 This is Think Tech Hawaii, Community Matters here. And we are back live here in Think Tech Studio, Hawaii. I'm your host Prince Dykes coming to you guys live all the way from Honolulu, Hawaii. And guess what guys? We didn't get canceled, we got another episode so we're gonna enjoy it. But as you guys already see in the description box, today's episode is gonna be about interest rates, federal government interest rates. And I know you're probably thinking, man, why is that so important? So to start this thing off, one thing that I was at Berkshire, which is Warren Buffett's, the greatest investor of our time, and you were meeting two months ago. And one of the things he said, he was like, hey, if I could have one tool going into the future, this is Verbatim, if he could have one tool going into the future, he would like to know what interest rates would be. And I wrote that down and I said, okay, interest rates, that seemed like it might be a little important. But we're gonna go through and we're gonna talk about what are interest rates, what are, why are they important, future interest rate, how you can invest in this interest rate market, all the other great stuff. But as always guys, I don't have a lot of time and I definitely, you guys don't have a lot of time. So we're gonna jump straight into it. So with this topic, I brought on a very special guest. We're talking about a 40 year Wall Street veteran that was around in the 70s, the 80s, the 90s, the 2000s, James Foyland. If you've followed me before on the investor show, you've seen him before coming in all the way from Wall Street and I have him on the line today and I wanna go ahead and introduce him. How is it going James? Hey, how are you today? I'm doing outstanding. Thank you for calling in. For people who don't know who you are, tell us a little bit about yourself in this financial industry. Oh, I am, I guess the basic, the important thing to know about me is I had worked. I had been involved in investing basically since I was a kid in the 70s. Then I worked on Wall Street from about 1982 to 2008, I guess is the whole time where I was full time. Okay. So being around the market and stuff like that, right? So you're an expert, you've seen a lot, right? I've seen a few ups and downs. I don't know if I call myself an expert, but I've gone through a couple of market cycles. Okay. What a suspense, right? That's a lot of experience that you have. Now, this thing, federal government interest rates, anybody out there listening, what are the federal government interest rates? Well, right now what you have is an unusual situation where you have historically low interest rates and they've remained historically low for probably, I guess, the better part of 10 years. It's just, it's abnormally low. And for a lot of people, you're just about to see the Federal Reserve is in the process of raising those rates from those historically low levels. Okay. Now, the thing I want to piggyback off of what James just said, he's talking about the interest rates are historically low. Now, the federal government interest rates, they are so important because they control all of the interest rate. It goes in a domino effect. The federal government, it has its own rates that the chairman, Jane Yellen, she controls and she's the one that controls the interest rates that the banks get. And you know, the banks control our credit cards, our houses, our loans, all the good stuff like that. It's a way that they can raise and lower the interest rates, which is one of their most powerful tools. Right now, the interest rates, he said at a historically low is at 1.16 currently as August 11th. Now, they meet about every year, the Federal Reserve's, and they can decide whether to raise interest rates or to lower interest rates. And they raise interest rates to, in a way to slow down inflation to cool off the market to make sure we don't build this big asset bubble. And we got into this low interest rate society big when in 2008 it's part of a stimulus package to stimulate the government, the government lowered interest rates and by lowering the federal government interest rate it's freed up a lot of money. So people will more, businesses will more likely borrow more money because it's cheap. You have a low interest rate, businesses say, hey, you know what? We can buy this and maybe hire more employees, build more things and stuff like that. So now we've been in a bull market here since around about 2009, which means the market is being going up, up, up. And now we're kind of seeing interest rates kind of curve and cut up a little bit, you know, from going from zero practically and now they're at 1.16. And James is saying, hey, we've been in this thing for a long time. Now I know you've probably seen something like this play in the past. How did it affect the economy in the stock market, you would say? Well, first of all, we need to go and look at what really went on. You mentioned the 2008 financial crisis, the Federal Reserve lowered rates and then they went into a, they even tried to push rates lower by doing something called quantitative easing, which is a really big word for basically, they printed a lot of money and they pushed it into the economy. The idea is just what you said, make money easier so people will spend it. The reality probably is more that the money went into the stock market and made the stock market go up more than people spend it. What you have now is you have two big issues going on with the Fed. The Fed, under normal circumstances, we always say, if interest rates go up, stocks go down. If interest rates go up, bond prices go down. But this is a very long telegraphed move by Janet Yellen, the Fed chair. She's been signaling she wants to raise rates for a very long time. She has really two problems here. The first problem is she needs the data to prove that the economy is getting stronger. But the second problem, that's a lingering problem, probably since the end of the Greenspan era, which now we're talking probably in the early, like I would say, in the 1990s, Greenspan was talking about this, the measurement tools that the Fed has, there's a lot of skepticism about how accurate they are at measuring the economy. So Yellen's been looking for an excuse to raise rates, but she needs to see it in the data. And the data so far has been very mixed, although this morning we had a fairly significant increase in retail sales. So I think that's gonna get her to start to ratchet things up a little bit very slowly. Okay. The Fed works best for investors. I think my point is that a lot of the interest rate raises are already in the market already. They're already calculated. And because interest rates are at this historically abnormally low level, it's gonna take a while for us just to get up to what normal interest rates might be, like the norm, what really interest rates should be. Traditionally, if the Fed were to make rapid movements one way or other, either raising interest rates or lowering interest rates, it would dramatically impact the stock market. But the stock market historically has liked if the Fed like got on a program and said, hey, we're gonna start raising rates a quarter of a point every 60 days or every 90 days or every, like if the Fed goes like creates a plan and starts to follow through, the market's probably not gonna be too bothered at these levels by whatever the Fed's doing. If the Fed suddenly becomes very erratic and sort of waits too long and then has to ratchet interest rates up really quickly, that could create a lot of blowback with the stock market. In other words, you could knock the market down really significantly. Okay, now, by you saying this, right, you make some very great points. Since he's talking about Jane Yellen, they call her Mother Goose on Wall Street, correct? Yes, yes, she's the Mother Goose. So she's Mother Goose on Wall Street. And she has the power. Once they're elected by the, once they're appointed by the governor, I mean, the president. Yeah, they're appointed. And the Senate approves them. They're pretty much in their own little lane to do whatever they wanna do. Now, the thing about it is that he spoke about quantitative easing. People call that pumping money into this market. And some people say, hey, well, we think it's created a bubble. But the thing about it now, James, is that we're at this historically low interest rates level. Where do you see interest rates going into the future? And what effect do you think it will have on the stock market? Well, I think if there's a, because this has been such a long telegraph process, so in advance, I think you see a lot of that in the market already. The market is reflecting, in my view, much higher interest rates than now. Although much higher interest rates than now would still be very low interest rates. And I think that's what you have to understand is that we're coming up from a really low floor. So we're gonna need to raise rates. The Fed's gonna need to raise rates really significantly to even get to where it starts to become an issue. Like I think we're, it's sort of under the radar yet. Like rates can go up quite a bit from here, maybe even double from where they are at the Fed level. And that may have very little impact on the stock market. But once you start to push past, say, doubling where they are here, or maybe then it's gonna start to be a measured move and the market may have some issues digesting like much higher rates. Again, it's all in the follow-through. If the Fed does this methodically over a long period of time, they keep talking about it. I mean, Yellen's on TV every minute saying, look, we're looking to raise rates. And then sometimes she'll backtrack and go, but I'm not seeing the numbers yet to raise rates, but I feel like we should. Well, now with retail sales going up a lot, there's some other issues that you might think that are employing that the economy is starting to move forward at a much faster pace. I think she's gonna start to follow through now. Again, I'm gonna go back to what I first said is you gotta still look at the data. And the data has gotta really prove out for the Fed chair. The data she looks at has gotta say, hey, this economy is growing, inflation is starting to build. That's what she wants us. Then she's gonna raise rates to combat that. I think one of the issues has been is that despite her talk in the, I would say probably in the last year, two years almost, of trying to raise rates, the data hasn't really, it hasn't followed through. We've had a good quarter, a bad quarter, an okay quarter, a good quarter. It's been very inconsistent. And then of course, there's a lot of people who argue that the data the Fed uses doesn't really measure the economy correctly. Inflation is much higher than the Fed is measuring it at. Okay, well, hold on, James. The economy is... Before we go any further, we gotta take a quick commercial break and we're gonna come back with more from James and we're gonna come back with my opinion and stuff like that. So guys, stay tuned to the Prince of Investing. This is Think Tech Hawaii, raising public awareness. But grandmother, what big eyes you have? She said, what are you doing? Research says reading from birth accelerates our baby's brain development. Push! Read aloud 15 minutes. Every child, every parent, every day. Aloha and Richard Concepcion, the host of Hispanic Hawaii. You can watch my show every other Tuesday at 2 p.m. We will bring you entertainment, educational, and also we tell you what is happening right here within our community. Think Tech Hawaii. Aloha. I just walked by and I said, what's happening, guys? They told me they were making music. And guys, we're back. Thank you guys for tuning in. If you haven't seen us earlier, we're talking about the federal government interest rates and your investments. Now, we've done a lot of talking before the commercial break, talking about the interest rates, where they add in historically and things like that. Now, and I'm joined by my very special guest, but before I jump back into that, I want to give you guys a simple way of people saying, hey, how interest rates could affect the stock market. Not only the stock market, we're talking about real estate, your credit card, banks, loans, all that type of stuff. That's why it's so important. But one of the things people say, hey, if the government raises interest rates to stock markets at all time high, this morning we had great retail reports. If the federal government gets good indications and data that the market is going up, they have a tool that they can raise, particular interest rates. Now, what raising interest rates does is it makes money a little bit harder to get. It makes the money a little bit more expensive to be able to borrow. So theoretically, companies will borrow less. And when companies borrow less, they don't, it slows down their expansion, which relates to people payroll, people may not spend less, and it's a tool to kind of cool off the economy. And when companies borrow less and quit expanding, it can hurt their revenues and profits and may affect the stock market in that way to where people may go into a higher interest rate society thinking that, hey, the market could affect negatively. Now, to go more in detail to how this relates to you, I have my special guest, a 40 year Wall Street veteran here, James Fotland calling in from Wall Street. James, what do you have to say as far as explaining it to someone right now? What are the federal government interest rates and why are they important? All right, so I'm gonna grossly over simplify this to make it so at every level, people, the listeners will understand what I'm talking about. The Federal Reserve has a key rate that they will lend to banks, like big banks, like Citibank and all these, and JP Morgan and Chase and all these big banks. And the banks say suddenly they borrow money from the Federal Reserve at 1% and now the Federal Reserve raises it to 2%. Now, they won't raise it a whole point in one shot, but I'm just trying to make a point here. So how does that affect you? That means that, say, Chase Bank, if you go to get a mortgage, that raise is gonna be reflected in those mortgages. So at every level of the economy, the price of money, in other words, interest rates will go up. So it kind of reflects. And Prince was 100% right. In theory, that's how it all works. Money gets more expensive, so businesses and individuals spend less because it's more expensive. The car that you wanted to buy or the house you wanted to buy at, say, the house at a 5% mortgage that you could afford at a 7% mortgage is too expensive so you can't buy the house anymore. So these are the kind of things that happen. My point is two-fold earlier on is that what I think is because rates are at this historically low, it's like an anomaly. They're not even at the norm yet. And I think that we have a little wiggle room here where the Fed can raise rates fairly without with very little backlash on the economy because the rates are just so low it doesn't make any difference. Now, Jane, now that we're in this historically low interest rate society, how, one, who's an investor or maybe a common investor, do you see any opportunities one should be taking advantage of? For example, you were saying, hey, you go to borrow money to buy a house, the interest rates are low and the interest rates are gonna go up, what's gonna make it more expensive to buy a house? Should I be capitalizing on the low interest rates to buy a house? Or would you say, hey, is there any other things that you can see that I possibly could be taking advantage of as far as like a common investor? What's some things that, maybe some opportunities there that you may wanna look at in a low interest rate society like this? Well, first of all, businesses that are very capital intensive traditionally get very hurt when interest rates go up. For example, historically, utilities would get hurt if interest rates would go up. The real estate business would get hurt when interest rates go up. Any big, a lot of industrial companies who had to lay out a lot of money to borrow and build big plant and equipment would be hurt. I would say that, but however, the flip side of all this that we gotta remember because I think we have a little cushion here for a while because what you have to weigh is the impact of interest rate increases against all the other things going on. Are the impact of interest rate increases gonna outweigh economic growth? Are they gonna outweigh deregulation? Are they gonna outweigh all the other factors that are going on? So you have a balance to that. And I think there's a lot of opportunity to make money now because the economy is, if the Fed starts to raise rates consistently, they're telling us the economy is growing a lot faster than it's grown in a long time. And so you would look at industries that could take advantage. For example, today, retail sales were a lot bigger than they had been in a very long time. There's other, any industry that's like that where people, that's because of, that can do well off a growing economy. I would say that a lot of it is the typical stuff you'd think of. Companies like technology companies that offer consumer goods will probably do really well for a while just because the economy is growing faster. Some older traditional industries like perhaps people are gonna buy more cars. Now, mind you, it has to weigh is the economy, the better economy, good enough to outweigh the slightly higher price you're gonna pay an interest rate. That's what every investor has to weigh. I would say you're more apt to watch out for certain things like I probably wouldn't be buying bonds in this, especially longer bonds in this kind of environment. I wouldn't be buying utility stocks in this kind of environment. James, to pick that up, why wouldn't you be purchasing bonds? Why do you say, hey, bonds wouldn't be a good look, right? Bonds are, bonds always are like the opposite. Like if interest rates go up, bonds go down. And it's basically a simple process because if you have a 10-year bond and it yields 2% and interest rates are 1%, that bond yield is based on the duration, the 10 years, plus the credit quality of the bond. Now, suddenly, interest rates are 3%. And your 2% bond, the price has to reflect a new reality in interest rates. So the price of the bond itself may go down. The bond will still pay, if it's a good company and it's a good credit rated, it will still pay the dividends all the time. But the price of the bond is gonna go down to reflect, it's gonna take that 2% yield and now it's gonna make the yield 3%, which means the price of the bond itself is gonna have to go lower at market value to reflect that higher yield. And so you don't wanna get involved in any of these like long-term bond funds, just buying bonds out too far. This is not an environment to buy bonds, especially long-term. Now, like you said, you said, hey, bonds maybe not so, but I like what you highlighted earlier when you said, hey, well, think about things that customers buy because, and the reason why I said that's a good thing is because think about it, right? Like we said, borrowing money is very cheap right now. So you can borrow money for very low. So companies can borrow money for very low, which they can use that money to expand their business, hire employees, come up with new products, pay higher salaries and stuff like that. Unemployment is at a historic low. I mean, people theoretically have jobs and when people have jobs and they make more money, they spend more money. And the thing about that is well, when people make more money, they spend more money and also they are approved for more credit. Now, when they get this credit, then that means that they usually go buy more stuff because most, let's be honest, most employees when they get paid, they buy stuff. So what you mean like cars, maybe cars, clothes, stuff like that. So I can understand the correlation where you can say, hey, things that can see a spike are things that are consumed by customers, like things like maybe your retail or your grocery stores and grocery lines and stuff like that, because people will have a tendency to buy more. Am I making a correct statement on your analysis there? Oh, yeah, absolutely. And what I'm saying is under normal circumstances, raising rates would maybe slow that process down. But because we have this historically like below normal interest rate environment, interest rates could go up quite a bit and they're still even doubling from where they are, they're still very low by historic standards. That is true. So it's like we have like a window here where we have a very unusual circumstance where I think rates can go up quite a bit, yet it's more of a sign that the economy is really taking off and that things are good. Like under normal circumstances, it might say that the economy is overheating and that inflation is boiling up and like maybe some negative things are coming. But I think in this particular situation, it's kind of an unusual situation because of the 2008 financial crisis and quantitative easing and a bunch of other weird stuff that are all thrown in there. Okay. And that's a very good, and the thing that you're old school, right? I got into the investment world around like 2007, 2008. So Sino, before the 2008 crash financial recession happened, interest rates around about 4%. And now they've ducked down to already, you know, it went to zero essentially. And now we've kind of seen a little uptake. So in my investing experience in history, we've kind of always historically been in a low interest rate environment, but you coming from the 97s age, you're like, hey, this is extremely low. Because if I go back over 64%, it's a very low interest rate. Yeah, that's true. Because when 2008 happened, everybody was like, well, interest rates are already low. At that time I didn't understand what interest rate really was. I mean, I knew what interest rates was in general, but I didn't know how to Federal Reserve and Jane Yellen and Alan Greenspan. And the CEO of Goldman Sachs, his name is Bernanke, right? If I'm saying no. No, Ben Bernanke was the Fed chair after Greenspan. Yes. And then Yellen was after Ben Bernanke. Ben Bernanke is often referred to as the Bernanke, like people just call him the Bernanke. I don't know why, but that's what he's called. That's his nickname. And then the chairman of Goldman Sachs is Lloyd Blankfein, but often a Fed governor is more an academic economist. They usually don't come right from all street, but that's not 100% true either. Okay. But like you know, not at Fed chair, we're seeing how important that is and how it affects our everyday economy and how it can even affect our investments, even us buying homes, loans, credit cards, and stuff like that. But James, we'll get ready to close out the show. Is there anything or any advice out there that you would want to lend to any watchers or listeners or anything like that? Well, again, I want to repeat, and this is because we went from an X, like a historically low, for example, when I am in the 70s, when interest rates were very high, we used to talk about the heyday of the 50s when interest rates were four and 5% for 10 years, and that was considered the good old days where interest rates were very low. Now we're in a period where we would have to have a fairly significant interest rate increase to get up to 4% or 5%. And what I'm saying is, unlike normal circumstances, this is an unusual circumstance due to the financial crisis in 2008. And so there's a big window here, and I think for investors, this is further evidence that I think the stock market is still gonna go a lot higher from where it is here. And I think that this is, from a business standpoint, I think this is further evidence that the economy is starting to pick up a lot of steam, which it needs to. Because even though, as you pointed out, everybody, we have this big employment number, which is still a little debatable about how big, how many people are actually employed or unemployed, the biggest problem in my mind is there isn't income growth for the regular guy. The regular guy is probably making less money than he made 20 years ago. Wow. And that's a big problem. And to make that even more important, the federal government, they control what comes on our money market accounts, our checking account, our savings account, the interest that you earn. And we're in a very low interest rate society, so you have to invest because what the federal government is giving you in your checking savings account, CDs are not even matching inflation. So you have to invest some type of way, and we're at a stock market right now. That's at an all time high. We are at a low unemployment and all the other great stuff. But anyway, guys, my name is Prince Dax. This is the Prince of Investing. Guys, don't forget to hit the like, subscribe, comment, and share button. And don't forget, each and every Tuesday, we will be here. I wanna thank you guys. I wanna thank our very special guest. Thank you guys for tuning in. Until the next episode, podcast, and next Tuesday, thank you guys. Peace, be safe, I'm out. Thank you, and hopefully we don't get canceled.