Everything Is Going Up. So What's the Catch?

The economy is moving. The questions are moving faster. 

Home prices are at record highs, bank earnings are strong, and consumers are still spending. But interest rates are not falling, mortgage rates are creeping back toward 7%, and nobody knows how long any of these holds.

That is the full picture Michelle Connell of Portia Capital Management, Lex Nikpour of Ethos Financial Group, Andrew Tang of Turner Financial Group, and I laid out on this week's complete episode of Wealth Transparency. 

First-time buyers are getting used to borrowing at these rates. Banks are making money. And the commercial real estate concerns that had many investors watching closely? It may have already passed its worst point.

This is the conversation that helps you understand your financial picture right now.

Like this, subscribe to Wealth Transparency, share it with someone who is paying attention to their financial future, and come back every week.

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 everybody and welcome to another edition of Wealth Transparency. I'm Ed Dietowski. I'm your host. I'm honored to have Andrew Tang with Turner Financial Group with us, Lex Nickpoor with Ethos Financial Group, and Michelle Connell with Porsche Asset Management. Each week, what we do is we take headlines that aren't necessarily the main headlines, but storylines that impact your financial picture and what you should do as a result of these headlines in your portfolio. So to start off with, inflation cooled more than expected in June. So, Michelle, why don't you take us through your uh feelings about inflation and where you see them going, the numbers.

SPEAKER_00 1:12

Well, when we talked the last time, there was an opinion, and mine was included that inflation numbers where they were were a little bit more transitory, and that's what we're seeing, at least on the energy side. But it may be the case where a lot of the manufacturers and service providers may keep the costs where they are because they've been absorbing a lot of the excess costs. So I don't know if we're going to see a reprieve. For instance, today United Airlines was on Bloomberg and they said they're going to keep fares high, and they implied that they're going to keep raising them because they can't.

SPEAKER_03 1:52

I know that oil prices are the number one in the Philadelphia.

SPEAKER_04 2:13

But as we've seen some conflict escalation, we've seen that price pick up as well. They've moved a little bit closer, but more so I think for the consumer, it's a reminder that this is probably to expect these elevator prices in and around the $4 mark. And as things might continue, we'll I think we could see that price of oil, you know, if the escalation continues, we'll see the price of oil continue as well. But like Michelle said, that's just being absorbed by the consumer right now. And the consumer, while verbally being disgruntled, uh consumers are still spending right now in the summer. So, you know, you look at the eye test, which I think sort of fronts the data that we get from uh some of these organizations, and people are still out and about doing things and people are still buying airlines tickets.

SPEAKER_02 3:02

So I'm gonna come back to Lex and Michelle on what industry do you think is gonna benefit the most when oil prices come lower? But uh, Andrew, let me ask you that question. What industry do you think is gonna be benefit the most from oil prices coming lower?

SPEAKER_01 3:19

Yeah, I think general consumption or retail sales will benefit when oil comes down. Uh, there is a little bit of a lag uh from crude oil prices versus gasoline because gasoline is a refined product at the end of the day. And we saw a dip in inflation numbers in June, but that was June. So that was the time then when the ceasefire for where the Straits of Hormuz was actually running pretty high. But we are starting to see price perk up again. And like what Lex has uh alluded, that people are still traveling, people are still driving, but we see a divergence in prices. National average of gasoline right now for unleaded is about 380 right now, believe it or not. But jet fuel is still very high, diesel is quite high, and also marine fuel is very high. So you can see the discretionary spending side of fuel, it's still quite high. But again, people are still flying, even though domestic ticket runs from anywhere from 400 to 600 for coach, people are still going. Uh, and people are still driving to different places. Yeah. So the economy is still chuckling along.

SPEAKER_02 4:27

So the reason we talk about oil prices and inflation is because of interest rates. And when the economy is really strong, then interest rates tend to rise to slow the economy down. When inter when the economy is really weak, we lower interest rates to stimulate the economy. But the Fed right now is kind of divided on interest rates. Uh so Lex, given Kevin Warsh was on the hill testifying in front of Congress this week, what do you think of how he is kind of positioning his Fed chairmanship to interest rates at this time?

SPEAKER_04 5:05

Carefully. I don't envy the position that he's in at the moment, given this state of the economy, because you still have a rather fully employed labor force, right? You have consumption still at a pretty good clip. Yes, you have the prices of that higher, uh, but we haven't seen, I mean, we've seen layoffs, right? There was, I think it was Microsoft announcing on Xbox, I can't remember if that was last week or the week before. But is that more so just natural uh corporate organization rather than something systemic that you would expect someone like you know, Warsh and the governors to be able to look at interest rates and say, we really need to do something here to help the average individual, which would mean lowering rates, right? So I was going through um, you know, the BLS statistics kind of across the PPI and CPI makeups, and I hate to say, but I think no action is better than taking any aggressive action right now because of the way that things are. Yeah, I mean, some folks are disgruntled. Obviously, the president wants lower rates yesterday just because that's who he is, and that's part and parcel to what he does outside of this from a real estate perspective. But I think his job right now on being able to take in information and determine what his core group is going to do, better to take your time on that than just make some sort of hasty action by either raising a rate or lowering a rate and then having, you know, knock-on effects from that negatively one way or the other. And it decreases their ability to pull a lever when they really need to, which we've seen that in the past too.

SPEAKER_02 6:44

You know, it's funny, doing what we all do for a living, it's amazing how we have to be economists as well as investment managers. And, you know, the economy right now, I would say, is you know, kind of sputtering along, you know, kind of strong, but you're not really sure if it's going to be able to hold it up given the jobs numbers as well. Um, Michelle, what's your view on the Fed chairman and his position on the economy?

SPEAKER_00 7:10

I was watching him when he was testifying this week, and he wanted to make it clear uh to the members of Congress, and I think the Senate too, that he is inflation is his number one enemy, more so than job growth. That seemed to be the the message that he was trying to deliver. And I think that's really hard in terms of battling inflation right now because it's like they're being backed in a corner. Like like Lex, I also don't envy him or the Federal Reserve because you they want to lower rates, but you really can't yet because we don't have enough signs in the economy that it wouldn't cause a problem if they were to lower rates. But at the same time, rates are so high and corporations keep borrowing more and more, which puts more fire under the rates, it's a really difficult place to to be.

SPEAKER_02 8:04

Yeah, I have a real difficult time jumping on the bandwagon that rates should be lower. Although if you're trying to fight off inflation and inflation had cooled more than you had expected right now, it's probably a good time to just let things you know play out and then wait for more economic data to come out when it can or when it does come out. Andrew, uh, I want to lead into home prices have reached another record high. And that's surprising, you know, given that demand usually is what pushes prices higher, but demand hasn't really picked up that much because the interest rates are so high. And very few people are paying cash for houses these days. You want to kind of give us your thoughts on that?

SPEAKER_01 8:50

Yeah, because all the cash buyers, they're done. You know, they were buying homes, you know, roughly about two quarters ago. But they've been doing that. And they took the best real estate out of the market. And right now, you're still dealing with uh another unexpected ticked up in mortgage rates. Uh, and that's relative to the I would say transitory spikes in oil, because now really nobody knows how long this is gonna last. We have ceasefires, then we don't have ceasefires. So this back and forth and yo-yoing of uh rhetoric between the US and Iran conflict, it's causing a lot more uncertainty than we originally was expecting. And so we we can see that reflected in the 30-year mortgage jumbo rates as well. So now we're approaching close to six and a half, six point seven five, you know, for 30-year jumbo mortgage rate fixed rate. And that is not helping at all because we're close to 7% now, right? And uh with rates that high, even if if the homeowners put their house on sale, you're gonna have a harder time for the buyers to do the successful closing. And you're gonna see a longer duration of houses uh they're gonna be on the market. And of course, with this ongoing continuation of uh price moving to the upside, yeah, we're you know, we're not seeing any relief when it comes to affordability. So even remodeling costs more, parts costs more, material costs more, labor continuously costs more, and therefore it pushes up home prices. But this is somewhat, it needs to take a break, you know, and I don't expect demand to be strong anytime soon when rates are this high. The yields have climbed. It's a reflection of the short-term inflation.

SPEAKER_02 10:38

But Lex, in your area of Pennsylvania, are prices continuing to move up, even though mortgage rates have moved up, because usually they counterbalance each other. Rates go lower and prices go higher. But right now you have rates going higher and the price of houses going higher.

SPEAKER_04 10:58

In my area, yes, there's still again different parts of the country are different, but we are seeing prices of homes increase. It's not quite at the level as it was a few years ago. I think it's slowing down, but you and houses are staying on the market a little bit longer by about a day compared to last year. So houses are the average this is according to the National Association of Realtors, uh average days on the market of a home or 28 compared to 27 last year. Not overly meaningful, but it still means something. I think what's interesting though is the percentage of sales compared to last year is up by 3% for first-time home buyers. So to me, what that says when you have rates that are down from a year ago, the 30-year average a year ago was about 6.6%. Obviously, it's climbed back up to that in the last, I think, probably 30 days, but for the year, the average was about 6.28% on the 30 year, according to Freddie Mack. It says to me that first-time homebuyers are getting used to rates being at this level and adjusting spending to accommodate the need for first-time home buying. And you know, this year compared to last year was one year more of being able to save money. So I think consumers are just going to have to get used to rates being where they are. And candidly, when you look at where that's been historically, these are you know, these are rates I think important for people to get used to as well. You'll start to see home values, I think, start to level off a little bit, but and we've seen it cool. It's not last year, just as a home buyer, it was insane. I mean, you're bidding up numbers that just didn't make any sense. It slowed down a little bit from last year.

SPEAKER_02 12:45

Yeah, if we were to summarize what we've talked about, we're not seeing interest rates move, we're not seeing oil prices really move, we're seeing housing prices go higher, even though interest rates haven't moved up higher. And something, Andrew, that we've seen our bank earnings have been very resilient. So, you know, let's talk a little bit about that, and then let's focus in on what you would do to what you would recommend people do in their portfolios to, you know, as I summarize things.

SPEAKER_01 13:15

Yeah, we can see financials are going to do well when we uh get a confirmation from the Federal Reserve that the higher rates most likely are going to stay here at these levels. Uh, I still don't expect a November rate hike because uh, you know, this uh prices increase are really due to supply, not demand. Now, the large banks are generally doing well because of the strength of their balance sheets, you know, from recovery to where we are. The banks are really flush with cash. Uh there are lots of risk measures in there, no, you know, basically compliance measures in there to reduce risk. And investment banking activities have picked up, uh, you know, and we can see that uh go hand in hand with the AI infrastructure build and the tech build out. And then trading revenue uh are also very good for the banks. And then credit quality among the banks are also very good. Losses, we don't really see a whole lot of that since 2022. Many of those non-performing loans or bankruptcies, they're already done. You know, we haven't really seen any of those uh, you know, come into the spotlight. And so when the consumer understands that, hey, the rates are gonna stay higher at these levels for longer, just like what Lex is saying, is that they're gonna get used to this. And if they do want to take out a loan, they'll go ahead and do it. They're not gonna have this Osborne effect of waiting for the rates to come down before they make a decision on purchasing or take out a loan to do remodeling or uh you know anything as such. And so we still think that the consumer market is still gonna be strong going forward, business activity is still gonna be strong, business borrowing is still gonna be strong, and business formation is exceptionally strong, you know, to offset this job loss data. And so financials, I believe, is not gonna give you a double anytime soon, but it's going to be a steady, robust sector uh, you know, for the foreseeable future.

SPEAKER_02 15:07

Well, I had a client ask me yesterday about all of the pending uh foreclosures on commercial real estate being a big problem for banks. How would you address my client on that?

SPEAKER_01 15:21

Uh yeah, I see that the foreclosure on commercial industry, I think mostly they're done. I think your customer is reading on the tail end of that news, meaning that is probably not news news, but a little bit of dated news. Most of the developers and operators, they have already secure financing, and I know there are a lot of loans that are still rolling off and that needs to be refinanced, but the decisions can be made, meaning they're not waiting for a rate cut anytime soon. And so with this higher for longer environment, uh the businesses either froze or you know, they can continue to operate. But most in in that particular area, they are already downsizing and they have already dodged the bullet. And if they are in trouble, they would have been in trouble already. And so, yeah, Lex, I guess you can follow up on that.

SPEAKER_04 16:13

I think that's relatively trough when you look at it, you know, in whole regionally is is certainly a different picture and should be taken as such. You know, I don't know what your client's background is on that. If they have some sort of particular insight, maybe they're working in a particular jurisdiction that they're seeing that change. And that's very possible when you've had what we had over COVID, and folks either saying we don't need to be in particularly a high-rent district, we can be in a lower rent district with less space, or a high rent district with less space than they had, and change the footprint. But I think that that's dropped quite a bit. I also see that there's a different, there's a trend going the other way of folks getting back into the office than there was leaving the office. Employers recognize the productivity for being in the office and having conversations and the camaraderie that is far greater than working remote. That said, there's there's quite a bit of technology out there, which is also helping for those. I'm probably speaking more to like the legal industry, which did take up big footprints in major cities and still do, but they're more flexible and they're combating their I think where they were having deficiencies from a work perspective, with technology to be able to help track time and all that stuff. So people are just adjusting to a new normal. And I think the real estate aspect of that has shifted in such a way where people are gonna be back to work and need to be back to work.

SPEAKER_02 17:41

Yeah, yeah. I he's a serial entrepreneur, and he was talking to somebody who was in the loan business, and he said, get out of everything that's commercial, you know, commercial related because this massive storm of unpaid buildings are going to uh hit the market. Uh so he was worried about that and then how it was going to impact his portfolio. And I told him nothing was gonna impact his portfolio.

SPEAKER_04 18:11

Well, I do think banks too, right? Like they've taken their charge off to where they can, and they've been able to like right-size that loan book because they do understand where rates have been in the last four years, right? And they can't slow their business down. But I think the appetite on corporate America, particularly as we're in this innovation change, industrial change, is banks recognize the need to be able to help fund that and to help right size particular parts of their books of business that maybe would be uh seen as liabilities. But I think there's a lot more positives on the bank side, and they're gonna make a ton more money. I've actually been was buying financials about, you know, for some clients over the last two months.

SPEAKER_02 18:50

Well, I want to thank all three of you for joining today. For those of you watching, please share this with your close friends and business associates. And if you have a need, please reach out to Michelle Connell with Porsche Asset Management in Fort Worth, Lex Nickpoor with Ethos Financial Group in King of Prussia, Pennsylvania, and Andrew Tang with Turner Financial Group. And Andrew, I never say where you're located because I don't know if I should say New or New York.

SPEAKER_01 19:20

I'm always traveling. Right now I'm Northern California, but I'm based in New York, New Jersey.

SPEAKER_02 19:26

Yeah. So and we are up to about 4,500 people watching this a week, and we'd like to double that. So please share this with everybody you know, and uh we appreciate you joining us with Wealth Transparency. Thank you.

SPEAKER_01 19:39

Thanks for having me.