Latest / The Financial Exchange Show / Long awaited CPI report brings good news

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Long awaited CPI report brings good news · The Financial Exchange Show

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Speaker 2: Chuck, Mike and Tucker with you here on a wonderful
1:13
Speaker 2: day here on the Financial Exchange. Wonderful Mike. We've got
1:19
Speaker 2: the CPI report for September. The wait was long, the
1:23
Speaker 2: way it was difficult. Our government data withdrawals are over.
1:26
Speaker 2: Oh I started, I've stopped shaking. I got, I got
1:30
Speaker 2: my fixed, and I'm just I'm good, you know. So
1:34
Speaker 2: CPI data for the month of September came in. This
1:37
Speaker 2: was originally supposed to be published in the middle of
1:39
Speaker 2: last week. It was obviously not published them because the
1:42
Speaker 2: government shut down, and early last week the BOS folks
1:46
Speaker 2: who were responsible for this were called back because the
1:49
Speaker 2: September collection had basically it had been completed because the
1:52
Speaker 2: government did not shut down until October one. They just
1:56
Speaker 2: had to take the completed data and actually plug it
1:59
Speaker 2: into their stuff in order to get the numbers. So
2:03
Speaker 2: they came back last week, worked over the last two weeks,
2:06
Speaker 2: and today this morning we got the CPI data four September.
2:10
Speaker 2: What did it show.
2:13
Speaker 3: Calmer than anticipated price increases is what it showed from
2:18
Speaker 3: a headline perspective, So getting into the details here, year
2:21
Speaker 3: over year prices are firmly up three percent. It doesn't
2:24
Speaker 3: matter if you're stripping out food and energy or including it.
2:28
Speaker 3: Prices are pretty firmly up three percent compared to this
2:31
Speaker 3: time last year. On a month over month increase, we
2:33
Speaker 3: came in at three tenths of a percent on headline prices,
2:37
Speaker 3: two tenths of a percent on core prices. Again stripping
2:40
Speaker 3: out the food and energy impact there you get to
2:42
Speaker 3: a little bit lower. This is a big relief to
2:45
Speaker 3: markets who are anticipating again, like I mentioned, more like
2:48
Speaker 3: four tenths of a percent monthly increase on the headline CPI.
2:51
Speaker 2: And a slightly higher year over year number.
2:54
Speaker 3: It also comes in the context of August, where the
2:57
Speaker 3: pace of increases was fairly high, right at four tenths
3:00
Speaker 3: percent increase in the month of August, and this came
3:02
Speaker 3: down from that, from that rough patch there. So what
3:06
Speaker 3: I'm comfortable saying is that this firmly beat expectations and
3:10
Speaker 3: markets are reacting to that, and it is a level
3:13
Speaker 3: of inflation that the Fed has publicly stated they are
3:16
Speaker 3: pretty comfortable with. It is also very firmly in a
3:20
Speaker 3: range that I think most Americans aren't terribly comfortable with.
3:24
Speaker 3: That three percent level long term is also not the
3:27
Speaker 3: Fed's goal, and I don't think they should be comfortable
3:29
Speaker 3: with it long term. But for the short term they've
3:31
Speaker 3: pretty publicly stated, Look, if it's right here, then we're
3:33
Speaker 3: gonna keep doing what we think we should be doing,
3:36
Speaker 3: which is lowering rates because of concerns about the jobs
3:39
Speaker 3: market instead of being concerned about price levels.
3:41
Speaker 2: So here's the interesting thing, like you talk about, you know,
3:44
Speaker 2: markets are excited about this. Equity markets are yep s
3:47
Speaker 2: and P five hundred up almost one percent, NASDAC up
3:50
Speaker 2: more than one percent, Dow up almost one percent. Great,
3:54
Speaker 2: the bond market doesn't really care about this in any
3:57
Speaker 2: meaningful fashion. And what I mean but that as the
4:00
Speaker 2: tenure Treasury today is up one point two basis points, Like,
4:04
Speaker 2: that's not a meaningful move in any way, shape or form.
4:07
Speaker 2: It's it's basically flat, is what you can say. And
4:12
Speaker 2: so here's how I am thinking about this in you know,
4:17
Speaker 2: the immediate aftermath of this, because obviously, like we could,
4:19
Speaker 2: you know, see how this plays out over the next
4:22
Speaker 2: couple of years, But the immediate aftermath of this report
4:25
Speaker 2: is okay for equity markets. This takes off the table
4:31
Speaker 2: the idea that the FED is going to have to
4:34
Speaker 2: that the FED won't be able to cut the next
4:36
Speaker 2: couple months because of my inflation. Especially. White House came
4:41
Speaker 2: out today and said, guys, we're probably not going to
4:44
Speaker 2: be getting in October CPI reading because the data is
4:47
Speaker 2: not being collected. Yep, got it. So if you're not
4:51
Speaker 2: going to get in October one, which means that's not
4:53
Speaker 2: showing up in November, odds are, hey, there's a chance
4:56
Speaker 2: you get the November one in December, but you might
4:59
Speaker 2: not get another SEA until twenty twenty six. Possible. Possible.
5:04
Speaker 2: So in the you know, immediate future, we've got a
5:07
Speaker 2: FED meeting next week, in another one mid December, it's
5:11
Speaker 2: pretty hard to see there being any data that comes
5:13
Speaker 2: out in the interim suggesting, hey, you can't cut because
5:17
Speaker 2: of high inflation. Yeah.
5:19
Speaker 3: I'm trying to think of like what could actually spike
5:22
Speaker 3: inflation and would the FED react to it. The only
5:25
Speaker 3: thing I can think about would be energy prices.
5:27
Speaker 2: And the FED wouldn't react. I wouldn't react. No, So
5:30
Speaker 2: I think we are pretty darn coast to solidifying additional
5:34
Speaker 2: quarter percent cuts at a minimum in the next two meetings,
5:39
Speaker 2: but beyond that, if inflation continues to run at three percent,
5:43
Speaker 2: and the ten year Treasury right now is sitting at
5:45
Speaker 2: four There's not really anything in this report that says, yeah,
5:50
Speaker 2: you can get interest rates down to you know, one
5:53
Speaker 2: percent on the Fed funds rate or anything like that,
5:56
Speaker 2: or that you need to get interest rates down there.
5:58
Speaker 2: Certainly not.
5:59
Speaker 3: And it's all so really again to your point about
6:01
Speaker 3: the bond market not moving, What is this going to
6:05
Speaker 3: do to long term rates?
6:06
Speaker 2: Seemingly not much? No, not much here. It's okay, great,
6:11
Speaker 2: you've got inflation that's pretty consistently running three percent. Dish, Okay,
6:17
Speaker 2: we'll take four percent on the ten years what the
6:19
Speaker 2: bond market is telling you mean, we'll take six cent
6:21
Speaker 2: a quarter on mortgages? Correct, like you're gonna hang out
6:25
Speaker 2: in that range. Now, the problem there, six and a
6:28
Speaker 2: quarter isn't enough to reduce the housing market. We know this,
6:33
Speaker 2: by the way, because we've seen what's going on with
6:38
Speaker 2: the housing market, the housing market and specifically mortgage applications. Wednesday,
6:43
Speaker 2: we got the Mortgage Purchase Index from the Mortgage Bankers
6:46
Speaker 2: Association the NBA, if you will, This is the preferred MBA,
6:51
Speaker 2: not the nbas that get turned out of business schools
6:53
Speaker 2: got it and then say hey, fire all of the
6:55
Speaker 2: people with the institutional knowledge because we can get someone
6:57
Speaker 2: cheaper or ai in there. I just had to get
7:00
Speaker 2: that in. Yeah, the end of the week. You gotta
7:03
Speaker 2: make these count, you know. So here's what we saw
7:06
Speaker 2: for mortgage purchase applications this week. They declined about six
7:10
Speaker 2: percent week over week, and right now are running at
7:14
Speaker 2: the same place that they were in January. Mike, is
7:18
Speaker 2: January typically a hot time for the housing market? Not
7:21
Speaker 2: as far as I know, No, it's usually pretty cold.
7:24
Speaker 2: So I think that overall, when we look at this,
7:27
Speaker 2: the message that I am getting is twofold on housing.
7:31
Speaker 2: Number one, it's affordability concerns. But the other thing we
7:34
Speaker 2: cover quite often, Connorson writes for Bloomberg Opinion. He also
7:39
Speaker 2: tweets about a whole lot of stuff. And he's been
7:43
Speaker 2: kind of beating this horse. I don't know where that
7:46
Speaker 2: idiom comes from, but he's been. He's been riding this tops.
7:50
Speaker 2: He's been riding this horse for a while. Now. Why
7:53
Speaker 2: would you beat a horse, Well, it's already dead stop.
7:57
Speaker 2: He's been riding this horse for a while now. That
8:00
Speaker 2: the problem with housing isn't just affordability. Part of the
8:04
Speaker 2: reason why people buy housing, either for themselves or as
8:09
Speaker 2: an investment, is because prices are expected to go up. Okay,
8:13
Speaker 2: if you have large parts of the housing market now
8:16
Speaker 2: where prices are falling, falling prices are a signal two buyers, Hey,
8:23
Speaker 2: maybe this isn't the best time to buy. Think about
8:26
Speaker 2: this in the context of the financial crisis. Prices started
8:29
Speaker 2: falling in two thousand and six, a year before the
8:33
Speaker 2: subprime issues even showed up. Sure, but housing activities slowed
8:36
Speaker 2: over the next couple of years. It wasn't just oh, hey,
8:40
Speaker 2: people don't want to lend its. People see like you
8:42
Speaker 2: hear the stories about you know a friend who bought
8:45
Speaker 2: a house and then had to sell and take a
8:49
Speaker 2: five percent loss on it, and you say, gee, I
8:52
Speaker 2: don't want that to be me. And that happens more
8:55
Speaker 2: and more, And basically Connor's point is, look until you
8:58
Speaker 2: get to a place where the affordability concerns are such
9:02
Speaker 2: that prices aren't falling in large parts of the country
9:05
Speaker 2: for housing, it's tough to see housing activity picking up.
9:09
Speaker 2: Because pricing informs why people buy, either as an investment
9:12
Speaker 2: or as a personal decision. Part of The reason why
9:16
Speaker 2: people want to buy homes is because they think they're
9:18
Speaker 2: going to go up in value. And so, yeah, if
9:21
Speaker 2: you're stuck with six and quarter percent mortgage rates and
9:24
Speaker 2: falling prices in Florida, Colorado, Texas, you know, like big,
9:29
Speaker 2: big housing markets, it's kind of hard to see housing,
9:34
Speaker 2: you know, having any kind of major recovery. It's also
9:37
Speaker 2: hard to see it falling apart because there are also
9:39
Speaker 2: parts of the country where prices are still rising, right,
9:42
Speaker 2: so kind of messy on that side. Back to the
9:46
Speaker 2: inflation report.
9:47
Speaker 3: The reason that we got it, the reason that we
9:49
Speaker 3: had this inflation report in spite of a government shutdown,
9:52
Speaker 3: was all because of Social Security. So going to that
9:55
Speaker 3: topic for a moment here. Soci Security Administration has now
9:58
Speaker 3: published the twenty twenty six COLA. It's coming in at
10:01
Speaker 3: two point eight percent is your cost of living adjustment
10:04
Speaker 3: for twenty twenty six. So practically speaking, what does that
10:07
Speaker 3: mean the average SOCID security recipient receiving two thousand and
10:10
Speaker 3: five dollars in twenty twenty five, we'll see an increase
10:15
Speaker 3: of fifty six dollars per month in that Social Security payment.
10:19
Speaker 3: On the other hand, detracting from that Medicare Part B
10:22
Speaker 3: premiums expected to rise twenty one dollars and fifty cents
10:27
Speaker 3: in twenty twenty six. So again, for vast majority of
10:30
Speaker 3: Social Security recipients, that premium is coming right out of
10:33
Speaker 3: that Social Security payment. And so if you're making the average,
10:37
Speaker 3: you're seeing a little bit less than half of that
10:39
Speaker 3: increase go towards Medicare. If you're making less than that
10:42
Speaker 3: average source security premium, then a bit more of it
10:46
Speaker 3: is going towards that Medicare cost, which which is eating
10:49
Speaker 3: up a big chunk of it. So think about what
10:52
Speaker 3: the break even point is there. A little bit less
10:54
Speaker 3: than one thousand dollars a month in payments means all
10:56
Speaker 3: of it would go to that Medicare increase.
10:58
Speaker 2: Let's take a quick break here. When we come back,
11:01
Speaker 2: we're talking tariffs and earnings.
11:03
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11:08
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Speaker 2: Mike, we get a piece from the New York Times.
12:01
Speaker 2: It's titled Companies of shielded buyers from tariffs but not
12:04
Speaker 2: for law.
12:04
Speaker 3: I'm done with this story. I am too, Like tell
12:07
Speaker 3: me when we see it, because I've reported on this
12:10
Speaker 3: fifteen times since April.
12:11
Speaker 2: And like it. It's I And look, here's the thing
12:15
Speaker 2: you are seeing. It showing up in areas that do
12:19
Speaker 2: not have widespread tariff exemptions like if if you want
12:23
Speaker 2: to look, just in the latest CPI report, look at
12:25
Speaker 2: audio equipment. Just as an example, audio equipment is one
12:28
Speaker 2: of the only pieces of electronics that has no exemptions
12:33
Speaker 2: out there on a tariff from any of the tariffs
12:36
Speaker 2: that are out there. And if you look at where
12:39
Speaker 2: it's where it is year over year, it's closing in
12:42
Speaker 2: on fourteen percent year over year price change for audio equipment. Sure,
12:47
Speaker 2: and so it's like, yeah, there's no exemption on this stuff,
12:50
Speaker 2: and so prices are moving up. It's it's really really clear.
12:55
Speaker 2: I mean, if you want to look at other areas
12:58
Speaker 2: where this is happening, another place where look, we don't
13:02
Speaker 2: produce any of it domestically, and you know what is uh,
13:06
Speaker 2: what's what's happening with it because of tariff's coffee Coffee
13:10
Speaker 2: prices are up eighteen percent year over year. My god,
13:13
Speaker 2: most of it in the last couple months because of
13:15
Speaker 2: the new Brazil tariffs and so like you look at
13:19
Speaker 2: July was up here we go roasted coffee two point
13:22
Speaker 2: three percent. August was up three point six percent. Like sure,
13:26
Speaker 2: you can point to tariffs applied. This price went up
13:29
Speaker 2: because there's no exemption for all the other stuff. Where
13:32
Speaker 2: you're like, hey, is it gonna happen or not? Yeah,
13:34
Speaker 2: they're definitely are companies that you know are still working
13:37
Speaker 2: through old inventory in this they're going to pass it
13:39
Speaker 2: through when it happens, and like, I'm tired of being like, oh,
13:45
Speaker 2: is it gonna show up or not? It either is
13:47
Speaker 2: or it isn't. And if it's not right now, odds
13:49
Speaker 2: are you're not gonna get too much more showing up
13:51
Speaker 2: in the future. I'm kind of done with it, to
13:54
Speaker 2: be honest.
13:55
Speaker 3: Yeah, yeah, I don't know about the last statement, like
14:00
Speaker 3: too much more of it will show up in the future.
14:02
Speaker 3: I guess it depends on how all this stuff goes.
14:04
Speaker 3: But it's been six months, folks.
14:06
Speaker 2: Well you're look, you're you are seeing broad based goods
14:09
Speaker 2: inflation at this point. Like I don't know why we're
14:13
Speaker 2: trying to pretend that it's just like it hasn't happened. Right,
14:16
Speaker 2: If you look at non durable goods in the last year,
14:19
Speaker 2: they've gone from almost five percent deflation to two percent inflation.
14:24
Speaker 2: That's a seven percent shift that you've seen. What else
14:28
Speaker 2: are you expecting crisis? You know, like Pet's had that.
14:34
Speaker 3: That's the piece that I'm getting fed up with is
14:36
Speaker 3: these stories get printed on the premise that it's going
14:40
Speaker 3: to break our financial system, and I think the evidence
14:43
Speaker 3: is out on that one.
14:44
Speaker 2: Now.
14:44
Speaker 3: It's not this the inflation from goods is not what's
14:48
Speaker 3: going to break things. What could break things would be
14:50
Speaker 3: negotiations breaking down and we can't source rare earth materials,
14:54
Speaker 3: or or if.
14:55
Speaker 2: You had one hundred percent tariffs on China from here
14:57
Speaker 2: going like sure, yeah, this starts to become problem. Which
15:00
Speaker 2: is what markets were freaked out about in April was
15:03
Speaker 2: you had that in place and there wasn't the sense
15:05
Speaker 2: that that was going to be something that was capitulated. Right.
15:07
Speaker 3: The point the narrative on April second was not that
15:10
Speaker 3: we're going to end up with where are we fourteen
15:12
Speaker 3: percent average effective teriffs?
15:13
Speaker 2: Do you think in that ballpark?
15:14
Speaker 3: It was a story there was thirty seven, right, it
15:17
Speaker 3: was three x where we ended up landing. So of
15:19
Speaker 3: course markets were freaking out at that point in time.
15:22
Speaker 3: We've landed at a place that is a lot lower
15:24
Speaker 3: than that. It might be actually twelve where we are
15:26
Speaker 3: right now.
15:27
Speaker 2: I haven't seen any updates because part like we're not
15:29
Speaker 2: getting government data now on what's being collected in everything,
15:32
Speaker 2: and so yeah, we are seeing it.
15:37
Speaker 3: It's part of why you can't get inflation much down
15:40
Speaker 3: below three percent.
15:41
Speaker 2: We're going to continue to see it.
15:42
Speaker 3: I think the stories about the individual businesses that are
15:46
Speaker 3: facing it and how they are reacting to it are
15:48
Speaker 3: fascinating from a business perspective. But don't tell me it's
15:52
Speaker 3: gonna be world ending right now, because it's been six
15:55
Speaker 3: months and it hasn't been right.
15:58
Speaker 2: It's I just I'm tired of, you know, reading the
16:03
Speaker 2: pieces of well just wait until like this. No, Like,
16:07
Speaker 2: I'm not just gonna keep like waiting for this to happen.
16:10
Speaker 2: I'm not saying that the tariffs are good, bad, or ugly.
16:13
Speaker 2: What I am saying is you're seeing the effects or
16:15
Speaker 2: you're not. In audio equipment, they're showing up. In coffee,
16:19
Speaker 2: they're showing up. Are those the only two industries where
16:23
Speaker 2: businesses are like, yeah, pass this on and everyone else
16:26
Speaker 2: is like, no, we can't pass this song. We are
16:29
Speaker 2: not coffee or audio equipment manufacturers, and so we can't
16:33
Speaker 2: pass the tariffs song. Like no, Like, businesses are gonna
16:38
Speaker 2: try to do what they need to do to maintain
16:39
Speaker 2: their margins. Sometimes that's gonna be raising prices, sometimes it's
16:43
Speaker 2: gonna be cutting head count, and other times it's gonna
16:46
Speaker 2: be pressuring suppliers. Yes, so, so we're seeing all these
16:50
Speaker 2: things here, audio equipment and coffee that's literally my job. Great,
16:55
Speaker 2: I know that's true. I feel for you. It really
17:03
Speaker 2: on both sides. Dissuades you from when you're having a
17:06
Speaker 2: bad day throwing a cup of coffee at the audio equipment.
17:09
Speaker 3: Tucker wakes up at four am and spends all of
17:12
Speaker 3: his day working with audio equipment. I mean, what two
17:16
Speaker 3: products are more important to his well being?
17:18
Speaker 2: Or aren't any devastating? Trying to think of anything else
17:22
Speaker 2: that seeing. Let's see what else is up big in
17:25
Speaker 2: the last year. Oh, utility gas service up eleven point
17:28
Speaker 2: seven percent cause of teriffs. Well, we need the heat
17:31
Speaker 2: we're getting into winter. No, that's not because the tariffs.
17:34
Speaker 2: Let's see, let's talk a little bit about earnings, cause
17:38
Speaker 2: I feel like earnings have been fine this week, but
17:42
Speaker 2: you get this piece in the Wall Street Journal strong earnings,
17:44
Speaker 2: reassured jittery, data deprived investors. There hasn't been anything bad
17:48
Speaker 2: in earnings this week. But I'm not looking at this
17:50
Speaker 2: earning set being like, wow, what a knockout. It's you're
17:54
Speaker 2: seeing some small beats. The beats that we're seeing are
17:56
Speaker 2: smaller than they typically are, about a third of a
17:59
Speaker 2: percent compared to normally a one to two percent beat,
18:03
Speaker 2: and so there's nothing in earnings that you see that's like, hey,
18:07
Speaker 2: things are gonna fall off a cliff or their problems.
18:09
Speaker 2: But this is just kind of a run of the
18:11
Speaker 2: mill earning season in my book, not one that is
18:15
Speaker 2: strong as I would call, like I would have said,
18:17
Speaker 2: like Q two earnings was Q two earnings was a
18:20
Speaker 2: freaking monster stuff.
18:22
Speaker 3: And look, we have very big companies reporting next week,
18:26
Speaker 3: and so that narrative can shift too. But you know,
18:29
Speaker 3: Tesla wasn't anything to scream about Netflix. Some of the
18:32
Speaker 3: big companies that reported this week not And Ifli's missed
18:34
Speaker 3: on all that special, I do think some of the
18:37
Speaker 3: small companies that have big names, Ford and GM in particular, reported.
18:41
Speaker 2: Pretty darn good earnings.
18:42
Speaker 3: And there's been a lot of concern about the auto
18:45
Speaker 3: sector generally over the course the last few weeks, So
18:47
Speaker 3: I think some of that narrative helps the overall earning story. Yeah,
18:50
Speaker 3: because you know, Ford and GM swing bigger than they
18:53
Speaker 3: are actually market cap does, right, It just the name
18:55
Speaker 3: recognition does something there. But overall earning season has been fine,
19:00
Speaker 3: beat expectations, not quite as much as historically Google, Apple,
19:07
Speaker 3: Amazon Meta sorry Alphabet Meta, Google and Apple.
19:11
Speaker 2: All reported all them by their name.
19:14
Speaker 3: I think I screwed it up twice in any case,
19:16
Speaker 3: ten plus trillion dollars and alphabet I did reporting. Just
19:21
Speaker 3: next we do a few classes, and so you know
19:24
Speaker 3: this has the ability to twist and turn.
19:26
Speaker 2: Next week quick break, here we got Wall Street Watch,
19:29
Speaker 2: and then we're talking China after this.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
19:44
Speaker 1: TFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:54
Speaker 1: Street Watch. A complete look at what's moving markets so
19:57
Speaker 1: far today right here on the Financial shall Exchange Radio Network.
20:01
Speaker 4: Markets have hit fresh all time highs, with investors reacting
20:05
Speaker 4: favorably to the Consumer Price Index posted earlier this morning,
20:08
Speaker 4: where the or excuse me, consumer prices climb three percent
20:12
Speaker 4: year over year, lower than expectations of three point one percent.
20:17
Speaker 4: Right now, the Dow is up three quarters of a percent,
20:19
Speaker 4: or three hundred and forty nine points higher. SMP five
20:22
Speaker 4: hundred also up three quarters of a percent, NASDAC up
20:25
Speaker 4: over one percent higher at two hundred and forty four points.
20:28
Speaker 4: RUSTED two thousand is up one point six percent. Tenure
20:32
Speaker 4: treasreeled is flat at three point nine to nine three percent.
20:35
Speaker 4: In crude oil up about a half a percent, rating
20:38
Speaker 4: just above sixty two dollars a barrel. Procter and Gamble
20:41
Speaker 4: posted earnings ahead of the open this morning, beating street expectations,
20:45
Speaker 4: driven by higher demand for its beauty and grooming products
20:49
Speaker 4: despite higher costs from tariffs and what its CEO called
20:52
Speaker 4: a challenging consumer in geopolitical environment. The consumer goods company
20:57
Speaker 4: reiterated its forecast for all in sales and earnings for
21:01
Speaker 4: the fiscal year. Procter and Gamble shares are up one percent. Meanwhile,
21:05
Speaker 4: Intel shares are up one percent, part our retreating from
21:08
Speaker 4: an earlier rally after the chip maker reported better than
21:11
Speaker 4: expected revenue as demands for its core x eighty six
21:16
Speaker 4: processors four PCs recovered elsewhere. Ford said strong sales propelled
21:21
Speaker 4: the automaker's revenue in operating income handily beating street estimates
21:25
Speaker 4: for the previous quarter. Ford share Ford shares are up
21:29
Speaker 4: ten percent. Decker's Outdoor posted a full year sales forecast
21:33
Speaker 4: that missed analysts estimates. That stock is off by thirteen
21:37
Speaker 4: percent now, and Target stock is dipping slightly after the
21:40
Speaker 4: Wall Street Journal reported the retailer plans to slash around
21:44
Speaker 4: eighteen hundred corporate roles as part of an effort to
21:48
Speaker 4: remake its strategy. I'm Tucker Silva and that is Wall Street.
21:51
Speaker 2: Watch Mike. We got two pieces here related to trade,
21:56
Speaker 2: actually a few of them, but once more on oil.
21:59
Speaker 2: So I do want gonna take both of these kind
22:01
Speaker 2: of as they come. Let's talk Canada first, actually, sure,
22:07
Speaker 2: President Trump said late yesterday that he's terminating trade negotiations
22:11
Speaker 2: with Canada. This after a television advertisement that has been
22:15
Speaker 2: airing over the last week or so featuring the voice
22:20
Speaker 2: of Ronald Reagan speaking negatively about tariffs was taken out
22:23
Speaker 2: by the Ontario government.
22:26
Speaker 3: Context here, Ontario has been hit pretty hard by tariff changes.
22:31
Speaker 3: Is it Ford that relocated their plant out of Ontario?
22:33
Speaker 2: No, it's Jeep GM. Okay, maybe GM did too.
22:37
Speaker 3: I saw Jeep some Jeep brand was being brought to
22:39
Speaker 3: Illinois from Ontario as well.
22:42
Speaker 2: I know GM has been like dealing with suppliers and
22:44
Speaker 2: everything in the region just because look, if you know
22:46
Speaker 2: anything about Detroit, it's basically right next to Canada. Yeah.
22:51
Speaker 2: Like I always tell people, you know, I get upset
22:53
Speaker 2: about the song. They're like, you know, born and raised
22:55
Speaker 2: in South Detroit. There is no South Detroit. It's Canada,
22:59
Speaker 2: so neither here nor there, but kind of there. And
23:02
Speaker 2: so what do I make of this? Not much, quite honestly,
23:06
Speaker 2: in that look eight ten when was it, Yeah, eight
23:11
Speaker 2: months ago, seemed like things were you know, awfully dodgy
23:13
Speaker 2: between the US and Canada. Over that subsequent eight months,
23:16
Speaker 2: things seem to add have you know, recovered to the
23:19
Speaker 2: point at least diplomatically where you know there was progress
23:22
Speaker 2: being made. Do I think that this is inherently going
23:25
Speaker 2: to be something that derails things from future progress. No,
23:31
Speaker 2: it could be, but we could also be sitting here
23:33
Speaker 2: six months now being like, hey, they end up getting
23:35
Speaker 2: back together after a few months, and they negotiated and
23:39
Speaker 2: hashed out some of these issues and things were fine.
23:41
Speaker 2: So I don't really make too much of this as good, bad,
23:46
Speaker 2: or ugly. It's just it's there, and this is kind
23:48
Speaker 2: of the state of play for the entire year. Canadian
23:51
Speaker 2: economy remains really.
23:53
Speaker 3: Bad, pretty much in a recession. Unemployment rate I think
23:57
Speaker 3: at last check was up over five percent maybe closing outside.
24:00
Speaker 3: So not a good economy there, and I think wants
24:05
Speaker 3: to see some progress on this stuff, but also it
24:08
Speaker 3: bitten shambles over the tariffs.
24:11
Speaker 2: Then you get this piece from is this market Watch? No,
24:14
Speaker 2: this is CNN, Yeah, sure, this is CNN. You get
24:19
Speaker 2: this piece talking about US China trade negotiations in advance
24:24
Speaker 2: of President Trump and President g potentially meeting on I
24:28
Speaker 2: think the date now is October thirtieth, that they're talking
24:31
Speaker 2: about meeting after the big Pacific kind of trade meeting
24:36
Speaker 2: and everything, and it's talking about, you know, what's at stake,
24:41
Speaker 2: And quite honestly, I think there's a difference between what's
24:45
Speaker 2: at stake and what is likely to be decided, with
24:48
Speaker 2: the former being much greater than the latter in that sure,
24:51
Speaker 2: what's at stake is a ton at stake, trade.
24:54
Speaker 3: And rare earths and national security and all very dramatic things.
25:00
Speaker 2: I don't really believe you're going to get anything conclusive done.
25:03
Speaker 2: And the reason why is that China uses the same
25:06
Speaker 2: strategy over and over and over and over and over
25:10
Speaker 2: and over and over. And it's exactly what I just did.
25:13
Speaker 2: They just talk and delay and run out the cock
25:16
Speaker 2: that is really good at it. It's the whole ball game.
25:19
Speaker 2: Even in President Trump's first term, remember it took like
25:22
Speaker 2: three years to get this Phase one trade deal, which
25:24
Speaker 2: was basically a purchase order from China for about two
25:27
Speaker 2: hundred billion dollars worth of US goods, mostly agricultural. They
25:32
Speaker 2: then did not actually purchase any of them. And so
25:36
Speaker 2: this is why for you know, all of the hype
25:40
Speaker 2: and excitement about you know, oh, is there going to
25:42
Speaker 2: be a meeting between you know, President Trump and President
25:45
Speaker 2: g There might be, there might not be. But are
25:49
Speaker 2: we actually going to see meaningful progress on any of
25:51
Speaker 2: these issues? I don't really think so, because the Chinese
25:55
Speaker 2: government consistently just runs out the cock on this stuff.
26:00
Speaker 3: If you're the Chinese, you want to do you want
26:03
Speaker 3: to give the US as little as possible that will
26:07
Speaker 3: still prevent them from escalating dramatically.
26:11
Speaker 2: And I'm also, again I was talking about this last week,
26:14
Speaker 2: I'm more convinced than ever that she is now kind
26:18
Speaker 2: of looking at his own mortality in the next you know,
26:20
Speaker 2: ten to fifteen years, and the negative demographics in China
26:25
Speaker 2: with a shrinking population and specifically a shrinking workforce, and
26:29
Speaker 2: saying this is my time to get you know, what
26:34
Speaker 2: China deserves in his opinion, And so I don't think
26:39
Speaker 2: he's just going to be like, yeah, like sure have
26:44
Speaker 2: all the rarers.
26:46
Speaker 3: It's very clear to me that again, with all the
26:50
Speaker 3: China and US trade talks, I'm with you, I don't
26:53
Speaker 3: think much progress gets made. We need something on the
26:58
Speaker 3: scale of the Chips Act when it comes to rare
27:00
Speaker 3: earths to be done by Congress.
27:03
Speaker 2: I think it needs to be more than just executive actions. Yeah.
27:06
Speaker 3: I think the idea that the US government's just going
27:09
Speaker 3: to take stakes in mining companies and pick winners there
27:12
Speaker 3: and do so without market interference is kind of a
27:18
Speaker 3: false premise. I don't think it's going to work terribly well.
27:21
Speaker 3: And I don't I am not any sort of expert
27:25
Speaker 3: on these rare earths and what the price levels are
27:28
Speaker 3: that you need in order to get them out of
27:31
Speaker 3: the ground in the US. But an open free market
27:35
Speaker 3: for that stuff is not going to work given what
27:37
Speaker 3: China is capable of selling them for. Yeah, and so
27:41
Speaker 3: something on the scale of.
27:43
Speaker 2: And we've seen that, by the way, Like a couple
27:44
Speaker 2: of years ago, you had a few different places that
27:47
Speaker 2: tried to ramp up rare earth production outside of China,
27:50
Speaker 2: and China just said, okay, we're cutting our prices by
27:52
Speaker 2: like fifty percent, and they never got off the ground.
27:57
Speaker 2: You have to like, does it all need to be
27:59
Speaker 2: here in the US.
28:00
Speaker 3: But I would see, you know, I would view it
28:03
Speaker 3: as price levels on domestically produced stuff and then other
28:09
Speaker 3: price levels on non Chinese produced stuff.
28:13
Speaker 2: I think, like if I'm just you know, spitballing as
28:18
Speaker 2: I'm inclined to on this stuff. In terms of US demand,
28:23
Speaker 2: I think thirty to forty percent of that demand needs
28:26
Speaker 2: to be satisfied by domestic production, and the rest you
28:31
Speaker 2: can source from countries that are friendlier than China. But
28:34
Speaker 2: it still is going to require effort to make sure
28:37
Speaker 2: that that production happens. It's this is stuff that we
28:40
Speaker 2: talk about a lot. It might not be in the
28:42
Speaker 2: best interest economically to set price floors on, you know,
28:47
Speaker 2: producing these kinds of things, but it is in the
28:50
Speaker 2: best interest from a national security perspective, both because of,
28:54
Speaker 2: quite literally the fact that this stuff needs to go
28:56
Speaker 2: into defense projects like you know, missiles and fighter jets
28:59
Speaker 2: and stuff like that, and the fact that, hey, it
29:03
Speaker 2: goes into everyday stuff like you know, credit card readers
29:07
Speaker 2: and windshield wipers and like, this stuff is everywhere.
29:12
Speaker 3: What I hope we don't see is a further continuation
29:15
Speaker 3: of what we've been seeing over the last several years
29:18
Speaker 3: in administrations of the government taking stakes in companies. I
29:23
Speaker 3: really have a lot of hesitation about what that spells
29:27
Speaker 3: for the future, what the future administrations are going to do.
29:30
Speaker 2: With those shares that they hold.
29:32
Speaker 3: And I just think there is no compelling evidence that
29:36
Speaker 3: the US government is capable of picking individual winner companies.
29:40
Speaker 2: Let's take a quick break. When we return, let's talk
29:44
Speaker 2: a little bit about Ford's earnings. We'll discuss them. We're
29:47
Speaker 2: also going to talk about Tarja when we come back.
29:51
Speaker 1: The Financial Exchange streams live on YouTube. Like our page
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30:28
Speaker 2: Let's talk a little bit about Ford. They reported earnings
30:31
Speaker 2: yesterday and this is one of those companies that did
30:34
Speaker 2: have a really nice quarter for earnings, and it comes
30:38
Speaker 2: on the back of Ford really have some questions in
30:41
Speaker 2: the last year or two that they've tried to answer,
30:43
Speaker 2: specifically in terms of they had committed to this EV
30:46
Speaker 2: strategy that they then have rightly decided, Okay, we kind
30:50
Speaker 2: of over committed to the EV strategy. We need to,
30:52
Speaker 2: you know, maybe pick that up. We maybe need to
30:55
Speaker 2: not produce quite as many as we intended to. And
30:58
Speaker 2: what they are seeing here is consist I mean, look,
31:02
Speaker 2: it's when you talk about Ford, it's basically one model
31:06
Speaker 2: that pulls the whole thing at this point, it's the
31:07
Speaker 2: F one fifty YEP. And so the fact is they're
31:11
Speaker 2: seeing good numbers there. SUVs are moving well as well,
31:15
Speaker 2: and they're trying to actually boost production of the F
31:19
Speaker 2: series pickups by about fifty thousand. Vehicles are about six
31:22
Speaker 2: percent in twenty twenty six. If they can find any aluminum, well,
31:27
Speaker 2: you can always find illuminum. Questions at what costs?
31:30
Speaker 3: So both Ford and NGM had a pretty similar story
31:33
Speaker 3: this quarter, right as far as I'm concerned. They both
31:35
Speaker 3: made a boatload of money on trucks and SUVs, and frankly,
31:40
Speaker 3: I think it plays right into the same exact story
31:43
Speaker 3: we've been telling from other big companies, whether it's Delta, Marriott, Ford,
31:49
Speaker 3: General Motors. People are with money, are still spending YEP
31:55
Speaker 3: and the flip side of that, right, if you're looking
31:57
Speaker 3: for you know, Delta and Marriott if you missed it,
32:00
Speaker 3: reported that their luxury brands or cabins were boosting all
32:05
Speaker 3: their sales, whereas their lower end brands were struggling. They
32:08
Speaker 3: were seeing declines. You're over a year in sales or
32:10
Speaker 3: just very modest growth. The I don't know the GM
32:14
Speaker 3: and Ford really break out their different lines, and I
32:17
Speaker 3: haven't seen anything on like what the really cheap vehicles
32:20
Speaker 3: are selling for.
32:21
Speaker 2: No.
32:21
Speaker 3: But on the other hand, in the auto sector itself,
32:24
Speaker 3: we've had a bankruptcy of a subprime lender, a bankruptcy
32:27
Speaker 3: of an autopart supplier, and a threatened bankruptcy of a
32:30
Speaker 3: second subprime lender, primal lend. So I see it as
32:35
Speaker 3: this yeah, multiprong thing. Mainly GM and Ford their sales
32:40
Speaker 3: are driven by high income consumers, because if you are
32:43
Speaker 3: making less than seventy thousand dollars a year as a household,
32:47
Speaker 3: you're not buying large buying a new Ford or GM vehicle.
32:52
Speaker 2: Yeah. I look, I am not a subprime auto lender myself,
32:58
Speaker 2: but my guess is it's probably pretty hard for someone
33:01
Speaker 2: with subprime credit to qualify for a payment on an
33:05
Speaker 2: eighty thousand dollars F one fifty. It's probably much more
33:09
Speaker 2: on the twenty thousand dollars used RAV four where that
33:15
Speaker 2: transaction is taking place. But I admit to not knowing.
33:21
Speaker 2: Maybe maybe you can qualify as you know, a barrow
33:23
Speaker 2: or with a you know, six thirty credit score for
33:26
Speaker 2: a an eighty thousand dollars car loan. I don't know,
33:31
Speaker 2: but it's the problems that we're seeing in the auto
33:34
Speaker 2: sector are not showing up as it relates to manufacturers
33:38
Speaker 2: adjusting their production as a result of it. It seems
33:41
Speaker 2: to be much more concentrated in two areas right now,
33:45
Speaker 2: which is used vehicles and parts like that seems to
33:52
Speaker 2: be where most of the problem is, and we'll just
33:56
Speaker 2: have to keep an eye on it and see where
33:58
Speaker 2: things go.
33:59
Speaker 4: The US Virgin Islands aren't just stunning, they're thriving and
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35:12
Speaker 2: Target is going to be laying off a thousand corporate
35:15
Speaker 2: employees and cutting eight hundred open roles. It's gonna cut
35:19
Speaker 2: their staff by approximately eight percent as a result of this.
35:24
Speaker 2: With most of the cuts happening domestically, I'm not entirely surprised.
35:28
Speaker 2: Your Target's been having some trouble over the last couple
35:30
Speaker 2: of years, trying to stay competitive in the retail environment,
35:35
Speaker 2: and so if you are trying to maintain margins and
35:38
Speaker 2: reshape your business, headcount reductions are often what you end
35:42
Speaker 2: up seeing.
35:42
Speaker 3: Here incoming CEO Michael Fiddlk, I'm gonna go with Fiddlek
35:46
Speaker 3: on that pronunciation quote. The truth is the complexity we've
35:49
Speaker 3: created over time has been holding us back. Too many
35:52
Speaker 3: layers and overlapping work have slow decisions, making it harder
35:55
Speaker 3: to bring ideas to life.
35:58
Speaker 2: Maybe we'll say.
36:00
Speaker 3: I don't know that an eighteen hundred person layoff is
36:02
Speaker 3: going to really be the thing that turns around Target
36:06
Speaker 3: in the near future.
36:09
Speaker 2: You can't grow through layoffs. I know that that sounds
36:13
Speaker 2: like a Yogi bearra statement, and maybe he said that,
36:17
Speaker 2: but he probably didn't. But ultimately, look, you got to
36:21
Speaker 2: figure out how to get to sales growth. Why do
36:23
Speaker 2: people choose either your stores or your online platform. There
36:28
Speaker 2: used to be a reason, and that reason that people
36:31
Speaker 2: believed was, hey, it's Tarje it's nicer stuff than Walmart,
36:37
Speaker 2: but I still get great pricing these days.
36:40
Speaker 3: Only time I'm going in is because I am looking
36:44
Speaker 3: for a Starbucks and I don't realize that it's inside
36:46
Speaker 3: a Target. And so accidentally walk in.
36:48
Speaker 2: My wife goes in occasionally, Yeah, she same here. It's
36:52
Speaker 2: mostly because the place where she takes my daughter's for
36:54
Speaker 2: swimming lessons is right next to a Target, and if
36:57
Speaker 2: they have twenty minutes to kill, they'll pop in there
37:00
Speaker 2: and just walk around. Other than that, it just exists,
37:06
Speaker 2: you know. It's it's a retailer without a compelling reason
37:13
Speaker 2: for being right now. And look they can find do you.
37:15
Speaker 2: I mean, I remember all of the questions about best
37:18
Speaker 2: Buy ten fifteen years ago, and hey, can best Buy survive?
37:23
Speaker 2: And they figured out how to make it work.
37:24
Speaker 3: I think either need to double down on grocery or
37:27
Speaker 3: get rid of it. Target their grocery stuff is a mess.
37:30
Speaker 2: I was just thinking the same thing. Oh, they're not
37:31
Speaker 2: making strides in grocery. It seems like I thought you
37:33
Speaker 2: were talking best Buy. I'm like, I didn't know they
37:35
Speaker 2: did grocery.
37:37
Speaker 3: Yeah, like Target, just they don't have enough to fill
37:40
Speaker 3: your actual basket. They have some interesting, compelling brands that
37:44
Speaker 3: they own, but they either need to like double down
37:47
Speaker 3: and actually do what the Walmart's doing and offer a
37:50
Speaker 3: full grocery store, or.
37:52
Speaker 2: Just get rid of it entirely. Why Yeah, I go
37:54
Speaker 2: to a Walmart and we'll at the grocery selection there
37:56
Speaker 2: and I'm like, this is legit. Yeah, you know, this
38:00
Speaker 2: is a vast change from where it was ten to
38:03
Speaker 2: fifteen years ago, and certainly for the better. And those
38:08
Speaker 2: of you who listen know that I can be a
38:09
Speaker 2: little discerning, especially when it comes to the produce. But
38:12
Speaker 2: you see some good stuff there. Let's take a quick break.
38:15
Speaker 2: Our two coming up. We're gonna be talking Argentina and
38:18
Speaker 2: much more.