Why We're Probably Getting Boosters Anyway & Debt Ceiling Drama - 7investing
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Why We’re Probably Getting Boosters Anyway & Debt Ceiling Drama

September 20, 2021

We’ve heard a lot about COVID boosters and the latest FDA ruling saying that only the elderly and people with certain underlying conditions should get them. That’s almost certainly not the last word and Maxx Chatsko joins 7investing Now to explain what’s happening and what might happen. We’ll also discuss the debt ceiling — something you’re likely going to hear about a lot over the next few weeks. Maxx will join Dan Kline to take a look at what the debt ceiling actually is and how what may or may not happen in Congress will impact the economy.

Transcript

Sam Bailey  0:13 Welcome to 7investing Now, a show that teaches you how to take a long-term view on investing by better understanding what’s happening in the market now.

Dan Kline  0:21 Good afternoon 7investors. Good morning. Good evening, you could be all over the world. If you’re here in the U.S. of course, you are noticing that the stock market has not been having a good day. That is something we’re going to address later on in the program. My name, of course, is Daniel Brooks Kline. I am the host of the program. I’m being joined today by Maxx Chatsko.

Our top topic today – we are going to talk about the big news on Covid boosters, then we’re going to take a look at two words you’ve been hearing a lot, and we’re going to tell you what they mean. Those two words are of course, debt ceiling. We’re going to talk about the market, the Dow is down like 700 points when last I checked. We understand that’s scary. We’re happy to take your questions, ask your questions, we will get to them later on in the show. Maxx Chatsco, it was a busy NFL Sunday, we’re only gonna make one little joke about this. But in the time I’ve been doing this introduction, Zach Wilson is somehow throwing two more interceptions.

Maxx Chatsko  0:25  I didn’t throw that many interceptions in the NFL today so..

Dan Kline  0:44 Maxx, we wish we could talk more NFL but obviously it is a big heavy market day, as we said get in your questions and your comments about the market. We know it’s scary. We will address it in the second half of the show. But Maxx, first there is big news. I had my sleeve rolled up I was ready to get a COVID booster. But that doesn’t look like the case. I was one of the first people vaccinated. I was vaccinated in mid-February, late February, but like February 20. So I was pretty ready to get my booster. But it doesn’t seem like that’s going to be happening right now. Why don’t you elaborate a little bit?

Maxx Chatsko  1:58 Yeah, so this was kind of dominating the headlines before the sky started falling this morning anyway. But last on Friday, there was an advisory committee meeting at the FDA. And they met to discuss this issue. They voted on the question of do we need boosters in the general population? They voted overwhelmingly against. 16 to 2 against, so it wasn’t even close to Dan. Then they kind of went back to the drawing board.

They drafted another question. And they said, Hey, do we need this specifically, this is all for the Pfizer vaccine too, to point out, not for Moderna, Johnson and Johnson. And they said, should we allow boosters in those who are 65 and older, those who are immunocompromised, those who might be in certain high-risk jobs, and they voted overwhelmingly in favor for that population. So the news here is that an FDA advisory committee said, Hey, you know what they voted against vaccinations for the general population. Of course, the FDA, this is not the FDA is formal recommendations. So they tend to follow what the committees say, they don’t always do it. So this is not like the foremost is not what the FDA is decided this is just kind of like the, you know, the pretense to that.

Dan Kline  3:07 So they’re recommending against boosters, which is actually something you’ve been saying all along. So besides taking a little bit of a bow, because you have been saying this, from a medical point of view, and I know you’re not a doctor, but you do have an advanced degree and you’re knowledgeable in the space. What’s the logic behind delaying boosters here and feel free to take your bow for being right all along?

Maxx Chatsko  3:28  So for months, I was saying, Oh, you know what, we probably don’t need boosters. And I kind of was pounding the table about that for a while. And then last month, or the Biden administration came out and said, everyone’s gonna get boosters, we’re gonna put them in the drinking water. They didn’t say that. So the show last month, I was like, Okay, I was wrong. And now maybe I was wrong about being wrong. But so the reason, though, that I thought we probably don’t need boosters for the general population is due to how vaccines work, right? So when you get a vaccine, you’re priming your immune system to recognize, you know, that virus, that antigen, it’s called. And, you know, we’ve heard a lot in articles and so forth, headlines about antibodies, do you have antibodies? How quickly do your antibody levels decline?

And that’s true, right, when you have a neutralizing antibody, it’s going to latch on to the virus if you encounter it, and then you won’t get sick or as sick. So that’s a good thing. That’s kind of the point of vaccines. That’s only part of the equation. You know, when you get a vaccine, you’re actually, you know, priming your immune system in a way that’s you’re priming something called T cells and B cells. So that’s where your immune memory actually comes from. And those cells are responsible for making neutralizing antibodies in the first place. So you know, over time, if your body’s pumping out high levels of neutralizing antibodies, eventually if you don’t encounter the virus, your immune system is going to say, okay, we’re wasting some resources here, you know, let’s dial it back. And so we could detect that declining level of neutralizing antibodies, but that doesn’t mean you’ve lost protection, because you still have memory in T cells and B cells.

So basically, you know, if a year after you’re vaccinated, you don’t really have high levels of neutralizing antibodies we can detect, but you did encounter the virus, your body would probably ramp up production of neutralizing antibodies. So we don’t need boosters every six months, we might not need them every year. And specifically in the general population, vaccines work. I mean, they’re they’re protecting people from hospitalization and death. Those are kind of the two metrics that matter right now. So at this stage, in the pandemic, we should focus on getting everybody vaccinated who can and right now really, the focus should be children who still aren’t eligible for vaccines.

Dan Kline  5:31 That looks like it might change. We saw some positive data on that today. But we’re not going to go too much into that. So we’ve seen the economy, one of the struggles, and we’re going to talk about the stock market. And again, we would love your questions and comments, you’re being very quiet out there, 7investing nation. But one of the things we’ve heard a lot as well, the Delta variant, and I’ve seen it. Tourism to Florida has slowed down. Now, obviously, we’ve been a very high rate of cases here. But theoretically Maxx, so I’m doubly vaccinated. Everyone in my family is, statistically, if I go out somewhere, I am – it’s possible I’ll get a breakthrough case.

But it’s not very likely. And I’m basing this on some of the studies out of Israel, and I’m only 47 I’m not 65, I’m not very likely to get a serious case, a case that causes hospitalization or even really makes me particularly sick. Is this a case where maybe we’re overreacting from an economic point of view and people are and I know a lot of people who are fully vaccinated just aren’t willing to travel or go out? And or, you know, whatever. They’re still like wiping down their groceries and things like that. I know, that was a long question. So answer whatever part of it you’re like.

Maxx Chatsko  6:39 Yes. So you know, you brought this up last month, when I said, Hey, I was wrong about boosters, we’re gonna get them. So I came at it from a scientific perspective, I didn’t see that maybe the government would want to approve these anyway. And you brought up the point that, you know, this is kind of like insurance, right? Having boosters available, even if we don’t really need them from a scientific standpoint, or an immunity standpoint, going into the winter. I mean, it’s colder, air is drier, it’s easier to spread respiratory illnesses, people are traveling people are you know, there’s a lot of holidays. So you said, hey, it’s probably a good idea to have this insurance in place, right? Vaccines are available boosters are available if we need them. So if things went sideways, or a new variant came out, or cases started rising, it’s so much more calming effect, if we had boosters available, reduces a lot of, you know, removes some uncertainty from the economy from society. So that is a pretty good point.

And in fact, even though the FDA vote was overwhelming against boosters in the general population, I actually think we’re probably going to get boosters anyway. So this is one of those cases where I think the FDA is formal decision. Eventually, maybe it’s supposed to decide this week, maybe not this week, but eventually, I think it’s going to approve boosters for everybody. And again, it’s kind of what you were saying it’s just about the having that insurance in place. It’s not just from the scientific standpoint, some of this might even get a little bit political. You know, we’re not really going to talk about that. But actually, the two leading vaccine, authorities, like the two leading officials at the FDA are actually resigning, they’re leaving, and I don’t think it’s related to this.

But on their way out, one of them actually called this Adcom meeting, kind of as like, you know, thumbing their nose at the FDA maybe for brushing this decision. So they wanted people to go on the record, scientists go on the record and say, you know, do you support boosters for the general population? So they got this vote against, but I think the people in charge are still probably going to approve it anyway.

Dan Kline  8:38  So Maxx, you know, I travel a lot. Is there a harm like, you know, if I decide, Okay, I’m gonna be at about, you know, eight months past my shot, or whatever it is, and you know, in a few months, maybe a booster is not the worst idea for me. Is there a harm to it? Besides the potential for increased side effects, which I think we’ve covered before?

Maxx Chatsko  8:59 I haven’t seen any of the data to be fair, Dan, I think that might be really the only concern is some of the side effects. I mean, they’re overwhelmingly safe and effective. So if you did get a booster, it would boost your immunity to above levels that you got after your second shot. So it’s not like you’re returning to where you were before, you would actually have several times higher immunity in terms of your immune activity, neutralizing antibodies and so forth. But you know, maybe there’s some increased risk slightly from maybe some of those heart conditions that we saw and an infinitesimally small portion of individuals. So I haven’t seen the data. I don’t know, but overwhelmingly, it should be pretty safe.

Dan Kline  9:36 Can I ask a dumb question? Sure. What stops someone from getting a booster because I could walk in right now to the CVS and the Target? That’s a half-mile from me, say, hey, I’ve never had a shot and admittedly it wouldn’t show up on my card, though. I have heard of places that are that are doing them and putting them on the card even though that that’s not necessarily approved. Nothing stops me from going out and getting a third shot, right?

Maxx Chatsko  9:58  Yeah, that’s true. There’s nothing stopping anyone you get a fourth shot, you can get 10.

Dan Kline  10:03 Don’t, don’t do that without advice of your doctor for first of all.

Maxx Chatsko  10:09 Exactly. Yeah, we’re not advocating for that. But yeah, that’s true. Anybody can get one. And look, I mean, we’ve said this too, at this point in the pandemic, I think everyone’s kind of made up their mind, right? We have that loud vocal minority, who’s like, never gonna get a vaccine. We have people who are being super careful, like you said, to still like washing vegetables and all that, or whatever they’re doing.

Dan Kline  10:29  We still have friends who haven’t had a haircut and like 19 months.

Maxx Chatsko  10:34  Everyone I interviewed for our podcast is avoiding barbers too, for some reason. But yeah, so there’s always like, I think people have made up their minds, right, having boosters available for everyone doesn’t mean, suddenly, 300 million more Americans are going to get boosters. I think everyone’s kind of already made their decisions already.

Dan Kline  10:48  That I will I will say, I want to be super immune, because I intend to go all sorts of places I was on a cruise ship last week. I intend to do that again in a few weeks. So you know, I am out there spreading the gospel of 7investing. And we will get to what is going on in the market momentarily. But I have one last question for Maxx, one final question on not boosters, exactly. But on COVID-19, it’s, are there any other COVID drugs, treatments, vaccines, things we need to know about? That might change the trajectory of what hasn’t been a great 18 months for the United States?

Maxx Chatsko  11:23  Yeah, well, of course, we have these things called vaccines, they work pretty well. In terms of other treatments. There’s some interesting things in the industry pipeline, everyone’s kind of throwing everything they can at it. Of course, there’s always some antibody cocktails that are in the works. And they’re effective, but they’re also very expensive to manufacture. They can only be administered through an IV infusion, that usually takes at least an hour to go to a special place that’s equipped with that type of infrastructure to administer it in that way. So it’s not very practical, right? I mean, also costs a lot of money 10s of 1000s of dollars or more, a vaccine, a single dose of vaccines, like less than $10, all around costs.

So pretty effective. There’s there’s some interesting things though, there’s some oral antivirals that are in the works and has shown to be somewhat effective, at least in early trials. I forget the companies that are working on that, but there was a major acquisition or two for some of these companies recently after the pandemic started. So you know, that would be easier if you did get sick, you could just go to the you know, CVS or wherever, and get some prescription for a very simple pill you would take for so many days while you’re sick. And it would lessen the viral load and maybe help you to avoid the worst-case outcome. So that’s probably the next major thing that’s going to dominate headlines in terms of treatments other than vaccines. So yeah, I mean, you know, we’re slowly kind of putting it behind us as best we can.

Dan Kline  12:45  You are watching 7investing Now. We welcome you to play along where you have been very quiet. We know a lot of you are watching, but we have not seen any comments. It is the 20th. I think that’s right, it’s September 20. That’s what it says on the show doc here. That means we are nearing the end of September that is hard to believe, especially living here in Florida, where it’s pretty much super hot at all times. But on the first of October, we are going to release our new picks. What do we do every month at seven investing for our members? We each make our highest conviction stock pick. And we do a big write up on that we create a PowerPoint presentation we shoot a video. They’ve known to be songs in our videos, there’s been special effects, all sorts of stuff. But basically, we make a case for why we think a particular stock is the most important one the one you should be buying now.

Do you have to buy all seven recommendations? Absolutely not. Note Maxx is saying yes, no, that is not true. What you want to do is look at us look and say hey, I’m about Dan’s age, our finances are similar or Hey, you know, I really don’t know anything about biotech, and I’d like some exposure. So Geez. I’m gonna make some bets on Maxx’s stock. That’s actually something I do or Wow, I am really interested in the payment space. And Matt Cochrane really has that nailed. I’m not going to name everybody I did that last show. But we have seven incredibly diverse, incredibly smart people. I think we have something like five advanced degrees. We have my crazy background of experience where you know, I’ve run retail stores, I purchased commodities. I grew up in a family business. So we bring it all different angles to our members. How do you join? You go to 7investing.com/subscribe.

Once you’re there, you can either give us $49 a month, you can do that we’re okay with that. Or and this is the smart play. This is what you know your friend Dan here is telling you $399 a year. That is more than two months saving you should do that. We are and I’m saying this is my personal opinion. We are the best investing service out there you are not getting a team like us for a price like this. Call that a brag I won’t make anyone else in the team say it but I believe that fully. We are going to move on here. So we are going to talk about the debt ceiling, we headline it as investors prepare for more debt ceiling drama.

But before we do that, let’s talk a little bit about today’s market drop and comment on some of the reasons behind it. So the big reason maybe the one driving it is investors are worried about China, but it’s not the reason you normally think it is a default from real estate giant Evergrande, a company I heard of this morning for the first time, could ripple through global markets. Maxx, what does this mean? And again, please get in your questions and comments. What are you doing people you have a chance to talk to us here?

Maxx Chatsko  15:36  Yeah, so no, a lot of people have really heard of Evergrande. But it’s a big real estate company in China. You know, and maybe in recent years, we’ve heard stories about obviously, the crazy massive state investments that China’s made in infrastructure. Building highways for the first time building entire cities out of scratch for the first time. And we’ve also heard about maybe some overbuilding, some overspending, certainly a lot of debt. And for a while, you know, Evergrande, just kind of it’s always been like in this slow-motion train wreck. It’s a kind of staved off default. And it’s been, you know, paying people in weird ways, and just kind of prioritizing, you know, bills. And today, or at least recently, everyone’s like, Oh, crap, this is maybe going to actually go under. So the bill is finally coming due.

And people who are smarter than me and have written articles about this, say, this is from the Wall Street Journal, and quote, market participants increasingly believe that Beijing meaning China, the government, will let Evergrande did fail and inflict losses on its shareholders and bondholders. The company’s debt burden is the biggest of any publicly traded real estate company, or development company in the world, right? So debt total, $100 billion or more. In China, the government is gonna kind of send a message here, it’s gonna use Evergrande, as an example of what not to do. And of course, the government’s expected to actually help the little guy.

So if you put down a big down payment, you know, on an apartment, and the building was never finished, it’s been years, they’re not gonna let those people just kind of suffer and take the losses, but they might actually let this company fail, which is something the U.S. government never tries to do. We always try to bail everybody out. You know, everybody gift bags and things when the markets, you know, going down the tubes, and China’s taking a different approach. So that is kind of spooking markets. And, you know, look, this can ripple through the markets and the economy, the global economy, it’s increasingly intertwined in weird, weird way. So that’s kind of weighing on the US stock market today.

Dan Kline  17:29  We’ve got a viewer comment here, and I’d like to bring it up and let Maxx comment. Uncle Robbie, I think that’s what the name is, says Why would 600 billion in debt affect an American company? What’s Chinese debt have to do with Teladoc, for example? Well, let me let me jump in quickly. There is no direct correlation between Chinese debt and why Teladoc might be down today. I’m going to assume Teladoc is down today for the general broad market concerns we’re going to talk about later. But Maxx mentioned intertwined. But I’d be curious to know why particularly this company, this does not seem to be a high American interest company, do they own a lot of American real estate interests?

Maxx Chatsko  18:08  No, no, it’s not that it’s if you own the debt, if you’re a creditor of this company, and suddenly you’re not going to get paid? Well, that changes a lot of your calculations for how you run your business. So, you know, I don’t know this, specifically, maybe I shouldn’t name examples. But let’s say you’re Goldman Sachs and you own whatever, 10s of billions of dollars in this company’s debt, or you’re somehow three steps removed from companies that are going to take it on the chin, if this company defaults? Well, that’s where the ripple effects come into play. It’s kind of like, you know, in the last financial crisis, did it matter that a bunch of banks were packaging, really terrible mortgages in weird ways that they shouldn’t have been? No, that doesn’t affect everybody else. But eventually, it ripples down and, you know, three, four steps later, you know, it affects companies like Teladoc, or biotech companies.

Additionally, it’s important to keep in mind, you know, the markets are on a historic run, you know, from November 1 of 2020, through September 1 of this year, so earlier this month, the S&P 500 gained over like 36%. And since I’ve been alive, which granted is only like 13 years, but, you know, the largest annual increase in a calendar year for the S&P 500 was around like, 34%, that was in 1995. So, you know, to put that into context, the recent run where it just goes up all the time, and pretty much uninterrupted, is historic, so it’s not gonna take very much, maybe only a little nudge to maybe, you know, issue a little correction here, or there maybe just a little decline for a month, you know, doesn’t mean that recessions on the way necessarily, or anything like that. But, you know, the markets and asset prices are certainly expensive by most metrics. So it’s not that surprising, a good 2% decline or so forth. It’s not really that surprising in the grand scheme of things. So keep that in mind too.

Dan Kline  19:51  Join us Saturday afternoon for Maxx’s Bar Mitzvah. With that being said, I want to talk a little bit about this because when the markets are this hot, And obviously people have that, like markets only go up perception. We all know that markets have major pullbacks – big drops. And in the long term, it doesn’t necessarily mean anything. So we might see. And I think we’re still in this cycle that I think of as the pandemic cycle, where every now and then there’s just like a day where like a bunch of bad stuff happens. And people sort of wake up and go, okay, like, I’m a little bit scared. And I’m worried about the debt ceiling, which we’re going to talk about in a second, I’m worried about, you know, a handful of other things, China and inflation and car prices and whatever it might be. And the market just has a down 700 or 800 point day. Recent history on this has been recoveries, like within two weeks.

Now, I’m not saying that’s always going to be how it is the but right now, we’re in kind of an accelerated cycle. And do I think that will be forever? No, but the things we’re worried about, are still very, very tied to current market conditions. So you can’t talk about inflation without talking about what’s going on because of the pandemic. We’re going to get to more questions and comments, but I’d like to talk a little bit about what was supposed to be our main topic today, and that is the debt ceiling. Maxx I’ve heard a lot about the debt ceiling. But for those people who did not go to Hofstra University and study history where they actually never mentioned the debt ceiling. What is the debt ceiling? Why don’t you give us a little bit of a debt ceiling 101 here?

Maxx Chatsko  21:28  Yeah, Rumor has it in your economics professor was Professor Bernie Madoff confirm or deny? Is that true?

Dan Kline  21:34 No, no, no, Bernie Madoff is our most famous alumni, not a professor, I actually was really lucky that my advisor was professor Doug Brinkley, the NBC presidential historian, and a wonderful author. And a pretty delightful man. So I was very, very lucky in that experience. But what is the debt ceiling? Is it one of those popcorn ceilings that people complain about when they buy a house?

Maxx Chatsko  21:58 Yes, exactly. No. So we have this quote here from the US Treasury, the debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments. So importantly, you know, this doesn’t have anything to do with like, the US Congress wants to pass a $13 trillion budget for the next leg – that that doesn’t come into play for this. This is for obligations that are existing already on the books, people already demanding their money. So important to remember, a couple of details here, you know, this is we thought I thought it would be a good idea to start talking about the debt ceiling, because, you know, these deadlines are coming up, literally, we know that Evergrande would be the story today, but the US government’s fiscal year ends on September 30. So it doesn’t line up perfectly with the calendar.

And that means sometime in October, the US Treasury is probably going to run out of money to pay these obligations. Man, you know, keep in mind, the US federal government gives money to states, gives money to towns gives money for social programs, the military, and importantly, you know, principal payments on debt and interest payments on debt. So if the US defaults, really, really bad news, the Treasury will need to decide which obligations it would want to prioritize. A recession would be likely if we didn’t get a handle on it soon, you know, we could lose millions of jobs, or could be just widespread – we’re talking about ripple effects from some relatively large company, a real estate company in China, if the US government defaulted on its debt, I mean, wow, that’s gonna be really even way worse.

So, you know, the, the realistic things that would happen, I mean, you know, the US credit rating would probably be permanently impacted, asset prices would probably fall across the board, and interest rates would go up permanently, because, you know, if you default on debt, creditors are going to demand a little bit higher yields, because they don’t don’t want to be the next ones that you don’t pay. So that would actually affect consumers, cars, houses, credit cards, personal loans, everything, Bitcoin loans, I don’t know, you know, all those things would be jacked up. So it would actually affect consumers and, you know, be permanent. So this would be absolutely worst-case scenario for them.

Dan Kline  24:09  So I want to push back a little bit, because we’ve been to this Brink before. And we’ll talk about the politics without getting political in a few minutes. But when this happens, so let’s say we get to October 5, we’re quote, out of money, it doesn’t mean we have zero, it just means we have less money coming in than we do because you can’t borrow more. So you can still spend what’s coming in from taxes from from various other reasons. Here’s how I look at this. The US government is so gigantic, that people need us to borrow from them. And the reality is, it’s just like when you’re a billionaire who’s borrowing money, who owns assets that nobody wants, it comes down to you’re going to call your creditors, you’re going to say hey, yep, we’re not issuing tax refunds. That’s one that’s easy to push down the road for a while. But you know, hey, we have to pay these things.

And you’re going to negotiate just like any The person that has a lot of assets but has a cash flow problem, and you’re gonna say, Hey, we’re still gonna pay you, but it’s gonna be a little push down the road. I also think maybe, and again, Maxx, you can push back here because it because that there will be long term effects. But they won’t be as extreme or as long term. Because the reality is when you’re the biggest player in the room, or the second biggest player, depending how you look at it, people are going to want to loan money to you. And look, we’ve seen people with multiple bankruptcies, get specific loans, you know, get and get loans on favorable terms. And that’s not limited to the one person everyone’s thinking out there. This has happened with lots and lots of companies, lots and lots of people.

There is such a thing as too big to fail. And I don’t want to say the US government is too big to fail. But I’m pretty sure a two-week snafu in, you know, the political negotiating of raising the debt ceiling, which we know is what ultimately is going to happen. I’m not sure a delay in this is really going to have these catastrophic effects. Because I do think that could happen that we might get, you know, this forced to be passed along party lines, which will take longer for various complicated budget reasons. So I don’t know, I am not as worried about this as the rest of the news media appears to be Maxx, your thoughts here?

Maxx Chatsko  26:19  Yeah, that’s absolutely correct. So you know, this has become a political football in the last decade, right?

Dan Kline  26:24  It’s the worst kind of football by the way. That’s it’s, it’s even worse than like low-end College Football

Maxx Chatsko  26:29  It’s like what the Pittsburgh Steelers season is going to be this year. Oh. So yeah, a lot of drama, a lot of political grandstanding. And usually we you know, Congress will suspend the debt ceiling or raise it. So leading up to that decision that vote in Congress authorization, you know, the market can still be kind of volatile. But eventually, they end up doing the right thing, which is really supposed to be one of the most boring parts of their job, but somehow they turn it into all this drama. But you know, you’re right. I mean, even if we did default, or for a little while, or a credit rating took a hit, you know, not to brag, but like, Where else are people going to invest globally, right, like you’re you’re Europe is kind of, you know, you have negative interest rates there, China, obviously, we’ve seen is paying closer attention to some of its internal issues and concerns. So really, where else you’re gonna go if you’re a global investor, so like, the US is still a pretty good destination, in the grand scheme of things. So you’re probably right. But if we did have to increase interest rates higher that does kind of lit that impacts little guy. Meaning me, meaning consumers, you know, so

Dan Kline  27:37  Let me jump in on a couple areas. One, interest rates being a point or two higher would still leave them at like pretty near historic lows, when it comes to like buying a house like my, my first mortgage was an 8%, my parents was in like the 20. So like, if mortgages go from like three and a quarter to four and a quarter, that’s just historically somewhat irrelevant, though, in the short term, maybe it would cap some demand. That being said, like we’re looking at properties, and the mortgage company we’re using, told me, they’re 45 to 60 days out on closing, so maybe a little less demand might not be the worst thing in the world. The other thing I’ll say is we’ve learned some lessons from the 2008 financial crisis. Now a lot of the 2008 financial crisis was bad loans, like giving a loan to someone who legitimately couldn’t afford it.

Right now, we have loans essentially, to people who can afford it that might have cash flow issues. So we saw all across our economy during the pandemic we saw like, good mall companies say, Okay, alright, Cheesecake Factory, you can’t pay your rent right now. Because there’s not a lot of customers coming in? Well, what if we added six months to the end, and you pay 5% more a month, starting in a year from now. We’ve also seen banks be willing to do that with mortgages and go, okay, Maxx, you’re not working because you’re a waiter, but you’re a waiter at a high end restaurant, you make 150 grand a year, you know, or you’re in a field that’s had a big slowdown, but we expect will recover. So we’ll give you forbearance, you don’t have to pay your mortgage for six months, we’ve seen a lot more willingness to do that. I do kind of feel like as a government, we could probably figure out how to get, you know, a couple of months of leeway. Because I don’t know, Do they really want to foreclose on the Statue of Liberty like I’m joking a little bit, but it just doesn’t seem like a foreclosures in anyone’s best interest.

Maxx Chatsko  29:23  Right. But one thing to keep in mind too, even if interest rates go up, like 1% or 2%, or whatever it might be, they might go up more, you know, it’s sure in the grand scheme of things a 1% increase is small. But this would be offset by falling asset prices. So you’d be paying a higher interest rate and maybe the price for house falls by you know, 30-40% like that is so that changes the equation a little bit or you know, or if asset prices don’t fall, which is what usually happens when yields increase. Then look, think about people who don’t own a house yet. They have to pay high asset prices and high interest rates and I could just kind of keep stacking on.

Dan Kline  29:58  I understand because I’m in both situations. I own a property, but I don’t own a principal residence, so you know, it’s something I’m absolutely aware of. But I do think right now we’re in what I call a sad day cycle, where we just woke up today. And there’s a whole bunch of bad news. And that’s kind of a reason to sell, when a lot of people maybe are fearful of valuations in the first place. So if you were looking at a reason to, I don’t know, shed some Peloton stock well, their earnings report, which was mediocre, plus, you know, the market generally being down maybe that mentally got you to like geez, are people really going to buy a $1500 exercise bike and pay 49 bucks a month to ride it? So I don’t know, I just feel like tomorrow there’s going to be some mild piece of good news. And we’re going to see the market close up 140 points, am I reading this totally wrong. And then we’ll take Raul’s comment, which is one I don’t think we’re qualified to comment on. But I saw it so much in the news today, I’d like to address it.

Maxx Chatsko  30:57  No, I think I think you’re correct. You know, like, we wanted to bring up the debt ceiling, because investors gonna be hearing a lot about it between now and you know, the next three weeks or so. So we wanted to kind of prime you guys on that. And, yeah, overwhelmingly, the odds are that Congress is going to, you know, either do the right thing, let’s say, right. But, you know, again, man, there’s a lot of scorched earth in politics lately. Who knows, maybe they do let it default just to, you know, try to point the finger at the other. And that would not be good. But you’re right. And in the grand scheme of things, people are still going to come to the United States and invest. We’ll probably figure it out. But it could still be really interesting in the next month or so for investors nonetheless

Dan Kline  31:40  Daniel Delgado will take your comments at the end of the show. I wrote a hot he says an interesting thing related to the debt ceiling is the possibility the US Treasury mints a $1 trillion coin. I feel like there was a Simpsons where Monty burns had a trillion-dollar bill that was supposed to settle European debt, and he flew away with it. Maxx is this one you saw because like, here’s the weird problem about this. All money is theoretical, there is no backing to the US money. So literally, if we raise the debt ceiling, we literally could say, okay, we now have a bazillion-dollar bill with Guy Fieri’s face on it. Like, it doesn’t matter what you can do whatever we want. And as long as like there’s sort of global faith that the US is valuable and will pay it’s sort of made up not really attributed to anything dead. None of this kind of matters, right?

Maxx Chatsko  32:31 Yeah. In the grand scheme of things. That’s correct. And actually, as a kid, again, I can’t tell you, I probably got this three times. It’s like a birthday present over the years, but people would frame like $1 million bill, because they used to call me Maximillian. It was so cheesy, like, you know, like, I mean, they must have all seen that Simpsons episode too. So.

Dan Kline  32:50  And yeah, and here’s the thing, why are we here today is to calm you down a little bit. We’re not saying markets don’t have corrections that we’ve all experienced 20 30% drops that that last for, you know, six months, a year, even longer than that. But historically, good companies recover. It’s sort of one of the things we preach at 7investing, and it’s very difficult when you do what we do to not look at returns on a daily basis. But do you honestly don’t believe that the strong companies that are out there, you know, and I’ll pick one, just a random, strong company, is Microsoft weaker today? Because of any of this? And the answer is sure, they have some exposure of businesses can’t pay for as many seats.

But the reality, those are not likely to be foundational changes for the company. But Max, I want to talk a little bit about the Fed because there’s two days of Fed meeting today. And one of the concerns cited across many articles I read today was that the Fed might start to taper some of its, you know, its policies that sort of propped up the economy. And I will push back and say there is zero chance on a day the market is down 700 points, that the Fed is going to put any bad news out there, they will at least kick the can down the road to a to a next meeting. These are not dumb people politically, they are not going to send the market to a 2000 point loss on a day when it’s already down 700 points. So I’m going to argue nothing happens in the next two days, Maxx.

Maxx Chatsko  34:17  Yeah, I kind of disagree because the meeting that they’re having, and they have monthly meetings every month, that’s why they’re called monthly meetings, Maxx. Good. So but um, you know, this meeting, look, they’re talking about tapering, so they are currently buying $120 billion a month in mortgage-backed securities and Treasury notes. This is already actually priced into assets, equity or financial markets that the Fed is eventually going to begin tapering, which means reducing those purchases every month. So I think that’s already in the work. So they already are, like, pretty much guaranteed to begin tapering before the end of 2021.

Where I think you’re correct, though, is that now that the debt ceiling dramas taking place, the Fed certainly not going to begin doing that Before that risk is passed, because if if, you know Congress does allow the U.S. to default on its debt or not raise the debt ceiling in time. Well, the Fed suddenly has to spring into action. So they need to keep all the firepower they they possibly can, you know, in their pocket ahead of that decision. But, you know, once we pass that, you know, Congress raises or suspends the debt ceiling, you can expect, I think the Fed to begin tapering those asset purchases, I do think though it’s, you know, interest rates rising, which has maybe the bigger effect on stocks, that’s not likely to occur until, you know, maybe later in 2022, though, obviously.

Dan Kline  35:41 So one of the reasons we’ve heard for the Fed slowing down or, you know, or quote tapering is that there’s, quote, surging inflation, and improvement in the job market, I want to tackle both of these quickly. So I’ll push back on surging inflation. We’ve talked about this before, if you take out car prices, inflation is relatively minimal. If you also factor in the very weird cycle, for purchases like and I will point out, I’ve talked about this before, we had a very odd tourism season here in Florida, where the summer was much busier with local travel. So the target near my vacation home was sold out of towels. Well, they probably ordered a bunch of towels, but then came in. And I don’t have any bookings this month, because nobody wants to come to Florida, and school is back in session. So locals aren’t traveling. I know that’s a really, really silly, extreme example.

But a shortage of products or lumber costing more, because we’re building a lot more houses. That’s not necessarily inflation, if it’s a pipeline, so I’m not worried about inflation. And we get to the surging job market. Yes, we have a lot of jobs there are, there are way more job openings than there are people to fill them. But I would argue that there’s not a ton of great jobs out there that sure, if you’re out of work, it’s great that Target or Chipotle, lay or whatever else it might be now pays more than $15 an hour in a lot of cases. But I’m not sure that that’s great for the executive who got laid off during the pandemic, you know, who can’t replace his income. So I think both of these things aren’t exactly what they look like, Maxx, I’ll give you the last word on this one.

Maxx Chatsko  36:32  It is always interesting, right with the inflation discussion, because it kind of depends on how you look at it, or what numbers you’re looking at. I mean, even the Fed takes inflation indexes and adjust them to its own like, it literally takes out the top 30% of contributors and the bottom, like 20% or so contributors. And then it arrives at, you know, some adjusted inflation number.

And there’s some criticisms to go around for that as well. And then, like you said, you know how much is it is due to supply bottlenecks. How much of it’s due to easy monetary policy, I don’t think there’s really any easy way to tell right now, when we’re in the moment we’re living through it. So I kind of lean towards it being a little less likely to be transitory, I think some of this higher inflation is going to be a little more permanent, meaning like, lasting for several years, not just kind of going away next year after the year over year comparisons change. But I don’t know, I also didn’t run a toy store or optimizing at a ladder company like you did. So yeah.

Dan Kline  38:17  So look, I did buy commodities for four years and you had to sort of, you know, hedge your bets buying things that advanced we see that the airlines and the cruise lines do that with fuel, you know, where they’re, they’re okay, it’s low. So we’re gonna buy a lot now. But when it’s high, we’re betting on futures and things like that. There’s a lot of things you have to do. But this is the year it’s been hardest to forecast demand, add in the chip shortage. And all of a sudden, you have things like a shortage of laptops. Yeah, it’s really unfortunate if you need to buy a car right now, my personal trainer, his air conditioning is dead in his car. And he’s been desperately trying to put off buying a new car because it’s a terrible time to buy a new car. My cousin, for reasons I won’t elaborate had to move –  great time to sell her house. A bad time to buy a new one.

So yeah, for people who have to do this, like my son is coming up on a team, he’ll get his license, add a team because he didn’t take driver’s ed soon enough. And ideally, he’d have a car, but he won’t need a car, he can wait a few months to get a car. So I do think you feel like it’s really terrible inflation if you have to buy a new house at a time where home prices are really high. Or if I am, you know, I forgot my razor on a cruise ship about a year ago and I had to buy go buy like a really crummy one in Nassau. That was like $19. Like, that’s not inflation, but it feels like the price of razors has gone insane. So I’m not saying some of this isn’t real. And we haven’t seen some real supply shift or in some cases, maybe demand we’re going to take decades to catch up on with some of the chip stuff, maybe not decades, but maybe maybe longer than two, three years to really catch up there.

So there might be some items that are significantly more expensive, but I don’t think we’re gonna see across the board. Everything cost 12%. More like we saw this during the early days of the pandemic, where no one was hard to find certain cuts of meat, you know how to get around that? Get a different cut of meat like, and I think we’ve seen that with laptops, we’ve seen that with televisions where you’re right, you might not be able to get exactly the laptop you want. But you probably will be able to get a sub $400 laptop, this Christmas season Maxx, I haven’t shopped for you yet. So I can’t promise you’re getting a sub $400 laptop, but you know, hey, it is possible. I will give you the last word before we move on to a couple of comments and then hit our finisher.

Maxx Chatsko  40:36  Dan, all I know is if you give me a $1 million bill, it’s framed and says Maximilian, we’re gonna have to have a talk. So that’s all I’ll say

Dan Kline  40:44  Apologies to JT street for skipping one of the graphics, but we sort of covered it in our own words earlier on. How about we go to Vegas and we go to Harris, I can take your picture in front of the statue of an older couple with a million dollars. That is something you’re actually not allowed to do at the moment. But normally you are allowed to do. I want to take a couple of comments. I’m gonna let max read them. Daniel Delgado had some really nice things to say about being a 7investing member. So I will let Maxx read those.

Maxx Chatsko  41:12  Oh, all right, here we go. I can brag about 7investing, definitely getting a lot of valuable information at my fingertips. No way I could do this by myself. 7investing team give a detailed take on their stock topics or their stock selections of the month. They cover a lot of sectors.

Dan Kline  41:28  And there’s a second one here, I’ll take it. I forgot to say that the weekly podcast offers so much also to everyone and the subscription does not disappoint. Have a great day, everyone. Thanks Dan and Max, for today’s podcast. This is of course, also available as a podcast. But we like to think of it as a live stream. This is 7investing Now. We’re always working on new things. I hope this sees the light of day, but actually spent a fairly long amount of time today, taking a very spirited and fun chat we had on on our Slack about Ford and Tesla and sort of like what we think those two companies will do. And I edited it into a pretty long transcript that’s really interesting content. So we have to figure out what this is going to look like and how it’s going to go live. And a lot of people have to read it and sign off on it.

Because we have to make sure some of the personal stuff we put in there doesn’t necessarily make it out to the audience. But we are always evolving, always thinking, we will take Daniel Kerns comment, which I haven’t read, but Daniel is usually a good commenter. So I’m not gonna trust him there. How much is the S&P tied to China? Seems like a big drop over foreign banks. We’ve covered this a little bit earlier in the show. I think right now and Maxx, you can you can weigh in, that there might be actual problems here. But today’s reasons are the theoretical supposition that those problems are happening, not the actual reality of what might happen, or what the actual ripple effect would be. Because, again, we talked about I’m forgetting the company’s name Evergrande, a Chinese real estate company, what a default looks like from them, could be everything to pays no bills to pays 80 cents on the dollar. Like, we don’t exactly know what any of this is going to look like. So I think a lot of today is just what might happen. Maxx, your thoughts here?

Maxx Chatsko  43:10  Yeah, so there’s just concerned that, you know, the Chinese government’s going to let Evergrande fail. And that’s going to just say, Hey, you know, what are the investors and bondholders, like, have fun with this one, we’re not going to bail you out. And they’re kind of sending a signal a message to everyone else, any other companies in China that are heavily indebted, which has been a pretty big problem for China, right, most of its rapid rise in the last two decades, has been fueled by you know, bingeing on debt. So this is maybe one of the first bills to come due, maybe there are others.

And, you know, there are ripple effects, you know, even if you’re not a creditor yourself, you know, like Goldman Sachs doesn’t maybe own any debt from Evergrande, but maybe two or three or four steps down the line, some of its investments are affected. So, you know, with the how intertwined the global economy, as this does have an impact. And again, as we said earlier, you know, with the S&P 500, you know, historic levels, it’s pretty expensive, it doesn’t take very much to maybe have a 1% 2% 3% down day. So, in the grand scheme of things, this isn’t really that surprising, right?

Dan Kline  44:13  If you’re worried you’ve come to the right place. What we do here at 7investing is focus on the long term, we won’t pretend the markets never gonna crash, we won’t pretend stocks we really believe in won’t have bad days, we won’t pretend that sometimes those bad days won’t be justified. A lot of the times though, they won’t be and we’ve experienced this and I’ve written about this a lot that a number of my picks had really down periods because they didn’t grow as much as they did during a pandemic which forced incredible growth, which wasn’t necessarily very profitable growth, but did add customers did give them things that will benefit in the long term.

We have the ability to step back and take a really long look at things. Wo if you want seven really smart friends So hold your hand at during all this or as Maxx would say six really smart friends plus Matt. That is a joke Maxx and Matt tease each other. If you want that go to 7investing.com/subscribe, and certainly tell your friends about this show.

We do this Monday, Wednesday and Friday our podcast, which tend to be interviews releases on Tuesday and Thursday, we are good people to know, on a scary day because we don’t panic. We know these companies, we’ve done our homework, we’ve done our due diligence. But why don’t we hop up on the top rope and hit our finisher JT Street, if you want to share it, we would appreciate that. This is very topical today. I did not know that the market was gonna have a bad day when I wrote this, which worries you the most when it comes to the economy, China 28.6% inflation, but above 30%, housing prices about 13.8%. And none of the above 27.7. You’re all getting it wrong. It’s housing prices. No I’m teasing a little bit, but I think and you could take it down JT.

I think it’s housing prices, because here’s the reality. At some point, you need a place to live. And I know many of us on the 7investing team have reasons keeping them where they are. So they can’t go like, hey, it’s cheaper to live in Tulsa, Oklahoma. So I’ll just pack up and move. I have a kid in school. So I have to resign my lease where I live, and it’s going to be 10% more expensive. And I’m friends with my landlord and get along with him. But and he’s right. He laid out the data, his costs have gone up. The prices have gone up, we had a nice conversation about it. He isn’t wrong. If I chose to buy a house. I can’t buy one here. I think look, is it going to benefit people that are geographically, you know, agnostic, and go wherever they want? Yeah, I don’t think high prices are gonna affect them as much. But if Maxx has to stay in Pittsburgh, because you know, he has season tickets to the Pirates, which cost like, I don’t know, like $90-$100 a year. You know, then he’s gonna be stuck in Pittsburgh. Maxx, your thoughts on this one?

Maxx Chatsko  47:00 First of all, I would never buy season tickets to the Pirates. Let’s just get that out of the way. Yeah, no, I would agree. I mean, that’s the biggest financial, you know, purchase that most people make in their lives is housing where they live and, you know, if you’re like younger people like me, you know, I mean, it’s hard to kind of get started sometimes if rent keeps going up every year. It’s harder to save up money for that downpayment. It’s harder to buy a house and so it does have effects to on other purchases you can make in other life decision you can make. So sure, yeah, housing prices, that would be my vote. Although I guess we’re all wrong because it’s China today.

Dan Kline  47:35  Yes, it probably is. I will close out with a nice follow up comment from Daniel Kern if you want to bring that up JT. Daniel says thanks for the wisdom you guys super appreciate it. Thank you for watching. Thanks for playing along. Thank you for interacting with us on Twitter. If you want to get in touch with us we are info@7investing.com. That is usually Steve. Steve is you know sometimes on like a hike or wrestling a bear or something. So Maxx might answer an email every now and then. But usually it’s Steve and that has questions about your membership. Questions that you’re thinking about joining questions about how the affiliate program works or how your affiliate code works all that type of you can’t find something on the site that you absolutely know is there we know our search isn’t 1,000% perfect yet.

If you want to interact with us, that is @7investing on Twitter. Tag us. Share out your referral code if you’re a member. Tell people hey, these are guys I listened to these are this is a team and I say guys, but of course we have Dana Abramovitz on our team as well. Sam Bailey, our marketing director. These are people that I trust in times like this When a day and I say times like this which is hysterical because the last time we had times like this 72 hours the market later the market in a new high so I’m pretty sure we’re probably not in the end times here for the stock market. But it can feel like that when you look at your portfolio and the numbers are shockingly red. We are here to hold your hand. We will be back on Wednesday doing this again. We will of course be back on Friday as well for Maxx Chatsco. For JT street. For Sam Bailey who sets all this up. I am Dan Kline. We will see you on Wednesday.

 

 

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