Speaker 1: Welcome to another episode of the Chicks on the Right
podcast where we talk to our friend and sponsor of
the show, Zach Abraham from Bulward Capital Management, and today
we are looking forward to a potential rate cut, an
interest rate cut by the Fed.
Speaker 2: Finally Trump has been screaming for this, calling your own
Powell all the names for I don't even know how
many months at this point, and it sounds like we're
finally going to get one. Although I've heard you know,
it could be quarter, could be half, a percentage point
or basis point or whatever you finance folks call those.
What do you think it should be? What do you
think it will be, and what do you think the
impact will be?
Speaker 3: Okay, So when I say this, I want everybody to
understand that when I do this for a living, and
so I've gone to painstaking links to separate what i
think politically from what I think financially right, just because
I always tell people, I go, you know, investing is
hard enough, leave your political thought, you know, leave your
political ideas on the sidelines, right, because that just it's
it's complicated enough to get into right, and if you
add that other layer of complexity, it becomes almost impossible.
So what I will say is this, I think it
is a lock. The market is pricing in a twenty
five basis point cut. I think it's actually pricing in.
Last I looked, and I didn't look at these metrics
before we got on, but last I looked, I think
it was pricing in a thirty two basis point cut,
which means that the market is like ninety three percent
or ninety five or whatever, is like almost hundred percent
sure that it's going to be twenty five, but leaving
a slight chance for it to be fifty. Here's the deal.
I was like, they're going to do. Are they going
to cut or not? It's easiest prediction in the world.
Just watch what the market is pricing in and twenty
four to forty eight hours, whatever that number is, that'll
be the number. The FED has only gone away from
that number one time in over twenty years. Okay, So
whatever the market is pricing in, that will be what happens. Okay.
And one of the reasons is the Fed's objective is
to communicate their rate policy far enough out into the
future for the market to price in that cut, because
they don't want to surprise the market. Now we could
get into a whole discussion of whether they should or
shouldn't have that posture, but you know that's beside the point.
So bottom line is market's pricing twenty five or about
thirty two basis points last I looked, you're going to
get a twenty five basis point cut unless that unless
that line moves appropriate. Do you think it's really weird
if you're just looking if you're listening to Trump, I
am not saying I do not hear what he's saying,
and I don't necessarily disagree with some of the points
he's making. The flip side is is if you look
at the actual data, I also see where plat Powell's
hesitancy to cut is because you've got inflation at least
right now inflecting backup, not crazy, but looking like it
wants to move higher again. You're right at three percent.
You're looking at real growth that is dropping, so that
would support a rate cut, But you're not seeing the
kind of things that would tell you that you, oh, like,
there is no data in the economy right now that
would support one hundred and fifty bases point cut. So
Trump is talked about one hundred and fifty to two hundred.
I'm not saying he's wrong. Okay, six months from now,
we could look back and go Trump with one hundred
percent right. But the way the FED looks at it
is they base their opinion solely on the data. Do
they get political at times? I think it's crazy to
say they don't. I think there's plenty of evidence of that.
But if you look at the data, the data says you.
The data is telling you you don't need a cut, right.
So I people wip point to housing, but remember, guys,
if you're trying to make house payments more affordable, if
you cut drastically and mortgage payments go down, guess what
happens to the house prices? They go they go out. Okay. So,
and this is one of the things that we were
talking about, and I think we're pretty much there. I don't.
I don't think interest rate moves are going to make
near the economic difference that they have in the past.
And the reason why is the vast majority of homes
out there are already financed at those lower rates, right,
That's true, and they're financed it significantly lower rates. So
even if you cut one hundred and fifty basis points.
Those people aren't going to refinance. That would still push
their rate up higher. Right. The other thing is we've
been using monetary policy and interest rate cuts to once again,
like we spoke about in a different segment, to anesthetize
the pain and not deal with the actual cause. Well,
like anything else, if you press that button too many times,
it's not effective. Right. People are sitting there going, well,
we can always go back to zero percent interest rates.
You just had them for almost fifteen years. To think
that they're going to be as effective as they were,
then you're out of your mind. Right. If the average
mortgage rate in the country was at six to seven,
one hundred and fifty point basis or one hundred and
fifty basis point cut would be that would be some
serious stimulus, right, But that's not the case. So my
so I think that generally speaking, we're going to see
less efficacy from rate cuts than we've seen in the past.
But it helps mes.
Speaker 2: Like with the whole the interest that we pay on
the debt, right, Like, doesn't that help us a whole lot?
Speaker 3: It? It does, But then it also enables government to spend.
Speaker 4: More, right, And the bottom line is people are looking
at this for I want to be able to buy
a house. I want to be able to buy a car,
you know, I mean I want my payment.
Speaker 3: To be lower.
Speaker 4: That's like logistically, because let's just get real that the
regular lay person, that's what they're looking at this for.
So when you're saying it's really not going to make
that much of a difference, or if the rate goes
down and then the prices of houses, because I know
around here in Texas, prices of houses are starting to
go down a little bit because they were inflated, like
after COVID everything like exploded, the house prices went crazy up.
Now they're all starting to kind of go down again.
And so if this makes how prices go up again,
it's going to be like, well, what what the hell?
Speaker 3: Well, and think about it, right, when we think about
an economy that relies almost entirely on finance to purchase
goods anyway, what we call durable goods, right, stuff that
lasts more than you know, a month. When we rely
on finance, what are we really doing when we're lowering
interest rates? Right, what we're really trying to do is
we're trying to push the price of that asset higher. Right,
because because the cost of ownership is the financing costs
plus the underlying cost of the asset. So if we're
pushing the financing costs lower, what we're trying to do
is boost the asset price. Right. What did zero what?
What did zero percent rates for twelve years do? It
took the S and P five It tripled the S
and P five hundred and took it to a record
high valuation. It pushes prices up when we're dealing with
an inflationary problem, infrast rate infrast rate cuts make it worse,
not better.
Speaker 2: So do you think that Trump has been unfair? I mean,
do you think he's been like too mean to drum Powell?
Speaker 3: Yes and no. I think that the Federal Reserve has
not had anywhere near enough heat on them for way
too long. I think that they have no oversight. I
think that they don't get audited, and those are problems.
They're a black box.
Speaker 4: Should they be discantled?
Speaker 3: I think that they should be restructured. I think that
I think it should be reworked. I think we shouldn't
have anywhere near as many academics on the board. I
think we should have we have you know, it's so
funny to hear all this push for diversity and then
you look at our government institutions and they're not diverse
at all. People like, what are you talking about? I go,
I care about real diversity to a black kid and
a white kid that both grew up in the same
neighborhood with wealthy parents, went to Ivy League schools that
ain't diversity. Right, that's the same background. And I know
that because my kids are half black, right, So y,
my kids are not. My kids are not going to
make the board, your board of governors more diverse. They're not, right, right,
So that's do we need to remake it? Absolutely? But
do we need to have an independent FED that makes
monetary decisions without influence from the White House? Yes, And
I'm not saying that aimed at Trump. I'm saying that
aimed writ large because if the White House controls monetary policy.
Notice I didn't say Trump, but if you get then
monetary policy will become completely political, right by definition? Right?
And like a, do we need any more political theater
in this country?
Speaker 4: Probably?
Speaker 3: I don't think so. Probably not no, And so we
need an independent FED. But independent is a really interesting word.
See when I see a when I see a body
basically a government agency like the Federal Reserve, that isn't audited,
and it's not how it held accountable by anybody. Independen
is not the word I would use for that, right.
I'm not sure what the right word to use is,
but it's not independent because if we don't know what
they're doing. Remember, they have the sole power of creating
money out of thin air. To not audit that power
just seems insane to me.
Speaker 4: That's yeah.
Speaker 3: And here's the other thing where Trump where Trump has
some points. When you look at their ability to print money,
just think about it, like, if they didn't have that ability,
and I'm not saying we should take that ability away
from them, but if they didn't have that ability, if
they were more if they were audited and held to account,
do you think we would have had more or less
military conflicts over the laste hundred years. My guess is
we'd have way less. And why because you need wars
are expensive, right, and manipulating monetary policy and deficit spending
and all these kinds of things, you know, they're significantly
more easy to do when someone's printing money and filling
into paying for things. Right. The other thing is they're
not audited. So what do you think the chances are
that they put money in places that would horrify us?
Speaker 1: Yeah?
Speaker 2: Right, then I don't want to know that, and I
want to know.
Speaker 3: I totally want to know. I'm not even I'm not
even making the allegation. I'm just sitting there saying these
people are very much plugged into d C. Right, they're
they're there in the Eclas building and they have the
ability to print money out of thin air and they're
not audited.
Speaker 4: That is bad.
Speaker 3: Yeah, it's bad. That's bad.
Speaker 4: It's bad.
Speaker 3: Now. Look, it's entirely possible that we open the books
and the vaults and everything checks out. Oh I'm sure
it's checking out. Okay, that's super likely.
Speaker 4: Like everything else in government, because we learned that by DOGE.
I'm sure everybody's going to be on the up and
up exactly.
Speaker 3: Yeah, and you know it, just and you and you
know this. I just through life experience right where where
when I see an un an unheedged or an uncontested
power of something and that isn't observed and watched and
supervised one hundred percent of the time, it ends up
doing things it shouldn't exactly and so just the so
it's I think Trump has been too hard on them,
considering what he's saying or or considering the situation we're
dealing with now, you know, I disagree that there's like
I said, there's no evidence that we one hundred and
fifty bas point cut do. I think he's going after
them too hard generally speaking, though, because I think a
lot of what he says. I think that they have
become too political and they definitely need oversight so well.
Speaker 2: And when the rates do what the rates do, that
is when people have all the questions and they need
a good financial planner. And we're just.
Speaker 3: Saying that's another transition to act.
Speaker 4: Zach is the guy.
Speaker 2: So tell people how they can look you up and
get your advice.
Speaker 3: Yes, go to Know Your Risk podcast dot com. Go
to Bullward Capital Management dot com. We do our daily podcast.
It covers everything in finance and economics and try to
keep it between twenty five thirty minutes. Goal of that,
and I've said it on here, but goal of that
was just to give you a source of news that
you can trust about what actually happened in the economy.
As opposed to some whack jobs, you know, liberal worldview
put on top of one or two facts. So anyway,
put that out daily. But yeah, you can find us
easy to find. We're on YouTube for video feeds, all
that kind of stuff. Bullworkcapitalmanagement dot com. Know Your Risk
podcast not not hardifyd. Thank you, Zach, Zach, Thank you, ladies.
I appreciate it. Investment advisory services offered through TREK Financial
loc and SEC Registered Investment advisor. The opinions expressed in
this programmer for general informational purposes only and are not
intended to provide specific advice or recommendations for any individual
or on any specific security. Any references to performance of
security so it thought to be materially accurate and actual
performance may different. Investments involved risk and are not guaranteed.
Past performance doesn't guarantee future results. Trek twenty four three
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