Latest / The Financial Exchange Show / Is the case against tariffs is getting stronger?

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Is the case against tariffs is getting stronger? · The Financial Exchange Show

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1:06
Speaker 1: Lane and Mark Vandetti.
1:11
Speaker 2: Market volatility continues on Wall Street, as the Dow Jones
1:15
Speaker 2: is off three hundred and fifty points at the moment moment,
1:17
Speaker 2: the S and P five hundred is off over a
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Speaker 2: full percent, and the Nasdaq is off one point three percent.
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Speaker 2: Paul Lane, Mark Vendetti, and Tucker Silva here with you
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Speaker 2: on this Wednesday rather Thursday edition of the Financial Exchange,
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Speaker 2: and we've continue to follow the impacts from all of
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Speaker 2: the tariffs policies from the White House. Yesterday during the day,
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Speaker 2: markets opened rather muted, but did rally court towards the
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Speaker 2: end of the day, closing up. I believe a full
1:49
Speaker 2: percent on most of the major indices today. Like I said,
1:52
Speaker 2: sitting in negative territory, there isn't a tremendous amount of
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Speaker 2: economic news. Certainly, we'll get the jobs report on Friday.
2:00
Speaker 2: That will be something that will take a lot of
2:03
Speaker 2: focus from an economic standpoint. Really, the biggest headline news
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Speaker 2: and where we'll start our program today is an update
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Speaker 2: or in adendum really on one of those tariffs that
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Speaker 2: was mentioned about specifically for automakers. The White House has
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Speaker 2: granted a one month tariff exemption for automakers. The biggest
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Speaker 2: impact this has two companies out there like Ford General
2:25
Speaker 2: Motors and Stilantis. So, as many listeners know, there was
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Speaker 2: tariffs implemented on Tuesday of this week, twenty five percent
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Speaker 2: import tariffs on Canada and Mexico. As we've discussed frequently
2:37
Speaker 2: on our program, vehicles and auto manufacturers during the assembly
2:42
Speaker 2: process go over the border between Mexico and Canada upwards
2:46
Speaker 2: of five or six times. So from a cost perspective,
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Speaker 2: it would be incredibly punitive to institute these tariffs on
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Speaker 2: the auto manufacturers because of the back and forth that
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Speaker 2: goes through many of those borders. Now, tru I'm coming
3:00
Speaker 2: out yesterday and saying that there could be a one
3:02
Speaker 2: month pause on these vehicles. This could have added potentially
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Speaker 2: anywhere from three thousand dollars to ten thousand dollars to
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Speaker 2: a pickup truck from a cost perspective, for example. But
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Speaker 2: it is important to note that this is just a
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Speaker 2: one month pause here. This is not something that is
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Speaker 2: a permanent exemption, and they will need to continue to
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Speaker 2: follow the existing trade agreement in place to be granted
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Speaker 2: this exemption.
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Speaker 3: I think one way.
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Speaker 4: To put what's happening right now in perspective and think
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Speaker 4: about its implications, because the day to day stuff is dizzying.
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Speaker 4: We're getting headlines right now that say the Commerce Secretary,
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Speaker 4: I guess who's been in communication with the President presumably
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Speaker 4: about this now, says that the exception to tariffs could
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Speaker 4: extend to all goods covered by the recently signed United
3:52
Speaker 4: States Mexico Canada trade agreement, the agreement from Trump's first term.
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Speaker 4: So the news is changing almost by the minute. It's dizzy.
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Speaker 4: I think you can probably avoid serious blood pressure problems
4:07
Speaker 4: if you step back. It's difficult to do. But if
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Speaker 4: you're a long term investor, the problem with what's happening
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Speaker 4: right now potential problem is that we're changing the way
4:19
Speaker 4: our institutions operate, and by institutions, I mean the laws
4:26
Speaker 4: and practices that govern us and have in a broader sense,
4:31
Speaker 4: in a geopolitical sense since the end of the Second.
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Speaker 3: World War, those are changing.
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Speaker 4: We seem to be shifting sides internationally. We're siding with
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Speaker 4: forgive me, but the bad guys at the United Nations.
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Speaker 4: There are lots of examples. This regime change has implications
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Speaker 4: for the future returns on every asset class, as well
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Speaker 4: as things like inflation and economic growth, which are related.
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Speaker 4: So one way to sort of center yourself in the
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Speaker 4: face of this onslaught of often contradictory news reports if
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Speaker 4: you're a long term investor, is just think about your
5:09
Speaker 4: goals and the returns you expected previously and whether or
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Speaker 4: not those are realistic under this new regime, which is
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Speaker 4: introducing more volatility, which is introducing things that will probably
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Speaker 4: lead to lower I'm sorry to say economic growth, and
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Speaker 4: that means lower equity returns, stock returns that is going forward.
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Speaker 4: That's sort of where I am on this, Paul. I
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Speaker 4: know I've shifted gears a little bit. You started with
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Speaker 4: telling us what's going on right now, but in the
5:38
Speaker 4: interest of maintaining our sanity, and I don't mean on
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Speaker 4: this show because we have to report the news, but
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Speaker 4: I mean his citizens and his investors, just stay focused
5:47
Speaker 4: on the long term and how what's happening today might
5:50
Speaker 4: change our institutions and what that means for economic growth
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Speaker 4: and capital market returns, and by that I mean stocks
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Speaker 4: and bonds. That's how I'm That's how I'm coping.
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Speaker 5: That's the fair.
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Speaker 2: Point to make you know, ultimately, what we've learned over
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Speaker 2: the course the last couple of weeks is that policies
6:10
Speaker 2: can change very quickly.
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Speaker 5: So a lot of the pieces that we'll.
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Speaker 2: Cover today and from the major market publications out there,
6:18
Speaker 2: are trying to estimate the economic impacts. And I think
6:22
Speaker 2: you are kind of even alluding to some estimates as
6:24
Speaker 2: well on future economic growth. And I would counter that
6:28
Speaker 2: by saying, we don't even know if these tariffs are
6:31
Speaker 2: going to be in place tomorrow or the following day.
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Speaker 2: So these assumptions about increases to inflation or reduction to GDP,
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Speaker 2: these are assuming that they're in for a longer period
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Speaker 2: of time in my estimation.
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Speaker 4: If you're a forecast or you rely on stable relationships,
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Speaker 4: it's the central requirement for a good forecast. If the
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Speaker 4: relationship between X and Y changes, a forecast of why
6:55
Speaker 4: based on X should not be believed. The problem we
6:59
Speaker 4: have right now is that our institutions are changing. I
7:03
Speaker 4: know I'm repeating myself, but that makes forecasting using models
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Speaker 4: that worked in the past because they were predicated on
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Speaker 4: certain relationships and institutional arrangements prevailing, are no longer valid.
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Speaker 4: That's a fancy, kind of fancy way of saying I
7:21
Speaker 4: have no idea and the tools I used to use
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Speaker 4: probably aren't any good anymore, because it's not just that
7:27
Speaker 4: policies changing from day to day. Though that is true,
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Speaker 4: it seems like the fundamental underpinnings of that policy are
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Speaker 4: changing every day, shifting from an income tax to finance
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Speaker 4: government revenues to tariffs. Forget about the math not working
7:40
Speaker 4: on that big time fundamental change, shifting from siding with
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Speaker 4: the good guys internationally to the bad guys. Maybe there
7:48
Speaker 4: are good, savvy reasons for doing it. That is a
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Speaker 4: fundamental change. We'renegging on trade agreements we only made four
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Speaker 4: years ago with Mexico and Canada, causing them and other
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Speaker 4: potential parts to question whether our word is any good.
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Speaker 4: That is a fundamental change. Don't use the old forecasting.
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Speaker 4: You cannot use a forecasting approach that worked in previous
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Speaker 4: environments successfully in this environment. Things are changing at a
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Speaker 4: very deep level. And as you said, quickly to.
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Speaker 2: Give a further update there, like Mark was alluding to
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Speaker 2: earlier in the program, so Treasury Secretary Lutnik mentioning that
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Speaker 2: the goods that are covered under the United States Mexico
8:30
Speaker 2: Canada agreement, it's a wide range of them, including textiles, apparel, footwear,
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Speaker 2: travel goods, agriculture products, and chemical products. Those would be
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Speaker 2: exempted from a tariff delay until likely April. Second, and again,
8:43
Speaker 2: this is fresh news off the press, so I'm reading
8:45
Speaker 2: this as we kind of go along here, and so
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Speaker 2: I Commerce Secretary Lutnik, I should correct myself there.
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Speaker 5: So that's one aspect of things.
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Speaker 2: We'll get more into that as the show develops and
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Speaker 2: we get more information there. Circling back to the exemption
9:00
Speaker 2: for automakers, we sit.
9:01
Speaker 5: At a point right now.
9:03
Speaker 2: Part of the reason you would think that the auto
9:05
Speaker 2: manufacturer tariffs were delayed is that the average price for
9:09
Speaker 2: a new car as of January coording at Edmunds dot
9:11
Speaker 2: com was sitting at forty eight and eighteen dollars. The
9:15
Speaker 2: average car loan rate as of February was running at
9:19
Speaker 2: about seven point two percent. As I mentioned, the cost
9:22
Speaker 2: pressures that these tariffs would add to the cost of vehicles,
9:25
Speaker 2: plus the higher rate interest environment that we're in right now,
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Speaker 2: would be problematic from the auto manufacturer standpoint. So a
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Speaker 2: bit of a reprieve here with this announcement, but only
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Speaker 2: for a month. In time, we'll continue to see how
9:38
Speaker 2: that appsvik.
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Speaker 3: Did they not know this two days ago. We knew this.
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Speaker 4: This is widely reported the impact on new car prices
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Speaker 4: and as a result used it is not just going
9:48
Speaker 4: to affect new Those two markets are intertwined.
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Speaker 3: We knew this two days ago.
9:52
Speaker 4: The sloppy implementation here is shocking, and I there are
9:58
Speaker 4: parts of the new administration policies that seem to be
10:01
Speaker 4: getting executed really well, like on immigration, for example, they
10:03
Speaker 4: have their act together, they're executing swiftly, they have a plan.
10:07
Speaker 4: It's clear they're reporting results. You may not agree with that.
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Speaker 4: Why isn't economic policy being implemented with a similar sense
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Speaker 4: of purpose and coherence? That's really puzzling. They're backtracking on
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Speaker 4: statements they made only hours ago without any new information.
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Speaker 2: It certainly is a slew of news to fall from
10:27
Speaker 2: our perspective on a data basis, you have to really
10:29
Speaker 2: keep up with it. We're going to take a quick
10:31
Speaker 2: break here on the Financial Exchange, but when I come back,
10:34
Speaker 2: we're going to talk a little bit more about tariffs
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Speaker 2: and the impact it has to consumers and businesses out there.
10:39
Speaker 5: That's right after this break.
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Speaker 2: In the prior second, we were talking about the most
11:49
Speaker 2: recent updates to some of the tariffs between the United
11:54
Speaker 2: States and Mexico and Canada. The most recent updates that
11:57
Speaker 2: we have for you is we led the show, of course,
11:59
Speaker 2: with the White House granting a one month delay for
12:01
Speaker 2: the tariffs on automakers whose cars comply with the US
12:06
Speaker 2: Mexico Canada trade agreement that was signed into effect four
12:10
Speaker 2: or five years ago. The more recent update that we
12:12
Speaker 2: received within the last ten to fifteen minutes or so,
12:15
Speaker 2: that this exemption could apply to a wider swath of
12:18
Speaker 2: goods specific to goods and services that do comply with
12:24
Speaker 2: the USMCA trade agreement, and would apply to things like
12:28
Speaker 2: travel goods, footwear, apparel, agricultural products, and chemical products. So
12:32
Speaker 2: that's where we stand right now in terms of market reaction.
12:36
Speaker 2: We were off about one percent to begin the show
12:40
Speaker 2: here at ten o'clock. Within the last twenty minutes or so,
12:42
Speaker 2: some of those losses have paired just a little bit.
12:45
Speaker 2: But we want to dive into the impact on the
12:48
Speaker 2: auto manufacturers the delay there, And there's a piece here
12:51
Speaker 2: in I believe market Watch where they mentioned this idea
12:55
Speaker 2: mark potentially that these three large US automakers would have
13:00
Speaker 2: a tremendous amount of inventory just flood into the country
13:03
Speaker 2: over the course of the next couple months to potentially
13:07
Speaker 2: buffer themselves from any impact of tariffs going forward. Obviously,
13:10
Speaker 2: they've gotten this one month reprieve here, So what do
13:13
Speaker 2: you do to maximize it. I mean to be clear,
13:16
Speaker 2: the supply chains that we've been speaking about on the
13:19
Speaker 2: auto manufacturing side, these have been constructed over three decades.
13:22
Speaker 2: So the idea that they are going to sit there
13:25
Speaker 2: and make capital investments to spend capex to reroute some
13:30
Speaker 2: of the work of the complex supply chain that they
13:32
Speaker 2: have is just entirely false for or it doesn't help
13:36
Speaker 2: them the neo.
13:36
Speaker 4: Term let me do it that way, You couldn't do
13:38
Speaker 4: it if they want right.
13:39
Speaker 2: So the way that you would have to maximize this,
13:42
Speaker 2: you'd think, is stuff as many of these things over
13:45
Speaker 2: as you can have them sit on lots for a
13:48
Speaker 2: longer period of time and just spend through them. So
13:50
Speaker 2: that I would be looking at it from a strategic
13:54
Speaker 2: standpoint as an executive at these auto manufacturers is I
13:57
Speaker 2: don't know how long the tariffs are going to be
13:59
Speaker 2: in place for I'm gonna make you know, sun, I'm
14:02
Speaker 2: gonna what's the EXPRESSI I'm gonna make hay when the
14:03
Speaker 2: sun's gonna make Yeah.
14:06
Speaker 4: That's when you do it, yeah, because it dries out.
14:08
Speaker 4: I guess I don't know.
14:09
Speaker 5: That's Hey, I don't have a green thumb.
14:13
Speaker 4: Yeah, I don't even people with a green thumb are
14:14
Speaker 4: they making Hey, I don't even know.
14:16
Speaker 5: A farmer thumb? Whatever, yea cream thumb.
14:19
Speaker 4: So this this illustrates a key point about the role
14:26
Speaker 4: of expectations, and this applies to inflation and all kinds
14:30
Speaker 4: of government policies that are announced. You can't really forecast,
14:36
Speaker 4: or if you did, the results should not be believed the
14:38
Speaker 4: results of a government policy when it's anticipated or when
14:43
Speaker 4: expectations can change in response to it. This is an
14:46
Speaker 4: age old problem in economics that has been deeviled forecasters
14:50
Speaker 4: from time immemorial. So what are people doing in response
14:54
Speaker 4: to Just generally, if you're told the price of something's
14:56
Speaker 4: gonna rise a month from now, what are you gonna do?
14:59
Speaker 4: If you need it, You're gonna today. That's basically what
15:01
Speaker 4: we're saying automakers are doing. Am I oversimplifying? No, okay,
15:04
Speaker 4: it's great way to put it. So what does that
15:06
Speaker 4: do to demand? It gooses it in the short term.
15:08
Speaker 4: On the back end, though, it falls. So there's that
15:12
Speaker 4: immediate effect that I think you can kind of take
15:14
Speaker 4: to the bank, and then there's the uncertainty aspect of it.
15:18
Speaker 4: Should we continue to invest in the processes the just
15:23
Speaker 4: in time, inventory management and other processes that have become
15:27
Speaker 4: so commonplace since computers allowed businesses to become more efficient
15:33
Speaker 4: in the nineteen eighties. Should we change those or should
15:36
Speaker 4: we wait and see? So they will also hold off,
15:38
Speaker 4: presumably on additional investment, until they know exactly what it
15:42
Speaker 4: is they're trying to maximize or minimize. We don't know
15:45
Speaker 4: what the rules of the game are, which is why
15:48
Speaker 4: the administration has to stop this whimsical not just day
15:52
Speaker 4: to day, but now hour to hour policy making as
15:56
Speaker 4: soon as possible. It's going to seriously damage the economy.
15:59
Speaker 4: I say again, they seem to be doing a very
16:03
Speaker 4: focused and efficient job on immigration. Put who's ever running
16:06
Speaker 4: that in charge of economic policy. They're clear minded, clear headed,
16:12
Speaker 4: and they're resolute. We don't see the same clarity of
16:16
Speaker 4: purpose that's being applied to immigration. I'm just using this
16:18
Speaker 4: as an example. I'm sorry if you hate immigration and
16:20
Speaker 4: this is one of your hot button issues. I'm using
16:22
Speaker 4: it as an example of something they said they do
16:24
Speaker 4: and they're following through on. Effectively, make your economic policy
16:28
Speaker 4: as coherent as their immigration policy is. Right now, somebody
16:31
Speaker 4: there can do it. They're just not in charge and
16:34
Speaker 4: it's hurting the economy.
16:35
Speaker 5: I'm in agreement there.
16:36
Speaker 2: There's no question that markets and businesses and the economy
16:40
Speaker 2: like certainty. We like to have an understanding of what
16:44
Speaker 2: the future is going to look like. There are so
16:46
Speaker 2: many things that are unpredictable out there from an economic standpoint.
16:49
Speaker 2: The more things that can be predictable is helpful think about.
16:54
Speaker 2: And this has been echoed across many different sentiment trackers
16:57
Speaker 2: out there. If you are running, if you are a
16:59
Speaker 2: home build out there, and uh, I'm sure we have
17:02
Speaker 2: plenty listening to us in the audience. You know, feel
17:04
Speaker 2: free to Texas at six one seven three sixty two
17:06
Speaker 2: one three a five. If you're a homebuilder out there
17:08
Speaker 2: and you're importing materials, whether it's gypsum for drywall or
17:12
Speaker 2: you're importing lumber from Canada as part of your business,
17:17
Speaker 2: you are likely going to pause some of your business
17:20
Speaker 2: endeavors until you get clarity as to what the future
17:23
Speaker 2: is gonna look like. And this applies has a ripple
17:26
Speaker 2: effect across many different industries. I'm just highlighting the home
17:29
Speaker 2: builders one, but the same applies for any type of
17:32
Speaker 2: capital expenditures that are going to be put together by
17:35
Speaker 2: any businesses out there, certainty is better if we're gonna
17:38
Speaker 2: go ahead and tariffs is the way that they want
17:41
Speaker 2: to go, whether or not I agree with it from
17:44
Speaker 2: an economic perspective, there needs to be a clarity behind
17:49
Speaker 2: what the approach is going to look like, and let's
17:51
Speaker 2: put it in place and then let every business adjust
17:53
Speaker 2: to the issue.
17:54
Speaker 4: Is not the policy. I'm trying to not criticize tariffs.
17:57
Speaker 4: That's a different discussion. It's the policy making. Stocks are
18:03
Speaker 4: down only very slightly, even in including today's modest slide
18:08
Speaker 4: on the year, I can't believe it's not a lot
18:10
Speaker 4: more severe. When you think about what the price of
18:12
Speaker 4: something represents. We take prices for granted, we see them
18:15
Speaker 4: in the supermarket, at the gas station. Online prices are
18:19
Speaker 4: a signal. They incorporate the preferences of millions, maybe billions
18:24
Speaker 4: of consumers and fewer but still a very large number
18:30
Speaker 4: of producers. You don't mess with that mechanism, whether it's
18:33
Speaker 4: stock market prices or goods and services prices.
18:38
Speaker 2: Taking a look at markets, we've got the S and
18:40
Speaker 2: P five hundred off about a percent, The Nasdaq is
18:43
Speaker 2: off about a percent as well. The Dow Jones is
18:46
Speaker 2: off about three hundred points at the moment. In terms
18:50
Speaker 2: of any of these recent policy moves impact on bond markets,
18:55
Speaker 2: We've got the US tenure treasury ticking up a little
18:58
Speaker 2: bit higher.
18:58
Speaker 5: It's up to about.
19:00
Speaker 2: Four point three four percent, that had come down to
19:03
Speaker 2: four twenty or so, so it's rallied back or it's
19:06
Speaker 2: you know, come up a little bit over the course
19:08
Speaker 2: of the last couple of days. And there was some
19:09
Speaker 2: news out of Germany from an economic perspective this morning
19:13
Speaker 2: that could have likely led to some of the increases
19:16
Speaker 2: we're seeing on the interest rate side of things.
19:18
Speaker 3: Where we should talk about that.
19:19
Speaker 2: We should cover that at some point, but we're gonna
19:21
Speaker 2: take a quick break here. When we come back, we're
19:23
Speaker 2: gonna be talking a little bit about trade deficit, and
19:26
Speaker 2: we'll have Wall Street Watch right after this break.
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20:00
Speaker 6: More volatility on Wall Street as markets are giving back
20:04
Speaker 6: gains from yesterday's rebound. As Wall Street continues to sift
20:08
Speaker 6: through tariff developments amid uncertainty. Yesterday, the White House announced
20:12
Speaker 6: it will granted one month delay for tariffs on automakers
20:15
Speaker 6: whose cars comply with the US Mexico Canada trade Agreement.
20:19
Speaker 5: Today.
20:20
Speaker 6: About half an hour ago, Commerce Secretary Howard Lutnik said
20:24
Speaker 6: all goods and services that are compliant with the US
20:27
Speaker 6: MCA trade agreement will likely be excluded from Trump's tariffs
20:33
Speaker 6: for one month, but that announcement could come later today.
20:37
Speaker 6: At the moment, the Dow is off by about a
20:40
Speaker 6: half a percent, or two hundred and twenty four points.
20:43
Speaker 6: S and P five hundred is down by eight tenths
20:45
Speaker 6: of a percent or forty seven points, and the Nasdaq
20:48
Speaker 6: is down by about one percent or one hundred and
20:51
Speaker 6: seventy eight points or Rust of two thousand also down
20:53
Speaker 6: by eight tenths of a percent or seventeen points. Ten
20:56
Speaker 6: year Treasure reeled up by six basis points now our
20:59
Speaker 6: four points I three to three percent, and crude oil
21:03
Speaker 6: is off about four tenths of a percent, trading just
21:06
Speaker 6: at about sixty six dollars a barrel. Macy's is down
21:10
Speaker 6: by three percent after the department store chain guided for
21:13
Speaker 6: twenty one to twenty one point four billion dollars in
21:16
Speaker 6: sales for its fiscal year, down from twenty two point
21:19
Speaker 6: three billion dollars a year ago. For its fourth quarter,
21:22
Speaker 6: sales slumped four point three percent, while its comparable sales
21:26
Speaker 6: were down almost two percent. Meanwhile, software company Mango dB
21:31
Speaker 6: issued weak guidance for fiscal twenty twenty six, sending that
21:35
Speaker 6: stock plunging by twenty percent. Another tech stock in Marvel Technology,
21:40
Speaker 6: also sinking seventeen percent after the semiconductor company reported a
21:44
Speaker 6: modest beat for its fourth quarter results. Elsewhere, JD dot
21:49
Speaker 6: Com shares up by one percent after the Chinese e
21:51
Speaker 6: commerce companies earnings end revenue beat street expectations. JD also
21:56
Speaker 6: announced that its board of directors approved in annual cash dividend.
22:00
Speaker 6: Z Scaler beat earnings in revenue forecast, setting shares in
22:03
Speaker 6: the cloud security company up by six percent. Kroger up
22:07
Speaker 6: by about two percent after the grocery chain posted lower
22:11
Speaker 6: than expected quarterly sales and offered disappointing twenty twenty five guidance.
22:15
Speaker 6: In After today's closing, Bell Broadcom, we'll post their fourth
22:20
Speaker 6: quarter earnings, and tomorrow morning we'll see the all important
22:23
Speaker 6: February Job Support unveiled at a thirty am. I'm Tucker Silvan.
22:29
Speaker 6: That's Wall Street watch piece.
22:31
Speaker 2: Here in Bloomberg. The case against tariffs is getting stronger,
22:35
Speaker 2: and Mark, I'm interested your thoughts on this piece, particularly
22:39
Speaker 2: one area, which is the nation's trade deficit. Certainly, some
22:44
Speaker 2: of the focus behind some of these tariff policies that
22:47
Speaker 2: we're seeing here from President Trump is this idea of
22:50
Speaker 2: narrowing the trade deficit that we have as a country.
22:52
Speaker 2: To give some contexts to the listeners, we import more
22:55
Speaker 2: goods than we export. Some of the benefits to that
22:58
Speaker 2: it allows us access to cheaper goods. We're able to
23:01
Speaker 2: buy things more cheaply. But there also are downside where
23:05
Speaker 2: you can weaken domestic industry. You can have a loss
23:08
Speaker 2: of jobs in certain industries as that deficit persists over time.
23:13
Speaker 2: But my question to you, Mark, as you choke on
23:16
Speaker 2: your coffee, so maybe I'll give you just a second
23:19
Speaker 2: to catch your breath.
23:20
Speaker 4: There was is uhm chunks.
23:24
Speaker 2: From an economic standpoint, should we be should I be
23:28
Speaker 2: overly concerned about the trade deficit? Certainly the economy has
23:34
Speaker 2: functioned quite strongly.
23:35
Speaker 5: Okay, no, of.
23:36
Speaker 4: Course, not let me I say, of course not. It's
23:38
Speaker 4: not obvious. It sounds bad.
23:40
Speaker 5: Deficit.
23:40
Speaker 3: You mean, we're buying more than we're selling.
23:42
Speaker 4: Why aren't we selling more than we're buying. The reason
23:46
Speaker 4: we have a deficit is that we don't save enough,
23:48
Speaker 4: and that might seem only flimsily related to the deficit,
23:54
Speaker 4: but they're intimately connected. Trade deficits and budget deficits. We're
23:59
Speaker 4: in the eighties called twin deficits, and there's a reason
24:02
Speaker 4: why they both went up at the same time, because
24:04
Speaker 4: when we don't save enough, either at the federal level
24:07
Speaker 4: or as individuals, we have to essentially import savings to
24:13
Speaker 4: finance the investment that we need. The flip side to
24:15
Speaker 4: that is a trade deficit. It's an identity. It's mathematically unavoidable.
24:26
Speaker 4: So countries like Germany, which have a lot of savings
24:29
Speaker 4: and fewer investment opportunities, generally run a trade surplus. We
24:32
Speaker 4: for a long time ran a trade surplus. We still
24:34
Speaker 4: run a trade surplus with certain countries. Australia is one.
24:37
Speaker 4: There are lots of others. I've never heard anybody say,
24:40
Speaker 4: as the administration likes to say about countries with whom
24:42
Speaker 4: we run a trade deficit. I've never heard anybody say
24:44
Speaker 4: we're screwing Australia because we have a trade surplus with them.
24:47
Speaker 4: It's a little more complicated than just not saving enough.
24:51
Speaker 4: There are relative differences in how efficiently you produce goods
24:57
Speaker 4: in this case that dictate.
24:59
Speaker 3: With whom you will have a trade deficit.
25:01
Speaker 4: But in aggregate it's unavoidable when you don't save enough.
25:05
Speaker 4: If we cut the budget deficit has happened during the
25:07
Speaker 4: nineteen eighties, the trade deficit would fall unless we're growing
25:10
Speaker 4: a lot faster than economies overseas, in which case we
25:13
Speaker 4: need to import capital, in which case we will have
25:16
Speaker 4: a trade deficit. It's not the result of any sinister
25:18
Speaker 4: forces or anybody screwing anybody else.
25:21
Speaker 2: And to your point on the savings rate, as much
25:24
Speaker 2: as maybe someone makes their oh we should save more
25:27
Speaker 2: as a country at an individual level, you would think
25:29
Speaker 2: that would, but that would harm our economic growth perspective,
25:32
Speaker 2: because if you look at GDP growth two thirds of
25:34
Speaker 2: its thinking you're.
25:36
Speaker 4: Thinking of GDP as an accounting identity. Consumption plus investment
25:40
Speaker 4: plus government plus net exports equals GDP.
25:43
Speaker 3: That's just accounting.
25:44
Speaker 4: GDP in the long term is a function of as
25:49
Speaker 4: we often talk about labor force growth and productivity growth.
25:53
Speaker 4: So you need capital formation, both human and physical, and
25:57
Speaker 4: that comes through investment. So while it is true that
26:00
Speaker 4: if we suddenly and there's the original, there's a whole
26:04
Speaker 4: literature and economics growth literature that talks about striking the
26:09
Speaker 4: right balance between consumption and savings. Savings and investment are
26:14
Speaker 4: the same thing in this context. Yes, it is true
26:17
Speaker 4: that in the short term you might reduce consumption to
26:19
Speaker 4: increase investment, but in the long term you get higher consumption.
26:24
Speaker 4: That's the central economic lesson I think of the twentieth century.
26:28
Speaker 4: So you're right, Paul, there is a short term trade off,
26:31
Speaker 4: but in the long term living standards are higher. Now
26:33
Speaker 4: you can save too much. There's a golden rule level
26:37
Speaker 4: of savings and consumption that comes out of economic theory
26:41
Speaker 4: where you get it just right. Consumption is maximized. If
26:44
Speaker 4: you've taken an e concourse, you'll learn the Solo growth model.
26:48
Speaker 4: Not like Hansolo Solow, he was a teacher at MIT,
26:52
Speaker 4: just died. In fact, he gave us this insight about
26:57
Speaker 4: the golden rule level of consumption and savings. And right
26:59
Speaker 4: now we don't save enough as or said differently, government
27:02
Speaker 4: deficits are too big, and that's evidenced in our trade deficit.
27:07
Speaker 2: No, it's interesting this piece here. They do a good
27:10
Speaker 2: job of covering different angles of it. There's also the
27:12
Speaker 2: currency impact to consider as well. It just seems like
27:16
Speaker 2: there are a tremendous amount of trade offs no pun
27:19
Speaker 2: intended with all of this economic policy, and there's nothing
27:22
Speaker 2: that's evidently clear, one way or another that the tariffs
27:27
Speaker 2: in this instance would lead to minimizing that trade deficit.
27:30
Speaker 4: This is where I get confused about administration policy. Tariffs
27:34
Speaker 4: are supposed to replace the income tax, but at the
27:36
Speaker 4: same time shift production domestically. That can't Those two things
27:41
Speaker 4: are totally exclusive. The Commerce Secretary keeps repeating those as objectives.
27:45
Speaker 4: They couldn't be more contrary. You can't both raise revenue
27:49
Speaker 4: from tariffs and have them work if your objective is
27:53
Speaker 4: to exclude imports. Imports can't change in order for the
27:57
Speaker 4: revenue they're projecting to be raised to actually materialize.
28:02
Speaker 3: Did I say that?
28:03
Speaker 5: Did I?
28:04
Speaker 3: Did I fumble through that?
28:06
Speaker 4: Or should I clarify or should we just move on?
28:08
Speaker 5: And I don't know, I think that makes sense.
28:10
Speaker 2: The one last point I would add is from an
28:12
Speaker 2: exportation from exporting with all the reciprocal tariffs that you
28:16
Speaker 2: have in place, Yeah, that would further hinder the idea
28:20
Speaker 2: of expanding manufacturing domestically because you're going to have companies
28:25
Speaker 2: that are facing tariffs to to send out their product
28:29
Speaker 2: the other way.
28:29
Speaker 4: So a lot to can you just get two takeaways?
28:33
Speaker 4: Trade deficits are not inherently bad. They're a function of savings.
28:36
Speaker 4: Let me leave you with that one point. And the
28:38
Speaker 4: other point is you can't both have your cake and
28:43
Speaker 4: eat it too. You can't you can't tariff enough to
28:45
Speaker 4: replace the income tax because that would require imports not changing.
28:52
Speaker 4: I'll just kind of leave it at that for now.
28:53
Speaker 4: We'll talk about this a lot over the next three
28:56
Speaker 4: and three quarter years.
28:58
Speaker 2: To pivot here a little bit to summarize sort of
29:01
Speaker 2: what are we seeing from a market perspective year to date.
29:04
Speaker 2: You know, we're only a little over two months into
29:07
Speaker 2: this year. But a couple pieces here that sort of
29:10
Speaker 2: discussed the one of them is titled the recession trade
29:14
Speaker 2: is back on Wall Street. I think that's a little
29:16
Speaker 2: rich for my blood, this idea.
29:18
Speaker 3: What do they mean by that though?
29:19
Speaker 2: What are they basically this idea that Russell two thousand,
29:22
Speaker 2: which is small cap growth stocks and bank stocks have
29:25
Speaker 2: slumped a little bit on growth concerns. This idea that
29:28
Speaker 2: there has been this sell off and retreat from growth
29:31
Speaker 2: and a more focus on investing more into value stocks.
29:36
Speaker 2: You can see it a little bit evidence by some
29:38
Speaker 2: of the sector performances year Today. You have consumer staples
29:42
Speaker 2: and healthcare, which are supposed to be a little bit
29:44
Speaker 2: more immune from some of the tariff concerns leading markets,
29:49
Speaker 2: with the healthcare sector up eight point eight percent year
29:51
Speaker 2: to date and the consumer staples sector up seven percent
29:54
Speaker 2: versus some of the one would argue more growth sectors
29:58
Speaker 2: like technology off about six percent year to date.
30:02
Speaker 4: It does feel like that is a slow down. That
30:05
Speaker 4: is a shift motivated by slow down fears. The cyclical
30:08
Speaker 4: stuff is losing favor the defensive stuff, including fixed income.
30:12
Speaker 4: We're talking about equities right now, but bond yields have
30:14
Speaker 4: dropped by a lot. Many would view that as driven
30:16
Speaker 4: by growth concerns.
30:18
Speaker 2: No, you have the traditional kind of sixty forty portfolio
30:22
Speaker 2: outperforming markets your date. I mean, obviously the stock market
30:25
Speaker 2: is off about a half percent year date, and I
30:27
Speaker 2: think that's really important to point out too. Amidst all
30:30
Speaker 2: of this up and down, we have a market that
30:33
Speaker 2: was up twenty plus percent for the last two years
30:36
Speaker 2: in twenty three and twenty four, and here we sit,
30:38
Speaker 2: you know, two months and change in, we're off about
30:41
Speaker 2: a half percent. So always important to keep that content.
30:44
Speaker 5: Now, if you're a.
30:45
Speaker 4: Well diversified investor, sixty forty, you're up. You're doing better
30:48
Speaker 4: almost a percentage point, right, And I'm rounding here a
30:50
Speaker 4: little bit over someone who's one hundred percent equities. Just
30:53
Speaker 4: using broad market benchmarks. It's been a while since you
30:56
Speaker 4: could say, really diversification works.
30:58
Speaker 2: Yeah, we're gonna take a quick break here on the
31:00
Speaker 2: Financial Exchange. When we come back, we're we're talking a
31:03
Speaker 2: little bit about the US government pausing a massive commercial
31:06
Speaker 2: real estate sale, and a little bit more on some
31:09
Speaker 2: of these tax cuts.
31:10
Speaker 5: Right after this break, miss any of the show.
31:13
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31:34
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31:44
Speaker 2: The US government has hit pause on a massive commercial
31:48
Speaker 2: real estate sale. Hundreds of federal office buildings were expected
31:52
Speaker 2: to go on sale in Washington, DC and around the country,
31:55
Speaker 2: but those sales have been paused for the moment. What
31:58
Speaker 2: was being mentioned was four hundred forty federal buildings would
32:01
Speaker 2: be sold in the near term here, but there was
32:05
Speaker 2: a tremendous amount of criticism from workers, elective officials, and others,
32:09
Speaker 2: and since then there has been a pause. Some of
32:12
Speaker 2: the buildings in question that we're going to be potentially
32:15
Speaker 2: put up for sale includes the DC headquarters of the FBI,
32:20
Speaker 2: Labor Department, and Department of Health Human Services, but all
32:25
Speaker 2: of these have been taken off the table for the
32:28
Speaker 2: time being, just to give a little bit more time
32:31
Speaker 2: before they are I guess to be relisted again by
32:35
Speaker 2: the General Services Administration.
32:37
Speaker 5: Here.
32:38
Speaker 2: This accounted for about eighty million square feet of space,
32:41
Speaker 2: these four hundred and forty billions that were being mentioned.
32:43
Speaker 4: Maybe they should start opening this stuff up for comment
32:46
Speaker 4: a comment period, which government agencies often do before announcing
32:50
Speaker 4: a policy and then having to reverse it within a day.
32:53
Speaker 4: This phenomenon is something we talked about in an earlier segment. Today,
32:57
Speaker 4: with respect to tariffs, they announce some tariff policy, presumably
33:01
Speaker 4: pursuant to a goal, The market balks, and.
33:05
Speaker 3: Then they retreat. Same thing here.
33:08
Speaker 4: Some stakeholders balked, and they do a oneint eighty within
33:12
Speaker 4: a few minutes. Stick with it, guys, it probably needs
33:16
Speaker 4: to be done. The federal government hasn't fundamentally reevaluated it's
33:21
Speaker 4: real estate assets. It does it on the margin year
33:23
Speaker 4: to year, but for a very long time they probably
33:26
Speaker 4: are seriously over real estated. That is not a term,
33:30
Speaker 4: but you know what I mean. Just stick with it again.
33:33
Speaker 4: The irresolute skittishness here really puzzles me compared to the
33:39
Speaker 4: administration's initiatives, as I mentioned in the interest to giving
33:43
Speaker 4: them some credit in some areas on immigration, where they
33:45
Speaker 4: don't care what anybody thinks. They're just plowing full steam
33:49
Speaker 4: ahead and seem to be getting the job done. Why
33:52
Speaker 4: not share the same determination in some of these other
33:54
Speaker 4: areas instead of turning tails so quickly. I don't understand
33:57
Speaker 4: their economic policy on.
33:59
Speaker 2: The federal buildings lot of things. You certainly can take
34:01
Speaker 2: a little bit more of a wait and see approach
34:03
Speaker 2: with selling real estate. These federal buildings in terms of
34:07
Speaker 2: the quality of them. These were you know, put up
34:11
Speaker 2: fifty years ago and there's been little done in terms
34:13
Speaker 2: of renovation to them, so the condition of them isn't
34:16
Speaker 2: very strong. But there should be some demand just based
34:19
Speaker 2: on the locations that they're in from commercial property investors
34:23
Speaker 2: to purchase them on an area where there's already some
34:27
Speaker 2: other privately owned buildings in the space that the government
34:30
Speaker 2: has plans to cancel leases on, so there will be
34:33
Speaker 2: you would think a lot of development in those areas.
34:34
Speaker 2: So we'll have to see really what this looks like,
34:37
Speaker 2: but it does probably make sense to take a pause
34:40
Speaker 2: for a moment. I mean, heck, were only a month
34:43
Speaker 2: or two into you know, a new administration. There is
34:46
Speaker 2: time to sell these and I'm in an agreement that
34:50
Speaker 2: you know, not like selling four hundred and forty buildings
34:53
Speaker 2: is going to make a huge mark on the deficit
34:56
Speaker 2: or anything like that, but some prudent cut may makes
35:00
Speaker 2: some sense there.
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36:08
Speaker 2: House Republicans have called for a eight hundred and eighty
36:11
Speaker 2: billion dollar cut in spending over the next decade that
36:15
Speaker 2: may target Medicaid obviously a program that provides healthcare and
36:20
Speaker 2: services to millions of different Americans out there. I'm a
36:23
Speaker 2: little skeptical on this one mark Obviously, you know, certainly
36:27
Speaker 2: everything's on the table from a cup perspective, but this
36:29
Speaker 2: is one of the areas that seem like it was
36:32
Speaker 2: rather untouchable just going through the stance of Republicans and
36:38
Speaker 2: the campaign trail in general. It is a program that
36:43
Speaker 2: impacts eighty million people, So it is something that is
36:46
Speaker 2: a huge, significant budget item, but something that often thought
36:51
Speaker 2: by many was something that would not be touched. Obviously,
36:54
Speaker 2: this comes in contrasts or this is real likely tied
36:59
Speaker 2: to this idea of extension of the tax cuts from
37:01
Speaker 2: twenty seventeen. They are looking for areas from a budgeting
37:04
Speaker 2: standpoint to make cuts in order to allow for these
37:08
Speaker 2: lower rates to stay in for a longer period of time.
37:11
Speaker 4: We spend six trillion dollars a year. I'm rounding up
37:13
Speaker 4: a little. The deficit is two trillion. All the salaries
37:17
Speaker 4: of every government employee are only three hundred and thirty billion.
37:19
Speaker 4: You could fire them all and only save about fifteen
37:22
Speaker 4: percent of what they said they can cut to reduce
37:26
Speaker 4: the deficit. You got to start somewhere. Pain should probably
37:30
Speaker 4: be probably be equally apportioned. It would be more helpful,
37:33
Speaker 4: I think if they approach this in a more holistic
37:36
Speaker 4: way and explain that defense is going to suffer, even
37:39
Speaker 4: though it may not be a good time to do that.
37:41
Speaker 4: We do have a war raging in Europe, but it's
37:43
Speaker 4: probably going to bear the run up some of it
37:44
Speaker 4: as well as some of these other programs. Everybody's ox Paul,
37:48
Speaker 4: as the expression goes, is going to get gored a
37:51
Speaker 4: little bit. They can't flinch every time some constituency squeals.
37:55
Speaker 2: That's what it takes to make cuts, is that it's
37:58
Speaker 2: a little bit pip ye, little bit of painful. It's
38:01
Speaker 2: not something that is.
38:02
Speaker 3: No what's more painful bankruptcy.
38:03
Speaker 5: That's true.
38:04
Speaker 2: That's all the time that we have for the first
38:06
Speaker 2: hour of the Financial Exchange, But we've got a ton
38:08
Speaker 2: more to get to, including proving the jobs report for
38:11
Speaker 2: tomorrow and much much more in the second hour.
38:13
Speaker 5: Stick with us,