Episode Transcript
[00:00:00] Hello and welcome everybody to the Annuity Straight Talk podcast, episode number 196. My name is Brian Anderson, founder and creator of AnnuityStraightTalk.com wrote everything on the website here to help you with some very difficult decisions regarding retirement planning. With sound fundamental numbers and analysis, whether an annuity is right for you remains to be seen. Some people, even if it does make the most sense, don't choose them. That's fine with me so long as you have the correct amount of information and avoid the sales pitch. So real quick, coming up on episode 200. Now I don't know what to talk about. I want it to be really good and I'm sure I'll come up with something, but I need your help. So if you want to, if you are able to send me an email, get a hold of me, tell me the topic. It's not just come up with a topic, it's if you are the one that gives me the topic that I need to pick or that I pick. I'm going to send you a $250 gift card to your favorite retailer or restaurant. This one right here I think would have been a good for episode 200, but I got to do it now. The Fed just acted, so jump on that if you want to let me know what you think. If I choose your topic, then you're going to get that gift from me. Thank you very much. Ahead of time. So talking about something that is foremost in a lot of people's minds because I hear it all the time.
[00:01:13] Please like subscribe or comment on any of your favorite podcast platforms or on YouTube to schedule a call if you're watching the video, to look at the top right corner of any page on annuitiestraight.com schedule a call.
[00:01:25] Today I'm going to talk about the Fed actions last week and I want everybody to remember, do not freak out about the Fed rates. Now. I understand everybody's concern. You hear it in the media a lot. But just calm down and understand what it means. For the last couple weeks I told the stories about advisors that try to rush people through the process for one reason or another. I call those types of professionals salesmen because advice puts the client first while sales look for this quick score for whatever justification there is. Get this while it's hot.
[00:01:56] Don't worry about the details. You can trust me, all that stuff.
[00:02:00] There are a lot of different sales strategies that are out there to try to get you to take the bait. I expose as many as possible so you can all see an easier path to a solid retirement takes some time, but it's worth it.
[00:02:12] Interest rates have been a hot topic for the past few years. Increases since 2022 created a lot of really good long term planning opportunities. And to be completely honest, it has been fun to deliver deals that make a ton of sense that people are really happy with. Rates really topped out in late 22, which is, it's funny when you see these timelines add up. The Fed didn't get done raising rates until the end of 2024, but as far as annuity rates, we saw the Highest end of 22 and into early 23. A few years ago people were saying, oh, the rates are just going to keep going higher and inflation's off the charts. I don't believe the reported numbers in inflation and I'm not talking about gas prices, I'm just talking about, hey, I just got a new set of tires for the first time in two years and it was for a set of four on a truck was about 1152 years ago. Now I paid 17 something for it. So we're talking a 50% increase over two years. That's higher than the 7 or 8% inflation that they talked about. Right, but we didn't get higher rates. Whenever he's like, oh, they think they're going forward and so what I, a lot of people are just relying, hey, the media is saying inflation or rates or this or that, oh, I better jump on that. But you got to calm down and look at the fundamentals. They didn't go any higher than that because fundamentals didn't suggest that it was going to happen.
[00:03:26] It's perfectly fine if you judge things emotionally like most people do, but understand and it's okay. The market is a very tricky thing to interpret and it's never clear until we're looking. In hindsight, oh, we can tell that's John Ballmer. Markets go up, markets go down. Then we see from a famous analyst that he talks about a lot.
[00:03:45] So the Fed actions have been a source of speculation about where interest rates are going to go with some type of fear surrounding the decision making process. For a lot of people, quote, interesting, if the Fed cuts rates, then we won't have good annuity deals. We had better act fast. Nah, don't worry about it so much. Every time I say this it seems like I don't have to say it again, but I say it again and again. So I'm going to have to say it one more time and you're probably going to have to Hear it again because I have to keep talking about it. This isn't the last time. The Federal Reserve only sets the overnight lending rate to banks and that has no effect on the market rates available for safe assets that form the bedrock of a retirement plan.
[00:04:21] Talking bonds, annuities, fixed income, dividends. Sure, the economic changes from Fed actions can affect rates eventually, but it doesn't happen as fast as people think. In short, do not get in a hurry just because there's a little media frenzy over the Fed movements. Rates have settled just a little bit in the primary market leading up to this. Most things that are considered to be news that will affect the markets are priced in well ahead of them actually happening. You would have seen a big negative market movement if the Fed didn't lower lower rates because everybody fully expected them to do it. There is no simple explanation available for the changes in the rates you care about.
[00:05:00] So we've got inflation, unemployment, business cycles, international conflict, trade wars, policy changes, even simple things like companies trying to be competitive, finding a little bit extra margin to boost themselves to the top of the competitive heap. All those little things happen. A lot of them can influence the rates you get when you lend money. So don't forget you're buying products for retirement or investing money. You are a lender to someone. One of the simple, simplest ways to explain how rate changes can come from the most basic lesson in economics, supply and demand. When there's less demand for safe assets, rates rise to make it more enticing. When everyone wants to flood towards safe money, then the rates fall because there's so much money chasing it. Think back to 2000, when COVID lockdown started. Business came to a halt. Expectations were for a pullback in the market. Nobody wanted risk. Everybody bailed on it, started dumping stocks. Money flowed heavily into Treasuries and cash. Interest rates cratered because everybody wanted it. So we don't have to pay them that much to be here if that's what everybody wants to do. It's like a resort in the off season, you go to the tropics. In the rainy season, the hotels are a quarter of the price. Back to that cheap money led to business expansion, another real estate bubble. But it took a while because the economy didn't fully open up for about a year. When things started to open up, the economy ripped wide open. We got serious inflation out of it.
[00:06:17] So that was why rates came up again, because everybody was risk on. The Fed didn't even start raising rates until the middle of 2022.
[00:06:26] And it took more than a year for them to reach the highest point of that time period, of this current time period. I would say current. Now, that's in terms of what the Fed was doing to raise rates, not what was available on the market. The two things did not correlate before rates were increased by the Fed. In 2022, we already had solid annuity rates because there was less demand for safe assets. Annuity rates popped up probably three to four months before the Fed did anything. Risk was on, and everybody was addicted to larger returns and speculative assets. So money was coming out of safety and into risk, and those rates came up a little bit. Very simple view, but there's a lot more fundamentals to that than just, oh, I heard this on cnbc, right. It's my amateur view. Now it's three classes shy of getting a double major in economics in college. So I'm not going to say I'm a pro, but I like the subject and it's pretty interesting to me. It's got a lot more juice behind it than what you're hearing on financial shows and in the papers and all that stuff. Annuity rates have not correlated with the federal funds rate at all. And in many cases, we're well ahead of Fed changes. We actually had lower annuity rates in early 2024. I remember we had really hot stuff at the end of 23 income products. Long term, the Fed was still increasing the overnight lending rate, but everything pulled back early in 2024. And then all of a sudden, it came back from there. So we've got better products than we did at several times in the past three years. Even now, if you have annuity rates coming down while the Fed is raising rates, how do you explain that? There's just a lot to it.
[00:07:53] So don't get excited about one little adjustment here. They're planning on a couple more drops in the future. That is already priced in. It is not just a single variable. Lower Fed rates are meant to spur economic growth. The Reserve chairman is supposed to make decisions free of political influence. Unfortunately, that's not the case. Politics seem to be such a big part of it. I do not know what to believe, and you should be skeptical as well. Now analysts are saying, oh, inflation's not really a problem, but the economy hasn't been as good as we thought. Unemployment numbers, historical numbers in the past last year were adjusted down. Apparently they haven't been accurate. So are they telling us the truth then, are they telling us the truth now? Or is there political motivation to change the reporting so that there's motivation by the Fed to do something that's going to make it cheaper for banks to lend money? I don't know. I vote neither because I'm a cynical person. There's factors involved that will never be made public. So we just got to roll with it.
[00:08:48] If the lower rates will help improve an economy that wasn't as good as reported, then it should normalize the overall business cycle.
[00:08:55] If the Fed goes overboard to lower rates, then we'll get more inflation and annuity rates will still be strong, maybe even stronger than now.
[00:09:02] If they do things right, then we'll have a health economy.
[00:09:05] You need to accept the fact that we are at a historically stable level of interest rates. Yes, mortgages should be over 6%. If things work out like they should and the Fed manages it properly and everything goes back to normal. What is normal? Define that. I guess a whole different topic.
[00:09:21] We should historically end up with about what we have now. This is where we should be. If the economy is really in trouble, expect rates to fall.
[00:09:28] It's going to take a crash of some sort and a correction. But if the Fed goes too far, then rates will rise. So two ends of it, they could drop. They could rise. I think we're going to see about what we've got now with subtle changes for different reasons over time. Hey, right now it's not quite as good now. Hey, things just got better since the decision to cut rates last week. Treasuries have actually risen a bit, but they had already been falling before that. I think that's kind of happens to be because the market got what it expected.
[00:09:57] Then the market rallied a little bit.
[00:09:59] Bonds initially dropped by a small fraction. There's otherwise no material change. The market is always going to be trying to figure out what's going on. Won't know until you look in hindsight. Any of these adjustments will take some time to bear out and see what the actual effect is. Forget about what the Fed does when deciding where to put retirement assets. Better indicators to watch your treasury yields and aggregate BO prices of various maturity terms.
[00:10:23] If you want to get into it and you understand annuities like a 5 year MyGas based on different rates than a lifetime income product. A lot of the lifetime income products have remained strong because the far end of the yield curve has stayed high. And a lot of times what's fluctuating is anything between two and 10 years and the lifetime income products are written longer than that. If anyone tells you you gotta get in a hurry because of what's happening, then they haven't put real thought into it and are just playing on your fears to sell you something quickly. That is a salesman, not an advisor. You want to talk about it in detail? I'd love it if somebody calls and say, well, I noticed that aggregate bond yields have dropped substantially over the past three weeks. That would be better than being wow, I heard that the Fed's going to drop. Fed does not affect annuity rates. 1 Rate what they lend to banks at this has been episode 196 again, closing on 200. Would love your help in picking a title for that. So send this to your friends that you think might benefit or be interested in it. Send it to somebody who disagrees with me or has something to refine here. I'm not an economist, but I'm asking you to think a little bit more deeply than just what you see on the news. Top right corner, any page on annuitystraighttalk.com if you want to have a chat, you can get on my calendar. Thank you so much for joining me. I'll be back next week for 197. All right, thanks guys. Have a great day. Bye.
