The Fed Is Stuck, AI Is Rewriting the Rules, and Your Portfolio Is Caught in the Middle

Good news for the economy can be bad news for your portfolio.

That is one of the biggest contradictions investors are facing today. A stronger economy can keep rates higher, while weaker data can fuel hopes for rate cuts. The question is which signal matters more.

This episode of Wealth Transparency features Andrew Tang of Turner Financial Group and Michelle Connell of Portia Capital Management breaking down the difficult decisions facing the Fed, why economic data is creating challenges for investors, and how artificial intelligence is changing the way businesses operate.

Labor numbers feed confidence. Confidence feeds spending. Spending feeds corporate earnings. That is where the economy connects back to the markets.

If good news can hurt your portfolio, you need to know which signals to trust. Subscribe, share this with someone making important investment decisions, and like so this reaches every investor who needs to hear it.

Chapwood Investments, LLC, is a partner of Ethos Financial Group, LLC, a Securities and Exchange Commission registered investment advisor. No mention, opinion, or omission of a particular security, index, derivative, or other instrument in this webcast or video constitutes an opinion on suitability of any security. The information and data in this video were obtained from sources deemed reliable. Their accuracy and completeness are not guaranteed. At any given time, principals at Chapwood Investments, LLC may or may not have a financial interest in any or all of the securities or instruments discussed in this webcast or video. The guests appearing on videos do not receive compensation or provide endorsements or testimonials. Past performance is not indicative of any future results.

All investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
No mention, opinion, or omission of a particular security, index, derivative, or other instrument in this webcast or video constitutes an opinion on suitability of any security. The information and data in this video were obtained from sources deemed reliable. Their accuracy and completeness are not guaranteed. The guests appearing on videos do not receive compensation or provide endorsements or testimonials.
Securities are offered through Innovation Partners, LLC (member FINRA/SIPC). Ed Butowsky is a Registered Representative with Innovation Partners LLC. Ed Butowsky is licensed to business in: CA, FL, LA, TN, TX.
Innovation Partners LLC and Chapwood Investments are not affiliated.

Transcript

SPEAKER_02 0:25

Hello, welcome to another edition of Wealth Transparency. I am Ed Buchowski, and each week we take headlines that don't necessarily make the front page, but we try to bring attention to them and how they impact your investment portfolio. And I have today Andrew Tang with Turner Financial Group and Michelle Connell with Porsche Capital Management out of Fort Worth, Texas. Both are two of the best in the business at taking complicated issues, breaking them down to be easily understood. And I really encourage you that if you are looking for some help with your portfolio, that you reach out to either one of them. But also please share this on your social media. We're trying to build up as many people as possible to watch us. And uh building up an audience is tough. So your help would be very, very helpful. And we're really happy that you're here with us today. So to kick things off, we have a new Fed chairman, Kevin Walsh. And his job is to take information from the economy and then decide along with his Fed governors what they should do with interest rates. And right now, I would hate to be in his shoes because he has on one hand the president which wants him to cut interest rates, but if he's reading the tea leaves and reading exactly what's happening in the economy, it's a very, very tough thing to do because on one hand you have the GDP numbers that are have gone higher, which shows strength of the economy. And on the other hand, you have job numbers, which were horrible, just absolutely horrible. And that shows a slowing in the economy. So if you're gonna have a slow economy, you're gonna be looking for interest rates to drop. And if you're gonna have a strong economy and inflationary numbers, you're gonna look for interest rates to rise. So the question is which one is gonna win? Uh so Michelle, why don't you give us your opinion on the issue that Kevin Walsh is uh facing right now?

SPEAKER_00 2:28

I would agree with you. I think it's a very hard place to be for Walsh, the chair, as well as the governors. I think they're going to have to wait and see how things you know flatten out or wash out, so to speak, because we don't know what's going to happen on with the Middle East, and that's a big driver of the increase of inflation that we've had this year. It's not only affected us at the pump, but through several other sectors as well, retail, transport, et cetera. So I don't think there's enough evidence for him and his group to take rates down like they'd like to, especially from a job standpoint. But I think they're gonna look at the uh inflation number and continue to hope and look for signs that it's transitory.

SPEAKER_02 3:20

Yeah, because it's kind of odd, Andrew, we have good news for the economy, and that's bad news for stocks, and bad news for the economy is good news for stocks because they think interest rates are gonna drop. Right. You know, so why don't you go through a little bit about how that juxtapo, I've been dying to use that word.

SPEAKER_01 3:43

Well, first and foremost, congratulations to you. You just became a proud grandparent. Thank you to your newly born uh grandson David. I think everybody online here in the community, we should congratulate you. It's a wonderful, wonderful journey. So I'm right behind you, hopefully. You know, someday I'll get there. Now, I'm probably one of those weird birds that am excited about Kevin coming into the Federal Reserve. Because, in my view, the Federal Reserve as an institution is supposed to be independent. But if you look back at what uh J Pow did during COVID, he was very political. Okay, he was very political. So there is a little bit of controversy right there, even though nobody really talks about it. And at the same time, the amount of money supply that is in the system grew roughly about 10x, okay, uh, you know, from the previous years. So you can see that inflation was really driven during the times when inflation is caused by demand. Now, 2026, last year, and likely into the new year as well, these are the times of transitions, okay? We have a K-shaped economy, we have a job market that is highly focused on technology, and the existing jobs are going to need to transition. So the labor market needs to transition, as well as the data for collecting that the Fed is using to measure inflation. So there is a huge divergence here, right? The CPI is measuring what? Over 4% in inflation. And yet true flation is measuring 1.8, 1.9%. So why is there such a huge difference? The huge difference, in my opinion, it relies on the method of collecting data. So, in my view, I'm just going to pick on one thing like shelter. Shelter, existing way of collecting data, it's like the 1970s grit, okay? It is very, very old. It's using rent row submission. That is absolutely not the case. If you look at apartments.com, realestate.com, or realtor.com, you will see more real time pricing of this particular area of inflation. And then you're collecting uh data in a more modern, sophisticated way. And that is the way to go. And that's what Kevin promised to do, and he is doing that right now. So overall, with the dual mandate, uh taming inflation, stabilizing prices, and I think the job market is fine the way it is, even though we read a lot of headlines, many layoffs out there, that's for sure. But at the same time, there are so many job creations as well. Many did fall off the job market altogether. So that's why you see improvement in the initial claims number. But overall, I think Kevin will let the economy run hot because the headline data, it's overstated. It's exaggerated. So, in my opinion, come November, we're not gonna get a rate hike because this inflation is caused by supply side and it is transitory at the end of the day.

SPEAKER_02 6:44

Well, I'll tell you, this might sound a little wonky, but when I look at jobs numbers, I look at them because of revenue that's needed into the federal government. And each new full-time job creates $12,500 of new net income. So if you take 25% of a $50,000 job, you get $12,500 of federal income tax. And now you then take the amount of the deficit and cut it in half because half of our tax revenue comes from income taxes. And then you start thinking about how many net new jobs do we need in order to make up for 50% of the shortfall, the deficit that we have each year. And that number, you know, we're we're talking about we need about 600 to 700 net new jobs a month for 12 months to make up for that. And that's just not gonna happen. So I look at it from two standpoints. You know, one of them is from the strength of the economy, you know, hoping that interest rates go lower, that we have to see a slower economy. But at the same time, if you're rooting for us to get rid of our deficit, you have to look for 12,500 times what to get us to take care of half of our deficit. And that is an impossible situation that we've backed ourselves into. Speaking about the US labor market, recent employment data continues to point towards slower hiring rather than widespread layoffs. Job growth has decelerated, yet unemployment remains historically low. This supports the soft landing narrative, although businesses hiring has become more cautious.

SPEAKER_00 8:29

We're starting to see some softness on the consumer side. And this week we had Pepsi report, and first time I've heard this in a long time. Maybe it's GLP ones going back to that, but I don't think it's just that. You're having less spending on things like soda, junk food, which is half of Pepsi's earnings, it comes from uh snacks as well as the soda. And I think part of the reason is that consumers are less confident. We're seeing that in the confidence numbers. And I think it's because even if people are employed, they're concerned what their household budget is not able to support their needs or not support it to the degree that they had hoped. So I think that's something that we need to keep in mind when we're looking at those labor numbers, because ultimately they feed into confidence and then they feed into spending and corporate earnings where it all ends.

SPEAKER_02 9:28

Yeah, has folk announced their numbers yet?

SPEAKER_00 9:30

I don't think so. No, no, but they don't, you know, they're only drinks, right? But uh that's why I think it's always interesting for Pepsi because I think at least half, maybe more now, of their revenues comes from the snack side. And they've been trying to absorb those costs, they being Pepsi, but they're seeing uh lower sales. I think it was they were off like four percent versus last year.

SPEAKER_02 9:52

It's funny, my my wife and I uh talk oftentimes about if I'm addicted to anything. And I was once so into sodas, I have not had a soda in 32 years.

SPEAKER_00 10:06

What? Really?

SPEAKER_02 10:07

Good for you. So I just completely went off of sodas. And I used to drink Dr. Pepper every single day.

SPEAKER_00 10:14

Well, that's a big Texas thing, right? Isn't aren't they located in Dallas?

SPEAKER_02 10:18

Yeah, well, in Waco.

SPEAKER_00 10:20

Okay, all right, all right. So that's why that's why you see more people, at least in North Texas, I notice a lot more Dr. Pepper here than I do Coke or Pepsi.

SPEAKER_02 10:29

So yeah. So Andrew, why don't you uh give us your opinion about the U.S. labor market?

SPEAKER_01 10:33

Yeah, I think labor market data it's a little wonky here because again, I think the job markets is just fine. It's just the headline numbers are are sticking to people's minds. But it is true about the K-shaped economy that the lower income bracket, it's gonna feel more pain and they're more sensitive to interest rate uh movements and also to uh gas prices, right? But there is one set of data that we don't really look at, and that is the new business formation data. The new business formation data for May actually it's up 3.3 to 3.7% month over month. And this is a very exciting number because it shows that more people are being entrepreneurs and starting new business. And when they first start, they might have a family member or a friend join them. So it's not gonna be on the books for new hire, but it is equally exciting to see that new entrepreneurs are thriving. And if if the economy is bad, they will not form new businesses. But this is exactly what we need during times of transformation. Again, the labor market right now, it's undergoing a huge transformation. The older jobs are not going to be relevant because it could be possibly replaced by AI or innovation or technology in itself, but new jobs are being created. So we need to train the new generation of what's to come, what's expected, and where the jobs are, for example. And that's one thing that I do see that is offsetting the headlines that there is actually a new silver lining underneath this labor market data. That's an interesting point.

SPEAKER_02 12:12

I would guess that a lot of these people need to have a class on how to overcome negativity because when they start a new business, you know, there's nothing harder, and there's nowhere that I have more respect than for entrepreneurs that start businesses. But they've got to have, I heard this the other day, an immigrant attitude towards business. So when immigrants come into this country, they have a no pullback attitude. There's no way in the world they're gonna fail at anything. And they continue, even when they're hit with negativity and and you know, something that doesn't go positive for them, they continue to work through those hurdles. And and I heard it called the immigrant attitude. And I love that because immigrants, uh, you know, if they came off the boat in uh Ellis Island and and went and found a job selling potatoes, and then all of a sudden they become the greatest you know French fry producer of all time because they had that can do attitude. So these these entrepreneurs need to have a can-do attitude.

SPEAKER_01 13:17

Yeah, I can actually speak to that because I am an immigrant, first and foremost, a legal immigrant that I did come off of uh a Pan Am flight back in 1981, okay, from Hong Kong. So through my parents, uh, you know, I am lucky enough, very blessed, to be able to pursue the American dream where you have the right and the freedom to pursue at any level of success. And nobody's gonna write your paycheck if you become an entrepreneur, okay? You're not gonna be a W-2, nobody's gonna tell you what your salary is. This is whatever you wanted to make it to be. Okay. This is something that is impossible and under any other political system in the world. There is only one place that in the world that we can call having the pursuing the American dream. And that's why this 4th of July, I actually hung a flag outside of my house because I'm very proud to be a naturalized legal immigrant here. Uh, I mean a citizen of the United States. And so, yeah, I encourage all the young graduates here. If you have a bad taste or a negative sentiment towards artificial intelligence or innovation, I suggest what you should do is really, you know, take the bull by the horn and actually learn your competitor. What is it that people are so gaga over about? And there is a real need right now for business owners that are 50 years old. If you could be their IT consultant, their AI consultant, and teach them how to use the Gentec AI, AI agents to make their workflow more efficient, you have a great business right there. And you can charge by the hour, have them enter into a retainer contract, and before you know it, you're hiring because you're getting so many contracts out there. So I think the world is your oyster. Go out there and get it. It's easy to sit back and be all negative when you don't get that job offer, but again, use it, be proactive.

SPEAKER_02 15:02

Well, I don't know how I transition from that to geopolitical tensions involving Iran have increased volatility in the oil markets several weeks after declining prices. So even though we physically have enough supply and it's adequate, we're still getting a lot of pricing energy pressure all over the place. I mean, you know, what do we do?

SPEAKER_01 15:26

Now we see crude prices stabilize, but it is the capacity of the refinery that is is hitting pretty hard because a lot of the oil or the gasoline and jet fuel and diesel is refined in in places like China or Asia because that's cheaper. And that's where you see how come oil prices came down, but diesel, you know, is it's still very high. And gasoline is actually okay now because we're seeing the national average of sub four right per gallon. But it is it is it is really weird because the refinery is always going to chase after yield, right? So if the higher yields in diesel, they will produce a lot more diesel. And then diesel comes down and then gasoline goes up. So it goes back and forth. So, you know, the refinery capacity, it's an issue here. Now, for airlines, I think Delta is the only airline companies that I know that owns a refinery. So that's why Delta is actually handling uh in this price situation better than other airlines. You're seeing a lot of consolidations. Uh, you're also seeing a lot of volatility as well, you know, and higher prices for ticketing, you see it. And uh, you know, right now the seating and the logistics booking system, uh, it is so advanced right now that almost every seat is full, you know, right now. Back in the days, you have empty seats all the time, but now you don't, right? And so uh the industry is getting more and more efficient through technology. But at the same time, the oil reserves are running lower now. And so the continued conflict in the Strait of Hormous is not going to help anybody. And so, yeah, this conflict needs to end soon, hopefully. But this current conflict right now, with the straits close, on and off, and the disruption in supply, it is helping the U.S. producers right now. So, you know, that's something else that's going on under the current conflict.

SPEAKER_02 17:16

Something that is kind of a negative to some people, but I think that's a natural movement, is the amount of AI spending on employment. There's a lot of discussion that AI is replacing and reshaping employment. And I just can't imagine that it's measurable. But there's lots of reports like Microsoft announced a large round of job reductions while continuing to invest aggressively in artificial intelligence. So apparently Microsoft has, you know, kind of what's the word I'm looking for?

SPEAKER_01 17:50

Yeah, that that job cut actually is pertaining to the gaming department. So within an organization, you're gonna see department that's gonna be less and less relevant, but then other areas they're going to hire very, you know, in a robust fashion. And there are different articles that said that for those companies that have fired, you know, the a lot of employees thinking that AI would replace them, they're starting to regret it now. Because, for example, we thought that software SaaSpocalypse is going to be here to stay, that anthropic AI agents is gonna replace all these software subscriptions. Guess not, you know, because right now you're seeing many software companies are proven to be relevant. And with the AI tool, they're becoming more efficient. All right, just like you would think that all the attorneys right now they're gonna go out of business, but it is just the opposite. You know, there's gonna be more attorneys that are, you know, being hired right now. And it's just that each attorney or their practice, they're able to do more and do it more efficiently. Same thing with X-ray technicians, because they're saying that, okay, AI is gonna be able to help you scan the X-rays extremely well. They're gonna be able to spot these problems in a very early stage. So all the technicians are gonna be out of work, but that's exactly not the case because at the end of the day, their job is to service the client, is to is to help diagnose the patient. So their jobs with the help of AI is becoming uh less mundane. All the grunt work are going to be handled by technology so that they can spend time to do the higher paying portion of their work. So I think this is again, it's another transition. It's not replacing, but it's reshaping.

SPEAKER_02 19:32

So my son and daughter have four friends that work at Salesforce, and three of them got laid off last week, and they blamed it on AI, which I find amazing that my kids have four friends that work at Salesforce, but even more amazing that three of them got laid off and they were in different departments. So I think that's a target, you know, that you're seeing software getting targeted by AI hiring, or I shouldn't say hiring, but laying people off. I don't know what those divisions. I know one of the guys should be in the near do well division because he he's worthless, a human. But I don't know what divisions that they're in. So next week we're gonna start seeing a lot of earnings data come out. And I think you're starting to see a shift from people being led by economic data to earnings, and earnings are what really drives stock prices. So, uh Andrew, can you give us your view on the shift from economic data to earnings valuations?

SPEAKER_01 20:36

Uh yeah, absolutely, because uh, you know, the stock market itself is an aggregate present value of futures earnings. That's what it is at the end of the day. That is the stock market. And so the macro effect on investments, it will be played out, or if there are really no extreme cases or extreme danger that we see. And I would use an example of uh if the economy is heading towards higher rates, for example, that will be a danger than we need to de-risk because uh you know the economy is gonna be or we're heading to a more restrictive environment, right? So everything is gonna cost more, borrowing and then financing is gonna slow down or freeze, for example. Hiring are definitely going to freeze. So under the normal circumstances, if we see stability within the macroeconomic environment, if we see the backdrop is somewhat stabilized, then the focus is gonna be on earnings. And right now, there is no other time outside of 2020 that we see double-digit percentage growth in corporate earnings. So it is a very exciting time. And it's not just the chipmakers, it's the multiple layers that the AI infrastructure built that is lifting the entire economy from the construction worker all the way down to the electrician that puts up the system, and also to the landscaper that beautifies the real estate, and also the food services that feed all the people who are working. And then they need new clothes, and you know, and so on and so forth. And then when the parents make more money, they can buy more stuff for their kids and so on and so forth. So you can see that just because uh, you know, AI infrastructure build out, people uh you know having a negative sentiment towards it, I think a lot of it is great for the economy because overall it is lifting the entire economy, even though that doesn't get the headlines. Yeah.

SPEAKER_02 22:31

So Andrew, you said that the stock market it reflects present value of future earnings. Exactly. Aren't a lot of the present value based on future earnings? Yeah, it is.

SPEAKER_01 22:42

Yeah. So that's why there's the multiple, right? Just like Nvidia right now is trading under what, 20 times futures earnings? Tesla is trading over a hundred times futures earnings. So if the company is a strategic growth company and it has accomplished many of the steps to be where they need to be, and then at the end of the rainbow or at the end goal, there's gonna have a lot of revenues to show for. Then at the present time, given what they have accomplished, then the market will determine through supply and demand and through the stock market, they will determine, you know, through the bid and ask process, you know, how much would you pay? Right? How much would you pay? And that's the sentiment, and that is the multiple, and that is the valuation system of the stock market. Same thing with bonds.

SPEAKER_02 23:28

Yeah. So we're at the 30-minute mark. I always try to keep these to be about 30 minutes. So for those of you watching, please pass this on to your friends and uh co-workers. Uh, this is Andrew Tang with Turner Financial Group and Michelle Connell uh from Porsche Capital Management based in Fort Worth. If you have any questions for anybody, please reach out to them and get to know them. You're dealing with the best in the business. I promise you that. And uh this is Ed Butowski, and this has been another version of wealth transparency. Thank you.

SPEAKER_01 24:04

Thanks for having me.