A Pivotal Fed Meeting, Accredited Investor Definition Change, & Gen Z vs. Baby Boomers

As this week’s pivotal Fed meeting approaches, Chairman Powell sits between a rock and a hard place.

Plus: the House has passed three new bills to change the definition of an accredited investor, and CNN stokes intergenerational conflict.

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On The WealthChannel Podcast, we unlock the world of wealth, money, and finance. Hosts Jimmy Atkinson and Andy Hagans deliver unfiltered views on the most important news that investors need to know right now.

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Jimmy: Welcome to The WealthChannel Podcast, the show where we explore the world of wealth, money and finance. He’s Andy Hagans. I’m Jimmy Atkinson.

On today’s episode, a pivotal Fed meeting later this week, bipartisan support to expand the accredited investor definition and revealing new household spending data from Bank of America.

But first, Andy, what’s shaking? How’s life in the big city?

Andy: Well, you know, life is good. Summer just started, you know, it’s, um, it’s luxurious because normally I have that, you know, 20 minute commute to school, drop off 20 minute bag. And so now there’s just 40, 45 minutes added into every day. I can do whatever I want. You know, I can read a book. I can fly a kite. I can go for a walk. I’m not going to fly a kite obviously, but it feels luxurious. Jimmy is what it feels like.

Jimmy: You can read articles I send you for today’s podcast, for instance, too. You got more time to prep for the podcast. We got a similar situation over here, Andy. We’ve been on summer break for a couple of weeks, but I feel like this weekend, summer really swung into high gear. But with that, let’s dive into the meat of today’s episode here. Andy, I’m old enough to remember, I don’t know if you are, Andy, when 18 months ago the federal funds rate was near zero.

But after experiencing the highest levels of inflation in four decades, the Fed has now subsequently raised interest rates to the point where the federal funds rate is currently 5.0 to 5.25%. And those rate heights, if you may recall, Andy, helped to clobber the stock market last year. The S&P 500 was down 19% in 2022. We’re in a much different spot now. We’re in a disinflationary environment, although inflation is still pretty high, much higher than the Fed’s 2% target.

The S&P 500 has entered a new bull market with the major index now up 20% off its recent low. So now all this to set the stage for the next Fed meeting, which is taking place this Wednesday. And after approving 10 consecutive rate hikes, market experts are now mixed on whether they’ll make it 11 or this could very well be the first time in 18 months that the Fed chooses to hold steady on rates. So will the Fed signal a rate hike pause, or a skip, or might they actually increase the rate by another 25 bips?

Interest rate futures are implying roughly a 75% chance that there won’t be a rate hike after this meeting, breaking their current trend. We have a CPI report due out Tuesday, June 13th, which might impact the decision and artists in article in the wall street journal this week, Andy highlights the very difficult choice that the fed finds itself in. It says in part that Federal Reserve Chair Jerome Powell finds himself in a place no central banker wants to be, working to avert a credit crunch, which calls for looser monetary policy while fighting high inflation, which demands the opposite. You’re damned if you raise interest rates significantly more and put even more pressure on the banks, but you’re damned if you don’t, and inflation accelerates.

So Andy, I’m turning to you now. Imagine yourself on the Federal Open Market Committee. You have a vote. What do you do? What’s your vote for this week? Are you raising rates? Are you holding steady? Or dare you even cut rates?

Andy: Well, good question, Jimmy. I definitely wouldn’t cut them. And you know, between the rock and the hard place, which is harder, the rock is harder, right? The inflation, you know, but really inflation is the thing that the number one thing that everybody fears, you know, that it becomes sticky, that consumers begin to, you know, assume it will continue indefinitely. I would vote for a pause, not a hike. But definitely not a cut because I think we’re seeing disinflation, we’re seeing all sorts of leading indicators show that not necessarily that the inflation rate is coming back to 2%, right?

But that we’re definitely in this disinflationary environment and then now we have, you know, the student loans will be beginning to be repaid a couple months from now. That’s gonna suck a little bit more money out of the economy. That’ll tighten things in and of itself a little bit.

So I believe that the CPI will continue to print a little bit lower, whether the CPI is accurate to the true rate of inflation. That’s a different story, but I believe it will continue to, you know, nudge lower, maybe be a little bumpy, but I see that continuing its downward trend, which is what the fed wants to see. I know that their long-term target is technically 2%. I think they’d be very happy with 3%. And I don’t know that we’re really that far away from that. If you can just hold on and wait a little bit for the CPI to catch up to these other leading indicators.

Jimmy: Why not just raise the interest rates now though, if you’re gonna do a skip and then you hike them next month, why not just get it over with sooner rather than later? Don’t you wanna increase interest rates by another 25 bips this month and 25 at the next meeting and then maybe take the interest rates all the way up above six or so before the end of the year? I think that would really put pressure on inflation and really drive it down more significantly. And as you know, Andy, CPI, the CPI print, is that even really the real level of inflation? I tend to think that it might even be higher than what the CPI report is telling us. So why not drive interest rates up higher and finally get this thing under control.

Andy: Well, number one, you don’t want to accelerate or cause a banking crisis. And number two, I think you, you want to be seen as fighting inflation, but also trying to moderate the economy to the quote unquote soft landing, right? I think that’s what the fed is after is the Goldilocks of a soft landing. You know, it’s almost like when inflation gets as high as it did, you almost have to cause the recession to really beat inflation, right?

But it’s like we want to cause this very soft landing recession that just a tiny little pinch, a tiny little bite doesn’t hurt that bad. Then everybody breathes a sigh of relief, inflations back at three or three and a half or whatever it is. And we can start to go back.

Jimmy: So the economy is like someone who’s jumped out of an airplane, and I’m suggesting we don’t need to pull the parachute, just let him fall to the ground as fast as he possibly can and then it’ll all be over. And you’re suggesting, no, hang on a second, we’ve got this parachute, let’s pull it, let’s coast them down real nice and slow here. Is that what you’re saying, Andy? Are we like a parachuter?

Andy: Yeah, but maybe in this analogy, if you pull the parachute pin too early, a gust of wind pulls you back up into the airplane propeller. I don’t know. I can’t follow the metaphor exactly, but I guess I certainly wouldn’t start cutting now.

Jimmy, I don’t think your plan is the worst one ever because I think at the end of the day, that’s the number one priority is we need to tamp down inflation and we need to be seen as serious about fighting inflation. So whether they pause or whether they do a small rate hike, I think they’re still probably seen as being serious about fighting inflation, especially if that CPI report comes in lower and then maybe the following months comes in lower. I think that’s the number, but then I think that second priority, after that first priority is, well, we wanna have a soft landing. We don’t wanna cause a banking crisis. Although…

You know what, Jimmy, I have to say what banking crisis, right? And in the sense that if the fed is willing to backstop everything, it just essentially will make coal on all depositors everywhere, no matter what, we’ll just backstop everything. Doesn’t that almost rule out a true banking crisis?

Jimmy: Yeah, that’s a good point, Andy. Well, let me ask you about that then. I think it does kind of rule out a banking crisis. I think the Fed has signaled, we don’t want there to be a banking crisis. In fact, there cannot be any type of banking crisis whatsoever. Has that created, have they created a moral hazard by essentially backstopping everything in the banking industry, or at least signaling their intention to?

Andy: Have they created a moral hazard? Let me ask you, are you begging in question?

Jimmy: I may be begging a question.

Andy: Of course they’ve created a moral hazard. I mean, we’ve had nothing but moral hazards for the past what, 16 years really since the great financial crisis. Absolutely they’ve created a moral hazard, but I mean, this is America, right? This is how our banking policy seems to work. I don’t know what to tell you. It is what it is, you know? You can’t fight City Hall, you can’t fight the Fed.

If they want to backstop regional banks or banks that have poorly managed balance sheets, they’re going to do it. I don’t know if there’s anything you or I can do about it. And I, you know, honestly, I don’t even know if there’s anything. I think that the Fed, the Fed is a great whipping boy, right? Because everybody in Congress, Republican or Democrat can sort of blame them and sort of say, you know, they’re making all these wrong policy decisions, it’s hurting America, creating a moral hazard or whatever.

But secretly, I think that a lot of the representatives in Washington, DC are thankful that they don’t have to make those decisions, right? That they don’t have to actually vote to backstop this or that bank or whatever. Let the Fed do it. They’re unelected. They can be unpopular. Who cares anyway, right? Who cares that the Fed is unpopular? I think almost everybody in Washington probably need to backstop the banks and we cannot risk a banking crisis.

Jimmy: They are a incredibly great whipping boy. You’re absolutely right about that, Andy. Yeah, they are very, we’re quick to blame them for everything that goes wrong with the economy. But, and by the way, even after this meeting, whether they hold rates steady or they increase them, I don’t think they’re gonna decrease them, but I don’t know, who knows? Maybe there’s a chance they decrease them, probably less than 1% chance of decrease them. You never know.

No matter what they choose, something’s gonna go wrong, right, in the next month or two, and we can look back on the decision that they made in June and be like, Aha, they should have done the other thing. But I don’t think it really matters. Well, how did we even get ourselves into this mess in the first place, Andy, with inflation being as high as it is now, and as certainly as high as it was last year when it was almost touching double digits there? Was that the Fed’s fault? Or…

Andy: I was just going to say, Jimmy, it’s funny looking back that there’s this narrative that the situation that we’re in was caused by easy money and yes, low interest rate policy was a huge contributor, no doubt, but I’m also thinking student loan payments haven’t been happening for what, what is it? Is it three years or is it two now? I mean, it’s we’re way past the COVID emergency.

And we still have, you know, those, those still haven’t been unpaused. Think about all of the stimulus payments and just all of the, uh, all of the, the legislation that was passed, just pumping liquidity into the economy. You know, I remember helicopter Ben, but I mean, essentially that was 2020 and 2021, right, as we were dumping cash out of helicopters all across the United States and not just the Fed with their zero interest rate policy, the low interest rates, but just in general, legislatively with all sorts of programs. And it just, the fact that the student loan payments are still paused, like as of today, like I know they’re being unpaused, but it is patently absurd.

All of that is injecting liquidity into the economy as well. So like I said, you know, the Fed convenient whipping boy.

But a lot of this has been caused by legislation or by the executive branch making, you know, the executive rules and decisions at the executive level for policies that I frankly question and that I frankly have definitely caused this inflation, been a huge driver of it along with the low interest rates.

Jimmy: You’re talking about trillions of dollars of additional liquidity pumped into the market since, what, call it 2020, I guess with the CARES Act was one of those legislative pieces of legislation, I should say. I think there were I don’t know how many other pieces of legislation there have been over the past couple of years, including one that’s called the Inflation Reduction Act, which I find that title of that piece of legislation particularly humorous because that just continued to pump hundreds of billions of dollars more into the economy…

Andy: Are you going to vote against me? You don’t want to reduce inflation, right?

Jimmy: Yeah, exactly. And then yeah, the presidential decree, essentially, to eliminate student loan payments for how long has it been? I don’t even know, two or three years or so, because of the emergency that we had found ourselves in. We’re going to talk a little bit more about that later in the episode, but there’s over a trillion dollars of student loan balances out there. So how much additional liquidity did that pump into the economy over the past few years?

And yeah, the economy got overheated and that’s why we find ourselves fighting nearly 10% inflation over the past what has it been now year and a half or so. It’s come down a little bit, but we’ve got a long way to go to get it down there, which is kind of why I just say just let the parachuter crash into the ground, man. I don’t know what and as you point out, what banking crisis anyway.

Andy: No, I’m with you, Jimmy. Yeah. If, if, look, if I was, you know, in, in charge of things, probably better that I’m not, but if it’s like, look, you want a recession, you want to tamp down inflation, you want a recession, boom, here’s your recession. We move on, right? It’s like to tamp down inflation. We need liquidity to contract. There’s no free lunch. There’s going to be costs to sucking a ton of liquidity out of the economy.

I’m with you, get it over with. If you go back to academic theory, you know, all the theory behind economics, it’s like the sooner we can feel the pain, the sooner we can start efficiently allocating capital again, right?

Jimmy: So I’ve swayed you to my side. You say let’s increase interest rates by maybe even a half a point this month.

Andy: Well, it depends. It depends. Am I a careerist banker or am I doing what I think is actually the right thing to do? I was presuming that I was a careerist type banker.

Jimmy: So maybe you can signal that you’re taking inflation very seriously without crashing the parachuter into the ground by simply saying, hey, we’re going to skip the rate hike this month, but maybe somehow signal probably at the next meeting we might increase it by another quarter point. So we’re going to keep raising rates, but we’re slowing down the rate of the rate increases. Is that accurate, do you think? Do you think that’s a good way about going about it?

Andy: I think that’s right. Yeah, we’re serious inflation fighters, but we’re also geniuses who can Goldilocks this thing even though we totally failed to do that two years ago.

Jimmy: Yeah, it will. You know what’s interesting is it’s just incredible to me how little anybody really understands how all this stuff works, right? Like you’ve got all of these financial geniuses behind the Fed, they probably have their PhDs and all their other certifications. And quite frankly, the economy is just this enormous ship that nobody really knows how it all works.

And, you know, I do sympathize with them, by the way, I don’t mean to pick on them too much, because I do think they have an impossible task and they’re never gonna satisfy everybody. And it’s very difficult to steer the ship quickly. And I would say it’s difficult to steer it accurately without understeering it or oversteering it.

But yeah, Andy, it’s kind of the economy is really weird, isn’t it? Like the current environment we’re in right now, high rates, still high inflation. But we haven’t entered a recession yet. The stock market is way up over the past since the low of last year. What do you make of it? Like where’s the economy heading?

Andy: Boy, that’s a tough one. Well, I might, I might be where I I’ve been all the, you know, all year really since Q4 of last year, which is we might not really enter the significant recession that people want. We may not see stocks in commercial real estate go on sale and be discounted and you know, plummet like they did in 2008, 2009. Uh, this may be a little bit of a bull market that a lot of people kind of hate, like the world’s worst bull market.

And we might be technically in an economy that’s not a recession, but nevertheless, it’s an economy that a lot of people hate, especially people who are beginning to make student loan payments again after not having had to make them. So I think that maybe is where we’re heading, Jimmy, is this kind of, I hate to call it a Goldilocks economy because I don’t think it’s, maybe that kind of oversells what it is.

But it may be as much of a soft landing as we ever could have hoped for, given where the inflation numbers were. And it may just kind of bum everybody out, just kind of a mild little dip and a mild recovery.

Jimmy: Short term, we’re bummed out. Long term, hopefully we’re poised for more growth over time. Well, Andy, let’s move on to story number two here. I think we’ve talked enough about the Fed. I wish them luck. I’ll be watching with bated breath to see what they do on Wednesday.

Andy, you know this show is all about you and me exploring the world of wealth, money, and finance. And I think the second story we’re covering really hits all three of these topics. So let’s move along to it. Let’s talk accredited investors.

According to InvestmentNews.com, the House unanimously passed two bills to expand the accredited investor pool just a few days ago. The legislation mandates that the SEC think beyond current income and wealth thresholds to define the sophisticated investors who are qualified to buy private securities. So just to back up a minute and kind of explain to our listeners and viewers what an accredited investor is. Essentially, it’s anybody who is high net worth.

Technically, the definition, there are several definitions, but the most common one that folks pass in order to meet the criteria of being an accredited investor is you either have a net worth of at least $1 million, which does not include your primary residence, or you have income of at least $200,000 per year. If you file jointly with a spouse, then combined income of at least $300,000 per year.

There’s a few other ways to meet the definition of a credited investor. But so I’ll tell you what the two bills are that were passed over the last few days here by the house. They’re moving to the Senate now. Bill number one, the Fair Investment Opportunities for Professional Experts Act would deem as accredited investors people who have certain licenses or educational or professional backgrounds, for instance, brokers and investment advisors would now qualify as accredited investors under that legislation. The second bill is called the Accredited Investor Definition Review Act, and it would give the SEC discretion to determine what certifications, designations, or credentials investors must possess to be accredited and it also directs the SEC to review the accredited investor definition every five years.

By the way, Andy, all of this comes on the heels of another house bill, which was passed on May 31st, just a couple of weeks ago, the Equal Opportunity for All Investors Act. And under that bill, individuals could become certified as accredited investors without having met any certain income thresholds or certifications, but instead upon successfully completing an exam that is to be designed by the SEC and administered by FINRA. So this essentially is all about getting more people, more access to private investments, including private real estate, private credit, private equity and venture capital, topics that we cover at Wealth Channel all the time.

And what’s fascinating to me is Andy, it seems like this is supported in bipartisan fashion. Legislators on both sides of the aisle want to change the accredited investor criteria so that standards aren’t focused exclusively on wealth. Both of the bills that were passed last week, Andy, were passed by a voice vote in the House. So unanimous passage, essentially.

The issue is that securities that aren’t registered with the SEC, which are known as private placements, those private real estate funds, private credit, private equity and venture capital, they’re often risky, right? They’re opaque, they’re illiquid. They lack the disclosure requirements of public securities. Currently there are roughly 10 to 14 million households of accredited investors in the United States today, depends on whom you ask, I guess, but that equates to roughly 10% of all the households in this country qualify as accredited investors.

Andy, the accredited investor definition really hasn’t received a lot of change over the past. I think it went into effect maybe 40 years ago, and it’s only been slightly tweaked since then. How do you think that definition should be changed?

Andy: Well, you know, first of all, I don’t understand why it is not adjusted for inflation. You know, if you go by the original. Yeah, it’s just so it’s especially I guess funny ironic to me.

Jimmy: Yeah, it is not adjusted for inflation.

Andy: when legislation or legal definitions within the arena of finance do not account for inflation or like real spending power, real wealth. I mean, it’s just like, I’m like, does that represent a lack of understanding of real value of real wealth, real income, or is it?

Jimmy: Yeah, I wonder how many of our legislators would pass that proposed exam that the SEC might administer to determine who gets to be certified as an accredited investor.

Andy: Extend that out to how many current accredited investors, how many of those, whatever, you know, 10% of American households would pass that exam. Whatever the exam is, I know it doesn’t exist yet, but I would guess that not a very high percentage of them would pass it. You know, to me, the accredited investor mechanism has always been a little bit of an odd duck because it represents really a level of wealth.

To me, representing that level of wealth or income is sort of like saying, look, how intelligent you are, how sophisticated you are as an investor. Putting that aside, if you have a million in liquid assets, you can probably afford to lose $100,000 in a private placement. If you invest $100,000 in a private placement, you lose the whole thing. It’s all gone. Poof. Terrible investment, goes bankrupt, yada yada, and you get zero back.

Well, if you’re a millionaire, you can absorb that. You know, it’s not fun. Be a big hit. Whereas if you have $200,000 or $150,000 total in your portfolio and you invest a hundred thousand or even 50,000 into a private placement, and then they all goes poof, you know, that goes belly up and get zero back it’s, it’s your amount of wealth, it’s not necessarily your sophistication level, but it’s your amount of wealth we’re losing wealth.

When you are not, you know, an accredited investor is presumably much more harmful to you, to accumulating that nest egg that you need to retire. So now when they talk about adding a test, like a written test to prove that you’re sophisticated, I’m like, well, what is this? To me, that’s kind of apples and oranges, how sophisticated you are and how able you are to weather a loss because there’s people that are wealthy but pretty unsophisticated about investing that can weather a loss. And then there’s other people who are, you know, maybe a very sophisticated about investing, but, but still could not afford to weather the loss.

So then it, then it, you know, in political language, it becomes all about access. Right. That’s kind of the buzzword that you’re hearing, especially on the democratic side of the aisle. But, but even from both sides of the aisle talking about access.

It kind of gets to that crux of the question, are we going to be more paternalistic and quote unquote protect less wealthy investors or less sophisticated investors from investments that are illiquid? Or are we going to provide broader access? Because those things are really, I would think, diametrically opposed. No?

Jimmy: No, I think you’re absolutely right. I think the legislators want it both ways, kind of like how the Fed wants it both ways too, right? Like, hey, I want all of my constituents to be able to invest however they want. The federal government shouldn’t restrict them from investing in Johnny’s Pizzeria down the street, this startup, it’s gonna reinvent pizzas, right? But at the same time, should… should kind of also want the federal government to well, we should protect these guys over here from investing in Johnny’s pizzeria because Johnny’s a crook and his business is never going to get off the ground. He’s he’s robbing them blind, right? So that’s kind of the rock and the hard place that legislators and the SEC find themselves in right now, too.

It’s interesting, though, it does seem like the rock and the hard place the hard place is pretty soft right now. I would say Andy, I would say it’s really just a rock and the rock that they’re trying to avoid is not enough access because everybody’s talking about more access.

Democrats are talking about more access. The Republicans are talking about more access. And the SEC seems very open and willing to want to change the accredited investor definition as well. So I think what we’re gonna see is we’re gonna see an overcorrection, maybe it’s not an overcorrection, but I think at some point soon here, we are going to see a lot more access. And will we get more trouble with that? Will we see some investors get taken advantage of, not that they aren’t sophisticated enough, because I think we are gonna have guardrails around that still, but to your point, Andy, we’re gonna have investors who are deemed sophisticated, but lower net worth possibly, who aren’t able to absorb a total loss of a minimum investment of 50,000 or 100,000.

And I think we are gonna see more of that in the future, but at the end of the day, I think it’ll be collateral damage that we’re gonna have to live with, because I think I’m kind of the mindset that I want things more open as well. I want more opportunities for more people. And if you’re a sophisticated investor, and you may only have $100,000 liquid net worth, and you understand what private equity investments are, you understand what venture capital investments are, you understand what it means to be a limited partner in a privately held real estate fund, why not allow that individual to make an investment with his or her own money into some of those funds.

So I’m of the mindset where we need to be less paternalistic and more open. Andy, what about you? Do you want more regulation? Do you want, or do you want more openness?

Andy: Well, I’ll tell you this, I would tend to agree with you. I want it to be more open, more investor choice. You know, I’m noticing the theme. Okay. I have this article pulled up. I’m just going to read for a minute from this paragraph.

Yeah, go for it.

Andy: So this is the second one, Jimmy, that I think you referred to, not the one that passed two weeks ago or whatever, but the second one that recently passed, the Accredited Investor Definition Review Act. So it was approved by voice vote. The measure gives the SEC discretion to determine what certification, designations or credentials investors must possess to be accredited. It also directs the agency to review the accredited investor definition every five years. So you know what the theme is here, Jimmy is Congress trying to shift their responsibility onto someone else. Oh yeah. Where you just said the SEC is in favor of this. Yeah. I mean, they’re whatever they like power.

Andy: I’m sure they’d be happy to rule the entire universe and to define every nook and cranny of finance worldwide, right? Of course they would love to have that, you know, the purview to redefine this fundamental definition in our economic system or in finance rather, every five years. But why? Why do we have Congress for them to simply direct unelected officials to define something however they want?

And by the way, I have that same philosophy, regardless of your politics, if you’re left or right, and your favorite party is in charge or your favorite party is not in charge and the opposition party is, either way, isn’t it annoying when unelected federal bureaucrats get to make these sorts of decisions that in my opinion should be legislated? I gotta say that really grinds my gears.

Jimmy: No, it does seem like it’s been a trend. Yeah, it does seem like that’s been a trend of the federal government over the last several generations, maybe since the end of World War Two, maybe even before then, certainly since the end of the last century, I would say more and more power has been concentrated into the hands of unelected officials within our federal government. I think that’s a good point, Andy. Go on, didn’t mean to interrupt you there.

Andy: Well, because I mean, think about it. If, if the definition of accredited investor was going to be relitigated, re legislated, then, uh, if you have every American has a representative, has two senators, it can call their senators. They can call their house representative. And as a constituent, you know, you can say I’m a voter in your district. Here’s what I think should happen with this definition. Why?

At least they’re forced to take your phone calls, right? And I can tell you, you know, when, uh, these representatives get five or 10, 15 phone calls or letters from actual voters in their districts, it does make a difference. Now, if you’re a bureaucrat at the SEC, you don’t care. You don’t care what Andy from Michigan thinks, you don’t care what Jimmy…

Jimmy: No, Andy can’t even call you, right?

Andy: Exactly. Exactly. So I gotta say, if, if this is the way it needs to happen, no. No, we don’t need to be giving the SEC more and more power to do whatever they darn well please.

Jimmy: So I think you like overall more openness, if I’m not mistaken, but you want that power to lie in the hands of the House and the Senate, not necessarily in the SEC.

Andy: Bingo!

Jimmy: The SEC should enforce the rules, I guess, but they shouldn’t make the rules. The House and the Senate should be reviewing this stuff every five years potentially. But it’s interesting by the way, I wanna circle all the way back to one of the first points you made at the top of this segment before we move on to our third story. I wanna make sure we have time for our third story today.

But at the top of this segment, Andy, you said that it’s kind of stupid. I don’t know if that was the term you used, but I’ll paraphrase it. You said it’s kind of dumb, right? It’s kind of stupid that the accredited investor definition that’s based on wealth and income isn’t pegged to inflation. So I think it was like in the 80s, they decided it was $1 million liquid net worth and or $200,000 / $300,000 if filing jointly with a spouse, your annual income.

Well, we were just got through a segment where we talked about how we had nearly 10% inflation over the last year. So what, I mean, what would that put the levels of net worth and income up to for today if we were to adjust to inflation and does that make it even less so?

Andy: Well, Jimmy, that’s your broadened access right there. It’s like literally inflation. It’s just broadening access.

Jimmy: It’s built in, it’s built in, it’s built in broadened access. So maybe, maybe they were just stupid enough to land at a smart decision there with the, with not pegging it to inflation.

Andy: Yes. Maybe they were.

Jimmy: Good, well, let’s move on. Let’s move on to story number three now. This is a story that comes from CNN Money. The headline is, “Gen Z and Millennials are scrimping. Boomers? Living it up.”

So the lede, I love the lede from the story today. The first line in the story is, “Baby boomers are living it up, splurging on cruises and restaurants while younger Americans are struggling just to keep up.”

This all comes from Bank of America’s internal data, which is showing a significant gap in spending that has opened recently between older and younger generations. So overall, household spending year over year dropped 0.2% in May. But if you separate it by generation, interestingly, spending increased by 5.3% for the Traditionalist or Silent Generation or Greatest Generation, however you wanna call them. Those are the folks born between 1928 and 1945 roughly. They seem…

Andy: By the way, when did they get renamed? They’re the Greatest Generation, okay? That’s neither the-

Jimmy: I don’t know. The Traditionalist, that was the first time I saw that. It was this morning when I was looking at this article.

Andy: You beat, you, you, if your generation, if your generation beats the Nazis, you get to be called the Greatest Generation. Okay? CNN, you, how dare you! Yeah.

Jimmy: Let’s call them the Greatest Generation. The Greatest Generation, they’re spending increased by 5.3% year over year in May.

Baby Boomers spending increased 2.2%. So they’re up quite a bit also with their spending.

But for younger generations, spending fell by about 1.5%. Older Americans are ramping up spending as they benefit from a COLA adjustment, Andy, in their Social Security payments starting in January. Social Security recipients, they received a COLA, or a cost of living adjustment, of 8.7%. It was the largest increase since 1981.

Kind of tying back to our theme of inflation and the Fed in story number one. So that increase caused directly by that high inflation is boosting the average retirees monthly payments by an estimated average of $146. I think that’s per month, yeah, monthly.

So to explain the drop by younger Americans now… Bank of America’s report points to high housing costs. If you’re a first time home buyer, boy, good luck. And rental rates have spiked recently as well. And here we go, we’re talking student debt payments too. Those are starting to return or they’re about to return. So I think some Americans, some younger Americans are planning on that also.

Currently, Americans are sitting on $1.6 trillion of student loan debt, according to the New York Federal Reserve, and the vast majority of that is tied up in the hands of those younger generations. So Andy, where’s our generation’s bailout?

Andy: Jimmy, I gotta say this. I know that this is our new show and we gotta have these kind of headlines that pull people in but this is from CNN. I feel like this is just clickbait and I refuse, no, I’m going to talk about this but I refuse to play into the clickbait in the sense that headlines like this, in my opinion, their entire purpose is to like foment this intergenerational conflict.

You know, where these like little brat Gen Z or Millennials are saying, you know, hashtag OK Boomer or whatever. I’m not going to do that. So first of all, aren’t they baby boomers? Like when did it just get shortened to boomer? Because I think that’s a Pudge. To me, that just like sounds pejorative. So I’m going to call them baby boomers and I want to have a ton of baby boomer listeners on the show. And so I’m not going to play into this whole millennials get mad at baby boomers and everybody hates Gen Z.

I’m not going to do that. So that’s just, that’s first of all. But as far as what’s going, what’s going on, I mean, you are kind of right in the sense that there have been, you know, some of the, some bailouts affect certain generations, right? Like the student loan pause that helped obviously Gen Z.

It reminds me of the whole, you know, theory of home prices where, you know, it’s like, there’s this macro narrative and maybe it’s finally busted, but that it’s good to have really high house prices. Do you feel like, I don’t know, let me ask you, Jimmy, do you feel like you’ve had…

Jimmy: It’s great. It’s great. Hey, yeah, I own my own home. So it’s great to have high house prices. But if I’m, you know, 15 years younger, if I’m a younger generation, I’m going out there to buy my first home. I sure as heck don’t feel that way. Right? What about you, Andy? Do you like the higher home prices? Yeah.

Andy: Well, that’s exactly what I mean. So if, if housing prices are high and housing wealth is high and a lot of people are, you know, house wealthy, that also means that home affordability is low, you know, so to me, part of this is just, if we look at what’s happened over the past couple of years, this story is really just saying, Oh yeah. And now the, now the we’re paying the piper or whatever.

So all these COLA adjustments went out on Social Security recipients, and probably some other types of pensions too, had just monster COLA adjustments this year. Finally, Gen Z is having to now begin to pay soon alone, or really any generation, because that’s multi-generational. And then, but the…

Jimmy: But it mostly falls to Gen X and Gen Z, the student loan payments.

Andy: Uh, Millennials and Gen Z. Um, but the, but the high home prices, that’s the thing, honestly, that’s still, yeah, I’ll be honest. It just annoys me. It just, it just annoys me that home prices still are so high even. And it’s just, it’s just this situation where we’re in, where a lot of people have very low fixed rate mortgages.

They’re obviously hesitant if even if they might otherwise move, they’re obviously hesitant to sell their homes because then if they have to go purchase another home, you’re going to have a much higher mortgage rate. So it is what it is, but just as a citizen, you know, and I am a homeowner, but I can definitely empathize with younger millennials with Gen Z couples that are wanting to start their families, uh, and, you know, get into that starter home and it’s simply unaffordable right now. That being said, I don’t think the answer is to just pause their student loan payments indefinitely.

Jimmy: Yeah, homes are unaffordable because prices of homes have gone up so high. But also now, instead of looking at a 3% mortgage, you’re looking at 6% or higher mortgage rates. And it’s killing first time home buyers. If you own a home, you can you can trade up a little more easily. But yeah, it’s really tough. And I think I guess you don’t have our generations bailout. Andy, is that what you’re telling me?

Andy: Are… Jimmy, let me ask you, are you trying to buy into this whole what CNN here is doing by trying to get millennials mad at baby boomers? Because they got a…

Jimmy: I’m just, I’m just trying to get, I’m trying to get you mad specifically, Andy.

Andy: If I’m mad at anybody, it’s the media for just constantly, it’s like as if we don’t have enough conflict in our political discourse, Jimmy, in the political discourse and in the media. I feel like now there’s a new drum beat of now we also need intergenerational conflict constantly to be back in the head. Here’s the headline. “Baby boomers are living it up. Well, Gen Z is poor.” I mean, give me a break CNN. Give me a break!

Jimmy: Well, I’ll have to pull out another CNN article for you at some point down the road, Andy. I love the clickbait. It gets your blood boiling at least. So it was worth it. I consider it a great success. But with that, why don’t we move on? Let’s go to our favorite segment of the day. It’s time once again. That’s right. Our closing segment, the Bull Of The Week. Andy, what’s your Bull Of The Week this week?

Andy: My Bull Of The Week is Astrud Gilberto. You gotta look her up on Spotify. She passed away last Monday at the age of 83, God rest her soul. She’s an amazing artist. So Jimmy, I don’t know if you’re familiar with Astrid Gilberto, but she was the original voice.

Jimmy: I am not.

Andy: Okay, she was original voice on “The Girl from Ipanema.” Right, and so her vocals, her sound became synonymous with bossa nova. And really that song itself just catapulted that genre of music in the 1960s into popularity. And then it kind of became known as like elevator music and fell out of favor, maybe came back a little. But her whole, I mean, she recorded for like 40 years and just has an absolutely amazing voice. Tons of music on Spotify.

So I’m encouraging everyone get on Spotify, check out her music if you hadn’t, because there’s a lot of, even if you’re not into “The Girl from Ipanema” or bassa nova, she’s got a huge catalog and like now is just a great time with her recently passing. I think her music is gonna stand the test of time. It is so relaxing. Jimmy, if you’re just, if your wife is like, hey, you have to cook dinner tonight or maybe you’re cooking dinner together, sometimes that’s fun. And you just wanna like de-stress, you know, maybe pour a glass of wine, put on some Astrud Gilberto, your blood pressure will just go down like 10 points, just hearing that smooth sound. So that’s my bowl of the week, check it out.

Jimmy: I love it. Well, I think her music has already withstood the test of time. “The Girl from Ipanema.” That’s a, that’s a pretty old song. And it’s a good one. Who doesn’t like bossa nova and “The Girl from Ipanema”? So we’ll, uh, we’ll get that going in, in my household tonight during dinner for sure. Thanks for the tip there, Andy.

My Bull Of The Week is TCU Horned Frogs baseball. Now caveat, I didn’t go to TCU. I really care about them too much, but I live less than a mile from the stadium here in Fort Worth. And I don’t know, I might be what you would refer to as a fair weather or bandwagon Frogs fan. The Frogs are 19-2 since May 1st. And over the weekend, they swept the Indiana State Sycamores to punch their ticket to the College World Series. So if I didn’t say a “Go Frogs” on the podcast here today, my neighbors would get mad at me. So Go Frogs! We’re all rooting for the Horned Frogs, the hometown team here in Fort Worth, Texas. That’s my Bull Of The Week, Andy.

We’re out of time, but let’s do this again next week, right?

Andy: That sounds good and yeah, we’re making the podcast public this week. We kind of soft launched it last week, but this week we want to go big. So if you listen to this show, if you’re watching it, if you enjoy this at all, I’m going to ask you click that subscribe button. Uh, and we’re going to be coming back at you every single Tuesday. Isn’t that right, Jimmy?

Jimmy: That’s right, Andy. And yeah, this is the official launch now of our podcast. We’re two episodes in. So if you’ve enjoyed today’s episode, or maybe you heard our one from last week, go ahead and subscribe. And you know, we’d really appreciate is if you could rate and review us wherever you’re listening to us, whether you’re on Apple, iTunes, or Spotify or elsewhere, maybe you’re on YouTube, give us a rate, give us a review, let us know what you think.

Anyways, thanks for listening to today’s episode of The WealthChannel Podcast. This is the show where we explore the world of wealth, money and finance. And as a reminder, you can find us online at wealthchannel.com/podcast. The WealthChannel Podcast is available on YouTube, Apple, Spotify and all other podcast listening platforms. Just hit that subscribe button, so you get our new episodes every Tuesday morning. And we’ll see you next week.

Andy Hagans
Andy Hagans

Andy is co-founder and co-CEO at WealthChannel.