First Friday: We Lost 23,000 Jobs, Yet Somehow Unemployment is Down?!?!

29:31And if you are feeling that way and you're frustrated about your job search, Remember that small and mid-sized companies are less likely to be using AI as screening tools as compared to large companies, because big companies have a huge volume of applicants that they need to sift through, while small companies, a company with less than 50 employees, they might not be getting that same volume. But the thing is, if you go to a job fair or a career fair, you're not going to see small companies there because who takes out booths at job fairs or career fairs? Big companies. Because a big company that has a hundred job openings to fill, they're going to take out a booth at a career fair.

30:17A small company that has one or two job openings to fill, they're not going to take out a booth. That doesn't make any sense. And so often when people are applying, particularly young people, you go to your college career fair, the one that's held on campus, you're only going to see these big companies there because by definition, those are the ones who show up to career fairs. So look for smaller employers. They're less likely to use AI for screening. They're often more nimble, more flexible. Also remember getting an introduction from someone or getting referred by someone is often the best way in the door.

30:54I have a nuanced take on networking events because the whole like meeting in some ballroom to eat hors d 'oeuvres and sip a Sauvignon Blanc while having the same small talk conversation with 50 people, that is not in any way providing value to anyone. If you're under 25 or even under 30, if you haven't yet made a name for yourself, built a reputation, you're just starting out, you're new to a field, I should say, I guess I should amend this. If you're under 30 or you're midlife, but making a midlife career change. So if you're brand new to a field and you are literally just trying to get a bunch of cold introductions because you are the new kid on the block.

31:42All right. That makes sense in that circumstance. Outside of that, the best way to meet people is not by like juggling a puff pastry with a business card, or these days it would be your LinkedIn QR code. The best way to meet people is not by doing that. It is by providing some degree of value in a way that makes people talk about you because you want to be salient. When somebody hears about an opportunity, you want to easily come to mind. And if all you've done is stood in a crowded room, having the same insipid, what do you do? What do you do? Conversation over and over and over. That's not memorable.

32:23And your job is to be memorable. That comes from providing value. So some advice to job seekers out there. Speaking of jobs, I saw this really interesting chart. It came from the Fed's Survey of Consumer Finances. And it is your income categorized by your age from 1989 through 2022. And it's adjusted for inflation. Tracking that, so specifically it is pre-tax family income by age, classified by age of reference person. And if you look at this chart, again, from 1989 through 2022, every age cohort is doing better than they were in 1989, again, adjusted for inflation. So the under 35 crowd of today has a higher income and is doing better than the under 35 crowd of 1989.

33:17And that remains true for every age cohort. So 35 to 44, 45 to 54, 55 to 64. Actually, that age cohort peaked in 2004. So the ages 55 to 64 cohort is not doing as well as they were in 2004. But they are still way better off than they were in the late 80s. One thing to bear in mind, and again, we talked about this in the interview with Beth Kobliner. So if you haven't listened to that, go check that one out. That's a really solid one, and it specifically focuses on the 20s and 30s age cohorts. One thing to bear in mind is what I have just told you is flattened, cudgel, information about the entire under-35 cohort.

34:05But inside of that, there's a lot of variation. The experience of being 24 today is wildly different from the experience of being 30 today, because if you are 30 today, that means you are around 22 in 2018, which means if you've been investing in your 401k since the age of 22, let's say you graduated from college at 22 and opened a 401k account and you've been contributing to it regularly ever since, you probably have some assets that have grown over the last eight years. And that's why sometimes it can be, as I talked about with Beth, it can be a little flat to talk about people in their 20s in these broad brush strokes when a five or six year age gap can be decisive in terms of the assets that you've been able to accumulate.

35:00That being said, there is, at least when we zoom out and we look at big, broad strokes of giant clusters of age cohorts, there is good news, which is every age cohort is doing better than they were as compared to the year of Taylor Swift's birth, 1989. Mortgage rates have hit their highest level in over a year. The average 30-year fixed mortgage rate is, as of Monday, about 6.78%. Again, that's a one-year high, and there was a big increase between June and July. So at the end of June, rates were 6.5%. By the end of July, they were 6.8%. Remember, it was last week that the Fed met. So on July 29, the Fed announced that it was going to hold interest rates steady.

35:51And after they made that announcement, investors, as measured by the CME FedWatch tool, investors overwhelmingly began to predict a rate increase in September. Part of what is happening right now, not just with bonds, but also with the mortgage rate, because mortgage rate is tied to the 10-year treasury, investors are pricing in the probability of a rate hike in September. You know, the irony of a rate hike, and this is not commentary on whether or not they should hike rates. This is just the inescapable irony of the way our system is set up. The whole reason that the Fed raises rates is to keep inflation under control.

36:33But raising rates influences the 10-year treasury, which impacts mortgage rates, which makes housing more expensive. And so the very tool that the Fed uses to combat inflation actually makes the single biggest factor in the cost of living, which is housing. It makes that cost of living more expensive. There are some people who say, yeah, well, but higher rates might lower home prices as a result of reduced demand. Historically, that has not happened. Historically, there has been a weak positive correlation between higher rates and rising home values. Now, I will emphasize it is a weak positive correlation, but directionally, that has been the correlation.

37:19And largely that's because the Fed typically raises interest rates at times when the economy is booming, because that's usually when inflation is a concern and the Fed feels the need to put the brakes on the economy. And it is typically, historically speaking, during those boom times that the price of housing goes up. Now, that doesn't mean it necessarily has to be the case. And of course, supply plays a huge role in this. I think the examples that we see in both Austin and Central Florida show that we have examples of an economic boom coupled with home prices decreasing if you can flood the market with enough supply.

37:59When we look at historic trends, historically, we have not seen higher rates, higher mortgage rates, lowering home prices through reduced demand. Again, I'm not commenting on whether or not they should do it because certainly raising rates reduces overall borrowing and that decreases the velocity of money. And the Fed basically has two factors to work with. They've got the supply of money and they've got the velocity of money. So how much money is there and how quickly does it change hands? And raising rates overall means that money, generally speaking, changes hands more slowly or less often.

38:41Fewer people transact, companies borrow less, and overall, the idea is overall inflation comes down, but in the meantime, mortgage rates go up, so housing becomes even more expensive. I say this largely because I've been spending a lot of time lately thinking about issues related to housing affordability. We are going to have an excellent interview, well, I think it's excellent, with Kenny Burgos. He is the CEO of the New York Apartment Association, and it'll be a deep dive into the economics of housing in New York City. Obviously, New York is very different from the rest of the country, but what a fascinating place.

39:23Infinitely nuanced, infinitely complex. As I've been spending hours prepping for this interview and just peeling back the layers of the onion on housing, You know, there is perhaps nothing more important, both for an economy and for an individual, there is perhaps nothing more important than getting real estate right, financially speaking. I mean, for an individual, your career, of course, but outside of that career, the home or homes that you purchase, because most people don't just purchase one home and live in it for the rest of their life, the homes that you purchase, that is disproportionately your biggest expense.

40:04And then if you buy investment properties, rental real estate, a small handful of properties comprise a large portion of your portfolio. Getting it right is critical. And that starts with like a deep, deep understanding of how real estate works. So that's true at the individual level. And then you zoom out to the broader economic level. and real estate is the backbone of everything, of family, of mobility, of your ability to pursue a career by virtue of being able to move to a different geography where you don't have friends or family. All of that is to say that among the many things that I've been really thinking about for, I'd say probably about a month now, really deeply thinking about are the constellation of factors from mortgage interest rates, to the supply of lumber and copper to density caps and zoning restrictions, how all of this comes together to create this housing affordability crisis that we have in most parts of the country right now.

41:17All of that is to say the Fed is likely to raise interest rates in September. In fact, they are so likely to do so that arguably that is at least to some extent being priced in to the 10-year Treasury, which is already reflecting in mortgage rates. That effect may get amplified in September when the Fed actually does raise rates if it doesn't get fully priced in beforehand. And so mortgages, which are already at a one-year high, are likely to stay high if not climb higher. And that means the lock-in effect, which is people who hold low interest rate mortgages, two-handle or three-handle or even four-handle mortgages who don't want to give up their existing mortgage and therefore have a golden handcuff scenario where they are locked into the home that they have, that lock-in effect is expected to persist.

42:17A couple other points I'll make before I round out the shower thoughts on real estate. Pending home sales rose 1.3 % nationally year over year in July. That's the eighth consecutive month of gains. So homes are moving. Buyers are active. They're signing contracts. Seasonally, there tends to be a cooling off period. Nationally speaking, during the summer, of course, your region may vary. but data from the Census Bureau shows that single-family new home sales ticked up by 1.6 % in June to a seasonally adjusted annual rate of$628 ,000. Directionally, that's good. It's subtle, but it's directionally good.

42:56Same deal actually with home prices. National list prices are down 2.4 % from last year, and 20 % of active listings had a price reduction in July, so So sellers are adjusting their expectations in order to get their properties to move, in order to attract buyers. But we are seeing one thing that's interesting when we start looking at the data is that we are seeing more variation between the states. So New York State, so I just mentioned nationally, list prices are down 2.4%. In the state of New York, prices are up 8%. By contrast, in Tampa, list prices per square foot are down 4.8%. So that delta between, so Tampa is down almost 5%, New York is state, New York state is up 8%.

43:46So we're talking about in terms of percentage points, a delta of nearly 13%. That delta is even bigger when you look at Austin. So Austin has seen an 8.5 % drop in price per square foot. So there, I mean, comparing Austin to the entire state of New York, we're talking about a delta of 16.5 percentage points. Now, I get New York City is very unique and it has its own very, very specific set of circumstances. But New York State as a whole does not have to have the inventory constraints that it does. But what we've seen is that there are big inventory constraints across the entire state of New York that is keeping competition really fierce and is forcing prices upward in spite of these higher mortgage rates.

44:40Austin, by contrast, it saw huge, huge supply. It saw oversupply, frankly. It saw overinvestment. It saw oversupply. And now what it's seeing is that inventory supply correction, which is the reason that prices are dropping there. That's why you contrast Austin with San Antonio. What we're seeing in San Antonio right now is that homes on the market are moving a lot more quickly. The velocity, we talked earlier about velocity, San Antonio is seeing a really, really heavy transaction volume, but they're seeing it at a much lower median price point. The median home in San Antonio is$299 ,000. Now, I should say both places have a spate of problems, including high property taxes, very high insurance costs, and in Florida, skyrocketing HOA fees and structural inspection laws, which have caused a lot of special assessments to happen, which has particularly hit the condo market really hard.

45:45But the thing that I think is fascinating about this is seeing a double-digit delta, this is a wider divergence than anything that I have seen in the decade that I have spent analyzing the housing market. There is a tremendous mathematical gap. And so real estate is always fascinating because it is such a high-stakes arena. the divergence that we're seeing right now in regional real estate behavior is just bananas wild. Part of why I study it so closely is because across the country, we're running a whole bunch of A-B tests in real time, but all with unique characteristics. So none of them are perfect comparisons to one another because each one has complicating factors that make it unique.

46:42But that's all the more reason why it's critical to take a nuanced, data-driven look at real estate and not to rely on pithy slogans or reductive frameworks. As a general rule, the more that you hear people attribute something to a single source, the less likely that is to be true because real estate is influenced by such a complex cacophony of factors. That's the latest in the housing market. We're going to take a moment to hear from the sponsors who make this show possible. If you're a small business, the right hire can be make or break. Hoping the right people see your job posting isn't the best growth strategy.

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51:30Welcome back. Gold prices are weird. So gold was in the toilet for a little while. Earlier this year, gold fell by nearly 30%. So in January, it was trading at 5 ,600 per troy ounce. By July, over the span of those six months, it fell down to a bottom of below$4 ,000. So a fall of about 30 % in the span of six months. Well, some slightly good news for people who have held on. Gold prices are now at a two-month high, so they're currently trading between$4 ,300 to$4 ,400. They have not yet regained the peak that they were at in January, but they're starting to rebound a little from the bottom that we saw in July.

52:17Why is that? Well, a few reasons. Number one, worries about inflation. Because in periods of high inflation, people tend to flock to tangible assets like gold, real estate, art. And so increased inflationary worries can drive the price of gold up. Worries about a cooling economy can also drive the price of gold up. The thing about gold is that it doesn't have any interest payments. Earlier I talked about the beauty of holding bonds is that you get those periodic payments. When you hold a bond, you are giving a loan and therefore you earn interest on the loan that you're giving. Gold isn't like that.

52:59Gold doesn't pay any interest, which means it is not an income-producing asset, which means it's a speculative asset. People buy it if they think that other people will buy it. People buy it only because they believe that the price is going to go up because of increased demand. Why would you increase demand for gold? Probably because you're worried about inflation. But by virtue of buying gold, you know, we talked earlier about the 30-year yield, right? If you're buying gold, that comes at the opportunity cost of not buying a 30-year treasury. And what that means, given that the 30-year treasury yield is so high, it is currently as of today, Friday, August 7, it is at 5.2%.

53:42People who are buying gold see that as a risk. So people who are buying gold aren't looking at the 30-year treasury yield and saying, wow, what an attractive return. They're looking at the 30-year treasury yield and saying, wow, that is a red flag. That is a risk. That is a warning sign. that interpretation is totally valid. This is why I say like, it was why I really mean the caveat that when I talk about myself entering bonds for the first time, it is not investing advice. I fully acknowledge that the people who are looking at that saying, I don't see that as an attractive return. I see that as a evidence of risk and as a warning sign.

54:25That's a completely valid interpretation. It is not my interpretation, which is why I didn't put my money that way, but it is a valid interpretation. And there is a very, very real possibility that they may be right and I may be wrong. That possibility is on the table and has a decent likelihood. That's what investing is. Investing is risk. Investing is starting with the base knowledge that you might be wrong. And the base knowledge that a lot of people are actively dumping long-term bonds and piling into gold as a safe haven. Because in periods of stagflation, gold really thrives. And remember, we talked earlier about how stagflation is on the table.

55:16It is a possibility. So yeah, gold has been beat up for the first six months of the year, but there is, right now, there's been a two-month slight rebound. And there may or may not be a case for another gold rally. Time will tell. But we are seeing around the world, global central banks are increasingly buying gold. And part of that is because they want more independence from the US dollar. They want to de-dollarize. Do you remember, we talked about this many, many first Fridays ago, but there was actually a movement to try to create an alternative global reserve currency that ultimately went nowhere and it's not likely to happen.

55:59But there was an attempt to do that for a while. As many central banks around the world started saying, you know what, we're starting to lack confidence in the US dollar and we no longer want that to be the world reserve currency. And again, it's not going to happen. It's not realistic. or I should say it's unlikely. We can never state anything in absolutes, but it is highly unlikely to happen. That ethos does explain in part one of the reasons why so many central banks are going after gold. And particularly, we've also talked about how inflation is worldwide. Inflation is happening as a global concern.

56:38And that's another reason why so many central banks and so many investors in general are piling into gold. So that's just an interesting asset class to watch. I personally do not own any, but I understand why someone would. I personally like real estate as an inflation hedge because, again, in periods of inflation pile into tangible assets. For me, that's real estate, but I get it. And I want to emphasize what we've talked about, and I've said this before. If you really want to understand what's going on in the economy, don't look at the stock market. Look at the bond market. Watch what the bond market is doing.

57:16And I would add to that, watch the gold market. Those two markets, the bond market and commodities and gold in particular, will speak volumes about what's going on in the economy. Much more so than the stock market. The stock market is not the economy. The bond market kind of is. All right, the final story to close out today. Since this is the August 1st Friday episode, I want to cover all of the economic news from the previous month, the month of July. On July 4th, the 530A accounts were officially launched for public contributions and initial funding. So the 530A account, depending on what side of the aisle you are on, is sometimes also referred to as Trump accounts and sometimes also referred to as Invest America accounts.

58:09so half the population calls it Trump accounts, half the population calls it Invest America accounts and if you're a financial professional you know it as the 530A account kind of like 529, 401k in the way that we refer to all of these accounts by their section in the tax code these are 530A accounts so that's how I refer to them but the big news is on July 4th they were officially launched The government deposited$1 ,000 each into more than half a million newly activated accounts. And so babies that were born between 2025 and 2028, so January 1st, 2025 through New Year's Eve, 2028, any baby born during that time period is eligible for this government seed money.

58:58And whether or not you get the seed money, children, minors, you can open an account for any minor and parents, friends, family, employers, anyone who wants to support that kid can make deposits into this account up to an annual limit of$5 ,000 per minor. There are already many private donors, both individuals and companies that have been donating to fund the accounts. So the Dell family gave over$6 billion. Gwynne Shotwell from SpaceX gave more than$300 million. Brad Gerstner gave money to every child in the state of Indiana. Many companies, Bank of America, J.P. Morgan, Robinhood, have also announced that they will be making contributions.

59:44So we're increasingly going to be seeing philanthropists, donors make contributions into these accounts. Now, I want to emphasize one thing. This is very important. And any minor child in the US, any child under the age of 18 can have a 530A account opened on their behalf as long as they have a valid social security number. So even though that$1 ,000 seed money is limited to babies born between 2025 and 2028, anyone with a social security number who is under the age of 18 can have a 530A account. They do not have to have earned income. That's what distinguishes it from opening a Roth IRA, for example, on behalf of a minor child.

1:00:30Because a minor child with earned income can contribute their earned income to a Roth IRA, but with a 530A, the kid does not need to have any earned income. They can have a 530A account open for them. You can do it by filling out IRS Form 4547. And so if you have a minor child, please open a 530A account for them. Even if they're too old to get the$1 ,000, the$1 ,000 of government seed money, you can still open a 530A account for them. They can get private donations. They can get family contributions. Even if they don't get that seed money, it's still an opportunity to save money in a tax advantaged manner for kids.

1:01:16And that can, I mean, to start the compounding clock that early is a tremendous benefit. Imagine having compound interest that begins when you're two or three or four or eight or ten. So on July 4th, the account's officially launched. If you have a minor child who has a valid social security number, please open a 530A on their behalf. That is the August 1st Friday episode. Thank you so much for tuning in. If you enjoyed this episode, please share it with people who could benefit from hearing it. Share it with people with minor children. Share it with people looking for jobs. Share it with people who have questions about the low hire, low fire environment.

1:02:00Share it with anyone who's ever wondered what a bond is and why someone would buy one. Share it with people who are worried about inflation. Share it with people who like gold. Share it with all of those people and more. That is the single most important way that you spread the message of financial literacy and of FIIRE. You can chat about this episode with members of the community by going to affordanything.com slash community. And if you want to know where to put your assets, where to put bonds versus small caps versus large caps, if you want to know what type of account to put what investment in based on its tax treatment, we have a free asset location cheat sheet.

1:02:42You can download it for free. It's a four-page cheat sheet, just a reference that you can use. You can download it for free by going to affordanything.com slash asset location. Thank you so much for tuning in. This is the Afford Anything Podcast. My name is Paula Pant, and I'll meet you in the next episode.