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Markets don't like China's trade war escalation · The Financial Exchange Show

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1:03
Speaker 1: This is the Financial Exchange with Mike Armstrong and Paul
1:07
Speaker 1: lane Well.
1:11
Speaker 2: On Friday, markets took it on the Chin over China
1:16
Speaker 2: tariff announcements. Over the weekend, President Trump alleviated some of
1:20
Speaker 2: those concerns, ensuring everybody that would come to a deal.
1:23
Speaker 2: Markets floated back upwards or racing about half of their losses.
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Speaker 3: And then this morning.
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Speaker 2: We have new escalations on the US China trade front,
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Speaker 2: and we have markets sinking once again.
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Speaker 3: It's been an interesting.
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Speaker 2: Three days after a historic bout of low volatility and
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Speaker 2: just markets moving their way upwards for the last several months.
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Speaker 2: It's Mike, Paul and Tucker with you on a bank
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Speaker 2: earnings Tuesday. We did hear from JPM Morgan, Chase, Goldman,
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Speaker 2: Sachs City Group. Who else was in there? Paul?
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Speaker 4: We had black Rock, Wells, Far Far Go.
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Speaker 2: Yeah, So a whole slew of bank earnings to get
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Speaker 2: through and some interesting commentary from some of the CEOs.
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Speaker 2: Yesterday we posed the question what sort of exposure might
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Speaker 2: some of them have to the recent auto bankruptcies and
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Speaker 2: the seeming seemingly fraud in some of those instances.
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Speaker 3: So we'll be covering that.
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Speaker 2: But markets are being driven today at least by the
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Speaker 2: China news and so we need to start right there.
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Speaker 2: So overnight China escalated the US trade front fight with
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Speaker 2: some curbs on shipping. What did they announce, Paul, You know,
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Speaker 2: we can get to the market reaction here, but what
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Speaker 2: are we seeing on the US and China trade tensions front.
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Speaker 5: China sanctioned the US units of a South koreaing shipping
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Speaker 5: giants and then threatened to have further retaliatory measures on
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Speaker 5: the industry. In particular, they sanctioned five US units of
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Speaker 5: Hanua Ocean Company. And that's sort of the latest back
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Speaker 5: and forth that we've seen between the two countries. Obviously,
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Speaker 5: prior to this, as you likely covered on Friday's program,
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Speaker 5: all the actions that have been in place with the
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Speaker 5: rare earth materials. But now what we're dealing with this
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Speaker 5: morning is specifically targeting on the shipping front. What you've
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Speaker 5: had over the course of the last couple of years
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Speaker 5: or so, but this issue goes back a decade is
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Speaker 5: where China really dominates in terms of shipbuilding. They've sort
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Speaker 5: of overtaken the lead from South Korea and Japan. South
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Speaker 5: Korea had committed one hundred and fifty billion in expertise
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Speaker 5: and investments to try and stimulate US ambitions in the sector, because,
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Speaker 5: to be clear, we don't really produce ships at all anymore.
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Speaker 5: And as a result of that, the theory behind some
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Speaker 5: of these moves is that China is really sticking it,
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Speaker 5: trying to stick it to South Korea to make them
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Speaker 5: decide are you with us? Are you with them? In
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Speaker 5: that case, that would be them being the United States.
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Speaker 2: Yeah, so another shot across the bow here. Frankly, I
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Speaker 2: if you end up in a place where China doesn't
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Speaker 2: sell any rare earth to the United States and the
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Speaker 2: USA one hundred percent tariffs on all Chinese made goods,
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Speaker 2: then sanctions on US shipping investments are irrelevant. And so
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Speaker 2: I look at this story as not so much the
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Speaker 2: relevance as oh, look what they did. Now we've escalated
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Speaker 2: to the point of targeting shipping giants. I think that's
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Speaker 2: far less important than rare earth materials and tariffs on
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Speaker 2: all Chinese made goods. What it does indicate is that
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Speaker 2: the words that we have heard over the last several
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Speaker 2: days of reconciliation or attempting to de escalate by Scott
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Speaker 2: Bessen or President Trump himself.
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Speaker 3: Are put into a new light here.
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Speaker 2: They're cast into a new light when you have an
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Speaker 2: announcement like this, because this is the exact opposite direction,
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Speaker 2: and it was once again, I think Chinese leadership kind
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Speaker 2: of looking for an attempt to embarrass the United States
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Speaker 2: here on these negotiations. So again to be clear, on Friday,
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Speaker 2: on let's say Wednesday, I believe it was Wednesday night
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Speaker 2: you first had the announcement from China that they were
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Speaker 2: imposing new export restrictions on in rare earths, and that
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Speaker 2: started with I know we've covered this a few times,
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Speaker 2: but it's important to repeat basically, requiring licenses for any
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Speaker 2: company who sells a product where more than zero point
5:18
Speaker 2: one percent of the finished value of that product is
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Speaker 2: derived from the rare earth that China sells them. That's
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Speaker 2: like everything, certainly cars, semiconductors. I don't think it would
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Speaker 2: include like my kids Laboo Boo dolls that everyone's obsessed with,
5:33
Speaker 2: but just about everything else is going to be captured
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Speaker 2: by this requirement. And so again doesn't necessarily restrict the sale,
5:41
Speaker 2: but it does say, if you want these things, you
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Speaker 2: have to apply for a license through the Chinese government
5:45
Speaker 2: before we will.
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Speaker 3: Sell you the stuff.
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Speaker 2: Okay, Friday rolls around and Just before eleven am, President
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Speaker 2: Trump announces on true social that this is a big
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Speaker 2: escalation that he sees no need to meet with President
5:58
Speaker 2: She based on this in there at their upcoming scheduled
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Speaker 2: meeting UH somewhere in the Pacific region.
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Speaker 3: I don't remember where that's schedule.
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Speaker 2: I believe it's in South Korea and South Korea, okay,
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Speaker 2: UH and threatens one hundred percent tariffs on all Chinese
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Speaker 2: made products. Markets sank nearly three percent on that news
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Speaker 2: for the rest of the day, just a steady sell
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Speaker 2: off through the rest of the day, Friday, over the weekend.
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Speaker 2: The President, you know, alludes to the fact that, you know,
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Speaker 2: he hoped. I don't think he even said he hopes,
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Speaker 2: but there's a possibility that these terriffs never go into
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Speaker 2: place if we can reach some sort of deal. Scott
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Speaker 2: Bessen says the similar thing. Markets move up yesterday and
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Speaker 2: then today we get this and markets are selling off.
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Speaker 2: So it's been a, you know, an interesting three days.
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Speaker 2: And honestly, this is the most markets have paid attention
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Speaker 2: to anything terriff related since April, definitely, and I consider
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Speaker 2: that to be significant. I do think that that's important
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Speaker 2: for us to acknowledge that markets are paying closer attention
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Speaker 2: to this at any you know, more attention to this
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Speaker 2: than at any time since April of this year. I
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Speaker 2: gotta be honest, though, since the beginning of this, when
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Speaker 2: when this was first we had the opportunity to cover
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Speaker 2: it on Thursday, my attitude towards it has been this
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Speaker 2: seems like posturing ahead of a negotiated summit. You now
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Speaker 2: have a bunch of things that Chinese do that they
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Speaker 2: are putting on the table that they can walk back
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Speaker 2: from the table. The you know, the direction of negotiations
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Speaker 2: over the last several months since April has been a
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Speaker 2: positive one. You've you know, made a deal on TikTok,
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Speaker 2: which I don't again, not the biggest deal for anybody,
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Speaker 2: and it's not a huge you know move the needle
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Speaker 2: item for national security in my view, but again, taken
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Speaker 2: with everything else, was a step in the right direction,
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Speaker 2: and this is seemingly a step back. I'm encouraged, and
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Speaker 2: I think investors were encouraged by the fact that the
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Speaker 2: President himself has come out and said words of de
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Speaker 2: escalation and don't worry about this, and to me, that's
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Speaker 2: the exact same wording he was using back on April
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Speaker 2: eight through April, right, you know, he's coming out there
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Speaker 2: and saying, this is not something.
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Speaker 3: To worry about.
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Speaker 2: The markets are overdoing it, don't get concerned about it.
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Speaker 2: And based on his actions, he was right. Yeah, like
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Speaker 2: he readjusted everything. H you know, he took a big
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Speaker 2: hard look at all the tariffs that they had announced,
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Speaker 2: waived a bunch of them, delayed a bunch of them,
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Speaker 2: and based on those actions, markets were, you know, as
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Speaker 2: we look at it now, pretty over sold and have
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Speaker 2: appreciated dramatically based on all of that. The question, of course,
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Speaker 2: is is right now another instance of that same effect
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Speaker 2: where this is all posturing and it's about to go away,
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Speaker 2: or is it a new escalatory environment? And frankly, this
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Speaker 2: is the difficult part invest of investing in a game
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Speaker 2: of chicken. My guess would be that we get a
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Speaker 2: similar result to what we got back in April, because
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Speaker 2: that was the most recent result and that's what we
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Speaker 2: have the most evidence to point to. But when you
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Speaker 2: have a game of chicken between two world superpowers that
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Speaker 2: are you know, scaring you know, staring down economic gridlock
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Speaker 2: and dealing with you know, parties in their own country
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Speaker 2: that are pushing for certain outcomes, you don't know which
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Speaker 2: direction it's going to go, and so for that reason,
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Speaker 2: I think markets are taking some appreciation here or depreciation,
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Speaker 2: but appreciating the gravity of the issue of the moment,
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Speaker 2: even if it seems pretty unlikely to escalate.
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Speaker 5: In my mind, I think if you step back and
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Speaker 5: ultimately think about what each party on the negotiating table
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Speaker 5: stands to lose, if this is to get worse and
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Speaker 5: to get exacerbated, it really doesn't help anybody if this
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Speaker 5: is to continue, or they're forced these respective countries, both
9:41
Speaker 5: China in the US, to go to these levels that
9:43
Speaker 5: are mentioned here.
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Speaker 3: It devastates the Chinese economy.
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Speaker 2: Yep, it devastates the US economy right right Like it's
9:50
Speaker 2: no we can talk about which one is worse off
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Speaker 2: in these scenarios. I honestly am not sure. I think
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Speaker 2: our economy probably fares a little bit better, where as
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Speaker 2: China's defense network probably fares a little bit better in
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Speaker 2: all of it. But in either case, it's devastating to
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Speaker 2: both economies and really really problematic. And so to your point,
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Speaker 2: I can't imagine we get to a point where China
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Speaker 2: just says nope, no rare earth materials for any US
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Speaker 2: end made product, and the United States says one hundred
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Speaker 2: percent terriffs on any product moving from China, which by
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Speaker 2: the way, just means no product moving from China to
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Speaker 2: the United States.
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Speaker 3: Yeah.
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Speaker 5: It just the image of my head age is two cars,
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Speaker 5: like you said, a game of chicken driving directly at
10:30
Speaker 5: each other head on. What benefit is there to either
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Speaker 5: one to crash into one another?
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Speaker 3: So again, taking recent history, nice, there we go.
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Speaker 2: Wow, Tucker's just Johnny on the spot with the sound
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Speaker 2: effects today, taking recent history into account, you know, you
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Speaker 2: would bet that this stuff de escalates, but you never
10:49
Speaker 2: do know until that comes.
10:51
Speaker 3: And do you know the date of the scheduled meeting?
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Speaker 5: And so twenty was it the twenty nine? It's towards
10:56
Speaker 5: the end of the month.
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Speaker 2: Towards the end of the month this is scheduled to happen.
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Speaker 2: Whether or not it happened will be a pretty big
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Speaker 2: tell in terms of where this goes from here. Let's
11:03
Speaker 2: take a quick break when we come back, a bunch
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Speaker 2: of bank earnings to digest, and all taken in the
11:08
Speaker 2: context of two big bankruptcies in the auto space. What
11:12
Speaker 2: do the banks have to say about that and their
11:14
Speaker 2: general earnings. That's next on the Financial Exchange.
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12:24
Speaker 2: So we add four major banks reporting earnings this morning
12:26
Speaker 2: before the bell, Goldman, Sachs, Wells, Fargo, JP Morgan and
12:30
Speaker 2: Citygroup just covering the market reaction to these four companies.
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Speaker 2: Goldman Sachs currently down three point six percent in early trading,
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Speaker 2: Wells Fargo up four point two percent, JP Morgan Chase
12:43
Speaker 2: down nearly two point nine percent, and City Group up
12:46
Speaker 2: about nine tens percent. Again taken in the context that
12:49
Speaker 2: today markets are selling off a fair bit on the
12:51
Speaker 2: S and P five hundred about two thirds of one percent.
12:54
Speaker 2: But let's start right off with the biggest of them,
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Speaker 2: JP Morgan, who beat on profit and revue profit to jump.
13:03
Speaker 2: What do you suppose might be moving the stock down
13:06
Speaker 2: today as we've got again a slight sell off. My
13:09
Speaker 2: take was it's kind of the Jamie Diamond's commentary and
13:12
Speaker 2: loan loss provisions that are out there. But you know,
13:16
Speaker 2: we do have the stock moving down a fair bit
13:18
Speaker 2: on a bead on profits.
13:20
Speaker 3: Yeah.
13:20
Speaker 5: I was trying to reconcile that this morning, looking at
13:24
Speaker 5: the pre market and now the activity that we've seen
13:26
Speaker 5: the first hour of the show. Because all these numbers
13:29
Speaker 5: are relatively solid. The one potential concern that you can
13:34
Speaker 5: mention is they did set aside a little bit more
13:37
Speaker 5: than was anticipated for for credit losses, where initially there
13:42
Speaker 5: was an estimate that the reserves that they would set
13:44
Speaker 5: aside was about three point zero eight billion. For losses
13:49
Speaker 5: from some of the loans that they had made, that
13:51
Speaker 5: number came in at three point four million, so a
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Speaker 5: little bit higher three point four billion, a little higher
13:56
Speaker 5: than anticipated there, But ultimately, you know, you're talking about
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Speaker 5: a company that does forty six billion of revenue quarter
14:03
Speaker 5: and just reported fourteen billion of net income for the quarter.
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Speaker 5: So I don't want to make it seem as if
14:09
Speaker 5: this differential on credit losses is so significant that it
14:13
Speaker 5: should be sending the stock down as much as it
14:16
Speaker 5: is right. So other than that, it can only be
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Speaker 5: commentary from Diamond, but the market should be used to
14:21
Speaker 5: his pessimistic measure commentary for the last decade. So I'm
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Speaker 5: a little bit scratching my head as to why that
14:29
Speaker 5: would be the case, because otherwise these numbers are pretty strong.
14:33
Speaker 2: They are continuing on to the other three. So Goldman
14:36
Speaker 2: Sachs beat on both profit and revenue. Where they specifically
14:39
Speaker 2: saw a lot of help was investment banking revenue. We're
14:41
Speaker 2: seeing more deal making that is boosting this company stock.
14:45
Speaker 2: They had some weakness in other areas, but the deal
14:48
Speaker 2: making was enough to see a fairly solid quarter there,
14:52
Speaker 2: and nonetheless that equity trading concerns moving the stock down
14:57
Speaker 2: three point six percent. So again beat on expectation, but
15:01
Speaker 2: with a bank like Goldman Sachs, they wanted to see
15:03
Speaker 2: a little bit more, it seems wells Fargo, on the
15:05
Speaker 2: other hand, beat on both earnings and sales. They also
15:08
Speaker 2: raised their targets, so you know, that would be one
15:11
Speaker 2: piece that I think you can point to.
15:13
Speaker 1: Uh.
15:13
Speaker 2: They saw strong net investment income revenue growth as the
15:17
Speaker 2: commercial and consumer businesses did fairly well. Finally, City Group
15:21
Speaker 2: beat on revenue but missed on earnings per share, So
15:24
Speaker 2: a bit of a mixed report from City Group, but
15:26
Speaker 2: expectations weren't all that high. If I, you know, looked
15:30
Speaker 2: through these different earnings, and you know, I caught clips
15:33
Speaker 2: of each of the CEO speaking.
15:34
Speaker 3: Didn't listen to.
15:35
Speaker 2: The entire press conferences, but there are a few things
15:38
Speaker 2: that I kind of saw there that looked like common themes.
15:43
Speaker 3: One.
15:44
Speaker 2: You know, both Solomon CEO of Goldman Sacks, as well
15:47
Speaker 2: as Jamie Diamond pointed out some of their concerns. Jamie
15:50
Speaker 2: Diamonds were far larger than David Solomon's. You know, basically
15:54
Speaker 2: David's only quote was, you know, conditions can change quickly
15:58
Speaker 2: in spite of where they're seeing things right now, whereas
16:01
Speaker 2: Jamie Diamond was just talking about a heightened degree of
16:04
Speaker 2: uncertainty stemming from geopolitical tariffs, trade uncertainty, asset prices, sticky inflation.
16:11
Speaker 2: He cited a number of different things, which also makes
16:13
Speaker 2: me think that there is no real direction there, because
16:16
Speaker 2: he's just saying every possible thing that could be a
16:19
Speaker 2: concern is a concern for him. The consumer health piece
16:24
Speaker 2: continues to be an item that investors or CEOs are
16:27
Speaker 2: bringing up again. These banks tend to make their money
16:30
Speaker 2: off of the very high net worth consumer, and so
16:33
Speaker 2: I don't think they're seeing it show up in their financials,
16:36
Speaker 2: but many of them have talked about stress for lower
16:39
Speaker 2: income consumers, and analysts especially been pointing that out. But
16:43
Speaker 2: I think for these four banks it's not really a concern.
16:46
Speaker 2: There are other financial institutions where it could be. The
16:50
Speaker 2: area that's been of interest to us over the course
16:53
Speaker 2: of the last few weeks has been the auto sector,
16:56
Speaker 2: and so I've been kind of on heightened alert trying
16:58
Speaker 2: to find out which banks might have any exposure to
17:00
Speaker 2: this Jamie Diamond and JP Morgan was really the only
17:03
Speaker 2: one of these four that cited it, and his point
17:07
Speaker 2: was this dropping the bucket for us. Specifically, he had
17:11
Speaker 2: his bank had exposure to Tricolor, so this was the
17:15
Speaker 2: subprime auto lender, and he specifically pointed out that this
17:21
Speaker 2: is something that we normally wouldn't even talk about, but
17:23
Speaker 2: it has been getting a lot of attention, and so
17:26
Speaker 2: he spoke about it. Specifically, they had charge offs of
17:29
Speaker 2: about one hundred and seventy million dollars in the quarter,
17:32
Speaker 2: which again irrelevant to Jamie Diamond and JP Morgan, but
17:36
Speaker 2: he did cite it. As you know, not our finest
17:38
Speaker 2: moment was his word. And I only bring that well,
17:42
Speaker 2: I bring that up because I'm interested in the Tricolor
17:44
Speaker 2: piece and who has exposure to it. But it is
17:46
Speaker 2: the second time we've talked about JP Morgan in the
17:48
Speaker 2: context of not their finest moment. The first one was
17:51
Speaker 2: the fraudster who had.
17:53
Speaker 3: Been baking a business Frank Counts.
17:56
Speaker 2: Was that Frank was the business, Oh jeez, I think
18:00
Speaker 2: that was the name of the company that she sold
18:02
Speaker 2: to JP Morgan for basically a bunch of fraudulent customers,
18:05
Speaker 2: and so they have some exposure there. Fifth Third Bank
18:10
Speaker 2: has disclosed that they have quite a bit of disclosure,
18:12
Speaker 2: bigger deal for them than it is for JP Morgan
18:16
Speaker 2: Barclays also seems to have some exposure to it. And
18:19
Speaker 2: then on the first brand side, this was the autoparts
18:23
Speaker 2: supplier that is still working through their bankruptcy. You have
18:26
Speaker 2: big exposure from Ubs as well as Jeffreys, and so
18:31
Speaker 2: we'll be diving into those more over the course of the
18:34
Speaker 2: next few weeks. But again, were these the only two issues,
18:37
Speaker 2: I don't think it would be a systemic problem. Our
18:41
Speaker 2: concern is where they's smoke, there's fire. It is the
18:46
Speaker 2: hypothetical here, and I don't know that I'm not convinced
18:49
Speaker 2: that in this case, where there's smoke, there's fire. But
18:52
Speaker 2: when you have two companies attached to this space that
18:56
Speaker 2: have similar kinds of issues, right, I mean, they're dealing
19:00
Speaker 2: with too much debt, a bunch of lenders that didn't
19:04
Speaker 2: really realize how much debt they had, and both marginally
19:08
Speaker 2: attached to the same industry, you start to wonder just
19:11
Speaker 2: where the other stuff starts popping up. And the good
19:14
Speaker 2: news is it's not popping up in any of our
19:17
Speaker 2: major banks. The bad news would be that means it's
19:20
Speaker 2: somewhere else. Right quick break, Wall Street Watch is coming
19:23
Speaker 2: up next.
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Speaker 1: far today right here on the Financial Exchange Radio Network.
19:59
Speaker 4: Mark kuts are giving back gains from yesterday's rally after
20:04
Speaker 4: further escalation of tensions between the US and China after
20:08
Speaker 4: Beijing moved to effectively banned Chinese companies from doing business
20:11
Speaker 4: with US subsidiaries of a South Korean ship building giant.
20:15
Speaker 4: Outside of trade, Wall Street's also sifting through third quarter
20:19
Speaker 4: bank earnings posted earlier this morning. Right now, the Dow
20:23
Speaker 4: is down by three tenths of one percent, or one
20:25
Speaker 4: hundred and thirty six points lower. SMP five hundred down
20:29
Speaker 4: nearly six tenths of one percent or thirty eight points lower,
20:32
Speaker 4: Nasdaq down one percent or two hundred and twenty seven points.
20:36
Speaker 4: Russell two thousand is down about a quarter percent. Ten
20:39
Speaker 4: year treasreel is flat and currently at four point zero
20:42
Speaker 4: four to two percent in Crude oil down nearly two
20:45
Speaker 4: percent lower, trading a fifty eight dollars in thirty seven
20:49
Speaker 4: cents a barrel. Jp Morgan Chase b third quarter earnings expectations,
20:55
Speaker 4: where it's trading revenue hit a record of nine billion dollars.
20:58
Speaker 4: Shares are down by two percent. Goldman Sachs also exceeded estimates,
21:02
Speaker 4: posted better than expected investment banking activity and bond trading.
21:07
Speaker 4: Goldman stock is down by three percent. Wells Fargo beat
21:10
Speaker 4: third quarter expectations as well, where the bank raised its
21:13
Speaker 4: profitability targets, sending that stock up by four percent. Black
21:18
Speaker 4: Rock in City Group also be third quarter forecast. Those
21:21
Speaker 4: stocks are seeing modest gains outside of bank earnings. Johnson
21:25
Speaker 4: and Johnson beat third quarter estimates and raised its annual
21:28
Speaker 4: sales outlook. The healthcare giant also said it plans to
21:31
Speaker 4: split it split off its orthopedics unit within two years.
21:36
Speaker 4: Jane j stock is down nearly one percent. Meanwhile, AMD
21:40
Speaker 4: shares up two percent after the chip maker struck a
21:43
Speaker 4: deal that will see its AI chips used in data
21:45
Speaker 4: centers run by Oracle. According to the Wall Street Journal,
21:49
Speaker 4: Ford is temporarily cutting production of at least five models
21:53
Speaker 4: following a devastating fire at a crucial aluminum suppliers plant.
21:57
Speaker 4: Ford stock is flat, and General Motors is cutting electric
22:02
Speaker 4: vehicle manufacturing capacity citing reduced demand following the end of
22:07
Speaker 4: EV tax credits. The company will take a one point
22:11
Speaker 4: six billion dollar hit as a result. GM shares are
22:15
Speaker 4: edging higher. I'm Tucker Silva and that is Wallstree.
22:18
Speaker 1: Watch.
22:18
Speaker 2: As we are now six months into the President Trump's
22:23
Speaker 2: newly announced tariffs, we're starting to see the map of
22:27
Speaker 2: international trade really change. You know, one very obvious one
22:33
Speaker 2: that's not obvious to folks here in the Northeast would
22:35
Speaker 2: be agricultural trade. China is effectively importing very little agricultural
22:40
Speaker 2: goods from the United States, a lot of that shifting
22:42
Speaker 2: to South America instead, Brazil specifically. And so if you
22:46
Speaker 2: grow soybeans, for example, in the United States, you're having
22:49
Speaker 2: a pretty tough go of it. But even you know,
22:51
Speaker 2: less obvious things, right Canada purchases of cars, they're mainly
22:55
Speaker 2: importing cars from Mexico now instead of the United States
22:58
Speaker 2: based on those tariff concerns, and so we're seeing a
23:01
Speaker 2: lot of this reshape.
23:02
Speaker 3: What we are.
23:03
Speaker 2: Seemingly not showing is big surges in US inflation and
23:09
Speaker 2: globally too. By the way, like any of those big
23:11
Speaker 2: concerns about price increases across the board have not showed up,
23:18
Speaker 2: have not shown up dramatically yet, and it's not to
23:21
Speaker 2: say that they will never. We'll get another CPI report
23:25
Speaker 2: I think by end of next week, if I'm not
23:27
Speaker 2: mistaken Targey, is that right? The BLSB and callback. I
23:30
Speaker 2: think it's by end of next week. We'll get that report.
23:32
Speaker 4: Maybe this week CPI, Yeah, yeah, next week, twenty four.
23:35
Speaker 2: Week, Okay, so we'll be getting that report on where
23:38
Speaker 2: prices have gone, but I expect to see it fall
23:40
Speaker 2: somewhere in the three percent range. One other, you know,
23:43
Speaker 2: just interesting piece on the whole tariff side of things.
23:47
Speaker 2: I've been following since she came on the show. Jenny
23:49
Speaker 2: Tang works for the Boston Federal Reserve. She has been
23:52
Speaker 2: doing surveys or their office has been doing surveys on,
23:55
Speaker 2: you know, just who will pay for tariffs and where
23:57
Speaker 2: are we seeing it, because like I said, I think,
24:00
Speaker 2: by and large, you haven't seen a huge effect here
24:02
Speaker 2: in the United States from these tariffs, and I think
24:04
Speaker 2: a lot of large companies especially have been able to
24:08
Speaker 2: rejigger their supply chain or put pressure on suppliers to
24:11
Speaker 2: keep prices down. Where's those smaller businesses have not so
24:16
Speaker 2: much seen that effect, And Jenny notes that in her
24:19
Speaker 2: research that you know, when you talk to those small
24:22
Speaker 2: and medium sized businesses where they employ fewer than five
24:25
Speaker 2: hundred people, the expected pass through rate on tariffs is
24:29
Speaker 2: pretty high. It's about fifty percent of businesses say they
24:31
Speaker 2: plan on passing through those tariff rates. That's actually lower
24:34
Speaker 2: than it was back in April when we had the
24:36
Speaker 2: real concerning stuff for small businesses, but.
24:39
Speaker 3: It's fairly high.
24:39
Speaker 2: And so where I land is, I'm really unsure as
24:43
Speaker 2: to whether or not we will get a lot of
24:45
Speaker 2: direct pass through of tariffs and a true dramatic increase
24:49
Speaker 2: in prices in the short term from tariffs based on
24:52
Speaker 2: big business's ability to absorb some of that. But I
24:55
Speaker 2: do have some pretty big concerns for smaller companies that
24:59
Speaker 2: are are exposed to tariffs devil.
25:02
Speaker 5: That's been my biggest concern this whole time, is that
25:04
Speaker 5: this could create a further divergence between kind of Wall Street,
25:08
Speaker 5: not Wall Street and main street. But you know, big
25:10
Speaker 5: businesses versus the small to mid sized businesses because they
25:14
Speaker 5: already have a trendous amount of scale and advantage. The
25:17
Speaker 5: amazons think of, you know, all those big retailers out there,
25:21
Speaker 5: and this tear these tariff policies only really.
25:24
Speaker 3: Allows for them to.
25:27
Speaker 5: Utilize their scale and just their leverage to not benefit
25:33
Speaker 5: from it, but do a better job of siphoning off
25:37
Speaker 5: any type of impact versus your local mom and pop
25:40
Speaker 5: shop that don't have that same sort of flick.
25:43
Speaker 3: Right.
25:43
Speaker 2: And to be clear, maybe that bigger problem then is
25:47
Speaker 2: for employment, right, because while small businesses might not represent
25:51
Speaker 2: a huge portion of your budget, they employ about half
25:54
Speaker 2: of Americans right, right, So this data is a little
25:57
Speaker 2: bit older from twenty twenty three, but businesses with fewer
25:59
Speaker 2: than five hundred employees. According to the Office of Advocacy,
26:05
Speaker 2: businesses with frewer than five hundred employees employed about forty
26:08
Speaker 2: six percent of the private sector workforce. They make up
26:12
Speaker 2: about ninety nine point nine percent of all businesses in
26:15
Speaker 2: the US. That one makes sense, but you know forty
26:17
Speaker 2: six percent. Now, not everyone is impacted by tariffs, are
26:20
Speaker 2: you know? My business? Our business is not affected directly
26:23
Speaker 2: by tariffs in any meaningful way. But yeah, you know,
26:27
Speaker 2: half of American workers work for those small companies, and
26:30
Speaker 2: a number of them are and a number of them
26:32
Speaker 2: probably have no choice but to absorb it, because you know,
26:36
Speaker 2: if you have a million dollars in sales a year,
26:38
Speaker 2: you're not going to have a lot of ability to
26:40
Speaker 2: pressure that Chinese supplier to lower those prices, Paul. Silver
26:44
Speaker 2: prices just hit their first record since nineteen eighty. Gold
26:48
Speaker 2: prices have been there for a little while. Now, what
26:51
Speaker 2: are we seeing in the other companies.
26:53
Speaker 5: It's been a crazy year for metals in general. You've
26:56
Speaker 5: got gold up fifty six percent year date, and silver
26:59
Speaker 5: now up seventy three percent. It has hit that record
27:03
Speaker 5: that you alluded to, which is fifty dollars and thirteen
27:05
Speaker 5: cents per troy ounce. That was ahead of the nineteen
27:09
Speaker 5: eighty record. And the reason I like to highlight a
27:12
Speaker 5: bit is because that nineteen eighty record came about from
27:15
Speaker 5: a scandal that was ultimately made into a Murphy that
27:19
Speaker 5: an Eddie Murphy movie called Trading Places, where the Hunt brothers,
27:23
Speaker 5: one in particular, put together a scandal, not a scheme,
27:29
Speaker 5: rather to put together one third of all of the
27:34
Speaker 5: available silver in the world, and caused a ton of
27:39
Speaker 5: market manipulation to drive that nineteen eighty record price, which
27:43
Speaker 5: is at the beginning of the year nineteen eighty in
27:46
Speaker 5: January of nineteen eighty. As a result of that, the
27:48
Speaker 5: Commodity Exchange had to make a rule on March twenty
27:51
Speaker 5: seventh of nineteen eighty saying that you could only sell silver,
27:55
Speaker 5: and as a result of that, the price of silver
27:58
Speaker 5: went from forty eight dollars in seventy sense to ten
28:01
Speaker 5: dollars and eighty cents a year. And imagine having one
28:05
Speaker 5: third of all the silver in the world. One hundred
28:08
Speaker 5: million ounces is what they had procured, and they were
28:11
Speaker 5: leveraged to the gills. So this particular there's three Hunt brothers.
28:16
Speaker 5: There was one who was involved, I believe Herbert was
28:18
Speaker 5: his name. One hundred billion dollars of losses. All sorts
28:23
Speaker 5: of different issues that came from this, but it was
28:26
Speaker 5: something that really caused the commodity industry to put a
28:29
Speaker 5: little bit more scrutiny on some of its practices and
28:31
Speaker 5: the market manipulation.
28:32
Speaker 2: For us to move into the ketchup industry.
28:36
Speaker 5: No relation there with the Hunts, but I don't think
28:40
Speaker 5: at least they're all over the place.
28:44
Speaker 3: Right now.
28:44
Speaker 5: They're in the NFL and they're elsewhere. But the reason
28:47
Speaker 5: why it's it's noteworthy today, besides going back to the eighties,
28:51
Speaker 5: is that there's a lot more consumption on the silver front.
28:54
Speaker 5: You have ai evs and just the energy transition in
28:57
Speaker 5: general that is requiring more soil over solar panters in particular,
29:02
Speaker 5: higher need for silver. That has really driven up a
29:05
Speaker 5: lot of the demand. And there is some scarcity of supply,
29:07
Speaker 5: hopefully not from anything like what was going on in
29:10
Speaker 5: the eighties with the Hunt brothers. But it has been
29:13
Speaker 5: just a incredible year for for meadows silver. At least
29:17
Speaker 5: it's it's the use case that is kind of driving
29:20
Speaker 5: some of this up, but gold also seen tremendous demand
29:23
Speaker 5: as well.
29:23
Speaker 2: It is pretty shocking though to think that it has
29:26
Speaker 2: taken forty five years.
29:27
Speaker 3: That's capture high, right. Granted that high was kind of
29:32
Speaker 3: falsely and.
29:33
Speaker 2: Had you bought it years later than you would have
29:35
Speaker 2: made a tremendous amount of money over the course of
29:37
Speaker 2: the last forty But if you had invested a dollar
29:41
Speaker 2: in you know, and out and go and silver and
29:44
Speaker 2: a dollar in stocks over the course of the last
29:45
Speaker 2: forty five years, you'd have a pretty big difference between
29:49
Speaker 2: how much you'd accumulated by then let's take a quick break.
29:53
Speaker 2: When we come back forward cutting production on some of
29:56
Speaker 2: their vehicles. We'll talk about why next on the Financial Exchange.
30:00
Speaker 1: This news on inflation, the FED, the economy, and how
30:03
Speaker 1: the markets are reacting every morning right here on the
30:06
Speaker 1: Financial Exchange Radio Network. Text US six one seven three
30:11
Speaker 1: six two thirteen eighty five with your comments and questions
30:14
Speaker 1: about today's show, and let us know what you think
30:16
Speaker 1: about the stories we are covering. This is the Financial
30:20
Speaker 1: Exchange Radio Network.
30:33
Speaker 2: Well, we spoke about last week the fire at the
30:35
Speaker 2: aluminum supplier in Ohio of New York, Say New.
30:40
Speaker 3: York, excuse me, close, Yeah, you got it.
30:44
Speaker 2: They're right next to each other. I ninety cuts right
30:51
Speaker 2: through both of these places, guys, don't Tom.
30:54
Speaker 3: Let's get that.
30:55
Speaker 2: In any case, the fire at the aluminus supplier knocking
30:58
Speaker 2: off production UH two Fords, well several of their most
31:03
Speaker 2: valuable and profitable vehicles. They're temporarily cutting production of at
31:07
Speaker 2: least five models, including popular SUVs F one fifties. Because
31:13
Speaker 2: this one supplier accounts for pretty much all of the
31:16
Speaker 2: domestic supply of aluminum, and if you import it from elsewhere.
31:19
Speaker 2: You're talking about fifty percent test. So yeah, their cars
31:24
Speaker 2: are already expensive enough. They can't quite justify paying a
31:28
Speaker 2: giant tariff on a whole bunch of illuminum, which I'm
31:30
Speaker 2: sure they will eventually justify, because you're not going to
31:33
Speaker 2: stop making explorers in f one fifties for a prolonged
31:36
Speaker 2: period of time, but certainly doesn't help much for Ford
31:40
Speaker 2: who look, I mean, they are already struggling with all
31:45
Speaker 2: sorts of other supplies. They can't make these vehicles if
31:48
Speaker 2: China puts in their rare earth materials.
31:50
Speaker 3: You need a whole bunch of.
31:51
Speaker 2: Magnets to make any of these engines work and any
31:54
Speaker 2: of these other things to work. So they've already got
31:56
Speaker 2: some supply chain issues. This one is a fairly critical one,
32:00
Speaker 2: is slowing down production. But even if they do find
32:04
Speaker 2: a new supply of aluminum, there are some other threats
32:07
Speaker 2: to this business that are unique to Ford, and GM
32:10
Speaker 2: seems a little bit more prepared for. We have not
32:13
Speaker 2: seen a similar announcement from General Motors on this same
32:16
Speaker 2: issue when it comes to aluminum supplies.
32:18
Speaker 5: It's surprising how well Ford Stock has fared year to
32:22
Speaker 5: date with some of the headwinds that they're battling, whether
32:26
Speaker 5: it be on the tear front, which they're anticipated of
32:29
Speaker 5: paying two billion in tariff costs this year, and just
32:33
Speaker 5: in general, their ev investments are you know, creating a
32:37
Speaker 5: lot of losses too. Obviously, their bread and butter of
32:40
Speaker 5: the F one fifty is still incredibly profitable, and that's
32:43
Speaker 5: probably what has kind of kept them up or kept
32:46
Speaker 5: them hanging around year to date. But it's very clear
32:48
Speaker 5: by this shift that it's really all hands on deck
32:51
Speaker 5: on the production side to focus on the F one fifties,
32:53
Speaker 5: and clearly with these other five models, which don't have
32:56
Speaker 5: the same popularity, they're just halting for the moment to
32:59
Speaker 5: get with their crown jewel. You'd kind of.
33:02
Speaker 2: Think, I'll tell you, the entire auto sector just seems
33:05
Speaker 2: like a mess to me. Yeah, especially with these two companies.
33:09
Speaker 2: It's becoming increasingly evident that they don't really have the
33:12
Speaker 2: ability to sell their cars pretty much anywhere else in
33:14
Speaker 2: the world because China keeps putting them out of business,
33:17
Speaker 2: and so like is what we're facing. Not that the
33:20
Speaker 2: American market is anything to pooh pooh, we have a
33:24
Speaker 2: terrible car buying appetite and spend a ton of our
33:28
Speaker 2: money on these things. But these companies do not look
33:31
Speaker 2: all that attractive if they have to make everything in
33:34
Speaker 2: the United States and only can sell into the United States.
33:36
Speaker 2: And that's not directly where we're going, because other countries
33:40
Speaker 2: have recognized the unfair trade practices of China and started
33:43
Speaker 2: to clamp down on them. But increasingly every country is
33:47
Speaker 2: kind of coming to the same collusion of oh, we
33:48
Speaker 2: need our we need to protect our auto industry, and
33:52
Speaker 2: in that universe it means to me at least very
33:55
Speaker 2: expensive and kind of boring cars.
33:58
Speaker 5: For what was always a really hard business to be
34:01
Speaker 5: effective executors in right, because it's a low margin business
34:04
Speaker 5: in the first place, and heavy in terms of capital expenditure,
34:08
Speaker 5: so it's it's not easy to do well.
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35:29
Speaker 2: Tucker, we have a new US record to announce. Would
35:32
Speaker 2: you mind queuing up the balloons and just party related items,
35:37
Speaker 2: Because for the first time ever, new vehicle prices topped
35:42
Speaker 2: fifty thousand dollars on average in the United States, So
35:45
Speaker 2: the average new car, not the not the highest price
35:50
Speaker 2: that you can get. But the average new car sold
35:52
Speaker 2: in the United States topped fifty thousand dollars for the
35:55
Speaker 2: first time ever. I'm part of the problem. We bought
35:58
Speaker 2: a new.
35:58
Speaker 3: Car earlier this year.
36:00
Speaker 2: You're a new minivan, and that thing topped fifty thousand dollars.
36:03
Speaker 3: In your defense though, minivan.
36:05
Speaker 4: In your defense, though, it is an essential vehicle with
36:08
Speaker 4: three kids, so I don't fault you for that.
36:11
Speaker 3: Yeah, what else you and I bought could about a
36:13
Speaker 3: ten year old one, I guess.
36:15
Speaker 2: But nonetheless, we're sitting on a new I think it
36:19
Speaker 2: came in at like fifty eight thousand, maybe sixty thousand
36:22
Speaker 2: dollars for a new minivan, which is insane to me
36:26
Speaker 2: even saying it out loud. But anybody that's been shopping
36:29
Speaker 2: is aware of this stuff. Yeah, fifty thousand dollars for
36:33
Speaker 2: the first time ever. And increasingly it's becoming evident that
36:36
Speaker 2: many many Americans cannot afford that and aren't participating it.
36:41
Speaker 1: It.
36:41
Speaker 2: Don't get me wrong, right, they're buying used cars and
36:43
Speaker 2: doing other things, But the evidence is in the defaults
36:47
Speaker 2: on auto loans. I mean, the entire reason that Tricolor
36:51
Speaker 2: went bankrupt. I mean The underlying fundamental reason might have
36:54
Speaker 2: been because of allegations of fraud and other concerns, but
36:57
Speaker 2: the mathematical reason they went under is because a bunch
37:00
Speaker 2: of their customers could not afford to pay the loans
37:03
Speaker 2: on their vehicles anymore, or just refuse to pay because
37:07
Speaker 2: they were no longer in the country. It is a
37:11
Speaker 2: you know, another story of this kind of K shaped
37:14
Speaker 2: economy right where you have the wealthy supporting you know,
37:19
Speaker 2: upper ends of this economy and really driving the markets forward,
37:22
Speaker 2: whereas you know that bottom quartile to half is very
37:26
Speaker 2: much struggling, and we're seeing it show up now not
37:29
Speaker 2: only in some of the data but in actual companies
37:32
Speaker 2: that support that lower end consumer.
37:34
Speaker 5: Yeah, I mean you also have higher borrowing rates too,
37:37
Speaker 5: where the average new auto loan is about nine percent
37:41
Speaker 5: according to the most recent data from Cox Automotive.
37:44
Speaker 2: In really for it, like flips all the math that
37:48
Speaker 2: anyone in financial planning has been doing for the course
37:51
Speaker 2: of the last decade and a half. When it comes
37:53
Speaker 2: to hey, should I pay off my car loan? Should
37:55
Speaker 2: I pay off my mortgage? Where should I focus my
37:58
Speaker 2: next dollar of savings investing versus things off? It really
38:01
Speaker 2: restructures that entire equation. When you're talking about nine percent
38:05
Speaker 2: auto loans.
38:06
Speaker 3: And that's for new ones.
38:07
Speaker 2: Nine time quick break markets still strongly in negative territory
38:12
Speaker 2: will have a full recap and more next on the
38:14
Speaker 2: Financial Exchange