From Highs to Headwinds: Navigating the Economy’s Crosscurrents

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Welcome to Something More with Chris Boyd.

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Chris Boyd is a certified financial planner, practitioner,

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and senior vice president and financial advisor at

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Wealth Enhancement Group, one of the nation's largest

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registered investment advisors.

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We call it Something More because we'd like

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to talk not only about those important dollar

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and cents issues, but also the quality of

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life issues that make the money matters matter.

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Here he is, your fulfillment facilitator, your partner

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in prosperity, advising clients on Cape Cod and

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across the country.

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Here's your host, Jay Christopher Boyd.

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Welcome.

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This is Something More with Chris Boyd.

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I'm Chris Boyd here with Jeff Perry.

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We are joined this week by Brian Regan,

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our team's senior portfolio manager, and we are

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all of the AMR team at Wealth Enhancement

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and glad to have you with us.

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We want to talk about some of the

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kinds of things that I think clients are

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coming to us with regularly, this sense of,

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gee, it's great that markets are at highs,

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like they're feeling pleased, but a little bit

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anxious.

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When's the other shoe going to drop?

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Is there something coming?

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What to expect?

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With that in mind, we're going to talk

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with Brian about the topic of headwinds.

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What are the headwinds?

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Is there more opportunity than risk or more

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risk than opportunity?

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Well, I guess that's what makes a market

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move, right?

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Yes, the answer is yes.

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Yes, right.

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And of course, none of us has a

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crystal ball with any of this stuff, but

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Brian, you spend a lot of attention watching

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the data.

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We started to see the feds signaling, what's

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your take right now as to how's this

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affecting the way you think about outlook and

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positioning?

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So the market's up, that's good news.

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So bear with me while I give you

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a bunch of bad news, but the topic

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is headwinds, so it's kind of natural, right?

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Yeah, you might expect it.

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Here are the headwinds that I want to

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talk about, tariffs, immigration, and student loan repayments.

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We're really starting to see the effects of

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the tariff policy.

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And unfortunately, it hasn't been good.

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It's been five months, let's say, quote unquote,

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liberation day, where things got crazy.

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We settled down to a spot that's much

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higher than it has been historically, actually, maybe

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higher than it's ever been in the country's

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history.

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We're around 18% tax compared to income

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taxes for Americans right now, bringing in around

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$350 billion over the last five months.

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If you annualize that, we're looking at $800,

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$900 billion worth of taxes on the American

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consumer.

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What are we seeing?

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We're seeing inflation in goods rise, and we

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were seeing some disinflation from services.

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We're starting to see that level off and

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actually start to rise a little bit.

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The parts of the economy that are heavily

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inflicted by tariffs, basically anything that's imported, has

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seen a dramatic either price increase or demand

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just has disappeared.

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Think apparel, think furniture, things like that.

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But we're also starting to see some lightening

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up on things like going out to eat,

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hotel and accommodations.

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We're starting to see some price increases there.

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When you look at our $800 billion tax,

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we're expected to take down about 70 basis

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points of GDP growth.

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If potential GDP is 2% and you

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take around 70 basis points, you're at 1

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.3%. Your margin of error gets a little

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tighter.

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At the same time, we've seen employment growth

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stagnate to close to zero within a margin

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of error that could be negative, could be

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positive.

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In my mind, that means that, hey, look,

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we might be in a recession.

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If you have a Bloomberg machine and you

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were to pull it up right now, it

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would say that there's an expectation of a

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30% chance of a recession.

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That's tariffs.

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It hasn't been good.

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Prices have been increasing.

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The expected inflation is 3% for the

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next 12 months.

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The price on a one-year inflation swap,

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which basically means what the market thinks is

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willing to pay for inflation protection over the

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next one year, is 3.5%. Keep in

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mind that the target for the Federal Reserve

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is 2%, but I'll get to that in

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a minute because it seems like the Reserve

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has abandoned that as a target, whether that's

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political or whether or not they're prioritizing the

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unemployment situation is debatable, and I actually think

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it's both.

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I think this Lisa Cooke thing is about

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being in control of the Federal Reserve so

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that they can change it and really stop

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thinking about- Drive monetary policy the way

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they want.

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Among other things.

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They could change Fed presidents in every city

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if they wanted to, if they had four

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board governors rather than the three dissents right

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now.

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The makeup of the board governors on the

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Federal Open Market Committee are important, and so

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that's a different topic.

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I think we're on a good show though,

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maybe.

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That's a good topic further, but anyway, come

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back to it.

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Yeah.

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As you guys know, I have a lot

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on my mind right now.

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So that's tariffs, right?

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What are we seeing?

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We're seeing a slowdown in GDP to the

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tune of around 70 basis points.

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That's from the Yale Budget Office, that estimate,

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and we're seeing inflation expectations to be three

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for at least the next 12 months.

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Why the next 12 months?

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Because you're probably going to start seeing it

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roll over and the CPI growth on a

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higher base.

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Unless tariffs go up again, we'll roll out,

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which is the other reason why the Fed

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is probably looking at it as a, I

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don't want to say transitory, because 12 months...

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People in the world these days can't think

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of 12 months as a short amount of

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time.

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Before you go on to other things like

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student loans and other things, I want to

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just come back to this.

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So $800 billion, that's very interesting as an

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estimate for where revenue generated by tariff taxation

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for the federal government.

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We were running about a $2 trillion, $1

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.8, $1.9 trillion deficit last fiscal year.

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That might help at least the debt direction

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of things, if not the economy because of

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money that people don't have to use in

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other ways.

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0.7% GDP, that's taking out 0

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.7% you said from the tariff, that's

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about what that represents.

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And you said our GDP growth was about

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1.3% forecasted right now?

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No, the estimate for potential is 2%.

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You take out that 70 basis points, you

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get to 1.3%. Over the last 12

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months, I believe it's been 1.75%. So

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you're getting on the hairy edge, right?

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We're far from being settled on these issues.

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Your point about recession, this risk of recession.

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I've said this before, but it's been a

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long time since we had a recession, really.

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We had the pandemic where we had a

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recession, but there was all this stimulus thrown

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at it that was very short-lived and

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arguably government policy driven and resolved in both

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cases.

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So it's been a long time since we

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had a recession otherwise.

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So it seems to me that it'd be

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surprising that we didn't have a recession in

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this administration.

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Before we knew the outcome of the election,

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that was kind of my expectation that whoever

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won, you'd probably likely to have a recession

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just because it's been so long since we

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had one.

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But the Fed seems to have found this

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a sweet spot of moving monetary policy, helping

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to navigate that seemingly effectively.

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This question of inflation on the one hand,

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saying rising to 3%, 3.5% on

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the one hand, and a zero growth perhaps

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on the employment end of things, just the

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minimal employment, that does seem to speak to,

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hey, we're slowing down.

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On the one hand, which would say, hey,

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let's lower interest rates on the other hand,

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the rising inflation seems to be like, oh,

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maybe we don't want to.

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But you're saying because of the tariffs being

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a big component of that, maybe that'll just

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work itself out because it's a one-time,

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not an ongoing, growing endeavor.

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My guess is when the Federal Reserve cuts

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rates tomorrow and they have a press conference,

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that's what Jay Powell's going to say, that

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he expects it to be transitory.

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And that's going to be his excuse.

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We're recording this on September 15th for our

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listeners.

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Yeah, I think that's going to be his

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excuse.

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And that the unemployment concerns outweigh the inflation

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concerns because of that.

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Okay.

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All right.

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So you were starting to tell us what

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these headwinds are.

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And part of it, you were talking about

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tariffs as the setup.

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We got cut off here because I interrupted.

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Well, I think I was done with tariffs,

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so it was a good time to interrupt.

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We mentioned the employment situation there a couple

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of times.

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Part of the reason why folks think the

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employment situation is worsening is because of deportations.

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So we're on track for about a million

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deportations here in 2025.

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You take that from a year ago, we

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were having about a million or more people

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coming into the country.

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Let's call it a 2 million person swing.

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Let's say that those people were making $30

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,000 a year.

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And you start to get some very big

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numbers that are taken out of the economy

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on top of that.

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I have not done the math.

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I haven't done accurate estimates, but basically-

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Theoretically, you get the point.

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Right.

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The supply has come down.

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And what would you expect in certain industries

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like agriculture, construction, leisure and hospitality, restaurant service,

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you're going to see wages go higher.

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And I mentioned briefly on the tariff conversation,

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how we were having tariffs go up pretty

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obviously in goods directly related to tariffs.

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But we were also seeing inflation go up

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in some services.

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And I think that's partly because, if not

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largely because of this change in immigration situation.

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So again, this is kind of a stagflation

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type of policy, right?

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We have less labor supply, we have higher

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wages, which means more inflation, less economic growth,

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which is not great.

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Again, that's why you're seeing inflation be around

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3% and economic growth expectations to be

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around 1%.

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And these aren't my numbers.

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These are the consensus estimate numbers for the

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00:11:55,840 --> 00:11:56,400
next 12 months.

273
00:11:56,860 --> 00:11:59,120
So if you want to disagree with them,

274
00:11:59,220 --> 00:11:59,460
fine.

275
00:11:59,560 --> 00:12:02,280
Just know that you're disagreeing with the 60

276
00:12:02,280 --> 00:12:08,100
economists or market participants who get interviewed by

277
00:12:08,100 --> 00:12:11,400
Bloomberg to build their index of expectations for

278
00:12:11,400 --> 00:12:11,520
this.

279
00:12:11,840 --> 00:12:13,880
I saw last week, or maybe the week

280
00:12:13,880 --> 00:12:16,080
before when one of the unemployment numbers were

281
00:12:16,080 --> 00:12:18,760
coming out, a really interesting conversation on CNBC

282
00:12:18,760 --> 00:12:23,600
about the credibility of these numbers when you're

283
00:12:23,600 --> 00:12:28,600
talking about deportations and all the related issues,

284
00:12:28,680 --> 00:12:30,560
because so much of this part of this

285
00:12:30,560 --> 00:12:32,520
economy is underground, right?

286
00:12:32,580 --> 00:12:34,820
It's not like people are working.

287
00:12:35,340 --> 00:12:36,860
Many of them are, many of them are

288
00:12:36,860 --> 00:12:39,140
authorized to work, but many are not.

289
00:12:40,000 --> 00:12:45,130
And so the dynamic of the data with

290
00:12:45,130 --> 00:12:47,550
so many of those people being not in,

291
00:12:47,770 --> 00:12:49,950
not officially in the wage pool and not

292
00:12:49,950 --> 00:12:52,390
officially paying taxes, and I know they pay

293
00:12:52,390 --> 00:12:53,750
taxes for all the things that they do

294
00:12:53,750 --> 00:12:55,230
in the economy, and that has an impact

295
00:12:55,230 --> 00:12:55,650
on it.

296
00:12:56,230 --> 00:12:58,250
But as far as payroll data and unemployment

297
00:12:58,250 --> 00:12:59,270
rates, et cetera.

298
00:12:59,870 --> 00:13:01,250
Do you have any thoughts on that, Brian?

299
00:13:01,750 --> 00:13:02,030
Sure.

300
00:13:02,150 --> 00:13:04,510
So I have, I think that it's a

301
00:13:04,510 --> 00:13:05,110
little misleading.

302
00:13:05,330 --> 00:13:06,090
I mean, I hear your point.

303
00:13:06,170 --> 00:13:07,690
It's hard to know exactly in this data,

304
00:13:08,010 --> 00:13:10,470
but I do have- What was misleading?

305
00:13:10,710 --> 00:13:11,330
It's a question.

306
00:13:14,230 --> 00:13:15,470
Whatever you said, I do think we have

307
00:13:15,470 --> 00:13:17,070
some data on this, I guess, is what

308
00:13:17,070 --> 00:13:17,790
I think is misleading.

309
00:13:18,050 --> 00:13:19,710
And I'm just going to quote it.

310
00:13:19,950 --> 00:13:23,690
From the US Bureau of Labor Statistics, industries

311
00:13:23,690 --> 00:13:26,650
that make up unauthorized labor as a percentage

312
00:13:26,650 --> 00:13:29,890
of total nonfarm payrolls, so total nonfarm payrolls

313
00:13:29,890 --> 00:13:33,330
is the survey that happens, and you get

314
00:13:33,330 --> 00:13:34,950
the data once every month, and it gets,

315
00:13:37,210 --> 00:13:40,150
they do revisions for two months prior, and

316
00:13:40,150 --> 00:13:42,050
then they do a big annual revision, which

317
00:13:42,050 --> 00:13:43,190
we just got, which is one of the

318
00:13:43,190 --> 00:13:46,750
biggest ever from the March period, 12 months

319
00:13:46,750 --> 00:13:47,190
prior.

320
00:13:48,430 --> 00:13:51,890
But this is- Talking about reliability of

321
00:13:51,890 --> 00:13:52,150
data.

322
00:13:53,370 --> 00:13:56,830
Well, the data is trending negative, and it's

323
00:13:56,830 --> 00:13:58,470
kind of not really debatable.

324
00:13:59,270 --> 00:14:00,490
But yeah, you're right.

325
00:14:00,610 --> 00:14:02,710
I mean, it was a big revision, and

326
00:14:02,710 --> 00:14:06,510
the surveys are maybe not completely reliable, but

327
00:14:06,510 --> 00:14:07,550
certainly trending negative.

328
00:14:07,730 --> 00:14:09,730
But anyways, the US Bureau of Labor Statistics,

329
00:14:10,070 --> 00:14:11,990
the same people who put out that annual

330
00:14:11,990 --> 00:14:13,590
report that we put a lot of stock

331
00:14:13,590 --> 00:14:17,850
into, has 4% in unauthorized labor and

332
00:14:17,850 --> 00:14:20,870
wholesale trade, 4% in transportation and warehousing,

333
00:14:21,130 --> 00:14:23,910
5% in construction, 10% in retail

334
00:14:23,910 --> 00:14:26,210
trade, and 10% leisure and hospitality.

335
00:14:26,930 --> 00:14:29,030
So those are the industries that are likely

336
00:14:29,030 --> 00:14:31,490
going to be more impacted by this than

337
00:14:31,490 --> 00:14:31,850
others.

338
00:14:32,010 --> 00:14:33,550
So we do have some data on it.

339
00:14:34,190 --> 00:14:41,610
And I think it's undeniably a negative on

340
00:14:41,610 --> 00:14:43,330
the economy on both the inflation and employment

341
00:14:43,330 --> 00:14:44,150
and growth front.

342
00:14:47,180 --> 00:14:49,020
That answer your question, Jeff?

343
00:14:49,060 --> 00:14:49,680
You good with that?

344
00:14:50,780 --> 00:14:51,300
Sure.

345
00:14:52,180 --> 00:14:52,300
Yeah.

346
00:14:52,540 --> 00:14:54,120
I mean, I think that's a fair point.

347
00:14:54,320 --> 00:14:58,140
We may not have comprehensive data, but I

348
00:14:58,140 --> 00:15:01,620
think the point Brian's driving at is we

349
00:15:01,620 --> 00:15:05,340
may not have it comprehensively, but we know

350
00:15:05,340 --> 00:15:07,760
directionally, this is where it's going to be

351
00:15:07,760 --> 00:15:08,400
most challenged.

352
00:15:08,920 --> 00:15:13,740
I was making the question of, isn't this

353
00:15:13,740 --> 00:15:15,560
maybe even a bigger issue because so many

354
00:15:15,560 --> 00:15:17,320
people are not counted.

355
00:15:18,140 --> 00:15:20,280
Might not even realize, capture the extent to

356
00:15:20,280 --> 00:15:20,420
which.

357
00:15:20,420 --> 00:15:22,720
And if they need to be replaced by

358
00:15:22,720 --> 00:15:25,540
people who are counted, just to throw the

359
00:15:25,540 --> 00:15:29,100
generalities out there, that might even drive up

360
00:15:29,100 --> 00:15:30,160
wages more.

361
00:15:31,180 --> 00:15:31,700
Inflation.

362
00:15:32,080 --> 00:15:33,300
Inflation and so forth.

363
00:15:34,000 --> 00:15:36,060
Because you're taking part of the underground, which

364
00:15:36,060 --> 00:15:37,780
is part of the goal, is taking part

365
00:15:37,780 --> 00:15:40,580
of the underground economy and making it legal

366
00:15:40,580 --> 00:15:41,320
and above ground.

367
00:15:41,940 --> 00:15:44,460
And so the magnitude of these predictions might

368
00:15:44,460 --> 00:15:45,240
be understated.

369
00:15:45,520 --> 00:15:46,900
That was my question.

370
00:15:47,180 --> 00:15:49,860
It wasn't really a statement, but it was

371
00:15:49,860 --> 00:15:52,280
a very interesting discussion anyway that I saw.

372
00:15:53,260 --> 00:15:55,720
Well, maybe I misunderstood the question, but my

373
00:15:55,720 --> 00:15:56,900
point was just that we do have some

374
00:15:56,900 --> 00:15:57,660
data on it.

375
00:15:58,180 --> 00:16:02,180
Whether it's accurate or not, I assume it

376
00:16:02,180 --> 00:16:05,220
is as best as any other government statistic,

377
00:16:05,380 --> 00:16:05,640
I guess.

378
00:16:07,040 --> 00:16:09,560
The third one was student loan repayments.

379
00:16:10,000 --> 00:16:13,720
So with student loan, we have 45 million

380
00:16:13,720 --> 00:16:16,220
Americans that have a student loan.

381
00:16:16,700 --> 00:16:18,760
That's about 20% of the adult population.

382
00:16:20,200 --> 00:16:22,720
And they're paying anywhere between 5% and

383
00:16:22,720 --> 00:16:25,400
10% on interest rates.

384
00:16:26,360 --> 00:16:30,960
And they recently had to start paying after

385
00:16:30,960 --> 00:16:34,520
a long reprieve from not having to pay

386
00:16:34,520 --> 00:16:35,380
them following COVID.

387
00:16:36,140 --> 00:16:38,720
And what we're seeing is delinquencies are skyrocketing.

388
00:16:38,980 --> 00:16:41,400
I believe the number is around 11 million

389
00:16:41,400 --> 00:16:43,980
people are either defaulted or between 60 and

390
00:16:43,980 --> 00:16:44,760
90 days delinquent.

391
00:16:46,840 --> 00:16:48,580
So that's not a small amount of money

392
00:16:48,580 --> 00:16:49,480
in the economy either.

393
00:16:49,640 --> 00:16:52,060
Now, I have not worked up an estimate.

394
00:16:52,620 --> 00:16:55,500
And I asked Torsten Slack of Apollo this

395
00:16:55,500 --> 00:16:57,820
today, he did not have an estimate on

396
00:16:57,820 --> 00:17:02,360
how much immigration and student loan payments are

397
00:17:02,360 --> 00:17:03,640
going to be a drag on the economy.

398
00:17:03,800 --> 00:17:05,780
But if we're already at one to 1

399
00:17:05,780 --> 00:17:09,300
.3, because of tariffs, and you layer these

400
00:17:09,300 --> 00:17:12,380
on top of it, you start getting into

401
00:17:12,380 --> 00:17:14,760
a scary territory, I guess is all my

402
00:17:14,760 --> 00:17:15,680
point is.

403
00:17:15,780 --> 00:17:18,900
And then the 30% estimate of recession

404
00:17:18,900 --> 00:17:22,099
on Bloomberg, that's the expectation over the next

405
00:17:22,099 --> 00:17:22,700
12 months.

406
00:17:23,480 --> 00:17:25,040
I would say, I think there's a 30

407
00:17:25,040 --> 00:17:26,760
% chance that we're in a recession today.

408
00:17:28,640 --> 00:17:31,180
And how does that impact your portfolio is

409
00:17:31,180 --> 00:17:35,680
an interesting question too, because we all have

410
00:17:35,680 --> 00:17:36,080
this data.

411
00:17:36,200 --> 00:17:37,460
I'm not the only person that has access

412
00:17:37,460 --> 00:17:38,300
to this data, right?

413
00:17:38,380 --> 00:17:39,280
And the market has gone up.

414
00:17:40,720 --> 00:17:42,940
And I think this is a function of

415
00:17:44,440 --> 00:17:49,340
the makeup of the stock market.

416
00:17:49,840 --> 00:17:53,120
We have very, very profitable, very, very high

417
00:17:53,120 --> 00:17:59,520
margin companies, very much not leveraged to the

418
00:17:59,520 --> 00:18:05,420
consumer, but leveraged to B2B enterprise customers.

419
00:18:05,960 --> 00:18:09,220
If you think NVIDIA, they do sell some

420
00:18:09,220 --> 00:18:11,800
to gamers and things like that.

421
00:18:11,880 --> 00:18:14,380
But basically, they've been selling chips that will

422
00:18:14,380 --> 00:18:15,740
go in the big data centers that will

423
00:18:15,740 --> 00:18:16,640
end up in cloud computing.

424
00:18:17,420 --> 00:18:20,200
Microsoft has Windows, it's a big enterprise product.

425
00:18:20,520 --> 00:18:22,800
Azure is a big cloud computing company.

426
00:18:24,540 --> 00:18:29,040
Google has exposure, of course, to the consumer

427
00:18:29,040 --> 00:18:30,780
economy because they do a lot of advertising,

428
00:18:30,960 --> 00:18:33,580
but they are the advertising platform.

429
00:18:34,560 --> 00:18:38,260
Facebook, well, Meta and Google, they're dominant, right?

430
00:18:38,640 --> 00:18:42,720
Where we are seeing other media do very,

431
00:18:42,740 --> 00:18:43,260
very poorly.

432
00:18:43,960 --> 00:18:46,820
If you want to think of typical TV

433
00:18:46,820 --> 00:18:50,620
cable providers and their media, they're not doing

434
00:18:50,620 --> 00:18:50,860
well.

435
00:18:51,080 --> 00:18:53,580
So when you think about building out your

436
00:18:53,580 --> 00:18:56,500
portfolio on the equity side, I think you

437
00:18:56,500 --> 00:19:00,000
really want to think about what is levered

438
00:19:00,000 --> 00:19:01,020
to this AI theme.

439
00:19:01,540 --> 00:19:03,300
And that can actually get you pretty diversified.

440
00:19:04,160 --> 00:19:06,520
It's not just the cloud names.

441
00:19:06,620 --> 00:19:08,820
It's not just the semiconductor names.

442
00:19:09,420 --> 00:19:11,240
It can also be industrials that are building

443
00:19:11,240 --> 00:19:14,440
out data centers, the Eatons of the world.

444
00:19:15,040 --> 00:19:20,060
It can also be utilities, which I've touted

445
00:19:20,060 --> 00:19:21,040
a lot.

446
00:19:21,780 --> 00:19:26,060
It can also be, I think you need

447
00:19:26,060 --> 00:19:31,980
to dig deeper into individual companies and individual

448
00:19:31,980 --> 00:19:33,540
sectors that might benefit.

449
00:19:35,840 --> 00:19:40,490
And then when you think about the equities,

450
00:19:40,870 --> 00:19:42,730
so we're going to have we're going to

451
00:19:42,730 --> 00:19:45,210
have slowing growth and we're going to have

452
00:19:45,210 --> 00:19:47,590
cuts in the short-term interest rates, right?

453
00:19:47,610 --> 00:19:49,610
But we're going to have rising inflation.

454
00:19:50,510 --> 00:19:52,430
And what that's done is it created like

455
00:19:52,430 --> 00:19:53,930
this swoosh in the yield curve, right?

456
00:19:53,990 --> 00:19:57,090
Basically saying, over the next couple of years,

457
00:19:57,630 --> 00:19:59,410
we're going to have low interest rates, but

458
00:19:59,410 --> 00:20:01,970
then in the outer years, because of inflation

459
00:20:01,970 --> 00:20:04,290
and growth, we're going to have more positive

460
00:20:04,290 --> 00:20:04,730
interest rates.

461
00:20:04,830 --> 00:20:05,990
So you have the steepening of the yield

462
00:20:05,990 --> 00:20:06,210
curve.

463
00:20:07,770 --> 00:20:10,010
What companies benefit from a steepening yield curve?

464
00:20:10,210 --> 00:20:12,590
The answer is financials, financials, financials, right?

465
00:20:12,790 --> 00:20:16,410
Specifically, banks that lend because they're going to

466
00:20:16,410 --> 00:20:18,710
borrow and pay you deposits on the short

467
00:20:18,710 --> 00:20:18,970
end.

468
00:20:19,570 --> 00:20:22,390
And that borrowing amount is going to go

469
00:20:22,390 --> 00:20:24,250
lower and they're going to lend on the

470
00:20:24,250 --> 00:20:24,830
longer end.

471
00:20:24,970 --> 00:20:26,350
And that's probably going to be a fixed

472
00:20:26,350 --> 00:20:28,310
rate and that leverage and that dynamic is

473
00:20:28,310 --> 00:20:30,250
going to do well too.

474
00:20:30,650 --> 00:20:36,510
So between banks, utilities, some industrials, some technology,

475
00:20:36,790 --> 00:20:40,350
I think you could still do well and

476
00:20:40,350 --> 00:20:45,290
get diversified despite this very, very challenging situation

477
00:20:45,290 --> 00:20:47,010
I think we're having from a consumer standpoint.

478
00:20:47,750 --> 00:20:49,550
And I think that's why the market continues

479
00:20:49,550 --> 00:20:50,270
to do well.

480
00:20:53,420 --> 00:20:55,880
So on the alternatives and fixed income side,

481
00:20:56,020 --> 00:20:57,780
that's where I think things get really interesting,

482
00:20:57,880 --> 00:20:58,160
right?

483
00:20:58,560 --> 00:21:01,320
I think you need to be careful to

484
00:21:01,320 --> 00:21:05,060
go too long in duration because if the

485
00:21:05,060 --> 00:21:07,560
longer part of the curve rises due to

486
00:21:07,560 --> 00:21:10,160
inflation, you're going to get burned similar to

487
00:21:10,160 --> 00:21:13,040
how you might've gotten burned in 2022 as

488
00:21:13,040 --> 00:21:15,200
inflation reared its ugly head.

489
00:21:16,060 --> 00:21:17,660
You also don't want to be too short

490
00:21:17,660 --> 00:21:19,760
because growth is changing.

491
00:21:19,880 --> 00:21:21,500
So what I think you might want is

492
00:21:21,500 --> 00:21:25,360
inflation protected assets, which are expensive.

493
00:21:26,580 --> 00:21:28,820
You might want to consider some other types

494
00:21:28,820 --> 00:21:33,040
of alternatives that might do well on the

495
00:21:33,040 --> 00:21:34,280
up and the down, but they're not going

496
00:21:34,280 --> 00:21:36,000
to set the world on fire.

497
00:21:37,540 --> 00:21:39,560
And you might want to at least look

498
00:21:39,560 --> 00:21:44,680
at certain other types of commodities that might

499
00:21:44,680 --> 00:21:45,540
benefit your portfolio.

500
00:21:45,740 --> 00:21:46,780
And that's not a recommendation.

501
00:21:46,940 --> 00:21:49,660
That's just something that I'm thinking about right

502
00:21:49,660 --> 00:21:50,240
now.

503
00:21:52,420 --> 00:21:53,300
Really interesting.

504
00:21:53,520 --> 00:21:54,520
That's great stuff.

505
00:21:54,920 --> 00:21:56,300
I wanted to go back to something.

506
00:21:56,500 --> 00:21:57,900
We can come back and talk about the

507
00:21:57,900 --> 00:22:03,240
portfolio construction concept, the industries, and you did

508
00:22:03,240 --> 00:22:06,380
a nice job addressing some thoughts on both

509
00:22:06,380 --> 00:22:07,760
equities and fixed income.

510
00:22:08,540 --> 00:22:09,760
I wanted to go back for a second

511
00:22:09,760 --> 00:22:11,800
on when you were talking about student loans

512
00:22:11,800 --> 00:22:18,300
and the concern about delinquencies rising.

513
00:22:18,700 --> 00:22:20,800
Are we seeing that on other forms of

514
00:22:20,800 --> 00:22:23,360
consumer credit with credit cards and the like?

515
00:22:23,640 --> 00:22:25,660
Are we seeing pressure there too?

516
00:22:27,000 --> 00:22:28,320
We are seeing a little bit of pressure,

517
00:22:28,720 --> 00:22:33,420
particularly on auto loans, not on mortgages, a

518
00:22:33,420 --> 00:22:36,060
little bit in consumer revolving loans like credit

519
00:22:36,060 --> 00:22:36,400
cards.

520
00:22:37,740 --> 00:22:41,100
But you're not seeing on mortgages, which is

521
00:22:41,100 --> 00:22:41,340
good.

522
00:22:41,580 --> 00:22:43,100
A lot of people have a fixed rate,

523
00:22:43,760 --> 00:22:45,240
low interest loan still.

524
00:22:47,600 --> 00:22:53,880
But it's very obvious when you look at

525
00:22:53,880 --> 00:22:54,360
student loans.

526
00:22:55,060 --> 00:22:56,900
First of all, in the New York Fed

527
00:22:56,900 --> 00:22:58,780
report, which is where I get this data,

528
00:23:00,800 --> 00:23:02,480
it has a chart and it doesn't help

529
00:23:02,480 --> 00:23:05,480
that the student loans is a red line.

530
00:23:05,760 --> 00:23:07,160
So it's very obvious to see.

531
00:23:07,940 --> 00:23:10,300
It shows that delinquencies and the defaults and

532
00:23:10,300 --> 00:23:13,620
it's a straight line up in recent months.

533
00:23:14,540 --> 00:23:16,540
I guess another way to think about the

534
00:23:16,540 --> 00:23:21,200
student loans is since they were artificially paused,

535
00:23:21,640 --> 00:23:25,640
they were actually stimulating the economy because people

536
00:23:25,640 --> 00:23:28,440
should have been paying at the same time.

537
00:23:28,600 --> 00:23:31,320
Maybe that was part of the reason for

538
00:23:31,320 --> 00:23:33,080
that high level of inflation.

539
00:23:33,960 --> 00:23:36,400
It's another thing people, they didn't get the

540
00:23:36,400 --> 00:23:37,920
money, they got checked, but they didn't get

541
00:23:37,920 --> 00:23:39,680
money for their loans, but they didn't have

542
00:23:39,680 --> 00:23:40,680
to meet their obligations.

543
00:23:41,540 --> 00:23:43,280
So that was just even more of a

544
00:23:43,280 --> 00:23:43,540
stimulus.

545
00:23:44,900 --> 00:23:47,460
Excuse me.

546
00:23:48,440 --> 00:23:50,020
Well, I think there's another thing that I

547
00:23:50,020 --> 00:23:51,300
just want to throw into this.

548
00:23:52,500 --> 00:23:55,940
And then let's circle back to making sense

549
00:23:55,940 --> 00:23:59,080
of this a little bit, because this was

550
00:23:59,080 --> 00:24:02,240
a great structure and a great setup, Brian,

551
00:24:02,280 --> 00:24:04,280
in terms of thinking about as we go

552
00:24:04,280 --> 00:24:08,640
into the back end of the quarter and

553
00:24:08,640 --> 00:24:13,820
the end of the year, the last quarter

554
00:24:13,820 --> 00:24:15,340
of the year, sort of how do we

555
00:24:15,340 --> 00:24:16,920
think about positioning and so forth.

556
00:24:17,160 --> 00:24:21,620
But I also hesitate to mention, because I

557
00:24:21,620 --> 00:24:24,900
know it's not something Brian's going to pay

558
00:24:24,900 --> 00:24:26,980
attention to really, but a lot of times

559
00:24:26,980 --> 00:24:29,180
people talk about seasonality of the market.

560
00:24:29,920 --> 00:24:33,840
And I know it's anecdotal, it's correlation, not

561
00:24:33,840 --> 00:24:34,440
causation.

562
00:24:34,980 --> 00:24:38,220
But there is that notion that September, October

563
00:24:38,220 --> 00:24:41,600
tend to be more volatile months of the

564
00:24:41,600 --> 00:24:41,880
market.

565
00:24:42,780 --> 00:24:46,320
And here we are at or near highs.

566
00:24:47,200 --> 00:24:52,120
And seasonally, we're still in that sell and

567
00:24:52,120 --> 00:24:56,180
may go away period before traditionally you relook

568
00:24:56,180 --> 00:24:59,320
at it as November as the time when

569
00:24:59,320 --> 00:25:02,320
the market is more poised to do well

570
00:25:02,320 --> 00:25:03,220
the next six months.

571
00:25:04,600 --> 00:25:06,780
I just mentioned that just because I do

572
00:25:06,780 --> 00:25:10,260
think it's worth thinking about, not because of

573
00:25:10,260 --> 00:25:13,940
the credibility of this entirely, but just the

574
00:25:13,940 --> 00:25:15,420
notion of risk.

575
00:25:16,040 --> 00:25:18,400
If we look at things and say, oh,

576
00:25:18,400 --> 00:25:20,720
things are at a high, Brian, you've laid

577
00:25:20,720 --> 00:25:24,900
out a fundamentals picture for a variety of

578
00:25:24,900 --> 00:25:29,380
reasons why we might see markets begin to

579
00:25:29,380 --> 00:25:34,560
reassess their willingness for maybe the pricing they're

580
00:25:34,560 --> 00:25:35,020
paying.

581
00:25:35,220 --> 00:25:37,880
If things are going to slow, and that

582
00:25:37,880 --> 00:25:40,060
might imply profitability could slow.

583
00:25:40,440 --> 00:25:42,520
If we have a slowing economy, that might

584
00:25:42,520 --> 00:25:44,080
affect prices of the market.

585
00:25:44,840 --> 00:25:48,660
So as a consumer, not only do you

586
00:25:48,660 --> 00:25:50,980
want to be thinking about the issues Brian's

587
00:25:50,980 --> 00:25:52,900
laid out in terms of positioning in your

588
00:25:52,900 --> 00:25:56,340
portfolio, but you may want to be thinking

589
00:25:56,340 --> 00:25:59,120
about, am I structured well?

590
00:25:59,260 --> 00:26:03,000
Am I tolerant as I look ahead for

591
00:26:03,000 --> 00:26:04,980
the risks that can come with the market?

592
00:26:05,100 --> 00:26:08,280
Inevitably, that's just the nature of investing.

593
00:26:08,460 --> 00:26:09,320
There's volatility.

594
00:26:10,020 --> 00:26:13,040
Do I have an allocation that fits my

595
00:26:13,040 --> 00:26:16,620
tolerance for that kind of positioning longer term?

596
00:26:17,200 --> 00:26:21,060
If not, now's a great time to re

597
00:26:21,060 --> 00:26:23,240
-examine, how much do I want to have

598
00:26:23,240 --> 00:26:25,240
in equities versus fixed income?

599
00:26:25,680 --> 00:26:29,120
Maybe how much liquidity do I retain for

600
00:26:29,120 --> 00:26:31,080
the unforeseen?

601
00:26:31,600 --> 00:26:34,720
Think in terms of our buckets conversations that

602
00:26:34,720 --> 00:26:35,740
we have routinely.

603
00:26:36,580 --> 00:26:38,820
Jeff, you look like you're ready to add

604
00:26:38,820 --> 00:26:39,740
onto that theme.

605
00:26:39,740 --> 00:26:42,280
I was thinking about the time horizon in

606
00:26:42,280 --> 00:26:42,720
all this.

607
00:26:43,180 --> 00:26:44,940
When do you think you're going to need

608
00:26:44,940 --> 00:26:46,500
liquidities for these funds?

609
00:26:46,640 --> 00:26:48,060
Is it soon?

610
00:26:48,260 --> 00:26:49,600
Is it 20 years out?

611
00:26:49,660 --> 00:26:50,540
It's really individual.

612
00:26:51,100 --> 00:26:51,280
Right.

613
00:26:51,800 --> 00:26:53,640
And it makes a difference for how you

614
00:26:53,640 --> 00:26:56,280
think about, am I tolerant of these kinds

615
00:26:56,280 --> 00:26:57,400
of changes?

616
00:26:58,000 --> 00:27:02,080
And Brian, just one maybe change in direction,

617
00:27:02,300 --> 00:27:04,320
throw a last thing or two at you

618
00:27:04,320 --> 00:27:04,520
here.

619
00:27:04,900 --> 00:27:10,580
You know, people tend to invest through index

620
00:27:10,580 --> 00:27:12,340
funds very commonly today.

621
00:27:13,680 --> 00:27:16,280
I think if you were to ask people

622
00:27:16,280 --> 00:27:19,620
over the last 10 years, indexed or managed,

623
00:27:20,160 --> 00:27:22,040
it's like, oh, I thought this was all

624
00:27:22,040 --> 00:27:22,520
solved.

625
00:27:22,720 --> 00:27:25,360
Didn't we decide indexing is the way to

626
00:27:25,360 --> 00:27:25,560
go?

627
00:27:25,660 --> 00:27:26,760
That kind of mindset.

628
00:27:26,760 --> 00:27:27,020
Right.

629
00:27:28,460 --> 00:27:31,180
This may be the kind of setup that

630
00:27:31,180 --> 00:27:35,240
speaks more to managed than indexed.

631
00:27:35,240 --> 00:27:38,120
Is that your thought as you look at

632
00:27:38,120 --> 00:27:41,860
this, given the notion that not every industry

633
00:27:41,860 --> 00:27:44,000
is going to be positioned the same way

634
00:27:44,000 --> 00:27:45,800
and how it's going to be affected by

635
00:27:45,800 --> 00:27:53,680
labor, interest rates, et cetera, AI changing dynamics?

636
00:27:55,940 --> 00:27:59,940
I mean, that's a loaded question, and I

637
00:27:59,940 --> 00:28:01,060
could go on forever.

638
00:28:03,080 --> 00:28:07,660
I think good active management can add value.

639
00:28:08,840 --> 00:28:11,020
And I believe that because I've seen it.

640
00:28:11,820 --> 00:28:14,780
But I think that there are structural problems

641
00:28:14,780 --> 00:28:17,320
in the investment management industry that hold back

642
00:28:17,320 --> 00:28:18,720
many managers' performance.

643
00:28:19,720 --> 00:28:23,060
And I also think that there's nothing wrong

644
00:28:23,060 --> 00:28:23,560
with passive.

645
00:28:24,360 --> 00:28:25,940
I utilize both personally.

646
00:28:26,300 --> 00:28:29,460
I have about half of my money is

647
00:28:29,460 --> 00:28:31,420
actively managed, about half of my money is

648
00:28:31,420 --> 00:28:32,460
passively managed.

649
00:28:33,740 --> 00:28:35,300
And why?

650
00:28:37,100 --> 00:28:39,020
Because the passively managed money is in the

651
00:28:39,020 --> 00:28:39,640
401k.

652
00:28:40,000 --> 00:28:42,100
It's a rollover for my wife's 401k.

653
00:28:43,600 --> 00:28:45,080
And when you add it up, it's about

654
00:28:45,080 --> 00:28:45,280
half.

655
00:28:47,520 --> 00:28:50,420
But yeah, I think good active management can

656
00:28:50,420 --> 00:28:53,060
help and add a little bit of value,

657
00:28:53,260 --> 00:28:56,360
whether it's from good asset allocation or good

658
00:28:56,360 --> 00:28:57,080
stock selection.

659
00:28:58,000 --> 00:28:59,840
I think those are both opportunities to add

660
00:28:59,840 --> 00:29:00,140
value.

661
00:29:00,280 --> 00:29:03,100
I think when you look at managers that

662
00:29:03,100 --> 00:29:08,440
maybe aren't adding value, I think sometimes they're

663
00:29:08,440 --> 00:29:08,980
handcuffed.

664
00:29:09,800 --> 00:29:12,000
They have to a certain amount in each

665
00:29:12,000 --> 00:29:12,400
sector.

666
00:29:12,660 --> 00:29:13,900
They can't drift at all.

667
00:29:14,020 --> 00:29:15,900
They have to have a certain amount of

668
00:29:15,900 --> 00:29:16,260
names.

669
00:29:16,440 --> 00:29:18,860
So even if they have high conviction names

670
00:29:18,860 --> 00:29:20,800
that do really, really well, if they have

671
00:29:20,800 --> 00:29:23,220
300 names, it's like a minuscule portion of

672
00:29:23,220 --> 00:29:23,800
their portfolio.

673
00:29:24,080 --> 00:29:25,240
The alpha is non-existent.

674
00:29:25,780 --> 00:29:27,980
And then after the fee, you might be

675
00:29:27,980 --> 00:29:29,580
stuck behind.

676
00:29:29,700 --> 00:29:31,280
And that's only one example.

677
00:29:32,060 --> 00:29:34,460
Some small cap managers, for example, once they

678
00:29:34,460 --> 00:29:35,820
get to a certain market cap, they have

679
00:29:35,820 --> 00:29:36,320
to sell them.

680
00:29:36,980 --> 00:29:38,640
By definition, they have to sell their winners.

681
00:29:40,920 --> 00:29:44,860
There's a litany of problems like this that

682
00:29:44,860 --> 00:29:47,380
I think we as a group, as a

683
00:29:47,380 --> 00:29:49,440
team have actively tried to avoid.

684
00:29:50,660 --> 00:29:52,360
If we think it's a smart decision that

685
00:29:52,360 --> 00:29:55,320
can help make money under a reasonable amount

686
00:29:55,320 --> 00:29:55,720
of risk.

687
00:29:56,780 --> 00:30:00,600
I personally never felt too handcuffed doing anything.

688
00:30:00,600 --> 00:30:03,820
So I do think under the right circumstances,

689
00:30:04,100 --> 00:30:05,660
active is great.

690
00:30:06,260 --> 00:30:09,100
And I'm happy that we're going to be

691
00:30:09,100 --> 00:30:14,420
able to be nimble throughout this scenario.

692
00:30:14,580 --> 00:30:16,480
But every scenario that we've done since I've

693
00:30:16,480 --> 00:30:17,720
been here for the last eight years, we've

694
00:30:17,720 --> 00:30:18,840
been fairly nimble.

695
00:30:19,020 --> 00:30:20,320
And I think that's been a good thing

696
00:30:20,320 --> 00:30:21,620
for us and our clients.

697
00:30:22,320 --> 00:30:24,240
And we can talk more about some of

698
00:30:24,240 --> 00:30:26,680
these issues in future episodes.

699
00:30:26,680 --> 00:30:28,760
Let's wrap it up here.

700
00:30:29,280 --> 00:30:32,960
So to recap some of those takeaways for

701
00:30:32,960 --> 00:30:36,580
investors, Brian, you were talking about inequities, things

702
00:30:36,580 --> 00:30:39,760
somehow connected to that AI theme can make

703
00:30:39,760 --> 00:30:40,520
a lot of sense.

704
00:30:40,660 --> 00:30:44,540
That's not only technology, but perhaps industrials, perhaps

705
00:30:45,660 --> 00:30:49,560
utilities, perhaps financials because of the interest rate

706
00:30:49,560 --> 00:30:50,220
dynamics.

707
00:30:50,940 --> 00:30:55,620
Be careful of duration, but take advantage of

708
00:30:55,620 --> 00:30:59,040
that, as you call it, the swoosh and

709
00:30:59,040 --> 00:31:01,440
try to find that sweet spot, maybe some

710
00:31:01,440 --> 00:31:07,440
inflation protection and some alternatives, which could be

711
00:31:07,440 --> 00:31:10,500
a variety of things, long, short or commodities

712
00:31:10,500 --> 00:31:12,360
or whatever we might want to look into

713
00:31:12,360 --> 00:31:12,580
there.

714
00:31:13,040 --> 00:31:14,980
So really interesting takeaways.

715
00:31:15,540 --> 00:31:17,960
Thanks for being on with us for this

716
00:31:17,960 --> 00:31:18,420
episode.

717
00:31:18,580 --> 00:31:20,280
And if we can be a resource to

718
00:31:20,280 --> 00:31:24,640
you in the execution of your financial planning

719
00:31:24,640 --> 00:31:27,700
or portfolio management, don't hesitate to reach out

720
00:31:27,700 --> 00:31:28,340
to our team.

721
00:31:28,500 --> 00:31:30,960
Until next time, keep striving for something more.

722
00:31:51,880 --> 00:31:55,060
866-771-8901.

723
00:31:55,080 --> 00:31:58,920
Or send us your questions to amr-info

724
00:31:58,920 --> 00:32:00,860
at wealthenhancement.com.

725
00:32:01,020 --> 00:32:02,960
You're listening to something more with Chris Boyd

726
00:32:02,960 --> 00:32:05,600
Financial Talk Show, Wealth Enhancement Advisory Services and

727
00:32:05,600 --> 00:32:07,720
Jay Christopher Boyd provide investment advice on an

728
00:32:07,720 --> 00:32:09,300
individual basis to clients only.

729
00:32:09,420 --> 00:32:11,440
Proper advice depends on a complete analysis of

730
00:32:11,440 --> 00:32:12,640
all facts and circumstances.

731
00:32:12,880 --> 00:32:14,700
The information given on this program is general

732
00:32:14,700 --> 00:32:16,740
financial comments and cannot be relied upon as

733
00:32:16,740 --> 00:32:18,340
pertaining to your specific situation.

734
00:32:18,520 --> 00:32:20,500
Wealth Enhancement Group cannot guarantee that using the

735
00:32:20,500 --> 00:32:22,520
information from this show will generate profits or

736
00:32:22,520 --> 00:32:23,640
ensure freedom from loss.

737
00:32:23,840 --> 00:32:25,980
Listeners should consult their own financial advisors or

738
00:32:25,980 --> 00:32:28,080
conduct their own due diligence before making any

739
00:32:28,080 --> 00:32:28,840
financial decisions.