April 2025
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Ep. 134 Watch This Before You Move States to Avoid Taxes
Ep. 133 What Financial Advisors Think About "Die with Zero"
Hello, everyone, and thank you for joining us for an episode of THE FINANCIAL COMMUTE. To join me in this conversation today is wealth advisor and partner, Mike. Mike, we have a headline episode this week.
I love headlines. You know me. You know, I saw when I pulled up CNN, yesterday that that Billy Ray Cyrus is now Instagram official with Heather Graham. Super, super excited about that one. So should we dig into that?
I don't know if our clients care as much about that one as they do. You know, Trump's sort of strong-arming, Jerome Powell earlier this week with wanting to lower interest rates and causing some more volatility.
Yeah. So that might be a more relevant topic for today.
Yeah I mean and candidly look, if I'm Trump, if I'm the president of the United States and I've got 9 trillion worth of treasuries that are set to, you know, expire and need to be refinanced at the end of this year, I'm going to want lower rates too. So I understand completely where he's coming from.
Yeah. I mean, it's one thing to understand where he's coming from, but it's also another thing to understand the role of the fed and the role of the executive branch. And really having a firm understanding that the fed needs to be autonomous, it needs to act independently and not act under pressure of the executive branch. Right. Because the Fed's job is to look out for the long-term health of the economy.
And with politics, a lot of times their decisions that are made for short term benefit. Sure. Right. So I think it'd be probably beneficial to take a step back and just look at what the role of the fed is compared to what the role of the executive branch is.
Yeah. Let's talk about the role of the Fed.
Yeah. So the role of the fed is is is two pronged. Right. You've got monetary policy and you've got financial stability. So with monetary policy the fed sets short term interest rates. With the goal of price stability. Right. They want to keep inflation under 2%. And then full employment. Right. A lot of times those are competing interests.
Then with financial stability, the Fed regulates and monitors banks. Right. They'll also act as the lender of last resort. Right. When we saw the banking crisis. Right. The fed had to step in and kind of bailout a few of the large institutional banks. Right. That's not what the fed was put in place to do.
But there there is a backstop, right, if needed. But the most important part about the fed, too, is that they operate autonomously. Independently. Yeah. I think one of the best analogies I've ever heard to give an understanding of the fed to kind of create clarity for me was the fed is like a referee. And in a football game, right where you've got this ref who is put in place to regulate a game to keep credibility for the game.
Right. You've got two competing sides that are playing this game, and a lot of times you've got owners or head coaches that are coming down on the field and yelling at the referee. And right, these owners might have a lot of pull. And if that owner tends to sway the ref right, and the ref now changes the calls that they're making based on that, the disgruntledness of the owner.
Well, now the game's losing credibility. And what could happen? You could lose season ticket holders. You could lose fans who were coming because they don't want to come see a game that's essentially being biased to one side. They want the credibility of the game to stay. And that's essentially the Fed's role.
And so when you think about the fed right, you've got competing things going on. They've got their target for growth around 2%. They've got to tackle inflation. We've seen inflation come down a little bit recently. But it's still relatively high and potentially ticking upwards because tariffs could increase costs which could raise it raise inflation. And then you've got unemployment.
But like the fed sort of backed into a little bit of a corner. Right now we've got an economy that's slowing. We've got businesses that are having a difficult time making decisions because of the uncertainty around tariffs. You potentially are in a situation where you could see unemployment tick up, you can see inflation tick up, and you've got a consumer that's already kind of strapped with, you know, credit card defaults or late payments at all-time highs and the auto loans starting to tick up as well.
And so, you know, the fed could be in a situation where the economy's slowing and inflation continues to increase. And they can't lower rates during that environment because more inflation they potentially have to raise interest rates. So it's a really difficult spot for them to be in. Yeah.
And that's where the fed needs to be data-driven. And the fed needs to keep a long-term focus. Right. Short-term focus would say hey lower interest rates. We're in a slow-growing environment. There's a lot of strain, on the lower and middle-market consumers or middle-income consumers. Right. It makes sense to think that with tariffs coming in and the uncertainty of supply chains and what costs are going to do and how they're going to affect margins to be in more of a quantitative easing cycle.
Right. That will allow cheaper borrowing, which should allow more corporate spending, which should allow more personal spending. Right? More borrowing equals more spending. That would be the easy fix for the fed is is fixed on the fact that we could have inflation take off again. Yeah. Right. And it it brings us back to times of the 70s and early 80s when we dealt with a similar scenario.
Yeah. Right. And so the fed is but there's no easy decision for the fed right now. Right. Because if they do cut rates, it could also look like they're giving in to political pressure. And that could also create instability because foreign governments could say, hey there's no credibility to the fed. Right. And our Treasury is our number one export.
Right. And so if they feel like the fed has lost credibility because there's no independence in the fed, well, that could cause a huge selling of treasuries. And what would that would do that would create an increase in, in the ten year, which would create the opposite effect of what we were looking.
For higher, higher rates, higher borrowing costs. Right. And you know, look, if I'm Donald Trump or I'm the president, like I said earlier, and I'm kind of looking out there long term, the US has $36 trillion worth of debt right now. Our interest payments on our debts around $952 billion, which that's the second largest category of federal spending today.
Right, to Social Security.
And so if 9.2 trillion is set to be refinanced, needs to be refinanced this year, and it's at higher rates than it was five years ago during Covid, when interest rates were zero, our interest debt continues to skyrocket. And so the long-term health of the US economy is really in a lot of trouble. The other reason why Trump would like rates to come down is because if rates come down, then all of a sudden you've got maybe increased borrowing, increased spending.
It could be good for real estate construction. Absolutely. This is and that can help fuel an economy and create more jobs and, you know, help us avoid a recession that, you know, some headlines have been out there saying we could run into. Yeah.
And Trump should want that. He should want a growing economy. He should want easier borrowing so that corporations could grow. They could build inventory. They could hire people so that there can be confidence in the consumer to go out and spend money. Right. The problem is, is that if we lower interest rates too quick and for the wrong reasons, it might not have the intended consequences, right?
It might actually create interest rates to shoot up.
Yeah, we're inflation to continue to grow because.
Inflation would continue to rise. And if when that happens the usually interest rates follow.
And you know if the fed lowers rates too much too soon, they all of a sudden don't have anything in their back pocket to help save the economy. If we if we do head into a recession.
Right. And that's why I think and I'm not saying I agree or disagree. I think that's the stance that the fed is taking right now. We still need more data. We need to see what growth it was in Q1. Right. Which right now projections is it was a very slow growth, but it wasn't a negative. It was 0.3 to 0.5.
Yeah. You know percent. So we're we're we're stalling right. And inflation is stalling right? And so the Fed's the last thing the fed wants is to get into an area of stagflation a stagnant economy stagnant high inflation. Right. And so they're data driven and they're waiting to see, you know, what information comes out which will enable them to act in the best interest of the economy.
I'm, I'm so glad that we invest the way that we do not only have an exposure to gold, gold miners to be able to kind of help combat the rising inflation or the depreciating dollar. But our access to private lending, real estate, other types of investments that are really resilient from the volatility that we've seen recently, I mean, we've been positioned this way for quite some time, mainly has to do with the zero interest rate policy that we were in for a very long time, and the enormous amount of debt that the US and other countries around the world have.
But it's really showing, for our clients to navigate these times of uncertainty, and market volatility, and really weather the storm very, very well.
Yeah. I mean, how good does it feel? You know, I know you manage you know, a lot of clients and they're very important to you. How good does it feel that when they're calling you it's more about what opportunities do you see. And it's less fear driven. Yeah. Because they trust you know how we invest and they trust that we're looking out for their best interest.
And they're looking at their portfolios now and they're like we're doing pretty good.
You know I mean not to pick on, you know, other advisors because there's a lot of very smart people that do great work and they believe in what they do. But, you know, taking that traditional 60% stock, 40% bond approach and feeling like that's going to be the way to navigate these uncertain times in the way going forward.
Like that's just not okay, in my opinion. And the fact that alternatives have become a really hot buzzword in our industry. We've been investing in alternatives for several decades. This is not new to us. We know what we're doing. We know what we're looking for to help navigate these uncertain times. And we've been a proponent of gold for some time where there's a lot of other advisory firms have not.
And that's been a big shift today.
Yeah. And whenever there's geopolitical uncertainty and, you know, risk of, of high inflation. Right. The debasement of fiat currency, gold plays, a wonderful hedge. And we've been worried about the deficit that we spend and the debt that we hold in our and our place as, you know, as a reserve currency globally. And so we've been investing in gold, knowing that it could be volatile.
Right. Gold's just as volatile as stocks, if not more. Sure, but because our fundamentals are investing in gold and gold mining companies in our commodities, we're for the right reasons. I feel like we're now reaping the benefit of that. When, you know, we might have looked like we were missing out before. When stocks are running up back to back year 20, 25%, you know, but we did things for the right reason to protect.
Yeah. And the whole theory around building a more resilient portfolio, like a bigger boat in times of uncertainty to navigate the storms of the murky waters. I know a lot of clients just had questions around, you know, why? Why is President Trump so, advocating so much for lower rates? Like what are the benefits there? And then what's the what's the role of the fed and why?
Why does their viewpoint maybe differ than what kind of what's going on. And so I enjoyed this conversation with you.
Yeah. Me too. And, you know, just to wrap it up, I think any president sitting in his shoes would probably want lower rates because you know, helping to to fuel and grow the economy is something that feels good in the short term and helps people in the short term, which it could potentially help it.
It could. I think about my kids and your kids and our, you know, future grandkids. I mean, if the US has less debt or more affordable debt than what they currently have, obviously that's less spending that the government needs to do to, to service that debt that could be better for them long term.
And, and the whole worry is that if it happens prematurely, that the lowering the short term rate wouldn't create lower long term rates, which is what would affect the mortgage rates and the borrowing rates in that way. And so I think it's it's we're sitting in a unique position where we can educate our clients. We can continue to build resilient portfolios and, you know, kind of watch history in the making here of what happens with, with that and tariffs and all of this fun stuff.
Also one of the big uncertainties is the fed could wake up tomorrow and say, you know what, I decided to lower rates. But then inflation continue to go. And all of a sudden you can see things like the ten year or 20 or 30 year U.S. Treasury continue to go higher. Right. Even though the short term rates came down.
So there's no guarantees that's going to happen.
Yeah. And that's why we build a resilient portfolio. Yeah.
Thanks, Mike.
The information presented herein is for educational purposes only and is not intended to constitute financial advice. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. These views are not intended as a recommendation and should not be relied on as financial, tax or legal advice. It should not be assumed that Morton will make recommendations in the future that are consistent with the views expressed herein. The private investment opportunities discussed are available to eligible clients and can only be made after the client’s careful review and completion of the applicable Offering Documents. Each investment opportunity is unique, and it is not known whether the same or similar type of opportunity will be available in the future. Morton makes no representations as to the actual composition or performance of any asset class. Past performance is no guarantee of future results. You should consult with your attorney, finance professional or accountant before implementing any transactions and/or strategies concerning your finances.
