We've got a great episode for you today. We are bringing back a crowd favorite, Andrew Updike, an economist with First Trust. And if you've been listening to us for a while, you know we've tried to bring him on once a quarter. So he's given us a mid-year market update, economic update, we're talking about social security, the election, AI, and of course, inflation and what the Fed is thinking. So it's a fantastic episode. He explains things so smoothly, you're gonna love it. I just like to also make sure from time to time that I remind you that if you are listening to our podcast and you think, hey, I got a couple questions I'd like to ask you, feel free to go to our website, top right hand corner, click on schedule call. Our calendar comes up and you can put us on your calendar for a 15 minute call. We'll go anywhere you wanna go with that. And if it's gonna take more than 15 minutes, then we can schedule a little bit longer calls. And take advantage of that to answer any of your questions. But before we get into this episode, we have a real quick disclosure. Information contained in this podcast is intended to provide general information only and not to be considered individualized advice. Different types of investments carry different levels of risk. As always, please contact your financial professional for advice appropriate to your situation. Enjoy the show. - Welcome to the Secure Your Retirement podcast. This is the place where high achieving professionals come to gain confidence on how to successfully navigate their transition into and life during retirement. There's no such thing as a passive retirement plan. To have a successful financial future, your plan must be actively managed. Each week, we will bring you action plans and expert interviews that will help you gain insights, learn fresh perspectives, and finally experience peace of mind about your retirement. Here to help you achieve your dream retirement and live the life you deserve are your hosts, certified financial planners, Raiden Stansel and Merse Tariq. - Welcome everyone to Secure Your Retirement podcast. We are very happy to have you with us today. And we're also very excited because we have a returning guest. It's always very popular, Andrew Updike. So Andrew, thank you so much for coming on and talking with us today. - Yeah, oh, absolutely. I love these conversations. - Excellent. So just in case, you know, to remind folks, 'cause we have new listeners all the time, Andrew is an economist. He works a lot with us throughout some of the relationships we have with a company he works with, First Trust. And so they're organizations able to help us a lot with kind of understanding the, I guess, overlay of what's going on in the world. And Andrew, you're always a wealth of information, so we certainly appreciate you coming on. So I think we can just open it up. And when we did this last quarter, we kind of like to do a check-in. Anything that's stuck on your mind right now, that you say, hey, got an update for you. Maybe something has happened over the last few months. Maybe some things that might of you see a shift in when it comes to the economic part of the world and what maybe what's your perspective right now? - Yeah, no. So I think as we're sitting here, you know, up at the halfway point of 2024, one of the biggest events that happened in the second quarter of the year was the Fed doing their mid-year checkup. In June, they had their meeting and everybody had eyes, because coming into the year, the Fed had said they're planning on cutting three times. Beginning of the year, the market was expecting to see six rate cuts. And at the beginning of the year, there was a 90% probability priced in that the Fed would have already moved by now. So here we stood in the middle of June, and the Fed said, look, you know, inflation has not moved as much as they anticipated. Economic growth was continuing forward. And so they shifted their forecast. But what was so interesting to me as an economist is that they said, look, we're not gonna do three rate cuts this year. We think it's probably gonna be one. And when they were asked, where do they think that the key drivers, inflation, employment, GDP, where are those gonna be at the end of the year? What they told us was they thought the unemployment rate would be at about 4%, which is exactly where it was the day they had that meeting. And they said, well, what about on the inflation front? They said, well, we think core inflation, take out food, take out energy, will end the year at about 2.8%. They're trying to get it down to two. Where was it on the day they held that meeting 2.8%. And so it was kind of a strange meeting where the Fed said, look, we are not expecting really to see any progress between here and the end of the year. We're not expecting inflation to move lower. We're not expecting employment to either be a substantially stronger or substantially weaker. They're expecting the status quo, which has delayed the start to the rate cut cycle. And only time is gonna tell. I think it's a good reminder to us that the Fed, well, people hang on every word they're talking about, they don't have a crystal ball into the future and their forecasts have been very relying on what's taking place in the world around them. We've had these conversations about why inflation would likely prove to be sticky. We talked about some of the difficult things that the Fed can manage to a degree. Sometimes they can. I think it really is a waiting game. The rates are gonna be here a little higher for a little longer. And now everyone is watching to see how does that impact the economy through the back half of this year? - Yeah, I think, especially this year being in a election year as well, do you have any thoughts as far as does it happen? Do the rate cuts even become a reality before the election? Or is it best that they wait till after that? All of that is done. Is there gonna be any influence or anything like that because of it being an election year in this decision on when to cut rates? - Yeah, no, so the election does matter in that the Fed. They wanna be politically independent. That's their purview. And because of that, they tend to avoid making moves in and around that election day, right? November, they'll have a meeting in November directly after the elections. But at the end of the day, they would really prefer not to move there. So September is the first day they're looking at if they were to see a notable change in any of those economic fundamentals before that. They may consider moving in September. I think the base case right now, if they're gonna do one cut this year, December is most likely the date. But here's one thing I wanna say because we're gonna have a lot of questions, a lot of discussions about the election as we move throughout this year. Election years tend to be vulnerable. They tend to bring emotion with them. People get worked up, we just had the debates. And personally, I hate listening to the debates. I'm an economist, I spend my days in the data. And I hear both sides quoting numbers. And I'm like, that's technically true, but incredibly misleading, right? And this is a unique election. Both the candidates substantially older than what we are used to. There's questions about whether the candidates that were in the debate are actually gonna be the candidates that get nominated. But I would remind everybody is that, well, it's gonna take up a lot of time on TV. And while we do get emotionally invested on the political side, it tends not to have a substantial impact in the short-term media term on the markets. Other than, there tends to be a little more volatility leading up to the election, and then it tends to ease afterwards. I would urge people not to become overly concerned about the election impacts. The markets, the history shows us that under Democrats, under Republicans, under different setups in the House and the Senate, the markets continue to move forward. 'Cause it's, again, it's the entrepreneurs, it's the innovators, it's these companies that come the election results. Everybody's gonna go back to work, and we're gonna keep progressing forward. So while we think about elections and we consider ramifications on policy and whatnot, I think we over-blow the impact, the importance of emotions on what's happening today. - Yeah, so as we sit here mid of the year, actually the markets, regardless of what's going on with inflation, the fact that, yes, we're in the midst of a political year, there's been geopolitical issues. The market, though, is actually done pretty good to be sitting here halfway of the year. The overall stock market right now is up considerably. If we repeat the second half, what we did the first half, it would be in a really, really good year. So I guess my question to you, as you see things, here we are, ups a pretty good amount for the year. How do you see the rest of the year playing out for the market? - Yeah, it's a great question, and I wish I had a crystal ball to say, here's what I'll say is when we look at the data, the question for me is always, when the market's moving, is it moving based on earnings expectations? Is it moving based on companies' fundamentals? Or is it moving based on emotion? And you can get a degree of that based on what sectors are moving. There's excitement around things like artificial intelligence, and I'll tell you, there are incredible things. There's massive things going on. I think I may have talked about it before. I went out to the Intel, where they're building the Intel plant in New Albany, Ohio, and you sit and you look at this thing, and there's absolutely incredible the magnitude of the investment that's going in there. Whether we're looking at that one, or there's the TSMC plant that's going on in Arizona, there's a Samsung that's going on in Texas. These are major investments. There is major movement and some earnings growth that's happening on things like the AI front, but it's a lot being priced in to high multiples under this hope that that's gonna lead to a big pickup in production a year from now, three years from now, five years from now. I get a bit cautious when we see a lot of movement ahead of realized activity. When we get a lot of excitement under the hopes that something's gonna happen, and I do have some concerns. When we look at the historical relationship between market movements, interest rates. How much does it cost for a company to borrow and invest in people, products, and projects? How much are they making from those projects? If we look at that relationship relative to the markets, going back 50, 60, 70 years, we're on the higher side right now. It doesn't mean the market can't keep growing up, but I would love to see more fundamentals drive you. If you told me today, hey, look, I've seen the future and the market's gonna be flat for the remainder of the year, I'd say that I could absolutely see that. If you said, look, we have a pullback because of doubts on something that comes up. I could see that. If you told me emotions continue to run high, it's they're all plausible scenarios. But if I'm thinking about this as an investor, saying I don't know where it's gonna be here for three to six months, but I'm focused on the next three, five, 10 years, I think there are pockets of the market that make a lot of sense, but you have to be more intentional today because those areas of fraud have certainly popped up and they're in large portions of the market. - Yeah, I agree. And going into this year, or say end of last year, a lot of talk around was around recession. At some point, we're on the edge of it, we're on the brink of it. If that doesn't get things under control, we're definitely gonna go into it. Now that we're sitting here halfway through the year and you've got way more data to go off of, and I don't know if anyone really knows what the definition of a recession is anymore, but what's your stance on that? Is that completely off the table now that we have, now that we're halfway through the year? - Sure, yeah, I mean, it's a great question. So when I talk about a recession, I'm talking about a recession that's defined by the MBER, the National Bureau of Economic Research. This is the official recession daters for the United States. It's a group of about a dozen economists that sit around and debate this stuff all day. I'm sure they're an absolute hoot of a group to hang out with, but they have six indicators they're looking at. Three of those are related to employment. Are we growing? Are we adding jobs? Some of it looks at the unemployment rate. Some of it looks at hourly earnings. They look at things, though, like consumer spending. They look at things like industrial production. And when we dive into the data, industrial production outside of that tech AI has been relatively flat, retail sales has been relatively flat. Consumer spending power has been still modestly growing. I think they look at it today and say, if we're checking the boxes, if we're going off the six indicators that are up on their website, we're not in recession right now. But I will say, when the data's been coming out, we just recently got data for the month of June already on the manufacturing side of the equation, we've been that side has said, their orders are down, production's down for 20 of the last 22 months, right? And when we start looking at the service sector, they're saying things are slowing. When we look at autos, auto sales are down, home sales are down, the financial companies are telling us that credit card utilization has essentially gone flat year over year, what's driving the economy, to be honest, is kind of pockets within the US economy. Obviously the AI tech side still seeing its run, but we're also seeing a last strength from an older demographic, the retirees, the baby boomers, if you look at the airports, they're traveling substantially, that group, you know, who's been less impacted by rates, 'cause quite frankly, at the end of the day, that's their income, right? They're not borrowing as much, they're a little less rate sensitive to what the Fed is doing, with the short-term interest rates higher, they're spending, they're going on trips, they've been retiring at a faster rate than historically we've seen, and they are kind of propelling us forward. Is the R word is recession off the table? No, I would say, I wouldn't rule it out as something that we could see over the next six to nine months. What's clear is we're slowing. How slow will we go? You know, does the plane come down and just kind of touch the runway before it goes back up? Could we see a slowdown into a re-acceleration if inflation gets in check? I think that's certainly possible, but the weakening in the data is something that the Fed's gonna be watching as they make that determination on when is the appropriate time and what is the appropriate pace for them to start easing back on policy. It's too soon now to pull that trigger to start dropping rates, but they're certainly paying attention to the fact that monetary policy is now starting to show a little bit of digging on the economy. I hope that you are enjoying the show. By the way, if you are in or nearing retirement and are someone who wants to gain clarity on what questions you should be asking, learn what the biggest retirement myths are and identify what you could be doing to achieve peace of mind for your retirement, get started today by requesting your complimentary video course, four steps to secure your retirement. To access the course, simply visit pomwealth.net/podcast. If you're new here or you haven't done this yet, this is definitely the first step to get started in applying these principles to your life. So head over to pomwealth.net/podcast and check us out. - So we obviously, every time we have this or at least last for the last little bit, we have these updates. Unfortunately, we are still talking about some of the very same geopolitical issues that's been going on for a very long time. It feels like with Ukraine in particular and Russia as well as with Israel, like when you look at that from the world scene, where do you see things like that right now and how it's playing out, how it's talking about potential settlements in certain areas, but how do you see that kind of affecting us economically? - Yeah, I mean, from an economic standpoint, like Russia Ukraine, when the Russian Ukraine war started, obviously there were some short-term impacts on the energy front and then things to a degree kind of calmed down. The area it's hitting right now, the biggest impact from the geopolitical unrest is happening because of the disruptions in that red sea area. The fact that the Suez Canal, which would be normally bringing ships into Europe, has seen a major reduction in throughput, a major reduction in travel. The Suez Canal, what they're doing is they're rerouting ships now below and around Africa in order to bring cargo, to bring goods to Europe. Now, Europe is gonna feel the biggest brunt of that inflation impact, but if you're Europe and you're having difficulty sourcing, they've started to pull from other parts of the world. So what we're seeing here domestically is shipping costs. If you look at shipping container costs and we import a lot of things, we import key inputs to a lot of, even the things that we're largely producing in the United States, those costs have gone up by about a double. They've seen some notable movement. Now, if we see some easing, if we see easing on the geopolitical front, if we see a backing off in what's going on with Israel Gaza, and we see those come down, that's deflationary. But if that remains, or if we see an escalation, it adds to the difficulty from the Fed on getting inflation down. Because again, forces outside their control. There's so many things that the Fed can do. They can raise rates and make it more expensive to borrow and buy a house, borrow and buy a car, borrow and invest into business. They can't control some of these geopolitical flights where we're importing inflation. It's more expensive because the world is reacting to what's going on. Hopefully we see just even outside of anything economic from a humanitarian perspective, I hope we see some resolution to those conflicts. But again, it's one of those. There's a lot of these things this year where the outlook is cloudy because there's groups that they themselves aren't sure what the next steps are, whether that's the Fed, whether that's some things going on with the election, whether that's geopolitical events. There's a lot of directions that things could move. So when we step back, what we're looking at is what can we reliably depend on? We're not gonna try to make large bets or try to really try to tell exactly what the future's gonna hold three months, six months from now. But we say regardless of what's going on in the world around us, what is gonna continue to happen over time? And that's where we focus our activity. That's where we really focus our mental efforts is what is predictable and what's not. And if you can move towards the predictable elements and that's what drives you over time, if you can reduce the dependence on these short-term events, not only can you turn off the TV and not have to stress as much, but you have greater predictability, greater confidence that you're gonna reach your destination. So those things constantly on the radar, but there's some other pieces of the puzzle where we can see some clear impacts flowing through. - So I've got a tougher one for you. I don't think we've ever brought up this topic, but we are a retirement planning type of podcast. That's our firm, that's what we're all about. And you mentioned people are retiring quicker than they have in a long time. And it takes me to every other day now, I feel like I see an article on Social Security and where Social Security is at, where is it headed, once it running out, things like that. So what's your take on that? I know it's a tough one to talk about and obviously there are issues that needs correcting, but who's gonna do it? How's it gonna happen? - Right, and that's right. Yeah, you look out, man. Based on the current estimates, if nothing is done, if we continue to run massive deficits like we've been doing, we are expected the Social Security Fund would not be able to pay out full benefits starting in about 20, 33. They'd be able to pay out 70 to 80% of benefits. Now, there's good news and there's bad news. The good news is that whoever is the next president, and we'll find that out later this year, there's likely gonna be a lot of difficulty without some clean sweep. It's very kind of cross-current. I think the Republicans are going to win the Senate. I think the Democrats may take the House. If that happens, they're not gonna be able to pass through a lot of new agendas, a lot of new spending, a lot of new activity, and I think it's gonna force them to focus on these fiscal issues. There's already been some discussion behind the scenes. What needs to happen? Do we need to work on the spending side of the agenda? Do we need to work on the tax side of the agenda? It's very likely gonna be a combination of both. Over the next five, 10 years, I would expect we're gonna see some tax increases come through to support the spending that's gonna go through that system. On the other side, what I would expect to see is that as they look at Social Security, we haven't really changed Social Security since it came out. And initially, people joining Social Security were expected to be on this for two, three, five years. And we are living now 15, 20 years longer than that. I would not be at all surprised to see them say, "Look, anybody who's gonna start working after this age," and they like to set it so that the barrier is the people who are not yet voting yet. So the people who are gonna turn 18 next year, starting with that group of individuals, their retirement age is gonna be higher, the age at which they can start getting benefits. The pay and dates are gonna be a little bit different, and they might start adjusting what your expectations are in terms of what you can receive. I think for people that are in retirement or near retirement, I think you will continue to see you get the benefits that you've been promised. I think they're gonna try to tweak the dials further back in that chain and say, "People who aren't here yet, let's start adjusting." Because the demographics, quite frankly, we're gonna be a growing country that's expected here for about the next 20 years. And that's, I'll tell you, that is unique. The U.S. is on the strong side from a demographic growth perspective. China has already turned. A lot of Europe has already turned. Africa is growing substantially, India is growing substantially. The U.S. is still growing. But more of the world is starting to see that age turnover. We are still in a spot where we can do this. And we're still in a spot where we have resources. They just had the release from the Congressional Budget Office. The United States, people talk about the debt, right? We've got $30 trillion in debt. We look at them like, "Oh my gosh, that is such a huge number." They just reported net worth in the United States, and it's about $160 trillion. And you stop and you think about that, right? We have $160 trillion of net worth in this country. And if you, let's say that you got an uncle passed away and sinned and you inherited their business, and they had $30 million in debt and $170 million in net worth, I think you look at that and say, "Hey, we gotta take care of this debt." But we have a whole ton of things that are going for us. I think as we look forward, I'm not, I'm not looking at this as something that can't be solved, but I do think that we're gonna see tweaks. I do think that we'll get through it. My hope is Washington takes the reins that someone there stands up and does what needs to be done, but I think we're gonna see both sides have to do a little give and take to get us to where we need to go. And I think in the next four years, this is gonna be a central area of discussion. - Excellent. So one of the things we like to always make sure that we do, when we do these quarterly updates with you, Andrew, is to kind of do a little bit of looking forward. And so that we end on a positive, I'm gonna take the negative and let MERS take us home with the positive. Right now, looking forward for the remainder of the year, what are your concerns? Like what's the thing that's bothering you right now when you look at things? - Yeah. What's bothering me, I mean, I hate election years. So I know that that is going to bring with it. It's one of those things where as soon as you open up, as soon as I open my phone, you try to get some news alerts, it's gonna be dominated by political discussion. It's gonna be dominated by emotion. So that could lead to some swings on the market side. You know, the negative side, one of the things I'm really looking at is the employment. I think we could see, I think we may be starting to see the early stages of that unemployment starting to accelerate. I watch things like the Warren reports. These are particularly in places like Illinois, California, New York, you're required as a business at a manufacturing facility to announce before you're going to close. Let people know you're gonna be closing, these positions are gonna be going away. We're starting to see that tick out more and more. The unemployment rate on the younger demographic has already started to rise notably. I think that one of the things I'm a little concerned about is the deterioration on the labor side. If that comes to fruition, if we continue to see that throughout this year, that our word we talked about earlier is certainly going to be in play. And you know, losing a job is never fun. Seeing the unemployment rate rise is never fun. So that's the thing I'm kind of concerned out. I'm certainly watching closely as we move through the back half of this year is what's happening to the strength of ability for people to find jobs, find pay, support their families. - All right, well, let's close out on the positive. What are you excited about? I'll tell you mine is hopefully we're not talking about inflation and interest rates every single day, every single article that you hear about or turn on the TV is where is the effect going? So hopefully we're getting through that by the end of the year, we're starting to. - Yeah, I hope so. I think we're getting closer. Here's the one warning I would say though, on the inflation front is if you look at the reports and the Fed cares a lot about PC, personal consumption expenditure, that's their primary gauge for inflation. It comes out towards the end of the month. In the back half of last year, those readings were relatively weak. With the exception of the month of September last year in the back half, we had unusually low inflation readings, which means that to see those year over year numbers come down in the back half of this year, you're going to have to see really low readings. If we were to continue what we saw through the first half of this year, you're actually going to see the core measure of inflation start to tick up in the back half of this year. I'm going to watch that. The Fed knows about it. They talked about it at their last meeting, talking about the base effects. I would love to stop talking about inflation. I would love to stop talking about the Fed because again, it's like the elections, it's one of those things we put so much emphasis on the Fed, but what is the Fed, how's the Fed at the GDP? I mean, have they coded any apps, have they created a new business? It's basically, we talk so much about them because of how they impact other groups. I would love to see them fade to the background, see Washington fade to the background and have us look, as we're sitting here in July, 4th of July, we are a nation built on independence, built on private property rights, rule of law. This is the greatest nation on the face of this earth to take risk. This is the greatest nation to try things, to build things, to grow things. If you have an idea, hear more so than anywhere else in the entire world, you've got the capacity to take that idea and turn it into something. We are unbelievable wealth generators, we are unbelievable wealth accumulators. So as I look through the back half of this year, what I'm most excited about is some of the innovations I do see happening. When I spend a lot of time of late, looking at what we're doing on, again, the AI side, because not only does AI gonna impact some of the productivity. Do I know exactly how it's gonna play out? No, but because of the AI demand and the interest in it, we're starting to see some acceleration and advancements in energy. We're starting to see it in utilities because we realize we need these resources in order to support this. And I look out again and say, five years, 10 years from now, what we're doing on the tech side, if you look at the global tech landscape and say what countries are leading the tech revolution, the US is one, two and three, right? We are the leaders on the most exciting, most advanced, most productive, highest margin sector that exists right now out there in the market. So I'm excited to see what we do with it. I'm excited to see what we do through all the chaos of the elections, what we do through all of the distractions of the Fed. And I know we're going to do that because it's what we always do. We watch the TV, we get grumpy, we debate with each other, but at the end of the day, we put our heads down and we work, we put our heads down and we produce ideas, we put our heads down and we progress in a way that, again, is unique, really to the history of the world. What has happened here? We're coming up on the 250th anniversary of the United States. We've got that in two years. If you think about the short, relatively short history of the United States as a nation and what we've accomplished here in that short period of time, it is truly magnificent. It is truly incredible. And as we sit here kicking off the back half of this year, take a moment, pause, reflect on that. Think about what you've seen in your lifetimes. Think about what your parents, your relatives have seen. And let's take a moment before we go into the chaos to appreciate what's been done by our families, those people that came before us that put us in this position, that put us in this opportunity is the most productive nation on the faces or to keep that momentum moving. - Excellent. Well, Andrew, we, as always, certainly appreciate you coming on and talking. We know that our clients and listeners really enjoy getting that update because it kind of gives us that nice little balance that we don't have to be overly stressed, but yet we kind of got a good sense of what's going on. So thank you so much for taking out some of your time and talking with us. - Thanks for having me. - All right, everyone. That wraps up today's episode of the "Secure Your Retirement" podcast. If you found value in today's episode, we would love nothing more than for you to head on over to iTunes and give us a five-star rating and a review. Be sure to take a screenshot of the review before you submit it and we'll send you a special gift. Our book, "Get Off the Retirement Roller Coaster." Just email morgan@pOMwell.net with a screenshot of the review to get your gift. Also, be sure to subscribe so you get notified of new episodes as they're released every week. And finally, please share our podcast with your favorite social network so more of your friends and family can benefit from this information. Always remember, you've worked hard to get where you are and now you deserve to have a retirement that works hard for you. (gentle music) (gentle music) (gentle music) [BLANK_AUDIO]
