Banks Are Strong, AI Is Accelerating, and Global Trade Is Under Pressure

JP Morgan is posting a 20% return on equity, the national debt is closing in on $40 trillion, and shipping lanes are being rerouted around active conflict zones.

In today's rapidly changing economic environment, understanding the financial landscape is crucial. Joining me on the latest episode of Wealth Transparency are Michelle Connell of Portia Capital Management and Andrew Tang of Turner Financial Group. We dive into how the banks are not only surviving but thriving post-financial crisis. With strong balance sheets and healthy cash flows, they're poised to handle the current economic climate better than ever.

The Federal Reserve's recent announcements indicate that banks are in a solid position to increase dividends and profits. If that doesn't give you confidence, what will?

As we explore the impacts of AI and global trade challenges, it's clear that resilience is key. The pie is growing, and so are the opportunities.

Hit the like button if this opened your eyes, ring that bell so none of these conversations slip past you, pass this to the person in your life who needs to hear it most, and tell us in the comments what you are watching closest in your own portfolio right now.

Chapwood Investments, LLC, is a partner of Ethos Financial Group, LLC, a Securities and Exchange Commission registered investment advisor. No mention, opinion, or omission of a particular security, index, derivative, or other instrument in this webcast or video constitutes an opinion on suitability of any security. The information and data in this video were obtained from sources deemed reliable. Their accuracy and completeness are not guaranteed. At any given time, principals at Chapwood Investments, LLC may or may not have a financial interest in any or all of the securities or instruments discussed in this webcast or video. The guests appearing on videos do not receive compensation or provide endorsements or testimonials. Past performance is not indicative of any future results.

All investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results. 
No mention, opinion, or omission of a particular security, index, derivative, or other instrument in this webcast or video constitutes an opinion on suitability of any security. The information and data in this video were obtained from sources deemed reliable. Their accuracy and completeness are not guaranteed. The guests appearing on videos do not receive compensation or provide endorsements or testimonials. 
Securities are offered through Innovation Partners, LLC (member FINRA/SIPC). Ed Butowsky is a Registered Representative with Innovation Partners LLC. Ed Butowsky is licensed to business in: CA, FL, LA, TN, TX. 
Innovation Partners LLC and Chapwood Investments are not affiliated.

Transcript

SPEAKER_00 0:12

Hello, it's Ed Buchowski, and this is another edition of our podcast called Wealth Transparency. As we have every week, we have Andrew Tang from Turner Financial Group, he's the chief investment officer there, and Michelle Connell from Porsche Capital Management based in Fort Worth. I encourage all of you to grasp every single thing that is said on this podcast. What we try to do is highlight lesser-known headlines, things that aren't making it onto the front page of the Wall Street Journal, but should, but these are very important things that impact your investment portfolio. So thank you very much for being here, Michelle and Andrew.

SPEAKER_02 0:52

Thanks for having me.

SPEAKER_01 0:53

Thank you, Ed.

SPEAKER_00 0:54

So I encourage everybody to listen very, very carefully because both of these people have great insight into the headlines and what to do with your investment portfolio as a result of those. We do this every week. And hopefully you're signing up and becoming a subscriber. And please share this podcast with your friends. So to start off with, recently the Federal Reserve gave a green light to the stress test for banks. And if you remember a couple of years ago, there was a lot of questions about the strength of banks, and the government put in new regulations and stress tests, and all of them have passed very, very easily. So, Andrew, what does that mean for banks right now?

SPEAKER_02 1:37

Yeah, that means uh there's a huge uh turnaround uh between 2008, the financial crisis, uh, versus now. So since then, the banks are flush with cash. They have a lot more uh cash on hand, stronger balance sheets. And uh if credit continues to flow to business and consumers, you know, uh this is one of the biggest catalysts that the banks should do very well under the current environment. And especially with the new sheriff in town, the Fed, he is indicating that the higher rates at the current level will stay longer. So higher for longer, the banks should be doing much better than other companies. And if you look back most recently, as as recent as 2023, three years ago, First Republic was in trouble, and then Signature Bank, Silicon Valley Bank. But that is more of a liquidity issue. But now banks are in much better shape right now. Um and I think uh the investors are also uh welcoming the fact that the banks are collecting massive fees as well. So just the SpaceX IPO, Morgan Stanley, I mean, and uh I'm sorry, Goldman Sachs have collected over what, a billion dollars in fees? So yeah, banks are flush with cash, even at the current rates right now, it still provides a positive catalyst for this particular sector.

SPEAKER_00 2:54

Michelle, does that also foretell that there's going to be an increase possibly in dividends from these banking companies like Wells Fargo, B of A, and JP Morgan?

SPEAKER_01 3:06

Definitely. When you're looking at between the three of them, when I looked at them today, they have about six trillion dollars in deposits. And JP Morgan, their return on their equity right now is 20%. And I think even Jamie Diamond has come out and spoken about just the amount of money that they're making right now. So I would expect them to, you know, increase their dividends and uh continue to rack up really good results.

SPEAKER_00 3:37

It's amazing to me the negative rhetoric out there about what's going on in the world and the United States because you have GDP revisions that have been rising, and that shows the strength of the economy. So you have banking reserves that are really strong, banks are functioning very nicely, and the United States is functioning nicely. Andrew, you want to comment on that?

SPEAKER_02 4:01

Sure. You know, in addition to the annual Federal Reserve uh bank stress test, I actually do it on a weekly basis, which is the St. Louis uh bank stress test, and it has been negative for a long time. It has been negative. And uh the growth that we have seen, the revision from 2.4 to 2.2, you have to understand that the pie is growing. You know, the pie is growing. And so this growth rate is still representing a meaningful amount of addition, you know, to the dollar amount that we're talking about. And when it comes to innovation and where the growth itself, you know, we're talking about artificial intelligence, we're talking about automation, manufacturing, data centers, infrastructure. And by all means, we are not done yet. You know, in this, for example, in the ninth inning game, we're maybe at the third or fourth inning. And so even though lots of investment themes, sectors, asset classes, they all end in a bubble, this bubble hasn't fully formed yet. And there's gonna be in between awry, we're gonna be tested. Oh, is this AI bubble uh gonna pop? Uh, is all the money spending from this company gonna result in immediate revenue? You know, you have to compare that. We are building this out, and they are forced to do it because if they don't invest, the longevity of their future might be in question.

SPEAKER_00 5:19

Yeah, so you automatically went to the AI, and I've yet to see any major material impact from AI on earnings. Michelle, can can you talk about the GDP revisions and about what I just said about the AI impact on earnings?

SPEAKER_01 5:37

I found it interesting the Federal Reserve has taken their range up to as high as GDP the second half of the year to 2.6. You have Wall Street estimates, Goldman Sachs taking it up to 2.5. So the range is the upper end of that range is continuing to increase. And I think it's yes, it is AI. That's a large part of it. You just have people that are spending a lot of money because they've made a lot of money. And you have people that are retiring with really large nest eggs, not everyone, but a large percentage of the population, and they're starting to spend that and enjoy that. And I think that's fueling the economy as well. So I think that's part of it.

SPEAKER_00 6:23

So when I first got into business to see a billion dollars was you know unbelievable. Nowadays, you know, we toss around billions of dollars, like we used to toss around millions of dollars in terms of client assets and how much money CapEx spending was gonna make. I mean, it's just it's unfathomable exactly how much money is out there, but at the same time, global trade is finding it very, very difficult right now. And I don't know if that has to do with the war or if it has to do with other tariffs. Andrew, could you address uh the global trade and how it's being proven to be much tougher than people thought? Sure.

SPEAKER_02 7:03

Um, you know, we are living in a uh global economy and we depend on one another. That is true. Uh it's difficult because during conflicts, when the shipping and the transports are not moving freely, you're gonna have supply issues. Just like right now, the US-Iran conflict, the closing of the Strait of Hormuz, it is still not 100% recovered. But I have to say that most businesses they are quite resilient because they have learned from the COVID years that we can't depend solely or too heavily on a few suppliers. So, in terms of sourcing, whether it's raw materials or ingredients to make your goods or widgets, whatever it is, I think over the years, over the decade, we have learned to be more nimble and be more diversified when it comes to getting our sources. So that has changed and has greatly improved the business structure. So even though global trade and transportation could be a struggle because of political issues like the Middle East conflict and the close of Straits of Humus, I think businesses are also learning and reacting quite positively. And I have to go back to AI again. If you have a problem that you want to resolve, immediately you can ask the AI how can I have this problem? How can I solve this? And multiple large language models, including Claude, they will be able to help you with that. And this is something that it's readily available at our fingertips that we didn't have 10 years ago. But are there in earnings companies and it seeps into it because it doesn't, it's not a headline number that they can report, but it's the efficiency that touches almost every firm. And I've said this before AI at the retail household level is is extra, it's discretionary. But at the corporate level, AI is mandatory. You need to use it, right? And our firm use it, and I know many other firms use it. And again, if you don't use it, you're very unlikely to really get a job or secure your position in your career.

SPEAKER_00 9:15

Yeah, I have a young intern here who learned AI, and he's more valuable than just about anybody I have in this office. So there you go. Yeah.

SPEAKER_01 9:25

Did you see the uh headline that Bloomberg had today that if you want your child to be trained on AI, they have a camp in the Hamptons. It's forty two hundred dollars a week for your child to learn AI.

SPEAKER_00 9:40

I should send my wife there.

SPEAKER_02 9:42

That's not Hamptons, by the way.

SPEAKER_01 9:45

It's not. I thought it said the Hamptons, but it's very posh.

SPEAKER_02 9:50

My goodness. I'm sure it's worth it.

SPEAKER_01 9:53

I'm sure it is. But if you have a child that is of means, I'm sure their parents are more than willing and able. That's nothing for them.

SPEAKER_02 10:02

Absolutely. To learn fully about the very thing that has put you into the competition. Yeah. So if all the graduates are complaining about that AI is replacing their entry-level jobs, they should be the ones that go get it, you know, take the bull by the horn and learn AI. And I think that is one way to combat this problem.

SPEAKER_00 10:20

Yeah, my son actually uh he's a grad student uh getting his MBA at SMU, and he has taught himself a claude and learned all of this, and now he's getting asked by companies to come in and put things together, even though that's not what he's studying at school, but it's an ancillary learning that he's doing on his own.

SPEAKER_01 10:41

It's great.

SPEAKER_00 10:42

I'll talk to him about that program. Uh he's off for the summer now. So, Michelle, let me have you address uh the global trade issue right now and why it's you know a little bit more difficult than what people had thought it was going to be.

SPEAKER_01 10:56

It is, but as Andrew said, there are workarounds. It's adding, you know, we have a backlog, and it's also adding a number of days, even if you are finding a workaround, that uh shipping is going around, I think it's the Strait of Hope in Africa. You have shipping going between Asia and Africa and Africa and South America. And so we're finding a way. I'm sure there are some areas where it's still going to be a problem, like the fertilizer. I really am concerned about, you know, because we have such a large percentage of necessity for the fertilizers that are used by Africa and parts of South Asia that they may not get to the farmers fast enough for the crops this year.

SPEAKER_00 11:44

Yeah, and Andrew, we talk about all of these wonky uh definitions, but current account deficit. Can you explain what that is and why we have to really watch what the current account deficit is?

SPEAKER_02 11:58

Yeah, it's really bad. That's basically uh from the budgeting standpoint, uh current account deficits is the dollar amount that you are short from overspending. That's basically it. And the estimate amount is roughly about 227 billion, you know, for the first quarter. And that adds to the existing monstrous pool of debt for the nation, which is right now close to 39.32 trillion. And if I'm correct, uh my prediction is that we'll have 40 trillion by August of this year. Uh and again, I track this on a weekly basis. And so the nation's debt go up anywhere from 20 to 60 billion a week. A week. And so the problem is uh, you know, I hate to sound political, but it is we have too big of a government. And government bodies, they uh pass laws that will be self-preservation, you know, basically protect themselves. And as we have grown government spending over the last decade, this is slowing down growth. The more government grows, the more taxes it will take to sustain this monstrous infrastructure. And so, yeah, it is a huge problem, and then we need to address it.

SPEAKER_00 13:17

So the US continues to import more capital than it exports, and that's really what the account deficit is. How is that damaging to the investment world, Shell?

SPEAKER_01 13:29

That means that we're as a nation, we're that foreign capital is critical to our infrastructure and our ability to function as a country. And uh what that also means is that puts downward pressure on the value of our currency because we have we're importing more than we're exporting. And so our dollar becomes worth less. But uh going back to the reliance on the foreign currency, that's more concerning to me over time. Wonder what happens if that becomes not we we are not able to get that, you know, foreign currency investment that we need to support our country. And I think you spoke about this last week, Ed. That might start to dissipate even more. I know that there are other countries that are starting to do that, but that may, you know, it may increase, it may accelerate. And that's going to be a problem for us and for our bond market and for our currency.

SPEAKER_00 14:28

Which brings me to the central banks. You know, each country has a central bank, I believe. And they used to be synchronized in that they would raise rates or lower rates, but they've become less synchronized recently. Japan recently started to lessen their interest rate. Andrew, can you, you know, you're very, very good at explaining how the central banks work and the synchronization of them. Can can you take that for me?

SPEAKER_02 14:56

Sure. They, you know, central banks around the world, they used to synchronize and they used to move in tandem. And if one central bank, for example, in the US would do one thing, race rates or cut rates, usually Europe will follow Asia, so on and so forth. But now we have a very different dynamic situation here where the mandates are completely different. Now we have dual mandate for the Federal Reserve because we have labor market targets and we have inflation targets. In Europe, it's very different because they only look at inflation targets. Uh, but I have to really ask the officials, you know, to really look inside what is causing inflation, right? So you were alluding to before, Japan actually raised rates, 25 basis points, to 1%, to 1%. And why they're claiming that inflation due to higher oil prices is forcing the Bank of Japan to raise rates. Now, that does not make sense at all because Japan imports 100% of the oil. And if oil is the ingredient for manufacturing goods, the increase of price of oil uh causing this inflation is not a demand-driven inflation. You want to cool down the economy when your demand is so hot. Perfect example, go right back to COVID. When the government is showering you with money and everybody's staying at home, playing with their phone, buying goods from Amazon, and all the you know manufacturing uh you know facilities are closed. That's what's causes amazing inflation. But if you look at inflation from the supply side, you really should not increase rates. And so far from countries around the world, we are seeing oil prices spike, causing a lot of inflation. But going back to Japan, they're only at 1.5 in inflation. So it completely does. I believe, I honestly believe is a policy mistake. Now, Bank of England just recently left rates alone. I think they did the right thing. And in the past, European banks, ECB, have raised rates because, again, you know, supply side, it's for the wrong reasons. And again, I have to reiterate look at a lot of people just read headlines and say inflation's a problem, so we got to raise rates. But you gotta slow down the economy for the right reasons. And, you know, that's what we really need to look at.

SPEAKER_00 17:09

And I misread what I wrote. I wrote that Japan raised rates, and I said the opposite. So thanks for correcting me there. So, Michelle, in terms of synchronization of central banks, you know, the interest rates normally are all moving together because we have this global economy. But as Andrew rightfully pointed out, that there's certain economies that are kind of doing something different. Do you think that has to do with anything political or is it more economic?

SPEAKER_01 17:40

I think there's some politics involved here. There, I think we had more cohesiveness around the globe before Trump, this last election. It's interesting when I'm listening to Christine Lagarde at the EU, the tone is very different than it was before. It's like everybody wants to go and do what they want to do, and not there is a lack of continuity that there was before. That's my belief. But so that's going to create the current environment more currency volatility, a lack of uh cohesiveness in the bond markets. So we're just facing a lot more volatility because we're not working as a global economy.

SPEAKER_00 18:26

Good points. So, as we do every week, based on these storylines, what stocks would you recommend right now? So, Andrew, oh boy.

SPEAKER_02 18:37

All right, okay. Again, I'm not gonna talk about Tesla or SpaceX because this is just too far out, no pun intended. But uh let's go with uh memory chips. I think uh reaccess memory, RAM, and also solid stay drive, these are two core components as well as chips to make these systems. And again, with this AI infrastructure built and the upgrade of home PCs, uh memory prices have gone up. You know, it has doubled and sometimes triple, but there's still room to run here. So again, a basket of memory companies, uh, DRAM, I think it's a good buy, and also financial companies, the big banks, JP Morgan, Morgan Stanley, Bank of America, Goldman Sachs, these are the ones that I would stick to as well.

SPEAKER_00 19:24

Michelle, same question to you.

SPEAKER_01 19:26

It was interesting today that a lot of the technology companies were getting hit, including the chip companies that aren't related to memory. I think some of those look interesting, like the AI and more involved chips. And also Dell was getting hit pretty hard today. And I really have a hard, yes, their their prices in terms of what they're going to have to charge are going to be higher because of the use of memory chips in their data racks when they're building out infrastructure, but I don't think it's 10%. And so I think stocks that it may have overreacted because the the potential impact on memory or because of memory, those look interesting interesting. I also think, as Andrew said, financials. And I still like travel and luxury because as we said, there's a lot of money out there.

SPEAKER_00 20:22

Yeah, I would throw in that I like the defense stocks because we've need to replenish our weapons based on everything that we've been doing. So I think a lot of money is going to go into drones because that's the future. And also there's a couple of ETFs out there. There's one uh that simply invests in drone companies because to pick the right drone company is very difficult to do. So buying an ETF helps balance out that risk. But I agree with both of you. And I thank both of you for being here today. And again, anybody watching, share this information with others. Uh, this is very valuable. You have Andrew Tang from Turner Financial Group, and you have Michelle Connell from Porsche Capital Management, and she's based in Port Worth. So thank you very much to both of you.

SPEAKER_02 21:12

Thanks for having me.