Latest / The Financial Exchange Show / Major problem could be on the horizon for the labor market

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Major problem could be on the horizon for the labor market · The Financial Exchange Show

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Speaker 1: Zada and Mike Armstrong.
1:11
Speaker 2: Kicking off June here on the Financial Exchange, Chuck, Mike,
1:15
Speaker 2: and Tucker with you. And we got a nice week
1:17
Speaker 2: of economic data, not really much on the earning side.
1:21
Speaker 2: The only company of any note is Broadcom reports on Thursday,
1:28
Speaker 2: even though they only do about sixty billion dollars a
1:31
Speaker 2: year in revenue.
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Speaker 3: Sure, they are an eight.
1:34
Speaker 2: Hundred billion dollar market cap company, and so it does
1:37
Speaker 2: matter to markets what they do. But that's the only
1:41
Speaker 2: major earnings report unless you're really interested in what Veil
1:44
Speaker 2: Resorts has to tell you about how much you spent
1:47
Speaker 2: on your epic pass last year and how much more
1:49
Speaker 2: it's gonna cost you next year.
1:52
Speaker 4: Yeah, I don't care about that that much.
1:53
Speaker 3: No, it's fine.
1:54
Speaker 2: So anyways, we do have a bunch of economic data though,
1:57
Speaker 2: and it kicked off this morning with the ISA manufacturing
2:00
Speaker 2: data at ten am, which was not great. This is
2:06
Speaker 2: a series that generally is what economists refer to as
2:10
Speaker 2: mean reverting, because it's a survey that's mostly about sentiment,
2:15
Speaker 2: not about hard data. Hey, do you have more orders
2:19
Speaker 2: than you did last month?
2:21
Speaker 3: Yes?
2:21
Speaker 2: Means one, No means zero, Like it's it's kind of
2:26
Speaker 2: it's it's touchy feely in a way that you know, hey,
2:29
Speaker 2: are you paying more in prices? Well, yeah, I think
2:31
Speaker 2: I am, But they don't ask you, like how much
2:33
Speaker 2: more you're paying in prices? Did you hire more people?
2:37
Speaker 3: Yes?
2:37
Speaker 2: No, but it doesn't tell you how many more. So
2:40
Speaker 2: in this way it tends to be mean reverting simply
2:42
Speaker 2: because if if the news improves enough such that a
2:48
Speaker 2: business feels better about its prospects, they'll generally answer these
2:51
Speaker 2: surveys better. Yes, there's there's, you know, some hard data
2:54
Speaker 2: that goes into it, but ultimately it's still kind of
2:57
Speaker 2: a touchy feeling number. And so what we saw in
3:00
Speaker 2: the April reading last month was, hey, tariff. You know,
3:05
Speaker 2: we saw improvement on the tariff front from the Liberation
3:08
Speaker 2: Day announcement, and so is manufacturing bounced a little bit.
3:12
Speaker 2: It went up to a reading of forty eight seven.
3:14
Speaker 2: The consensus here was that we were going to jump
3:16
Speaker 2: to a reading a forty nine to five. In fact,
3:19
Speaker 2: we saw a little bit of a retrenchment back to
3:21
Speaker 2: forty eight five. And so you look at the individual
3:24
Speaker 2: components on this, and employment basically stayed the same at
3:29
Speaker 2: forty six eight versus forty six five new orders, minimal
3:33
Speaker 2: change rising from forty seven to two to forty seven
3:35
Speaker 2: to six, and prices paid, meaning like how much are
3:39
Speaker 2: your input costs moving stayed at sixty nine to four
3:42
Speaker 2: compared to sixty nine eight previously. So it's a reading
3:45
Speaker 2: that overall kind of says, hey, things are in the
3:48
Speaker 2: same place they were in a month ago. And so
3:53
Speaker 2: I think that ultimately, when you're looking at this, it's
3:58
Speaker 2: kind of one where you say, all right, like, there's
4:02
Speaker 2: not really anything that's different, and you would kind of
4:07
Speaker 2: expect a little bit of a bounce just because the
4:09
Speaker 2: newsflow has been better.
4:10
Speaker 3: Quite honestly.
4:11
Speaker 5: Yeah, I guess the question is, so the last few
4:16
Speaker 5: months of readings on this type of thing, you had
4:18
Speaker 5: the pretty big fears about recession and the ability to
4:22
Speaker 5: get raw materials into the United States for all sorts
4:24
Speaker 5: of manufacturers. On the other hand, you did have some
4:28
Speaker 5: manufacturers in the US we're saying, yeah, these terraffs work
4:31
Speaker 5: well for us, and so we hope they stay in place,
4:33
Speaker 5: as we're relatively few and far between. But the Autoworkers' Union,
4:36
Speaker 5: for example, has been resoundingly in favor of these tariffs.
4:41
Speaker 5: If they are now being walked back, right, do you have,
4:43
Speaker 5: you know, some group of manufacturers saying, oh, good, we
4:45
Speaker 5: should be finally able to get our hands on some
4:48
Speaker 5: rare earth and continue our manufacturing process, and others a
4:53
Speaker 5: little bit more pessimistic because hey, you know, these tariffs
4:56
Speaker 5: are de escalating and they aren't going to be as
4:58
Speaker 5: impactful and helpful for our business possible. I guess that
5:01
Speaker 5: could be some of it, because that's what you've seen
5:04
Speaker 5: of the last few months has been oh, this economy
5:07
Speaker 5: is almost certainly going into recession to well, maybe not,
5:11
Speaker 5: but it might be a more challenging environment for US
5:13
Speaker 5: US based manufacturers.
5:14
Speaker 2: So ultimately, I'm not really sure if this number even
5:18
Speaker 2: means anything because the ice in manufacturing has not mattered
5:21
Speaker 2: for the last five years. It's just been noise that
5:26
Speaker 2: has not contributed anything statistically. So I think, you know,
5:29
Speaker 2: a few minutes is about as much time as I'd
5:30
Speaker 2: like to spend on it. But it's worth talking about
5:33
Speaker 2: because historically it has been a good signal for the
5:36
Speaker 2: broader economy. It just has not been that signal pretty
5:41
Speaker 2: much since twenty twenty and the COVID nineteen outbreak.
5:44
Speaker 3: And markets, by the way, they didn't like it.
5:47
Speaker 2: Initially, the SMP sold off another quarter to third of
5:50
Speaker 2: a percent on the release of this.
5:52
Speaker 3: It's kind of picked that back up.
5:53
Speaker 5: So I was gonna say markets were negative to start
5:56
Speaker 5: the day before trading began. This came out, they sold
5:59
Speaker 5: off off, and they've you know, kind of remade up
6:02
Speaker 5: some of those losses early on. There's plenty of volatility
6:04
Speaker 5: out there in markets today, but not seemingly on this report.
6:09
Speaker 2: So this is what you have from ISM, manufacturing other
6:12
Speaker 2: data points that we're going to be getting this week.
6:13
Speaker 2: Tomorrow we get the Jolts Report, the job openings in
6:15
Speaker 2: the Labor Turnover Survey. Remember this report is delayed by
6:19
Speaker 2: a month, so we're getting April data for this, even
6:22
Speaker 2: though it's going to be June third, and so you
6:25
Speaker 2: do always look at this and you're like, what do
6:28
Speaker 2: I do with this? It's a little out of date
6:30
Speaker 2: at this point, but it is what it is. It's
6:32
Speaker 2: still a good report just to get to get additional
6:35
Speaker 2: data on the labor market. Wednesday, we're going to be
6:38
Speaker 2: getting ISM services and the ADP Employment Change, which no
6:41
Speaker 2: one cares about but everyone talks about whenever it's bad,
6:45
Speaker 2: correct gets It's not a useful signal. It's just, hey,
6:49
Speaker 2: if it's bad, people mention that it's bad, so we'll
6:51
Speaker 2: mention that people mention it. Thursday we get weekly jobless claims,
6:56
Speaker 2: and we're also going to be getting productivity and you know,
6:59
Speaker 2: labor costing. And then on Friday we get the job
7:01
Speaker 2: support for the month of May, which right now consensus
7:06
Speaker 2: estimate one hundred and thirty thousand jobs created, unemployment flat
7:10
Speaker 2: at four point two percent. And those are the only
7:12
Speaker 2: two big numbers that are even worth predicting, because everything
7:14
Speaker 2: else you have no idea.
7:16
Speaker 4: Let's stand the labor market for a moment here, Chuck.
7:19
Speaker 5: This has been well, obviously one of the two main
7:23
Speaker 5: stories that matters to the Federal Reserve will continue to
7:26
Speaker 5: be and generally speaking, has held up fairly well in
7:30
Speaker 5: spite of what I think almost anyone without a job
7:32
Speaker 5: right now would describe as a very challenging labor market.
7:35
Speaker 5: But the stats that probably matter most to the Feds,
7:38
Speaker 5: such as the unemployment rate and wages, have been relatively stable.
7:43
Speaker 5: What have we been reading, what have we been seeing
7:45
Speaker 5: from other data points when it comes to the labor
7:47
Speaker 5: market most recently, and if there is a underlying issue
7:52
Speaker 5: with the labor market. Where is it coming from?
7:54
Speaker 2: I guess well, I think the labor market's kind of
7:58
Speaker 2: been in the same place for the last six to
8:00
Speaker 2: nine months, which is, if you have a job, great
8:04
Speaker 2: companies really aren't laying people off in any meaningful numbers.
8:07
Speaker 2: Like there's always some companies that are, but by and
8:11
Speaker 2: by and large, we have not seen any change in
8:14
Speaker 2: the number of layoffs that's been that have been happening.
8:18
Speaker 2: If you don't have a job, companies really aren't hiring
8:22
Speaker 2: that much. The hires rate right now is consistent with
8:25
Speaker 2: what we saw back in twenty fourteen twenty fifteen, and
8:30
Speaker 2: so more consistent within an unemployment rate that is close
8:33
Speaker 2: to like five and a half percent than you know.
8:35
Speaker 3: Low fours.
8:37
Speaker 2: But ultimately, because the labor market's been so stagnant, and
8:41
Speaker 2: combined with a couple of factors as well, demographics are
8:46
Speaker 2: playing into the unemployment rate staying low and they'll continue
8:49
Speaker 2: to for the next five to ten years in my opinion,
8:52
Speaker 2: And the reason why is baby boomers. They're retiring and
8:57
Speaker 2: there are not enough gen zers to take all of
9:01
Speaker 2: their jobs. That, when combined with what we are seeing
9:06
Speaker 2: from an immigration perspective, with smaller numbers on the immigration front,
9:10
Speaker 2: both legally and illegally, means that the labor market may
9:14
Speaker 2: remain secularly tight over the next five to ten years,
9:19
Speaker 2: and so you may not get the same signal from
9:22
Speaker 2: the unemployment rate that you normally do, simply because there
9:26
Speaker 2: aren't enough people for the unemployment rate to rise the
9:31
Speaker 2: way that it necessarily has in previous business cycles, given
9:36
Speaker 2: the wave of retirements from baby boomers. So I think
9:38
Speaker 2: that's something that's interesting to watch. Even though the unemployment
9:42
Speaker 2: rate isn't rising at this point, we are seeing some
9:45
Speaker 2: signs in the continuing claims data that it may start
9:50
Speaker 2: to in the coming weeks and months, but we need
9:53
Speaker 2: to kind of see how that develops, just because you
9:57
Speaker 2: can always get a few weeks of weird claims data
9:59
Speaker 2: that go back to normal after.
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Speaker 3: A few weeks.
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Speaker 2: And that's all we've seen right now is a few
10:03
Speaker 2: weeks of weird claims data that's elevated.
10:06
Speaker 3: But you need to see.
10:07
Speaker 2: More from that in order to be like, hey, there's
10:10
Speaker 2: really a problem where unemployment's going to start to rise.
10:13
Speaker 5: Here, right And I think companies by and large have
10:16
Speaker 5: been just putting plans on ice. Like you said, they
10:20
Speaker 5: haven't been laying people off on mass. They also haven't
10:22
Speaker 5: been expanding new projects and hiring, and I think sure
10:25
Speaker 5: they're all kind of looking for a market signal that hey,
10:28
Speaker 5: the worst is behind us or is yet to come,
10:31
Speaker 5: at which point they unleash either sets of those plans. Yeah,
10:33
Speaker 5: we are going to set up this manufacturing plant and
10:35
Speaker 5: hire a bunch of people, or no, we are going
10:38
Speaker 5: to close this facility and lay off a bunch of people.
10:40
Speaker 5: Because the concerns about the economy right now, we're and
10:44
Speaker 5: you know, we kind of anticipated we would be in
10:46
Speaker 5: this weird period until late this summer where I don't
10:49
Speaker 5: think executives have a firm grasp on what they want
10:52
Speaker 5: to do next because the picture on tariffs, taxes.
10:56
Speaker 4: And economic growth are not terribly clear.
10:59
Speaker 3: It's take a quick break here.
11:00
Speaker 2: When we come back, we'll update you on what we've
11:03
Speaker 2: learned over the last few days about the state of
11:05
Speaker 2: play between the US and China on trade.
11:07
Speaker 3: Right after this.
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12:11
Speaker 2: A couple of pieces here on the state of play
12:14
Speaker 2: between the US and China. One from the Wall Street
12:17
Speaker 2: Journal titled China hits back against Trump claims that it
12:20
Speaker 2: broke trade truce. That sounds spicy, and the other one
12:24
Speaker 2: is US dependence for on China for rare earth magnets
12:28
Speaker 2: is causing shortages. Which would you like to begin on?
12:31
Speaker 5: Yeah, I mean all of this comes on the heels
12:34
Speaker 5: of President Trump's social media post on the thirtieth which
12:38
Speaker 5: was Friday Friday Friday morning, that accusing China of totally
12:42
Speaker 5: violating their agreement with the US, and that he was
12:45
Speaker 5: no longer going to be mister nice guy.
12:47
Speaker 4: Quote.
12:49
Speaker 5: Let's start off with the rare earth stuff, because I
12:52
Speaker 5: think that's important context for just some of the underlying
12:58
Speaker 5: threats that China has been sending over to the US
13:02
Speaker 5: here when it comes to things. So, I think the
13:06
Speaker 5: only real important piece that you need to know if
13:09
Speaker 5: you're trying to understand all of this, is that China
13:12
Speaker 5: currently manufactures about ninety nine percent or I don't know
13:16
Speaker 5: if you want to call it manufacturer minds ninety nine
13:19
Speaker 5: percent of all rare earth materials.
13:23
Speaker 2: And by the way, just because I know that we
13:25
Speaker 2: talk about these no awful lot, but don't actually get
13:28
Speaker 2: into like what they are. Rare earths a number one
13:31
Speaker 2: aren't actually rare on Earth first and foremost if you
13:37
Speaker 2: look at them, just as an example, the most plentiful one,
13:39
Speaker 2: which is an element called serrium, which I know we're
13:42
Speaker 2: all very familiar with. Yeah, it actually is the It's
13:46
Speaker 2: actually the twenty fifth most abundant element in the Earth's crust.
13:49
Speaker 2: There's more of it in the Earth's crust than copper.
13:52
Speaker 2: It's just we don't.
13:56
Speaker 3: I don't know.
13:56
Speaker 2: I don't even know why they're called rare earth to
13:58
Speaker 2: be completely honest, but they're not actually as rare or
14:02
Speaker 2: as scarce as you would think. But the elements that
14:06
Speaker 2: fall into this category scandium, scan scandium, yttrium, lanathum, serium, neodymium, prometheum, samarium, europium, gallo, gadolinium, turbium, dysprosium, holmium, herbium, thulium.
14:27
Speaker 2: How did you go terbium without making me do this?
14:30
Speaker 2: Because because the opportunity, because I want to have the
14:33
Speaker 2: segment finish and.
14:37
Speaker 3: Luteum.
14:39
Speaker 2: So these are the rare earths, and in general, aside
14:42
Speaker 2: from like a couple of them, they're actually pretty plentiful
14:45
Speaker 2: in the Earth's crust. It's really just that, hey, in
14:48
Speaker 2: order to mine them, you gotta dig big old holes
14:51
Speaker 2: in the ground, that's the technical term. And we generally
14:54
Speaker 2: in the United States don't love having big old holes
14:56
Speaker 2: dug in the ground right.
14:57
Speaker 3: Next to us.
14:58
Speaker 5: And you know a few different things about this. We did,
15:01
Speaker 5: you know, at some point decades ago do some of
15:03
Speaker 5: this in the United States? We had The New York
15:06
Speaker 5: Times has a piece here about. You know a factory
15:07
Speaker 5: in Indiana that used to do this and turn these
15:10
Speaker 5: rare earths into magnets. They moved production to China decades ago.
15:14
Speaker 5: There is a facility out in California. They had a
15:17
Speaker 5: pretty bag radiation leak and that was shut down I
15:21
Speaker 5: think in the nineties and never really reopened. But for
15:25
Speaker 5: a number of different reasons, manufacturers have sent this type
15:30
Speaker 5: of stuff. Miners have sent this type of production to China.
15:33
Speaker 5: And I guess, if I'm going to oversimplify it, it's
15:37
Speaker 5: much looser restrictions on environmental stuff and much cheaper labor. Well,
15:43
Speaker 5: it's not so complicated that we don't know how to
15:45
Speaker 5: do it any nights and if someone complains about it,
15:47
Speaker 5: you moved them out of their house and put the
15:49
Speaker 5: mine there anyways in China, yes.
15:51
Speaker 3: Correct, Yeah, you don't really do that. It's not even
15:53
Speaker 3: an environmental thing. It's like, hey, you can't object to this,
15:56
Speaker 3: so just move.
15:57
Speaker 5: And so because of that, because this is kind of
15:59
Speaker 5: what China does. They own a bunch of state operated
16:03
Speaker 5: enterprises that make these rare earths. They run them at
16:08
Speaker 5: well incredibly low profit margins, so that it's very difficult
16:12
Speaker 5: for a competitor, say in the United States, to start
16:15
Speaker 5: this back up and go do it and kind of
16:19
Speaker 5: have the market cornered for this type of thing. And
16:23
Speaker 5: the question that we are now facing, i think long term,
16:26
Speaker 5: is how much money is the United States government willing
16:30
Speaker 5: to pour into investing in this type of critical thing
16:35
Speaker 5: in order to secure the supply chains and be able
16:37
Speaker 5: to manufacture all the stuff that we need to like
16:40
Speaker 5: cars and all these other parts of the supply chain.
16:42
Speaker 3: Yeah.
16:42
Speaker 2: The problem is that this stuff goes into all kinds
16:44
Speaker 2: of different things. One of the biggest uses is magnets, which,
16:47
Speaker 2: if you know, anything that has an electric motor, magnets
16:49
Speaker 2: are literally the driving force behind them. Other things catalysts,
16:57
Speaker 2: polishing uses, metallurgy, batteries, gold, last, ceramics, and pigments.
17:02
Speaker 5: So forget about like all the commercial uses. You can't
17:06
Speaker 5: make nearly any of our industrial or military industrial equipment
17:09
Speaker 5: without these rare earths or.
17:11
Speaker 2: At least at some level yep. Yeah, And so you've
17:15
Speaker 2: got problems if you can't produce this stuff domestically. This
17:19
Speaker 2: is the kind of thing where, hey, even though it's
17:22
Speaker 2: pretty ugly to produce, you know, because of localized pollution,
17:27
Speaker 2: and things like that from minds that pull this stuff
17:30
Speaker 2: out of the ground. Quite honestly, you need to be
17:33
Speaker 2: able to do this in the United States, it seems
17:36
Speaker 2: like that. And this is a national security issue absolutely,
17:39
Speaker 2: and by the way, it's not. I know, we're all
17:41
Speaker 2: just hearing about it.
17:43
Speaker 5: But in twenty ten China restricted these types of magnets
17:48
Speaker 5: from being shipped to Japan for a two month time period.
17:51
Speaker 5: It brought their entire economy to a screeching halt. And
17:54
Speaker 5: we knew about it, then understood it, then took a
17:57
Speaker 5: few steps here and there to try and invest, but
18:00
Speaker 5: by and large didn't do enough, and so all the
18:02
Speaker 5: manufacturing remains in China today.
18:04
Speaker 2: I did find out why they're called rare earth's Oh good,
18:07
Speaker 2: if you're interested served rare, yes, medium at most. I'll
18:15
Speaker 2: quote here from Wikipedia. The first rare earth mineral discovered
18:19
Speaker 2: in seventeen eighty seven was gatalanite, a black mineral composed
18:23
Speaker 2: of serium, yttrium, iron, silicon, and other elements. It was
18:27
Speaker 2: extracted from a mine in the village of Iterby, Sweden,
18:30
Speaker 2: and four of the rars bare names derived from this
18:34
Speaker 2: single location. But basically they were rare when they were
18:38
Speaker 2: initially being found, got it, and as it's become more
18:41
Speaker 2: economically feasible to extract different types of or it, you know,
18:45
Speaker 2: people realized, hey, there's actually a lot of this stuff
18:48
Speaker 2: floating around. We just didn't have the ability to get
18:52
Speaker 2: it out of the ground two hundred and fifty years ago.
18:54
Speaker 5: So that's kind of been the state of play now
18:57
Speaker 5: for the last twenty or thirty some audio. The Chinese,
19:00
Speaker 5: as they do, developed a state run industry put pretty
19:03
Speaker 5: much anybody else that wants to do this out of
19:05
Speaker 5: business or prevent them from starting up and competing unless
19:08
Speaker 5: it's going to be sponsored by the state, and not
19:11
Speaker 5: just the United States. The entire globe has accepted that reality.
19:15
Speaker 5: I think when we come back, we should just kind
19:16
Speaker 5: of talk a little bit more about the escalation between
19:19
Speaker 5: the US and China and that lever that they have
19:21
Speaker 5: to pull versus the ones we have to pull in
19:24
Speaker 5: these trade negotiations.
19:25
Speaker 4: Wall Street Watches Next.
19:42
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Speaker 1: Street Watch a complete look at what's moving markets so
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Speaker 1: far today right here on the Finchel Exchange Radio network.
20:03
Speaker 6: Well as Wall Street turns the calendar to a new month.
20:05
Speaker 6: Markets are in negative territory, but not as bad as
20:08
Speaker 6: about half an hour ago, as investors react to the
20:11
Speaker 6: latest trade tensions between the US and China in addition
20:14
Speaker 6: to disappointing ism data we received right around ten o'clock.
20:19
Speaker 6: Right now, the Dow is down by two hundred and
20:22
Speaker 6: six points are about half a percent, SMP five hundred
20:25
Speaker 6: down by a quarter percent, with the Nasdaq down by
20:28
Speaker 6: only ten points at the moment. Russell two thousands off
20:31
Speaker 6: by two thirds of a percent, Tenure Treasureel flat at
20:34
Speaker 6: four point four two percent, and crude oil jumping three
20:38
Speaker 6: percent higher today trading at sixty two dollars and sixty
20:42
Speaker 6: seven cents a barrel. Steel stocks are seeing gains on
20:46
Speaker 6: the day after President Trump doubled tariffs on the medal
20:48
Speaker 6: to fifty percent from twenty five percent, Cleveland Cliffs jumping
20:53
Speaker 6: by twenty eight percent, New Core in Steel Dynamics also
20:57
Speaker 6: up by eleven percent. Meanwhile, shares in biointech rallying eighteen
21:02
Speaker 6: percent after the German biotech company in Bristol, Meyers Squib
21:06
Speaker 6: agreed to a multi billion dollar, multi billion dollar deal
21:10
Speaker 6: to co develop an experimental cancer drug. Sticking with the
21:14
Speaker 6: biotech sector, where Maderna seeing a gain of one and
21:17
Speaker 6: a half percent after the FDA approved its next gen
21:20
Speaker 6: COVID vaccine for adults sixty five and older. French drug
21:25
Speaker 6: makers Santa Fi agreed to buy Blueprint Medicines for up
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Speaker 6: to nine and a half billion dollars, Santa Fi pulling
21:31
Speaker 6: back by about a quarter percent, while Blueprint is up
21:34
Speaker 6: by twenty six percent. Campbell's stock is flat after the
21:38
Speaker 6: food company logged higher quarterly sales driven by more consumers
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Speaker 6: cooking at home and a recent acquisition. However, its snack's
21:45
Speaker 6: business continued to struggle, and according to the Wall Street Journal,
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Speaker 6: Meta plans to fully automate advertisement creation using artificial intelligence
21:54
Speaker 6: by the end of twenty twenty six. Meta is up
21:57
Speaker 6: by over one percent on the day. On Tucker Silva
22:00
Speaker 6: and that's Wall Street.
22:01
Speaker 2: Watch, Mike, you wanted to talk a little bit more
22:03
Speaker 2: about what's going on with the US and China on trade.
22:07
Speaker 5: Yeah, so, obviously over the weekend or on Friday, President
22:11
Speaker 5: Trump accused them of breaking the terms of the agreements.
22:13
Speaker 5: China fired back with some of their own accusations about
22:18
Speaker 5: the Trump White House canceling Chinese visas about restricting exports
22:25
Speaker 5: of semiconductors, and honestly, both of them have compelling evidence.
22:30
Speaker 5: I don't know exactly what was agreed to in these
22:33
Speaker 5: Geneva terms, but it's because there's no written agreements, right, so,
22:37
Speaker 5: you know, whatever handshake deal was done, I'm not sure
22:40
Speaker 5: that it addressed these items in particular. But both countries
22:44
Speaker 5: have some non tariff ability to fire back at the
22:49
Speaker 5: other country. And the all important question here is does
22:55
Speaker 5: this continue to re escalate? It has over the last
22:58
Speaker 5: couple of days, but not with anything meaningful. And then
23:01
Speaker 5: I guess the second important question is if the Trump
23:05
Speaker 5: administration wants to use tariff measures to fire back at China,
23:09
Speaker 5: which ones do they use given the legal concerns about
23:12
Speaker 5: the existing ones they've they've structured.
23:15
Speaker 2: Yeah, I think, look, the specifics are going to be
23:19
Speaker 2: what they're going to be, simply because I don't think
23:22
Speaker 2: any of us are going to be able to predict
23:23
Speaker 2: the exact date or you know, measure used by either
23:27
Speaker 2: the Trump administration or the Chinese government as they're you know,
23:31
Speaker 2: kind of still going out of here. Sure, it is
23:33
Speaker 2: clear that hey, you're not at a complete uh you know,
23:39
Speaker 2: reset and everyone feeling good about things like, there still
23:42
Speaker 2: are some significant tensions here, and so I think you're
23:46
Speaker 2: kind of in the same spot that you've been in
23:48
Speaker 2: for the last couple of months, which is, hey, who's
23:51
Speaker 2: willing to stomach more pain in order to get the
23:55
Speaker 2: resolution that they want out of this?
23:57
Speaker 3: And you can't predict that. There is no way to
24:01
Speaker 3: predict that. It's not a predictable equilibrium that you arrive at.
24:04
Speaker 3: It's not.
24:05
Speaker 5: But I'll tell you I really don't like the idea.
24:08
Speaker 5: I don't love the United States odds in a game
24:10
Speaker 5: of who can inflict more pain on their economy's chicken?
24:15
Speaker 2: Who who can inflict more I guess sustain on their economy?
24:22
Speaker 4: Can sustain chicken? Who can sustain more pain on their
24:25
Speaker 4: own economy?
24:26
Speaker 2: Oh so you're you're not talking about the chicken that
24:30
Speaker 2: belongs to the economy.
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Speaker 3: You're talking about a game of Chicken.
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Speaker 4: Chicken that's named who can sustain more pain on themselves?
24:36
Speaker 3: I'm like, I didn't even know our economy had a chicken. Yeah,
24:40
Speaker 3: got it? Okay, So.
24:43
Speaker 4: I don't love our odds in that game. We're democracy yes, Okay,
24:48
Speaker 4: talk to me about why that matters.
24:51
Speaker 5: If what we end up in is a continued trade
24:55
Speaker 5: war and or non trade barriers escalation.
24:59
Speaker 4: Our main.
25:01
Speaker 5: Our main advantages in that are more diverse economy and
25:06
Speaker 5: restrictions of semiconductors and you know, forbidding students from coming
25:11
Speaker 5: to the US as well as I disagree.
25:13
Speaker 2: So here here's the thing, Like we we can point
25:16
Speaker 2: to places where each economy is vulnerable, like the US.
25:19
Speaker 2: You can say, hey, China, you know, controls all these
25:22
Speaker 2: rare earth elements, and we won't be able to make
25:24
Speaker 2: a lot of you know, the machinery that that we
25:26
Speaker 2: need in our economy. Sure, okay, that's fine. Does China
25:30
Speaker 2: produce anywhere near enough food defeat its population?
25:34
Speaker 3: No, no, they don't.
25:36
Speaker 4: But again, that argument only works if they can't find
25:39
Speaker 4: it elsewhere.
25:41
Speaker 3: Well, isn't it the same with the US?
25:42
Speaker 2: I mean, ultimately, if the US says, hey, we need
25:45
Speaker 2: more of this stuff, great, Like you think that China
25:48
Speaker 2: is the only country they can engage in like duping
25:50
Speaker 2: where stuff comes from. No, No, I'm sure the US
25:53
Speaker 2: could lie. I'm not saying that this would be easier
25:55
Speaker 2: like rapid or in the quantities that you need immediately.
25:58
Speaker 2: But Okay, there's some wealthy person or wealthy group out
26:02
Speaker 2: of Luxembourg that's going to be able to get you
26:05
Speaker 2: the selenium that you need, or yeah, is the serium
26:08
Speaker 2: or whatever the heck the rare herds are like, I'm
26:11
Speaker 2: not saying it will be easy or clean, but I'm
26:16
Speaker 2: saying China is not the only country that can figure
26:19
Speaker 2: out ways around export restrictions and stuff.
26:22
Speaker 4: True, I think.
26:24
Speaker 5: I'm much more optimistic medium to long term about the
26:28
Speaker 5: state of the US demographically and economically than China.
26:31
Speaker 4: China is in a.
26:34
Speaker 5: Very serious demographic issue that they are going to need
26:37
Speaker 5: to reckon with over the course of the next few
26:39
Speaker 5: decades that they don't seem to have a solution for,
26:42
Speaker 5: and for that reason alone, I think the United States
26:45
Speaker 5: is in such a better position short term.
26:48
Speaker 3: I just worry about.
26:51
Speaker 5: Our ability to withstand the economic downturn compared to China's
26:55
Speaker 5: willingness and ability to withstand the same downturn. And maybe
26:58
Speaker 5: and maybe that downturn. Maybe that's wrong question to ask
27:01
Speaker 5: because we won't actually face it.
27:02
Speaker 2: I think talking about things that generally makes it impossible
27:05
Speaker 2: to analyze. Yeah, that's fair, because like the path matters
27:08
Speaker 2: as well. And and what I mean by the path
27:11
Speaker 2: mattering is not just hey, how does the economy evolve?
27:16
Speaker 2: But what are like the public facing events that can
27:19
Speaker 2: either cause internal strife or create additional unity amongst the population.
27:25
Speaker 2: Like these things don't happen in a vacuum. And so
27:29
Speaker 2: you know, if there's some event out there where all
27:33
Speaker 2: of a sudden, the whole US population is like, hey,
27:35
Speaker 2: you know what, we we really got a band together
27:38
Speaker 2: and do this, Like you can't even predict like what
27:41
Speaker 2: that is. So I I just I kind of caution
27:45
Speaker 2: against those things that are inherently not able to be predicted,
27:49
Speaker 2: not even unpredictable in like the sense we.
27:51
Speaker 3: Talk about them.
27:52
Speaker 2: But just like, hey, who again, in a game of chicken,
27:57
Speaker 2: you can't say any side is more or less likely
28:01
Speaker 2: to win, because if everyone starts playing that game, you
28:04
Speaker 2: don't know where individual's breaking points are.
28:07
Speaker 1: True.
28:08
Speaker 2: And for all the for all the talk about you know, oh,
28:11
Speaker 2: the Chinese government like they work you know, further ahead,
28:14
Speaker 2: and the Chinese population like they don't care about them,
28:17
Speaker 2: and so like they'll just you know, subjugate them in
28:19
Speaker 2: this and well there's also no feedback that goes up
28:22
Speaker 2: to the Chinese government about how bad things really are
28:25
Speaker 2: amongst the populace, and eventually that that's kind of what
28:28
Speaker 2: takes down most authoritarian regimes eventually, is they don't realize
28:32
Speaker 2: how bad things have gotten.
28:33
Speaker 3: True, and it happens quickly when.
28:36
Speaker 4: It does, and I'm not very slowly, and then all
28:39
Speaker 4: at once.
28:39
Speaker 2: I'm not saying we're at that point, but like people
28:41
Speaker 2: forget that the Soviet Union basically fell in three days,
28:44
Speaker 2: and I'm not comparing the two, except that I'm comparing
28:47
Speaker 2: the two because quite honestly, like Gi has kind of
28:52
Speaker 2: welcomed comparisons to the Soviet Union, So I do think
28:54
Speaker 2: it's actually an apt comparison from certain standpoints, but you know,
28:59
Speaker 2: not not all obviously.
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Speaker 1: Uh.
29:01
Speaker 2: Let's see, let's take a quick break here. When we
29:04
Speaker 2: come back. Duh, tariff tariff. We gonna do more tariffs
29:13
Speaker 2: the US.
29:13
Speaker 4: We can save them.
29:14
Speaker 2: President Trump's gonna raise the tariff und steal in aluminum
29:17
Speaker 2: imports to fifty percent from twenty five.
29:20
Speaker 3: God, we covered that. Let's talk about the US deficit
29:23
Speaker 3: when we return.
29:25
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29:27
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30:07
Speaker 3: All right, So we have a piece here today. This
30:11
Speaker 3: is in Bloomberg.
30:12
Speaker 2: Headline is Besson says US will never default as Congress
30:16
Speaker 2: faces endgame. It's kind of mixing up a few different
30:21
Speaker 2: topics there that makes the headline seem way more dramatic
30:25
Speaker 2: than it actually is.
30:27
Speaker 3: Besson't is ultimately right. I believe in that.
30:32
Speaker 2: Yeah, if the US doesn't want to, it will never
30:36
Speaker 2: default because it can print its own currency. The piece
30:41
Speaker 2: on Congress getting towards its endgame is in reference to
30:44
Speaker 2: the debt ceiling, which we always have to bring up
30:48
Speaker 2: every couple of years when it becomes a thing because
30:52
Speaker 2: oh boy, the debt ceiling's coming up again, and gosh,
30:55
Speaker 2: this one is gonna be the time where they might
30:58
Speaker 2: really do it and Ultimately, they all always end up
31:00
Speaker 2: raising the debt ceiling because gee, guess what, if.
31:03
Speaker 4: You're not doing so, is shooting yourself and your own
31:06
Speaker 4: tor set.
31:06
Speaker 3: Yes, then it would.
31:07
Speaker 2: Actually be like basically defaulting on your debt, not because
31:12
Speaker 2: you can't pay it, but because you choose not to.
31:14
Speaker 2: It's it's like if you were to take out a
31:16
Speaker 2: mortgage where you're paying one thousand dollars a month, and
31:19
Speaker 2: you agreed to take out that mortgage with the bank,
31:23
Speaker 2: and then you get to, you know, halfway through the year,
31:25
Speaker 2: and you're like, well, I've already spent as much money
31:28
Speaker 2: as I feel comfortable spending this year, so I'm not
31:32
Speaker 2: gonna be making my payments for the rest of the
31:34
Speaker 2: year even though I can. That's basically what the debt
31:37
Speaker 2: ceiling is. It's relating on debts that you have already
31:40
Speaker 2: agreed to pay. And what I mean by that is
31:45
Speaker 2: when the US government, when Congress and the President pass
31:49
Speaker 2: a budget or a continuing resolution, they are laying out
31:52
Speaker 2: federal spending that they are agreeing to, and if you
31:55
Speaker 2: don't raise the debt ceiling, you're basically saying, well, we
31:57
Speaker 2: can't pay what we've already agreed to spend on and
31:59
Speaker 2: that that's dumb, which is why we think the debt
32:02
Speaker 2: ceiling discussion crisis, whatever happens, is also done.
32:07
Speaker 4: So the debt ceiling piece comes into play.
32:11
Speaker 3: Where are we like July September.
32:13
Speaker 5: To September somewhere in there, and the Treasury in the
32:15
Speaker 5: past has had to use extraordinary measures to make sure
32:18
Speaker 5: we don't default. Robin Peter to pay Paul if you
32:21
Speaker 5: will for periods of time, but that is.
32:23
Speaker 3: You're always gets screwed.
32:24
Speaker 4: He does.
32:25
Speaker 5: But in either case, that deadline is you know, hypothetically
32:29
Speaker 5: important because Congress wants to pass all of this, increase
32:33
Speaker 5: the debt ceiling and pass their tax bill at the
32:35
Speaker 5: same time if they can just makes it a little
32:38
Speaker 5: bit easier to get all the votes that you need
32:40
Speaker 5: if it's all that important at the same time. And again,
32:46
Speaker 5: regardless of what happens with the shape and form of
32:48
Speaker 5: the tax bill, I think I'm with Scott Besson that
32:51
Speaker 5: we're going to raise the debt ceiling and not default
32:53
Speaker 5: down like that.
32:54
Speaker 4: There we go.
32:55
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Speaker 2: Muhammed el Arian, who previously was very high up at PIMCO.
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Speaker 2: He's now the president of Queen's College in Cambridge and
34:09
Speaker 2: an advisor to Alliance and Grammarcy and.
34:13
Speaker 5: I don't believe has gone three months without criticizing the
34:16
Speaker 5: FED in the last five years or so.
34:20
Speaker 3: He's got a piece here in uh Financial Times.
34:24
Speaker 2: I'm going to read part of a paragraph from this
34:26
Speaker 2: and talking about you know what the FED needs to improve.
34:30
Speaker 2: They include improving communication by measures such as creating and
34:33
Speaker 2: publicly and releasing a formal structure for the use of
34:35
Speaker 2: forward guidance on policy, publishing staff forecast, giving explicit guidance
34:39
Speaker 2: on the trade offs between employment and inflation, and developing
34:42
Speaker 2: a transparent framework to assess quantitative easing and tightening programs.
34:48
Speaker 3: I tell you so, here's the thing. Here's the thing.
34:52
Speaker 2: In the last five years, there have been times where
34:57
Speaker 2: we've been really critical of the FED late twenty one,
35:01
Speaker 2: all of twenty two, the first two thirds of twenty three.
35:06
Speaker 2: I believe the technical term used by Mark Vandetti is failure.
35:11
Speaker 3: That one. That one.
35:13
Speaker 2: There have been other times the last twelve to eighteen
35:16
Speaker 2: months where we've said, hey, they're doing a pretty good job.
35:19
Speaker 2: Unemployment's still in the low fours, inflation has now come
35:22
Speaker 2: down to the mid twos. It's tough to find that
35:25
Speaker 2: much to be critical of at this point, and in
35:29
Speaker 2: all of this, I don't think any of what we've
35:32
Speaker 2: been critical of has been Hey, the FED is communicating
35:37
Speaker 2: not enough for they're communicating wrong, and that's why you
35:40
Speaker 2: know policy isn't effective. Our criticisms were, Hey, in March
35:47
Speaker 2: of twenty twenty two, you got inflation it like eight
35:51
Speaker 2: ish percent, and Russia just invaded Ukraine and oil just
35:56
Speaker 2: went over one hundred dollars a barrel, and you're going
35:59
Speaker 2: to raise rates of u percent because you're not sure
36:01
Speaker 2: if this is inflationary. No, why are you guys not
36:05
Speaker 2: moving faster on policy? It's why are your actions not
36:09
Speaker 2: more robust when they need it to be? Because other
36:12
Speaker 2: than that, I'll be one hundred percent honest. Jay Powell's
36:16
Speaker 2: been in charge of the FED since was twenty eighteen.
36:18
Speaker 2: When he started late late seventeen. I think it was
36:21
Speaker 2: early eighteen, Towardsana Trump administration. I don't remember. I think
36:24
Speaker 2: it was February of twenty eighteen when he started. I'm
36:27
Speaker 2: pulling it up now just to be correct. Yeah, Jay
36:30
Speaker 2: Powell start. Oh no, that was when he was born. Actually, no,
36:34
Speaker 2: this is fascinating. He was born on February fourth, nineteen
36:37
Speaker 2: fifty three. He became chair of the FED on February fifth,
36:40
Speaker 2: twenty eighteen. Happy birthday, Jay Powell.
36:43
Speaker 3: Right.
36:44
Speaker 2: President Trump appointed him then on his shortly after his
36:47
Speaker 2: sixty fifth birthday. Most people retire around sixty five. Jays,
36:52
Speaker 2: I'm gonna run the FED, Thank you very much. Give
36:54
Speaker 2: me the purple tie. So I think during that tenure
37:00
Speaker 2: the only time that I can point to where Jay
37:03
Speaker 2: has been objectively bad, and I'm putting it all on
37:07
Speaker 2: him just because he's the head. Sure twenty two and
37:10
Speaker 2: the first part first half of twenty three, there are
37:13
Speaker 2: parts where you could be like, hey, he needed to
37:15
Speaker 2: work in his communication, but he figured it out pretty quickly,
37:18
Speaker 2: like the end of eighteen. But ultimately, if if I'm
37:22
Speaker 2: grading j. Powell and his communication, like not not his
37:26
Speaker 2: monetary policy, but his communication, I give him a solid B.
37:31
Speaker 2: He always says like A he lets a couple things slip,
37:34
Speaker 2: which I kind of like, like he actually lets you
37:36
Speaker 2: know what he's really thinking, which economist would argue he
37:39
Speaker 2: shouldn't do. But I think it actually helps to inform
37:43
Speaker 2: Like how like when we know what he's thinking, it
37:47
Speaker 2: helps us to inform what they're.
37:48
Speaker 3: Going to do J.
37:50
Speaker 2: Powell's policy. Even for again, outside of that one period
37:53
Speaker 2: which you could objectively grate, is probably like a D minus.
37:57
Speaker 2: The rest of it is probably a minus. Does it
38:02
Speaker 2: average to like a C plus?
38:04
Speaker 3: Sure?
38:04
Speaker 2: Probably because like you you can't undo, like you can't
38:07
Speaker 2: just void a twenty one month period. But it's not
38:12
Speaker 2: the communication that's the problem. No, it wasn't or that
38:16
Speaker 2: you can constantly you can, you can permanently criticize. It
38:18
Speaker 2: was the policy for about a year and a half
38:21
Speaker 2: that was the problem. Quick break, when we come back,
38:25
Speaker 2: hour two,