Why Fed cuts won't save you

Foreign. Welcome to Trader Talk, where we dish out the latest Wall street buzz to keep your portfolio sizzling. I'm Kenny Polkari coming to you live from the Yahoo. Finance headquarters here in the heart of New York City, a global hub where deals are made, fortunes are built, and the next market move is always just around the corner. Coming up, I'll share my big take on catching a falling knife. I'll sit down with my good friend Mitch Rachel, and then I'm going to share my Chicken Provencal recipe. Now, let's just jump into the big take. Every investor has felt the pull. A stock plunges 20, 30, even 50%, and the instinct kicks in. It's cheap. This is my chance to grab a bargain. That's what Wall street calls catching a falling knife. And just like it sounds it, it can cut you badly if you're wrong. The temptation comes from the idea that markets overshoot, that panic selling creates opportunity. And sometimes it's true. But here's the rub. A stock isn't a bargain just because it's cheaper than yesterday. Stocks fall for reasons. Earnings collapse, broken business models, regulatory hits, or shifts in investor sentiment that can last months or even years. Jumping in without understanding the why is is a recipe for disaster. Now, just look at General electric in the 2000s. Once the bluest of the blue chips, its stock plunged after years of overextension and mismanagement. Many investors thought they were buying the dip only to watch the stock sink lower and lower and lower. The knife never stopped falling. Contrast that with Apple in 2009, when panic over over the financial crisis and doubts about Steve Jobe's health knocked the stock down more than 50%. But the fundamentals, the cash flow, the product pipeline, loyal customer base were strong. Patient buyers who waited for signs of stability walked away with generational gains. That's the difference. Savvy investors don't try to grab the blade midair. They wait until it hits the ground. It stops bouncing and shows signs of support. Whether that's a reset in earnings, a credible turnaround plan, or technical stability on the chart, confirmation matters more than adrenaline. The bottom line is that catching a falling knife is less about bravery and more about patience. Bargains are real, but only if the company can recover. Otherwise, what looks like a discount today can. Can turn into dead money tomorrow. The market rewards discipline, not reflexes. Now I'd like to introduce my next guest, Mish Rishal, a veteran of more than 40 years in the real estate and capital markets business. Mitch is the CEO of M2 Communities, a mobile home park owner, operator and also leads Macro Trends Advisors where he consults on strategy for clients worldwide. He's a familiar voice in the business media and you'll see him on Fox Business as well as a range of other programming. He's known for his breaking down economic, market and political trends with clarity and insight. Please, ladies and gentlemen, welcome Mitch Rochelle. Hey Mitch, how are you?

Kenny, great to see you.

It's always a pleasure to see you. How have you been? You good summer?

Good summer. Just got back from Yellowstone national park and for your audience, if you've never been, literally go do it. It is stunning out one of the most amazing. It's one of the most amazing experiences I've had traveling in my 64 years on the planet.

Good for you. All right, listen, let's get right into this so that, cause we had a lot to talk about about Fed policy and markets. Certainly on Friday you were in Montana, but there was a whole lot going on down out in Jackson Hole. Actually right near you. Right out in Jackson Hole. Not far away. Not far away there was all this commotion. Central bank is from around the world and everybody focused on what Jay Powell was gonna say at 10 o' clock in the morning. And in retrospect, I don't think he said anything that the market wasn't already prepared for. Am I correct?

Yeah, it was a bit of a nothing burger. And the thing about the Fed is, and Powell in particular, he is very data dependent. Has said he's very data dependent. However, he's not making any decisions because he hasn't gotten the data yet. That confirms or refuses a hypothesis that is floating around out there that tariffs are inflationary. I'll tell you what is inflationary, AI. And it was interesting because that summit was about dealing with the new workforce. Right. And how AI is going to disrupt the workforce. Since that was the topic, Powell could have talked about how home energy prices are the biggest driver of inflation right now. And one of the biggest reasons why home energy prices are up, it's not because liquid natural gas is up which powers most of our power plants in this planet or in the United States. That is, it's because AI is sucking up the demand for power. And I think that that's like let's talk about that and not talk about whether or not it's going to cost you more when you go to Walmart next.

Well, you know, it's very interesting that you say that because when you talk about it, but look at the utility sector, which has typically been the most boring sector out of the 11 sectors out there. And it is by far one of the best performers this year. I think it's up close to 14% as of, as of Friday, maybe even today. I'm not sure what it's doing today. Probably pulling back a little bit. But it continues to be one of the outperformers and even outperforming the broader market.

Right. No 100%. It's boring. It's an income producer. It should be a staple and you know, in your portfolio regardless of your age. And it, it's over overlooked because it's, you know, it's L. DA and but I think that that's the real story. We, we have a labor market that's going to be disrupted by AI and that is something the Fed should care about. But the Fed's uber focused on inflation as well. They should be that they have two mandates and that's one of them. But they're just waiting for this aha moment. I'll give you one last Sunday, not this, not yesterday, but a week before. I go to the mall in Westchester county where I have a home. Kenny. Year old stomping grounds.

Right.

And I go to three stores with my son, Tommy Bahama, Lululemon and Fabletics. And Fabletics charged a 20% tariff charge right there on the register. There was no sign about it. There was no nothing about it. And there are two competitors in the mall. Okay. You know, for similar, you know, that kind of leisure wear. Right. Didn't do it. So you're starting to see it creep into, you know, the consumer. Walmart says they're eating it. Amazon retailers, you know, some of the independent sellers say we're passing it along to our clients, we'll see. But you know the Fed, you can't wait and wait forever for tariffs to have an impact on consumer prices and miss the glaring opportunity to lower interest rates so businesses can have access to credit so that they can create jobs. It's almost like they're creating a new problem, worrying about the first one.

Right. All right, so hold that thought for a minute because I want to come back to that. But I do want to say one thing and I think it's clear what you said that the latest CPI was really kind of benign. It was up a tenth of a percent. There wasn't a lot of movement at the CPI level yet when the PPI came out and it was significantly higher than the expectation, suggesting that producers at the moment are eating it, not unsure of where this is going and whether or not they should pass it on. I think that's Jay Powell's concern about if and when they'll pass on and how much of that they will pass on to determine kind of where inflation may or may not be going. Do you agree?

Yeah. No. The one report from last month was producer prices. That got everybody to sit up at attention because every other report looked like, wow, inflation's not a big deal. And that included pce, which is the Fed's preferred inflation measure. But the one that should have gotten everybody's attention is the labor market. And we're going to get another one, you know, in a week and a half.

Right.

And I think that's going to be one that's going to matter. And if the labor market is starting to falter, then that should be the wake up call to the Fed. I don't care what producer prices are doing. Producers can't afford the cost of their inputs and it's not just because of tariffs. Right. And they're shedding workers as a result. That's not a good sign. And that's when you need to lower rates. But I don't think this story is simply about lowering rates. I think this story is about the availability of credit, not just the cost of it. And no one seems to focus on it besides me when I go on all the same programs you go on. But like, the fact of the matter is we should, because if you're borrowing money like we are for one of our businesses, it is an absolute pain in the butt to borrow money. And that's the thing that's slowing down economic growth, not the cost of it. You know, the cost of it you could deal with.

All right, so then let's talk about that point. Let's talk about if the Fed cuts rates by 25 basis points, which in the big scheme of things isn't a huge cut at all. Is that significant and how will that kind of work its way through the system for a small business?

I don't think 20. Yeah, I don't think 25 basis points does a thing. I think it's got to be 75 basis points to a full point to do something that isn't already expected.

Right.

And then at the same time, because they have regulatory authority over the banking system, lay off the banks a little bit and give them encouragement to lend money to small businesses. Small businesses, when you think about sort of savings banks and local banks, those are the ones who, their business model is, take in deposits and repatriate that money in the form of loans to Businesses in your community that create jobs. And it's a great cycle, okay? Since the failure of Silicon Valley and all of these others, all of a sudden those banks were in dire need of deposits and their whole system's upside down. So if rates go down and they don't have to pay as much money for short term borrowing like certificates of deposit that they issue, they can have a positive spread between the money that they lend out and the money that they borrow at, then that helps, but also create some incentives in the system from a regulatory perspective to, to encourage those banks to lend. And that's where jobs will flow. Because small businesses create four to five times more jobs than big businesses too.

Right?

So our problem is whether or not the guy who owns the hardware store can afford to buy goods from China. No, it's whether or not he can afford to employ that next person for whatever the next season is where he hires seasonal workers.

All right, so let me ask you this next question. Where do you then see how many rate cuts do you think we get this year? And I was in the camp, I was in the camp prior to the latest pie that we were going to get 50 in September and then 222 lots of 25 in November and October, December, for a total of 100 basis points. I'm no longer in that camp. I think we're lucky if we get 50.

You're probably right. We're lucky if we get 50 because he's going to wave his fat finger at the president saying, you created this tariff mess. So, like, you're going to have to figure out a way to get out of it. What I would do if I was the Fed, I would cut 75 basis points now, maybe wait a month and then do another 50. Do something that our economy is slowing down. I mean, there is no question about it. Our economy is slowing down. And my metrics that I use for an economy slowing down is the number of kids that I see in my backyard in New York that are friends of my kids who graduated college three years ago who, who are still having a hard time finding a job. Not the ones who graduated three years ago, but some of their, you know, younger brothers and younger sisters, whatever, that graduated last, just recently or last year. They're still struggling to find white collar jobs. When the white collar job market slows down, that is a telltale sign that our economy is slowing down. And there could be a 12 to 18 month lag before you see it in, you know, GDP number and the, you know, gross domestic product number. But I'm telling you, we're seeing it. And I know the president is concerned about the efficacy of data that comes from the Bureau of Labor Statistics, and I don't blame him for that. But that job report really was probably real and we're not creating jobs. And you know what? We relied for four years on the government creating jobs and government fiscal policy of just pumping money in the system, creating jobs. We're not doing that anymore. So we need to rely on the private sector to create jobs. And the only way the private sector creates jobs is with fiscal policy that that encourages it and monetary policy that encourages it. And cutting rates, 50 basis points, as you predict, between now and the end of the year. That's a death sentence for the private sector.

Okay, so hold on one second. Just hold that thought. We're going to come right back after this break. All right, so Mitch, let's talk about that. You say it's a debt sector for the, for the what you say for the small business, a 50 basis point.

I think it's a. Yeah. Yeah. A 50 only.

Yeah.

Is a death sentence for the private sector.

Yes. So you think we get. We need 75 this year at least.

We need, I think we need 75 for start to prime the pump.

Right.

And then maybe wait a month and see if, you know, inflation, you know, starts happening because of all of this, you know, loose money that's floating around and then do it.

You don't think that's what Jay Powell said on Friday at all?

No, he did not say that. No, he did not say that. There's a bid ask spread between what the market wants and what those clowns are willing to do.

Well, I think that's why you saw the market. I thought it was a huge overreaction on Friday when The market surged by 2% on the Dow and 1.8% in the S&P and 3.7% in the splits. I understand why the SMIDs rallied hard because to your point, lower borrower accounts are going to help small and mid cap companies 100%.

Right.

But I don't think Jay Powell made it clear that we're going to get any more than 25, nor do I think he made it clear that we're going to get much more this year. Now let me ask, you said he's.

Yeah, he said we're still going to wait and see what impact if any tariffs have on consumer prices.

Right.

Okay. Like you just wait. Just like wait until it's too late.

So let me ask a question about Housing.

I use the Trump term.

Yeah. Question about housing. Because clearly housing has been top of mind for this industry, for the country, for, you know, everybody, for buyers, even for sellers. And so suddenly what I'm seeing, and I'm wondering if you're seeing the same thing. I am starting to see that there are more houses on the market for sale. What I'm not seeing yet is a lot of discounting yet. But I think what has to happen is that prices have to start to adjust a little bit and I think they have to adjust lower. I think sellers have to recognize that it is a buyer's market, not a seller's market. And if they really want to get something done, they're going to have to retreat on prices. Do you think?

Yeah. So let's break the housing market into two different columns. One is existing homes. I'm going to come back to that one. And the other is new homes. New homes are created by either the national home builders or local entrepreneurial builders who build one spec house and sell it and then take the profit and build another spec house. Okay. There's a lot of that in the market. But the big numbers are coming from the national home builders and the regional home builders. Right. The national home builders and regional home builders are trying to keep prices relatively the same name and all they're doing is making a smaller house. The problem with those guys is they've been building houses the same way forever and they have not come up with new technology to build houses more efficiently. Let's go to the other side. Okay. Which is existing homes, which is the lion's share. It's 80% of the houses sold in America or houses that already exist. We're not seeing prices fall because the asking prices on those homes are so high.

Right.

People who are people who are selling homes and the realtors who list them are delusional about what they think they can clear the market at.

Exactly.

What they're seeing is when you see like the median house is now up to 430,000.

Right.

Person selling that median house doesn't list it for 430, listed for 460. It's not going to clear the market at 460. You want to sell a house, if you're listening to me, sell it at what the one next door sold for or sell it for what its true market clearing price is going to be. And guess what, you'll have multiple buyers chasing you and you'll probably get a little bit more. Ask 15% too high, you're never going to Sell the house.

Well, exactly my point. And that's, and that's what I see, actually rates where they are, mortgage rates at, you know, six and three orders, I think that's doing exactly that. It's going to have to cause the seller to recognize that the price they have in their head is not the price it's going to clear at. And, and they need to have a realistic conversation with the real estate agent as well as, look, do your own research. Look around, see what's happening in the neighborhood.

Yeah, And I don't listen. I say it all the time on Stuart Varney's show. When I make comments like this, I get hate mail. So maybe I'll get them from your show too, Kenny. But I don't think it's the buyer's fault necessarily. I think it's the Realtor's fault. If a realtor says, I am not taking the listing at that number. Yes, you'll keep shopping and find a realtor who will. Okay, but if more Realtors would say, I'm not going to list it for 490.

Right.

I'm not going to list it for 460, I'm going to list it for 445. Okay. And let's see if we can get that price up with multiple buyers. That, that's what they need to do.

Right.

But here's the thing. If, if mortgage rates do come down, and by the way, that requires the treasury curve to drop because mortgages are really priced, you know, they're interpolated at about seven years on the treasury curve.

Right.

Mortgage rates drop, let's say 50 basis points because of the Fed or because of the capital markets, whatever day, that's just going to bring more demand into the market.

Right.

That's actually going to put upward pressure on prices. 100%. They see that there's upward pressure on prices, they're going to raise asking prices again. It's 100% like a hellscape.

Listen to your point. My brother just bought a house in Stuart, Florida. Now, what happened was the house was very fairly priced. And to your point, he bought it, he took the offering, and before they signed the papers, two more people came in and bid the price of the house up. So he ended up paying up 20,000 over his original bid, which was the asking price of the house, because to your point, they priced it. Right. And they basically created a bidding war. Right. And so it took him an extra week to buy it, but he ended up paying 20 grand more. But there were other bids. Right? Right. Beneath them. He wanted the house, so he bought it. But to your point, I think that's what has to happen.

The housing market writ large is typically an efficient market. The only thing inefficient about it is the stupidity of sellers that, you know, are asking too much.

Right.

You know, I've been holding a pen in my hand. I should have let go just so I could talk with my hands more like you. I'm sorry.

Look, let's talk about global capital flows just for a minute and whether you think foreign investment is signaling anything about what's happening in the US Markets. Are they bullish on the US Are they not? Where do you come down on that?

I think foreign investment had been not bullish, but on the sidelines because there's a lot of, for lack of a better term, Trump hatred around the globe, in mainstream media around the globe. So I think foreign businesses sort of didn't know what this administration would be like. I personally think we have a Treasury Secretary who knows what his primary job is, which is being the number one bond salesman in the United States. There's no mystery that treasury secretaries all seem to come from Goldman Sachs and they all seem to know how to handle big relationships. And one of the things that nobody's talking about it, so maybe you kind of heard it here first, is when Besant is in the meeting with that foreign country to talk about tariffs and trade and what we're going to do, he's looking for a commitment on an investment in the United States because that's what the President wants to put on the scoreboard. But part of that commitment is a commitment that the central bank of that country or that region, in the case of the EU, is going to buy X billions of dollars worth of Treasuries over Y number of years. Right. If we can create a bankable demand for Treasuries and central banks aren't, you know, thinking, oh, maybe we should leave some room and buy more of this? No. At the end of the day, every central bank controls the value of their own currency by having reserves in the United States. The United States is the reserve currency on the planet. But there's just been like this retreat. If foreign central banks are investing in the United States and foreign countries and foreign companies are investing in the United States, that is a job creation engine. The one thing we don't know is when there's this handshake and this signing ceremony and X, Y and Z says they're going to invest $500 billion in the US over this period of time. I don't even know what that means and what that looks like. So the devil's in the details. But you can shake all of that corporate investment aside, if that country commits to buying $500 billion worth of treasuries or that country agrees that when Treasuries they hold mature that they will buy the same maturity or a shorter maturity or whatever it is, that's what we need to keep our rates down and keep our global capital flow stable.

So let me ask you one last question before I let you go. If the Fed cuts rates this year by 50 and next year by another 50, say by the spring of next year, we're down 100 basis points. What do you really think happens to the ten year Treasury? You think it comes down, you think it goes up the yield?

No, I think it comes down. I think the 10 year is probably 50 basis points higher than what it should be. But if you look at it on a long run basis, like you and I are old enough, I think I got you by a few months. But you and I are about the same age. Okay, 64. You look long enough. Oh, me too. So maybe we'll have to do, you know, figure it out. Maybe you're actually a little older. 61, July of 61. You're the old. You're the old wise man. That's why you look like Santa Claus.

You got more hair than I do.

Fair enough, you got it. But you got it down here. But in any event, I think if you look at it on a long term basis, there should be way more steepness in the treasury curve than there is and there should be a big difference between tens and thirties. And I could see the 30 nudging up a little bit because that is locking in money for a really long period of time. So maybe people want more of a premium for that. But I think the 10 year should drop. The 10 year is the refinanceable bond. The 30 year isn't. And there's one thing that irks me. And Steve Mnuchin said this to me when I moderated a panel with him on it. He said the biggest mistake that he think that thought he made when he was Treasury Secretary is not pushing for creating a 50 year and terming out like take the 30s at the time and refinance them for 50, that would have saved us probably $500 billion a year in debt service payments.

Listen, if Janet Yellen had refinanced at 30 year rates when they were 1.8% for the three years she could have done that, this country would have been in a very different position. But she did not. And in any event. Listen, Mitch, it has been a pleasure to have you on this show today. Listen, we're going. We're gonna go five days a week, 2:30 to 3, pretty soon. I wanna have you come back again.

I'd love to. And I can't wait to try your Chicken Provenzal tonight.

That's coming right up after this. Thanks so much for joining me.

You bet. All right, Ken, great to see you.

Okay, so now it's time for the food. I'm giving you Chicken Provencal today, and it has its roots in Provence. Rustic, sun drenched kitchens. This region is southeastern France, is famous for its lavender fields, olive groves and vineyards. Provencal cooking is all about simple, hearty dishes that celebrate the local ingredients. Olive oil, garlic, onions, tomatoes, peppers, olives, and fresh herbs like thyme, rosemary and basil, collectively known as herbes de Provence. The dish, often made with chicken braised in olive oil, white wine, tomatoes and plenty of garlic, emerged as a regional variation of the French tradition of slow cooking meats with wine and vegetables. By the late 19th and early 20th centuries, as French regional cooking became more codified, Chicken Provencal took its place as a quintessential example of Cuisine du Soleil cooking of the sun. It was flavorable, colorful and Mediterranean at its heart. It's also a dish that reflects the crosscurrents of Mediterranean history. Olives and olive oil brought by the Greeks, tomatoes introduced after the discovery of the New World, and aromatic herbs cultivated since Roman times. Today, Chicken Provencal is celebrated not just as a classic French comfort dish, but as a representation of the Provencal lifestyle, vibrant, unhurried, and rooted in the land. You can scan the QR code on the screen for the full recipe and you can thank me later. That's a wrap for today's Trader Talk, but the conversation continues. Subscribe on Apple Podcasts, Spotify, Amazon Music, or wherever you get your podcasts. You got questions or topics you want covered? Email us@tradertalkahooinc.com because I'm always listening. Until next time. Stay sharp, stay disciplined, and stay in touch. Take good care.

This content was not intended to be financial advice and should not be used as a substitute for professional financial services.