Welcome to the premiere episode of Rise UP!—your go-to weekly market and economic recap, where the week’s biggest financial stories meet expert analysis. Hosted by two of the industry’s most accomplished voices, Rise Growth Partners Terri Kallsen, CFP®, and Joe Duran, CFA, along with special guest Peter Boockvar, CIO of Bleakley Financial Group.
Unknown Speaker 0:00
Music.
Terri Kallsen 0:17
Hello, welcome to rise up where we take a look at this week’s biggest stories, we break them down for you, and we really want to understand what’s happening in the market. How do we grow and protect our portfolios? My name’s Terry Colson. I’ve spent my life in the wealth management industry. I’ve been a planner for over 30 years, a certified financial planner. I ran Schwab retail at 1.6 trillion, and I am the Chair elect for the CFP Board. I also have Joe Duran. He’s our co host. Joe has been a best selling author, a partner at Goldman Sachs, as well as a leader of the largest RIA in the industry as a fiduciary. We also have Peter Bucha, who is also a best selling offer. He is the chief investment officer for Bleakley Financial Group, and he is the editor of the book report. So very excited to be here, really. Let’s get right into the top stories of the week and and what’s going on. And our first story here is really near and dear to I know Joe and I who are here in California, and it is the California fires in Los Angeles really taking over the metro area. It is a huge story. We know that 10 people have lost their lives. We also know it’s taking a big financial toll, potentially up to 57 billion already in insurance losses, a big issue for California, with our state and insurance Havoc anyways. And so this is another thing in Hawaii. If you remember the Hawaiian fires, this is three times the size of what we saw in Hawaii, which is very, very devastating for both the business as well as the people. So Joe, I know you’re in Southern California. I think about you and your family and your community and the people that you know. Can you tell us about the implications here for investors, as well as our insurance
Joe Duran 2:12
opposed to ghosts? Without saying so, acute human tragedy, really something we’ve never seen before. A lot of these fire damages brand new. It’s really something that started 1520, years ago. We did not have catastrophic fire losses in the United States of real property, and it is a growing, constant cost. I can tell you, as a California resident, we lost our fire insurance capacity, and sit in our home here, we have to use something called the California FAIR Plan, which is a state registered and protected insurance policy. However, it’s limited to three and a half million and many of these homes in the Pacific Palisades, six, seven, $8 million homes, they’re not going to have enough coverage. A lot of them were dropped by the insurance companies. So three things to think about. Number one, the loss if you haven’t got enough protection. What does it mean to you as a planning challenge? Number two, what happens with insurance costs going forward, and what does it mean for investors who own insurance companies? And third, what do you do if you’re a California resident or if you’re an area like Florida, when insurance rates become untenable for a lot of people. And so there’s the investment question, the issue that happens for you as a human being with a home, and then what do we do as a society? Because this is a growing threat. I know some people don’t believe in global warming, but fire, the kind of catastrophic loss, is a brand new thing that’s happened really in the last 20 years. Yeah,
Terri Kallsen 3:39
that’s so true. And Peter, I know, you know, New York even had fires earlier this year. What are your thoughts on this? Well, I just
Peter Boockvar 3:46
want to add to what Joe said. I mean, he touched upon all the important points and just how tragic This is also. The other issue is for those that lost their homes in the situation of the cost of rebuilding and even trying to get insurance. Do they even bother? Do they want to stay or do they just go somewhere else? I also think that California, which needs to liberalize somewhat the economics of having insurance there in terms of being a business and economically making it viable to stay there, so hopefully it can invite more insurance companies to compete for business that can cover these things that were not previously covered because a lot of these companies had left. I think in the scheme of things, we’ll have to see how commodity prices respond, the price of copper, the price of lumber, because rebuilding is going to be hugely expensive, particularly in light of you know this post COVID situation where just the cost of a lot of different things, labor, raw materials, land and so on, have has risen so much.
Joe Duran 4:48
And I’m just saying California alone, building costs are very, very high. Getting coding and business permits are really difficult. And so you already have a constrained constraint. Production market, so bringing in enough contractors to do the work, getting the government to not make it so difficult to build, which is very difficult in California. And then you’re in an era that it’s not like the hills are going away or the trees are going away, we’re still going to have continued fire risk, as Peter mentioned, a lot of people are going to decide they don’t want to move back. And these areas are not blighted. The Pacific Palisades has no shopping centers. The houses that are standing are in avenues and blocks without any homes. And so there’s even talk now that Blackrock is thinking of coming in and investing and buying all the land. And so it’s it’s going to reshape Los Angeles. It’s also going to have all kinds of implications for people locally, for rents that are going to go exorbitant in California, because you have 1000s of people now looking for homes, and the neighboring states where a lot of people are going to throw their hands up and say, I don’t want to be in California anymore. I’m living to Arizona or to Texas and so again, big catastrophes like this can have a an accelerating effect on the things that are happening already in the economy.
Terri Kallsen 6:05
Yeah, you know, Joe, I used to work for one of the largest property and casualty insurers in the country. And one side of the building, we had financial planning, investing. On other side, we had the P and C group, and we were always managing, you know, market meltdowns during that process, catastrophic results, not only just in the market, but when you have something like this, it takes a tremendous turmoil within that insurance company to make sure everyone’s covered, and they’ve got vans out there helping these people. So look, insurance
Joe Duran 6:33
companies in Sweden all that, not that all that popular, because they take a hit now, but you can bet that they will be increasing premiums, protecting themselves and even outright dropping insurance, as they have already in Florida for floods and fires. You know,
Terri Kallsen 6:46
it hap it happens in California as well. On the coast, it tends to be where we drop people from insurance. So let’s go to the second biggest story, which is the Fed. Minutes this week really revealed that, you know, we’re going to have a slower time in terms of cutting rates, there’s real concerns over future policy moves, and the market is telling us that right the US added 256,000 jobs in December, which was much more than expected. Unemployment rate has dropped to 4.1% and then we did have a volatile stock market, as we know, where the US stock market was really only down about a half a percent. You know, this all impacts stock prices the 10 year US Treasury yields hovering at about 4.75% which we haven’t seen since April of 2024 Hey, Joe, can you give us what your long term and short term impact is on this? Well,
Joe Duran 7:41
I’m I’m interested to hear what Peter has to say on this. I have a view we were in an inverted yield curve, which means that the 10 year bond was lower than the two year bond or the or the Treasury market, which implies a recession. Typically, that was not the case here. What we’re actually seeing is the economy is actually doing just fine, and that means that the Fed is probably not going to increase reduced rates as much as everyone thought. And in fact, we now have a positive slurping yield curve. The 10 year yield is around 4.7 4.8 Treasury is around 4.3 so it’s small lead, but typically, in a normal economy, you have about a one to one and a half percent spread between the tenure and the one year, the 60 day money, which implies that we could cross 5% five and a half percent, if we don’t drop short term rates a lot. So if we get stuck at 4.24% with the Fed, that we could see the tenure go to five, five and a quarter, which of course, makes mortgages more expensive and has all kinds of implications for stocks. So I think the stock market’s been quite muted so far, but you have seen fixed trend up to 20 which, for me, gives me concern. Peter, I’d love to get your thoughts on what this all means you think for investors,
Peter Boockvar 8:54
well, the very interesting dynamic is as the Fed, which they started in last September, cut the short term interest rate, the overnight rate, by 100 basis points. The 10 year yield since then has risen by 115 basis points. So in a way, on one side, the long end of the yield curve, sort of disagreed with the Fed’s belief that the economy needed rate cuts. Inflation has been decelerating, but the key for the Fed is not seeing a decline in inflation, it’s seeing a sustainable decline in inflation, and rather than waiting to see the sustainability of it, they cut 100 basis points. But the rise in long term interest rates is not just a US phenomenon. We’ve seen it all around the world. We’ve seen rates jump in Japan. We’ve seen rates jump in the UK, in France, in Germany, in Australia. It’s a global phenomenon. So it’s something to keep in mind that it’s not just a US event, but it does complicate the economy, and that higher interest rates for longer is a real thing, and it’s something that the economy will take time to absorb, because every. Day somebody’s loan is coming due, and the rate on that loan was likely priced before 2022 so there’s still this digestion phase in this new higher rate environment, I think that we need to deal with. And
Joe Duran 10:12
you look at Think of mortgages, they’re sitting today at almost 7% for a 30 year mortgage Now in some cases. So that’s very different than we were two years ago, when you could get a 30 year bond for a couple of percent, two and a half, 3% so you know, it makes home pricing interesting enough home prices haven’t adjusted to reflect that, but it makes it a good alternative for investing in stocks, and that is a very important element here. If your alternatives to get 456, percent with fairly secure treasuries, that makes investing in stocks comparatively less attractive, and that means, over time, that a stock market can be more volatile. And that’s what we might see this year, is a really heightened sense of volatility because of what is going to happen with interest rates. Yeah,
Peter Boockvar 11:02
to that point, valuations matter. When rates go up, when rates are low, investors can be very valuation agnostic, but as rates go up high, multiple stocks become more sensitive to that rate move.
Terri Kallsen 11:16
That’s great. You know, I want to get to our third story now, and this is a pretty important story, and I know it’s only mid January, but we’ve got Valentine’s Day coming up, and what do we buy for our Valentine’s over? Valentine’s Day? What do you guys buy? Usually, chocolate. Chocolate. So I’m a planner addict.
Joe Duran 11:35
Three daughters, so that’s lots of chocolate in this house. I
Terri Kallsen 11:39
knew it. So, you know, I’m a planner, so I start thinking about costs and pricing. And you guys probably saw that Bloomberg announced today that Hershey’s, who is, you know, cuckoo for Cocoa. They’re really asking the ctfc for permission to buy a large amount of cocoa through the New York Stock Exchange because of the global shortages of chocolate. I mean, there’s a global shortage, Ghana, the Ivory Coast. This has been going on for several years. So you know all those Reese’s Peanut Butter Cups, the Hershey’s Kisses that we’re going to buy? You know, Michelle buck, who’s the CEO of Hershey’s, is saying, I want to buy 90,000 metric tons of cocoa, which seems heavenly to me, but maybe a very difficult decision. So, you know, I’d like to just get to, you know, what are the what’s the impact here in terms of the pricing of cocoa, and how should we be thinking about this, Joe? I
Joe Duran 12:33
don’t I think it’s a measurement of what’s happening in the rest of the world. What they’re doing is basically buying futures. They’re protecting themselves for the price increase of chocolate. When prices of chocolate go up, you bet they’re going to pass that on to consumers, but they will get profit margins as a consequence of that. It also means that if chocolate prices do go down, anyone who’s buying Hershey’s product won’t get to benefit from the reduced pricing. So what they’re doing is managing what they think is the right time to buy an asset class and protect their costs into the future. And again, you see it with oil companies all the time. It’s protecting basically their inventory because it’s their biggest use product. And so if they can manage the cost, that doesn’t necessarily mean it’s good for consumers, but it’s certainly a protective move by the business to ensure they can get chocolate a noble price, and therefore they can set the pricing for their own products with some level of predictability.
Terri Kallsen 13:32
Yeah, I agree, Peter, what are your thoughts? No,
Peter Boockvar 13:35
that’s right. Now, cocoa prices are basically a record highs. They’re up substantially over the last couple of years because of the supply issues. Terry, that you, that you had mentioned, the thing that Hershey’s trying to do is because the CFTC has limits on the amount of of purchases that one buyer can make. So that’s why Hershey’s making a special request to sort of exceed that so they can create visibility for their own business in terms of what their raw material. Raw material costs will be for the period at which they want to purchase this at. So they are protecting their cost structure here against the ever rising price of coca. That’s
Terri Kallsen 14:12
right. You know, I get a little nervous about the next couple months, because I hear the prices of champagne are going up, the prices of wine are going up, and now chocolate, it’s like the trifecta. So hopefully we’ll be thinking about this as we plan for additional costs for Valentine’s Day. But let’s move on now. Let’s get to the three questions segment. This is where we really take a deep dive into the questions our viewers, all of you that are sharing with us. And the topic this week that seems to be of a lot of interest to our viewers, is that, you know, President Trump is talking about taking control of Greenland and really thinking about tariffs potentially, and he’s not even ruled out military action. And so we do have one question that came in from Mario from Guatemala, and he wants to. Know, what would trump even want with Greenland? Peter, can you take that one?
Peter Boockvar 15:06
Okay, so putting aside his desire to sort of annex Greenland and all the implications that comes with that, the thought process is that Greenland is in a very strategic place, geographically, but also has very important raw materials that both China and the US are trying to get their hands on. China is a dominant producer of rare earths. Greenland happens to be rich in rare earths. Also. Graphite is a very important raw material that China makes a lot of, that we need more of, and that Greenland, Greenland has a lot of. So it’s the the raw material, commodity side, that Greenland has that theoretically, everybody wants to get their hands on that, in addition to the strategic positioning of the country relative to the rest of the world,
Joe Duran 16:01
and I’d add on this subject. In particular, China has been doing this, not overtly. They don’t take over Zimbabwe, where I grew up, but if you go to Zimbabwe, you will see the Chinese have taken over the manufacturing and mining of almost all minerals. They’re doing that with soy and Brazil. What China is doing is creating strategic partnerships in countries where they are agnostic to the politics, to source raw materials, directly and indirectly by providing other services to those countries. So if you go anywhere in Africa, and I just returned after the holidays, here you will see the incredible presence of China all over the emerging world. And so I think this is Trump’s message about, hey, we’ve got to get smarter about getting resources that are not available here in the US, one way or the other. Now, whether he does that with Greenland or not, and it becomes Trump land, I don’t know, but I do see that he’s sending a message to China, we’re not going to be blind to the resource battle that is happening in the world. Yeah,
Terri Kallsen 17:06
I think that’s important, you know. And another question we received from Dave in New York City, he’s really wondering, you know, how does this tariff even work, and is it even possible based on Trump’s assertions?
Joe Duran 17:17
Well, let’s start with what a tariff is, because there’s a lot of confusion about what tariffs are. A tariff is a tax that’s placed on a product when it is imported into the country. And let’s just use something simple. If you bring in a car from Mexico, and it is manufactured there, and you put a 15, a 50% tariff on when the car arrives, the person who imports it will pay an extra 50% to bring that product in. They’ll pay that to the US government. But then the cost, of course, is actually paid for, ultimately, by the consumer, because the manufacturer who brought it in is probably going to charge that to the consumer. They’re not going to eat it all. They’re not going to be able to the goal is, of course, to manufacture locally. In the case of Denmark, I don’t maybe we’ll tax chocolate again. I think that’s what they make. There a lot of clogs is another thing I think they make. But I’m sure there are other things I know they used to make a lot of cell phones. It just is a way of asserting your will if they want access to your market. Of course, those countries also have the ability to tax back, to add a tariff in return, and that’s typically what happens. Tariffs usually beget more tariffs and are usually inflationary, especially in the short term.
Terri Kallsen 18:32
Yeah, that’s great. I think another big product Denmark is now really well known for is ozempic. So really controlling make
Joe Duran 18:40
a lot of people unhappy here in the US. I think,
Terri Kallsen 18:43
yeah, I hope, I think we’ll catch up, though. You know, we have one more question from Maddie from Tucson or Arizona, and she’s really asking, you know, how to what should I be thinking about overall, not just Greenland or Denmark Overall, about my investment portfolio based on these tariffs? What? What steps should I take? And we’ll go with Peter.
Peter Boockvar 19:04
Well, it’s tough to say in a broad perspective, because we don’t know whether the tariffs are going to be very strategically and selectively placed, or is it going to be very broad based, 2017 2018 it was a very much a scatter shot approach, and we tariffed a lot of different countries on a variety of different items. And the the repercussions, though, was in order to protect some US domestic producers, manufacturing, generally speaking, went into a recession. So it all depends on where one portfolio was positioned. If you are heavily dependent, you’re a business that’s heavily dependent on imports, then you can get negatively impacted by that. If you’re a service business that is making a movie, for example, or has a restaurant sourcing food products within the US, well, you may not be affected. So it really it depends on the complexion of the tariffs, how widespread it’s going. To be and who it’s directly going to face, but I think generally speaking, there is going to be at least a one time rise in prices in a variety of different items, that inflation could impact interest rates. Interest rates could impact the stock market, but I would recommend just taking more of a wait and see until we get more details, rather than doing something prior to that? Yeah, Peter, yeah. I think
Terri Kallsen 20:23
it’s something we can continue to address in these sessions, because we’re going to learn more and more each week. It’s going to have an impact. And so I think our viewers can continue to get more knowledge to make better decisions about their investments. But now,
Joe Duran 20:35
honestly, the threat of tariffs is creating uncertainty in the markets, and uncertainty is something the markets don’t like. So we don’t even have President elect Trump in office yet. Once he’s actually in office, we’ll see, I already see that the idea that we’re going to cut 2 trillion from the budget, I saw Elon Musk now saying, well, it’s probably 1 trillion, and we’ll be lucky to get to 2 trillion. Well, that is a pretty meaningful difference. We’re going to see there’ll be some softening of positions, there’ll be some hardening of some positions. And as that unfolds, we’re going to be talking about what you do in your portfolio for now. The biggest impact, as Peter mentioned, is interest rates. So right now we’re we’re seeing interest rates stay higher for longer. We’re seeing the tenure go up, that’s making risk assets less appealing, and that creates an environment where you want to be in more conservative risk, risk reduced equity, and you want to think about rebalancing your portfolio, because we’re probably going to be having higher volatility. So in answer to that, I think you said, Maddie, I would say the one thing I would do is just look after last year’s big increase. Do you need to rebalance your portfolio? Because it’s quite possible that your stocks went up a lot and that you now have more in equity than you’re comfortable with, and you went from a 6040 stock to bond mix to a 7030 mix. And that means, without not wanting to, you now have a lot more exposure to market volatility. So I would start right now. The thing you should do this minute is take a look at your overall risk profile on your portfolio and make sure it’s actually in line. If you have an advisor, they can do this for you in five minutes, like, what is my current allocation and my risk exposure if the market was to fall, so you’re not overly exposed to equities in what could be a very volatile time here.
Terri Kallsen 22:24
I think that will help our viewers really face the volatility that we know is coming. One thing we’re certain of is there’ll be more volatility. It’ll give them the confidence to be able to withstand that over the next six to 12 months. So great advice, Joe, okay, Joe, that certainly leads us into the next step, which is the big three for next week. What can we expect in terms of discussion for next week? Well,
Joe Duran 22:47
next week’s going to revolve around three things, first, most importantly, probably what’s happening with the bigger economic reports that are coming out. We’ve got data releases us, retail sales, CPI, obviously, inflation is a big, big watch word what happens with interest rates. So watching what happens with interest rates and the data that comes out next week. Second, I’m really interested in Bitcoin. Bitcoin is basically a binary bet, is it legitimized or not? And early on the administration, the incoming administration, has been quite vocal in supporting Bitcoin as the talk get, becomes a little bit less positive about it. We’re seeing some volatility, and so we’ve gone from over 100,000 down to low 90s. We’re trading right now around 95,000 and at the end of the day, this is a very expensive bet. If it gets legitimized and it becomes a currency you can use to buy cars and everything else, then this asset will be more valuable. The question is, Will governments actually allow it to remain a hard to trace, hard to tax asset? And right now, what we’re seeing is it’s easy to invest in. It’s made easier now because of ETFs, we don’t know really what the underlying value of Bitcoin is because we don’t know if it’s a real currency that you can use. And I think again next week, we’re at this inflection point right now where we’re either going to break that 104,000 put per Bitcoin, or we’re going to drop below that 8089, 90,000 and that could be, you know, correction time, where we go down to 70 or 65 and so I think we’re right at that point. Right now, the volatility has been converging. Next week could be a point at which it triggers one way or the other. I know, Peter, you’re looking at earnings, and there’s some big earnings next week. Which ones are you most interested in? Yeah,
Peter Boockvar 24:34
it really starts to accelerate at the end of next week, when we get here from the big banks, JP, Morgan, Wells, Fargo city, we want to hear what they have to say about loan growth. Loan growth has been very muted over the past year. And also want to hear about their customer, both their business customer that is borrowing at higher rates and also the consumer that has seen rises in delinquency rates, particularly the lower incomes. Relative to the upper end. So I think it’ll be a good sort of finger on the pulse of the economy as we then pick up the earnings reports in the weeks thereafter.
Terri Kallsen 25:10
Thank you so much, Joe and Peter and thank you to all of you viewers who have watched you know, at Rise up, we’re just getting started. We’d love to hear from you. What types of questions do you have? What do you want us to cover? What do you don’t want us to cover? And really just send us in any feedback, because we’re happy to address all of it. I really want to thank the team, Peter and Joe, all of you, and we’ll see you again next week.
