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Why independence for the Federal Reserve is essential · The Financial Exchange Show

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1:10
Speaker 2: A number two here on the Financial Exchange. Chuck Mark
1:14
Speaker 2: and Tucker with you, and we got stock selling off today,
1:18
Speaker 2: with most of that selloff concentrated in the tech sector.
1:22
Speaker 2: The tech heavy NASDAK down two point zero six percent,
1:25
Speaker 2: three hundred and forty five points. The S and P
1:27
Speaker 2: five hundred down sixty one points, are about one in
1:29
Speaker 2: a one point one percent. The Dow Jones Industrial Average
1:33
Speaker 2: down one hundred and thirty two points are about a
1:35
Speaker 2: third of a percent, so not too much movement in
1:37
Speaker 2: the Dow, but the SMP and NASDAK struggling a little
1:40
Speaker 2: bit more tenure. US Treasury not moving it all today.
1:45
Speaker 2: Actually it's moving six tenths of a basis point, so
1:47
Speaker 2: point zero zero six percent, but it is basically stable
1:51
Speaker 2: at four point three two nine percent at the moment.
1:54
Speaker 2: The national thirty year fixed rate mortgage average currently sits
1:59
Speaker 2: at six point eight eight percent, down a tenth of
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Speaker 2: a percent as bond yields have come in a little
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Speaker 2: bit in recent days, but still higher than you know,
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Speaker 2: the six point six percent range we were sitting in
2:10
Speaker 2: a few weeks ago. When we take a look at
2:13
Speaker 2: Oil West Texas Intermediate is rallying a dollar twenty four
2:16
Speaker 2: barrel to sixty two to fifty seven right now, and
2:19
Speaker 2: the TRIPAA national average for gas prices continuing to slide
2:24
Speaker 2: down another four tenths of ascent over nine to three
2:26
Speaker 2: sixteen and nine tenths of ascent still up around nine
2:31
Speaker 2: cents over the last month in terms of what we
2:34
Speaker 2: are seeing there, and gold continuing to break out to
2:38
Speaker 2: all new all time highs up eighty three dollars and
2:41
Speaker 2: forty cents anounced to thirty three twenty three and eighty
2:45
Speaker 2: cents an ounce. So gold continuing it's absolutely just you know,
2:52
Speaker 2: ridiculous start to the year as it continues to surge ahead. Here,
2:57
Speaker 2: we got a piece in the Wall Street Journal and
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Speaker 2: it is it's titled how Supreme Court rulined could we
3:05
Speaker 2: can fed independence and shake markets? And what we're talking
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Speaker 2: about here is actually not a case that is directly
3:12
Speaker 2: related uh to the FED, but rather uh it is
3:17
Speaker 2: focused on other agencies UH that currently not agencies but
3:23
Speaker 2: other what what's the technical term mark of like what
3:26
Speaker 2: the FED is considered? It's not an agency, but it is.
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Speaker 3: Is it quasi governmental?
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Speaker 2: Yeah?
3:31
Speaker 3: Kind of these it's independent, well for now.
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Speaker 2: But what what what are they called it? Like, what
3:39
Speaker 2: would we It's the Fed's not an agency, it's a.
3:44
Speaker 3: I said, quasi independent entity. Uh I don't you know.
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Speaker 2: Let's just google that because again the distinction does matter here.
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Speaker 3: Yeah, I don't know it could be characterized that way,
3:58
Speaker 3: but yeah, well go ahead here you're the.
4:00
Speaker 2: So basically, there are a few of these different entities
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Speaker 2: that have multi member boards that oversee them. Think about
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Speaker 2: the NLRB, the FTC, the Federal Reserve, these types of entities.
4:17
Speaker 2: And there's a precedent that was set back in nineteen
4:20
Speaker 2: thirty five. It's in a case called Humphrey's Executor, which,
4:23
Speaker 2: you know, just it sounds very much out of nineteen
4:26
Speaker 2: thirty five, but the basic premise it really does. The
4:31
Speaker 2: basic premise there is that the Supreme Court at the
4:34
Speaker 2: time barred FDR from firing members of the FTC for
4:39
Speaker 2: purely political reasons. And the reason why was they were
4:44
Speaker 2: not conventional executive branch employees in this ruling. Instead, they
4:49
Speaker 2: kind of filled this quasi judicial role is kind of
4:53
Speaker 2: how they fit. So the Trump administration is challenging that ruling.
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Speaker 2: And the the reason why this is coming up is
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Speaker 2: that President Trump fired a member of the NLRB and
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Speaker 2: a member of what's called the Merit Systems Protection Board
5:12
Speaker 2: as well the MSPB, and both of those people are
5:17
Speaker 2: suing arguing that the filings are illegal by virtue of
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Speaker 2: this president from nineteen thirty five. At the moment, the
5:24
Speaker 2: Supreme Court has said, look, we're gonna let the firing
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Speaker 2: stand while we consider this, and briefs in the case
5:30
Speaker 2: were due yesterday. Now why does this matter to the
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Speaker 2: FED and financial markets potentially? And the reason why is
5:39
Speaker 2: the FED is set up similarly in terms of having
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Speaker 2: again kind of this not conventional executive branch appointee role.
5:51
Speaker 2: It's a different setup than you typically see. And this
5:56
Speaker 2: forms kind of the basis for the idea that the
6:00
Speaker 2: FED is completely independent and operates, you know, kind of
6:05
Speaker 2: beyond you know, the whims of any politician who sits
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Speaker 2: in the oval office. The reason that this matters is,
6:14
Speaker 2: let's look at, you know, a few hypothetical situations. Let's
6:18
Speaker 2: say that the FED is determined or let's say it's
6:22
Speaker 2: determined that the president can fire members of the FED
6:26
Speaker 2: at any point in time for purely political reasons. So
6:31
Speaker 2: things that you can do, then you can appoint exactly
6:33
Speaker 2: who you want, whenever you want, basically, as long as
6:35
Speaker 2: you have control of the Senate, because FED chairs are
6:38
Speaker 2: Senate confirmed and pretty much what it allows you to
6:42
Speaker 2: do then is to have more direct control over monetary
6:46
Speaker 2: policy from the White House. Now, some of you listening
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Speaker 2: might be like, hey, it's not a bad thing, like
6:53
Speaker 2: President Trump might be great at doing this. Some of
6:56
Speaker 2: you listening might be saying, hey, I don't want President
6:58
Speaker 2: Trump to be doing this. Forget about like your specific
7:01
Speaker 2: politics for just a second, and now remember them in
7:05
Speaker 2: a different way. Actually, imagine that the person who you
7:09
Speaker 2: would least like to be president has this power. For
7:14
Speaker 2: some of you, that might be Bernie Sanders. For some
7:17
Speaker 2: of you, that might be Fidel Castro, For some of
7:20
Speaker 2: you it might be an alien from Mars, whoever it
7:23
Speaker 2: might be. But imagine that someone that you really really
7:27
Speaker 2: don't want to be president has the power to set
7:30
Speaker 2: monetary policy. Would you feel comfortable with that level of
7:36
Speaker 2: power vested in them to make those decisions for the
7:41
Speaker 2: country as a whole. How much power are you comfortable
7:45
Speaker 2: giving to one person if they don't share your views.
7:49
Speaker 3: FED hasn't always been independent, only since nineteen fifty one
7:52
Speaker 3: and even after nineteen fifty one. Prior to that they
7:55
Speaker 3: were charged. Let me step back. Congress has the power
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Speaker 3: to create money. Congress gave that power to this independent entity.
8:01
Speaker 3: It was invested in the executive but it's an article
8:03
Speaker 3: one power. Google it very easy to read. Congress coins
8:06
Speaker 3: the money. They said, much like with regulating these specialized areas,
8:12
Speaker 3: we're going to farm this one out with oversight. We're
8:15
Speaker 3: gonna farm it out. We need expertise. So they created
8:17
Speaker 3: the FED in nineteen thirty. There were other central banks
8:20
Speaker 3: and various presidents vetoed or vetoed bills to recharter them, etc.
8:26
Speaker 3: The result was usually calamity. So after a long and
8:29
Speaker 3: painful experience, we created a FED in nineteen thirteen. After
8:32
Speaker 3: World War Two and the big inflation that followed. It
8:35
Speaker 3: was brief, but it was big. The FED broke away
8:37
Speaker 3: from the Treasury. No, we're not going to print money
8:39
Speaker 3: to buy debt. The FED gradually became more independent over
8:43
Speaker 3: the next thirty years. It culminated in Paul Voker, who
8:45
Speaker 3: Jimmy Carter appointed Ronald Reagan reappointed. So bipartisan agreement that
8:50
Speaker 3: an independent, assertive FED with the power to squash inflation
8:53
Speaker 3: was a good thing. So start with that premise. An
8:55
Speaker 3: independent FED is a good thing. You've got to accept that.
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Speaker 3: Every researcher who's ever looked at the issue globally as
9:00
Speaker 3: found inflation is higher when independence is lower, or said differently,
9:04
Speaker 3: the more political control over a central bank, which is
9:07
Speaker 3: what the FED is.
9:07
Speaker 2: And isn't the reason why because every politician wants lower rates.
9:10
Speaker 3: What are you going to do raise rates? If you're
9:12
Speaker 3: a politician, what are you nuts?
9:14
Speaker 2: Right?
9:14
Speaker 3: But they're gonna print money?
9:15
Speaker 2: Here's how how would it affect my reelection chances if
9:18
Speaker 2: I raised interest rates?
9:20
Speaker 3: No politics? And we've had recent experience with this with
9:22
Speaker 3: Richard Nixon keeping pressure on his buddy Arthur Burns, who
9:26
Speaker 3: was also a very accomplished economist and well known, you know,
9:29
Speaker 3: in economic circle. So he wasn't some hack even he
9:32
Speaker 3: couldn't resist at first Richard Nixon, and we had as
9:34
Speaker 3: a result, a bigger inflation in the seventies than we
9:36
Speaker 3: probably otherwise would have. It wasn't the sole culprit, there
9:40
Speaker 3: were many, but it contributed to it. So it took
9:42
Speaker 3: us like almost fifty years to get to this point.
9:47
Speaker 3: So whatever you think, Chuck as you said, and I
9:49
Speaker 3: think you put it perfectly. Whatever you think about a
9:53
Speaker 3: particular individual's competence, imagine someone who's not competent. It's like
9:56
Speaker 3: you may think that all these expansions of executive I'll
9:59
Speaker 3: give you a parallel. Maybe your thing is not monetary policy.
10:02
Speaker 3: Maybe your thing is executive power. I'll say what I
10:05
Speaker 3: think somebody said at the Constitutional Convention, George Washington, sitting there,
10:08
Speaker 3: they're designing the executive and they he said, don't look
10:11
Speaker 3: at that man, he's perfect. Think of a scoundrel in
10:14
Speaker 3: that office where you're designing the executive right. And that's
10:16
Speaker 3: what you have to keep in mind when you're thinking
10:17
Speaker 3: about the FED.
10:18
Speaker 2: Imagine if you get stuck with me as president, do
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Speaker 2: you want to give me that power? I don't.
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Speaker 3: Any one of us doesn't have, you know, perspective, No,
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Speaker 3: any one person, which is the value of checks and
10:31
Speaker 3: balances feedback.
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Speaker 2: So this is something where I don't know the exact timeline.
10:35
Speaker 2: It's probably going to be, you know, in the next
10:38
Speaker 2: month or so that we end up getting a ruling
10:40
Speaker 2: on this, but it has the potential if the Supreme
10:44
Speaker 2: Court rules that you know, members of these boards are
10:47
Speaker 2: able to be fired by the president, it has the
10:51
Speaker 2: potential to shake up monetary policy in a way that
10:53
Speaker 2: we have not seen in our lifetime.
10:57
Speaker 3: It's unclear what he would do. Would he appoint himself,
11:00
Speaker 3: I don't think so. Probably big job. Would he appoint
11:02
Speaker 3: Kevin Walsh is a name that's been bandied about. That's fine.
11:05
Speaker 3: He's a respected Uh, he's not quite a researcher.
11:08
Speaker 2: But very well may be the next FED chair. Anyways,
11:10
Speaker 2: when Powell turns rights up?
11:12
Speaker 3: Why turn the markets upside down by firing Powell and
11:15
Speaker 3: creating the uncertainty?
11:16
Speaker 2: It's more it's not even the specific decision around what
11:20
Speaker 2: the president may or may not do now, it's much
11:25
Speaker 2: more the can of worms than it opens about what
11:27
Speaker 2: any president could do at any point in time.
11:31
Speaker 3: Yeah, and it's one of those issues, Chuck, that's so
11:32
Speaker 3: obscure and inaccessible. I wouldn't know a thing about it
11:36
Speaker 3: if I didn't kind of do this for a living
11:37
Speaker 3: and wasn't interested. But guy, what the.
11:40
Speaker 2: Average AMERICANUS there one hundred thousand other things they're thinking
11:43
Speaker 2: about before this.
11:44
Speaker 3: Now you ask ask a person on the street, what
11:46
Speaker 3: is the.
11:46
Speaker 2: Fence they should like? They spend their time worrying about.
11:49
Speaker 3: It, but it is critically important. There's probably a teachable
11:51
Speaker 3: moment here. We may have to lose FED independence to
11:54
Speaker 3: remember why we fought so hard to get it, just
11:57
Speaker 3: like with some of these other I don't want to
11:59
Speaker 3: vergin sort the political, but sometimes you got to lose
12:02
Speaker 3: rights to appreciate them and fight to get them back.
12:05
Speaker 3: That maybe where we end up with the FED. I
12:08
Speaker 3: hope we don't have to learn that lesson again.
12:10
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12:16
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12:31
Speaker 2: So Boeing has had kind of a bad decade.
12:41
Speaker 3: Yeah, century maybe so far, not a full century, No,
12:45
Speaker 3: I be will No, Yeah, it's been I mean look,
12:47
Speaker 3: the stock as it sits right now is at one
12:49
Speaker 3: hundred and fifty five bucks a share.
12:50
Speaker 2: It was basically there in November of twenty fifteen. So yeah,
12:55
Speaker 2: they've had kind of a bad decade. The vast majority
12:59
Speaker 2: of it has been of their own creation, through the
13:04
Speaker 2: mismanagement of the seven thirty seven Max program that led
13:07
Speaker 2: to two of those planes crashing. Some of it has been,
13:13
Speaker 2: you know, factors outside their control. Obviously, the whole pandemic
13:16
Speaker 2: disrupted air travel and this and that, and now they're
13:18
Speaker 2: once again facing something outside their control. Where Boeing is
13:23
Speaker 2: sitting there and they're going, okay, So, yes, we manufacture
13:27
Speaker 2: these planes in the United States, but a lot of
13:29
Speaker 2: our suppliers are located in foreign countries. You know, We've
13:33
Speaker 2: got a company that makes this part of the plane
13:36
Speaker 2: is in Mexico, this part's in Canada, this parts in Switzerland.
13:39
Speaker 2: We ship it to South Carolina and boom, he got
13:41
Speaker 2: a seven eighty seven.
13:42
Speaker 3: Boom.
13:43
Speaker 2: The thing is, those inputs are now being taxed for them.
13:47
Speaker 3: Whoops.
13:48
Speaker 2: So you've got higher input costs. On the other side,
13:51
Speaker 2: China announced yesterday, Hey, we're pausing all deliveries of Boeing
13:55
Speaker 2: jets and now you don't have you know, those deliveries
13:58
Speaker 2: potentially happening. They've got enough of a backlog where they
14:01
Speaker 2: can work around that in the short term. But you
14:03
Speaker 2: also are you know, figuring, hey, when I'm sure there's
14:06
Speaker 2: one plane that's on the assembly line that you're painting
14:08
Speaker 2: in you know whatever Chinese airline livery that you're you know,
14:11
Speaker 2: painting on there. Now you got to go back and
14:13
Speaker 2: repaint and you know maybe the chair you got to
14:15
Speaker 2: redo the interior because it's you got to deliver it
14:17
Speaker 2: to a new.
14:18
Speaker 3: Ship missing a few parts.
14:21
Speaker 2: I'm kidding, I don't know how, but you know anyways,
14:24
Speaker 2: So here's the big thing is Boeing is really being
14:27
Speaker 2: squeezed right now because their costs are going up. A
14:30
Speaker 2: major market is saying, hey, we're close to you at
14:34
Speaker 2: the moment. And this is after years where you know,
14:38
Speaker 2: the environment's been really challenging for them to operate in again,
14:41
Speaker 2: some of their own doing and some of not. But
14:45
Speaker 2: you sit there and you're kind of like, what what
14:47
Speaker 2: what what do you like? What's what's the path to
14:49
Speaker 2: Boeing just having like a good old boring path forward here,
14:54
Speaker 2: and it's it's kind of hard to see what that
14:56
Speaker 2: looks like for them at this point. It's just a mess.
15:00
Speaker 3: Yeah, that's kind of the writ small or is it
15:02
Speaker 3: writ large if you're talking about smaller companies whatever, it's
15:05
Speaker 3: representative is my part right every company, we don't make
15:08
Speaker 3: stuff in finance obviously, so we're in somewhat at least,
15:11
Speaker 3: I am somewhat of a bubble. We talk to investment
15:13
Speaker 3: managers who buy companies that make stuff, and it's very
15:16
Speaker 3: revealing to reconnect with the real world people who order
15:21
Speaker 3: physical inputs and have to think about the their sales
15:25
Speaker 3: not just six months or a year, but two, three,
15:28
Speaker 3: five years out. Sure, it's all visibility is always cloudy.
15:32
Speaker 3: It's especially so now. One sympathizes with Boeing, but it's
15:36
Speaker 3: not just their predicament. They're just, I guess, uniquely hampered
15:39
Speaker 3: by all of this. I don't know what else to say.
15:41
Speaker 3: It's not a really deep insight.
15:43
Speaker 2: I liked it, though, It's fine. The other thing that's
15:46
Speaker 2: interesting in this is okay, So let's say that China
15:51
Speaker 2: decides that they're going to keep this you know, probish
15:54
Speaker 2: non taking deliveries of Boeing planes going forward. There are
15:59
Speaker 2: US baseders Ge and Honeywell that are currently providing parts
16:05
Speaker 2: to China's attempt to get into the commercial jet market.
16:10
Speaker 2: If you look at the history of China trying to
16:14
Speaker 2: do this, it's messy because it's really hard to build
16:19
Speaker 2: commercial grade aircraft that meet the requirements from a safety
16:26
Speaker 2: and reliability perspective and also are cost competitive. China's been
16:29
Speaker 2: trying for decades to do this. The iteration that they
16:32
Speaker 2: have right now is something called the C nine to
16:34
Speaker 2: one nine. It's made by the Commercial Aircraft Corporation of China,
16:40
Speaker 2: and it's not something that has gained any kind of
16:44
Speaker 2: meaningful traction because basically, whenever you are flying a new airplane,
16:52
Speaker 2: there are a ton of different certifications that you need
16:55
Speaker 2: just in order for it to be able to fly
16:57
Speaker 2: in different regions, and beyond that, you also then have
17:01
Speaker 2: to get all of your pilots certified to fly. They
17:03
Speaker 2: can't just say, oh, I fly seven thirty seven, let
17:06
Speaker 2: me go fly this. So here's the thing. The deliveries
17:10
Speaker 2: that they have made to this point in three years
17:12
Speaker 2: of these planes are sixteen planes. Sixteen planes is nothing.
17:19
Speaker 2: It is a drop in the bucket bowing to sixteen
17:21
Speaker 2: planes in a week, just to like put this in
17:23
Speaker 2: perspective in terms of the scale here. So there's just
17:27
Speaker 2: not that much there as far as their ability to
17:32
Speaker 2: actually produce these. They claim that they have a thousand
17:35
Speaker 2: orders that are on file all for you know, basically
17:38
Speaker 2: Chinese airlines that are going to operate these. But they
17:42
Speaker 2: just think they can't actually deliver them in any meaningful
17:46
Speaker 2: quantity because I guess the basic way to put this
17:50
Speaker 2: is it's hard making airplanes, yo. So ultimately the question
17:56
Speaker 2: that comes out of this is, Okay, if China is
17:59
Speaker 2: going to say no bowel deliveries happening here, does the
18:02
Speaker 2: US respond in con by saying, fine, you're not getting
18:05
Speaker 2: any ge or Honeywell parts to build your domestic airplanes.
18:11
Speaker 2: Seems like turnabout spare play. But it's again, this is
18:15
Speaker 2: why this stuff is really messy, and it gets messy
18:18
Speaker 2: very very quickly.
18:19
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Speaker 4: Today.
18:59
Speaker 2: US vehicles is falling amid tariff fear buying, and basically
19:03
Speaker 2: what it shows is that over the course of the month,
19:09
Speaker 2: we have gone from ninety one days of inventory for
19:11
Speaker 2: new vehicles being available in the United States down to
19:14
Speaker 2: seventy days use vehicle supply, which is obviously different. That
19:20
Speaker 2: declined by four days to thirty nine days of inventory.
19:23
Speaker 2: And so look, we've seen an uptick in the pace
19:26
Speaker 2: of buying. We've also seen a number of companies that
19:30
Speaker 2: have said, hey, for vehicles that we are importing, we're
19:33
Speaker 2: pausing those imports right now just because we don't want
19:36
Speaker 2: to bring them in and pay the tariffs at the
19:38
Speaker 2: current twenty five percent rate. And so you've got something
19:43
Speaker 2: here that. Look for auto dealers in the short term,
19:45
Speaker 2: it's good news for them. There's no doubt about it.
19:47
Speaker 2: People are making more of these big ticket purchases. But
19:51
Speaker 2: it comes with the question of what do auto inventories
19:55
Speaker 2: look like thirty sixty days from now, and do we
20:00
Speaker 2: end up back in weird supply chain mode from twenty
20:04
Speaker 2: twenty one in some areas that then has all these
20:06
Speaker 2: ripple effects that go out into other parts of the
20:10
Speaker 2: world economy.
20:11
Speaker 3: Yeah, that's the thirty trillion dollar, which is our GDP,
20:15
Speaker 3: which is why I use that number. That's a thirty
20:17
Speaker 3: trillion dollar, it is. It's a great number. Question the
20:21
Speaker 3: havoc that these tariffs reak on various parts of the
20:26
Speaker 3: economy is just very difficult to get your mind around.
20:30
Speaker 3: Because of all the complexities and interconnectedness of suppliers, and
20:36
Speaker 3: as is referenced in the article, I don't I mean
20:38
Speaker 3: this is pulling demand forward. We could get a big
20:40
Speaker 3: pop and GDP is a result. But because it's pulling
20:44
Speaker 3: demand forward, inevitably there's going to be a vacuum on
20:47
Speaker 3: the back end of this.
20:48
Speaker 2: And these have again kind of all these weird different
20:51
Speaker 2: things that it's not linear the way that this happens.
20:56
Speaker 2: I'm going to read this quote again just because I
20:59
Speaker 2: think gets viable. This is from the Bloomberg has a
21:04
Speaker 2: podcast that they do call the Odlots Podcast, and this
21:06
Speaker 2: is from a couple of years ago when things were
21:08
Speaker 2: getting nutty and supply chain world. Oddly enough, he told
21:11
Speaker 2: a story about gelatin. They were having a hard time
21:14
Speaker 2: getting gelatin in Mexico and it's like, why can't we
21:16
Speaker 2: get the gelatin. Well, they're not slaughtering as many hogs,
21:19
Speaker 2: and they're not slaughtering as many hogs because they don't
21:21
Speaker 2: need as many hides from the hogs that they use
21:23
Speaker 2: to make cars. And they don't need as many hides
21:25
Speaker 2: because they're not making as many cars. And they're not
21:28
Speaker 2: making as many cars because there's a semiconductor shortage, and
21:31
Speaker 2: so basically the reason that we're having trouble sourcing enough
21:33
Speaker 2: gummy bears is because of a semiconductor shortage. Like, that's
21:38
Speaker 2: the weird kind of stuff that you end up seeing
21:40
Speaker 2: in these big supply disruptions. It's not just like, hey,
21:43
Speaker 2: there's not enough kias because they're imported. It's no, like
21:47
Speaker 2: we can't get like gummy bear prices are rising or
21:49
Speaker 2: you know, gummy bear supply is declining. I'm not saying
21:52
Speaker 2: that's what you're gonna see now. I'm just saying you
21:53
Speaker 2: get all these weird dislocations because it's it's rare to
21:58
Speaker 2: find one product where its impact is only felt in
22:03
Speaker 2: that specific industry.
22:04
Speaker 3: Yeah, we just take for granted how complex the global
22:07
Speaker 3: economy is and how interdependent we are. We may not
22:10
Speaker 3: want to be, but that's the state of things, and
22:13
Speaker 3: a lot of people would argue, myself included, it's made
22:15
Speaker 3: us better off on average. There are some problems. They
22:18
Speaker 3: could be corrected in different ways. This brute force approach,
22:21
Speaker 3: this sledgehammer tariff approach, it has unintended consequences, as you've
22:27
Speaker 3: pointed out, and some very foreseeable consequences too, So we'll see.
22:30
Speaker 2: What happens in the auto sector. But obviously auto dealers
22:35
Speaker 2: certainly like everything that you're hearing is that they're busy
22:37
Speaker 2: right now. One other note, just in terms of like
22:39
Speaker 2: these unintended consequences and how we don't know exactly how
22:43
Speaker 2: this is all going to play out. I was talking
22:45
Speaker 2: with a couple buddies of mine last night just about
22:48
Speaker 2: like continued, you know what's going on with tariffs. They're
22:52
Speaker 2: both in businesses where they import a bunch of stuff
22:55
Speaker 2: from China in the consumer space, and one of them
22:58
Speaker 2: is continuing to tell me, is like I'm seeing more
22:59
Speaker 2: order canceled from my retailers that buy my stuff, Like
23:04
Speaker 2: I just I'm gonna have to start laying people off.
23:06
Speaker 2: The other told me, hey, like it's not perfect, but
23:09
Speaker 2: I was actually able to negotiate a decent enough price
23:14
Speaker 2: where yeah, like my margins are going to be impacted,
23:17
Speaker 2: but my shippers are eating a ton of the cost.
23:19
Speaker 2: China is eating some of the cost, and I'm gonna
23:22
Speaker 2: have to raise prices a little, but I think I
23:24
Speaker 2: can and we can make it work on the stuff
23:27
Speaker 2: that we're importing from China. But everyone's margins are getting
23:30
Speaker 2: shredded in the process. It's like I'm getting like huge
23:33
Speaker 2: discounts from my shippers that just want to basically keep
23:36
Speaker 2: things moving because if they shut down those routes, it's
23:40
Speaker 2: like you can't operate a shipping fleet if you just
23:45
Speaker 2: stop sending ships. I know that that sounds kind of reductive,
23:49
Speaker 2: but it's what it is. Like, you're basically you have
23:52
Speaker 2: to keep the boats moving. So again kind of mix
23:56
Speaker 2: things where one business is saying, yeah, we were able
23:58
Speaker 2: to get to kind of agreement where no one's gonna
24:01
Speaker 2: be happy, but we're gonna be able to keep supplying stuff.
24:03
Speaker 2: Another one saying, yeah, I'm seeing all kinds of orders canceled.
24:06
Speaker 2: So it's it's a mixed bag. There's no one size
24:08
Speaker 2: fits all. It's different in every industry, every business, and
24:12
Speaker 2: we're seeing all kinds of different things here at the moment, at.
24:15
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25:21
Speaker 2: Mark. One of the things that we've seen in the
25:22
Speaker 2: last couple weeks now is with mortgage rates moving back up,
25:26
Speaker 2: a bigger percentage of prospective home buyers turning to adjustable
25:30
Speaker 2: rate mortgages in order to try to keep those interest
25:34
Speaker 2: rates as low as possible, at least at the outset
25:37
Speaker 2: of their loan. According to data from the Mortgage Bankers Association,
25:45
Speaker 2: the adjustable rate mortgage share for last week was nine
25:49
Speaker 2: point six percent of new loans that were applied for,
25:54
Speaker 2: and that's the highest since November of twenty twenty three,
25:57
Speaker 2: and basically like a two percent bump in the last
25:59
Speaker 2: three weeks, which is just a pretty rapid shift there
26:03
Speaker 2: now to anyone wondering, hey, is this you know, gonna
26:06
Speaker 2: come back to bite us like it did in you know,
26:07
Speaker 2: the financial crisis. Couple key differences. The first one, underwriting
26:12
Speaker 2: standards remain rock solid. Like Buy and Large, you see
26:16
Speaker 2: very very high underwriting standards, So that's one key difference.
26:19
Speaker 2: The second is still just a matter of scale. During
26:22
Speaker 2: the run up to the financial crisis, at the peak,
26:26
Speaker 2: about forty percent of all loans that were being underwritten
26:29
Speaker 2: were adjustable rate mortgages. This is still less than ten percent,
26:34
Speaker 2: so it's not comparable both in terms of the quality
26:38
Speaker 2: of loans and even the percentage of them that are
26:42
Speaker 2: adjustable rate. There's no comparison to what we were seeing
26:45
Speaker 2: in the early two thousand.
26:46
Speaker 3: Well, what's long term rates rising more than short term rates?
26:48
Speaker 3: It makes sense that more people would use this tool
26:51
Speaker 3: entirely not a surprise. Yeah, the issue is more to
26:54
Speaker 3: me not the interest rates spread during a crisis, the
26:59
Speaker 3: rate at which you may have to refinance when your
27:01
Speaker 3: loan resets, as that's important, but it's not as important
27:05
Speaker 3: as whether or not you have a job. So the
27:06
Speaker 3: real problem during the financial crisis was unemployment went up
27:09
Speaker 3: to ten ish percent. I forget whether it was closer
27:13
Speaker 3: to eleven at that point, ten point two, I think
27:15
Speaker 3: something like that.
27:16
Speaker 2: Just take a quick break here. When we come back,
27:18
Speaker 2: we'll do a little bit of stack rou lets.
27:22
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27:25
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28:00
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28:33
Speaker 2: Mark, you've been to the Coachella music Festival.
28:37
Speaker 3: Don't lie, Mark, I don't even know. I thought the
28:42
Speaker 3: way you started that sentence, I thought it was an
28:44
Speaker 3: Italian restaurant.
28:45
Speaker 2: So have you ever been to the Coachello Italian restaurant?
28:48
Speaker 3: Probably?
28:49
Speaker 2: Probably? So for those of you are not familiar with
28:51
Speaker 2: the Coachell is a big music festival out in the
28:54
Speaker 2: Coachella Valley of California, and they get I think it's
28:59
Speaker 2: like one hundred thousand people year that go out there
29:01
Speaker 2: and party it up and have you know, a great
29:03
Speaker 2: time and everything.
29:03
Speaker 3: Oh it's Spanish.
29:04
Speaker 2: Sorry, what's that?
29:05
Speaker 3: It's Spanish. I'm sorry, I don't know why I said
29:07
Speaker 3: that out loud. It's it's Spanish.
29:09
Speaker 2: What is Coachella? Okay, I guess I'm like, it's Spanish.
29:14
Speaker 3: One is.
29:17
Speaker 2: I don't know what we're doing here anyways, So it
29:21
Speaker 2: was six hundred dollars for tickets this year, but basically
29:26
Speaker 2: in order to you know, get logic and everything, the
29:28
Speaker 2: cost can be significantly higher. And this is obviously something
29:32
Speaker 2: that targets mostly people in their twenties and you know,
29:35
Speaker 2: early thirties, and the thing that is fascinating here and
29:41
Speaker 2: horrifying at the same time. Approximately sixty percent of general
29:46
Speaker 2: admission ticket buyers at this year's festival opted to use
29:50
Speaker 2: Coachella's payment plan system, which requires as little as forty
29:54
Speaker 2: nine ninety nine upfront for tickets to the annual concert.
30:00
Speaker 2: And this, obviously, you know, leads you to like the
30:03
Speaker 2: thought of, hey, if you're going to a concert and
30:10
Speaker 2: you you can't afford the tickets, you probably shouldn't be
30:15
Speaker 2: going to the concert. It's kind of a nice baseline
30:21
Speaker 2: place to be. Now, you might say, oh, you know,
30:23
Speaker 2: is it like interestory free financing and blah blah blah,
30:26
Speaker 2: And the answer is no, Like you have to pay upfront.
30:29
Speaker 2: It's a twenty dollars finance fee in order to get
30:33
Speaker 2: started on the payment plan. So you do the basic math,
30:35
Speaker 2: and that's for a three month plan, and so you say, okay,
30:38
Speaker 2: I'm paying twenty dollars on a six hundred dollars purchase.
30:41
Speaker 2: That's three percent over three months. I'm paying like twelve
30:45
Speaker 2: fifteen percent annually in order to go to this this concert.
30:51
Speaker 3: Here and.
30:55
Speaker 2: Again. Then you have, you know, other fees. There's another
30:57
Speaker 2: one that's a forty one dollar fee that gets charge
31:00
Speaker 2: by someone else on this on top of that. So
31:03
Speaker 2: all of a sudden, you're sitting here and you're like,
31:05
Speaker 2: I'm paying ten percent on over three months in order
31:08
Speaker 2: to do this payment plan. If you can't afford to
31:13
Speaker 2: go to the concert, don't go to the concert. There's
31:18
Speaker 2: gonna be another one. There's gonna be another one.
31:22
Speaker 4: Not with this lineup.
31:23
Speaker 2: Man, It's true, those people will never be there at
31:26
Speaker 2: the exact same time ever again. But it like, this
31:30
Speaker 2: is the very definition of a discretionary item. It's a
31:33
Speaker 2: six hundred dollars concert, and if you can't afford to
31:39
Speaker 2: go to it, paying you know, sixty dollars an interest
31:44
Speaker 2: over three months is not the answer.
31:47
Speaker 3: Great advice, but anybody who's hell bent on going is
31:49
Speaker 3: not gonna listen to that advice.
31:50
Speaker 2: No, I get it. I get it.
31:53
Speaker 4: Not to mention like once you get in the door,
31:55
Speaker 4: like or at the gates or whatever, like all this
31:57
Speaker 4: stuff you gotta be buying inside, like that's just for
32:00
Speaker 4: the concert you're talking about.
32:01
Speaker 2: Yeah, exactly. So I mean, look, you're easily over And
32:07
Speaker 2: don't get me wrong, Like in my twenties, I had
32:11
Speaker 2: plenty of really dumb things that I did too as well.
32:15
Speaker 2: I mean I can tell you about times where like
32:17
Speaker 2: I was twenty two years old and I'm at the
32:21
Speaker 2: casino and I'm like, well, if this one doesn't pan out,
32:23
Speaker 2: I don't know how I'm gonna pay the rent this month. Like,
32:25
Speaker 2: I get it. We've all been there, but make the
32:29
Speaker 2: mistake once and learn from it. Don't do it again, man,
32:34
Speaker 2: Cause again like we've all had like the times where
32:37
Speaker 2: we've done you know, dumb financial things, and I get it.
32:40
Speaker 2: Like I'm not trying to say that I'm better than anyone, Like, no,
32:42
Speaker 2: I I've had those same dumb things that have happened,
32:45
Speaker 2: but it's much more. Hey, learn from my dumb experience
32:48
Speaker 2: so that you don't have to experience it yourself. Wow, Yeah,
32:53
Speaker 2: I'll do that for you.
32:54
Speaker 1: Mark.
32:56
Speaker 2: What else?
32:56
Speaker 3: God, I was gonna say, we know who not to
32:57
Speaker 3: room with if we ever go on to financial exchange
33:00
Speaker 3: ursion we know who are not going to be splitting costs.
33:03
Speaker 2: With It was a long time ago, Mark, I've reformed
33:06
Speaker 2: my ways.
33:07
Speaker 3: They you know, the administrations in the spat with Harvard,
33:09
Speaker 3: We're obviously not going to get into that. I thought
33:12
Speaker 3: it was interesting though, is reported by Bloomberg, and it's
33:14
Speaker 3: a front page a web page anyway, Bloomberg story about
33:17
Speaker 3: the dependence of the Massachusetts economy. It's a little Massachusetts centric. Sorry,
33:21
Speaker 3: but this applies to other cities that host of universities,
33:25
Speaker 3: right if you're if you're listening in Rhode Island, this
33:28
Speaker 3: applies to the east side of Providence and beyond. So yeah,
33:31
Speaker 3: there are plenty of parallels. But in Massachusetts' economy has
33:35
Speaker 3: a GDP gross domestic product are the value of our
33:38
Speaker 3: goods and services of about six hundred and fifty or
33:41
Speaker 3: so billion. Colleges and universities are estimated by a study
33:46
Speaker 3: done at UMass UH to provide more than three hundred
33:49
Speaker 3: and twenty thousand jobs and generate more than ten percent
33:53
Speaker 3: of our GDP. They estimated about seventy billion dollars is
33:56
Speaker 3: poured back into the local economy by colleges and and universities.
34:01
Speaker 3: I don't know how that stacks up. Bloomberg doesn't give
34:03
Speaker 3: me the data, and I couldn't find it in a
34:05
Speaker 3: cursory Google search, but I suspect that is quite large,
34:08
Speaker 3: given the presence of big universities and the research that
34:12
Speaker 3: they do and their importance to our state. I didn't
34:14
Speaker 3: think it was anything near more than ten percent of
34:16
Speaker 3: our GDP though, so not much of us breaking story there,
34:21
Speaker 3: but a reminder, at least to those of us here
34:23
Speaker 3: and maybe elsewhere, of how intertwined local economies are with colleges.
34:29
Speaker 2: I don't know if anyone's really been paying attention to it,
34:31
Speaker 2: but there is a big antitrust trial that's going on
34:35
Speaker 2: now with Meta at the moment, and some of the
34:38
Speaker 2: stuff that is coming out during it. I've been following
34:40
Speaker 2: it over the last couple days since it kicked off,
34:43
Speaker 2: and it's kind of remarkable that they have emails from
34:47
Speaker 2: Mark Zuckerberg being like, Hey, we need to buy WhatsApp
34:51
Speaker 2: because otherwise they could really compete with us in the
34:53
Speaker 2: social network space.
34:55
Speaker 3: Whoops.
34:55
Speaker 2: You know, stuff like that.
34:57
Speaker 3: That's pretty aggressive smoking gun, And.
35:01
Speaker 2: This is exactly what we talk about when when I
35:03
Speaker 2: talk about anti trust, it's it's the fact that you know,
35:06
Speaker 2: a lot of it is almost invisible because hey, meta
35:10
Speaker 2: is a free service, Like you don't pay to use
35:12
Speaker 2: Instagram or uh Facebook or WhatsApp, And so you're like, Okay,
35:17
Speaker 2: what's what's the cost to me? But I'm a big
35:20
Speaker 2: believer that the cost is that lack of competition for
35:23
Speaker 2: users and the improvements that could come from it. And
35:26
Speaker 2: when you have companies, literally senior executives saying we need
35:31
Speaker 2: to buy these companies so they can't compete with us,
35:34
Speaker 2: it is the very definition of anti competitive behavior.
35:37
Speaker 3: I almost don't believe he could have put that in
35:39
Speaker 3: an email. I know we saw it. Yes, yes, we
35:42
Speaker 3: have seen hims beyond irresponsible and stupid. Someone at his
35:45
Speaker 3: level should know you don't put of all things that
35:47
Speaker 3: in an email like you might put that in an email.
35:50
Speaker 2: You're you're sure that he's thinking it, but you wouldn't
35:55
Speaker 2: expect him to, like you ever watched the wire thinking it?
36:00
Speaker 3: No, I haven't put.
36:01
Speaker 2: Great line in it. All the drug dealers get together
36:04
Speaker 2: and they're, you know, talking about how they're gonna get
36:05
Speaker 2: their business schooled back up, and one of the guys
36:07
Speaker 2: had taken notes and the leader goes man you're taking
36:10
Speaker 2: notes on a criminal conspiracy, right, like, that's what they did,
36:14
Speaker 2: That's what Zuckerberg did, right, right, So it's it's wild
36:18
Speaker 2: to me. I still have no idea if it's actually
36:20
Speaker 2: going to end up resulting in any consequences for Meta,
36:23
Speaker 2: because it's been a while since we've seen any consequences
36:25
Speaker 2: for big tech and any meaningful fashion. But they literally documented, Hey,
36:30
Speaker 2: we're gonna buy companies X, Y, and Z because otherwise
36:32
Speaker 2: they could compete with us. My goodness, let's take a
36:37
Speaker 2: quick break for the entire rest of the day. Hope
36:39
Speaker 2: you all have a great rest of the day, and
36:41
Speaker 2: we're back at it tomorrow with more financial exchange.