. It is reminiscent of seven We.
Not you and I, but we. The industry were asking
questions of hedge fund and other managers at the time,
what is your exposure to this? And they couldn't answer
that question fully because no one analyst. And when I
say analyst, I mean the person in an investment manager
(31:00):
who evaluates investment for purchase and is ultimately responsible for
its performance. They own it and they live and die
by it. They don't see the whole picture. They just
see the last couple of links in the chain. They
don't understand, not because they're not bright. They are, but
because nobody can see every link in the chain, you
don't know what the cash flows you are getting are
(31:22):
ultimately dependent upon. So it would be like Chuck, I
loan money to you. What I didn't know because I
can't see two links from me.
Speaker 2 (31:31):
I can only see you.
Speaker 3 (31:32):
Is that Tucker owes you money and that's how you're
going to make the payments to me. You could call
this off balance sheet, just call it a tangled web
of interconnected obligations. It's hard to get to the root
of the source of the cash flows for the sucker
that you own. Now you are a triple A rated credit,
you're a highly credit worthy borrower. I have no problem
(31:54):
any money to you. What I didn't know is that
you lent money to some non credit worthy I'll pick
on Tucker and Lois here. You lent money to them
getting lunch ons.
Speaker 2 (32:09):
Like, what did I do?
Speaker 3 (32:10):
I just need an example. You can't see more than
one or two links down the chain, so you don't
understand what's backing up the cash flows of the thing
that you own.
Speaker 2 (32:17):
You don't even know what your exposures are.
Speaker 3 (32:19):
So you call asset managers in environment like this, you
call a goldmansa actually call it him. Go what's your exposure?
They say, just we don't have any that we're aware of.
But as it turns out, because of the chain analogy
that I'm using, everybody's exposed. This may be contained or
it could be contagious.
Speaker 2 (32:35):
We don't just don't know which.
Speaker 3 (32:36):
See, we don't know whether it's contained or contagious at
this point, and.
Speaker 2 (32:40):
That's the piece that is going to take some time
to unfold here. So this may end up being a
nothing burger in the broader economy. My intenna are up
on it, though, Chuck.
Speaker 3 (32:51):
Combine this with soaring goal prices, easy financial conditions, stock
market at record highs, home prices at record highs, elevated inflation,
reckless fiscal policy. The confluence of things here has the
potential for some very ugly outcomes.
Speaker 2 (33:07):
Quick break when we return Stack Roulette.
Speaker 1 (33:10):
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Speaker 4 (33:48):
Well, this year's DAV five K is sold out, but
you can still help our great American heroes. The race
is Saturday, November eighth, Castle Island, and you can visit
DAV five KT Boston to make a donation of any
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Speaker 2 (34:18):
Mark, I got to talk about someone who shares your
your name. Unfortunately, Mark Andresen, the venture capitalist, he gave
an interview the other day. This was in a conversation
with where was it was on the company's Stripe has
(34:38):
a podcast called Cheeky Pint. I guess, oh boy, I
don't know why stripes a payment processing company, and I
just want to read, you know, a couple of quotes here.
He says. The other great economic fallacy that I see
everywhere is the idea that AI is going to somehow
be this hyper successful thing, this hyper excel of productivity.
(35:00):
They'll change everything and destroy all the jobs and yet
still going to lead to people being eviscerated and being
poor and not having anything. He says, even if it
played out like that right, the result will be hyper
deflation of prices, which is the thing that people miss.
So in that environment, the price of business services will
collapse and things that today cost a lot of money
will suddenly be all cheaper free. Now he's not wrong
(35:22):
about that piece of it, But what he's wrong about
is the fact that the reason they'll be cheaper freeze
because there's no demand for them. And if you are
a business that fires everyone, how do those people make
a living going forward? So again, I don't think a
lot of this is particularly well thought out. I always
(35:43):
hear people talk about deflation as if it's this good thing,
and people don't remember that when there was actual deflation
in the US historically basically every couple of years in
the seventeen and eighteen hundreds, it was typically as a
result of massive gaps in demand that resulted in tremendous
job loss and hardship blake. When we think about deflation,
(36:06):
were we think of it in terms of, well, I
maintain my job, but the things that I buy get cheaper,
when in reality, the reason that deflation usually happens is
that a large number of people lose their jobs and
purchasing power and can't buy those things anymore. And that's
why deflation has historically been a thing. I don't think
anyone can make a convincing argument that deflation is something
(36:28):
that is actually good.
Speaker 3 (36:30):
No, Andreson has no idea what he's talking about. He
may be a genius in his little domain. But anybody
who took a few undergraduate economics courses could explain why
deflation is bad. We did have deflation in the early
stages of the Great Depression. We stayed on the gold standard.
The FED could not pump enough money into the economy
as a result, and debts, the real value of debt exploded.
(36:51):
So you don't want deflation.
Speaker 4 (36:52):
If you owe debt, it's quite bad for you.
Speaker 2 (36:55):
And we've got a little bit of that in the
United States.
Speaker 1 (36:57):
Yeah, just a bit.
Speaker 3 (36:59):
Yeah, we want the opposite. With a federal reserve that
can print money, you won't have deflation ever. So again,
I don't really know. This is the problem with reasoning.
Without a modeling in your head, you say like preposterous things.
You can criticize economists for their models, but they at
least require that they think kind of rigorously and consistently,
and they give them something a test against the real world. Look,
(37:19):
AI could result in a productivity miracle, that's true, But
deflation or even disinflation or low inflation doesn't follow from that.
Those things are determined by whoever controls the money supply.
Maybe it'll be the Fed, maybe it'll be the White House,
if the President has his way. That's it's not money
is not The rate of inflation does not emerge from
(37:41):
real economic activity. It's determined by the entity that has
control over the supply of money in the long run.
Speaker 2 (37:46):
Taking a look at markets as we had towards the
top of the hour, the Dow is up one hundred
and ninety points, s and p is up thirty eight,
Nasdaq up one hundred and ninety one. So we've got
a broad based rally taking place today, negating yesterday's life loses. Ultimately,
heading into day nine of government shutdowns, there's still no
government economic day that's going to be provided, which means
(38:08):
no weekly job was claims tomorrow. So we won't be
able to talk about that on tomorrow's show because it
does not exist. But we got a whole lot more
that we're going to talk about then. To all of
you who are gonna join us at Margaritaville Resort, Cape
cod looking forward to seeing you tomorrow, and we'll put
on a great show
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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your own financial, tax, and estate planning advisors before making
(00:20):
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(00:42):
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(01:06):
and Mark Vandetti.
Speaker 2 (01:11):
Chuck, Mark and Tucker with you, and as we kick
things off here, we got stocks rebounding from yesterday's modest
decline with a modest rebound. Dare I say the S
and P five hundred's up point four percent twenty eight points,
the Dow is up about a quarter percent ninety six points,
(01:33):
and the Nasdaq can posit up one hundred and fifty
nine points, almost three quarters of a percent. So we
again pretty quiet week and equity trading overall, just not
a ton of movement there. Ten Yere Treasury also holding
pretty stable, down one basis point to four point one
point one seven percent. National average for thirty year fixed
rate mortgage is at six point thirty eight unchanged from yesterday.
(01:56):
So you basically have not seen much movement in mortgage
markets or in rates in the last few days. One
place that you are seeing quite a bit of movement,
and we're gonna talk honestly a lot about this today
is in gold, which continues to just be, you know,
just heading basically straight up for the last month and
(02:18):
a half or so, now up another sixty two dollars
announced to four thousan sixty six and forty cents and
then taking a look through, Actually it's not even the
biggest move we're seeing in commodities. Silver's up a couple
percentage points, Platinum up three percent. In palladium has been
absolutely ripping the last month as well. It's up thirty
percent over that time and up seven percent today to
(02:39):
new all now actually, you know, sorry, palladium is not
new all time highs, just new fifty two week highs
that you're seeing there. Oil also moving up today West
Text Inner Mediate up seventy four cents of barrel to
sixty two forty seven TRIPA national average for gas prices
nationwide continues to hover in that three ten to three
twenty range. We're down at touch over the last week,
(03:01):
going from three sixteen to three eleven, So you've seen
some improvement there, and maybe we get a chance to
finally break out to the downside and get a little
bit close to three dollars because we've been in this
range for gosh almost all the year between three ten
and three twenty. Maybe we get a little bit of
additional relief with the pumpin head down towards three dollars
(03:23):
a gallon in the coming days, let's talk about gold here, Mark,
because quite honestly, what we are seeing from gold this
year is impressive. But in the last month month and
a half, I guess since mid August has been really
impressive as well. So gold started this year at about
(03:45):
twenty six hundred bucks an ounce. It's sitting here now
at over four thousand, So you're up north of fifty
percent year to date now. And in particular, we've seen
almost a twenty percent move in the last month and
a half now in gold after consolidating sideways over the
course of the summer. And what do we think this
(04:09):
means when we look at the picture here, Mark.
Speaker 3 (04:13):
Well, there are a lot of reasons that researchers site
for a rise in gold. It might for gold's recent assent.
It might be most helpful to think about it from
through the lens of what are people trying to hedge?
What does gold represent? Why would you hold it? Aside
from its industrial use? There's some intrinsic demand for the
(04:35):
metal because it's used in things, but beyond that, why
would you hold it? Some people cite it's inflation hedging properties.
So the record there is very mixed. It went up
in the seventies when inflation was high, so people tend
to remember that and forget about the fact that gold
is not very highly correlated, doesn't move in the same
direction at the same time as inflation, at least in
(04:55):
the period since, so it's inflation hedging properties are kind
of questionable. The most persuasion argument I've seen is that
gold is an alternative as opposed to an alternative currency.
An alternative the dollar to the euro and to the
end and other currencies which could be debased as governments
print more to finance deficits over time. You might want
to think about gold as a safe asset generally, and
(05:18):
as an alternative to say, US treasuries and other very
high quality sovereign bonds. So one thing of note is
that real interest rates have been coming down at the
same time I'm using tips yields as my proxy there
trading inflation track and security yields for real rates, at
the same time gold has been going up.
Speaker 2 (05:38):
That's recent.
Speaker 3 (05:39):
The longer term correlation is also positive. It's not overwhelming,
but it's it's it's it's significant, and it's it's it's
conspicuously positive. So my best guess is Chuck A. Little
bit of randomness, a little bit of whatever's boosting all metals,
a little bit of safe ass set money safe asset
excuse me, demanded by safe asset, I mean something that
(05:59):
will be money good in a crisis, safe asset demand
relative to say, US treasuries. Maybe a combination of all
those things, in a little bit of speculative, a frenzy
type behavior too. There's always that element.
Speaker 2 (06:13):
I tend to think that I don't think there's anything
in the last year that's random chance when it comes
to gold. Yeah, I don't think this is in particular
in the last couple months. I think this is one trade.
I know. A lot of times on our show, I
(06:33):
try to say, hey, like there could be like multiple
reasons for this and that, and it's usually in the
context of you know, moves that we might see. We
talked about it a lot with interest rates and you know, treasuries,
and you know people like to say, oh, like whenever
you know yields go up, well, that's because people are
nervous about the debt. They never say anything when it
goes down, like did people become unnervous about the debt? No,
(06:54):
they didn't. In this case, the reason why I think
there's something that we can say conclusively about gold is
because it's not happening over a short period of time
days or weeks. It's happened over the course of the
full year. And it's also not just happening in the
in dollar terms, we're seeing gold rocketing up. You will
(07:15):
get all the major world currencies. Gold is appreciating dramatically
versus the yen. It's appreciating dramatically versus the Euro, versus
the yuan, versus the Australian dollar, the Canadian dollar, the rupee.
I mean you go through like the major like seven
eight world currencies that get used in you know, the
vast majority of transactions in the world, and gold is
(07:37):
strengthening versus all of them. And then you look at
the actions that are being taken across the world and
like we'll just do like hoping our a little airplane
and go like on a little trip. You can head
over to the EU and all they're talking about is, Yep,
we're gonna print five hundred billion dollars in additional defense
spending and we'll figure out how to do it. And
(08:00):
we're on like the sixty eighth French government. This year now.
I mean like it's it's like, okay, there's there's something there. Right.
You go and you take a look at Japan and
they just put in place leadership that is basically like, hey,
we want abinamis, but more like, throw another log on
(08:22):
the fire, and who cares if inflation is, you know,
with the highest we've seen it in Japan in decades.
Toss another log on the fire, and let's see what happens.
In the United States, we're sitting here and we're saying,
you know what, maybe six to eight percent annual deficits
aren't that bad. You know, maybe maybe we can live
with that. That'll be fine. You go to China, they're
(08:43):
printing trillions of you wan to try to bail out
bad loans within the country, and this and that. You
go across the board and there is this unrestrained fiscal
impulse of well, you know what, let's just run it
hot and spend our way out of you know, whatever
the problem might be. Like, this is not a US phenomenon,
(09:04):
it's not a europe phenomenon, it's not a Japan, it's
in everywhere phenomenon. And Gold is sniffing that out in
my opinion, and now specifically, market participants are sniffing out, hey,
if you're not sure, if you kind of look at
and you go, well, we don't really like any of
(09:24):
these currencies. They're all kind of a mess and there's
nowhere to hide. The place that people start to look
is in stuff like gold and other precious metals. And
those markets, by the way, are minuscule compared to the
amount of money that slashes around in currencies, and that's
why it doesn't take much to move gold fast.
Speaker 3 (09:47):
True institutional investors haven't really held gold as part of
the like I'm talking. When I say institutional, I mean
pensions endowments. You could put four one k's in there too,
but I'm thinking about pools of money governed by a board.
So pensions endowments, including multi eployer pensions. Maybe you're a plumber,
pipe fitter, carpenter, whatever you're in the New England Carpenter's
pension fund for example, or whatever region you reside in.
(10:07):
They're making those allocations. They're small, but they're making those allocations.
Now it's a little bitty it's a little idyo bit
of insurance into an asset that doesn't yield any Look,
I don't really get gold, but I shouldn't because I'm
a traditional researcher. It has no yield. Its value is
sort of psychological, and I'm not diminishing. Sure, I'm saying
that's the attractive element, but so is the value of
(10:28):
US treasuries to an extent, as a safe asset, you
believe in the full faith and credit of the US government.
You believe that in a period of acute turmoil, geopolitical, economic, whatever,
gold will retain value. Never mind, how the heck are
you gonna exchange it for anything without getting killed and
getting it?
Speaker 2 (10:45):
You know, people don't you know, I mean actually killed.
Speaker 3 (10:48):
Well, yeah, if I'm walking around with a sack of gold,
someone a lot tougher than me, which wouldn't take long
to find, it's gonna take it from me. So I
don't know what people think they're gonna do with it,
and negresses. Yeah, you know, just use me as an
example walking around with a sack of gold. You get
the idea very quickly about vulnerable. Does it have a
big dollar sign on it like Scrooge mcdoc. Yeah, their
coins are falling out because it's.
Speaker 2 (11:08):
Yeah, yeah, I've got a monocle and a big sack
of money and twisting your mustache.
Speaker 3 (11:14):
So I'm with you. I ticked off a bunch of
causes to start this segment, Chuck, but I'm with you.
I think it's acknowledgment that deficits are big and getting bigger,
that the debt is going to at some point be
unmanageable and consume us all that governments are gonna have
to inflate these debts away. Gold is a natural hedge
against very bad I think you called it a stupidity
hedge or something like that somebody did, And I like
(11:35):
that hedge against bad policy, and there's a lot of
bad policy going around right now, particularly here in the US.
Speaker 2 (11:40):
So I think that when when we look at the
action that we're seeing, and in particular the summer, I
can't tell you how many people I heard from the summer,
they're like, man, gold, gold went up, but it's not
really doing anything, and stocks are ripping, like, is is
this the time to like get rid of gold? And
my answer it was kind of consistently. Look, things tend
(12:01):
to correct in two different ways. The first is they
can correct through price, which is the one that you
don't want to see it's thing goes parabolic up and
goes parabolic down, and you're like, well, I'm glad that
we did that. It was it was fun, but it
wasn't that fun because I have exactly what I started with.
The other way that things tend to correct is through time,
(12:22):
and what gold went through this summer was a correction
in time where you go and you take a look
at where it was in mid April, and it had
gotten to about thirty two hundred bucks an ounce. It
never really went below their aside from one or two
days in May, it continued to kind of bounce off
like thirty four fifty an ounce for most of the
summer on the top side, so it was five to
(12:43):
six percent trading range, and then as soon as it
got a little bit of momentum in late August, it
has been off to the freaking races since then. And
it's not to say that like that's where it's going again,
like there are Here's the thing about gold, It has
long periods of really crappy performance punctuated by short periods
(13:03):
like this where it is incredibly explosive.
Speaker 3 (13:05):
What does that sound like? By the way, any insurance policy.
Speaker 2 (13:08):
Yes, which is exactly what it is.
Speaker 3 (13:10):
You bleed, you bleed, you bleed, and then.
Speaker 2 (13:12):
And so the big thing with gold is, hey, once
it goes through one of these explosive periods, it does
not give you a chance to get back in until
it finally does say, Okay, this is over, Like this
is what we've seen historically. So I think there's something
really interesting that's happening here. It's not just a US phenomenon.
(13:33):
This is a worldwide thing that we are seeing. And
that's why I think you're getting a lot of focus
and news on this side of things with the price
of It. Quick break here and when we come back,
it's trivia.
Speaker 1 (13:49):
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Speaker 4 (14:25):
All right, let's do a little bit of trivia here
in the Financial Exchange Today is R. L. Stein's eighty
second birthday. Stein is best known for writing a children's
book series that has sold over four hundred million copies
in twenty four languages. His creation has also been developed
as a TV series and a movie. So tribute question today,
(14:46):
what is the name of R. L. Stein's popular children's
book series? Once again, what is the name of R. L.
Stein's popular children's book series? Be the eighth person today
to text us at six months having three six two
thirteen eighty five with correct answer, and you win a
Financial Exchange Show T shirt.
Speaker 2 (15:05):
Once again.
Speaker 4 (15:06):
The eighth correct response to text us to the number
six one seven three six two thirteen eighty five, We'll
win that T shirt. See complete contest rules at Financial
Exchange Show dot com.
Speaker 2 (15:18):
Piece in the Financial Times, it's titled brace for a
Market melt up, and melt up is one of those terms.
It's kind of nebulous, like I don't think there's a
formal definition for melt up. And furthermore, why does it
melt up like nothing? When you when something melts, gravity
(15:39):
makes it fall. So I don't know where this term
came from either and it's like it's so hot so
they have to melt but they're gonna melt up, so
I don't poop poo. The idea of this in that
with with where we are right now, I think ultimately
like we keep getting a bunch of like everyone's out
(16:01):
there being like, well, this has to fall apart sometime.
This has to fall apart sometime, And the time when
things usually fall apart is when the last people are like,
well it can't fall apart now, and you know, maybe
we haven't gotten there yet. But it's also you just
look at the calendar and just from a mechanical standpoint,
you start getting towards your end and mark. You know
this from being in the institutional management business, where you
(16:25):
start getting towards you know, November and December, and every
fund out there is just trying to make their bogies
by year end. They're all chasing performance to try to
get that last bit. It's why we have, you know,
terms like the Santa Claus Rally and stuff like that,
is that you get this you know tailwind of managers
just chasing into year end. And there's a very real
case that you could sit here and be like, yeah,
(16:46):
there's still a bunch of money that got pulled off
to the sidelines, you know in April when people got nervous,
and institutions might try to, you know, make that up
because hedge fund performance this year hasn't been great and
maybe that chases the s and P five hundred, like
five I've to ten percent higher in the next few
months or so. There's a very reasonable case to be
(17:06):
made there. The countercase is that everyone in their grandmother
is now talking about this melt up, and that gets
me kind of interested in being like, oh, melt up,
Like that's you know, that's that's interesting. Why why do
all of you think that at this particular point in time,
after stocks have already run forty percent plus from the
April lows.
Speaker 3 (17:27):
Yeah, it is I think a normal last phase of
an exuberant bowl market for there to be a final pop,
and that for reasons that you cited that makes sense.
Of course, a bubble pops at its peak. It has to.
(17:49):
By definition, you know, what's the catalyst going to be?
I don't find the.
Speaker 2 (17:54):
Bubble doesn't pop. Is it really a bubble?
Speaker 3 (17:56):
Yeah? Was it a bubble to begin with?
Speaker 2 (17:57):
Right?
Speaker 3 (17:58):
And by bubble we should define that just mean when
something departs so much from fundamentals, and fundamentals mean what
you would value, in the case of a particular stock,
what you would value it at using a reasonable estimate
of future cash flows and the rate of return you
require to compensate you for the risk. With those two things,
you can bring the stream of dividend payments or the
(18:18):
eventual return of the eventual appreciation you experience when you
sell the security. You can bring those back to the
present literally a present value, compare that to what the
stock is paying today, and voila, you get a reasonable
estimate of fair value. You can compare that to current value,
and if something is way out of whack relative to
fair value, you might call that a bubble. Personally, I
(18:39):
see a lot of signs of serious excess. Of course,
I blame the Federal Reserve, which is responsible for financial conditions,
and it is baffling to me that they're easing into
an environment where financial conditions are about as loose as
they can get. Stocks continue to hit record highs, and
gold is telling us all something. As you pointed out,
I happen to agree with that. Honest people can disagree,
but gold appears to be telling us something, and the
(19:03):
value of other metals and assets appear to be too.
I don't think it's a coincidence that gold stocks, home
prices are all hitting all time highs. I left a
bunch of things out. Financial conditions are as loose as
they've ever been, underlying inflation remains elevated. I don't think
those things are a coincidence. Ultimately, that is the Fed's problem.
Speaker 2 (19:22):
Let's take a quick break. When we return, we've got
the Trivia answer, and we've got Wall Street.
Speaker 5 (19:28):
Watch, bringing the latest financial news straight to your radio.
Every day.
Speaker 1 (19:44):
It's the Financial Exchange on the Financial Exchange Radio Network.
Time now for Wall Street Watch. A complete look at
what's moving markets so far today right here on the
Financial Exchange Radio Network.
Speaker 4 (19:58):
Markets are rebund saying after yesterday's pullback as the government
shutdown continues into its second week. Right now, the Dow
is up three tenths of one percent, or one hundred
and thirty eight points, SMP five hundred, up half a
percent or thirty three points, NASDAC up three quarters of
one percent or one hundred and sixty nine points. Russell
(20:19):
two thousands up nearly seven tenths of one percent, tenyure
treasurreel down one basis point at four point one one
seven percent, and crude oil up nearly two percent higher,
trading at sixty two dollars and eighty two cents a barrel.
Well after its two and a half percent loss yesterday,
Oracle shares are rebounding about half a percent today. Oracles
(20:41):
recent pullback was driven by a report by The Information
saying the company's margins from its cloud business we're weaker
than an analysts were forecasting, and that Oracle is losing
money on some of its deals to rent out Nvidia chips. Meanwhile,
Equifact shares a rising nearly two percent after the company
said it would cut prices for mortgage scores. This comes
(21:02):
after fair Isaac last week said it would sell credit
scores directly to mortgage lenders by passing credit bureaus like Equifax. Elsewhere,
Tesla unveiled stripped down versions of his best selling SUV
and DAN. However, the lower prices don't quite cover the
recently expired seventy five hundred dollars EV tax credit. The
(21:23):
standard Model three costs about thirty seven thousand dollars, while
the standard model Y costs about forty thousand dollars. Tesla
stock is edging higher on the day. Ast Space Mobile
announced to deal with for Horizon to provide its customers
with sell service from Space beginning in twenty twenty six,
sending that stock jumping by ten percent. Verizon down modestly
(21:46):
in third quarter earning season will kick off tomorrow morning
as Pepsi and Delta will post their results ahead of
the open. Major banks including JP Morgan, Chase, Wells Fargo,
and Goldman Sachs will follow on Tuesday of next week.
I'm Tucker Silvan. That is Wall Street Watch, and in
the prior segment, we asked you the trivia question, what
(22:07):
is the name of Ralstein's popular children's book series. That's,
of course, Goosebumps. Emily from Westbrook Main And there's our
winner today taking on my Financial Exchange Show T shirt.
Congrats Emily, and we play trivia every day here in
the Financial Exchange. See complete contest rules at Financial Exchange
Show dot com.
Speaker 2 (22:25):
Market's talk a little bit about housing. First, we got
a piece from the Wall Street Journal. Homeowners are pouncing
on the tiniest drop in mortgage rates they did for
about a couple of weeks and then they've kind of,
you know, said okay, like all the people who wanted
to refinance kind of did, and so it's just the
blooms off that roa. So as an example, there's an index.
(22:48):
It's called the NBA Mortgage Refinance Index. It's run by
the Mortgage Bankers Association, as you would expect from the name,
and it measures uh, it's just an arbitrary number. Higher
means there's more activity, and lower means there's there's less.
So on September fifth, the reading on it was oney
(23:09):
ten for the refinance index. Don't you don't need to
know what that means. It doesn't mean that there were
a thousand refinances. It's compared to some arbitrary date in
the past, and whatever the reason why, the reason the
reading on September fifth was on thy ten. We then
saw interest rates drop heading into the FED meeting, and
(23:30):
for the next two weeks the reading was about sixteen hundred.
So there's a sixty percent bump in refinancing activity for
two weeks. The most most recent reading, my goodness, I
can't do anything. This segment, the most recent reading came
out this week and it's back down to eleven hundred
and eighty, so mortgage refinances have declined twenty five percent
(23:53):
since that two week boom. And this also coincides with
mortgage rates going back up like quarter percent. So we're
in a very interest rate sensitive environment right now. And
I also think that when you look at the NBA
Purchase Index, which they have as well, that's up very
modestly from the summer, about six seven percent right now.
(24:18):
But the other piece that you have to look at,
and this is data that we don't get from the NBA.
You get it from other sources. The dollar value, the
average size of the mortgage being taken out is smaller
than at this time last year, which means that home
prices are not moving up because you would be borrowing
more if they were generally the trend that we've seen.
(24:39):
So I think we're in a very rate sensitive environment
that quite honestly, in order to get the housing market
really moving, I think that national thirty year average has
to be somewhere in the five and a half percent range,
about three quarters of a percent below where it is today,
and you kind of extrapolate, Okay, what needs to happen
for rates to get there. The ten year treasury probably
(25:01):
has to get down into the three five, three six range.
Which of the ten year treasury is there, probably means
something's really wrong in the economy, and I don't know
that that really helps the housing market.
Speaker 3 (25:12):
Then, so big lenders must know what these trigger points
are because they know what their book of business consists of.
They know when people typically refinance. When I can save
two hundred bucks a month or more, that's my signal
to jump in there. Yeah, they know who in their
book that would apply to. Therefore they must know what
the thresholds are, so they're ready for this. Yes, that's
(25:33):
not really that's just a more of a question slash
slash observation. Okay, So that's one thing that occurs to me.
Banks know when this activity is going to pick up
and when it's unlikely to I guess the other thing
is people did seem to pounce. Was that more than
(25:54):
was that activity more than would have been expected by
big banks given the drop in rates, or was thattable?
If it was predictable, then people are behaving as usual.
I think this is the point I was trying to make,
which I got lost as I was pro bose it's fine. Yeah,
thanks you too, kind.
Speaker 2 (26:09):
Just keep going.
Speaker 3 (26:10):
Okay, No, we have no choice. So is that more
than would have been predicted by banks modeling? If so,
does that suggest people might think that that was a fleeting,
A just a fleeting, a revisiting of rates in them
we have dropped like sixty three or something. Thirty year
(26:32):
fixed rate was somewhere around there.
Speaker 2 (26:33):
Got down to six for a couple. Okay, it was
lower than that. Excuse me.
Speaker 3 (26:36):
So it went from like six mid sixes to very
low sixes. People pounced? Does that mean people think rates
are more likely to go up and stay up? In
other words, was the little frenzy of activity there more
than their models would have predicted. I don't know why
I'm asking this question because we can't answer it, but
that would be interesting to me. We just don't have
the data, folks.
Speaker 2 (26:54):
Armstrong Advisory Group is going to be hosting a seminar.
We have one tomorrow, but honestly, if you don't have
plans for tomorrow yet, you can obviously join us at
Margarita Hill Resort, Cape cod then. But we're also hosting
another one on October sixteenth, this one at the Showcase
Superlucks in Chestnut Hill. There's also gonna be a live
broadcast of the Financial Exchange, so you can come and
(27:16):
say hi to Mike and I and watch us as
we broadcast the show there, and then afterwards we're gonna
be going through discussion of some key economic topics and
taking a Q and A from the audience as well.
It's at the Showcase Superlucks in Chestnut Hill on October sixteenth.
That's a week from tomorrow. It's gonna rain all week
(27:37):
next week. Come inside and join us because you might
learn something and you'll get to stay out of the
rain too, which is always a positive when it's fifty
degrees outside. Again, Showcase Superlucks and Chestnut Hill on October sixteenth.
Eight hundred three nine three four zero zero one is
the number to call, or you can reserve a spot
at Armstrong Advisory dot com. That number again is eight
(28:00):
hundred three nine three four zero zero one.
Speaker 1 (28:04):
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 make contact you to offer investment
advisory services.
Speaker 2 (28:20):
A couple weeks ago, we talked about the First Brand's bankruptcy.
They are in auto parts manufacturer. They make brands such
as fram oil, filters, and other things that you might
know from your vehicles. And basically, the long story short
is they took on way more debt than anyone thought
they had and now they can't pay it all back,
(28:40):
which is usually how bankruptcy happens, except for like the
way more debt than anyone thought they had. Creditors through
the summer thought they had like six billion in debt.
It's turning out they might have like twelve to fifteen billion.
No one's entirely sure because a lot of it was
off balance sheet and done through these repo agreements, and
it's just it's a mess. Jeffries, one of their credit
funds has about seven hundred and fifteen million dollars of
(29:03):
exposure linked to First Brands, making them one of the
largest creditors. And look, this is not the housing crisis.
I don't think it's the housing crisis.
Speaker 3 (29:15):
A you sound less confident than you did a week ago.
Speaker 2 (29:18):
Here's the thing. When you just have one company where
this happens. It can be a fluke, it can be
an off chance that there's something going on. There was
also the Tricolor bankruptcy just before that, also in the
auto space, a dealer and finanswer in that space, and
(29:40):
so you start to look around and say, huh, is
there something happening that's starting in the auto sector that
might like spill out from there. Just because now that
you're like starting to see what's going on with this
First Brands bankruptcy, the questions that are on everyone's mind
who's in that private credit space, whether it's auto related,
(30:02):
art related, hotel related, invoice related, whatever it is. Everyone
out there is sitting around looking going, well, what's this
thing that I own worth? And do I want to
keep it on my books or do I want to
try to sell it off to someone? And how much
are they going to pay me for it if I
(30:23):
can get it off my books? And that, to me,
it's not reminiscent of two thousand and eight, it's reminiscent
of two thousand and seven, because remember things started bubbling
up in early two thousand and seven in subprime. It
wasn't until eighteen months later that things really blew up.
Speaker 3 (30:39):
Yeah, I agree to me. It is reminiscent of seven We.
Not you and I, but we. The industry were asking
questions of hedge fund and other managers at the time,
what is your exposure to this? And they couldn't answer
that question fully because no one analyst. And when I
say analyst, I mean the person in an investment manager
(31:00):
who evaluates investment for purchase and is ultimately responsible for
its performance. They own it and they live and die
by it. They don't see the whole picture. They just
see the last couple of links in the chain. They
don't understand, not because they're not bright. They are, but
because nobody can see every link in the chain, you
don't know what the cash flows you are getting are
(31:22):
ultimately dependent upon. So it would be like Chuck, I
loan money to you. What I didn't know because I
can't see two links from me.
Speaker 2 (31:31):
I can only see you.
Speaker 3 (31:32):
Is that Tucker owes you money and that's how you're
going to make the payments to me. You could call
this off balance sheet, just call it a tangled web
of interconnected obligations. It's hard to get to the root
of the source of the cash flows for the sucker
that you own. Now you are a triple A rated credit,
you're a highly credit worthy borrower. I have no problem
(31:54):
any money to you. What I didn't know is that
you lent money to some non credit worthy I'll pick
on Tucker and Lois here. You lent money to them
getting lunch ons.
Speaker 2 (32:09):
Like, what did I do?
Speaker 3 (32:10):
I just need an example. You can't see more than
one or two links down the chain, so you don't
understand what's backing up the cash flows of the thing
that you own.
Speaker 2 (32:17):
You don't even know what your exposures are.
Speaker 3 (32:19):
So you call asset managers in environment like this, you
call a goldmansa actually call it him. Go what's your exposure?
They say, just we don't have any that we're aware of.
But as it turns out, because of the chain analogy
that I'm using, everybody's exposed. This may be contained or
it could be contagious.
Speaker 2 (32:35):
We don't just don't know which.
Speaker 3 (32:36):
See, we don't know whether it's contained or contagious at
this point, and.
Speaker 2 (32:40):
That's the piece that is going to take some time
to unfold here. So this may end up being a
nothing burger in the broader economy. My intenna are up
on it, though, Chuck.
Speaker 3 (32:51):
Combine this with soaring goal prices, easy financial conditions, stock
market at record highs, home prices at record highs, elevated inflation,
reckless fiscal policy. The confluence of things here has the
potential for some very ugly outcomes.
Speaker 2 (33:07):
Quick break when we return Stack Roulette.
Speaker 1 (33:10):
The Financial Exchange streams live on YouTube. Subscribe to our
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The Financial Exchange is life on Series XM's Business radio
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(33:32):
and around the world, and keep up to date on
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Channel one thirty two. Face is the Financial Exchange Radio Network.
Speaker 4 (33:48):
Well, this year's DAV five K is sold out, but
you can still help our great American heroes. The race
is Saturday, November eighth, Castle Island, and you can visit
DAV five KT Boston to make a donation of any
amount to support our troops. Your gifts help fund free
rides to medical appointments for veterans, and the nation's first
da b laed housing initiative providing homes for single veterans
(34:11):
and veteran families. Go to DAB five K dot Boston
and make your donation today.
Speaker 2 (34:18):
Mark, I got to talk about someone who shares your
your name. Unfortunately, Mark Andresen, the venture capitalist, he gave
an interview the other day. This was in a conversation
with where was it was on the company's Stripe has
(34:38):
a podcast called Cheeky Pint. I guess, oh boy, I
don't know why stripes a payment processing company, and I
just want to read, you know, a couple of quotes here.
He says. The other great economic fallacy that I see
everywhere is the idea that AI is going to somehow
be this hyper successful thing, this hyper excel of productivity.
(35:00):
They'll change everything and destroy all the jobs and yet
still going to lead to people being eviscerated and being
poor and not having anything. He says, even if it
played out like that right, the result will be hyper
deflation of prices, which is the thing that people miss.
So in that environment, the price of business services will
collapse and things that today cost a lot of money
will suddenly be all cheaper free. Now he's not wrong
(35:22):
about that piece of it, But what he's wrong about
is the fact that the reason they'll be cheaper freeze
because there's no demand for them. And if you are
a business that fires everyone, how do those people make
a living going forward? So again, I don't think a
lot of this is particularly well thought out. I always
(35:43):
hear people talk about deflation as if it's this good thing,
and people don't remember that when there was actual deflation
in the US historically basically every couple of years in
the seventeen and eighteen hundreds, it was typically as a
result of massive gaps in demand that resulted in tremendous
job loss and hardship blake. When we think about deflation,
(36:06):
were we think of it in terms of, well, I
maintain my job, but the things that I buy get cheaper,
when in reality, the reason that deflation usually happens is
that a large number of people lose their jobs and
purchasing power and can't buy those things anymore. And that's
why deflation has historically been a thing. I don't think
anyone can make a convincing argument that deflation is something
(36:28):
that is actually good.
Speaker 3 (36:30):
No, Andreson has no idea what he's talking about. He
may be a genius in his little domain. But anybody
who took a few undergraduate economics courses could explain why
deflation is bad. We did have deflation in the early
stages of the Great Depression. We stayed on the gold standard.
The FED could not pump enough money into the economy
as a result, and debts, the real value of debt exploded.
(36:51):
So you don't want deflation.
Speaker 4 (36:52):
If you owe debt, it's quite bad for you.
Speaker 2 (36:55):
And we've got a little bit of that in the
United States.
Speaker 1 (36:57):
Yeah, just a bit.
Speaker 3 (36:59):
Yeah, we want the opposite. With a federal reserve that
can print money, you won't have deflation ever. So again,
I don't really know. This is the problem with reasoning.
Without a modeling in your head, you say like preposterous things.
You can criticize economists for their models, but they at
least require that they think kind of rigorously and consistently,
and they give them something a test against the real world. Look,
(37:19):
AI could result in a productivity miracle, that's true, But
deflation or even disinflation or low inflation doesn't follow from that.
Those things are determined by whoever controls the money supply.
Maybe it'll be the Fed, maybe it'll be the White House,
if the President has his way. That's it's not money
is not The rate of inflation does not emerge from
(37:41):
real economic activity. It's determined by the entity that has
control over the supply of money in the long run.
Speaker 2 (37:46):
Taking a look at markets as we had towards the
top of the hour, the Dow is up one hundred
and ninety points, s and p is up thirty eight,
Nasdaq up one hundred and ninety one. So we've got
a broad based rally taking place today, negating yesterday's life loses. Ultimately,
heading into day nine of government shutdowns, there's still no
government economic day that's going to be provided, which means
(38:08):
no weekly job was claims tomorrow. So we won't be
able to talk about that on tomorrow's show because it
does not exist. But we got a whole lot more
that we're going to talk about then. To all of
you who are gonna join us at Margaritaville Resort, Cape
cod looking forward to seeing you tomorrow, and we'll put
on a great show
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